Siry Investment, L.P. v. Saeed Farkhondehpour

This is the fourth appeal in this longstanding lawsuit, and

challenges a $7 million default judgment entered after the trial

court issued terminating sanctions. Among the many issues

raised by the parties on appeal, three present significant legal

questions: (1) May a trial court issue terminating sanctions when

the discovery a party contumaciously refuses to provide

encompasses fewer than all the issues in a case; (2) May a party

in default file a motion for new trial raising “[e]rror[s] in law,”

including the inapplicability of certain remedies under the

allegations as pled; and (3) May a trial court award treble

damages and attorney fees under Penal Code section 496,

subdivision (c), in a case involving the fraudulent diversion of

business funds rather than trafficking in stolen goods?

On the first question, we conclude that a trial court is not

foreclosed from issuing terminating sanctions just because the

underlying discovery encompasses only a subset of the issues in

the case. On the second question, we conclude that a party

against whom a default has been entered may file a motion for

new trial attacking the default judgment as containing “error[s]

in law.” And on the third question, we conclude that Penal Code

section 496, subdivision (c) only authorizes an award of treble

damages or attorney fees when the underlying conduct involves

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trafficking in stolen goods; in so doing, we respectfully part ways

with Switzer v. Wood (2019) 35 Cal.App.5th 116 (Switzer), which

holds to the contrary.

After considering all of the parties’ arguments in these

consolidated cross-appeals, we affirm the entry of terminating

sanctions but modify the judgment to eliminate the awards of

treble damages and attorney fees.

FACTS AND PROCEDURAL HISTORY

I. Facts1

In 1998, Moe Siry, Saeed Farkhondehpour

(Farkhondehpour), and Morad Neman (Neman) formed a limited

partnership to renovate and lease space in a mixed-use building

in downtown Los Angeles. The partnership agreement named

one general partner (namely, 416 South Wall Street, Inc. (416

South Wall Street), of which Farkhondehpour was president) and

four limited partners (namely, Siry Investment, L.P. (Siry), the

1993 Farkhondehpour Family Trust (of which Farkhondehpour

was trustee), the Neman Family Irrevocable Trust (of which

Neman was trustee), and the Yedidia Investment Defined Benefit

Plan Trust (of which Neman was also trustee)). The agreement

divvied up the partnership’s cash distributions as follows: Siry

was to receive 39.60 percent; the Farkhondehpour Family Trust,

29.70 percent; the Neman Family Irrevocable Trust, 19.80

percent; and the Yedidia plan, 9.90 percent. A separate entity—



1 As is appropriate on review of a default judgment, we draw

these facts from the allegations of the operative fifth amended

complaint, as well as documents subject to judicial notice. (Los

Defensores, Inc. v. Gomez (2014) 223 Cal.App.4th 377, 392-393

(Los Defensores); Evans v. City of Berkeley (2006) 38 Cal.4th 1, 6

(Evans).)

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namely, Investment Consultants, LLC (Investment

Consultants)—was responsible for acting as property manager,

for making the required cash distributions, and for managing the

renovations.

In 2003, Farkhondehpour, Neman, and 416 South Wall

Street created an entity named DTLA, required the building’s

tenants to pay their rent to DTLA, and through these means

started to “improperly divert rental income away from the

. . . [limited] partnership and into DTLA.” Farkhondehpour and

Neman also began to charge personal and other non-partnership

expenses to the partnership. The net effect of these actions was

to direct Investment Consultants to underpay Siry its cash

distributions. What is more, Farkhondehpour and Neman

ensured that Siry remained unaware of the underpayments by

misrepresenting to Siry the building’s rental income and the

partnership’s expenses, effectively lying to Siry about what its

cash distributions should have been.

II. Procedural Background

A. Siry’s lawsuit, first trial and reversal

In June 2007, Siry sued Neman, Farkhondehpour, 416

South Wall Street, and the trusts over which they were trustees

(collectively, defendants) for underpaying Siry and improperly

diverting the partnership’s rental income to their own coffers.2



2 Siry also sued the limited partnership, but it was not

dismissed as part of the terminating sanctions. The partnership

had since been dissolved, and Siry’s prosecution of the action

presumed that the partnership was effectively dismissed. We

presume the same.

This was the second lawsuit arising out of the partnership.

In 2003, Farkhondehpour and Neman sued Siry for breach of a

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The matter proceeded to a jury trial in October 2009. At

that time, Siry’s operative second amended complaint sought (1)

dissolution and winding up of the limited partnership, (2) an

accounting, (3) damages for breach of the agreement, and (4)

damages for breach of fiduciary duty. The jury found for Siry,

awarding actual damages of $242,975 and punitive damages of

$1.1 million against Farkhondehpour and $2 million against

Neman. The trial court denied a subsequent motion for a new

trial, but reduced the punitive damages awards to $728,925

against each Farkhondehpour and Neman.

In December 2012, we reversed the jury’s verdict. (Siry

Inv., L.P. v. Farkhondehpour (Dec. 12, 2012, B223100, B234655)

2012 Cal.App.Unpub.LEXIS 9014 [nonpub opn.].) We did so

because the special verdict form submitted to the jury did not

require the jury to specify whether Farkhondehpour and Neman

were liable to Siry individually or as trustees of the various

trusts. This defect rendered the verdict “hopelessly ambiguous”

and, because “who is liable [was] key,” necessitated a remand for

a re-trial. (Id., at *2, *4, *6-*7, *11.)

B. Issuance of terminating sanctions on remand

On remand, Siry propounded two rounds of discovery on

defendants—a first round in October 2013 and a second in

January 2014. As discussed in more detail below, defendants did

not compliantly respond to the discovery or to the trial court’s

subsequent orders to respond to that discovery without objection.



different agreement, and Siry cross-claimed for underpayment of

cash distributions from the partnership. After an arbitrator

rejected Farkhondehpour’s and Neman’s claims, Siry settled its

remaining cross-claims in 2007, with the requirement that

Farkhondehpour and Neman provide an accounting (and, if

warranted, a redistribution) of the partnership’s profits.

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In late June 2015, Siry moved for terminating sanctions

due to defendants’ steadfast refusal to respond to Siry’s discovery

requests or to obey the court’s multiple orders compelling

responses. At that time, Siry’s operative fifth amended complaint

sought (1) compensatory damages for breach of the partnership

agreement, breach of an oral contract, breach of fiduciary duty,

aiding and abetting breach of fiduciary duty, and fraud;3

(2)

punitive damages; (3) treble damages pursuant to Penal Code

section 496, subdivision (c); and (4) attorney fees under Penal

Code section 496 as well as Code of Civil Procedure section

1029.84

(on the ground that defendants were acting as unlicensed

contractors and unlicensed broker-dealers). Siry had not sought

treble damages or attorney fees prior to the first trial. Mere

weeks before filing its motion for terminating sanctions, Siry

served defendants with notices that it was seeking $4 million in

punitive damages against each of them.

Defendants opposed the motion with a brief and nearly

1,700 pages of exhibits. The court held two hearings and issued a

written order striking defendants’ answers and entering their

default.

C. Default prove-up and entry of judgment

Siry filed over 2,000 pages of documents in anticipation of

the hearing at which it would prove up its damages.

After reviewing the documentation, the court in July 2016

issued an order finding that Siry had “met its evidentiary burden



3 Siry later dismissed its breach of contract and aiding and

abetting claims.

4 All further statutory references are to the Code of Civil

Procedure unless otherwise indicated.

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as to all claims.” The court went on to enter default judgment

against defendants awarding Siry (1) actual compensatory

damages of $956,487, comprised of $534,118 in actual damages

plus $422,369 in pre-judgment interest; (2) treble damages of

$2,869,461 pursuant to Penal Code section 496, subdivision (c);

(3) punitive damages of $4 million (plus $1 against only 416

South Wall Street); (4) attorney fees totaling $4,010,008.97; and

(5) costs of $187,109.13. The total came to $12,023,067.10.

D. Reduction of damages upon a new trial motion

In August 2016, defendants filed a motion for new trial on

several grounds. Among other things (and as pertinent to this

appeal), defendants argued that the trial court had awarded

excessive damages and committed errors in law by (1) awarding

treble damages under Penal Code section 496, subdivision (c); (2)

miscalculating the treble damages award; (3) awarding a

constitutionally excessive amount of punitive damages; (4)

allowing Siry to collect both treble damages and punitive

damages, rather than requiring Siry to elect between them; and

(5) awarding Siry attorney fees under Penal Code section 496,

subdivision (c) and section 1029.8.

After Siry opposed the motion, the trial court in September

2016 partially denied and partially granted the motion. As a

threshold matter, the court ruled that defendants had standing to

make a new trial motion notwithstanding the entry of default.

On the merits, the court ruled that (1) treble damages were

properly awarded under Penal Code section 496, subdivision (c),

but (2) it had miscalculated the treble damages award (and

reduced them to $1,912,974); (3) its award of $4 million in

punitive damages was constitutionally excessive (and reduced the

damages to $1 million each against Farkhondehpour and

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Neman); (4) Siry would have to elect between treble damages and

punitive damages; and (5) attorney fees were properly awarded

under Penal Code section 496, subdivision (c) and section 1029.8.

In early October 2016, Siry filed a notice electing to collect

treble damages (rather than punitive damages).

In late October 2016, the court entered an amended

judgment against defendants, jointly and severally, awarding

Siry (1) actual compensatory damages of $956,487, comprised of

$534,118 in actual damages plus $422,369 in pre-judgment

interest; (2) treble damages of $1,912,974 pursuant to Penal Code

section 496, subdivision (c); (3) attorney fees totaling

$4,010,008.97; and (4) costs of $187,109.13. The total came to

$7,066,579.10.

E. Appeals

Defendants filed a timely appeal from the original default

judgment, and from the amended judgment. Siry filed a timely

cross-appeal from the amended judgment.5



5 Siry and Neman also filed timely appeals from the trial

court’s October 2017 order reducing the amended judgment by

the amount of costs defendants were awarded for prevailing in

the appeal of the jury’s verdict. However, none of the parties

contests the merits of the offset in this consolidated appeal.

As Siry conceded at oral argument, it argued for the first

time in its cross-reply brief that the offset order to the amended

judgment effectively constitutes a second amended judgment and

that the failure of Farkhondehpour, the Farkhondehpour Trust,

and 416 South Wall Street to file notices of appeal from the offset

order precludes them from raising any challenges in these

consolidated cross-appeals. Apart from being waived (Garcia v.

McCutchen (1997) 16 Cal.4th 469, 482, fn. 10 (Garcia)

[arguments raised for the first time in a reply brief are waived]),

this argument lacks merit: A further notice of appeal is required

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DISCUSSION

The issues raised in this appeal and cross-appeal fall into

two broad categories—namely, (1) defendants’ challenge to the

entry of terminating sanctions, and (2) the parties’ various

challenges to the amount of the default judgment. We will

address each separately.

I. Terminating Sanctions

Defendants argue that the trial court erred in issuing

terminating sanctions.

