The Court of Appeals affirmed a trial court order requiring Brighton Title Company to pay more than $232,000 to Cooper Enterprises.

This case started when Cooper signed a contract to buy real property.  Cooper then went out and found a buyer for the property.  That buyer was Deseret Sky Development.  Cooper apparently lacked the funds to buy the property and then sell it.  So Cooper tried to set up the transaction as a flip.  In other words, Cooper would use the funds from Deseret to purchase the property.

This type of transaction was fairly common not too long ago.  People would enter into contracts to buy property at a low price, find a buyer at a higher price and then flip the property.  The middleman could make a boat load of money and only own the property for a few minutes.

Problem was, the State decided that these transactions were adding to the housing bubble.  The State tried to stop them.  In 2007, the Utah Insurance Commission prohibited title companies from participating in land flips.  In order to get involved, a title company would be required to make sure that the two transactions happened independently and with different funds.  In other words, Cooper would be required to come up with its own money to buy the property before it could sell the property to Deseret.

So how did Brighton end up owing so much money to Cooper?  What happened was that Deseret gave earnest money to Brighton.  Brighton was supposed to hold that money and apply it to the purchase price.  If either buyer or seller breached the contract, Brighton was supposed to give the earnest money to the non-breaching party.

Unfortunately for Brighton, Brighton panicked.  Brighton realized that it could not close the transaction because of the insurance commission rule.  Brighton also realized that under State law it could not act as an escrow agent unless it wrote title insurance.   Not knowing what to do, Brighton gave the money to Deseret, the buyer.  Deseret then promptly breached the contract with Cooper, the buyer.  Cooper then sued Deseret and Brighton.

Unfortunately for Brighton, Deseret promptly went out of business.  That meant that the only way Cooper could get the earnest money was for Brighton to pay it.  Both the District Court and the Court of Appeals held that Brighton breached its fiduciary duty to Cooper.  Brighton should have given the money to Cooper since Deseret was the party who breached.

The fact that Brighton had already given the money to Deseret didn’t matter.  Brighton will now have to reach into its own pocket and give the money to Cooper.  Not only that, Brighton also has to pay interest and court costs.

Brighton can go after Deseret.  That doesn’t look hopeful.  Deseret is out of business and has a dozen lawsuits filed against it.  One of those lawsuits has already resulted in a judgment against Deseret for over $1,000,000.  The old saying goes, you can’t squeeze blood from a turnip.