Opinion
H048523
10-10-2023
AMPRO SYSTEMS, INC. et al., Plaintiffs and Appellants, v. XIAN LI et al., Defendants and Respondents
NOT TO BE PUBLISHED
(Santa Clara County Super. Ct. No. 17CV311868)
Wilson, J.
Over a period of approximately eight years, Xian Li, also known as James Li (James), and Charlene Qian, conspired with members of their families, including Ruo (Laura) Li, and other associates to embezzle money from their former employers, appellants Ampro Systems, Inc. (Ampro) and Consolitech Electronics, Inc. (Consolitech) (collectively appellants). Appellants sued James, Qian, Laura, and various other parties, including a sham corporation LXRZ, Inc. (LXRZ), which was set up to facilitate the scheme, for conversion, concealment, fraud, breach of fiduciary duty, and violation of Penal Code section 496 (section 496).
Because James Li and Laura Li share a surname, we will refer to each of them by their first names throughout this opinion in an effort to avoid confusion.
Qian, and certain of her family members who were also named defendants, settled with appellants prior to trial and are not parties to this appeal. The respondent parties in this appeal are James, Rong Zhou (also known as Wendy Zhou), LXRZ, and Laura (collectively respondents).
A jury found in appellants' favor on every cause of action and, among other damages, awarded appellants treble damages and attorney fees pursuant to section 496. Several of the respondents, including Laura, moved for judgment notwithstanding the verdict (JNOV) on appellants' section 496 cause of action, arguing insufficient evidence had been presented to establish that the claim was not barred by the applicable statute of limitations. On its own motion, the trial court, relying on a then-recent opinion from the Second District Court of Appeal, granted partial JNOV in favor of all respondents on the section 496 cause of action, thereby eliminating the award of treble damages and attorney fees to appellants under that statute. In addition, the court granted JNOV in favor of Laura on the section 496 claim on the ground that there was not substantial evidence to support the jury's finding that Laura engaged in specific acts of concealment within the relevant statute of limitations period.
Siry Investment L.P. v. Farkhondehpour (2020) 45 Cal.App.5th 1098 (Siry I), affirmed in part, reversed in part, remanded by Siry Investment, L.P. v. Farkhondehpour (2022) 13 Cal.5th 333 (Siry II).
On appeal, appellants argue that the trial court erred in entering partial JNOV on its section 496 cause of action based on Siry I, supra, 45 Cal.App.5th 1098, which has since been reversed by the California Supreme Court. Appellants next argue that the trial court erred by granting JNOV in Laura's favor because substantial evidence supports the jury's finding that Laura committed specific acts of concealment within the requisite time period.
Respondents James, Wendy Zhou, and LXRZ agree that this aspect of the trial court's order has been abrogated by the California Supreme Court's decision in Siry II, supra, 13 Cal.5th 333, and concede that this court is "compelled to reverse the trial court's grant of JNOV" in their favor. The concession is well taken. In Siry, the Supreme Court held that the language of section 496 is unambiguous and that a prevailing party is entitled to treble damages and attorney fees under that statute where property, including money, has been obtained in any manner constituting theft. (Siry II, at p. 339.) Accordingly, we need only address the JNOV entered in favor of Laura, not that entered in favor of James, Zhou, and LXRZ.
For the reasons explained below, we will reverse the judgment and, on remand, the trial court shall reinstate the original judgment in favor of appellants.
I. Factual and Procedural Background
A. The operative complaint, trial, and verdicts
Appellants filed the operative fourth amended complaint in November 2018, alleging that, beginning sometime in 2008, the defendants, led by Qian and James,conspired to embezzle money from appellants through a variety of fraudulent schemes and transactions. According to the fourth amended complaint, the defendants embezzled nearly $4 million from appellants over a 10-year period. In addition to paying themselves additional salaries and bonuses, Qian and James put family members, including Laura, on appellants' payrolls or employed them as independent contractors, yet those family members provided no compensable goods or services to appellants.
