Siry Investments v. Farkhondehpour

Filed 6/17/15; pub. & mod. order 7/9/15 (see end of opn.)
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION TWO
SIRY INVESTMENTS, L.P., B251250
Plaintiff and Appellant, (Los Angeles County
Super. Ct. No. BC372362)
v.
SAEED FARKHONDEHPOUR et al.,
Defendants and Respondents.
APPEAL from a judgment of the Superior Court of Los Angeles County.
Malcolm Mackey, Judge. Affirmed.
Wilson, Elser, Moskowitz, Edelman & Dicker, Robert Cooper, for Plaintiff and
Appellant.
Mohammad A. Fakhreddine, Law Offices of Mohammad A. Fakhreddine, for
Defendants and Respondents.
* * * * * *
After we issued an opinion in a prior appeal in this case, but before our remittitur
issued, the Judicial Council amended California Rules of Court, rule 8.278 to allow the
prevailing party on appeal to collect the “net interest expenses incurred” in borrowing
funds for an appeal bond. The trial court thereafter awarded such expenses to the
prevailing party in the prior appeal on the basis of the newly amended rule. Concluding
there was no error, we affirm.
FACTUAL AND PROCEDURAL HISTORY
Plaintiff Siry Investments, L.P. (“Siry”) sued two of its former business partners,
defendants Saeed Farkhondehpour (Farkhondehpour) and Morad Neman (Neman)
(collectively, defendants), in their individual and trustee capacities, for breach of
fiduciary duty. A jury awarded Siry compensatory and punitive damages. On appeal, we
overturned the jury’s special verdict as “fatally indefinite” and remanded for a new trial.
We issued our opinion on December 12, 2012. Siry filed a petition for rehearing on
December 27, 2012, which we denied on January 7, 2013. The California Supreme Court
denied Siry’s petition for review and we issued the remittitur on March 27, 2013.
To forestall execution of the judgment during the pendency of their (ultimately
successful) appeal, defendants had arranged for a surety to post two bonds covering the
amount of the judgment. (Code Civ. Proc., § 917.1.) Neman’s bond was for
$1,093,387.50, and Farkhondehpour’s was for $1,528,083.90. Both Neman and
Farkhondehpour gave the surety these same amounts in cash as collateral, and also paid
the surety a yearly premium during the appeal’s pendency.
Following our disposition of the appeal in defendants’ favor, defendants sought to
recover, among other things, the net interest they incurred to borrow the $2,621,471.40
they used as collateral for the appeal bonds; this came to $377,157.72. Siry moved to tax
this cost. The trial court denied Siry’s motion, and awarded this cost to defendants.
Siry timely appeals.
DISCUSSION
Siry’s challenge to the award of net interest expenses turns on two questions:
(1) Did the trial court apply the correct version of California Rules of Court, rule 8.278
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(rule 8.278); and (2) if so, was the net interest expense properly awarded under that
version of the rule? The first question is a legal one we review de novo. (Andreini & Co.
v. MacCorkle Ins. Service, Inc. (2013) 219 Cal.App.4th 1396, 1405-1406 (Andreini).)
The second question we review de novo to the extent it proffers an interpretation of the
rule (Rossa v. D.L. Falk Construction, Inc. (2012) 53 Cal.4th 387, 391-392 (Rossa);
Coito v. Superior Court (2012) 54 Cal.4th 480, 488), and for substantial evidence to the
extent it challenges the sufficiency of the evidence (Foreman & Clark Corp. v. Fallon
(1971) 3 Cal.3d 875, 881).
We have jurisdiction to entertain this appeal notwithstanding the pending retrial.
(Krikorian Premiere Theatres, LLC v. Westminster Central, LLC (2011) 193 Cal.App.4th
1075, 1078-1085.)
I. Proper version of California Rules of Court, rule 8.278
Prior to January 1, 2013, rule 8.278 authorized a court to award the prevailing
party on appeal “the cost to procure a surety bond . . . and the cost to obtain a letter of
credit as collateral,” but the rule was silent as to whether the compensable “cost”
included the fees and net interest expense incurred if the party borrowed the money to
obtain the bond or letter of credit. The California Supreme Court interpreted this silence
to preclude such an award. (Rossa, supra, 53 Cal.4th at p. 390.) The Judicial Council
thereafter amended the rule to overturn Rossa. As amended, rule 8.278 reads, in pertinent
part: “A party may recover only the following costs, if reasonable: . . . [¶] (F) The cost
to procure a surety bond, including the premium, the cost to obtain a letter of credit as
collateral, and the fees and net interest expenses incurred to borrow funds to provide
security for the bond or to obtain a letter of credit . . .” (Id., subd. (d)(1)(F), italics
added.) The amendment took effect on January 1, 2013.
