Epic Tough Love – Bell v. Igal Feibush
Every once it a while I get a case that is so epic, it erases and occupies the space of all the legal nonsense I’ve had to endure for the prior five years. The Case of the Man Who Needed Some Tough Love is just such a case.
The case involved a loan made by our client to her nephew, if you can believe it. We’ll call him Igal, because that’s his name. When Igal failed to repay his dear old Aunt, she hired us to employ a little tough love.
I’m sure 99.9999% of attorneys would have simply sued for breach of contract, and a few might have even thrown in a cause of action for fraud, arguing that Igal had never intended to repay the loan. But here’s the problem with those approaches.
Contrary to popular belief, the prevailing party to litigation does not recover their attorney fees, UNLESS there is a contract or statute that so provides. So, absent an agreement for attorney fees, if a plaintiff sues for breach of contract, the most they can recover is the amount that was owed under the agreement. All the attorney fees spent to get that amount are gone forever.
The prospects are a little better with a fraud claim, because you can recover punitive damages, but fraud is tough because the plaintiff has to prove that at the time the defendant took the money, he did not intend to repay it. Even if the plaintiff could show that defendant had no possible ability to repay the loan, given his finances, that doesn’t necessarily show fraud. He might have really been betting that his business was going to take off.
So I looked for a new way to show Igal some tough love. I found it in the form of a Criminal law, Penal Code section 496(c). Penal Code section 496(c) makes it illegal to receive stolen property, and provides for a civil action to recover any losses. We included a cause of action under that statute, arguing that Defendant had used a false pretense to obtain the money from our client. Basically, he told her he had a certain valuable trademark, and that the money from the licensing of that trademark would be used to repay the loan. The court determined that he did not own that trademark, and he made no money from its licensing.
And here’s the cherry on top of the whipped cream on top of the ice cream. That section provides that if the plaintiff prevails in proving the elements for receipt of stolen property, he or she can recover triple damages, AND attorney fees.
A quick aside for an important concept. Picture that a salesman comes to your door and sells you aluminum siding for your house for $12,000. He presents you with and you sign an agreement for the installation of the aluminum siding, you pay the $12,000, and then he never installs it. You sue for breach of contract, but during discovery you find out (1) he is not even a licensed contractor; (2) he has no access to aluminum siding; and (3) he has been sued for the same scam before. Is there anyway to punish this guy so he does not keep doing the same scam? You could add a claim for fraud, and that would give you a shot at punitive damages, but basically your damages are the same under both the breach of contract and fraud actions — the $12,000 you paid for the aluminum siding that was never installed.
But here’s the thing. If he had come to your door, put a gun in your face and stolen the $12,000, everyone would understand that was a theft. The fact that he used a bogus contract instead of a gun to steal the money from you does not make it any less of a theft. That reality is so self-evident, but it escapes many judges. Kudos to Judge James Di Cesare who understood that a theft is a theft, whether by way of burglary, robbery or bogus contract.
And now back to our story. We sued Igal, and the Judge agreed that this was more than a simple breach of contract, and amounted to receipt of stolen property (the money). Although he expressed that he didn’t like it because attorneys could start alleging breach of contract actions as thefts, he agreed that the criminal statute applied, and awarded three times the damages, and all of our attorney fees. Our client had loaned Defendant $202,500, but the total judgment was just under $700,000.
“Why,” you might ask, “did it require Aaron Morris to come along an apply this Penal Code section in this way? Granted, Aaron is brilliant and all, but the language is right there in the statute for all to see.” First, thank you for the kind words, and for engaging.
Yes, the language is right there in the Code, as obvious as the big (I prefer the term, “Romanesque”) nose on my face, but most had a conceptual problem with the ideal that a person could “receive” the same property he “stole.” We attorneys were all taught that criminals can’t be convicted both of stealing the property, and then receiving it. But that was the distinction I made. I don’t care if he stole the money from her, the fact was that the moment he failed to return it, he was in receipt of stolen property. I don’t give a good damn that he is only in possession of it because he stole it.
