William Newcomer, T v. Michael Cohen ( 2017 )

Filed
Washington State
Court of Appeals
Division Two
May 16, 2017
IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
DIVISION II
WILLIAM NEWCOMER, a married individual No. 48233-9-II
as his separate estate; WILLIAM NEWCOMER
on behalf of APEX APARTMENTS, LLC, as a
derivative action; 2009 NEWCOMER
FAMILY, LLC on behalf of APEX
APARTMENTS II, LLC and APEX
PENTHOUSE CONDOS, LLC, as a derivative
action,
Respondents,
2009 NEWCOMBER FAMILY, LLC, a
Washington limited liability company,
Plaintiff, UNPUBLISHED OPINION
v.
MICHAEL COHEN and JANE DOE COHEN,
husband and wife, and the marital community
composed thereof; MC APEX, LLC, a
Washington limited liability company,
Appellants,
KEN THOMSEN and JANE THOMSEN,
husband and wife, and the marital community
composed thereof; AMC FAMILY, LLC, a
Washington limited liability company,
Defendants.
MELNICK, J. — Michael Cohen appeals a $4 million judgment in favor of William
Newcomer for Cohen’s violation of the Washington State Securities Act (WSSA). We conclude
that the trial court did not err by denying Cohen’s motion for summary judgment and motion for
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directed verdict, and by entering judgment on the verdict because sufficient evidence supported
the jury’s verdict that Cohen violated the WSSA. We also conclude that Newcomer submitted
sufficient evidence of damages, the trial court did not give an erroneous instruction on the measure
of damages, and that the trial court did not erroneously enter judgement against Cohen’s marital
community. We affirm.
FACTS
Cohen, a general contractor and property developer, had experience developing apartment
complexes and condominiums. Newcomer had experience in property investments and
commercial real estate. He once owned a management company for self-service storage facilities.
Newcomer and Cohen had an established business relationship.
In late 2004 or early 2005, Cohen approached Newcomer about investing in the Apex
project, a large, upscale multifamily apartment complex to be built in Tacoma. The complex would
consist of two buildings built in two phases: Building A or “Phase I” and Building B or “Phase
II.” Clerk’s Papers (CP) at 1057.
I. OFFERING INTRODUCTION
Cohen gave Newcomer a written proposal, an “Offering Introduction” (OI) that described
in detail the proposed investment. Ex. 1. The OI also contained two financial documents that
provided the anticipated costs and revenues for each phase.
The OI proposed that Cohen and his business partner, Ken Thomsen, would be the
managing members. However, Newcomer told Cohen that he wanted to be “equal partners” with
him and Thomsen. IV Report of Proceedings (RP) at 315. They agreed that Cohen, Newcomer,
and Thomsen would be the principal members and each would contribute an initial capital of
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$800,000 for a 30 1/3 percent interest in the project. Three minor investors would contribute
$100,000 each.
The OI also provided that C&M Construction Management, LLC (C&M), a company
owned and managed by Cohen, would “provide all management and accounting functions” for the
project and would “be paid 10% of the hard costs of construction for these services.” Ex. 1, at 4.
The OI stated that $350,000 of the managing members’ investment would be in the form
of “deferred equity.” Ex. 1, at 4. The project’s lender would treat the deferred equity the same as
cash in underwriting the loan. The OI’s financial documents also provided for the $350,000
deferred equity. They stated that the deferred equity was “[d]eveloper’s [o]verhead,” which was
the same as construction fees. Ex. 1, at 6. Cohen believed that the OI played a “very important
role” in the way capital contributions would be made. X RP at 1073.
Cohen asked for Newcomer’s input on the OI’s terms. Newcomer made handwritten notes
to the OI regarding several changes he discussed with Cohen. Newcomer made no notes regarding
the $350,000 deferred equity. However, Newcomer told Cohen that each principal member would
contribute his initial $800,000 contribution in cash, not in deferred equity. According to
Newcomer, Cohen agreed to exclude the deferred equity portion of the OI from the final contract.
Cohen, however, denied ever telling Newcomer or other investors that his initial $800,000 capital
contribution was going to be made entirely in cash.
II. LLC AGREEMENT
Apex Apartments, LLC (Apex I) was formed on February 16, 2005, to acquire the real
property and plans for the project and to develop the apartment complex. The project’s final
contract between the investors, “Limited Liability Company Agreement of Apex Apartments
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L.L.C.” (LLC agreement), went into effect on the same day. Ex. 2. Schedule one of the LLC
agreement provided the initial capital contribution amounts for each investor:
Member Initial Capital Contribution
MC Apex, LLC (Michael Cohen) $800,000
AMC Family, LLC (Kenneth Thomsen) $800,000
William Newcomer $800,000
Eckstein Investments, LLC (Todd Eckstein) $100,000
Entrust Northwest, LLC (William Donahoe) $100,000
R B & F Property Management, LLC (Roger Fierst) $100,000
The LLC agreement provided that “money” and “property” could be contributed and
applied to a member’s capital account. Ex. 2, at 12. It contained nothing about whether future
services or deferred equity could comprise part of a member’s capital account.