A. Pertinent facts

1. Siry’s discovery requests and the trial court’s

orders compelling responses to those requests

Following remand from this court’s ruling overturning the

2009 jury verdict, Siry propounded two rounds of discovery

relevant to this appeal.

a. October 2013 requests for document

production regarding liability

In mid-October 2013, Siry issued each of the defendants

requests to produce documents relating to, among other things,

(1) their “interest in” the partnership, the property, 416 South

Wall Street, DTLA, and Investment Consultants; (2) the

“compensation [each defendant] received from” the partnership,

416 South Wall Street, DTLA, and Investment Consultants; (3)

the partnership agreements, operating agreements, and



only when an amendment to a judgment “results in a substantial

modification of [the] judgment” (Dakota Payphone, LLC v.

Alcaraz (2011) 192 Cal.App.4th 493, 504 (Dakota)); an

“amend[ment] to add costs” is not a “substantial modification”

(id., at pp. 504-505; Sanchez v. Strickland (2011) 200 Cal.App.4th

758, 765); and the offset order merely offset costs. Neither logic

nor policy warrants treating an amendment subtracting costs

differently from one adding them.

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dissolution documents for the partnership and 416 South Wall

Street; (4) the partnership’s operating expenses, profits, losses,

income, assets, expenditures and distributions; and (5) any

payments and transfers of assets to/from Investment

Consultants, DTLA, and 416 South Wall Street. Siry requested

documents created between January 1, 2002 and December 31,

2010.

Defendants did not respond to these requests by the

production deadline.

The trial court issued four separate orders compelling

defendants to respond to these requests and to do so without any

objections. First, on Valentine’s Day 2014, the court granted

Siry’s motion to compel and ordered defendants to produce

responsive documents by St. Patrick’s Day 2014. Second, on

April 4, 2014, the trial court confirmed that its first order

required the production to be without objections and set a new

deadline of April 23, 2014. Third, on July 15, 2014, the court

once again ordered defendants to produce documents without

objections. And, fourth, on October 9, 2014, the court refused to

reconsider its third order and adopted a discovery referee’s

recommendation that defendants produce responsive documents

without objection. The court also imposed monetary sanctions of

$10,000 against Farkhondehpour and his counsel (who, at that

time, was representing all of the defendants) for their

intransigence in not complying with the court’s prior orders.6



6 We affirmed that order in Siry Inv., L.P. v.

Farkhondehpour (Sept. 5, 2017, amended Sept. 13, 2017,

B260560) 2017 Cal.App.Unpub.LEXIS 6325 [nonpub. opn.].

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b. January 2014 requests for document

production and special interrogatories regarding financial

condition

In mid-January 2014, Siry issued each of the defendants (1)

a second set of requests for document production, and (2) special

interrogatories. The document requests sought, among other

things, “[a]ll documents that relate, refer or pertain to” each

defendant’s financial accounts, tangible personal property,

intangible personal property, retirement accounts, assets,

transfer of assets, liabilities, compensation received and owed,

tax records, real property interests, financial records, interest

and dividends, and monies owed. The special interrogatories

paralleled the document requests, seeking answers regarding

each of the above listed categories of documents. Siry requested

information from January 1, 2010 to mid-January 2014. Prior to

propounding this discovery on defendants’ financial condition,

Siry sought and obtained an order authorizing such discovery

pursuant to Civil Code section 3295, subdivision (c), and making

all responses due on February 15, 2014. At the hearing on

Valentine’s Day 2014, Siry voluntarily narrowed the scope of its

document requests and special interrogatories to only those

“financial [documents] presented to third parties.”

Defendants did not respond to the narrowed requests by

the due date.

The trial court issued two separate orders compelling

defendants to respond to these requests and to do so without any

objections. First, on April 4, 2014, the court ordered defendants

to “produce responsive documents” and answer the

interrogatories without objections by April 23, 2014. Second, on

October 9, 2014, the court adopted the discovery referee’s

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recommendation that defendants respond to this discovery

without objection.

2. Defendants’ non-compliance with the trial

court’s orders

Notwithstanding the trial court’s express warning that

continued non-compliance “may result in . . . terminating

sanctions,” defendants never complied with any of the court’s

orders because, to this day, defendants have never produced

responsive documents or answered the interrogatories without

objections. Instead, defendants responded to the court’s orders

(1) by serving multiple “responses” that consisted entirely of

objections or non-compliant answers (such as “not applicable”)

without the disclosure of any documents or information, some of

which reached nearly 400 pages in length; (2) by repeatedly

challenging the court’s orders through motions for clarification,

reconsideration, relief from waiver, and a stay of discovery; or, as

to Farkhondehpour, (3) by making a last-minute offer to come

down to Farkhondehpour’s or Investment Consultants’s office to

search for documents. Worse yet, defendants’ counsel below7

engaged in tactics that can only be characterized as

underhanded: He on July 3, 2014, filed an ex parte motion for

clarification of whether the court’s earlier April 4, 2014 order

required disclosure without objections, but the motion only cited

the portion of the court’s April 4 minute order setting forth its

tentative ruling (which said objections could be made) rather than

its actual, final ruling (which said they could not); Siry was not

present at the hearing on the ex parte motion (and thus unable to

point out this misrepresentation) because counsel had not



7 Neman has been represented by new counsel since the

terminating sanctions were entered.

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properly given Siry notice of the ex parte filing; and, after the

court granted relief based on the representations in the ex parte

filing and Siry subsequently moved the court to reconsider that

relief in light of the falsity of those representations, counsel

opposed Siry’s motion.

3. Entry of terminating sanctions

In its July 2015 oral ruling and August 2015 written order,

the trial court granted Siry’s June 2015 motion for terminating

sanctions against defendants. Defendants’ “18 months of lack of

compliance” with the [discovery] requests and the multiple court

orders compelling responses to those requests, the court found,

constituted a “history” of “willful,” “flagrant,” “persistent[]” and

“deliberate” discovery “abuse.” In the court’s view, defendants’

practice of responding to Siry’s requests and the court’s orders

with “document dump[s]” and Farkhondehpour’s last-minute

offer to look in his and Investment Consultants’s warehouse for

responsive documents constituted “gamesmanship,” not

compliance. What is more, defendants’ “stall tactics” as to

discovery of “significance” to the merits of Siry’s claims and of

defendants’ financial wherewithal (as relevant to punitive

damages) “severely prejudiced” Siry “in [its] ability to properly

prepare for trial” within the statutory deadline for retrial

following remand. In light of this history of non-compliance, the

looming deadline for retrial, and ineffectiveness of the prior

monetary sanction and threat of terminating sanctions, the court

found that “a less severe sanction will clearly not now yield

compliance” because defendants’ “stall tactics would continue

even if the court were to come up with some type of lesser

sanction.”

B. Analysis

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The Civil Discovery Act (section 2016.010 et seq.) imbues

trial courts with “broad” discretion to sanction the “misuse of the

discovery process.” (Lopez v. Watchtower Bible & Tract Society of

New York (2016) 246 Cal.App.4th 566, 604 (Lopez); § 2023.030.)

As pertinent here, “misuse of the discovery process” includes (1)

“[f]ailing to respond [to] or to submit to an authorized method of

discovery, (2) “[m]aking an evasive response to discovery,” and (3)

“[d]isobeying a court order to provide discovery.” (§ 2023.010,

subds. (d), (f) & (g).) When confronted with such misuse, a court

may impose (1) monetary sanctions (§ 2023.030, subd. (a)), (2)

sanctions that deem specified issues to be “established” or that

“prohibit” the non-compliant party from raising “opposing

. . . claims or defenses” (so-called “issue sanctions”) (id., subd. (b)),

(3) sanctions that preclude the admission of evidence (so-called

“eviden[tiary] sanction[s]”) (id., subd. (c)), or (4) “terminating

sanction[s],” which include “striking [a defendant’s] answer” (id.,

subd. (d)). We review an order granting terminating sanctions

for an abuse of discretion. (Lopez, at p. 604.) Critically, our task

is to assess “whether the trial court abused its discretion in

ordering dismissal as a sanction” (Laguna Auto Body v. Farmers

Ins. Exchange (1991) 231 Cal.App.3d 481, 491), rather than

assess “‘whether the trial court should have imposed a lesser

sanction’” (Liberty Mutual Fire Ins. Co. v. LcL Administrators,

Inc. (2008) 163 Cal.App.4th 1093, 1105). We review any

subsidiary factual findings for substantial evidence. (Department

of Forestry & Fire Protection v. Howell (2017) 18 Cal.App.5th 154,

192 (Howell).)

When faced with a party’s misuse of the discovery process,

a trial court “should” impose “[t]he penalty . . . appropriate to the

dereliction.” (Deyo v. Kilbourne (1978) 84 Cal.App.3d 771, 793

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(Deyo); Reedy v. Bussell (2007) 148 Cal.App.4th 1272, 1293

(Reedy).) That is because the purpose of discovery sanctions is to

“protect the interests of the party entitled to[,] but denied[,]

discovery,” not to “punish[]” the non-compliant party or to “put

the prevailing party in a better position than he would have had

if he had obtained the discovery sought.” (Deyo, at p. 793;

Sherman v. Kinetic Concepts, Inc. (1998) 67 Cal.App.4th 1152,

1163 (Sherman); Doppes v. Bentley Motors, Inc. (2009) 174

Cal.App.4th 967, 992.) Proportionality is critical when it comes

to terminating sanctions because they altogether deny the noncompliant party a hearing on the merits and thus implicate due

process. (Lopez, supra, 246 Cal.App.4th at p. 604.)

To ensure proportionality, trial courts should generally

take an “incremental” approach—that is, they should “attempt[]

less severe alternative[ sanctions]” unless the “record clearly

shows lesser sanctions would be ineffective.” (Lopez, supra, 246

Cal.App.4th at p. 604; Howell, supra, 18 Cal.App.5th at pp. 191-

192.) In calibrating the sanction that is appropriate for the

dereliction, trial courts must make a “meaningful effort to

determine whether . . . alternative[, lesser sanctions] would be

effective” at inducing the non-compliant party to produce the

discovery, thereby “protect[ing] the interests of the party entitled

to . . . discovery.” (Lopez, at p. 606; Deyo, supra, 84 Cal.App.3d at

p. 793.) In undertaking this effort, trial courts should examine

the “totality of the circumstances,” including: (1) whether the

party’s non-compliance is the latest chapter in a longer “history of

abuse,” which looks to “the number of formal and informal

attempts to obtain the discovery” as well as whether prior court

orders compelling discovery have gone unheeded (Mileikowsky v.

Tenet Healthsystem (2005) 128 Cal.App.4th 262, 279-280

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(Mileikowsky); Lang v. Hochman (2000) 77 Cal.App.4th 1225,

1246 (Lang)); (2) whether the party’s non-compliance was

“willful” (McGinty v. Superior Court (1994) 26 Cal.App.4th 204,

212; Parker v. Wolters Kluwer United States, Inc. (2007) 149

Cal.App.4th 285, 297 (Parker)); (3) whether the non-compliance

persisted despite warnings from the court that greater sanctions

might follow (Electronic Funds Solutions, LLC v. Murphy (2005)

134 Cal.App.4th 1161, 1184 (Electronic Funds)); (4) whether the

non-compliance encompasses all or only some of the issues in the

case (Reedy, supra, 148 Cal.App.4th at p. 1293); and (5) the

extent of the “detriment to the propounding party” that flows

from the inability to obtain the discovery at issue (Lang, at p.

