Newcomer v. Estate of Cohen

1

WILLIAM NEWCOMER, a married man as his separate estate, Respondent/Cross Appellant, v. ESTATE OF 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, Appellants/Cross Respondents, MC APEX, LLC, a Washington limited liability company; AMC FAMILY LLC, a Washington limited liability company; ECKSTEIN INVESTMENTS, LLC, a Washington limited liability company; ENTRUST NORTHWEST, LLC, a Washington limited liability company; RB&F PROPERTY MANAGEMENT, LLC, a Washington limited liability company; NEWCOMER APEX I TIC, 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, Defendants.

No. 86612-5-I

Court of Appeals of Washington, Division 1

October 28, 2024

UNPUBLISHED OPINION

COBURN, J.

This is the third appeal between parties involved in a real estate development project through multiple limited liability companies in Tacoma. Following a bench trial for a breach of contract claim related to a promissory note, the court entered a judgment in favor of William Newcomer, one of the project's investors, and against the estate of Michael Cohen,^[1] Apex Penthouse Condos, LLC, and Apex Apartments I TIC, LLC. But the court denied Newcomer's request for attorney fees. We affirm the judgment in favor of Newcomer, but reverse the court's denial of his request for attorney fees and remand for further proceedings.

FACTS

In 2004, Michael Cohen solicited William Newcomer to invest in the Apex Apartments venture. Cohen, Newcomer, and a third initial investor, Kenneth Thomsen, executed an operating agreement for Apex Apartments, LLC.^[2] Apex Apartments, LLC was established to construct two apartment buildings in Tacoma Washington, with a plan to either operate or sell the properties afterward. Each provided personal guarantees to the construction lenders. Cohen, Newcomer, and Thomsen each held a 30 and 1/3 percent ownership stake in the project. Cohen managed the project.

Article 8 in the Apex Apartments, LLC agreement addresses contributions to the company and capital accounts. The relevant sections under Article 8 are as follows:

8.1 Members Capital Contributions. Each member shall contribute such amount as is set forth in attached Schedule 1 as such Member's share of the Members' Initial Capital Contribution.

8.2 Additional Contributions. Each member shall be required to make such additional Capital Contributions as shall be determined by the Manager from time to time to be reasonably necessary to meet the expenses of the Company; provided, such additional Capital Contributions shall not exceed 100% of each Member's Initial Capital Contribution except when approved by the written vote of 100% of the Members.

8.2.1 Before requiring additional Capital Contributions, a request to borrow the amount required shall be simultaneously sent to all Members. Such loans from Members shall bear interest at a rate of 12.00% per annum or upon terms as otherwise provided by the request. . . . .

8.2.2 In the event that the interest of Members to make loans is not sufficient to cover the amount requested, the Manager shall give written notice to each Member of the amount of any required additional Capital Contribution, and each Member shall pay to the Company such additional Capital Contribution no later than thirty (30) days following the date such notice is given. Nothing contained in this Section 8.2 is or shall be deemed to be for the benefit of any Person other than the Members and the Company, and no such Person shall under any circumstances have any right to compel any actions or payments by the Members.

8.2.3 In the further event that a member is unable unwilling, or for whatever reason fails to pay such capital call by the 11th banking day after the call for funds is communicated to that Member in writing, then the following shall occur: the remaining Members shall have the right, but not the obligation, to buy on a pro-rata basis, all of the Units and interest in the Company held by the non-contributing Member. If less than all Members elect to exercise their pro-rate right to purchase, the remaining Members or any one of them may purchase the interest of the non-paying Member. The purchase price shall be the value of the non-paying Member's Capital Account as recorded in the records of the Company, less the dollar amount of the non-paying Member's capital call which generated the default. The intent is to penalize the non-paying Member and to ameliorate the unanticipated additional cost to those Members who comply with this Agreement. In the event that no member is willing to buy the interest of the non-paying Member, then the Company will be dissolved in accordance with the terms of Article 14.

Schedule 1 listed the "Initial Capital Contribution" for each of the three initial members to be $800,000.^[3] Newcomer contributed this amount in two installments.

