HP Investments v. iLux Capital Management

2021 UT App 113

THE UTAH COURT OF APPEALS

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.

Opinion
No. 20190548-CA
Filed October 28, 2021

Second District Court, Ogden Department
The Honorable Jennifer L. Valencia
No. 140907033

Troy L. Booher, Beth E. Kennedy, and Dick J.
Baldwin, Attorneys for Appellants
James C. Lewis and Chase Kimball, Attorneys
for Appellees

JUDGE DAVID N. MORTENSEN authored this Opinion, in which
JUDGES GREGORY K. ORME and MICHELE M. CHRISTIANSEN
FORSTER concurred.

MORTENSEN, Judge:

¶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
H&P Investments v. iLux Capital

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.

BACKGROUND

¶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.

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¶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.

¶5 For its part, H&P believed it was simply purchasing
20,000 shares of Facebook stock directly from the Investment
Companies at a set price of $41.34 per share, along with a 5%
management fee. Early on, Buchanan told Cutrubus that he
thought the Investment Companies would strike a deal with a
seller for $38 per share but that this was a “moving target.”
However, Buchanan eventually told Cutrubus that the Facebook
shares had been “secured” and that H&P would have to commit
to the purchase of 20,000 shares at that time. Buchanan specified
that the price per share would be $41.34, for a total purchase
price of $826,800, but that there would also be a 5% management
fee of $41,340, for a total investment of $868,140. And when H&P
tendered the $868,140 in two checks on May 7, 2012—the first for
the purchase price and the second for the management fee—
Phidia Cutrubus made a note on each check, reading,

First Check:

“20,000 SHARES of FACEBOOK
at 41.34 = 826,800.00”

Second Check:

“20,000 shares FACEBOOK
at 41.34 = 826,800.00.

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826,800.00 x 5% = 41,340.00
TO COVER MANAGEMENT FEE”

¶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.

¶8 To make matters worse, after the IPO, Facebook’s stock
did not initially perform as anticipated. As a result, iLux sent
various updates to investors of the Fund—including H&P—
regarding the performance of the Facebook stock and related
action the Fund was taking with respect to the stock. For
example, in early November 2012, iLux sent an email indicating,

Currently, [Facebook] is trading at approximately
$22/share . . . . [Although] limited partners of the
Fund were required to remain limited partners of
the Fund for at least one year . . . , the General
Partner has made the decision to distribute the
shares of [Facebook] in-kind to all limited partners
prior to the expiration of the [limited partner
lockup period]. This will . . . give each limited

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partner direct control over their pro rata shares of
[Facebook] shares that the Fund purchased . . . .
The General Partner intends to distribute all shares
of [Facebook] in the Fund to the limited partners.
In order to expedite the process, we ask that you
provide us with the information to transfer your
pro rata portion of [Facebook] shares to your
brokerage account . . . .

¶9 On December 11, 2012, iLux sent H&P a follow-up letter
with specifics about its investment. As is relevant, this letter
stated,

As an investor in the Fund, your pro rata share of the
in kind distribution is 17,557 shares. . . . Please note
that your capital account balance for Q2 and Q3
include your pro rata ownership of Facebook. Your
Q4 capital account balance will reflect the
distribution of the Facebook shares which will
result in a corresponding decrease to your capital
account balance. For your records, the adjusted cost
basis per share is $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

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apparently told Buchanan that H&P had “contracted to buy
20,000 shares, and it was . . . on [the] check, and just like any
stock purchase, . . . if [the Investment Companies] weren’t able
to buy it for that, then they shouldn’t have bought it because
[H&P] only agreed to pay what [it] paid. And so [it] wanted . . .
the balance of [its] shares.” 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, “As you know, we have sent out the shares
of Facebook to all the Limited Partners in December. . . . We will
be making the final capital account distributions on the 1 year
anniversary, which is coming up in May.”

¶11 Months later, on September 11, 2013, Bollinger sent
Cutrubus another email to address his “questions on the share
distribution” and about “any remaining cash” in H&P’s capital
account. The email went on to again explain how the original
deal “was canceled by Facebook” and that iLux had to scramble
to find another deal. That email also stated,

We are in the process of closing out the fund and
will be distributing the remaining cash to you. I am
waiting to hear from the administrators the exact
amount, it should be around $27,000 in addition to
the 17,557 shares that were sent to you previously.
You will be getting a final capital account
statement shortly, and will have an independent
audit performed for your review.

¶12 After reading Bollinger’s email, on September 17, 2013,
Cutrubus wrote a letter to Buchanan in response. In pertinent
part, that letter stated,

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On numerous occasions we have discussed the fact
that you have not forwarded all the shares [H&P]
purchased in Facebook. . . .

While [I] understand you had established [the
Fund] to purchase these shares, please be
reminded [H&P’s] interest was solely in
purchasing the shares of Facebook at the agreed
price. That contractual understanding was clearly
noted on the face of each of two checks.

Therefore, [I] request you send [H&P] the
additional 2,443 shares in Facebook that [H&P is]
due. Additionally, because of the fact that this
transaction was so mishandled, [I] also believe
[H&P is] entitled to a refund of your management
fee in the amount of $41,340.00.

I would suggest you send the requested shares and
check within the next ten days so that it will not be
necessary for [me] to look to other avenues to make
this recovery.