1246).

Because terminating sanctions are the most “drastic”

penalty, they are typically a “last resort” to be “used sparingly.”

(Howell, supra, 18 Cal.App.5th at p. 191; Lopez, supra, 246

Cal.App.4th at p. 604; Deyo, supra, 84 Cal.App.3d at p. 793.)

However, they may still be appropriate “as a first measure” in

“extreme cases” where a litigant violates a court order and

“persists in the outright refusal to comply with [its] discovery

obligations.” (Deyo, at pp. 793, 795; Howell, at pp. 191-192; Fred

Howland Co. v. Superior Court of Los Angeles (1966) 244

Cal.App.2d 605, 612 (Fred Howland).) Put differently, the

imposition of lesser sanctions is “not an absolute prerequisite” to

the imposition of terminating sanctions for violation of a court

order. (Alliance Bank v. Murray (1984) 161 Cal.App.3d 1, 10;

Deyo, at p. 787.)

The trial court in this case did not abuse its discretion in

coming to the conclusion, after examining the totality of the

circumstances, that terminating sanctions were the appropriate

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sanction for defendants’ non-compliance. Defendants have a

fulsome history of discovery abuse: They ignored Siry’s two

rounds of post-remand discovery and then flouted multiple court

orders to provide documents and responses without objection,

preferring instead to make multiple motions for clarification and

reconsideration, to bury Siry and the court with “document

dump[s],” and then to try to avoid the consequences of their

discovery misconduct by making feckless, last-minute offers to

rummage through their files for responsive documents.

Defendants’ conduct was both willful and, worse yet,

calculated: They frankly admitted, when opposing Siry’s motion

for leave to file a fifth amended complaint, that they had been

“evaluat[ing] the risk” that their willful non-compliance might

ripen into terminating sanctions vis-à-vis their maximum

exposure under the prior complaint(s). “[A] litigant’s conscious

decision to deliberately” “evade the discovery process” “based on

the perception [that] damages are limited to a particular amount”

is inimical to the orderly litigation of disputes. (Behm v. Clear

View Technologies (2015) 241 Cal.App.4th 1, 10; Electronic

Funds, supra, 134 Cal.App.4th at p. 1178.) For this reason,

Farkhondehpour’s argument that the terminating sanctions are

invalid because Siry’s otherwise timely notice fixing the amount

of punitive damages was not filed until just before Siry sought

terminating sanctions necessarily fails. Further, defendants

persisted in their non-compliance despite express warning from

the trial court that terminating sanctions were on the horizon.

As discussed more fully below, the discovery that defendants

steadfastly refused to provide covered a broad swath of issues

central to defendants’ liability and the measure of damages. And

Siry’s inability to obtain this discovery for the 18-plus months

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between its propounding and the court’s terminating sanctions

order not only deprived Siry of that information, but also left Siry

with almost no time on the clock before the three-year period for

retrial following remand expired (§ 583.310, subd. (a)(3)).

As this analysis indicates, defendants “persist[ed] in [an]

outright refusal to comply with [their] discovery obligations,”

making this one of the “extreme cases” where terminating

sanctions were appropriate in the first instance for violation of a

court order because issue and evidentiary sanctions would have

been ineffectual. (Deyo, supra, 84 Cal.App.3d at pp. 793, 795;

Howell, supra, 18 Cal.App.5th at pp. 191-192; Fred Howland,

supra, 244 Cal.App.2d at p. 612; see also Collisson & Kaplan v.

Hartunian (1994) 21 Cal.App.4th 1611, 1617-1622 [imposing

terminating sanctions as a first penalty].) Defendants’ assertion

on appeal that the trial court made only a “conclusory,”

“nominal[],” “casual,” un-“genuine[],” and “[in]sincere” effort to

evaluate lesser sanctions flatly mischaracterizes the record,

which shows that the court considered all of the circumstances

set forth above. Defendants’ further observation that the only

defendant previously subject to monetary sanctions was

Farkhondehpour overlooks that all defendants had engaged in

the same underlying discovery misconduct and that misconduct

had all been orchestrated by the same attorney; the court thus

had ample reason to find that the ineffectiveness of the monetary

sanction against Farkhondehpour (and defendants’ counsel)

applied with equal force to all defendants. And

Farkhondehpour’s contention that Siry’s motion for terminating

sanctions was defective because it, and the underlying discovery

orders he violated, were unaccompanied by a separate statement

or any due date for responses lacks merit because it ignores that

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a separate statement is not required for a motion for terminating

sanctions (Cal. Rules of Court, rule 3.1345(a)) or for a motion to

compel when there has been no response (id., rule 3.1345(b)), that

the trial court’s initial orders to compel set forth due dates, and

that its later orders without due dates merely denied defendants’

seemingly endless stream of motions for reconsideration and

confirmed the earlier orders that defendants had already

violated.

C. Defendants’ arguments

1. Are terminating sanctions available when the

underlying discovery requests do not encompass all issues in the

case?

Defendants argue that a trial court may issue terminating

sanctions against a defendant only if the discovery that a

defendant refuses to provide encompasses all of the issues to be

tried. When a defendant’s non-compliance involves anything less

than all the issues, they reason, sanctions that terminate the

entire proceeding put the propounding party “in a better position

than [it] would have [been] . . . had [it] obtained [that] discovery.”

(Deyo, supra, 84 Cal.App.3d at p. 793; Sherman, supra, 67

Cal.App.4th at p. 1163.) Thus, they conclude, the trial court in

this case abused its discretion in issuing terminating sanctions

because the discovery Siry sought reached only the discrete

issues of “alter ego” and defendants’ “financial condition,” and not

every issue in Siry’s affirmative case or defendants’ proffered

affirmative defenses of res judicata and the statute of limitations.

Farkhondehpour elaborates on this argument in his reply brief on

appeal by asserting that Siry has failed to prove its case was

prejudiced by defendants’ non-compliance. This argument lacks

merit legally and factually.

Defendants’ argument is legally flawed for three reasons.

20

First and foremost, it is inconsistent with the law

governing discovery sanctions. That law grants trial courts

“broad” discretion to consider “the totality of the circumstances”

in making the sanction fit the violation. (Parker, supra, 149

Cal.App.4th at p. 297; Lang, supra, 77 Cal.App.4th at p. 1246.)

Defendants’ proffered rule would trade this flexibility for

ossification by converting one factor—namely, the breadth of

issues involved in the discovery—from a relevant circumstance

into a dispositive one. (Reedy, supra, 148 Cal.App.4th at p. 1293.)

It would also require courts to endure “defiant disobedience” of

their orders compelling discovery if those orders pertained to

discovery addressing fewer than all the issues in a case, even

though trial courts are “not required to allow . . . abuse to

continue ad infinitum.” (Mileikowsky, supra, 128 Cal.App.4th at

p. 280; Miranda v. 21st Century Ins. Co. (2004) 117 Cal.App.4th

913, 929 (Miranda).) Not surprisingly, courts have rejected

defendants’ rule. (E.g., Miranda, at pp. 928-929 [affirming

terminating sanctions against a plaintiff for non-compliance with

order compelling discovery pertaining to causation alone].)

To be sure, some cases contain language that arguably

supports the issue-based limitation on discovery sanctions urged

by defendants. In Caryl Richards, Inc. v. Superior Court (1961)

188 Cal.App.2d 300 (Caryl Richards), the court stated that a trial

court “abuses its discretion” “when its [sanctions] order . . . denies

a party any right to defend the action or to present evidence upon

issues of fact which are entirely unaffected by the discovery

procedure before it.” (Id. at p. 305.) But the non-complying party

in Caryl Richards had complied with every discovery request and

order except an order to disclose the chemical formula of its

hairspray, which it asserted was a trade secret (id. at pp. 301-

21

305); on those facts, Caryl Richards held, a terminating sanction

went too far. Caryl Richards did not speak to parties, like

defendants here, who have steadfastly refused to comply with

multiple discovery requests or orders. Nor do any of the other

cases cited by defendants. (E.g., McArthur v. Bockman (1989)

208 Cal.App.3d 1076, 1080-1081 [party’s non-compliance limited

to information regarding its wealth; terminating sanctions held

excessive]; Wilson v. Jefferson (1985) 163 Cal.App.3d 952, 958-

959 [party’s non-compliance limited to discovery regarding

affirmative defense; terminating sanctions held excessive]; Lopez,

supra, 246 Cal.App.4th at p. 606 [party’s non-compliance limited

to information regarding other victims of sexual abuse not

involved in the case; terminating sanctions held excessive];

Thomas v. Luong (1986) 187 Cal.App.3d 76, 81-82 [party’s noncompliance limited to failure to appear for deposition, but party

offered to stipulate to liability; terminating sanctions held

excessive].)

Second, a rule prohibiting trial courts from issuing

terminating sanctions unless the discovery in question

encompasses every issue in a case would incentivize litigants to

engage in behavior that is inimical to the Civil Discovery Act’s

purposes of “‘enhanc[ing] the truth-seeking function’” of litigation

and “‘eliminat[ing] trial strategies that focus on gamesmanship

and surprise.’ [Citation.]” (Jaurez v. Boy Scouts of America, Inc.

(2000) 81 Cal.App.4th 377, 389.) On the one hand, litigants

served with discovery requests encompassing fewer than every

issue would be immune from terminating sanctions, and thus

freer to ignore those requests—or orders compelling compliance

with them—because the maximum sanction would be an issue or

evidentiary sanction. But selective lawlessness is still

22

lawlessness, and is something our system of justice does not

tolerate. (Electronic Funds, supra, 134 Cal.App.4th at p. 1178

[“[I]f a [litigant] chooses to participate [in litigation], he or she

must play by the rules.”].) This is just as true for a rule that

would enable—and hence encourage—such lawlessness by

defendants alone, for whom terminating sanctions mean an

adverse damages award. And where, as here, discovery is

propounded on remand, terminating sanctions are likely never to

be available because any post-remand discovery, to avoid being

duplicative of the discovery propounded prior to trial and appeal,

is likely to be more limited in scope (in terms of time or subject

matter). This impermissibly rewrites the Civil Discovery Act by

deleting terminating sanctions as an option after a remand. (See

Fairmont Ins. Co. v. Superior Court (2000) 22 Cal.4th 245, 250-

251 [noting that Civil Discovery Act applies post-remand].) On

the other hand, under defendants’ proposed rule, litigants

seeking to keep terminating sanctions as an available remedy

would have every incentive to propound overly broad discovery

requests, a result also at odds with the efficient exchange of

information. We decline to construe the Civil Discovery Act in a

way that creates such perverse incentives. (E.g., Pacific Sunwear

of California, Inc. v. Olaes Enterprises, Inc. (2008) 167

Cal.App.4th 466, 480.)