The even simpler answer is that there are a bazillion statutes, and it’s not like we attorneys know them all. In drafting a new statute, some legislative committee sits down and comes up with the wording. During that process, someone slapped their forehead and said, “Why don’t we add a section that allows someone to sue civilly for receipt of stolen property?” The new statute gets passed, and unless an attorney happens to see some article about the amendment to the statute, he or she carries on, oblivious to the change. As I explained in this article about reports to the police, it can take years for attorneys to learn about a new statute.
Igal Tried his Luck with the Court of Appeal
Defendant appealed the treble damages aspect of the judgment, claiming that the criminal code did not apply because he had to first be criminally convicted, and that as the party that allegedly stole the money, he could not be convicted for receiving it.
The Court of Appeal rejected his arguments, and affirmed the judgment. The Court found that the criminal statute means exactly what it says. It agreed with us that theft by false pretense (the bogus contract) is still a theft, and that even the person who steals the money is still liable for receiving it. As a topper, the Court of Appeal decided that our application of the statute, and the fact that the statute has generated no appellate decisions, made the opinion worthy of publication. In the future, when we advance this theory and encounter a judge who just can’t wrap his or her mind around the concept, we can cite to our own case as authority.
Here is the published opinion.
Let the Posturing Begin
I’ve been doing this since 1987, and the mental machinations of some attorneys are still a mystery to me. For crying out loud, Igal took $220,000 from his aunt, and didn’t pay it back. Did you think you would win? Was it your plan to prevail, and then gather around the Thanksgiving bird with Igal to give thanks about how you were able to stick it to ol’ Auntie?
I get that that it doesn’t look good that I took your client to the woodshed (you no doubt told him that my theories were crazy and not to worry about them), but now is the time for a little contrition. Let’s get this thing over with. My client gave your client $220,000, but now has a judgment in excess of $700,000. Let’s pick a number in the middle. Less than the judgment, but more than what Igal took from his Aunt. Enough to punish him a little.
But no. Before the celebratory champagne corks had even returned to earth, I got a letter from counsel for Igal, with the far too common posturing about how the judgment would not hold up. For some reason, he addressed the letter to my client, but sent it to me. This is what he wrote to my client (with my comments in red):
Your judgment is not settled. Although the Fourth Circuit Court of Appeal affirmed the judgment, my client is being courted [well that’s gotta feel good] by firms willing to take the case up to the Supreme Court [please line up to the left]. Your attorney is very intelligent [please, I’m blushing] and very skilled [oh stop], but so are many other attorneys in California [oh yeah? name five] with a higher amount of appellate experience [I’ve been doing this for 30 years, so they must be really old], one of which is a well-known appeal lawyer [Vinny Gambini?] who has been brought in by others who have noticed the case and wish to dispute what is considered an abomination of law [well I, wait . . . what now?].
I have no idea what the posturing letter was intended to accomplish. When I get one of these, I’m always reminded of my days as a professional, middle-school tetherball player. I’d win the match, and my opponent would say, “Yeah, well, you’re ugly.”
An appeal to the California Supreme Court is not automatic. An appellant has to convince the court (by means of a Petition for Review) that the issue is so important that the court should hear the appeal. Most of the time there is no Petition for Review, and out of all the Petitions that are filed, less than 5% are taken up by the court. Most of those are in criminal matters. A threat to take a matter to the Supreme Court is almost always a toothless (and embarrassing) threat.
Nothing to see here.
Then came a motion to depublish the opinion of the Court of Appeal. All opinions are published in the sense that they are, well, published, but in legal parlance the appellate courts decide which cases can be cited as legal authority; those are referred to as “published opinions.” If a published opinion is then “depublished,” the opinion still stands, but it can no longer be cited as authority in subsequent matters.
An attorney with no relation to the action or parties filed a letter brief requesting that my hard-earned opinion be depublished, stating that it was neither “fair or soundly reasoned.” Easy there buddy, that’s my reasoning you’re talking about, as well as Judge James Di Cesare (clearly an outstanding legal mind since he agreed with me) and Justices Fybel, Aronson and Presiding Justice O’Leary (ditto).