The LLC agreement also stated that Cohen would be the manager of the project. C&M
would “supervise all aspects of construction” and “receive a fee equal to ten percent (10%) of [the]
total project costs” for its services. Ex. 2, at 25 (schedule 3). Total project costs meant the hard
costs of construction, including “site work and offsite infrastructure improvements, materials,
labor, and supervision. Ex. 2, at 25 (schedule 3). Newcomer believed that C&M would get paid
as the property was being constructed.
The LLC agreement required Cohen to give notice to members before requiring additional
capital contributions so that members had the opportunity to make a loan if they wished. However,
it allowed Cohen to use his discretion in making loans from financial institutions and his affiliate
entities.
III. CAPITAL CALL 1
On March 11, 2005, Newcomer called Cohen and asked if he put in the $250,000 portion
of his initial contribution. When Cohen stated that he had, Newcomer wrote a check for $250,000.
Newcomer again contacted Cohen or his accountant on May 5 and asked if Cohen and Thomsen
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made their full $800,000 initial capital contribution in cash. Cohen or his accountant assured him
they had. Newcomer thereafter wrote a check for $550,000 which completed his $800,000 initial
capital contribution.
Cohen, however, did not contribute his $800,000 fully in cash. Instead, before construction
on the project began, he credited $350,000 of deferred management fees towards his capital
account. He believed that contributing deferred equity towards his capital account was an
acceptable method of contributing capital towards the project. He did not inform Newcomer about
the deferred equity.
Construction for Phase I began in May 2005. On May 1, Cohen executed a “Contract for
Services” between Apex I and C&M for a founder’s fee. Ex. 3. The document stated:
The Members (Management) of Apex Apartments, LLC wish to
compensate [Cohen] for founding and organizing this opportunity and . . . retain his
additional services to provide for the independent evaluation of the performance of
the staff Construction Manager and Superintendent which will supervise and direct
the construction . . .
For the services provided, [C&M] shall receive a fee of $400,000.
Ex. 3, at 1, 2.
Because Cohen managed both entities, the document only had Cohen’s signature on it.
According to Cohen, the $400,000 was part of a $750,000 developer fee and overhead, paid to
Cohen, which the project’s lender set out in the project’s May 2005 construction loan agreement.
The $350,000 deferred management fee accounted for the remainder of the management fee due
to him, but he applied it towards his capital account. The $400,000 was not applied to Cohen’s
capital account; rather, it was paid to Cohen as a fee, or “cash for his services.” IX RP at 999.
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Newcomer was not aware of the “Contract for Services” when he made his initial $800,000
contribution. Nor was the contract disclosed to other investors. Newcomer did not find out about
it until litigation commenced.
IV. CAPITAL CALL 2
Around July 2006, Cohen made a second capital call to start Phase II of the project. He
requested that each principal member contribute $272,997. Shortly before making this capital call,
unbeknownst to Newcomer, Cohen borrowed approximately $359,000, interest free, from Point
Ruston, LLC on behalf of Apex I.1 Point Ruston is a company that owned a large commercial and
residential development in Tacoma and the City of Ruston. Cohen and Thomsen owned Point
Ruston.
On August 9 or 10, Newcomer made his capital contribution for Phase II. In mid-August,
Apex I issued a check and paid off the 2006 Point Ruston loan. Cohen did not disclose to
Newcomer the 2006 Point Ruston loan or repayment.
V. CAPITAL CALL 3
By early 2008, Building A was fully occupied and the Apex project was doing well. The
Apex project looked for permanent financing for Building B; however, the project’s lender had
gone out of business.
On February 20, 2008, Cohen, on behalf of Apex I, made a third capital call. He asked the
principal members to each contribute $326,555. Newcomer made his contribution in March. At
that time, Cohen had neither disclosed that Apex I borrowed money from Point Ruston nor that he
did not make his initial contribution in cash. Cohen also did not disclose that shortly after
Newcomer made his second capital contribution, Apex I paid off the 2006 Point Ruston loan.
1
Hereafter, this transaction will be referred to as “2006 Point Ruston loan.”
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On March 10, Cohen formed Apex Apartments II, LLC (Apex II) to develop Phase II of
the project. Apex II had the same members and percentage interests as in Apex I: Cohen acted as
manager and Newcomer had a 30 1/3 percent interest in the entity.
On March 20, Cohen reorganized Apex I into two tenants-in-common (TIC) entities,
Newcomer Apex I TIC, LLC (Newcomer TIC) and Apex Apartments I TIC, LLC (Apex TIC).
Cohen managed both TICs. A statutory warranty deed transferred a one-third real property interest
from Apex I to Newcomer TIC. The remainder of the property interest was transferred to Apex
TIC. Cohen transferred Newcomer’s interest in Apex I into a real property interest in Newcomer
TIC, of which Newcomer became a member. All of the Apex project investors had their interest
transferred into a TIC entity.