Appellants hired Qian in 2004 due to her education in accounting and eventually placed her in charge of their accounting, finance, and human resources. In 2005, appellants hired James to oversee their assembly operations and manufacturing.
The fourth amended complaint stated nine causes of action, as follows: (1) conversion; (2) breach of fiduciary duty; (3) fraud by intentional misrepresentation; (4) fraud by concealment; (5) negligent misrepresentation; (6) violation of section 496; (7) money had and received; (8) negligence; and (9) breach of contract.
At trial, Ampro's president, Elliot Wang, testified that he first learned that money was being embezzled from appellants in early February 2016. He traveled to the United States from Taiwan within 24 hours of that discovery and fired James a few days later. Wang hired consultants to audit appellants' accounting records to discover who was receiving unauthorized payments from the companies. In the course of the investigation, Wang determined there were people listed on the payroll reports who he did not know, including members of both James's and Qian's families.
In her testimony, Laura said that all of the Ampro payroll checks she received from 2010 to 2016 were deposited into a joint account that was opened in her and her parents' names. Laura could access that joint account online and view the bank statements, but she denied having an ATM card for the account or checks that she could write against it. Although Laura endorsed the first paychecks (which she received directly from James) she would immediately turn those checks over to her mother to deposit. At some point, Laura gave her mother authority to endorse the checks for her, and she did not even see the checks from that point on. Laura denied ever receiving or spending any money from that joint account. She testified that her parents exclusively handled all the money in that account. Laura also specifically denied ever being paid by LXRZ or receiving any money upon its dissolution even though she was a shareholder.
Laura also testified that, in 2010, she received four payroll checks of $500 each from Ampro as payment for translating a document for James and she may have deposited those four checks into her personal bank account.
Laura's mother testified that she, James, and Laura were LXRZ's shareholders. After Laura's mother's monthly salary of $1,000 was paid from LXRZ's account, any remaining money in that account was distributed to James and Laura.
Following a two-week trial, the jury returned verdicts against all of the defendants. Specifically, as relevant here, the jury found Laura liable on appellants' conversion and concealment causes of action and found that Laura was directly responsible for damages totaling $149,348.54. The jury also found that Laura engaged in specific affirmative acts after September 6, 2016 to conceal money stolen from appellants. After the punitive damages phase of the trial, the jury awarded appellants $7,500 in punitive damages payable by Laura.
Laura was first named as a defendant in an amended complaint filed September 6, 2017. During trial, appellants submitted briefing regarding what triggers the one-year statute of limitations for a section 496 claim. Appellants argued that, as to a concealment of stolen property, the one-year statute of limitations resets with each specific act of concealment but, where a person wrongfully withholds stolen property, the statute does not start to run until the property is returned. The trial court disagreed with the latter argument, instructing the jury that the section 496 cause of action against any particular defendant was barred by the one-year statute of limitations unless it was shown that the defendant in question committed an affirmative act of concealment after September 6, 2016.
On February 24, 2020, the trial court entered judgment in favor of appellants, reserving jurisdiction over posttrial motions for costs and attorney fees. Specifically, as to Laura, judgment was entered against her in the total amount of $489,863.21, consisting of $149,348.54 in general damages, $41,817.59 in prejudgment interest, and $298,697.08 under section 496.
B. Motions for JNOV
On March 6, 2020, respondents moved for a partial JNOV and for a new trial on the section 496 cause of action arguing it was time barred because there was no substantial evidence to support the jury's finding that respondents engaged in any specific affirmative acts to conceal stolen money from appellants after September 6, 2016.
Appellants' opposition listed the trial evidence which supported the jury's finding that each of the respondents engaged in specific acts of concealment after September 6, 2016. Appellants pointed to trial testimony where: (1) James's wife described how money paid by appellants was funneled through bank accounts she co-owned with James and Laura and then used to pay her mortgage; (2) Laura testified that she retained Qian in 2016 and 2017 to prepare her tax returns for income earned in 2015 and 2016; (3) Laura testified that she received bi-weekly checks from 2010 to 2016 though she did not work for appellants; (4) Laura testified that when LXRZ was dissolved in 2018, its assets were distributed to its shareholders, including herself; and (5) Laura testified she first began receiving checks from Ampro in 2010 based on an "arrangement with [Ampro's president] Mr. Wang."