Siry argues that the trial court erred in relying on the amended version of rule
8.278 to award net interest expenses because doing so (1) amounts to an impermissible
retroactive application of the rule, and (2) denied Siry due process by not giving
sufficient “advance notice” of the new rule. Both arguments lack merit.
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A. Impermissible retroactivity
There is no impermissible retroactivity in this case because the amended version of
rule 8.278 is not being applied retroactively at all. Applying a procedural law in effect at
the time of a pending proceeding is not a retroactive application of that law, even if that
law has changed during the pendency of the proceeding. (Bank of Idaho v. Pine Ave.
Assocs. (1982) 137 Cal.App.3d 5, 12 [“A lawsuit is governed by a change in procedural
rules made during its pendency.”].) This rule applies to amendments to the rules
governing the award of litigation costs. (See Stockton Theatres, Inc. v. Palermo (1956)
47 Cal.2d 469, 477 [“‘the rule pertaining to the allowance of costs may be changed or
modified by statute during the pendency of the proceeding’”], quoting Hogan v. Ingold
(1952) 38 Cal.2d 802, 814); Heritage Engineering Construction v. City of Industry
(1998) 65 Cal.App.4th 1435, 1439 [“[s]tatutes increasing or decreasing litigation costs,
even if silent on the issue of retroactivity, have consistently applied to cases pending
when they became effective”]; Harbor View Hills Community Assn. v. Torley (1992) 5
Cal.App.4th 343, 347 [collecting cases].)
The pertinent proceeding in this case is defendants’ prior appeal, and that appeal
was still pending when the amended version of rule 8.278 took effect on January 1, 2013.
(Cf. Andreini, supra, 219 Cal.App.4th at pp. 1398-1399, 1405-1406 [amended rule 8.278
could not be retroactively applied to appeal that became final in 2011].) It is well settled
that an appeal is not final until the court has issued its decision and issued the remittitur,
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at least when the decision is “on the merits.” (Cal. Rules of Court, rule 8.264(b)(1)
[“[A] Court of Appeal decision in a civil appeal . . . is final in that court 30 days after
filing.”]; Ducoing Management, Inc. v. Superior Court (2015) 234 Cal.App.4th 306, 314-
315 [noting that court’s opinion became final 30 days after issuance]; see also Rare Coin
Galleries, Inc. v. A-Mark Coin Co., Inc. (1988) 202 Cal.App.3d 330, 335-336 [appeal not
1 An appellate court’s rulings denying a petition for a writ of supersedeas or
dismissing an appeal pursuant an agreement or stipulation are both immediately final.
(Cal. Rules of Court, rule 8.264(b)(2).) This case involves no such ruling.
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final until filing of remittitur].) This makes sense, because the decision can be changed
during the 30 days between its issuance and the issuance of the remittitur—either on the
court’s own motion (Cal. Rules of Court, rule 8.264(c)(1)) or in response to a petition for
rehearing (id., rule 8.268). Indeed, this is why superior courts cannot entertain motions
for costs until the remittitur has issued. (Id., rule 8.278(c)(1).)
Siry nevertheless contends that defendants’ prior appeal became final when we
issued our opinion, and for support cites Stockton Theatres, supra, 47 Cal.2d at p. 477,
and Southern Service Co. v. County of Los Angeles (1940) 15 Cal.2d 1 (Southern
Service). Siry is correct that Stockton Theatres looked to the date the “decision [was]
rendered” in assessing whether an amended cost statute was being applied retroactively.
(Id. at p. 477; accord, Rubenstein v. Rubenstein (2000) 81 Cal.App.4th 1131, 1145
[noting that “[t]he filing of an opinion in a reviewing court . . . constitutes the rendition of
the judgment on appeal”].) However, neither Stockton Theatres nor Rubenstein defined
when the “decision” or “judgment” was “rendered.” More to the point, neither
confronted whether the appropriate date was the date the opinion was filed or the date the
remittitur issued. Southern Service also does not address this issue, instead holding that
the Legislature may lawfully repeal a statute authorizing a lawsuit for a tax refund and
thereby terminate lawsuits based on that statute. (Southern Service, at p. 12.) Because
cases are not authority for propositions they did not consider (Riverside County Sheriff’s
Dept. v. Stiglitz (2014) 60 Cal.4th 624, 641), the cases Siry cites do not contradict—let
alone overcome—the weight of the statutory and decisional authority discussed above.