Newcomer did not receive any payment or consideration from Cohen, Apex I, or
Newcomer TIC because it was “just a transfer” of his interest. V RP at 568. He believed he still
owned the securities in his individual capacity. He also believed that when his interest transferred,
the value of the interest remained the same. Cohen believed that the statutory warranty deed for
real property was considered the “value” on the transfer. X RP at 1111.
VI. CAPITAL CALL 4
In December 2008, an investors’ meeting occurred. Newcomer expected that the members
would be paid a large portion of the money they invested; instead, another capital call occurred.
This capital call requested $910,000 from each principal member. Newcomer expressed his
concerns, but Cohen assured him that there was a “minor setback” until the project could get
financing. IV RP at 362. Newcomer contributed his $910,000 in three separate payments made
in February, May, and July 2009. Even though the checks were made payable to Newcomer TIC,
they were deposited into Apex I’s account.
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After the meeting, Newcomer learned that Point Ruston made numerous loans to the Apex
project. He expressed his concerns regarding the accounting on the loans. In February 2009,
Cohen’s accountant told Newcomer that Cohen and Thomsen each contributed their $910,000
capital “through a reduction in the debt owed to C&M and Point Ruston from [the] Apex” project.
VI RP at 726.
Further, before Newcomer made his July 2009 payment, Cohen’s accountant gave
Newcomer a document showing management fees earned in 2006, 2008, and 2009 that Cohen
applied to his capital account. The document did not include the $350,000 deferred management
fee from 2005.
In October 2009, Newcomer requested and received from Cohen’s accountant a document
listing the Point Ruston loans made to the Apex project. The document did not show the 2006
Point Ruston loan. Later that month, Newcomer e-mailed Cohen to express his concerns and ask
for an audit, but none occurred.
By the end of 2009, Newcomer contributed a total of $2,309,552 in cash towards the Apex
project:
Newcomer’s Capital Contributions
Date Cash
Capital Call 1 3/11/2005 $250,000
5/5/2005 $550,000
Capital Call 2 8/10/2006 $272,997
Capital Call 3 3/21/2008 $326,555
Capital Call 4 2/26/2009 $400,000
5/18/2009 $410,000
7/14/2009 $100,000
On October 16, 2013, Newcomer told Cohen that he wanted out of the partnership and that
he wanted his money returned. Newcomer said, “I’ve always had a concern about the 2008 (sic).
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Did you actually put in your money in cash?” VI RP at 588. Cohen stated that he did, but on the
second or third capital call, he used part of his capital contribution as deferred management.
At this point, Newcomer remained unaware that Cohen had not contributed his initial
$800,000 contribution in cash, and that a contract existed between two Cohen-controlled entities
authorizing a $400,000 founder’s fee to Cohen. Newcomer also remained unaware of the 2006
Point Ruston loan and its repayment.
In the fall of 2013, Newcomer hired an attorney and inspected Apex’s records. Newcomer
learned that Cohen did not make his initial $800,000 capital contribution in cash and that he applied
$350,000 of the contribution to his capital account as a “non-cash” deferred management fee. CP
at 89.
VII. LAWSUIT
On January 13, 2014, Newcomer sued Cohen, his wife, and their marital community. He
alleged a violation of the WSSA.2 Nobody disputed that the LLC membership interests were
securities, that the WSSA governed the sale of the securities, and that Cohen controlled the sale of
the securities.
The basis of his claim involved Cohen’s misrepresentations that he contributed his initial
$800,000 capital contribution in cash. Newcomer also alleged that Cohen’s acts benefitted his
marital community. Cohen denied the allegations and asserted the statute of limitations as an
affirmative defense.
During the course of discovery, Newcomer learned about the $400,000 founder’s fee and
the 2006 Point Ruston loan. He also discovered that no written loan agreement between Apex I
2
The plaintiffs alleged other causes of action but they are not at issue in this appeal.
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and Point Ruston existed. The document he received in 2009 showing the Point Ruston loans only
showed loans that had interest on them.
In April 2015, a California corporation purchased the Apex apartments for $26.5 million.
While all loans were repaid, the investors lost their contributions. Newcomer lost his total
contribution of $2,309,522.
On August 21, 2015, the trial court denied Cohen’s motion for summary judgment on the
WSSA claim. Cohen argued that the alleged misrepresentations or omissions were not material,
the claims were barred by the statute of limitations, and no cognizable claim existed against his
wife and the marital community.
The trial court ruled that a disputed material issue of fact existed as to whether any of
Cohen’s acts constituted a material misrepresentation or omission related to a securities
transaction. It appears that the court denied the statute of limitations assertion because factual
disputes existed as to when Newcomer discovered facts which gave rise to his claim. Regarding
Cohen’s wife, it appears that the court ruled that it would not dismiss her from the complaint
because Newcomer alleged that the marital community benefitted from Cohen’s actions.
