Cohen Braffits Est. Dev. v. Shae Fin. Grp.

543 P.3d 1277

2024 UT App 12

COHEN BRAFFITS ESTATES DEVELOPMENT, LLC and Braffits Creek Estates, LLC, Appellants,

v.SHAE FINANCIAL GROUP, LLC, Appellee.

No. 20210448-CA

Court of Appeals of Utah.

Filed January 25, 2024

Fifth District Court, Cedar City Department, The Honorable Ann Marie McIff Allen, No. 180500059

Sarah E. Spencer, Salt Lake City, Kristen C. Kiburtz, Jeffrey D. Enquist, Salt Lake City, and Judson Dee Burton, Attorneys for Appellants

Troy L. Booher, Salt Lake City, Dick J. Baldwin, Taylor P. Webb, Michael N. Zundel, and G. Troy Parkinson, Salt Lake City, Attorneys for Appellee

Judge Ryan D. Tenney authored this Opinion, in which Judges Gregory K. Orme and Amy J. Oliver concurred.

Opinion

TENNEY, Judge:

¶1 Abraham Kleinman and Zohar Cohen were partners in a New York limited liability company, Cohen Braffits Estates Development, LLC (CBED). In 2015, Cohen obtained two loans from Shae Financial Group, LLC (Shae), purportedly on behalf of CBED, and those loans were secured by a deed of trust on property that CBED owned in Utah. When Kleinman discovered what Cohen had done, Kleinman sued Cohen in New York on behalf of CBED. In 2017, a New York court awarded CBED a monetary judgment against Cohen for the value of the Shae loans. But when Shae subsequently moved to foreclose on the property that had been secured to its loans, CBED sued Shae in Utah, this time seeking to invalidate the loans. The Utah district court held that this suit was barred by the election of remedies doctrine. CBED subsequently petitioned the New York court to amend its judgment and remove the monetary judgment that had been awarded earlier against Cohen, after which it filed a motion under rule 60(b) of the Utah Rules of Civil Procedure asking the court to vacate the prior election of remedies ruling. The court denied that motion.

¶2 CBED now challenges the district court’s initial ruling that the election of remedies doctrine barred its suit, as well as the court’s denial of CBED’s rule 60(b) motion. For the reasons set forth below, we affirm both rulings.¹

BACKGROUND²

CBED’s Formation & the Shae Loans

¶3 Abraham Kleinman and Zohar Cohen created CBED in New York to acquire several thousand acres of partially developed land near Cedar City that are collectively known as Braffits Mountain. In 2013, CBED purchased a promissory note and mortgage (referred to throughout this litigation as "the Kennedy Note") from a pending bankruptcy proceeding that conveyed ownership in Braffits Mountain. The Kennedy Note itself was secured by a deed of trust recorded in 2007 (the Kennedy Trust Deed).

¶4 Kleinman and Cohen are both New York residents. CBED is a limited liability company formed in New York. A 2013 oper- ating agreement identifies Kleinman and Cohen as being 50% members of CBED. Under the operating agreement, no member of CBED has "any power or authority to bind [CBED] in any way, to pledge its credit or to render it liable pecuniarily for any purpose."³

¶5 In the first few months of 2015, Cohen obtained two loans from Shae, purportedly on CBED’s behalf. The first loan was for $650,000, and the second loan was for S400,000. Each loan was secured by pledging the Kennedy Note—and, by extension, CBED’s ownership in Braffits Mountain. Cohen represented to Shae that he was authorized to bind CBED to repay these loans and to provide Braffits Mountain as security for the loans. At the time, Braffits Mountain was CBED’s sole asset. Kleinman was unaware of the Shae loans when Cohen obtained them.

The New York Action

¶6 Around this same time, Kleinman discovered numerous instances of allegedly fraudulent activity from Cohen relating to both Cohen’s relationship with CBED and to certain other financial transactions. In August 2015, Kleinman and CBED sued Cohen in New York, asserting a number of causes of action relating to fraud and corporate misconduct. Kleinman also requested a declaratory judgment that he owned or controlled "100% of CBED and is its sole managing member" and an award of "monetary damages in amounts to be proved at or before trial."⁴

¶7 During the pendency of the New York suit, Kleinman learned for the first time about the Shae loans. Kleinman contacted Shae in April 2016 about these loans, but CBED did not attempt to add Shae as a party to the case that was already pending against Cohen. But while CBED did not add Shae to the suit, it did file an amended complaint in the case in August 2016 that added new allegations against Cohen relating to the Shae loans. In that portion of the amended complaint, CBED alleged that Cohen had obtained these loans "by wrongfully, intentionally and fraudulently representing to Shae that he was the sole owner of CBED" and that Cohen had not been authorized to procure those loans.

