Civil theft under Penal Code 496(c) is not established merely by nonpayment of a loan

Tim Kowal February 2, 2023

The California Supreme Court affirmed a powerful tool for civil lawyers last year in Siry Investment, L.P. v. Farkhondehpour when it held that, yes, theft by false pretenses under Penal Code section 496(c) is available in civil actions. But don’t get too cocky: as Wang v. EOS Petro, Inc. (D2d7 Jan. 13, 2023 No. B317659) 2023 WL 178372 (nonpub. opn.) observed when reversing a default judgment based on section 496(c), a plaintiff has to prove “criminal intent,” and that means more than mere nonpayment.

Though unpublished, the Wang case presents facts that appear often. The borrower-defendants took a number of loans from the lender-plaintiffs. The borrowers never made a single payment. The lenders sued, but the borrowers never answered. So the lenders got a default judgment, including attorney fees under Penal Code section 496(c).

The borrowers moved to vacate the default judgment, but the section 496(c) ruling remained.

But the Court of Appeal reversed the section 496(c) claim. The lenders had supported their section 496(c) claim for civil theft by establishing the borrowers obtained the lenders’ money and not repaying it. That is not enough. To establish civil theft under section 496(c), the plaintiff needs to show the defendants obtained plaintiffs’ money by theft: “To prove theft, a plaintiff must establish criminal intent on the part of the defendant beyond ‘mere proof of nonperformance or actual falsity.’ [Citation.]”

Quoting Siry Investment, L.P. v. Farkhondehpour (2022) 13 Cal.5th 333 the court noted that this requirement prevents “ ‘[o]rdinary commercial defaults’ ” from being transformed into a theft.” (Siry Investment, L.P. v. Farkhondehpour, supra, 13 Cal.5th at pp. 361-362.)

So what does qualify as civil theft under section 496(c)? Here are a couple of examples:

Defendants violated Penal Code section 496 by fraudulently diverting income from, and charging nonpartnership expenses to, a partnership, “with careful planning and deliberation reflecting the requisite criminal intent.” This was the case in Siry.
Defendant violated Penal Code section 496 by inducing the plaintiff to loan money based on false representations the defendant owned a trademark and needed money to settle a lawsuit. This was the case in Bell v. Feibush (2013) 212 Cal.App.4th 1041, 1043.

But if all you have is an unpaid debt, that is not enough: "a mere unfulfilled promise or misrepresentation of fact is insufficient to establish an intent to steal.” (Siry, supra, 13 Cal.5th at p. 368 (conc. opn. of Groban, J.).)

Tim Kowal is an appellate specialist certified by the California State Bar Board of Legal Specialization. Tim helps trial attorneys and clients win their cases and avoid error on appeal. He co-hosts the Cal. Appellate Law Podcast at CALpodcast.com, and publishes summaries of cases and appellate tips for trial attorneys. Contact Tim at [email protected] or (949) 676-9989.

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"Good people do not need laws to tell them to act responsibly, while bad people will find a way around the laws."

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Civil theft under Penal Code 496(c) is not established merely by nonpayment of a loan

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Show neither partiality to the weak nor deference to the mighty, but judge your fellow men justly. — Leviticus

"It may be that the court is thought to be excessively legalistic. I should be sorry to think that it is anything else." — Hon. Sir Owen Dixon, Chief Justice of Australia

"Good people do not need laws to tell them to act responsibly, while bad people will find a way around the laws." — Plato (427-347 B.C.)

"At common law, barratry was 'the offense of frequently exciting and stirring up suits and quarrels' (4 Blackstone, Commentaries 134) and was punished as a misdemeanor." — Rubin v. Green (1993) 4 Cal.4th 1187

"A judge is a law student who grades his own papers." — H.L. Mencken

"Moot points have to be settled somehow, once they get thrust upon us. If an assertion cannot be proved, then it must be settled some other way, and nearly all of these ways are unfair to somebody." —T.H. White, The Once and Future King

"Upon putting laws into writing, they became even harder to change than before, and a hundred legal fictions rose to reconcile them with reality." — Will Durant

"God made the angels to show Him splendor, … Man He made to serve Him wittily, in the tangle of his mind." — Sir Thomas More in Robert Bolt's A Man for All Seasons