¶13 Cutrubus received a November 5, 2013 email from
Bollinger in response. Essentially, Bollinger apologized for what
he perceived to be a miscommunication between Buchanan and
Cutrubus early on in their communications—Bollinger noted
that while he understood that H&P’s “sole intent” was to acquire
Facebook shares, H&P “executed subscription documents for the
investment into [the Fund] and indirectly into Facebook,” and
because “the investment in Facebook was indirect[,] the number
of shares could not be specified by a limited partner’s
investments into” the Fund. In response to Cutrubus’s demand,
Bollinger stated,

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All Facebook shares have been sent out to each
limited partner, based on the calculations of [the
Fund’s] independent third party fund
administrator. The [Fund] has not retained, nor holds
any shares subject to distribution.

....

I appreciate your position on this matter and hope
we can agree on a resolution . . . . [But we do] not
have the financial wherewithal to fight this matter,
nor are there funds in the [Fund] that could satisfy
your demands.

¶14 On January 6, 2014, H&P’s attorney sent a demand letter
to Bollinger and Buchanan, requesting that they “immediately
deliver” the outstanding 2,443 shares. Bollinger responded on
February 7, 2014, with a lengthy explanation about the Fund,
how the original deal had collapsed, and various other facts
previously relayed to Cutrubus.

¶15 Thereafter, H&P filed suit.

The Court’s Findings and Conclusions

¶16 The central dispute at trial revolved around the terms of
the contract. Put simply, the dispute was whether H&P agreed to
be an investor in the Fund or if it instead agreed to purchase
shares directly from the Investment Companies. The district
court decided that the latter interpretation was correct. It
concluded that H&P never agreed to invest in the Fund because,
even though Cutrubus signed the PPM, he signed only three or
four loose signature pages and was never fully presented with
the PPM’s terms. Instead, the district court concluded that the
terms of the parties’ agreement were contained on the two May
7, 2012 checks, which “clearly and unambiguously set forth the

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terms of the investment, namely 20,000 shares of [Facebook] at
$41.34 per share with a management fee of $41,340” and that this
contract was breached when the Investment Companies “failed
to deliver the remaining 2,443 shares of [Facebook] stock
purchased under the contract.”

¶17 The district court then determined that H&P’s damages
for the nondelivery of the 2,443 shares was $172,915.54. In
coming to this award, the district court first explained that
damages for nondelivery of stock are determined by the value of
the stock on the date that the buyer learned of the breach. The
district court then found that H&P first learned of the breach on
February 7, 2014, when Bollinger replied to the demand made by
H&P’s attorney. On this date, Facebook stock was valued at
$64.32 per share, so the 2,443 shares would be valued collectively
at $157,378.06. 1 However, the district court further determined
that the “New York Rule” was applicable—meaning that the
true measure of damages should be based on the “highest
intermediate value of the stock” between February 7, 2014, and
“a reasonable time after notice of the breach,” which it found
was February 28, 2014. (Cleaned up.) Within this extra twenty-
one-day period, the highest value of Facebook’s stock was $70.78
per share, so the district court used this value and arrived at the
figure of $172,915.54 for the 2,443 shares.

¶18 But these were not the only damages that the district
court awarded. It went on to determine that H&P was “entitled
to reimbursement of the management fee of $41,340.00.”
Additionally, it concluded that H&P was entitled to a
“distribution of [its] share of the capital account” in the Fund—

1. We note that this total was likely calculated incorrectly. The
court apparently used a value of $64.42 per share instead of
$64.32, making the total $244.30 too high. But no party has asked
us to address this calculation.

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which was around $27,000 based on Bollinger’s testimony as to
how much money was left in the capital account created for
H&P. And not only were the Investment Companies adjudged to
be liable for the damages, but the district court entered judgment
against Buchanan and Bollinger in their personal capacities,
because they were “at all times . . . listed individually as
defendants in” the case.

¶19 This appeal followed.

ISSUES AND STANDARDS OF REVIEW

¶20 Appellants first take issue with the district court’s
ultimate decision to award $172,915.54 in damages for the
missing 2,443 shares. Specifically, they contend that the district
court erred in finding that H&P did not learn of the breach until
February 7, 2014. This challenge relates to a factual finding,
which we will not overturn “unless it is clearly erroneous or
against the clear weight of the evidence.” Jacob v. Bate, 2015 UT
App 206, ¶ 15, 358 P.3d 346. They also contend that the district
court erred by applying the New York rule in assessing the
measure of damages. This presents “a question of law that we
review for correctness.” See Mahana v. Onyx Acceptance Corp.,
2004 UT 59, ¶ 25, 96 P.3d 893.

¶21 Appellants next take issue with the two other categories
of damages that the district court awarded to H&P. As to
refunding the management fee, they argue that the district court
erroneously awarded rescission damages on the underlying
contract that it had just enforced. This, too, presents “a question
of law that we review for correctness.” See id. As to the capital
account distribution, they contend that there was simply no
basis for this award and that it would only be available had the
district court found that the PPM was the operative agreement
between the parties. However, they concede that this particular

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contention was not preserved and therefore ask us to review it
for plain error.2 “To obtain relief via the plain-error doctrine, an
appellant must show the existence of a harmful error that should
have been obvious to the district court.” Thomas v. Mattena, 2017
UT App 81, ¶ 9, 397 P.3d 856 (cleaned up).