B. Insufficient “advance notice”
In certain circumstances, due process may require advance notice before certain
property rights may be extinguished. (See Texaco, Inc. v. Short (1982) 454 U.S. 516,
531-532 (Texaco); Atkins v. Parker (1985) 472 U.S. 115, 130, superseded on other
grounds by 42 U.S.C. § 601 et seq. (Atkins).) This notice is often imparted as a law
makes its way through the normal legislative process to enactment (Atkins, at p. 130), as
people are “charged with knowledge of . . . relevant statutory provisions” (Texaco, at
p. 532).
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Assuming that Siry has a right to advance notice of a change in the rules
governing costs on appeal, that notice was adequate in this case for two reasons. First,
the amendment to rule 8.278 was the product of the Judicial Council’s well-settled
rulemaking process. (See generally Cal. Rules of Court, rule 10.22.) The amendment
was proposed on April 17, 2012; circulated for public comment on June 20, 2012;
recirculated for adoption by the committee with an amendment on August 27, 2012; and
adopted by the Judicial Council on October 26, 2012—64 days before it took effect on
January 1, 2013. (Appellate Advisory Com., Judicial Council of Cal., Rep. on Appellate
Procedure: Recoverable Costs on Appeal (Advisory Com. Report) Aug. 27, 2012, pp. 4-
5.) Siry argues that the Judicial Council did not follow its procedures because it did not
solicit further public comment in August 2012, after making a change to the proposed
amendment. However, recirculation for further public comment is unnecessary if “the
proposal presents a nonsubstantive technical change or correction or a minor substantive
change that is unlikely to create controversy.” (Cal. Rules of Court, rule 10.22(d)(2).)
The change here clarified that the power to award “fees and net interest incurred on funds
borrowed to obtain a letter of credit to secure an appeal bond” in the original draft
amendment also reached such fees and expenses when the funds were borrowed to secure
the appeal bond directly (that is, without obtaining a letter of credit as an intermediary
step). We agree with the Advisory Committee that award of fees and expenses in both
situations is “indistinguishable on both a policy and functional basis” (Advisory Com.
Report, at p. 5), and that further opportunity for public comment was not mandated by the
Judicial Council’s rules.
Second, the advance notice here was more than sufficient in any event. Atkins
upheld 90 days of “lead time” and Texaco upheld two years of “lead time.” (Atkins,
supra, 472 U.S. at p. 117; Texaco, supra, 454 U.S. at pp. 531-532.) Here, Siry had 64
days of “lead time” after the Judicial Council’s adoption of amended rule 8.278 and 127
days after its recirculation in what became its final form. Siry does not explain why such
notice was insufficient.
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II. Application of amended rule 8.278
Siry alternatively argues that the trial court erred in determining that the
$377,157.72 defendants sought to recover were “fees and net interest expenses incurred
to borrow funds to provide security for the bond” under the amended rule 8.278. In
particular, Siry asserts that (1) there is insufficient evidence that defendants borrowed
funds, and (2) there is no evidence that the money, even if borrowed, was borrowed
specifically for the purpose of securing a security bond. We reject these arguments.
Although not overwhelming, there was sufficient evidence that the $2.6 million
that the defendants used as collateral for their surety bonds came from the proceeds of an
earlier loan having a then-current balance of $16.5 million. Defendants provided ample
evidence that they had taken this prior loan at 5.71 percent interest, secured by a certain
parcel of real property. Siry argues that the loan was not taken out in their names, but the
evidence shows defendants were personally liable for that loan. Farkhondehpour stated
that the money was “relate[d] to” this loan, and Neman stated that “these [were]
borrowed funds.” This is sufficient evidence that defendants were financing the
collateral for their surety bonds with the liquid proceeds of a portion of a preexisting loan
made to them.
There is also no need for defendants to prove that they borrowed these funds
specifically to obtain funding for their surety bond in this case. Siry points to amended
rule 8.278’s requirement that “the fees and net interest expenses [be] incurred to borrow
funds to provide security for the bond.” (Rule 8.278(d)(1)(F).) But Siry’s argument asks
us to rewrite the rule to mandate that “the fees and net interest expenses [be] specifically
incurred to borrow funds to provide security for the bond.” We are not allowed to do
that. (Ennabe v. Manosa (2014) 58 Cal.4th 697, 719 [“‘“Where the words of the statute
are clear, we may not add to or alter them to accomplish a purpose that does not appear
on the face of the statute or from its legislative history.”’ [Citation.]”].)