On April 13, 2020, the trial court requested supplemental briefing from the parties in light of Siry I, supra, 45 Cal.App.5th at page 1134, which held that" 'treble damages are not available under . . . section 496 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."' "
On April 30, 2020, the trial court informed the parties that it intended to grant partial JNOV in favor of respondents on its own motion pursuant to Code of Civil Procedure section 629, subdivision (a) as to appellants' section 496 cause of action.
On June 12, 2020, the trial court granted partial JNOV in favor of respondents as to the section 496 cause of action, based on Siry's analysis of that statute. The court also granted JNOV as to Laura solely on the ground that there was no substantial evidence to support the jury's verdict that she engaged in acts of concealment after September 6, 2016. In its order, the court acknowledged, but found insufficient, the following evidence presented at trial: (1) before September 6, 2016, Laura received and deposited checks from Ampro; (2) Laura was a shareholder in the LXRZ but "there was no evidence that she exercised control over that business or its accounts"; and (3) Laura asked Qian to prepare her tax returns for the 2016 tax year but "[r]eporting income to a tax authority and paying taxes is not 'concealing or withholding stolen property from the rightful owner.'" The trial court stated "There was no evidence that [Laura] exercised control over that bank account [into which her payroll checks were deposited], withdrew any portion of those funds for her own benefit, or controlled how the money was spent" and "there was no evidence or finding that [Laura] (as opposed to other Moving Defendants) had actual control over or possession of the stolen funds after September 6, 2016."
As a consequence of the trial court's order, appellants were no longer entitled to treble damages, interest, or attorney fees under section 496. The amended judgment was entered on August 13, 2020.
II. Discussion
Appellants argue that the trial court erred in granting JNOV in favor of Laura on the ground that no substantial evidence was presented to the jury to support its verdict that Laura engaged in acts of concealment after September 6, 2016. For the reasons discussed below, we agree that the trial court erred in granting JNOV in favor of Laura.
A. Standard of review
The parties disagree on the standard of review. Appellants argue that, on appeal, we should reverse a JNOV where substantial evidence supports the jury's verdict and, in reviewing the evidence presented at trial, we "view the evidence in the light most favorable to the party who obtained the jury verdict . . . and against the party to whom the JNOV was awarded."
Laura argues that, because a special verdict was used at trial, rather than a general verdict, we must adopt a less-deferential standard of review in which we do not "imply findings in favor of the prevailing party." In support of this proposition, Laura relies on Trujillo v. North County Transit Dist. (1998) 63 Cal.App.4th 280, 285 (Trujillo).
We conclude that the standard of review advanced by appellants is the correct approach. In Trujillo, after the plaintiffs prevailed at trial on their claims of failure to prevent unlawful discrimination and harassment pursuant to Government Code section 12940, subdivision (i), the trial court granted the defendants' motion for JNOV because that same jury had also found that the defendants "had committed no discriminatory, racially harassing, or retaliatory conduct." (Trujillo, supra, 63 Cal.App.4th at p. 283.) The court was thus presented with the question of whether violation of that statute "is an independent statutory tort which requires no 'necessary foundational predicate' of underlying discrimination, harassment or retaliation." (Ibid.) Accordingly, the court adopted a de novo standard of review because "the issues presented [on appeal] deal solely with interpretation of a statute and application of statutory language to the undisputed facts" and thus the court had "no occasion to treat this as an ordinary appeal from a JNOV." (Id. at p. 284.) We do not read Trujillo as supporting a less-deferential standard of review for all appeals from a JNOV in which a special verdict form was employed, as the analysis in that case makes clear that it was resolving a question of statutory construction.
