H&P Invs. v. iLux Capital Mgmt. LLC
Decision Date | 28 October 2021 |
Docket Number | No. 20190548-CA,20190548-CA |
Citation | 500 P.3d 906 |
Parties | H&P INVESTMENTS, Homer K. Cutrubus, and Phidia Cutrubus, Appellees, v. ILUX CAPITAL MANAGEMENT LLC, Fortius Financial Advisors LLC, Roberto G. Buchanan, and Jeff M. Bollinger, Appellants. |
Court | Utah Court of Appeals |
Troy L. Booher, Beth E. Kennedy, Salt Lake City, and Dick J. Baldwin, Attorneys for Appellants
James C. Lewis and Chase Kimball, Salt Lake City, Attorneys for Appellees
Opinion
¶1 H&P Investments, Homer K. Cutrubus, and Phidia Cutrubus (collectively, H&P) brought a claim for breach of contract after it received 17,557 shares of Facebook stock, rather than the 20,000 shares for which H&P believed it had contracted. The claim was tried to the bench. The district court found in H&P's favor, and its ruling on the merits is not challenged on appeal. Instead, this appeal concerns various rulings related to the damages the court awarded—central among them being the court's conclusion about when H&P learned of the breach, which determined the value of damages attributable to the missing 2,443 shares—along with its assessment of personal liability against two agents of the principal defendants, Fortius Financial Advisors LLC (Fortius) and iLux Capital Management LLC (iLux) (collectively, the Investment Companies). We reverse and remand.
¶2 Facebook filed for an initial public offering (IPO) in February 2012, and it was "expected to be one of the largest in history." The Investment Companies learned of an opportunity to acquire shares of Facebook prior to the IPO but believed that to convince the owner to sell, they needed to be able to offer to purchase a substantial number of shares. They thought that combining money from numerous investors through a pooled investment vehicle would be an optimal way to do so.
¶3 To that end, they formed the iLux Secondary Market Fund LP (the Fund), with iLux acting as the general partner of the Fund and the investors acting as limited partners. The terms and conditions of investing in the Fund were contained in a lengthy private placement memorandum (PPM). The PPM indicated that the Fund was a vehicle for a variety of investments, not just Facebook, and thus any investor would be purchasing shares in the Fund rather than purchasing shares of Facebook (or any other particular stock). Other terms noted that each investor would have a "capital account," where each individual investor's funds would be placed, including each investor's contributions and pro-rata share of any stocks purchased or other proceeds generated. The PPM further specified that, unless waived by the general partner, there was a "one-year lockup period," meaning that investors had to wait one year from the time of their admission to the Fund before they could withdraw anything from their capital account.
¶4 In March 2012, Roberto G. Buchanan, an investment advisor with the Investment Companies, reached out to Homer Cutrubus (Cutrubus) to see if he would be interested in the opportunity to buy some Facebook shares. Cutrubus indicated that he was interested in purchasing 20,000 shares, depending on the price, through H&P, a company he owned with his brother, Phidia. After several communications, H&P committed to investing in April 2012 by tendering $868,140 to iLux and the Fund. However, H&P and the Investment Companies had different ideas about the terms of that investment.
¶6 On the other hand, the Investment Companies believed that H&P had simply signed on to be an investor in the Fund—meaning that H&P had contracted to receive only a pro-rata share of the stocks eventually acquired at whatever price. This belief was based on the fact that Buchanan had sent the PPM to H&P in the course of negotiations and, at some point during these discussions, Cutrubus signed the acknowledgment pages at the end of it.
¶7 The Investment Companies apparently had every intention of reaching an agreement with a seller to acquire Facebook shares at $41.34 per share, but this deal collapsed just days before Facebook's IPO occurred on May 18, 2012. The Investment Companies scrambled to find another seller and eventually locked in a sale and purchased a substantial number of Facebook shares. However, the price per share was not the anticipated $41.34, but was instead $47.02.
(Emphasis added.) Cutrubus immediately called Buchanan and told him that he wanted "all [H&P's] shares of stock, because [17,557 shares] was short" by 2,443 shares. Buchanan apparently responded that the 17,557 shares were the shares that were "available" but that "they were still distributing the shares, and they still had an audit before the capital accounts were settled." This answer did not "satisfy" Cutrubus; nevertheless, he came away with "the expectation that [H&P] would receive [its] shares." A few days later, H&P received the 17,557 shares mentioned in the letter.
¶10 In March 2013, Cutrubus again spoke to Buchanan over the phone about the remaining 2,443 shares. Cutrubus apparently told Buchanan that H&P had On March 20, Buchanan forwarded an email to Cutrubus from Jeff M. Bollinger (a manager at both Fortius and iLux) in an effort to provide "information on the questions [he] had." That email explained that iLux had found a seller at $42 per share in early March 2012, but that it was canceled by Facebook just prior to the IPO, and that iLux had then scrambled to find the eventual deal at $47.02 per share. Bollinger also stated,
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