¶22 Appellants lastly contend that the district court erred in
concluding that Buchanan and Bollinger were personally liable
for the damages. This presents a legal question that we review
for correctness. See Standard Fed. Sav. & Loan Ass’n v. Kirkbride,
821 P.2d 1136, 1137 (Utah 1991) (noting that where “the facts are
not in dispute” and “[t]he trial court made its ruling based on its
interpretation of the law,” an appellate court reviews such a
ruling for correctness).

ANALYSIS

I. Damages for Outstanding Shares

A. Date H&P Learned of the Breach

¶23 In determining the measure of damages for the
outstanding 2,443 Facebook shares, the district court concluded
that the proper measure of damages “is the difference between
the market price at the time when the buyer learned of the
breach and the contract price.” See Utah Code Ann. § 70A-2-

2. “Our supreme court has recognized the ongoing debate about
the propriety of civil plain error review, but has not yet taken the
opportunity to resolve that debate for purposes of Utah law.”
Miner v. Miner, 2021 UT App 77, ¶ 11 n.3 (cleaned up). Because
neither party challenges the application of plain error review in
this case, we apply it “without opining on the propriety of that
review.” See id.

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713(1) (LexisNexis 2009). In addition to determining that this
was the governing law, the district court found that H&P did not
learn that the Investment Companies had breached the contract
until February 7, 2014. At that point in time, Facebook stock was
valued at $64.32 per share. Appellants argue that H&P learned
of the breach as many as fourteen months earlier, which matters
because between these dates “the value of Facebook shares
skyrocketed from $27.98 to $64.32,” resulting “in an excess
award of $88,778.62” on the outstanding 2,443 shares.

1. Applicability of Section 70A-2-713

¶24 However, before we get to Appellants’ arguments, we are
compelled to address the district court’s underlying conclusion
that the proper measure of damages in this case was governed
by Utah Code section 70A-2-713(1). 3 This is so because this
particular statute comes from Article 2 of the Uniform
Commercial Code (U.C.C.)—which deals specifically with the
sale of goods and expressly indicates that the sale of stocks is not
within its ambit. See Utah Code Ann. § 70A-2-105(1) (LexisNexis
2009) (defining the term “goods” and indicating that it does not
include “investment securities”); see also U.C.C. § 2-105 cmt. 1
(Am. L. Inst. & Unif. L. Comm’n 2021) (“‘Investment securities’
are expressly excluded from the coverage of this Article.”).

3. Neither party has challenged the district court’s application of
this statute, instead focusing solely on the court’s finding
regarding the date of breach. However, the statute itself raises an
obvious question as to its applicability where—as is the case
here—the breach concerns the nondelivery of stock. See Buford v.
Wilmington Trust Co., 841 F.2d 51, 56 (3d Cir. 1988) (“The
statutory sale of goods measure does not apply by its own terms,
because the definition of goods excludes investment securities.”).
So to prevent any confusion moving forward, we address
whether the statute should be applied in such a scenario.

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Instead, stocks are provided for in Article 8. See U.C.C. § 8-101
(Am. L. Inst. & Unif. L. Comm’n 2021). See generally Utah Code
Ann. §§ 70A-8-100 to -601 (LexisNexis 2009).

¶25 In reaching its conclusion that this statute was applicable,
the district court correctly noted that in Coombs & Co. of Ogden v.
Reed, 303 P.2d 1097 (Utah 1956), our supreme court expressly
held that “the measure of damages for failure to deliver stock in
breach of a contract of sale” is “the difference in contract price
and market price at the time of the refusal to deliver,” if no time
for delivery was designated in the contract. See id. at 1098–99.
This holding was rather straightforward, in that the Coombs
court simply “interpreted literally” the governing statute in
effect at the time: Utah Code section 60-5-5(3), which was a
provision of the Uniform Sales Act. See Coombs, 303 P.2d at 1097–
98. But, as the district court noted, “Section 60-5-5 referenced in
Coombs was repealed and replaced by § 70A-2-713.”
Consequently, the district court concluded that section 70A-2-
713 should be applied, while reasoning that it “does not
represent a departure from” the rule in Coombs but is instead
merely “a refinement” of it. We do not disagree that the statute
applied in Coombs and section 70A-2-713 are extremely similar,
but the question remains as to whether section 70A-2-713 is the
proper standard given its placement within Article 2 of the
U.C.C.

¶26 Like other courts to address the question, we ultimately
agree with the district court that section 70A-2-713 provides the
proper measure of damages under the circumstances presented
here. As explained above, Article 2 expressly excludes from its
coverage investment securities, which are instead provided for
in Article 8. See, e.g., Peters v. Richwell Res., Ltd., 824 P.2d 527, 531
(Wash. Ct. App. 1992) (“[I]nvestment securities are specifically
excluded from article 2 and specifically provided for in article 8
. . . .”). With that said, the official comments to Article 2 go on to
explain that provisions therein may apply “by analogy to

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securities” if “such application [is] sensible and the situation
involved is not covered by” Article 8. See U.C.C. § 2-105 cmt. 1;
see also Power Sys. & Controls, Inc. v. Keith's Elec. Constr. Co., 765
P.2d 5, 10 n.3 (Utah Ct. App. 1988) (explaining that official
comments to the U.C.C. “are by far the most useful aids” in
interpreting Utah’s U.C.C. provisions (cleaned up)). Noting this
language, along with the fact that Article 8 is indeed silent on the
measure of damages for the nondelivery of stock, other courts
have applied their state’s respective versions of section 70A-2-
713 to the sale of stock. See Peters, 824 P.2d at 531 (“We see no
reason, nor has one been suggested to us, why the sale of goods
measure should not be applied by analogy under the facts
presented.”); Buford v. Wilmington Trust Co., 841 F.2d 51, 56 (3d
Cir. 1988) (“[W]e hold that the measure of damages [under
Pennsylvania law] for a seller’s breach of a contract to deliver
securities . . . is the market value on the date the securities
should have been delivered.”).