Third, a party seeking terminating sanctions for another

party’s discovery misconduct need not prove prejudice where, as

here, the misconduct relates to discovery the moving party

propounded. (Electronic Funds, supra, 134 Cal.App.4th at p.

1184 [rejecting argument that, absent a showing of prejudice,

terminating sanctions constitute a “windfall”]; cf. Parker, supra,

149 Cal.App.4th at p. 301 [“nonpropounding party” may obtain

23

terminating sanctions “only if . . . [it] shows it suffered a

detriment as the result of the sanctioned party’s misuse of the

discovery process”].) This rule makes sense. A prejudice

requirement would be “difficult,” if not “impossible,” for a

propounding party to meet because a showing of prejudice would

likely turn on the significance of the information that the noncompliant party is refusing to disclose. (Electronic Funds, at p.

1184.) A prejudice requirement would also empower intransigent

parties to continue their intransigence on the ground that the

documents they were withholding are not that important. As we

noted above, such selective lawlessness is still lawlessness.

Defendants’ argument is also factually flawed. Contrary to

what defendants represent in their briefs, Siry’s discovery

encompassed far more than the issues of alter ego and

defendants’ financial condition. The mid-October 2013 requests

sought documents involving the workings and finances of—as

well as each defendant’s interests in—the various entities (416

South Wall Street, DTLA and Investment Consultants) used to

effectuate the allegedly improper diversion of the partnership’s

cash distributions. The January 2014 requests sought documents

and answers to special interrogatories regarding each defendants’

finances. Together, these requests sought more recent documents

relevant to show whether defendants had, in fact, improperly

diverted the partnership’s cash distributions; to show which

defendants had done so, which, as we noted in the prior appeal,

was “key”; and to show what assets each defendant had available

to satisfy any verdict for punitive damages. Thus, these requests

spanned a broad swath of subjects that went to the heart of the

retrial that Siry, in late 2013 and early 2014, expected to

prosecute. (Accord, Rawnsley v. Superior Court (1986) 183

24

Cal.App.3d 86, 91 [discovery seeking documents that would show

that “assets have been converted and diverted” are “fundamental

to [a plaintiff’s] case”]; In re Marriage of Michaely (2007) 150

Cal.App.4th 802, 810 [discovery seeking more updated

information is appropriate].)

2. Did the trial court err in issuing terminating

sanctions notwithstanding Neman’s assertion of the privilege

against self-incrimination?

Neman alone argues that the trial court lacked the

authority to issue terminating sanctions against him once he

asserted the privilege against self-incrimination.

a. Additional facts

On September 19, 2014, a federal grand jury in Los Angeles

indicted Neman, in his capacity as Chief Executive Officer of a

company called Pacific Eurotex, for evading federal currency

reporting requirements while laundering drug trafficking

proceeds.

Although the indictment occurred long after Siry had

propounded its discovery requests, after Neman had violated

numerous court orders compelling production without objections,

and after the court’s penultimate pre-terminating sanctions

discovery order of October 9, 2014, Neman on October 22, 2014

invoked the privilege against self-incrimination in seeking a stay

of this case pending resolution of the criminal case, which the

trial court denied but then granted a continuance of the trial date

to account for Neman’s unavailability as a witness. Neman also

served on October 27, 2014 supplemental discovery responses

objecting to every request “based on his Fifth Amendment

privilege rights.” The trial court overruled that objection in its

terminating sanctions order, finding that it was “not going to

25

relitigate the basis or validity of [its pre-assertion] orders

[compelling production].”

b. Analysis

The Fifth Amendment’s guarantee that “[n]o person

. . . shall be compelled in any criminal case to be a witness

against himself” operates as a defense to civil discovery, if timely

asserted. (U.S. Const., 5th Amend.; Cal. Const., art. I, § 15;

§ 2017.010 [discovery reaches “any matter, not privileged”], italics

added; Fuller v. Superior Court (2001) 87 Cal.App.4th 299, 305

(Fuller) [“Privileged matters . . . lie beyond the reach of discovery

. . .”].) This privilege against self-incrimination reaches only

those communications that are (1) compelled, (2) testimonial, and

(3) incriminating. (United States v. Doe (1984) 465 U.S. 605, 611

(Doe).)

In assessing whether the privilege applies to excuse

compliance with the Civil Discovery Act, courts ask two

questions.

First, is the requested disclosure protected by the privilege?

Because the responses to Siry’s discovery requests would

“‘disclose the contents of [Neman’s] mind’” and therefore are

testimonial (Pa. v. Muniz (1990) 496 U.S. 582, 594, quoting

Curcio v. United States (1957) 354 U.S. 118, 128), the

applicability of the privilege here turns on whether the discovery

sought is “incriminating” and “compelled.” As a general matter, a

communication is “incriminating” if it “furnish[es] a link in the

chain of evidence needed to prosecute the claimant for a

. . . crime.” (Hoffman v. United States (1951) 341 U.S. 479, 486

(Hoffman).) And because a litigant’s “say-so does not of itself

establish the hazard of incrimination” (ibid.), the litigant bears

the burden of “object[ing] with specificity,” which triggers the

26

trial court’s duty to “‘conduct[] “a particularized inquiry, deciding,

in connection with each specific area that the [propounding] party

seeks to explore, whether or not the privilege is well-founded.’”

[Citation.]” (Warford v. Medeiros (1984) 160 Cal.App.3d 1035,

1045 (Warford), italics omitted; In re Marriage of Sachs (2002) 95

Cal.App.4th 1144, 1151 (Sachs); Alpha Media Resort Investment

Cases (2019) 39 Cal.App.5th 1121, 1133.)

In assessing whether the special interrogatories are

privileged in this case, Neman’s answers would be compelled

(because he was being compelled by the court to respond to

them), but would be incriminating only if it is “evident from the

implications of the question, in the setting in which it is asked,

that a responsive answer to the question or an explanation of

why it cannot be answered might be dangerous because injurious

disclosure could result.” (Hoffman, supra, 341 U.S. at pp. 486-

487; People v. Seijas (2005) 36 Cal.4th 291, 304.) In assessing

whether the production of documents is privileged in this case,

Neman’s creation of the documents to be produced was not

compelled because he voluntarily created those documents (Doe,

supra, 465 U.S. at p. 612), but his act of production would be

compelled (again, because he was being compelled by the court to

produce them). However, his act of production would be

incriminating only if that act “‘admit[ted]’” facts previously

unknown to Siry—namely, “‘that the [responsive documents]

existed, were in his possession or control, and were authentic.’

[Citation.]” (United States v. Hubbell (2000) 530 U.S. 27, 36.)

Second, if the requested discovery responses are found to be

covered by the privilege, what should the court do about it?

Because a pending criminal indictment does not give a person “‘a

blank check to block all civil litigation on the same or related

27

underlying subject matter,’” the trial court must “assess[]” “‘the

nature and substantiality of the injustices claimed’” by the

propounding and responding parties, and seek to “fairly balance”

their interests, preferably by “accommodat[ing]” those “competing

interests.” (Fuller, supra, 87 Cal.App.4th at pp. 306-307; Pacers,

Inc. v. Superior Court (1984) 162 Cal.App.3d 686, 690; Avant!

Corp. v. Superior Court (2000) 79 Cal.App.4th 876, 882.)

The trial court did not err in overruling Neman’s assertion

of the privilege against self-incrimination for three reasons.

First, Neman never “object[ed] with specificity.” Instead,

he responded with a blanket objection to all discovery without

any attempt to explain how any answers he would provide to the

special interrogatories or how his act of producing the requested

documents would incriminate him for crimes involving Pacific

Eurotex, a company nowhere mentioned in this litigation. Such a

“blanket refusal to testify [or provide discovery responses] is

unacceptable” and insufficient to constitute an assertion of the

privilege. (Sachs, supra, 95 Cal.App.4th at p. 1151; Warford,

supra, 160 Cal.App.3d at p. 1044 [“‘[T]here is no blanket Fifth

Amendment right to refuse to answer questions.’”].) Neman

responds that he never made a “‘blanket refusal’” because he

repeated the same boilerplate refusal for each individual

discovery request, but Neman’s mastery of the cut-and-paste

feature to refuse to answer each individual request is functionally

indistinguishable from a blanket refusal. Neman also faults Siry

for not filing a further motion to compel in order to flesh out

Neman’s defective invocation of the privilege, but the burden of

invoking the privilege is on its holder (Sachs, at pp. 1151-1152)

and we decline to adopt a rule shifting the burden onto the

opposing party to remedy a defective invocation.

28

Second, even if we ignored Neman’s defective assertion of

the privilege, Neman has not carried his burden of showing that

an “injurious disclosure could result” (Hoffman, supra, 341 U.S.

at pp. 486-487) by “demonstrat[ing] some ‘nexus’ between the

information requested [by Siry] and the risk of criminal

prosecution and conviction.” (Troy v. Superior Court (1986) 186

Cal.App.3d 1006, 1012.) Neman was indicted for various

currency transactions involving Pacific Eurotex from 2012

through 2014; the discovery sought in this case involves the

dealings of several corporations and a limited partnership—none

of which Neman contends has any associations with Pacific

Eurotex—between 2002 and 2010, as well as Neman’s financial

data from January 2010 through January 2014. The requisite

nexus is absent. Neman points to his attorney’s declaration, filed

with a motion to stay or continue the trial, that a nexus exists

because Neman was charged with money laundering and the

discovery in this case would require him to respond to questions

about his financial holdings. However, this explanation—

namely, any question about money is privileged whenever

someone is charged with money laundering—is at far too high a

level of generality to establish the requisite showing of a “danger”

of “injurious disclosure,” especially where, as here, Neman

operates numerous entities that may or may not have

intertwined financial dealings. This argument also provides no

basis for extending the privilege to the non-financial discovery

sought by Siry’s October 2013 requests for production of

documents regarding liability.

Neman asserts that he need not establish any nexus

because (1) his attorneys in the criminal matter recommended

that he assert the Fifth Amendment privilege in this case, (2) the

29

trial court has yet to conclude there is no nexus, (3) the trial court

already determined that there was a nexus because it briefly

continued the trial on the basis of his Fifth Amendment objection,

(4) a trial court in a different case stayed that case against

Neman, and (5) this court has already determined that there was

a nexus because we issued an alternative writ in 2017 directing

the trial court to sustain Neman’s Fifth Amendment objection to

six document requests (for the period starting January 1, 2015,

as limited by the trial court) posed during a 2017 debtor’s

examination.8

Each of these assertions is meritless. A trial court is

required to assess for itself whether a “nexus” exists, not just

take the word of a party’s lawyer on that issue. The trial court

never ruled on whether there is a nexus between the indictment

and Siry’s discovery because Neman never asserted a specific

objection; his assertion of an ineffectual, blanket objection does

not somehow excuse him from having to prove that his

interrogatory answers and act of producing documents posed a

danger of incriminating him. The trial court’s grant of a brief

continuance of trial was due to Neman’s unavailability as a

witness, not because responding to Siry’s pending discovery

requests might prove incriminating. (See, e.g., Evid. Code, § 240

[defining unavailability of a witness].) Whether a nexus exists

between the pending charges and the allegations of a different

case says nothing about whether such a nexus exists in this case.