¶8 CBED subsequently obtained a default judgment against Cohen based on his failure to participate in the case. Even with this ruling, though, the New York court initially deferred issuing any ruling on damages until CBED’s claims against another defendant in the case were resolved. CBED later settled with that defendant. In August 2017, CBED filed an "Application for Final Judgment" (the Application) with the New York court, wherein CBED requested default judgment as to the damages that it had allegedly suffered from Cohen’s various misdeeds.

¶9 At the outset of the Application, CBED informed the court that it was seeking "monetary and declaratory relief which is necessary to determine the rights of the parties inter se and concerning CBED in order to permit the company to function going forward with respect to the underlying real property." The Application addressed each of the claims at issue in the suit, including those that were unrelated to the Shae loans. In the portion of the Application that did relate to the Shae loans, CBED again alleged that in the first few months of 2015, Cohen had obtained these loans from Shae while purportedly acting on CBED’s behalf, but that Cohen had not been authorized to do so. CBED then asked the court to declare that because Cohen had not been authorized to procure these loans on CBED’s behalf, they were "not only fraudulent but were null and void under New York Limited Liability Law § 402(c)(2)(3) [and] (d)(2)."

¶10 Turning to the question of damages, CBED provided the court with a chart that listed the "money damages" that it claimed it had incurred as a result of Cohen’s misdeeds. This chart included line-item entries for both the $650,000 loan and the $400,000 loan from Shae, as well as additional line-item entries setting forth the interest that was owed on those same loans. When coupled with the other damages that CBED was seeking from Cohen relating to the other allegations (which were also set forth in line-item entries), CBED’s total damages request was $7,661,284.35. On top of that, CBED also requested punitive damages from Cohen "in the amount of $5 million." Explaining the basis for this request, CBED alleged that Cohen had "entered into fraudulent transactions" with various "members of the public," and, in an apparent reference to Shae, CBED alleged that this included "the lenders" in Utah.

¶11 In November 2017, the New York court issued a judgment against Cohen. In this judgment, the court declared that Kleinman was now "the sole owner" of CBED and that Cohen "no longer owns any interest therein." Turning to the Shae loans, the court noted that the two loans had been for $650,000 and $400,000. It then ruled that the loans "were unlawful" because they were incurred "without a vote or consent of the majority" of CBED’s members and that they were accordingly "null and void pursuant to New York Limited Liability Company Law § 402(c)(2)(3) and (d)(2)." Finally, the court granted CBED’s request for a monetary judgment against Cohen "in the amount of $7,661,284.35"—an award that, again, accounted for the value of the loans.

The Utah Action

¶12 Cohen did not satisfy his monetary judgment to CBED, and the Shae loans soon went into default. In March 2018, Shae filed an action seeking to foreclose on its interest in Braffits Mountain.

¶13 The next month, CBED sued Shae in Utah seeking a declaratory judgment that Shae’s "claimed interest in [Braffits Mountain] is invalid and unenforceable." CBED alleged that Shae’s interest was unenforceable because "a New York court ha[d] adjudicated the loan transaction to be unlawful, null and void" due to Cohen’s lack of authority to agree to the loans on CBED’s behalf and that the judgment was "entitled to full faith and credit."

¶14 In its answer, Shae raised as an affirmative defense the assertion that the "New York Judgment purporting to nullify and void the loan transactions between Shae Financial and [CBED] is not binding upon Shae Financial." Shae also argued that CBED’s claims failed based on the election of remedies doctrine.

¶15 Shae later filed a motion to dismiss that was reliant on the election of remedies doctrine. There, Shae argued that CBED’s "wholly inconsistent theory" of recovery in the Utah litigation "violates the universally accepted doctrine[ ] of election of remedies." Shae argued that CBED "may not, in New York, affirm the existence of one set of facts entitling them to monetary relief against Cohen and later, in this court, disaffirm that set and advance a contrary set of facts entitling them to a declaration that the debt owed to Shae Financial by [CBED] is void." After CBED opposed this motion, the district court denied it, concluding that CBED had not, "based upon the New York Judgment, made an election of remedies" because the "theory advanced by [CBED] which gave rise to the New York Judgment is consistent with the theory advanced in the case before this Court."

¶16 Shae later filed a counterclaim seeking, among other things, a declaratory judgment determining the validity, amount, and priority of Shae’s security interests and an order for foreclosure of the Kennedy Trust Deed. Shae also requested a...