¶27 We see no reason to depart from the sensible approach
adopted by these courts. Under section 70A-2-713, a buyer who
was aware of breach and could have—but did not—“cover” by
purchasing a replacement good, is simply entitled to the
difference between the contract price and the market price at the
time the buyer should have covered, i.e., when it learned of the
breach. See Utah Code Ann. §§ 70A-2-712 to -713 (LexisNexis
2009); U.C.C. § 2-713 cmt. 1 (Am. L. Inst. & Unif. L. Comm’n
2021). While the rule is specifically intended to apply to the sale
of goods, we agree that it is equally sensible to apply it to
publicly traded stocks that can be purchased on an open market.
See Peters, 824 P.2d at 532 (“Since the stock was publicly traded,
once [the plaintiff] learned of the breach [the plaintiff] could
have covered by acquiring the stock on the open market.”); see
also Coombs, 303 P.2d at 1098 (noting that the purpose of the
predecessor statute was to prevent a contracting party from
gambling on changing market conditions). With this in mind, we

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move on to an analysis of the district court’s findings regarding
the date H&P learned of the breach.

2. The District Court’s Finding Regarding When H&P
“Learned” of the Breach

¶28 In contending that the district court erred in finding that
H&P did not learn of the breach until February 7, 2014,
Appellants specifically assert two earlier alternative dates on
which the district court was required as a matter of law to find
that H&P learned of the breach. The first of these dates is
December 11, 2012, which Appellants frame as an objective
measure by which any reasonable person would have known of
the breach. The second of these dates is November 5, 2013, which
Appellants frame as a subjective measure and assert that H&P
was unquestionably aware of the breach by this date. 4

¶29 The district court found that H&P was not “on notice”
that it “would not receive the remaining 2,443 shares” prior to
Bollinger’s February 7, 2014 response to the demand letter
drafted by H&P’s attorney. In coming to this finding, the district
court appeared to credit Cutrubus’s testimony that for some
time, he maintained a belief that H&P would receive the
outstanding shares based primarily on verbal communications
from Buchanan. Specifically, the court relied on the multiple
communications in which Buchanan responded to Cutrubus’s
concerns about the missing shares by telling him that a final
distribution would be made after an audit of the capital accounts
took place—from which Cutrubus inferred that H&P would

4. During oral argument, Appellants additionally argued that
Cutrubus learned of the breach in March 2013. We decline to
address this argument because it was never meaningfully
developed in the briefs. See State v. Kitches, 2021 UT App 24, ¶ 39
n.4, 484 P.3d 415.

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receive its shares once the audit and resulting final account
distribution occurred.

¶30 We will not set aside the district court’s finding of fact
unless Appellants demonstrate that the finding is clearly
erroneous. See Levin v. Carlton-Levin, 2014 UT App 3, ¶ 12, 318
P.3d 1177; Save Our Schools v. Board of Educ., 2005 UT 55, ¶¶ 9–10,
122 P.3d 611. And it is not enough to simply demonstrate “[t]hat
another fact-finder might have reached different factual findings
based on the evidence.” Levin, 2014 UT App 3, ¶ 12. Instead, the
Appellants must demonstrate that the finding is not “adequately
supported by the record,” even after “resolving all disputes in
the evidence in a light most favorable to the trial court’s
determination.” Save Our Schools, 2005 UT 55, ¶ 9 (cleaned up).

¶31 Appellants first argue that the district court should have
instead found that Cutrubus was aware of the breach on
December 11, 2012, based on the contents of the letter sent to him
by iLux on that date. See supra ¶ 9. They assert that knowledge of
breach should be determined, as with the running of the statute
of limitations under our discovery rule, by when H&P learned of
or should have learned of the breach. (Citing Colosimo v. Roman
Cath. Bishop of Salt Lake City, 2004 UT App 436, ¶ 20, 104 P.3d
646, aff’d, 2007 UT 25, 156 P.3d 806.) From this, they argue that
Cutrubus should have learned of the breach upon reading the
December 11, 2012 letter because that letter stated “that he
would receive 17,557 shares (not 20,000), and the price would be
$47.02 per share (not $41.34),” which “contradicted the terms of
the contract that the district court found to be operative.”

¶32 We do not agree that the district court was obligated to
find that H&P learned of the breach on December 11, 2012. As an
initial matter, we note that the district court expressly
acknowledged the contents of the December 11 letter. But it then
went on to find that this letter was the first of multiple instances
in which Cutrubus discussed the outstanding shares with

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Buchanan and inferred that H&P would still receive them.
Specifically, the district court found that Cutrubus called
Buchanan upon reading the letter and “told him that he wanted
delivery of the remaining 2,443 shares,” to which Buchanan
responded “that there was an audit and there would be a final
distribution with the capital account.”