At trial, the misrepresentations or omissions underlying Newcomer’s WSSA claim became
more defined. Newcomer testified that he would not have made his initial contribution or
continued investments in the project if he had known that Cohen did not make his initial $800,000
capital contribution in cash; that in 2006, Point Ruston loaned $359,000 to Apex and repaid it days
after Newcomer made his second capital contribution; and, that a contract for services between
C&M and Apex I authorized a $400,000 founder’s fee to Cohen.
Newcomer also testified that he sued Cohen’s wife because she was “part of the whole
thing.” V RP at 536. He further testified that “[Cohen and his wife] were partners,” that Cohen’s
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wife benefited, just as Cohen did, from the Apex project, and that “she owned half of the
company.” V RP at 536-37.
Newcomer’s expert, W. Cary Deaton, CPA, testified that whether an investor put in cash
or something other than cash was a material term that a potential investor would want to know
about, regardless of the percentage of the contribution that was not in cash. Having cash available
was much different than having a contribution of deferred future services. An investor would want
to know about the 2006 Point Ruston loan because an investor needs this type of information to
decide whether or not to make additional capital contributions to the company, knowing that the
company was in debt. Deaton opined that the failure to disclose the loan constituted a material
fact even if the LLC agreement allowed for the manager to borrow money at his own discretion.
After Newcomer rested his case, Cohen moved for a directed verdict. He argued that the
WSSA claim as to the 2006 Point Ruston loan and the $350,000 deferred capital were barred by
the statute of limitations, and that no reasonable juror could conclude that the misrepresentations
or omissions were material. He also argued that Newcomer failed to show that he suffered
damages, and that there was no evidence that Cohen’s wife misrepresented material facts or was
liable for Cohen’s acts. The trial court denied the motion as to these arguments.
As to Cohen’s marital community, the trial court denied the motion, ruling that sufficient
evidence existed to show that Cohen and his wife were married at the time the transactions
occurred and Cohen’s wife benefitted from his actions.
As to damages, the trial court ruled that based on the WSSA, damages was a question for
the jury. It also ruled that the jury would decide whether the alleged misrepresentations were
material and whether Newcomer reasonably relied on them in purchasing the securities.
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As to the statute of limitations, the court ruled that it was a “question for the jury to make
a decision as to whether any of these discoveries in 2013 and 2014 were discoveries that were
independent of . . . clues or history actually was known leading up to the time of discovery.” IX
RP at 955. It was also a question of credibility as to whether Newcomer knew about all but one
Point Ruston loan and whether he would not have invested even though the loans seemed favorable
to the project.
As to the 2006 Point Ruston loan and the $350,000 deferred equity, the court denied the
motion and appeared to rule that sufficient evidence existed that the failure to disclose those facts
constituted a material omission.
As to Cohen’s arguments that payments made after capital call 2 in 2006 that were
attributed to Phase II of the Apex project should be dismissed, the court denied the motion because,
viewing the facts most favorable to Newcomer, the organization of the Apex project was in two
buildings and Newcomer’s initial investment was projected to be applied towards the two
buildings.
At the close of trial, the court instructed the jury on the measure of damages. The
instruction reflected the WSSA statute governing remedies. RCW 21.20.430(1). Cohen argued
that there was insufficient evidence to support the instruction and excepted to it.
The trial court also instructed the jury on the elements of liability under the WSSA,
materiality, reasonable reliance, and the statute of limitations.
VIII. JURY VERDICT AND JUDGMENT ON THE VERDICT
On September 21, 2015, the jury entered a special verdict in Newcomer’s favor. It awarded
Newcomer recessionary damages of $2,309,552—the total amount in capital contributions he
made to the Apex project. The verdict form stated:
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1. Did Plaintiff file this lawsuit within the statute of limitation applicable to
the [WSSA]?
 Yes. Proceed to question 2.
....
2. Did Defendants make a material misrepresentation or omission reasonably
relied on by Plaintiff in connection with the 2005 sale of Securities to Plaintiff in
the amount of $800,000 in violation [of] the [WSSA]?
 Yes . . . The amount of damages, if any, we award are $800,000.
....
3. Did Defendants make a material misrepresentation or omission reasonably
relied on by Plaintiff in connection with the 2006 sale of Securities to Plaintiff in
the amount of $272,997 in violation [of] the [WSSA]?
 Yes . . . The amount of damages, if any, we award are $272,997.
....
4. Did Defendants make a material misrepresentation or omission reasonably
relied on by Plaintiff in connection with the 2008 sale of Securities to Plaintiff in
the amount of $326,555 in violation [of] the [WSSA]?
 Yes . . . The amount of damages, if any, we award are $326,555.
....
5. Did Defendants make a material misrepresentation or omission reasonably
relied on by Plaintiff in connection with the 2009 sale of Securities to Plaintiff in
the amount of $910,000 in violation [of] the [WSSA]?
