Newcomer v. Cohen
| Decision Date | 30 October 2018 |
| Docket Number | 50247-0-II |
| Citation | 5 Wn.App.2d 1054 |
| Court | Washington Court of Appeals |
| Parties | WILLIAM NEWCOMER, a married man as his separate estate, Respondent, v. MICHAEL COHEN and "JANE DOE" COHEN, husband and wife and the marital community of the composed; APEX PENTHOUSE CONDOS, LLC, a Washington limited liability company; and APEX APARTMENTS I TIC, LLC, a Washington limited liability company; MC APEX, LLC, a Washington limited liability company; AMC FAMILY LLC, a Washington limited liability company; NEWCOMER APEX I TIC, LLC, a Washington limited liability company, Appellants, ECKSTEIN INVESTMENTS, LLC, a Washington limited liability company; RB&F PROPERTY MANAGEMENT, LLC, a Washington limited liability company; Respondents, ENTRUST NORTHWEST, LLC, a Washington limited liability company; BILL DONOHOE; 2009 NEWCOMER FAMILY, L.L.C., a Washington limited liability company, BR NEWCOMER, LLC, a Washington limited liability company, Third Party Defendants. |
UNPUBLISHED OPINION
This is the second case arising out of William Newcomer's investments in apartment and condominium buildings developed and managed by Michael Cohen. Here, multiple appellants[1] appeal the trial court's summary judgment order that ruled certain LLC (limited liability company) agreements Newcomer had entered into were void.[2]
In 2005, Cohen, Newcomer, and others became members of Apex Apartments LLC as a means of investing in a multimillion dollar apartment and condominium construction project. Cohen managed the LLC and sold securities to Newcomer. During the course of the endeavor, Newcomer transferred his interests from Apex Apartments LLC to new, related limited liability companies.[3] Other members made similar transfers.[4] In addition, Newcomer loaned Cohen, Apex Condos, and Apex TIC, $600, 000, and secured the loan with a promissory note. In 2008, Newcomer obtained a $2, 309, 552 judgment against Cohen for Cohen's violation of the Washington State Securities Act (WSSA). Cohen appealed, and this court affirmed the judgment.[5]
Newcomer then initiated the lawsuit at issue here, seeking to recover on the $600, 000 promissory note. Cohen, Apex TIC, and Apex Condos claimed that a setoff applied because Newcomer's debt owed in capital contributions to the project was greater than the amount owed on the promissory note. On summary judgment, the trial court ruled that all the LLC agreements Newcomer had entered into related to the project were void under the WSSA and RCW 21.20.430(5).[6] Thus, the trial court determined that Newcomer had no liability to Cohen, Apex TIC or Apex Condos.
We hold that (1) the trial court improperly determined that the prior judgment voided all the LLC agreements; (2) the trial court improperly determined that, as a matter of law, RCW 21.20.430(5) operated to void the LLC agreements; and (3) on the record before us, questions of material fact exist regarding whether RCW 21.20.430(5) precludes Apex Condos Apex TIC, or Newcomer TIC from bringing suit against Newcomer. We therefore reverse the trial court's order granting summary judgment to Newcomer and remand for further proceedings. We also deny the parties' requests for reasonable attorney fees and costs and we do not consider additional arguments raised by the parties on appeal.
This case has a complex procedural background. Apex Apartments LLC formed in 2005 to hold real property and develop apartment and condominium complexes. Specifically, the LLC sought to develop two buildings in Tacoma.
Multiple parties agreed to join the company as initial investors. These parties included: William Newcomer, Michael Cohen, MC Apex LLC, Ken Thomsen, AMC Family LLC, Jess Thomsen Inc. Eckstein Investments LLC (Eckstein), and RB&F Property Management LLC. (RB&F).[7] Cohen became manager of Apex Apartments LLC.
The parties agreed that Cohen, Thomsen, and Newcomer, as primary members, would each contribute an initial capital contribution of $800, 000. Eckstein Investments and RB&F as secondary members would each contribute $100, 000.
The parties entered into an operating agreement for Apex Apartments LLC. The LLC agreement required the members to make additional capital contributions (also known as "capital calls"). Clerk's Papers (CP) at 56. The agreement provided that each member "shall be required to make such additional Capital Contributions as shall be determined by the Manager." CP at 115.