¶33 These findings about the subsequent conversation and the
evidence supporting them belie any notion that the district court
clearly erred by rejecting December 11, 2012, as the date that
Cutrubus learned of the breach. Appellants’ argument boils
down to an assertion that Cutrubus “should have” inferred,
based on the information in the December 11 letter, that H&P
would not receive the remaining 2,443 shares. Yet Appellants fail
to acknowledge that upon receipt of this information, Cutrubus
immediately called Buchanan—the representative of the
Investment Companies with whom Cutrubus had been working
and communicating exclusively up to this point—and pointedly
told him that he expected H&P would receive the remaining
shares. Rather than simply tell Cutrubus that H&P would not be
receiving any more shares, Buchanan instead told him that they
were still “distributing the shares” and that there would be “a
final distribution with the capital account.” Assuming for the
sake of argument that the proper inquiry is whether a reasonable
person should have been aware of a breach, given the context of
the communication, it was not unreasonable for Cutrubus to
infer from Buchanan’s statements that H&P would still receive
the 2,443 shares at a later date. Said another way, the district
court was not limited to finding that H&P should have covered
on December 11, 2012. Cf. Moses v. Archie McFarland & Son, 230
P.2d 571, 575 (Utah 1951) (noting that it is particularly reasonable
for the buyer to forgo covering where there is “assurance from
the seller that proper performance will soon be rendered”).

¶34 Appellants next argue that the district court should have
found that H&P learned of the breach on November 5, 2013.

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They assert that Cutrubus testified that he subjectively
understood that H&P would not receive the outstanding shares
as of this date. And therefore Appellants assert that by
Cutrubus’s own admission, the district court erred in finding
that H&P did not learn of the breach until approximately three
months later.

¶35 The following is the testimony to which Appellants refer.
At trial, Cutrubus was asked, “When did you first conclude that
you weren’t going to get the 20,000 shares?” Cutrubus testified
that when he sent his September 17, 2013 demand letter to
Bollinger, he “didn’t know what the game was going on down
there, but [he] felt that they had a brokerage account there—they
had the stocks somewhere.” However, Cutrubus’s “expectation
that [H&P] would get the remainder of [its] 20,000 shares
change[d]” when he received Bollinger’s reply on November 5,
2013. Indeed, at that time, Cutrubus “conclude[d]” that “we got
what we got, and they were not going to deliver the balance of
what we agreed to.”

¶36 We agree with Appellants that based on Cutrubus’s own
testimony, the district court clearly erred in concluding that
H&P learned of the breach after November 5, 2013. By his own
admission, Cutrubus was aware that H&P was not going to
receive any more shares—therefore, H&P should have covered
by that date. In the face of such unequivocal testimony about his
own state of mind, 5 there is “insufficient evidentiary support,”

5. H&P argues that Cutrubus still believed H&P would receive
the outstanding shares and that this testimony is essentially
being taken out of context. However, the only support H&P
provides for this argument is the fact that “just a moment later,”
Cutrubus testified that—in an earlier conversation with
Buchanan—Buchanan did not explicitly tell Cutrubus that H&P
would not receive the shares and that this conversation with
(continued…)

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see Newton v. Stoneridge Apartments, 2018 UT App 64, ¶ 19, 424
P.3d 1086, for the district court’s contrary finding that H&P was
not “on notice” that it “would not receive the remaining 2,443
shares” until months later. On this basis, the district court’s
finding was clearly erroneous.

¶37 Accordingly, we reverse and remand. On remand, the
district court should amend its finding regarding the date that
H&P learned of the breach to November 5, 2013. It should then
make a finding as to the precise value of Facebook shares as of
that date and amend the damages attributable to the undelivered
2,443 shares commensurate with this finding.

B. Application of the New York Rule

¶38 Appellants’ next and related assignment of error concerns
the fact that the district court, after determining that H&P did
not learn of the breach until February 7, 2014, used an even later
date to calculate damages. Specifically, the district court
concluded that damages should be calculated as of February 24,
2014. The district court’s selection of this latter date was based
on its application of “the New York rule, which sets the measure
of damages as the highest intermediate value of the stock
between the time of conversion and a reasonable time after the
owner receives notice of the conversion.” See Broadwater v. Old
Republic Surety, 854 P.2d 527, 531 (Utah 1993). Appellants argue

(…continued)
Buchanan happened “in the context of [Cutrubus’s] efforts to get
delivery of the remaining 2,443 shares.” But this simply speaks
to Cutrubus’s belief at an earlier point in time. It does not
contradict or clarify Cutrubus’ clear testimony as to his state of
mind when he received Bollinger’s response to H&P’s demand
letter.

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that the district court erred because the New York rule “applies
only in conversion cases.”

¶39 In applying the New York rule, the district court noted
that Utah courts have applied it only in the context of conversion
claims. But the district court went on to explain that it believed it
to be an open question as to whether the rule could be applied to
breach of contract claims. It resolved this apparent uncertainty in
favor of applying the rule in this case, reasoning that what
happened here was “analogous to a conversion” because H&P
was “denied the benefits of ownership and use of an asset [it]
had purchased” and had “consistently and repeatedly asked
for.”