Where a party contends on appeal that a jury's special verdict findings are internally inconsistent or illogical, de novo review of the special verdict is appropriate. (Singh v. Southland Stone, U.S.A., Inc. (2010) 186 Cal.App.4th 338, 358.) There is no such contention in this case.
Accordingly, the usual substantial evidence standard of review applies. An appellate court generally reviews an order granting JNOV to determine "whether any substantial evidence-contradicted or uncontradicted-supports the jury's conclusion." (Sweatman v. Department of Veterans Affairs (2001) 25 Cal.4th 62, 68.) In so doing, the court views the record in the light most favorable to the verdict. (Mason v. Lake Dolores Group (2004) 117 Cal.App.4th 822, 829-830.) We do not reweigh evidence or assess the credibility of witnesses. (Howard v. Owens Corning (1999) 72 Cal.App.4th 621, 630-631.) Evidence is substantial if it is of "ponderable legal significance, . . . reasonable, credible and of solid value." (Roddenberry v. Roddenberry (1996) 44 Cal.App.4th 634, 651.)
"In ruling on a motion for JNOV,' "the trial court may not weigh the evidence or judge the credibility of the witnesses, as it may do on a motion for a new trial, but must accept the evidence tending to support the verdict as true, unless on its face it should be inherently incredible." '" (Carter v. CB Richard Ellis, Inc. (2004) 122 Cal.App.4th 1313, 1320 (Carter).)
B. Plaintiff's lack of knowledge is not an element of a section 496 claim
Before addressing the merits of the appeal, we briefly turn to Laura's argument, that before a plaintiff can prevail on a section 496 claim, they must prove they were unaware that the property at issue was stolen or embezzled. In Laura's view, because at the time she was concealing and withholding embezzled funds, Wang knew that James was utilizing his family members-including Laura-in his embezzling scheme, Laura cannot be liable under section 496.
Leaving aside the fact that neither Laura nor any of the other respondents raised this argument below or requested that the jury be so instructed, the plain language of section 496 does not support their contention. Section 496, subdivision (a) provides: "Every person who buys or receives 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 who conceals, sells, withholds, or aids in concealing, selling, or withholding any property from the owner, knowing the property to be so stolen or obtained, shall be punished by imprisonment in a county jail for not more than one year, or imprisonment pursuant to subdivision (h) of [Penal Code] [s]ection 1170." The statute focuses exclusively on the "person who buys or receives . . . or who conceals, sells, withholds, or aids in concealing, selling, or withholding" stolen property. (Ibid.) The knowledge element in the statute is directed at the defendant, not the person from whom the property was wrongfully taken. While a plaintiff's knowledge that their property has been stolen may be relevant for statute of limitations purposes, section 496 does not require a plaintiff to prove their lack of knowledge in order to state a claim. Given the unambiguous language of the statute and no cited authority to support Laura's position, we reject it.
C. The trial court erred in granting JNOV in favor of Laura
"Section 496, subdivision (a) (section 496(a)) defines the criminal offense of what is commonly referred to as receiving stolen property." (Siry II, supra, 13 Cal.5th at p. 346.) Subdivision (c) of section 496 "states that any person who has been injured by a violation of section 496(a) 'may bring an action for three times the amount of actual damages, if any, sustained by the plaintiff, costs of suit, and reasonable attorney's fees.'" (Siry II, at p. 347.) Accordingly,"' "the statute, as enacted, broadly allows anyone injured by the sale of knowingly stolen property to bring a civil action against the seller, in order to reduce thefts by eliminating the market for stolen goods."' (Bell [v. Feibush (2013)] 212 Cal.App.4th [1041] at p. 1047, fns. omitted in Bell, quoting Citizens of Humanity, LLC v. Costco Wholesale Corp. (2009) 171 Cal.App.4th 1, 17-18, disapproved on another ground in Kwikset Corp. v. Superior Court (2011) 51 Cal.4th 310, 337.)" (Id. at p. 348.)