And our issuance of an alternative writ with regard to specific



8 We grant Neman’s motion to augment the record and for

judicial notice of documents related to the debtor’s examination

and writ proceedings. (Evid. Code, §§ 452, subd. (d), & 459, subd.

(a).)

30

objections Neman made to different document requests covering

a different time period cannot cure the deficiency of his blanket

assertion of privilege to Siry’s discovery, particularly when

Neman ultimately withdrew his writ petition.

Lastly, even if we ignored Neman’s defective assertion of

the privilege and the absence of any nexus, Neman did not assert

his Fifth Amendment privilege until October 2014, long after Siry

propounded its discovery and the trial court repeatedly ordered

Neman to respond. In arguing that his October 2014 assertion of

the privilege renders the trial court’s terminating sanctions

ruling improper, Neman is effectively arguing that a litigant’s

assertion of the privilege against self-incrimination retroactively

excuses prior misuse of the discovery process. This argument is

legally unfounded. (Cf. Brown v. Superior Court (1986) 180

Cal.App.3d 701, 712 [“privilege against self-incrimination” may

be “waived by a failure to make a timely objection”].) It is also

factually unfounded, as the trial court’s terminating sanctions

order was based upon Neman’s contumacious conduct in ignoring

the court’s orders, and not upon any assertion of the privilege

against self-incrimination after those orders were issued. (Cf.

Alvarez v. Sanchez (1984) 158 Cal.App.3d 709, 712-713 [noting

that “striking of the defendant’s answer and the resultant default

procedure are too harsh a sanction for exercising” the privilege

against self-incrimination].) Contrary to what Neman suggests,

it also does not matter that Siry amended its operative complaint

to allege specific damages demands after he (defectively) asserted

the privilege. He had proper notice of those allegations by the

time his answer was struck and default was entered (§ 580, subd.

(a)); more to the point, Neman had the power to assert the

31

privilege more specifically after Siry amended its complaint but

nonetheless chose to rest on his defective, blanket objection.

3. Is the trial court’s finding that Farkhondehpour

never complied with its orders supported by substantial evidence?

Farkhondehpour alone argues that he did, in fact, comply

with the trial court’s multiple orders compelling responses,

without objection, to Siry’s October 2013 and January 2014

discovery requests.

Farkhondehpour certainly responded to Siry’s discovery

requests. In response to Siry’s October 2013 requests for

production, Farkhondehpour filed (1) untimely responses with

objections in February 2014 explaining why he was not going to

provide any responsive documents because the documents sought

(a) pertained to non-compensable damages (that is, damages

waived when the prior lawsuit between the parties was settled in

2007), (b) had already been produced prior to remand (but

additional copies would be made available at Farkhondehpour’s

office), or (c) did not exist; and (2) supplemental responses in

June 2015 that (a) preserved objections, and (b) explained why he

was still not going to provide any responsive documents because

the documents sought (i) had already been produced or were

otherwise in Siry’s possession, (ii) never existed, or (iii) were

“available” for inspection at Investment Consultants’s offices. In

response to Siry’s January 2014 requests, Farkhondehpour filed

(1) a single blanket objection in April 2014 explaining that he was

not going to provide any responsive documents or answer any

interrogatories because the discovery sought was “unnecessarily

burdensome, harassing and overbroad”; and (2) supplemental

responses in June 2015 that (a) preserved objections, (b)

explained that any documents responsive to the production

requests did not exist or were “available” for inspection at

32

Investment Consultants’s office, (c) provided answers to the vast

majority of the special interrogatories (54 out of the 65 posed to

Farkhondehpour individually and 80 out of the 112 posed to

Farkhondehpour as trustee) that the interrogatory was “not

applicable,” had no response, or was duplicative, and (c) provided

answers to the remaining interrogatories and attached eight

pages of spreadsheets.

Substantial evidence supports the trial court’s finding that

these responses did not constitute compliance. Farkhondehpour

was ordered to produce every document requested and answer

every special interrogatory posed without objection.

Farkhondehpour never did so. Farkhondehpour points to his

offers to open up the doors to his (or Investment Consultants’s)

warehouse for Siry to come in and hunt for documents. But this

is not what the trial court ordered. To treat Farkhondehpour’s

“[l]ast-minute tender of documents” as wiping away the prior 16

to 20 months of intransigence would impermissibly “reward

. . . brinksmanship.” (Sauer v. Superior Court (1987) 195

Cal.App.3d 213, 230.) Farkhondehpour says that he provided

Siry with financial documents pertaining to four different

companies during settlement negotiations, but those documents

constituted an infinitesimal portion of the requested discovery.

Farkhondehpour lastly asserts that Siry judicially admitted that

it had received satisfactory responses to its discovery responses;

this is a flat-out misrepresentation of the record.

II. Amount of the Default Judgment

Defendants challenge the trial court’s award of (1) treble

damages under Penal Code section 496, subdivision (c), and (2)

attorney fees. In its cross-appeal, Siry challenges the trial court’s

recalculation of treble damages, its reduction in punitive

33

damages, and its requirement that Siry elect between treble and

punitive damages on the ground that defendants lacked standing

to make the motion for new trial that prompted the court to

reduce the amount of the default judgment.9

We will address the

second issue first.

A. Standing to move for a new trial

Siry argues the trial court erred in amending the default

judgment in response to defendants’ motion for new trial not

because the amendments were incorrect, but because defendants,

as parties in default, did not have standing to make such a

motion at all. Because this argument requires us to construe the

new trial statute and resolve other questions of law, our review is

de novo. (John v. Superior Court (2016) 63 Cal.4th 91, 95 (John);

Greene v. Marin County Flood Control & Water Conservation

Dist. (2010) 49 Cal.4th 277, 287.)

An “aggrieved party” may move the trial court to “vacate[]”

a “verdict” or “other decision” and “grant[]” “a new or further

trial” if, among other reasons, that party can show an “[e]rror in

law, occurring at the trial and excepted to by the party making

the application” if that error “materially affect[ed] [its]

substantial rights.” (§ 657, subd. (7).) But may a “party” in



9 Defendants do not challenge the trial court’s calculation of

actual damages, and Siry does not challenge the court’s

requirement that Siry elect between treble and punitive

damages, the reduction in the punitive damages award, or the

offset for costs defendants incurred during the prior appeal. And

although Siry suggests that the trial court’s calculation of treble

damages was incorrect, we decline to entertain that suggestion

because Siry waited until its reply brief to raise it. (Garcia,

supra, 16 Cal.4th at p. 482, fn. 10.)

34

default move for a new trial when, by virtue of the default, there

was no trial in the first place?

We conclude that the answer is “yes,” at least when the

party is seeking to move for a new trial on the ground that the

court made an “error in law” in calculating damages. Although

the entry of default precludes the defaulting defendant from

further participation in the proceedings (and thus from

“except[ing] to” the error during the prove-up hearing) (Devlin v.

Kearny Mesa AMC/Jeep/Renault (1984) 155 Cal.App.3d 381, 385

(Devlin); Forbes v. Cameron Petroluems, Inc. (1978) 83

Cal.App.3d 257, 262; Christerson v. French (1919) 180 Cal. 523,

525), the plaintiff still bears the burden of proving its entitlement

to damages to the court. (Barragan v. Banco Bch (1986) 188

Cal.App.3d 283, 302; § 585, subd. (b).)

More to the point, the entry of default does not entirely

render a defaulting defendant persona non grata. Even a

defaulting defendant may appeal the resulting default judgment

on the grounds that the damages award (1) “is so

disproportionate to the evidence as to suggest that the verdict

was the result of passion, prejudice or corruption” (Uva v. Evans

(1978) 83 Cal.App.3d 356, 363 (Uva)), (2) “is so out of proportion

to the evidence that it shocks the conscience of the appellate

court” (ibid.), or (3) is “contrary to law” (see Lasalle v. Vogel

(2019) 36 Cal.App.5th 127, 139 [defaulting party may appeal

refusal to set aside verdict on these grounds]).

Because a defaulting defendant can appeal a default

judgment on these grounds, “[w]e see no reason to preclude [that

defendant] from seeking a new trial (or, more precisely, a new

judgment hearing) on th[ose] ground[s] . . .” (Don v. Cruz (1982)

131 Cal.App.3d 695, 704 (Don); Jacuzzi v. Jacuzzi Bros. (1966)

35

243 Cal.App.2d 1, 23-24; Misic v. Segars (1995) 37 Cal.App.4th

1149, 1154.) Allowing a defaulting party to bring excessive

damages based on errors in law to the trial court’s attention in a

new trial motion puts those potential errors before the court with

greater familiarity with the case, does so in a manner likely to

yield a faster result, and may thereby altogether obviate the need

for an appeal. (Accord, Don, at p. 705.) Our Supreme Court has

held that parties may not “challenge [a] damage award on

appeal[] without [first making] a motion for a new trial”; to do

otherwise is to “unnecessarily burden the appellate courts with

issues which can and should be resolved at the trial level.”

(Shroeder v. Auto Driveway Co. (1974) 11 Cal.3d 908, 919.) That

logic applies with equal force here.

Siry resists this conclusion with four arguments.

First, it cites language from Howard Greer Custom

Originals v. Capritti (1950) 35 Cal.2d 886 (Howard Greer), where

our Supreme Court stated that a defaulting defendant “cannot

. . . move for a new trial” because it “is out of court and is not

entitled to take any further steps in the” case. (Id. at pp. 888-

889.) Seven years later, however, the Supreme Court in Carney

v. Simmonds (1957) 49 Cal.2d 84 (Carney), retreated from

Howard Greer’s sweeping language when it held that a new trial

motion is appropriate in many different situations “except

possibly in the case of default judgments . . . where there may be

the question of the right of the moving party to make any

objection to the judgment.” (Id. at p. 90.) Because defaulting

defendants may appeal the damages award of a default judgment

in the three circumstances delineated above, they have the “right

. . . to make an[] objection to the judgment” and thus, under

36

Carney, may also move for a new trial in those same

circumstances.

Second, Siry urges that a close reading of the cases

allowing defaulting defendants to move for a new trial reveals a

four-part classification scheme, and that under that scheme, only

defendants who challenge damages as being excessive due to

insufficiency of the evidence (rather than due to legal errors) may

file a motion for new trial. This makes sense, Siry continues,

because the plaintiff at a default prove-up hearing can be faulted

only for presenting insufficient evidence but not for errors in law

made by the court. None of the cases Siry cites even hints at the

rule Siry purports to draw from them; indeed, some have nothing

to do with excessive damages at all. More to the point, Siry’s

proffered rule is wholly inconsistent with the judicial economybased rationale for allowing defaulting defendants to file a

motion for new trial as to legal errors they can challenge on

appeal because Siry’s rule would preclude new trial motions for

issues that are clearly subject to challenge on appeal. What is

more, Siry’s proffered blame-based rationale for its rule is a

fiction, as the facts of this case vividly illustrate. Siry is the

party who urged the trial court to award quadruple damages on

top of punitive damages and who then offered a spirited defense

of that position in opposing defendants’ motion for new trial,

rendering hollow its claim on appeal that plaintiffs are invariably

blameless for a trial court’s legal errors.