¶40 We start by noting that the district court was correct in its
acknowledgment that Utah courts have applied the New York
rule only in the context of conversion of shares. See, e.g., Ockey v.
Lehmer, 2008 UT 37, ¶ 47, 189 P.3d 51 (noting that the New York
rule was applicable to a breach of fiduciary duty claim because
that claim arose from the defendant’s “conversion of the stock”
and thus “share[d] the same operative facts”); Broadwater, 854
P.2d at 531–33 (applying the rule in reviewing the damages
awarded for conversion of stock); Western Sec. Co. v. Silver King
Consol. Mining Co. of Utah, 192 P. 664, 672 (Utah 1920) (noting the
applicability of the rule if the defendant “was guilty of
conversion of the stock”). And this makes sense, given that the
New York rule was adopted as an exception to the general rule
for measuring conversion damages—which would instead
award the plaintiff “the value of the property at the time of the
conversion, plus interest”—because the general rule provides an
inadequate remedy “when the property converted, such as stock,
fluctuates in value.” See Broadwater, 854 P.2d at 531.

¶41 The district court erroneously concluded, however, that it
remained an open question whether the New York rule could be
applied in Utah to a breach of contract claim. In coming to this

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conclusion, the district court appeared to largely rely on Kearl v.
Rausser, 293 F. App’x 592 (10th Cir. 2008), an unpublished
decision in which the Tenth Circuit opined that some
“jurisdictions have applied the so-called ‘New York’ rule of
damages to actions involving . . . a breach of contract to deliver
stock, and it is at least possible Utah would do the same.” Id. at
605. But this assessment was simply incorrect. In Lake v. Pinder,
368 P.2d 593 (Utah 1962), our supreme court held that “the rule
. . . that in case of a conversion of fluctuating stock, the owner,
who is deprived thereof, is entitled to be repaid the highest
market value of such stock within a reasonable time
thereafter”—i.e., the New York rule—“is not applicable . . .
where there was no conversion of plaintiff’s stock.” See id. at
594–95 (citing Western Sec. Co., 192 P. 664). Indeed, the Lake
court’s holding came in the specific context of rejecting the
plaintiff’s argument that the New York rule should be applied to
his breach of contract claim, which concerned the “failure to
deliver 31,000 shares” of stock. See id. at 593. Binding precedent
from our supreme court has thus long foreclosed the possibility
of applying the New York rule to breach of contract claims, and
therefore the district court erred by doing so.

¶42 Curiously, H&P urges us to resist this conclusion. It
argues that because Kearl says that the question remains open,
we should follow the unpublished pronouncements of the Tenth
Circuit, and we should ignore our supreme court’s directives in
Lake because it is a short opinion that has not been often cited.
But as we are quite certain that no page-quantum-threshold
requirement to stare decisis exists, we decline the invitation. See,
e.g., Ortega v. Ridgewood Estates LLC, 2016 UT App 131, ¶ 30, 379
P.3d 18 (“We are bound by vertical stare decisis to follow strictly
the decisions rendered by the Utah Supreme Court.” (cleaned
up)); Doyle v. Lehi City, 2012 UT App 342, ¶ 27, 291 P.3d 853 (“We
are not bound, however, by decisions of the Tenth Circuit . . . .”).
On remand, the district court should not apply the New York

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rule when reassessing the damages attributable to the 2,443
shares.

II. Other Damages Awarded

¶43 Appellants contend that the district court further erred by
awarding as damages (a) “reimbursement of the management
fee of $41,340.00” and (b) “distribution of [H&P’s] share of the
capital account,” which was approximately $27,000. Specifically,
they argue that these awards violated the election of remedies
doctrine in that they are “factually inconsistent with the court’s
ruling that the May 7 contract was operative” and “amount to
double recoveries.” But they also recognize that insofar as the
unpreserved issue regarding the capital account distribution
goes, they must do more than show that the district court
committed error—they must also show plain error, meaning
“that the error should have been obvious to the trial court.” See
State v. Marquina, 2018 UT App 219, ¶ 27, 437 P.3d 628 (cleaned
up), aff’d, 2020 UT 66, 478 P.3d 37. 6

¶44 In Helf v. Chevron U.S.A. Inc., 2015 UT 81, 361 P.3d 63, our
supreme court discussed the election of remedies doctrine in
great detail. See id. ¶¶ 68–86. The Helf court explained that the
election of remedies doctrine is a “straight-forward principle,”
which “applies to prevent the [plaintiff] from obtaining a double
recovery or recovering two inconsistent remedies.” Id. ¶¶ 70, 85.
Describing how the doctrine prevents double recoveries, the Helf

6. Plain error also requires a showing of prejudice. See State v.
Marquina, 2018 UT App 219, ¶ 27, 437 P.3d 628, aff’d, 2020 UT 66,
478 P.3d 37. However, there is no dispute that if the district court
erred, the error was prejudicial, given the essentially undisputed
testimony at trial that H&P’s capital account in the Fund
contained approximately $27,000. Thus, we do not discuss this
element further.

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court explained, by way of example, that a plaintiff who sues a
defendant for wrongfully retaining possession of a cow “may
not recover both the cow and the reasonable value of the cow”
but must instead “elect one of these two remedies.” Id. ¶ 68. The
Helf court then went on to describe how the doctrine prevents
the plaintiff from recovering inconsistent remedies for “a single
wrong.” See id. ¶¶ 69–70; see also id. ¶¶ 71–86. It explained that,
while “a plaintiff may present inconsistent theories of liability at
trial,” when the “factual and legal disputes related to the
inconsistent theories of liability” have been resolved, “the
plaintiff is then entitled to the one remedy (if any) that is
supported by the final determination of the law and the facts.”
See id. ¶ 76. The Helf court also explained,

One common example of the application of this
rule occurs when a plaintiff is not paid for services
rendered to a defendant. The plaintiff may either
recover damages for breach of contract or, if no
valid contract governs the services provided, the
plaintiff may recover the reasonable value of the
services under a quantum meruit claim. Because a
breach of contract remedy requires a valid,
enforceable contract, while a quantum meruit
remedy presupposes that no contract governs the
services provided, a plaintiff may recover only one
of these two inconsistent remedies.

