Rubinstein v. Yehuda
| Decision Date | 29 June 2022 |
| Docket Number | 20-11189 |
| Citation | 38 F.4th 982 |
| Parties | Arturo RUBINSTEIN, individually, Fab Rock Investments, LLC, a Nevada limited liability company, Oceanside Mile, LLC, a Florida limited liability company, Plaintiffs-Appellees-Cross Appellants, v. Yoram YEHUDA, Sharona Yehuda, the Keshet Inter Vivos Trust, Defendants-Appellants-Cross Appellees, Karin Yehuda, et al., Defendants. |
| Court | U.S. Court of Appeals — Eleventh Circuit |
Scott Allan Cole, Cole Scott & Kissane, PA, Miami, FL, Brian M. Grossman, Tesser Grossman, LLP, Los Angeles, CA, Ilana Joy Moskowitz, Barry Adam Postman, Nicole M. Wall, Cole Scott & Kissane, PA, West Palm Beach, FL, for Plaintiffs-Appellees-Cross Appellants.
Michael March Brownlee, Baker, Donelson, Bearman, Caldwell & Berkowitz, PC, Orlando, FL, Gennady L. Lebedev, Lebedev Michael & Helmi, APLC, Studio City, CA, for Defendants-Appellants-Cross Appellees.
Before Wilson, Rosenbaum, Circuit Judges, and Conway,* District Judge.
For many years, Arturo Rubinstein was a close friend to Yoram and Sharona Yehuda. So when the Yehudas found themselves in financial trouble, they turned to Rubinstein for help. The Yehudas’ trouble was this. Through a family trust, they held the majority stake in an LLC that owned a beachfront hotel. The LLC had fallen behind on repaying a bank loan, and the loan was soon coming due. With the threat of bankruptcy and foreclosure on the hotel looming, the Yehudas and Rubinstein worked out a handshake deal. Rubinstein agreed to help the LLC obtain financing, and the Yehudas agreed to assign Rubinstein and his company their majority stake in the LLC.
The question is: what did that assignment entail? The parties told two different stories following the assignment. The Yehudas said that they had agreed to assign Rubinstein a temporary interest in the LLC, and that he had agreed to return that interest after he helped obtain financing. Rubinstein insisted that the Yehudas had agreed to assign a permanent interest in the LLC. While a dispute about the permanency of the assigned interest festered, the Yehudas took matters into their own hands. Holding themselves out as owners of the hotel, they sold the property and distributed the proceeds to themselves and their investors. Rubinstein soon learned of the sale and filed suit.
After years of litigation and a two-week trial, the jury mostly accepted Rubinstein's version of events. They awarded him a four-million-dollar verdict on claims of fraud and conversion, which they reduced by a half million dollars for his failure to mitigate damages. The Yehudas now seek to vacate that verdict, arguing that the district court lacked subject matter jurisdiction. We reject that argument. Though the only federal claim in this case, a civil Racketeer Influenced and Corrupt Organizations Act (RICO) claim, was dismissed at the pleading stage, it was substantial enough to invoke the district court's jurisdiction. And that federal jurisdictional hook empowered the court to continue exercising supplemental jurisdiction over related state law claims.
The Yehudas also complain that the jury's $2.5 million punitive damages award was excessive, that the district court coerced the jury, and that the jury relied on improper expert testimony. Upon review, none of these arguments warrant reversal. Finally, Rubinstein cross-appeals the reduction of damages for failure to mitigate. We reverse on that issue because there was no evidence that any inaction on Rubinstein's part increased the amount of damages suffered.
The origins of this case trace back to 2006. At that time, the Yehudas were looking to buy the Seabonay Beach Resort, a beachfront hotel in Broward County, Florida. They planned to renovate and operate the hotel. For that purpose, they formed Oceanside Mile LLC, which we'll refer to as "Oceanside." Through Oceanside, the Yehudas purchased the hotel property in 2007 for $10.5 million.
The Yehudas transferred their interest in Oceanside to a family trust, which we'll call "the Trust." To help fund the hotel purchase, the Trust sold part of its equity in Oceanside, but kept a 50.5% majority stake. The Yehudas also contributed $3 million of their own money to buy the hotel, and they took out a $6.5 million loan which they personally guaranteed and which was secured by a mortgage against the hotel. That loan was later assigned to First Citizens Bank.