Well Mr. Not Soundly Reasoned, you concede that victims of theft “indisputably have standing” to bring a civil action under section 496(c), but you assert such action is available only after a defendant has first been criminally convicted for theft. So you agree that the award of treble damages is appropriate (at least under the Legislative intent) where a theft has occurred. If it is appropriate to award treble damages when there has been a theft, how does it become inappropriate if the theft is only proven civilly? Why should a victim’s damages turn on whether the police arrest and the District Attorney prosecutes? Who’s not soundly reasoned now?
Well, Igal tried to appeal to the Supreme Court, but it determined that our verdict was not an abomination, and not only DENIED the request to depublish the opinion, but on its own motion ruled that it would not review the opinion of the Court of Appeal and, to put a fine point on it, stated that “the matter is now final.” I took that to mean the Supreme Court was saying, “Mr. Morris’ legal reasoning is the best we have encountered since California became a state, and there is no way we would ever presume to review it even if you ask us to,” but I could be reading too much into it.
I guess all the appeal attorneys who were courting Igal will now take their chocolates and flowers and go home.
[UPDATE:] A schism formed in Court of Appeal opinions, with some courts properly holding that my reasoning was correct in Bell v. Feibush, and other courts inexplicably finding that I was crazy with the heat.
These are the sort of cases taken up by the Supreme Court; where the lower courts are coming to different conclusions and the law needs to be settled. The opportunity to clear up the dispute arose in a case called Siry Investment, L.P. v. Farkhondepour.
The Supreme Court compared Bell to three other cases, including the Court of Appeal’s holding in Siry Investment. The lower court had found that the plaintiff could not recover treble damages and attorney fees:
[A] literal and broad reading of the statute “would transmogrify the law of remedies” for the torts of fraud, misrepresentation, conversion, and breach of fiduciary duty. (Siry, supra,45 Cal.App.5th at p.1135.) The court noted that the traditional damages remedy for these torts has been limited to the amount of actual damages caused by the perpetrators. (Ibid.) Affording treble damages in such settings, the appellate court asserted, “would all but eclipse these traditional damages remedies.” (Id., at p.1136.)
On that basis and others, the Court of Appeal completely rejected my application of Section 496(c), holding that “section 496(c) applies generally when there is evidence that “property” has been the subject of theft — but the statute does not apply in ‘theft-related tort cases’ involving fraud, misrepresentation, or breach of fiduciary duty.”
The Court of Appeal reached the (crazy, if you ask me) conclusion that section 496(c)’s “language sweeps more broadly than its intent,” and hence must be understood, despite its unambiguous words, to withhold “the remedy of treble damages for torts not involving stolen property.”
In other words, the court concluded that Section 496(c) doesn’t mean what it says, and a contrary meaning must be applied to the unambiguous words. Wow. Just because they wear black ropes does not mean they are smart.
The Supreme Court reversed the opinion of the Court of Appeal, holding that my reasoning was the correct reasoning:
The judgment is reversed to the extent the appellate court declined to read section 496(c)’s words in their full and natural manner, by construing that subdivision to withhold, rather than afford, treble damages and attorney’s fees when, as here, property “has been obtained in any manner constituting theft.” (§496(a).)
And with that opinion, I (call me “the Transmogrifier”) scored a perfect hat trick. The trial court, Court of Appeal, and now the Supreme Court have expressed concerns about my application of section 496(c). As Justice Groban felt compelled to note in a concurring opinion:
If, as a result of the majority opinion’s holding, most consumer or commercial transactions could now be transformed into a “theft” case seeking treble damages—including, for example, every conceivable type of claim premised upon wage and hour laws, false advertising laws such as the unfair competition law or Consumers Legal Remedies Act, warranty laws such as the Song-Beverly Consumer Warranty Act, or real estate or mortgage lending disputes—I might find such a result to be contrary to legislative intent. But I do not believe it is likely that section 496 will apply in most cases concerning consumer or commercial transactions, and I do not read the majority’s opinion to suggest otherwise. And, as the majority notes, if the Legislature finds the treble damage remedy to be problematic where it does apply, the Legislature may amend the statute accordingly.