Id. ¶ 69 (cleaned up). Turning to the issue before it, the Helf court
provided another example of this rule in application. See id. ¶ 78.
It explained that “[a] worker injured on the job may potentially
recover either worker’s compensation benefits or intentional tort
damages” and that “[t]hese two remedies are inconsistent”
because the former requires a showing that the injury was
caused by an accident, whereas the latter requires a showing that
it was caused by an intentional tort. See id. It concluded that it
was for the fact-finder to decide whether the injury was caused

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by an accident or an intentional tort and that this determination
would then dictate the sole remedy to which the worker was
entitled. See id. ¶¶ 76, 86.

¶45 As noted above, the principal dispute at trial in the case
before us centered on the terms of the operative contract. See
supra ¶ 16. The district court concluded that the PPM, under the
circumstances, did “not meet the basic requirements to
constitute a contract” because Cutrubus was never aware of its
terms and signed only a loose signature page containing no
terms. On the other hand, it determined that Cutrubus “did
enter into a binding contract” with the Investment Companies
“on May 7, 2012” and that “[t]he investment checks clearly and
unambiguously set forth the terms of the investment, namely
20,000 shares of [Facebook] at $41.34 per share with a management
fee of $41,340.” (Emphasis added.) Accordingly, the court
concluded that this contract was breached when the Investment
Companies “failed to deliver the remaining 2,443 shares of
[Facebook] stock purchased under the contract” and that
Cutrubus was therefore entitled to enforce the contract and
collect expectation damages: awarding the “[d]ifference in
contract price and market price” of the shares at the time
Cutrubus learned of breach. 7 See Trans-Western Petroleum, Inc. v.
United States Gypsum Co., 2016 UT 27, ¶ 14, 379 P.3d 1200 (“This
expectation interest is generally measured by . . . the loss in the
value of the other party’s performance caused by its failure or
deficiency . . . .” (cleaned up)). But when the court went further
and awarded a refund of the management fee and the capital
account distribution, it provided additional inconsistent awards
that violated the election of remedies doctrine.

7. Albeit, as we have already discussed, it erroneously applied
the New York rule in calculating the damages.

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¶46 As to the management fee, this award was plainly
inconsistent with the enforcement of the May 7, 2012 checks as
the operative contract. As explicitly noted in the court’s own
findings, “a management fee of $41,340” was a part of that
contract. So in refunding that fee, the court erroneously
provided damages associated with rescission of the contract on
top of its previous award of expectation damages for breach of
contract. 8 Cf. Helf, 2015 UT 81, ¶ 69 (explaining that awarding a
breach of contract remedy along with a quantum meruit remedy
would violate the election of remedies doctrine); Mills v. Brown,
568 S.W.2d 100, 102 (Tenn. 1978) (“Rescission, of course, involves
the avoidance, or setting aside, of a transaction. Usually it
involves a refund of the purchase price or otherwise placing the
parties in their prior status.”); Davis v. Cleary Bldg. Corp., 143
S.W.3d 659, 669 (Mo. Ct. App. 2004) (“In electing rescission,
which depends on rejection of the contract as written, the
[plaintiff] could not also obtain actual damages on the contract,
as an award of actual damages depends on affirmation of the
contract.” (cleaned up)). In other words, the district court erred
by granting a discount on the very contract it purported to
enforce—effectively putting H&P in a better position than it
would have been had the contract simply been performed. See
Telegraph Tower LLC v. Century Mortgage LLC, 2016 UT App 102,
¶ 46, 376 P.3d 333 (“Contract damages . . . are intended to . . . put

8. H&P resists our conclusion by positing that, in refunding the
management fee, the district court could have intended to award
incidental or consequential damages, which would be consistent
with expectation damages. See Trans-Western Petroleum, Inc. v.
United States Gypsum Co., 2016 UT 27, ¶¶ 14–18, 379 P.3d 1200.
But H&P has failed to articulate how refunding part of the
purchase price of a contract could constitute incidental or
consequential damages—perhaps because this would be an
impossible task.

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[the claimant] in as good a position as he would have been in
had the contract been performed.” (cleaned up)).

¶47 As to the capital account distribution, this award was
inconsistent with the court’s conclusion that H&P never agreed
to the PPM, and was therefore never an investor in the Fund.
The district court appeared to premise this award on the notion
that, despite several communications from Buchanan and
Bollinger to Cutrubus referencing the final capital account
distribution, H&P had never received what remained in its
capital account. But it was the PPM itself which provided for the
creation of a capital account for each investor—the Fund created
a capital account for H&P, as it did for all other investors,
because it was operating under the assumption that H&P had
agreed to become an investor of the Fund after Cutrubus had
signed the PPM. So when the court found that H&P never
contracted to be a party to the PPM but only to buy 20,000
Facebook shares, it was precluded from awarding damages to
H&P that H&P would have been entitled to only if H&P had
been a party to the PPM. In other words, as accurately stated by
Appellants, “[u]nder [H&P’s] prevailing theory [of which
contract was operative], there were never any funds remaining
to be placed in a capital account—the entire amount of their
investment should have been used to purchase shares” and pay
the 5% management fee. So again, the district court’s award had
the effect of putting H&P in a better position than it would have
been had the May 7, 2012 contract simply been performed.