The Yehudas managed and operated the hotel for the next several years, but in 2013 they encountered a problem. The First Citizens loan was nearing maturity, and Oceanside could not pay. Making matters worse, Oceanside could not refinance the loan because the Yehudas had poor credit and no longer qualified as guarantors. In need of help, the Yehudas cut a deal with their friend, Rubinstein, under which the Trust would assign its 50.5% interest in Oceanside to Rubinstein's company, Fab Rock. The understanding was that Rubinstein would obtain financing and help solve Oceanside's financial problems. The Trust promptly made the assignment to Fab Rock and named Fab Rock the managing member of Oceanside.
The agreement, however, was never reduced to writing, and the parties have disputed the nature of the assignment. According to Rubinstein, the assignment was permanent. He offers at least two reasons why the Yehudas agreed to such a deal. First, the deal allowed them to continue to work as managers of the hotel and to earn management fees from doing so. Second, the Yehudas were worried about becoming the target of a lawsuit from Oceanside's minority owners who stood to lose their investment if First Citizens foreclosed on the hotel. By parting with their interest in Oceanside, the Yehudas escaped that predicament. Of course, the Yehudas tell a different story: that the assignment was temporary and for the limited purpose of refinancing the First Citizens loan. They say that Rubinstein was to return his 50.5% interest in Oceanside as soon as a new loan was secured. On this version of events, Rubinstein came to the Yehudas’ aid because he owed them a favor.
In any event, the assignment took place in September 2013, just a month before the First Citizens loan was set to mature. As the deadline approached, negotiations between Oceanside and First Citizens stalemated. Three days before the loan came due, Oceanside filed for Chapter 11 bankruptcy, and First Citizens sued the Yehudas shortly after for breach of their guarantees. In the bankruptcy proceedings, Rubinstein paid hundreds of thousands of dollars in legal fees, and he attended bankruptcy hearings with the Yehudas. The Yehudas’ testimony at some of these bankruptcy hearings was notable. For example, Sharona Yehuda stated under oath that she and her husband had transferred ownership of Oceanside to Fab Rock. And Yoram Yehuda testified at his deposition that the Yehudas had assigned their interest in Oceanside to Fab Rock without any agreement for Fab Rock to return that interest.
After about a year, the bankruptcy proceedings ended when Oceanside secured a $5.2 million loan from Stonegate Bank. Rubinstein and two of Oceanside's minority members personally guaranteed the Stonegate loan, which infused enough cash to pay off all but $1 million of the First Citizens loan. To help cover the balance, Rubinstein contributed $500,000. Oceanside's minority owners helped pay off the rest. At that point, First Citizens, having been fully repaid, dismissed its lawsuit against the Yehudas.
It was not long, though, before controversy arose between the Yehudas and Rubinstein. Central to the controversy were two documents executed in December 2015: an agreement, and a modification to the agreement, purporting to transfer Fab Rock's ownership in Oceanside back to the Yehudas for no consideration. While the documents appeared to bear Rubinstein's signatures, Rubinstein insisted that the Yehudas had forged the signatures in an effort to seize control of Oceanside.
Meanwhile, the Yehudas created an LLC called Fabrock One—named nearly identically to Rubinstein's Fab Rock—and appointed their daughter manager of the company. Sharona Yehuda then called Oceanside's accountant and informed him that Fab Rock's tax identification number and address had changed. But rather than give the information for Fab Rock, she gave the information for the newly created Fabrock One. The Yehudas also opened new bank accounts without Rubinstein's knowledge and moved Oceanside's money into those accounts. The reason for opening these accounts, Rubinstein says, was to divert Oceanside's sales proceeds to accounts the Yehudas controlled.
Around the same time, in late 2015, the parties began filing competing annual reports with the State of Florida. Sharona Yehuda filed reports listing herself as Oceanside's manager. Rubinstein countered with amended reports listing Oceanside's manager as himself or Fab Rock. These back-and-forth filings continued through December 2015. Sharona Yehuda continued to submit filings after that time, but Rubinstein tried a different tack. In June 2016, he directed the Yehudas to relinquish their role as hotel managers. When they refused, he sued in California, where the Yehudas resided. Among other things, Rubinstein sought to remove the Yehudas as managers of the hotel.
While the California action was pending, the Yehudas began negotiating a sale of the hotel—apparently without Rubinstein's knowledge. In December 2016, they executed a contract to sell the hotel for $13.5 million. When the buyers, conducting due diligence, asked who Rubinstein was, the Yehudas said he was merely a "front man" on a loan. At the closing, Sharona Yehuda signed over the deed along with an owner's affidavit stating under penalty of perjury that no one else had an interest in the hotel and that Oceanside was not involved in ongoing litigation. The Yehudas received just over $4 million in sale proceeds, with the rest going to Oceanside's minority members. None...
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