Third, Siry contends that a defaulting party’s right to

challenge disproportionate or legally erroneous damages awards

on appeal should, at best, authorize that party to file a motion for

relief under section 473, but not a motion for new trial. But

section 473 provides relief for mistakes made by a party or its

37

counsel (§ 473, subd. (b)) and for void judgments (id., subd. (d)),

and provides no relief for errors of law by a court in awarding

“damages which are excessive as a matter of law.” (Don, supra,

131 Cal.App.3d at pp. 702-703.) The proper vehicle for getting

such issues before the trial court that entered the default

judgment is a motion for new trial.

Fourth, Siry cites cases holding that a defaulting defendant

may not file a motion for new trial under any circumstances.

(E.g., Devlin, supra, 155 Cal.App.3d at pp. 385-386; Brooks v.

Nelson (1928) 95 Cal.App. 144, 147-148.) We respectfully part

ways with these decisions, which did not consider the rationale

we adopt—namely, that there is no reason to deprive the trial

court of the power to consider challenges to the excessiveness or

legal propriety of damages when those very same issues can

undoubtedly be raised on appeal.

In this case, defendants’ challenges to the damages

awarded in the original default judgment all constitute “error[s]

in law” properly subject to a motion for a new trial. The court’s

recalculation of treble damages reduced what was effectively

quadrupled damages down to treble damages; the court’s

reduction of the punitive damages award was grounded in the

constitutional law defining when such damages become so

excessive as a matter of law as to deny a defendant due process;

and the court’s ruling that Siry must elect between treble and

punitive damages involved construction of the law. (Cf. Seffert v.

Los Angeles Transit Lines (1961) 56 Cal.2d 498, 507 [only trial

38

court may sit as a “thirteenth juror” in evaluating the amount of

damages].)10





10 Because these reasons for granting a new trial all involve

“error[s] in law” cognizable under subdivision (7) of section 657

rather than any reweighing of the evidence (Glendale Fed. Sav. &

Loan Assn. v. Marina View Heights Dev. Co. (1977) 66 Cal.App.3d

101, 122 [distinguishing challenges to the excessiveness of

damages based on the evidence presented from a court’s “failure

to apply the proper legal measure of damages”]; Gober v. Ralph’s

Grocery Co. (2006) 137 Cal.App.4th 204, 214 [“in deciding the

constitutional maximum [for punitive damages], a court does not

decide whether the verdict is unreasonable based on the facts”]),

Siry’s belatedly developed argument that the trial court’s new

trial order is void because it cites subdivision (5) of section 657 is

not well taken. To be sure, the court cited only subdivision (5)

and that subdivision requires a trial court to “weigh[] the

evidence” (§ 657, second paragraph). But it is clear from the trial

court’s reasons for granting a new trial that the court cited the

wrong statutory ground for relief. A court’s failure to state the

proper ground for relief under section 657 does not abrogate its

reasons for granting that relief. (Oakland Raiders v. National

Football League (2007) 41 Cal.4th 624, 634 [“‘the words “ground”

and “reason” have different meanings,’” and “[t]he word ‘ground’

refers to any of the seven grounds listed in section 657”]; Previte

v. Lincolnwood, Inc. (1975) 48 Cal.App.3d 976, 988 [reviewing

court is “confined” “to the specific reason or reasons given by the

trial court for [its new trial] order”], italics added.) More to the

point, it does not void the new trial order (Sandoval v. Qualcomm

Inc. (2018) 28 Cal.App.5th 381, 421-424 [trial court’s citation to

the “wrong subdivision” of section 657 does not void new trial

order when its reason was valid under a different subdivision],

review granted on other grounds, Jan. 16, 2019, S252796; see

also Sanchez-Corea v. Bank of America (1985) 38 Cal.3d 892, 906

[trial court’s failure to specify ground for relief does not void its

new trial order]), at least where, as here, a new trial was sought

39

B. Propriety of certain damages awards

Defendants argue that the trial court erred in awarding

treble damages under Penal Code section 496, subdivision (c) and

in awarding attorney fees. When entering judgment against a

defaulting defendant, a trial court acts as a “gatekeeper,” not a

rubber stamp. (Kim v. Westmoore Partners, Inc. (2011) 201

Cal.App.4th 267, 272 (Kim); Electronic Funds, supra, 134

Cal.App.4th at p. 1179.) This is a “serious” and sober

responsibility (Kim, at pp. 272-273), requiring the court to assure

itself that the plaintiff has made a “prima facie case” showing

entitlement to each type of damages under (1) the relevant

statute, contract, or legal doctrine, and (2) the well-pled

allegations in its operative complaint. (Johnson v. Stanhiser

(1999) 72 Cal.App.4th 357, 361-362; Los Defensores, supra, 223

Cal.App.4th at pp. 392-393.) In undertaking this task, the court

must accept as true all “well-pled[] allegations” in the operative

complaint, but need not accept “contentions, deductions or

conclusions of fact or law.” (Evans, supra, 38 Cal.4th at p. 6.)

Where, as here, the relief challenged on appeal has “penal

attributes” (as both treble damages and attorney fees do (Rony v.

Costa (2012) 210 Cal.App.4th 746, 757 (Rony))), the trial court

must also require the plaintiff to “strict[ly] compl[y]” with all

statutory prerequisites for that relief (Baker v. San Francisco Gas

& Electric Co. (1904) 141 Cal. 710, 712). We independently

review a trial court’s ruling that the complaint entitles a plaintiff



on the ground corresponding with the trial court’s reasons

(Collins v. Sutter Memorial Hospital (2011) 196 Cal.App.4th 1,

16-17 [“A new trial order ‘can be granted only on a ground

specified in the motion.’”], citation omitted).

40

to damages where, as here, that ruling rests on questions of

statutory interpretation and the application of undisputed facts

to the law. (John, supra, 63 Cal.4th at p. 95; Martinez v.

Brownco Construction Co. (2013) 56 Cal.4th 1014, 1018.)

1. Treble damages and attorney fees under Penal

Code section 496, subdivision (c)

Penal Code section 496 is entitled “Receiving or concealing

stolen property.” (Pen. Code, § 496.) Subdivision (a) makes it a

crime to (1) “buy[] or receive[] any property that has been stolen

or that has been obtained in any manner constituting theft or

extortion, knowing the property to be so stolen or obtained,” or (2)

“conceal[], sell[], [or] withhold[] any property from the owner,

knowing the property to be so stolen or obtained.” (Id., subd. (a).)

Subdivision (c) empowers “[a]ny person who has been injured by

a violation of subdivision (a)” to “bring an action for three times

the amount of actual damages [he has ] . . . sustain[ed]” as well as

for “costs of suit[] and reasonable attorney’s fees.” (Id., subd. (c).)

This case presents the question: Does Penal Code section

496, subdivision (c) authorize Siry to obtain treble damages

where the underlying conduct did not involve trafficking in stolen

property, but rather the improper diversion of a limited

partnership’s cash distributions through fraud,

misrepresentation, and breach of fiduciary duty?

The courts have taken different approaches to the issue.

Siry urges that we follow Switzer, supra, 35 Cal.App.5th

116, Bell v. Feibush (2013) 212 Cal.App.4th 1041 (Bell),

Worldwide Travel, Inc. v. Travelmate US, Inc. (S.D. Cal. 2016)

2016 U.S. Dist. LEXIS 43942 (Worldwide Travel), and Allure

Labs, Inc. v. Markushevska (N.D. Cal. 2019) 606 B.R. 51, 63-66

(Allure Labs). These cases hold that treble damages are available

whenever the defendant’s underlying conduct involves any type of

41

fraudulent conduct or misrepresentation. (Switzer, at pp. 119-

120 [fraud, conversion of property; treble damages available];

Bell, at p. 1043 [theft by false pretense; treble damages

available]; Worldwide Travel, at *18-23 [conversion, theft by false

pretenses; treble damages available]; Allure Labs, at pp. 57-58

[embezzlement; treble damages available].) Their holdings rest

on a literal reading of the Penal Code: Section 496, subdivision

(a) reaches the “recei[pt of] . . . property . . . that has been

obtained in any manner constituting theft” (Pen. Code, § 496,

subd. (a), italics added), and “theft” is elsewhere defined to

include “fraudulently appropriat[ing] property which has been

entrusted to him or her” or “knowingly and designedly, by any

false or fraudulent representation or pretense, defraud[ing] any

other person of money, labor or real or personal property” (id.,

§ 484, subd. (a)), so Penal Code section 496, subdivision (c) must

authorize treble damages for any type of conduct qualifying as

“theft,” including fraud, conversion, and theft by false pretenses.

(Switzer, at pp. 126-131; Bell, at pp. 1045-1049.)

Defendants urge that we follow Lacagnina v. Comprehend

Systems, Inc. (2018) 25 Cal.App.5th 955 (Lacagnina), Grouse

River Outfitters Ltd. v. NetSuite, Inc. (N.D. Cal. 2016) 2016 U.S.

Dist. LEXIS 141478 (Grouse River), and Agape Family Worship

Ctr., Inc. v. Gridiron (C.D. Cal. 2018) 2018 U.S. Dist. LEXIS

91338 (Agape Family). For various reasons, each of these cases

has rejected Bell’s declaration that “[a]nything that could be the

subject of a theft can also be property under Penal Code section

496” (Bell, supra, 212 Cal.App.4th at p. 1049). Lacagnina viewed

Bell’s declaration as “broad dictum,” and went on to reject the

plaintiff’s argument that Penal Code section 496 applied to a

theft of labor; “that labor may be the object of a ‘theft,’”

42

Lacagnina reasoned, “does not transform it into ‘stolen

property.’” (Id. at pp. 969-970.) Grouse River and Agape Family

both rejected treble damages because, in their view, the civil

defendant’s initial “theft” of the property through fraud precluded

treble damages for the simultaneous act of receiving that “stolen”

property. (Grouse River, at *38-40; Agape Family, at *1-2, 14-15.)

We chart yet a different path in ruling that treble damages

are not available under Penal Code section 496, subdivision (c) in

cases where the plaintiff merely alleges and proves conduct

involving fraud, misrepresentation, conversion, or some other

type of theft that does not involve “stolen” property.

The “first task” of any court “in construing a statute is to

ascertain the intent of the Legislature so as to effectuate the

purpose of the law.” (Dyna-Med, Inc. v. Fair Employment &

Housing Com. (1987) 43 Cal.3d 1379, 1386.) Although “the words

of [a] statute” “[o]rdinarily” “provide the most reliable indication

of legislative intent” (People v. Vidana (2016) 1 Cal.5th 632, 638),

this “‘plain meaning’ rule does not prohibit a court from

determining whether the literal meaning of a statute comports

with its purpose.” (Lungren v. Duekmejian (1988) 45 Cal.3d 727,

735).

Time and again, our Supreme Court has refused to

“‘presume that the Legislature intends, when it enacts a statute,

to overthrow long-established principles of law unless such

intention is clearly expressed or necessarily implied.’” (Brodie v.