 Yes . . . The amount of damages, if any, we award are $910,000.
CP at 1660.
In October, the trial court entered a judgment on the verdict. Judgment was entered against
Cohen and the marital community:
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E. Principal Judgment Amount $2,309,552.00
F. Interest to Date of Judgment3 $1,534,614.21
G. Attorney’s Fees4 $193,461.75
H. Costs $23,359.50
I. TOTAL JUDGMENT $4,060,987.46
CP at 1805.
Cohen appeals.
ANALYSIS
I. LEGAL PRINCIPLES5
We review summary judgment orders de novo. Keck v. Collins, 184 Wn.2d 358, 370, 357
P.3d 1080 (2015). “Summary judgment is appropriate only when no genuine issue exists as to any
material fact and the moving party is entitled to judgment as a matter of law.” Keck, 184 Wn.2d
at 370 (footnote omitted); CR 56(c). However, “[w]hen a trial court denies summary judgment
due to factual disputes, . . . and a trial is subsequently held on the issue, the losing party must
appeal from the sufficiency of the evidence presented at trial, not from the denial of summary
judgment.” 6 Adcox v. Children’s Orthopedic Hosp. & Med. Ctr., 123 Wn.2d 15, 35 n.9, 864 P.2d
921 (1993).
3
Newcomer moved for prejudgment interest at 8 percent per annum from the date of payment of
the purchase of the security through October 2, 2015, pursuant to RCW 21.20.430. The parties
stipulated to the prejudgment interest amount.
4
Attorney fees were calculated based on Newcomer’s separate motion for attorney fees and costs
pursuant to RCW 21.20.430. The trial court entered findings of fact and conclusions of law, and
awarded fees and costs less than what Newcomer proposed.
5
The parties dispute the standard of review we should utilize on the various issues.
6
It is clear from the record that the trial court denied summary judgment because it believed issues
of material fact existed. For that reason, we do not consider or address summary judgment
arguments any further.
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We review a trial court’s decision to deny a motion for directed verdict under the same
standard as the trial court. Stiley v. Block, 130 Wn.2d 486, 504, 925 P.2d 194 (1996). A directed
verdict is proper if, when the material evidence is viewed in the light most favorable to the
nonmoving party, the court can say, as a matter of law, that there is no substantial evidence or
reasonable inferences to sustain a verdict for the nonmoving party. Indust. Indem. Co. of the Nw.,
Inc. v. Kallevig, 114 Wn.2d 907, 915-16, 792 P.2d 520 (1990).
However, on appeal, the inquiry is limited to whether the evidence, when viewed in the
light most favorable to the non-moving party, was sufficient to sustain the jury’s verdict. Indust.
Indem. Co., 114 Wn.2d at 916. “[U]nder the sufficiency of the evidence standard . . . ‘[t]he record
must contain a sufficient quantity of evidence to persuade a rational, fair-minded person of the
truth of the premise in question.’” Winbun v. Moore, 143 Wn.2d 206, 213, 18 P.3d 576 (2001)
(quoting Canron, Inc. v. Fed. Ins. Co., 82 Wn. App. 480, 486, 918 P.2d 937 (1996)). Denial of a
motion for directed verdict is inappropriate only if it is clear that the evidence and reasonable
inferences are insufficient to support the jury’s verdict. Indust. Indem. Co., 114 Wn.2d at 916.
II. STATUTE OF LIMITATIONS
Cohen first argues that the trial court erred by denying his motion for directed verdict on
whether the statute of limitations barred Newcomer’s claims because Newcomer was on inquiry
notice, at the latest, by 2009. We conclude that whether the statute of limitations barred
Newcomer’s claims was a question of fact for the jury, and sufficient evidence supported the jury’s
finding that Newcomer timely filed his lawsuit.
“The determination of when a plaintiff discovered or through the exercise of due diligence
should have discovered the basis for a cause of action is a factual question for the jury.” Winbun,
143 Wn.2d at 213. We review factual determinations under a sufficiency of the evidence standard,
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that is, evidence to persuade a fair minded person of the truth of the declared premise. Miller v.
City of Tacoma, 138 Wn.2d 318, 323, 979 P.2d 429 (1999).
At trial, the court instructed the jury on the statute of limitations for WSSA claims:
If one has notice of facts sufficient to prompt a person of average prudence to
inquire further, the person is deemed to have notice of all facts which reasonable
inquiry would disclose . . .
Plaintiff has the burden of proof to show that he did not discover, or with exercise
of reasonable care could not have discovered, the facts giving rise to his claims
three years before January 13, 2014.
CP at 1653 (Instr. 14); RCW 21.20.430(4)(b).
Cohen does not argue that the instruction was an incorrect statement of law or that the trial
court otherwise erred by giving the instruction. “Unless there is a proper objection, jury
instructions become the law of the case.” Millies v. LandAmerica Transnation, 185 Wn.2d 302,
313, 372 P.3d 111 (2016) (footnote omitted). We, therefore, review the sufficiency of the evidence
in light of the instructions given. Millies, 185 Wn.2d at 313.