Siry urges us to engraft a specific purpose requirement onto the rule. Siry
contends this is necessary to prevent prevailing parties on appeal from financing bonds
with their own never-borrowed money and thereafter seeking to collect interest on the
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theory that they could have used their own money to pay off one of their outstanding
loans, and are thus entitled to receive interest at that loan’s interest rate to compensate
them for this lost opportunity cost. This may well be a valid concern (see Sequoia
Vacuum Systems v. Stransky (1964) 229 Cal.App.2d 281, 289 [disallowing cost award to
“a party who was not required to borrow but could deposit his own money [to obtain a
bond], to claim as costs the interest which he might otherwise be acquiring through
investment elsewhere”]), but it is not one implicated in this case. That is because, as we
noted above, the trial court found in this case that defendants did borrow the funds they
put up as collateral. Siry alternatively argues that defendants still should have been
required to pay off their prior loan and to take out a new loan to finance the surety bonds,
even if from the same lender. But Siry’s proffered requirement makes no sense: Not
only does it require the prevailing party to take additional steps not mandated by the text
of the rule, but it also results in the accrual of additional loan origination, financing and
escrow fees—all of which are ostensibly collectible as “fees” under rule 8.278 and thus
drive up the potential cost-shifting exposure to the nonprevailing party.
DISPOSITION
The judgment is affirmed. Defendants are entitled to their costs on appeal.
_______________________, J.
HOFFSTADT
We concur:
____________________________, P. J.
BOREN
____________________________, J.
CHAVEZ
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Filed 7/9/15
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION TWO
SIRY INVESTMENTS, L.P., B251250
Plaintiff and Appellant, (Los Angeles County
Super. Ct. No. BC372362)
v.
ORDER MODIFYING OPINION,
SAEED FARKHONDEHPOUR et al., CERTIFYING OPINION FOR
PUBLICATION, AND DENYING
Defendants and Respondents. REHEARING
No Change in Judgment
THE COURT:
It is ordered that the opinion filed herein on June 17, 2015, be modified as follows:
On page 5, the first full paragraph, beginning “Siry nevertheless contends” is deleted, and
the following paragraph is inserted in its place:
Siry nevertheless contends that defendants’ prior appeal became final when we
issued our opinion, and for support cites Stockton Theatres, supra, 47 Cal.2d at
p. 477, and Southern Service Co. v. County of Los Angeles (1940) 15 Cal.2d 1(Southern Service). Stockton Theatres held that a new cost statute could be
applied to an appeal, even though the statute took effect after the appeal was filed
and the bond posted, because the “decision [was] rendered” after the statute’s
effective date. Rubenstein v. Rubenstein (2000) 81 Cal.App.4th 1131, also looked
to the date an appellate opinion was filed, but not in the context of general
retroactivity principles; instead, Rubenstein held that, within the meaning of a
 BOREN, P. J. CHAVEZ, J. HOFFSTADT, J.
statutory exception excepting certain judgments from ordinary rules of res
judicata, a “judgment[] [was] entered” on the date the appellate court issued its
opinion rather than the date the trial court issued the ruling being reviewed. (Id. at
pp. 1145-1146.) Neither Stockton Theatres nor Rubenstein confronted whether, in
deciding whether an appeal is still pending for retroactivity purposes, the relevant
date is the date an opinion is filed or instead the date the remittitur issues.
Southern Service also does not address this issue, instead holding that the
Legislature may lawfully repeal a statute authorizing a lawsuit for a tax refund and
thereby terminate lawsuits based on that statute. (Southern Service, at p. 12.)
Because cases are not authority for propositions they did not consider (Riverside
County Sheriff’s Dept. v. Stiglitz (2014) 60 Cal.4th 624, 641), the cases Siry cites
do not contradict—let alone overcome—the weight of the statutory and decisional
authority discussed above.
There is no change in the judgment.
At the time of filing, this opinion was not certified for publication in the Official
Reports.
For good cause it now appears that the opinion, as modified herein, should be
published in the Official Reports and it is so ordered.
Appellant’s petition for rehearing is denied.
CERTIFIED FOR PUBLICATION.
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