Special Fee Shifting Statutes, Unlicensed Contractors: $4 Million Fee Award Evaporates On Appeal Because Penal Code Section 496(B) Does Not Encompass Fraudulent Diversion Of Business Funds

Also, CCP § 1029.8 Did Not Apply, Because Defendants Were Neither Unlicensed Contractors Nor Broker-Dealers.

            Appellate practice can result in a reversal of fortunes.  In Siry Investment, L.P. v. Farkhondehpour, Case No. B277750 (2d Dist., Div. 2 Mar. 3, 2020) (lead case, published), a $4 million-plus fee award based upon Penal Code section 496(b) and Code of Civil Procedure section 1029.8 went away as a matter of law on appeal.

            The 2/2 DCA determined that attorney’s fees could not be awarded in a fraudulent diversion of business funds case because Penal Code section 409(b) only applied to trafficking in stolen goods.  In doing so, it expressly parted company with the contrary reasoning in Switzer v. Wood, 35 Cal.App.5^th 116 (2019). 

            With respect to the predicate that CCP § 1029.8 allowed for fees (a section allowing fee entitlement against unlicensed persons in California), that was not applicable because defendants were not unlicensed construction contractors (they may have used unlicensed contractors, but did perform the construction services themselves) and were not unlicensed brokers-dealers (given that the limited partnership was not a “security” under the unique circumstances of the case and plaintiff’s lack of pleading of passivity in the investment).