"[T]he offense of concealing stolen property . . . consists of the act of intentionally secreting stolen property in violation of the affirmative duty to return it-or at least to disclose its whereabouts-to its rightful owner." (Williams v. Superior Court (1978) 81 Cal.App.3d 330, 343-344.) "[O]ne of the purposes of including both receiving and concealing in . . . section 496 is to enable prosecution for the continuing purposeful concealment of stolen property where prosecution for the receipt of that property is barred by the statute of limitations." (Id. at p. 344.)
Here, the jury was presented with evidence that Laura received biweekly checks from appellants from 2010 to 2016, all of which were deposited into a joint account that was opened in her and her parents' names. Laura testified that she did not have an ATM card for that account and had no checks to write against it. Laura's mother testified that she used the money in that account to pay the mortgage and utility bills, but Laura said she did not know what her mother did with that money. Laura testified she did not remember paying rent to her parents while she lived at home. She denied taking any money from that joint account or spending any of the money in it. Although Laura admitted she was a shareholder in LXRZ, she denied ever being paid by that entity or receiving money from it at any time.
The jury's verdict also suggests it did not credit any of respondents' testimony about the purported legitimacy of LXRZ. Appellants alleged that all of the money that LXRZ received during the relevant time period ($256,156.13) was embezzled, and in its special verdict regarding LXRZ, the jury found that LXRZ damaged appellants in that exact amount. Laura's mother contradicted Laura's testimony that she did not receive any shareholder distributions from that entity.
Having heard all of Laura's self-serving testimony, the jury still expressly found that she engaged in specific affirmative acts, after September 6, 2016, to conceal money stolen from appellants. In order to make this finding, the jury would necessarily have had to disbelieve Laura's testimony that she had no control over the monies in the joint account or that she received no distributions from LXRZ.
Despite this special verdict, the trial court, in its order granting JNOV in favor of Laura, drew the opposite conclusions from Laura's testimony, stating that there was: (1) no evidence that Laura "exercised control over [LXRZ] or its accounts"; (2) no evidence that Laura "exercised control over that [joint] bank account [into which her payroll checks were deposited], withdrew any portion of those funds for her own benefit, or controlled how the money was spent"; and (3) "no evidence or finding that [Laura] (as opposed to other Moving Defendants) had actual control over or possession of the stolen funds after September 6, 2016." The only way for the trial court to have reached these conclusions was not just to find Laura's testimony credible, since she was the only witness to testify regarding her access (or lack thereof) to the joint account, but also to find not credible Laura's mother's testimony about Laura receiving shareholder distributions from LXRZ.
As discussed above, however, the trial court's powers in deciding a motion for JNOV are less expansive than those it may wield in, for example, deciding a motion for new trial. (See Carter, supra, 122 Cal.App.4th at p. 1320 [on JNOV, unlike motion for new trial, trial court must accept evidence supporting verdict as true and may not weigh evidence or judge witnesses' credibility].) By crediting Laura's testimony regarding the joint account, as well as her testimony regarding distributions from LXRZ over her mother's contradictory testimony, the trial court not only improperly weighed the evidence but judged the credibility of these witnesses.
Because substantial evidence supported the jury's special verdict that Laura engaged in affirmative acts, after September 6, 2016, to conceal money stolen from appellants, the JNOV in favor of Laura must be reversed.
We need not and do not reach appellants' alternative argument that the statute of limitations on its section 496 claim has not been triggered due to Laura's (ongoing) failure to return any of the stolen monies.
III. Disposition
The judgment is reversed and the matter remanded to the trial court. On remand, the trial court is directed to vacate its June 12, 2020 order granting respondents' motion for partial judgment notwithstanding the verdict and enter a new order denying that motion. The trial court shall then reinstate the February 24, 2020 judgment in favor of appellants and proceed with any posttrial motions for costs and attorney fees. Appellants are awarded their costs on appeal.
WE CONCUR: Danner, Acting P.J. Bromberg, J.