Here, the trial court properly denied Cohen’s motion for directed verdict on the statute of
limitations because the issue posed a question of fact. The facts before the jury supported its
verdict that Newcomer filed his lawsuit within the statute of limitations.
The jury heard that Newcomer repeatedly inquired of Cohen who repeatedly failed to
disclose that his initial $800,000 capital contribution was not fully made in cash. Cohen continued
to misrepresent the character of his initial capital contribution as late as the fall of 2013, after
Newcomer hired an attorney to investigate.
The jury also heard that Cohen failed to disclose the 2006 Point Ruston loan which Cohen
made weeks before Newcomer made his second capital contribution. In 2009, Newcomer received
an accounting document of Point Ruston loans, but it excluded the interest-free loan at issue.
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Cohen failed to disclose that information until after litigation commenced. The jury also heard
evidence that Newcomer and other investors had no knowledge or notice of the $400,000 founder’s
fee until the parties were in discovery. The fact that Cohen presented contrary evidence does not
mean that insufficient evidence supports the jury verdict.7
Whether Newcomer timely filed this lawsuit was a factual question properly before the
jury, which ultimately found in his favor. Based on the evidence presented at trial, we conclude
that sufficient evidence existed to persuade a rational, fair-minded person that Newcomer filed his
lawsuit within the statute of limitations.
III. MATERIALITY AND RELIANCE
Cohen next argues that the trial court erred by denying his motion for directed verdict and
in entering judgment on the verdict because no reasonable juror could conclude that the
misrepresentations or omissions at issue were material or reasonably relied upon.8 We conclude
that sufficient evidence supported the jury’s finding that Cohen made material misrepresentations
or omissions and Newcomer reasonably relied on them.
Under the WSSA, “[i]t is unlawful for any person, in connection with the offer, sale or
purchase of any security. . . [t]o make any untrue statement of a material fact or to omit to state a
material fact necessary in order to make the statements made, in the light of the circumstances
under which they are made, not misleading.” RCW 21.20.010(2). The violation is the
7
We do not review a jury’s credibility determinations. Kohfeld v. United Pac. Ins. Co., 85 Wn.
App. 34, 42, 931 P.2d 911 (1997).
8
Cohen, citing to RCW 25.15.190, also argues that the Limited Liability Companies Act allows
for capital contributions to be made in services rendered. The argument is misplaced. At issue is
whether there were material misrepresentations or omissions that were reasonably relied upon by
a reasonable investor. That the form of the contribution was not in cash, or that a contribution in
deferred equity was not necessarily a bad act, is not pertinent to a WSSA claim. We also note that
RCW 25.15.190 was repealed. LAWS OF 2015, ch. 188 § 108, eff. January 1, 2016.
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misrepresentation or omission itself. Hines v. Data Line Sys., Inc., 114 Wn.2d 127, 135, 787 P.2d
8 (1990). The WSSA also requires reliance upon the alleged misrepresentations or omissions.
Hines, 114 Wn.2d at 134.
At trial, the court instructed the jury on materiality:
A material fact is a fact to which a reasonable person would attach
importance in determining his or her decision whether to purchase the security, or
a fact that would affect the desire of reasonable investors to buy the company’s
securities. There is an ongoing duty to disclose material facts that relate to the
specific security originally purchased.
For an undisclosed fact to be material, there must be a substantial likelihood
that the disclosures of the omitted fact would have been viewed by the reasonable
investor as having significantly altered the total mix of information made available.
CP at 1647 (Instr. 8).
The trial court also instructed the jury on reasonable reliance as applicable to both
misrepresentations and omissions:
In making a determination whether one reasonably relies on a representation
in connection with the purchase or sale of a security, you should consider: (1) the
sophistication and expertise of the plaintiff in financial and securities matters; (2)
the existence of long-standing business or personal relationships; (3) access to the
relevant information; (4) the existence of a fiduciary relationship; (5) concealment
of the fraud; (6) the opportunity to detect the fraud; (7) whether the plaintiff
initiated the stock transaction or sought to expedite the transaction; and (8) the
generality or specificity of the misrepresentation.
CP at 1649 (Instr. 10).
If Defendants omitted to disclose a material fact, Plaintiff does not need to
prove reliance on an omission because it is presumed. Such presumption can be
overcome if Defendant shows that Plaintiff’s decision would have been unaffected
even if the omitted fact had been disclosed.
CP at 1648 (Instr. 9).
Cohen does not argue that the instructions contained incorrect statements of law or that the
trial court otherwise erred by giving the instructions. Therefore, they are the law of the case.
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Millies, 185 Wn.2d at 313. We review the sufficiency of the evidence in light of the instructions
given. Millies, 185 Wn.2d at 313.