Workers’ Comp. Appeals Bd. (2007) 40 Cal.4th 1313, 1325,

quoting People v. Superior Court (Zamudio) (2000) 23 Cal.4th

183, 199); Van Horn v. Watson (2008) 45 Cal.4th 322, 333,

superseded by statute on another ground as stated in Ennabe v.

Manosa (2014) 58 Cal.4th 697, 719.) The reason for this refusal

43

is a pragmatic one—namely, that “[i]t is doubtful that the

Legislature would . . . institute[] . . . significant change through

silence.” (Riverside County Sheriff’s Dept. v. Stiglitz (2014) 60

Cal.4th 624, 646-647; see also In re Christian S. (1994) 7 Cal.4th

768, 782 [“reject[ing] the view that the Legislature silently enacts

major social policy”].)

In our view, reading Penal Code section 496 to authorize an

award of treble damages whenever a plaintiff proves (or, in the

case of a default, sufficiently alleges) any type of theft—whether

it be fraud, misrepresentation, conversion, or breach of fiduciary

duty—by which the defendant obtains money or property would

institute a “significant change” for two reasons.

First, it would transmogrify the law of remedies for those

torts. Until now, the damages remedy for these torts has been

limited to the amount of damages actually caused by the fraud,

misrepresentation, conversion or breach of fiduciary duty. (Civ.

Code, § 3333 [defining damages “[f]or the breach of an obligation

not arising from contract” as “the amount which will compensate

for all the detriment proximately caused thereby . . .”]; Fragale v.

Faulkner (2003) 110 Cal.App.4th 229, 236 [applying this measure

of damages to tort of fraud not involving real property]; Benson v.

Southern California Auto Sales, Inc. (2015) 239 Cal.App.4th

1198, 1208 [applying this measure of damages to tort of

misrepresentation]; Michelson v. Hamada (1994) 29 Cal.App.4th

1566, 1583 [applying this measure of damages to tort of breach of

fiduciary duty]; Persson v. Smart Inventions, Inc. (2005) 125

Cal.App.4th 1141, 1165 [“fraud damages are [calculated] under

the out-of-pocket loss rule”]; Civ. Code, § 3336 [damages for

wrongful conversion is the “value of the property at the time of

the conversion” plus “fair compensation for the time and money

44

properly expended” in its pursuit].) Treble damages under Penal

Code section 496, if held applicable to these torts, would all but

eclipse these traditional damages remedies. (Accord, Lacagnina,

supra, 25 Cal.App.5th at p. 972 [“If every plaintiff in an

employment or contract dispute could also seek treble damages”

under Penal Code section 496, “such claims would become the

rule rather than the exception”].)

Second, reading Penal Code section 496 to apply in theftrelated tort cases would effectively repeal the punitive damages

statutes. (California Cannabis Coalition v. City of Upland (2017)

3 Cal.5th 924, 945 [noting “strong presumption” against “implied

repeal”].) Until now, a plaintiff seeking greater than

compensatory damages had to prove, by clear and convincing

evidence, that the defendant was “guilty of oppression, fraud, or

malice.” (Civ. Code, § 3294, subd. (a).) If Penal Code section 496

applied to these torts, a plaintiff could obtain treble damages

merely by proving the tort itself by a preponderance of the

evidence. (Evid. Code, §§ 500, 115 [preponderance of the

evidence is the default burden in civil cases].)11

What is more, our Legislature has not shouted, stated, or

even whispered anything about Penal Code section 496 effecting

such a “significant change” to the universe of tort remedies.

Rather, the Legislature had a far more targeted goal in mind



11 Because Penal Code section 496, subdivision (c) authorizes

an award of attorney fees along with treble damages, extending

its reach beyond the context of stolen property would have a third

significant effect: It would authorize fee shifting in nearly every

tort cause involving fraud, misrepresentation, or breach of

fiduciary duty, thereby creating a gaping exception to the general

rule against such fee shifting. (§ 1021).

45

when it enacted Penal Code section 496’s treble damages

remedy—namely, “to dry up the market for stolen goods.” (Bell,

supra, 212 Cal.App.4th at p. 1047.) Penal Code section 496’s

focus on stolen goods is reflected in the statute’s title, which

specifies that it deals with “Receiving stolen property.” (People v.

Hull (1991) 1 Cal.4th 266, 272 [“‘“section headings”’” “‘are

entitled to considerable weight’” “‘“in determining legislative

intent”’”], citation omitted.) It is reflected in the traditional

understanding of the crime defined in Penal Code section 496,

subdivision (a), which requires proof that “(1) the property was

stolen; (2) the defendant knew the property was stolen; and, (3)

the defendant had possession of the stolen property.” (People v.

Land (1994) 30 Cal.App.4th 220, 223.) And it is reflected in

Penal Code section 496, subdivision (c)’s legislative history, which

is replete with discussions about how best to achieve the “goal of

eliminating markets for stolen property, in order to substantially

reduce the incentive to hijack cargo from common carriers.”

(Citizens of Humanity, LLC v. Costco Wholesale Corp. (2009) 171

Cal.App.4th 1, 17-18, overruled on other grounds as stated in

Kwikset Corp. v. Superior Court (2011) 51 Cal.4th 310, 337

(Kwikset).) Although the Legislature ultimately opted not to

limit the treble damages remedy to actions against “public

carriers,” its focus never strayed from drying up the market for

stolen goods. (Ibid., italics omitted) Because imposing treble

damages in cases alleging fraud, misrepresentation, breach of

fiduciary duty and other torts outside the context of stolen

property does nothing to “advance the legislative purpose to ‘dry

up the market for stolen goods,’” we cannot even infer any

legislative intent to affect this significant change.

46

The Legislature’s silence is even more deafening when

contrasted with other statutes that speak with a much clearer

voice in creating the extraordinary remedy of treble damages.

(E.g., Bus. & Prof. Code, § 16750, subd. (a) [treble damages

available for violations of the Cartwright Act setting state

antitrust laws]; id., § 17082 [treble damages available for

violations of the Unfair Competition Law]; Civ. Code, §§ 52, subd.

(a) & 54.3, subd. (a) [treble damages available for violations of the

Unruh Civil Rights Act]; id., § 1719, subd. (a)(2) [treble damages

available to payee for passing checks with insufficient funds]; id.,

§ 3345 [treble damages available “in actions brought by, on behalf

of, or for the benefit of senior citizens or disabled persons . . . to

redress unfair or deceptive acts or practices or unfair methods of

competition”]; Gov. Code, § 12651, subd. (b) [treble damages

available for violations of the False Claims Act]; Lab. Code,

§ 230.8, subd. (d) [treble damages available for denying

employees’ wages “to engage in child-related activities” protected

by statute]; see also 18 U.S.C. § 1964(c) [treble damages available

under the federal Racketeer Influenced and Corrupt

Organizations Act].)

Because we cannot presume that our Legislature intended

to so significantly alter the universe of tort remedies without

saying anything about its desire to do so, we conclude that Penal

Code section 496’s language sweeps more broadly than its intent

and hold that it does not provide the remedy of treble damages

for torts not involving stolen property. We recognize that

Switzer, and to a lesser extent, Bell, came to the contrary

conclusion based on their view that Penal Code section 496’s

language was controlling. Switzer took an additional step, noting

that legislative intent can sometimes trump a statute’s plain

47

language, but choosing to focus on whether extending treble

damages to all tort cases involving “theft” was such an outlandish

outcome as to be deemed “absurd.” (Switzer, supra, 35

Cal.App.5th at pp. 129-131.) As explained above, we take the

path Switzer chose not to take and conclude that Penal Code

section 496’s language diverges from the Legislature’s intent and

that its narrower intent is controlling.

Siry’s final salvo is to assert that it properly alleged a

violation of Penal Code section 496 in its operative complaint.

That may be true, but it is irrelevant because, as we now hold,

Penal Code section 496—no matter how well it is pled—does not

provide the remedy of treble damages based on the underlying

allegations in this case.

In light of the unavailability of treble damages under Penal

Code section 496, Siry’s election to receive treble damages over

punitive damages is a nullity; in its place, Siry is entitled to

receive the $1 million in punitive damages assessed against each

Farkhondehpour and Neman.

2. Attorney fees

As a general rule, California follows the so-called

“American rule” when it comes to attorney fees: Parties in civil

litigation bear their own unless a statute or contract provides

otherwise. (§ 1021; Eden Township Healthcare Dist. v. Eden

Medical Center (2013) 220 Cal.App.4th 418, 425.) The trial court

awarded Siry attorney fees under two statutes—namely, Penal

Code section 496, subdivision (c), and section 1029.8. The fee

award under Penal Code section 496 was in error because, as we

hold above, that statute does not reach the type of conduct

involved in this case.

48

This leaves section 1029.8 as the sole basis for attorney

fees. That statute empowers a trial court to award “all costs and

attorney’s fees” against “[a]ny unlicensed person who causes

injury or damage to another person as a result of providing goods

or performing services for which a license is required.” (§ 1029.8,

subd. (a).) The court found a fee award under section 1029.8 to

be appropriate because defendants acted as (1) unlicensed

construction contractors, and (2) unlicensed broker-dealers. We

separately consider each basis for the award.

a. Did defendants act as unlicensed

contractors involved in construction activity?

California requires “person[s] engaged in the business or

acting in the capacity of a contractor” to be licensed. (Bus. &

Prof. Code, § 7031.) For these purposes, and as pertinent here, a

“contractor” is “any person who [(1a)] undertakes to or [(1b)]

offers to undertake to, or [(1c)] purports to have the capacity to

undertake to, or [(1d)] submits a bid to, or [(1e)] does himself or

herself or by or through others [(2)] construct, alter, repair, add

to, subtract from, improve, move, wreck or demolish any building

. . .” (Id., § 7026.) Requiring contractors to be licensed

“provide[s] minimal assurance that all persons offering such

services in California have the requisite skill and character,

understand applicable . . . laws and codes, and know the

rudiments of administering a contracting business.” (Hydrotech

Systems, Ltd. v. Oasis Waterpark (1991) 52 Cal.3d 988, 995.)

As construed by the courts, a “contractor” is only a person

or entity who (1) actually performs construction services

(Contractors Labor Pool, Inc. v. Westway Contractors (1997) 53

Cal.App.4th 152, 165 (Westway); WSS Industrial Construction,

Inc. v. Great West Contractors, Inc. (2008) 162 Cal.App.4th 581,

587-593 (WSS Industrial); (2) “supervise[s] the performance of

49

construction services” (Westway, at p. 165; WSS Industrial, at p.

593 [“overseeing” construction work]); or (3) agrees by contract to

be “‘solely responsible’” for construction services (Vallejo

Development Co v. Beck Development Co. (1994) 24 Cal.App.4th

929, 935-936, 939-940 (Vallejo Development)). In the last two

scenarios, a license is required even if the construction work is

actually performed by someone else. (Bus. & Prof. Code, § 7026

[reaching work “by or through others”]; Vallejo Development, at p.

