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Penal Code Penalizes Fraudsters

On Behalf of | Sep 30, 2019 | Business Litigation, Contract Disputes |

In California, Penal Code section 496(c) allows for the recovery of not only treble damages (three times the amount of the damages), but also reasonable attorney’s fees and costs as well. Penal Code section 496, while typically utilized as a criminal penalty for theft under false pretenses and receiving stolen property, is becoming more common in civil complaints as a means of seeking statutory treble damages, attorney’s fees, and costs. However, the big question has always been whether a person who suffered damages by someone stealing money from them can recover from that person in civil court without a previous criminal conviction under section 496.

One of the most important advantages of the civil damages for theft under Penal Code section 496(c) in California is that the treble damages under Penal Code section 496(c) are a fixed penalty, and require no showing of the net worth of the defendant or other ability to pay the damages, as would be required for a typical award of punitive damages.

In Bell v. Feibush, the plaintiff loaned money to the defendant who did not repay the loan. The complaint included a cause of action for civil damages for theft under Penal Code section 496 and alleged that the defendant used a false pretense when he told the plaintiff that he allegedly owned a certain valuable trademark, and that the money from the licensing of that trademark would be used to repay the loan. The complaint also alleged that the defendant did not own the trademark and did not make any money from its licensing. The trial court entered a judgment in favor of the plaintiff for $607,500.00 which was three times the value of the money that she had loaned to the defendant, plus her attorney’s fees and costs.

The defendant appealed the treble damages aspect of the judgment that was entered and claimed that the Penal Code did not apply because he had to first be criminally convicted, and that as the party that allegedly stole the money, he could not be convicted for receiving it.

In 2013, the Court of Appeal rejected defendant’s arguments, and affirmed the judgment. The Court found that the Penal Code means exactly what it says and agreed that theft by false pretense is still a theft, and that even the person who steals the money is still liable for receiving it. The Court of Appeal also ordered that the plaintiffs were entitled to their costs, including attorney’s fees incurred during the appeal.

More recently, in 2019, the Court of Appeal reaffirmed a similar decision in Switzer v. Wood. In Switzer, the non-managing member of limited liability company brought direct and derivative claims against its managing member, alleging claims of breach of contract, fraud, and conversion. Following a jury trial, the trial court entered judgment in favor of the non-managing member and awarded damages, but denied the non-managing member’s motion for attorney fees.

On appeal, the Court of Appeal reversed the trial court’s ruling denying the non-managing member attorney’s fees, holding that a criminal conviction is not a prerequisite to recovery of treble damages and attorney’s fees under Penal Code section 496.

If you have ever been the victim of fraud or theft by false pretenses, you may be able to recover punitive damages, as well as your attorney’s fees and costs under Penal Code section 496, regardless of whether any criminal case has been filed.

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