Here, the trial court denied Cohen’s motions directed verdict because factual disputes
existed as to the materiality of the misrepresentations or omissions and whether Newcomer
reasonably relied on them. Sufficient evidence existed to support the jury’s findings on these
issues.
The jury heard expert testimony that the form of Cohen’s initial capital contribution, e.g.
cash vs. non-cash, was a material fact that a reasonable person would want to know about prior to
investing. Newcomer testified that he would not have invested or continued to invest had he
known about the $350,000 deferred equity, the 2006 Point Ruston loan, or the $400,000 founder’s
fee. The LLC agreement did not address whether deferred fees for future services was an
acceptable form of capital contribution.
Regarding the 2006 Point Ruston loan, the jury heard that although Cohen could borrow
money on behalf of Apex without notice, the salient inquiry was whether Apex had an undisclosed
debt and whether a reasonable person would want to know about it before investing. The jury also
heard that an investor would want to know about the loan because the company’s debt would assist
an investor in deciding whether or not to make additional capital contributions.
Based on the evidence presented at trial, we conclude that sufficient evidence existed to
persuade a rational, fair-minded person that Cohen made material misrepresentations or omissions,
and that Newcomer reasonably relied on them when making his capital contributions.
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III. REMEDIES
Cohen next argues that the trial court erred as a matter of law when it instructed the jury
that it could award recessionary relief or damages when the evidence showed that only damages
were available.9 We conclude that the trial court did not err.
We review a trial court's decision to give a jury instruction de novo if based upon a matter
of law, or for abuse of discretion if based upon a matter of fact. Kappelman v. Lutz, 167 Wn.2d 1,
6, 217 P.3d 286 (2009). Whether to give a certain jury instruction is within the trial court’s
discretion and is, therefore, reviewed for an abuse of discretion. Christensen v. Munsen, 123
Wn.2d 234, 248, 867 P.2d 626 (1994). “The propriety of a jury instruction is governed by the
facts of the particular case.” Fergen v. Sestero, 182 Wn.2d 794, 803, 346 P.3d 708 (2015). Jury
instructions are sufficient if they are “supported by the evidence, allow each party to argue its
theory of the case, and when read as a whole, properly inform the trier of fact of the applicable
law.” Fergen, 182 Wn.2d at 803.
9
In the alternative, Cohen argues that the award should be modified or reduced because by
the time Newcomer made his 2008 and 2009 contributions, the misrepresentations or omissions
made in 2005 and 2006 were immaterial. He argues that even if they were material, each of the
misrepresentations or omissions occurred in connection with Newcomer’s investment in Apex I.
He further argues that no evidence or argument was adduced to support treating Apex I and the
TIC entities (formed in 2008) as a single entity.
We employ the same sufficiency of the evidence standard as to these arguments because
the jury found, as to each of Newcomer’s four capital contributions, that Cohen was liable under
the WSSA. At trial, the jury heard evidence regarding the restructuring of the entities and
circumstantial evidence showing that Newcomer’s checks in 2009 were made towards the Apex
project as though it was a single project managed by Cohen. The jury also heard evidence that in
2009, Cohen provided Newcomer with a document that omitted Cohen’s $350,000 contribution in
deferred equity, an omission which Newcomer relied on in making his last payment towards his
$910,000 contribution. Because sufficient evidence supported the jury’s findings, we decline to
modify or reduce the judgment.
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At trial, the court instructed the jury:
If you find for Plaintiff on the claims under the [WSSA], then you must
determine the amount of damages, if any. If the Plaintiff still owns the security, the
damages are the amount Plaintiff paid in connection with the purchase of the
security. Plaintiff is not required to show that the untrue statement or omission
actually caused them to incur losses.
If the Plaintiff no longer owns the security, the amount of damages are the
amount for which the security was initially purchased less the value of the security
when Plaintiff disposed of it.
CP at 1654 (Instr. 15); RCW 21.20.430(1).
Cohen does not argue that the instruction is an incorrect statement of the law. Instead, he
argues that the trial court should have instructed the jury only on the calculation of damages. He
argues that the evidence showed that Newcomer disposed of his securities; therefore, damages was
the only remedy available. Cohen’s argument is unpersuasive.
The trial court’s instruction allowed both parties to argue their theories of the case.
Newcomer presented evidence that he did not dispose of his security interest in Apex and that, at
all times, he personally owned his securities. The jury also heard that Newcomer did not receive
any payment or consideration for the transfer.
Cohen presented evidence that Newcomer personally purchased the securities, but
subsequently transferred them to distinct entities for an interest in real property, thereby
“dispos[ing]” of his securities. XI RP at 1186. Recognizing the differing evidence, the trial court
gave an instruction that allowed the jury to calculate the remedy in two different ways.