941.) However, a license is not required if a person or entity

merely coordinates construction services performed by others

(The Fifth Day, LLC v. Bolotin (2009) 172 Cal.App.4th 939, 947-

950), or supplies labor for those services (Westway, at pp. 164-

165).

In its operative complaint, Siry alleged the following in

support of its entitlement to attorney fees by virtue of defendants’

status as unlicensed contractors:

“Although the construction done at the 241

property was performed by a third party, companies

controlled by the defendants, including Investment

Consultants, received construction management fees

even though none of the defendants or their

companies had a contractor’s license. As a result,

defendants deprived Siry of its share of the

partnership funds based on defendants’ payment of

partnership funds (as construction management fees)

to entities controlled by them. By doing so,

defendants obtained the benefits of construction work

at Siry’s expense because Siry had no ownership

interest in the entities controlled by defendants. In

addition, without a license, defendants, by

themselves and through others, engaged in, or

managed, construction activities, thus meeting the

definition of a contractor under Bus. & Prof. Code

50

§ 7026. For example, defendant Saeed

Farkhondehpour performed construction

management activities without a license by

supervising the work. Finally, by entering into a

construction contract with an unlicensed contractor

and/or by making payments to an unlicensed

contractor, defendants aided and abetted unlicensed

construction.”

These allegations do not entitle Siry to attorney fees under

section 1029.8 for two reasons.

First, as to every defendant but Farkhondehpour, Siry has

not sufficiently alleged that they qualify as “contractors” in the

first place. Siry’s conclusory allegation that defendants “meet[]

the definition of a contractor” is a “conclusion of fact or law” that

we must disregard. (Evans, supra, 38 Cal.4th at p. 6.) And Siry’s

more specific allegations fare no better because they do not allege

that these defendants actually performed any construction

services, supervised any construction services, or agreed by

contract to be solely responsible for construction services.

Without such allegations, these defendants are not themselves

“contractors.” They also cannot be held liable for attorney fees

under section 1029.8 because the statute imposes liability against

those who are unlicensed contractors, not those who use

unlicensed contractors. (Rony, supra, 210 Cal.App.4th at p. 757

[noting that section 1029.8 “contains no language . . . extending

its reach to those who ‘use’ the services of unlicensed persons”].)

Second, and as to all defendants, Siry has not alleged that

it suffered “injury or damage . . . as a result of” defendants’

“perform[ance of services] for which a license is required.”

(§ 1029.8, subd. (a), italics added.) As set forth above, Siry’s sole

allegation in this regard is that it was harmed by “defendants’

payment of partnership funds (as construction management fees)

51

to entities controlled by [defendants].” However, the harm

occasioned by this diversion of partnership funds would have

occurred—and, under defendants’ theories for recovery, would

have been improper—even if each defendant had a contractor’s

license. Where an “injury ‘“would have happened anyway,

whether or not the defendant”’” engaged in tortious behavior,

then that tort “‘“was not a cause in fact, and of course cannot be

the legal or responsible cause”’” of that injury. (Grotheer v.

Escape Adventures, Inc. (2017) 14 Cal.App.5th 1283, 1303; Toste

v. CalPortland Construction (2016) 245 Cal.App.4th 362, 370.)

Because Siry failed to allege that defendants’ unlicensed status is

what caused its injury, Siry failed to show that its injury was “as

a result of” that unlicensed status, as required by section 1029.8.

(See Kwikset, supra, 51 Cal.4th at p. 326 [“‘The phrase ‘as a

result of’ in its plain and ordinary sense means ‘caused by’ and

requires a showing of a causal connection or reliance on the

alleged misrepresentation.’ [Citation.]”].) Siry’s sole rejoinder is

to argue that defendants’ deprivation of Siry’s “share of

partnership funds . . . based on their construction-related

shenanigans . . . trigger[ed] attorney’s fees under section 1029.8.

End of story.” This argument labors under the same

misconception as Siry’s complaint—namely, that awarding

attorney fees under section 1029.8 requires no causal link

between the lack of a license and harm to the plaintiff. Section

1029.8’s plain language forecloses this argument.

b. Did defendants act as unlicensed brokerdealers selling securities?

California law prohibits any “broker-dealer” from

“effect[ing] any transaction in, or induc[ing] or attempt[ing] to

induce the purchase or sale of, any security . . . unless the brokerdealer” is licensed. (Corp. Code, § 25210.) A “broker-dealer” is

52

“any person engaged in the business of effecting transactions in

securities in this state for the account of others or for [his] own

account.” (Id., § 25004, subd. (a).) And a “security” is defined by

reference to a long list of investment vehicles (id., § 25019),

although that list is meant to be “illustrative” rather than

exhaustive (People v. Graham (1985) 163 Cal.App.3d 1159, 1164

(Graham)). Given this approach, “the ‘critical question’ . . . is

whether [the] transaction [at issue] falls within the regulatory

purpose of the law regardless of whether it involves an

instrument [or vehicle] which comes within the literal language

of the definition.” (People v. Figueroa (1986) 41 Cal.3d 714, 735.)

The purpose of this licensing law is “‘to protect the public against

the imposition of unsubstantial, unlawful and fraudulent stock

and investment schemes and the securities based thereon.’

[Citation.]” (Id. at p. 736.)

As construed by the courts, an investment vehicle

constitutes a security if it satisfies one of two tests: (1) the “riskcapital test” first articulated in Silver Hills Country Club v.

Sobieski (1961) 55 Cal.2d 811 (Silver Hills), or (2) the “federal

test” first articulated in SEC v. W.J. Howey Co. (1946) 328 U.S.

293 (Howey). (See generally, People v. Black (2017) 8 Cal.App.5th

889, 900.)

In its operative complaint, Siry alleges the following in

support of its entitlement to attorney fees by virtue of defendants’

status as unlicensed broker-dealers selling securities:

“The creation/sale of the limited partnership

interest at issue here qualifies as a security (i.e., an

investment contract) as defined by Corporations Code

section 25019. [Siry] was damaged as a result of

defendants’ unlicensed activities in violation of

Corporations Code section 25004 [governing broker

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dealers]. Specifically, defendants sold securities to

others (e.g., [Siry’s] limited partnership interest) in

the capacity of a broker-dealer without a license.”

These allegations do not entitle Siry to attorney fees under

section 1029.8 because Siry has not sufficiently alleged strict

compliance with the prerequisites necessary for its partnership

interest to qualify as a “security.”

To begin, Siry’s conclusory allegation that its “limited

partnership interest . . . qualifies as a security” is a “‘“conclusion

of . . . law”’” entitled to no weight whatsoever. (Evans, supra, 38

Cal.4th at p. 6.) The same is true of its companion allegation that

the interest qualifies as “an investment contract”—both because

it is conclusory and because the term “investment contract” is “so

broad as to give little more guidance than the term ‘security’”

(Graham, supra, 163 Cal.App.3d at p. 1165, fn. 4).

Although a limited partnership interest can constitute a

“security” “under appropriate circumstances” (Graham, supra,

163 Cal.App.3d at p. 1166; People v. Simon (1995) 9 Cal.4th 493,

499), Siry has not alleged that those circumstances exist here

because it has not alleged that its limited partnership interest

satisfies either the risk-capital or federal tests.

A limited partnership interest qualifies as a “security”

under the risk-capital test only if it involves “[(1)] an attempt by

an issuer to raise funds for a business venture or enterprise; [(2)]

an indiscriminate offering to the public at large where the

persons solicited are selected at random; [(3)] a passive position

on the part of the investor; and [(4)] the conduct of the enterprise

by the issuer with other people’s money.” (Silver Hills, supra, 55

Cal.2d at p. 815.) Siry never alleged that it was solicited “at

random”; to the contrary, Siry submitted declarations indicating

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that it was solicited due to the long-time friendship between its

principal and Farkhondehpour and Neman.

A limited partnership interest qualifies as a “security”

under the federal test only if it “involves an investment of money

in a common enterprise with profits to come solely from the

efforts of others.” (Howey, supra, 328 U.S. at p. 301.) Although

the terms of the limited partnership agreement appended to the

operative complaint indicate that the limited partners were to

have no management or control over the limited partnership and

that the general partner was to have “exclusive control,” Siry

repeatedly alleges in its operative complaint that these

contractual limitations were “disregarded” and that

Farkhondehpour and Neman, despite being limited partners,

“control[led], dominate[d], manage[d] and operate[d]” the limited

partnership. Because Siry’s allegations that the limited

partnership agreement was being ignored preclude reliance on

that agreement in lieu of a well-pled allegation that Siry was

merely a passive investor, Siry needed to affirmatively plead its

passivity. But there is no such allegation in Siry’s operative

complaint, and its absence is fatal.

Siry’s sole remaining contention is that two provisions in

the limited partnership agreement otherwise suggest that the

parties’ limited partnership interests were securities. Siry points

to (1) the general partner’s power to refuse to consent to a limited

partner’s transfer of its partnership interest “if such transfer

would constitute a violation of any rule, law, or securities

regulation,” and (2) the prohibition against a limited partner

assigning its interest “if, in the opinion of counsel to the

Partnership, such assignment may not be effectuated without

registration under the Securities Act of 1933, as amended, or

55

would result in the violation of . . . federal or state securities

laws.” Rather than constituting proof that the limited partners

definitively viewed their interests as securities, these provisions

reflect uncertainty on that question and a marked desire not to

engage in transactions that would subject them to securities

laws—an odd result if the parties already viewed the limited

partnership interest as a security.

c. Are the attorney fees awards invalid for other

reasons?

In light of our conclusion that there is no statutory basis for

the court’s award of attorney fees, we have no occasion to

consider defendants’ remaining arguments that the trial court

also erred in (1) awarding fees for litigation prior to the

settlement of the initial lawsuit between the parties, (2)

awarding fees for litigation prior to the filing of the third

amended complaint when Siry first sought attorney fees in this

case, or (3) awarding fees when Siry never gave notice of a

maximum amount of attorney fees.

* * *

Where, as here, “a trial court erroneously award[ed] [one

type of damages,] a reviewing court may, instead of reversing the

entire judgment, make an order of modification striking that

portion relating to [the erroneously awarded] damages and affirm

the judgment as so modified.” (Crogan v. Metz (1956) 47 Cal.2d

398, 405; accord, Mega RV Corp. v. HWH Corp. (2014) 225

Cal.App.4th 1318, 1344; cf. Van Sickle v. Gilbert (2011) 196

Cal.App.4th 1495, 1521-1522 [“when a judgment is vacated on

the ground [that] the damages awarded exceeded those pled,” the

reviewing court ordinarily affirms and modifies the judgment to

reduce the damages, but may allow the trial court to decide

whether to vacate the default to allow further amendment].)

The amended judgment is affirmed as modified. We order that the amended judgment be modified to (1) strike the $1,912,974 treble damages award in its entirety and substitute in its place the $2 million punitive damages award, with Farkhondehpour (jointly and severally as an individual and as a trustee) and Neman (jointly and severally as an individual and as a trustee) severally liable for $1 million each, and (2) strike the $4,010,008.97 attorney fees award in its entirety. The parties are to bear their own costs on appeal.