From 2005 to 2008, Cohen made four capital calls to Newcomer and other members. These capital calls were considered sales of securities. In response to each capital call, Newcomer contributed all of the requested amount in cash. Cohen, however, did not. Instead, Cohen engaged in financial maneuvers he failed to disclose to Newcomer, including crediting $350, 000 in "deferred equity" or "deferred management fees" toward his capital account and borrowing hundreds of thousands of dollars from another company that Cohen and Thomsen owned in order to contribute Cohen's share of capital to the project. CP at 1475, 1506.
In March 2008, the members reorganized Apex Apartments LLC. They formed two tenants-in-common (TIC) entities, Newcomer Apex I TIC LLC (Newcomer TIC) and Apex Apartments I TIC LLC (Apex TIC) for the purpose of holding the real estate for the project. A statutory warranty deed transferred a one-third real property interest to Newcomer TIC. Cohen managed both TICs.
In December 2008, Cohen, through Apex Apartments LLC, made a fourth capital call for $910, 000 from each principal member. Newcomer contributed $910, 000. Again, Cohen did not contribute his capital payment in cash. Without informing Newcomer, Cohen contributed his $910, 000 share through a reduction in the debt owed to his other company. Newcomer requested financial information from Cohen, but the information Cohen provided was not complete.
In July 2010, Cohen asked Newcomer for a $600, 000 loan and Newcomer obliged. This loan was secured by a promissory note. Cohen, Apex Condos, and Apex TIC, were all makers on the note.[8] The due date for the note was November 1, 2015. In October 2010, the members of Apex Apartments LLC formed yet another new company, Apex Penthouse Condos LLC (Apex Condos). Cohen also managed this company on behalf of the members. At this point, Newcomer held interests in Newcomer TIC, Apex TIC, and Apex Condos; Newcomer entered LLC agreements with each member of the entities. In 2013, Newcomer discovered, some of Cohen's deceptions.
In January 2014, Newcomer sued Cohen, alleging violation of the WSSA and seeking damages. Newcomer asserted, among other things, that Cohen made misrepresentations in connection with the four capital calls.[9] Newcomer did not seek rescission of any LLC agreements and did not request that the court void any agreements.
In February 2015, Cohen made a final capital call in the amount of $1, 552, 693.88, to cover the remaining debts. Newcomer did not contribute any capital in response to the call by Cohen. Then in April 2015, a company purchased the Apex project for $26, 500, 000.00. The investors received no return on their contributions; Newcomer lost his total capital contribution of $2, 309, 522.00.
Newcomer's suit against Cohen proceeded to trial. In September 2015, the jury entered a special verdict in Newcomer's favor. The jury awarded Newcomer damages in the amount of $2, 309, 552 which was the total amount in capital contributions he made to the Apex project. The verdict form stated Cohen violated the WSSA with respect to the sale of securities through the four capital calls.
The trial court then entered a judgment on the verdict against Cohen in the amount of $2, 309, 552. Cohen appealed to this court, and we affirmed the judgment. Newcomer v. Cohen, No. 48233-9, slip op. at 25 , http://www.courts.wa.gov/opinions, review denied, 189 Wn.2d 1029.
In January 2016, Newcomer initiated a suit against Cohen, Apex Condos, and Apex TIC, for the entire balance of the $600, 000 promissory note that became due in November 2015. Newcomer alleged breach of contract and unjust enrichment.
Cohen filed an answer to Newcomer's complaint and asserted counterclaims, cross claims, and third-party claims. Apex Condos and Apex TIC also filed an answer to Newcomer's complaint, and asserted counterclaims, cross claims, and third-party claims. Apex Condos and Apex TIC asserted setoff as an affirmative defense, arguing that they had the right to cancel the alleged debt secured by the promissory note in an amount "equal to unpaid capital-call obligations" owed by Newcomer. CP at 2651. Apex Condos and Apex TIC also argued that collateral estoppel, equitable estoppel, judicial estoppel, and res judicata applied to prevent Newcomer from asserting certain claims.[10]
Third-party defendants Eckstein Investments and RB&F Property Management filed answers denying Apex Condos and Apex TIC's third-party claims. Third-party defendant BR Newcomer, LLC filed an answer denying Cohen's third-party claims.
In June 2016, Newcomer filed his first motion for partial summary judgment seeking judgment on the promissory note. Newcomer argued that the note was due and that the makers of the note had not paid.
Cohen Apex Condos, and Apex TIC, all responded arguing that the debt to Newcomer had been paid in full by "crediting Newcomer's capital-call obligations" as a form of setoff. CP at 3014. Apex Condos and Apex TIC also argued that Newcomer's capital call debt exceeded the debt on the promissory note and that Apex Condos and Apex TIC paid the debt owed to Newcomer by cancelling...
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