Given that the jury heard contrary evidence as to whether or not Newcomer owned or
disposed of his securities, the trial court properly instructed the jury. We conclude that the trial
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court did not err because the instruction was supported by the evidence, it allowed each party to
argue its theory of the case, and it properly informed the jury of the applicable law.10
IV. JUDGMENT AGAINST THE MARITAL COMMUNITY
Cohen next argues that the trial court erred by entering judgment against Cohen’s marital
community because the court based its decision solely on the fact that Cohen and his ex-wife were
married when the events at issue took place, no evidence showed that she could be held liable
under the WSSA, and the question of community liability was never submitted to the jury. We
conclude that the trial court did not err.
Once a jury renders a verdict, the trial court must declare its legal effect and enter a
judgment upon it where appropriate. McRae v. Tahitian, LLC, 181 Wn. App. 638, 644, 326 P.3d
821 (2014). A court liberally construes a verdict so as to discern and implement the jury's intent,
if consistent with the law. McRae, 181 Wn. App. at 644. A court may view a verdict in light of
the jury instructions and trial evidence. Meenach v. Triple “E” Meats, Inc., 39 Wn. App. 635,
638-39, 694 P.2d 1125 (1985).
“A debt incurred by either spouse during marriage is a community debt.” Trinity Universal
Ins. Co. of Kansas v. Cook, 168 Wn. App. 431, 437, 276 P.3d 372 (2012). The presumption may
be overcome only by clear and convincing evidence. Oil Heat Co. of Port Angeles, Inc. v.
Sweeney, 26 Wn. App. 351, 353, 613 P.2d 169 (1980). “The key test is whether,
10
Cohen also argues that Newcomer’s attorney improperly told the jury that that proper measure
of damages was a “trick” and encouraged the jury to apply the wrong standard, thereby
compounding the prejudice caused by the erroneous jury instruction. Br. of Appellant at 61. We
do not consider the argument because it was not properly preserved below Collins v. Clark County
Fire Dist. No. 5, 155 Wn. App. 48, 97, 231 P.3d 1211 (2010); RAP 2.5(a).
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at the time the obligation was entered into, there was a reasonable expectation the community
would receive a material benefit from it.” Sunkidd Venture, Inc. v. Snyder–Entel, 87 Wn. App.
211, 215, 941 P.2d 16 (1997). Actual benefit to the community is not required as long as an
expectation of community benefit existed. Oil Heat, 26 Wn. App. at 355.
The parties disputed whether Cohen’s acts benefited the marital community and argued the
community liability issue to the jury. Newcomer testified that he named Cohen’s ex-wife as a
party in this lawsuit because she was “part of the whole thing” and that Cohen and his ex-wife
were “partners.” V RP at 536. He also testified that Cohen’s ex-wife owned half of the company
and “benefited, just as [Cohen] did, from the Apex Apartments.” V RP at 537.
In support of his argument, Cohen cites to Swenson v. Stoltz, 36 Wn. 318, 78 P. 999 (1904).
In Swenson, the complaint alleged and the answer denied that the husband’s obligation was for the
benefit of the marital community. 36 Wn. at 324. The court held that the judgment against the
marital community was not in conformity with the verdict because the trial court only instructed
the jury on the husband’s personal liability, and not on the community liability issue. Swenson,
36 Wn. at 324.
This case is distinguishable from Swenson because, although the trial court did not
specifically instruct the jury on community liability, the parties argued the issue to the jury and the
jury had to decide the culpability or non-culpability of each defendant. The jury heard that Cohen’s
ex-wife owned half of the company and benefitted from Cohen’s actions; therefore, recovery
should be made against her and the martial community. The special verdict form referred to
“defendants,” meaning that the jury had to make findings of liability as to both Cohen and his ex-
wife. Given the evidence, the court liberally construed the jury verdict and implemented the jury’s
intent.
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Further, Cohen presented no evidence showing that his acts did not benefit the marital
community. Cohen did not object or take exception to the jury instructions on this point. He also
did not object when the trial court entered the judgment on the verdict which specified that he and
his ex-wife were the judgment debtors.
Based on the evidence and the special verdict form that specified Cohen and his ex-wife as
“defendants” in the lawsuit, the trial court properly entered judgment against the marital
community.
V. ATTORNEY FEES
Lastly, Newcomer requests an award of reasonable attorney fees and costs as the prevailing
party on appeal.
A prevailing part may recover attorney fees authorized by statute. Landberg v. Carlson,
108 Wn. App. 749, 758, 33 P.3d 406 (2001). The WSSA provides for such an award to a defrauded
investor who prevails on his or her claim. RCW 21.20.430(1). Generally, if such fees are
allowable at trial, the prevailing party may recover fees on appeal as well. Landberg, 108 Wn.
App. at 758; RAP 18.1. Because the WSSA statute authorizes the prevailing party to recover
reasonable attorney fees, we award Newcomer attorney fees and costs incurred in this appeal.
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We affirm.
A majority of the panel having determined that this opinion will not be printed in the
Washington Appellate Reports, but will be filed for public record in accordance with RCW
2.06.040, it is so ordered.
Melnick, J.
We concur:
Johanson, P.J.
Sutton, J.
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