As the project reached different phases, Cohen created multiple subordinate LLCs, maintained managerial control over all Apex-related entities, and initiated multiple capital calls (capital contributions from the investor LLC members). Apex Apartments, LLC transferred Building A to Apex Apartments I TIC, LLC and Newcomer Apex I TIC, LLC as tenants-in-common. To facilitate financing, Apex Apartments, LLC was reorganized. Apex Apartments II, LLC was created as a new entity to construct and manage Building B. While the names of the interest holders changed, their ownership percentage in the overall project remained unmodified. The transfer of Building A from Apex Apartments, LLC to Apex Apartments I TIC, LLC and Newcomer Apex I TIC, LLC was classified in tax documents as a "mere change in identity," with the transfer involving moving ownership from one LLC to another with the same owner. After the transfer of Building A Newcomer no longer had an interest in Apex Apartments I TIC LLC. Newcomer's entire interest in Apex Apartments, LLC was transferred to Newcomer Apex I TIC, LLC. Newcomer's interest remained at 30 and 1/3 percent ownership in the overall project. The three other minority interest members held a 3 percent interest in Apex Apartments I TIC, LLC. Cohen, in his role as manager, clarified that the reorganization into subordinate ownership entities did not alter the relative percentage ownership of the members.

Cohen, acting in his capacity as manager, sought additional capital contributions. Newcomer made a total of $1,509,547 in additional capital contributions over multiple installments from 2006 through 2009. All capital contributions from Newcomer were made via checks payable to Apex Apartments, LLC.

Due to deteriorating market conditions stemming from the housing market crash of 2008, the investment project faced increasing financial difficulties. In February 2010 Newcomer agreed to loan Apex Apartments II, LLC $200,000. Through this transaction, Cohen executed a promissory note with Point Ruston, LLC as maker. Under the agreed upon terms of the note, Point Ruston, LLC obliged to pay back Newcomer his $200,000 loan with 8 percent interest on or before May 10, 2010. However, the loan was not repaid by the agreed deadline.

In 2010 Building B was converted into condominiums and eight condominiums were transferred from Apex Apartments, LLC to Apex Penthouse Condos, LLC. In October 2010, members of Apex Apartments II, LLC executed a second amended and restated limited liability agreement. This newly modified agreement materially altered the ownership percentages of the original members,^[4] but the language related to capital contributions, in Section 8 of the Apex Apartments LLC agreement, remained consistent with all other previous agreements.

In November 2010, Newcomer extended an additional $600,000 loan to Cohen, secured with a promissory note. The makers of this note are: 1) Apex Penthouse Condos, LLC; 2) Apex Apartments I TIC, LLC; and 3) Michael A. Cohen personally. The note includes a commitment to repay Newcomer $600,000 at a 20 percent interest rate per annum, compounded monthly. The note's due date was November 1, 2015. Cohen utilized the $600,000 loan to settle the outstanding $200,000 loan owed to Newcomer, which had accrued to $212,061.47 with interest.

By fall of 2013, Newcomer wanted out of the partnership and his investment money returned. Newcomer v. Cohen, No. 48233-9-II, slip op. at 8 (Wash.Ct.App. May 16, 2017) (Newcomer I) (unpublished), https://www.courts.wa.gov/opinions/pdf/D2%2048233-9-II%20Unpublished%20Opinion.pdf. He had learned Cohen, unlike himself, did not make his initial capital contribution and applied a portion of the contribution as a "non-cash" deferred management fee. Id. at 9. In January 2014 Newcomer sued Cohen alleging he violated the Washington State Securities Act (WSSA). Id. at 9.

In April 2014, the entire Apex project was sold to KW Tacoma Apartments, LLC for $26.5 million.^[5] The sale proceeds were used to fully repay all construction-related bank loans. This repayment also eliminated the personal guarantees made by Newcomer, Cohen, and Thomsen, but these investors lost their contributions. Newcomer v. Cohen, No. 50247-0-II, slip op. at 6 (Wash.Ct.App. Oct. 30, 2018) (Newcomer II) (unpublished), https://www.courts.wa.gov/opinions/pdf/D2%2050247.0-II%20Unpublished%20Opinion.pdf.

The proceeds were insufficient to cover the debt owed on Building A to the Bank of America, leaving a shortfall of $1,653,679.23. To address this shortfall, Cohen and Thomsen each loaned the entities of Building A about $824,000. Newcomer declined...