500 P.3d 906
Utah Ct. App.2021Background
- In May 2012 H&P paid $868,140 (two checks) expecting to purchase 20,000 Facebook shares at $41.34/share plus a 5% management fee; defendants (iLux/Fortius and their agents Buchanan and Bollinger) treated H&P as a limited partner in a pooled Fund governed by a PPM.
- The Fund later distributed 17,557 Facebook shares to H&P (Dec. 11, 2012), leaving H&P short 2,443 shares; communications between the parties discussed final capital-account reconciliations and audits.
- H&P demanded the missing shares and received a lengthy response from Bollinger (Feb. 7, 2014); H&P sued for breach of contract and alternative fraud/other relief.
- The district court found the operative contract was the May 7 checks (purchase of 20,000 shares at $41.34 plus management fee), concluded defendants breached by failing to deliver 2,443 shares, awarded $172,915.54 for the missing shares (using the New York rule/highest intermediate value), refunded the $41,340 management fee, awarded ~ $27,000 from H&P’s capital account, and entered personal judgment against Buchanan and Bollinger.
- The Utah Court of Appeals reversed in part and remanded: it held the trial court erred in the breach-notice date (should be Nov. 5, 2013 based on plaintiff testimony), erred applying the New York rule to a contract breach, erred in awarding the management-fee refund and capital-account distribution (election-of-remedies/double recovery), and erred in imposing personal liability on the agents. The court directed recalculation of damages and vacated personal judgments against the individuals.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Proper date H&P "learned" of the breach for market-difference damages | H&P learned only when Bollinger replied to counsel (Feb. 7, 2014) | Defendants: H&P knew earlier (Dec. 11, 2012 or Nov. 5, 2013) and should have covered sooner | Court of Appeals: Trial court erred; plaintiff admitted on Nov. 5, 2013 that no more shares would be delivered, so learning date is Nov. 5, 2013 |
| Use of U.C.C. § 2-713 measure for nondelivery of publicly traded stock | H&P: section analogous and proper measure (market difference when learned) | Defendants: (not seriously disputed below) | Court: § 2-713 may sensibly apply by analogy to publicly traded stock when Article 8 is silent on measure of damages |
| Application of the New York rule (highest intermediate value) | H&P: highest intermediate value applicable to protect owner of fluctuating stock | Defendants: rule applies only to conversion, not contract breach | Court: New York rule applies to conversion only; trial court erred to apply it to breach of contract (Lake v. Pinder controls) |
| Personal liability of defendant-agents and additional awards (management fee & capital account) | H&P: agents personally liable; entitled to refund of management fee and capital-account distribution | Defendants: agents acted only for LLCs; fee refund and capital-account award are inconsistent with enforcing the May 7 contract (double recovery) | Court: Agents not personally liable because they acted as LLC agents; awarding fee refund and capital-account distribution was inconsistent with enforcing the contract and thus erroneous (election of remedies/double recovery); capital-account award was plain error |
Key Cases Cited
- Coombs & Co. of Ogden v. Reed, 303 P.2d 1097 (Utah 1956) (statutory predecessor rule: damages for nondelivery of stock measured by market difference at time of refusal to deliver)
- Lake v. Pinder, 368 P.2d 593 (Utah 1962) (New York rule for highest intermediate value applies only to conversion, not to breach of contract)
- Broadwater v. Old Republic Surety, 854 P.2d 527 (Utah 1993) (discusses New York rule in conversion contexts for fluctuating stock)
- Helf v. Chevron U.S.A. Inc., 361 P.3d 63 (Utah 2015) (explains election-of-remedies doctrine and prohibition on double recovery)
- Peters v. Richwell Res., Ltd., 824 P.2d 527 (Wash. Ct. App. 1992) (applies sale-of-goods measure by analogy to publicly traded stock where Article 8 is silent)
- Buford v. Wilmington Trust Co., 841 F.2d 51 (3d Cir. 1988) (applies sale-of-goods measure to securities by analogy)