Typically, plaintiffs with claims for fraud, breach of fiduciary duty, and conversion can only recover the actual damages they sustained. In Switzer v. Wood, (ordered published on May 10, 2019), the California Court of Appeal recognized a statutory right to recover treble damages, i.e. triple the actual damages, in certain civil actions for fraud, breach of fiduciary duty, and conversion. This theft action can even arise in a business dispute between partners. In Switzer, the parties were partners and co-owners of a business selling medical devices:
According to the allegations of the cross-complaint, not long after this business venture got started, Wood deceitfully took possession of, converted, and withheld for himself large sums of money or income belonging to Switzer and/or to [the business], and Wood also converted valuable property items belonging to Switzer (i.e., spinal implant inventory) and, upon selling said property items, kept the profits for himself.
In both his direct and derivative claims under section 496, Switzer’s cross-complaint asserted, based on relevant foundational allegations referred to in the pleading, that “[t]he acts of Mr. Wood constitute a violation of Penal Code § 496(a), thus entitling Mr. Switzer to recover from Mr. Wood treble the amount of actual damages sustained by Mr. Switzer, along with Mr. Switzer’s costs of suit and reasonable attorney’s fees . . . .”
The jury found in favor of Switzer on his civil claim for violation of Penal Code section 496, but the trial court refused to award treble damages. The appellate court reversed and found that section 496 was clear and required treble damages:
The language of section 496(c) is clear and unambiguous. A criminal conviction is not a prerequisite to recovery of treble damages. All that is required for civil liability to attach under section 496(c), including entitlement to treble damages, is that a “violation” of subdivision (a) or (b) of section 496 is found to have occurred. … [T]he elements required to show a violation of section 496(a) are simply that (i) property was stolen or obtained in a manner constituting theft, (ii) the defendant knew the property was so stolen or obtained, and (iii) the defendant received or had possession of the stolen property.
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In the present case, it is undisputed that the jury specifically and unequivocally found all the factual elements necessary to establish that Wood and Access Medical had engaged in conduct constituting a violation of section 496(a). … That being the case, under the plain and literal terms of section 496(c), Switzer was entitled to an award of three times his actual damages that were found by the jury on both the direct and derivative section 496 causes of action.
Thus, if an officer, manager or other corporate fiduciary steals, or knowingly possesses stolen property, triple damages apply. Importantly, stolen property also includes “property obtained in a manner constituting theft.” Penal Code section 484(a) describes theft as follows:
Every person who shall feloniously steal, take, carry, lead, or drive away the personal property of another, or who shall fraudulently appropriate property which has been entrusted to him or her, or who shall knowingly and designedly, by any false or fraudulent representation or pretense, defraud any other person of money, labor or real or personal property, … is guilty of theft.
Many actions for fraud, breach of fiduciary duty, and conversion will qualify as theft under section 484(a), and thus expose those defendants to treble damages under section 496(c). Since these claims routinely arise in shareholder disputes, corporate defendants should expect to see more claims for treble damages in the wake of Switzer.