Siry Investments v. Farkhondehpour CA2/2
189 Cal. Rptr. 3d 554
Cal. Ct. App.2015Background
- Siry Investments sued former partners Farkhondehpour and Neman for breach of fiduciary duty; a jury awarded damages but the Court of Appeal reversed and remanded for a new trial.
- During the appeal, defendants obtained surety bonds to stay execution and posted $2,621,471.40 in cash collateral, paying annual premiums; defendants borrowed funds (or used proceeds of a prior loan) to supply that collateral.
- After the appeal concluded, defendants sought to recover from Siry under Cal. Rules of Court, rule 8.278, the net interest expense ($377,157.72) they incurred borrowing funds to secure the appeal bonds.
- The Judicial Council amended rule 8.278 effective January 1, 2013 to expressly permit recovery of “fees and net interest expenses incurred to borrow funds to provide security for the bond.” The amendment was adopted while the prior appeal was still pending.
- The trial court awarded the net interest expense to defendants; Siry appealed, arguing (1) the amended rule was applied retroactively and without adequate advance notice, and (2) the evidence did not show the funds were borrowed or borrowed to secure the bond.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the trial court applied the correct version of Rule 8.278 (retroactivity/notice) | Application of the January 1, 2013 amendment was impermissibly retroactive and denied advance notice due process | The amendment took effect while the appeal was pending and thus properly governed; the Judicial Council provided adequate notice via its rulemaking process | Amendment properly applied to the pending appeal; no retroactivity problem and notice was sufficient |
| Whether the awarded amount qualifies under amended Rule 8.278 (sufficiency/purpose of borrowing) | Insufficient evidence that defendants borrowed funds or that borrowing was specifically to secure the appeal bond | Evidence shows defendants used proceeds of a preexisting loan (they were personally liable) to secure the bond; rule does not require borrowing to be taken solely for the bond | Substantial evidence supports that borrowed funds (proceeds of a loan) were used as collateral; rule does not require the loan be taken specifically for the bond; award affirmed |
Key Cases Cited
- Rossa v. D.L. Falk Construction, Inc., 53 Cal.4th 387 (Cal. 2012) (prior Supreme Court reading disallowed recovery of interest under pre-amendment rule)
- Andreini & Co. v. MacCorkle Ins. Service, Inc., 219 Cal.App.4th 1396 (Cal. Ct. App. 2013) (standard of review for applied rule versions)
- Coito v. Superior Court, 54 Cal.4th 480 (Cal. 2012) (interpretation principles for fee-recovery rules)
- Foreman & Clark Corp. v. Fallon, 3 Cal.3d 875 (Cal. 1971) (substantial-evidence review standard)
- Ducoing Management, Inc. v. Superior Court, 234 Cal.App.4th 306 (Cal. Ct. App. 2015) (finality of appellate opinions and remittitur timing)
- Stockton Theatres, Inc. v. Palermo, 47 Cal.2d 469 (Cal. 1956) (cost-rule change during pendency discussed)
- Southern Service Co. v. County of Los Angeles, 15 Cal.2d 1 (Cal. 1940) (legislative repeal and effect on pending suits)
- Sequoia Vacuum Systems v. Stransky, 229 Cal.App.2d 281 (Cal. Ct. App. 1964) (limits on awarding interest where party used own funds rather than borrowing)
- Texaco, Inc. v. Short, 454 U.S. 516 (U.S. 1982) (advance notice due-process considerations for changes affecting property rights)
- Atkins v. Parker, 472 U.S. 115 (U.S. 1985) (further authority on required lead time for statutory changes affecting property rights)