¶48 But we must also determine whether the error in
awarding the capital account distribution should have been
obvious to the district court. “An error is obvious when the law
governing the error was clear at the time the alleged error was
made.” In re J.C., 2016 UT App 10, ¶ 20, 366 P.3d 867 (cleaned
up). We conclude that the error should have been obvious. First,
as already alluded to, the election of remedies doctrine’s ban on
inconsistent awards was clear at the time this error was made.

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See supra ¶ 44; see also Helf, 2015 UT 81, ¶ 76 (explaining that
under “the modern view . . . a plaintiff may present inconsistent
theories of liability at trial” but is “entitled to the one remedy (if
any) that is supported by the final determination of the law and
the facts”); see also KTM Health Care Inc. v. SG Nursing Home LLC,
2018 UT App 152, ¶ 68, 436 P.3d 151 (reiterating that a plaintiff
may “pursue inconsistent theories at trial” but that the sole
remedy is determined once the fact-finder resolves the factual
inconsistencies). Second, when H&P asked for a distribution of
the capital account in its closing argument, that request was
specifically framed as an inconsistent theory of liability, i.e., that
it should be awarded only if the court were to find that the PPM
was the controlling contract:

Let me turn to damages for a moment. . . . First
one, I think I mentioned at the outset of this case,
that’s the capital account. . . . I think it’s well
established through the testimony that . . . the
general partner and Mr. Bollinger have not met
their obligation under the [PPM], if the [c]ourt in
fact finds that that agreement, in fact, is a contract given
the circumstances I’ve described. Mr. Bollinger
represented beginning in September that there was
going to be a final capital distribution, he estimated
[H&P’s] amount to be $27,000. . . . We believe that
is a breach of contract.

(Emphasis added.) Based on the foregoing, the district court
should have been well aware, given its findings that the May 7,
2012 contract memorialized by the checks was operative and that
H&P never agreed to the PPM, that it could not award as
damages a distribution of the capital account. See Vanderzon v.
Vanderzon, 2017 UT App 150, ¶ 50, 402 P.3d 219 (holding that an
“error should have been obvious based on the court’s own
findings”).

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III. Personal Liability

¶49 Finally, Appellants contend that the district court erred in
entering judgment against Buchanan and Bollinger in their
personal capacities. They argue that because “the court’s
findings recognize” that Buchanan and Bollinger “only acted on
behalf of the LLCs,” i.e., the Investment Companies, it was error
to hold them personally liable for damages stemming from the
Investment Companies breaching the May 7 contract.

¶50 “A debt, obligation, or other liability of a limited liability
company is solely the debt, obligation, or other liability of the
limited liability company.” Utah Code Ann. § 48-3a-304(1)
(LexisNexis 2015). Therefore, “[a] member or manager is not
personally liable, directly or indirectly, by way of contribution or
otherwise, for a debt, obligation, or other liability of the limited
liability company solely by reason of being or acting as a
member or manager.” Id. Instead, a member or manager of a
limited liability company may be held “personally liable for his
[limited liability company’s] contractual breaches [if] he
assumed personal liability, acted in bad faith or committed a tort
in connection with the performance of the contract.” Reedeker v.
Salisbury, 952 P.2d 577, 582 (Utah Ct. App. 1998) (cleaned up);
accord Dygert v. Collier, 2004 UT App 25U, para. 2.

¶51 The district court erred in entering judgment against
Buchanan and Bollinger in their personal capacities. Indeed, the
district court’s own findings preclude such liability—it
specifically found that H&P “enter[ed] into a binding contract
with Fortius and [iLux] on May 7, 2012,” acknowledged that
Buchanan and Bollinger were members and managers of the
LLCs, and that they acted only as agents for the two LLCs.

¶52 H&P recognizes this and thus concedes that it is “barred
from a claim of personal liability on a contract claim against
Buchanan and Bollinger individually by reason of acting as a

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member or manager.” Nevertheless, H&P speculates that the
district court’s entry of personal liability might be based on the
court concluding that Bollinger and Buchanan committed a tort,
specifically fraud, in connection with the performance of the
contract. And this is so, H&P posits, because it brought an
alternative fraud claim, for which H&P allegedly “presented
extensive evidence” at trial (while failing to offer any specifics as
to what that evidence was). Yet, it acknowledges that the district
court made “no findings” on the fraud claim. We decline to
affirm the district court based on a theory for which it made
absolutely no findings, and likewise, we refuse to remand for the
district court to do so—especially given that the court’s rationale
for its ruling appears to be easily discernible on the record before
us: it erroneously determined that Buchanan and Bollinger were
personally liable merely because they were “listed individually
as defendants” in the complaint. See supra ¶ 18.

CONCLUSION

¶53 The district court erred in finding that H&P did not learn
of the breach of contract until February 7, 2014, and
consequently it erred in computing the damages attributable to
the outstanding 2,443 shares of Facebook stock. The district court
also erred in awarding a refund of the management fee, and it
plainly erred in awarding the capital account distribution.
Finally, it erred in assessing personal liability against Buchanan
and Bollinger.

¶54 Reversed and remanded for further proceedings
consistent with this opinion.

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