Alexander Shcharansky and Tatiana Shcharansky v. Vadim Shapiro, Boris Pusin, Ilya Markevich, Alex Komm, and Dmitry Khots. ( 2017 )

IN THE COURT OF APPEALS OF IOWA
No. 16-1265
Filed July 6, 2017
ALEXANDER SHCHARANSKY and TATIANA SHCHARANSKY,
Plaintiffs-Appellants,
CLERK OF SUPREME COURT
vs.
ALEX KOMM, ILYA MARKEVICH, BORIS G. PUSIN, VADIM SHAPIRO, and
DMITRY KHOTS,
Defendants-Appellees,
________________________________________________________________
Appeal from the Iowa District Court for Polk County, David M. Porter,
Judge.
JUL 06, 2017
The plaintiffs appeal from the district court’s dismissal of their action for
equitable contribution. AFFIRMED.
ELECTRONICALLY FILED
Mark E. Weinhardt and Danielle M. Shelton of The Weinhardt Law Firm,
Des Moines, for appellants.
Jason C. Palmer and Timothy N. Lillwitz of Bradshaw, Fowler, Proctor &
Fairgrave, P.C., Des Moines, for appellees.
Considered by Danilson, C.J., and Potterfield and Bower, JJ. Blane, S.J.,
takes no part.
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POTTERFIELD, Judge.
Alexander and Tatiana Shcharansky initiated an action against the five
named defendants for equitable contribution, claiming they had paid more than
their share of a joint debt to Wells Fargo and the defendants had been unjustly
enriched as a result.1 After a trial to the bench, the district court found that the
Shcharanskys were not entitled to contribution because the source of the funds
used to pay the debt was not the Shcharanskys’; although the money was in their
personal accounts just before it was paid to the bank, the two of them had not
actually paid more than their share. The Shcharanskys filed an Iowa Rule of Civil
Procedure 1.904(2) motion to enlarge or amend, and the district court denied
their motion. They then appealed.
On appeal, the Shcharanskys contend the source of the funds used to pay
the joint debt is immaterial; they urge us to reverse the ruling of the district court.
In response, the defendants contend the Shcharanskys’ 1.904(2) motion was not
“proper,” so it did not toll the time for filing a timely appeal. They maintain we
should find the Shcharanskys’ appeal was untimely and dismiss it.
I. Background Facts and Proceedings.
This appeal concerns debt incurred by Continuous Control Solutions, Inc.
(CCS). Prior to September 2007, CCS was owned by the named defendants—
also known as the Shapiro Group—and the Shcharansky group, which included
Alexander Shcharansky and two other parties not at issue in this appeal.
1
There were also a number of counterclaims, cross-claims, and third-party claims, which
were bifurcated and reserved for a later jury trial, if necessary, depending on the result of
the plaintiffs’ claim.
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In 2005 and 2006, CCS obtained several loans from Wells Fargo, totaling
approximately $900,000. CCS was the primary obligor on the debt, but each of
the eight owners also personally guaranteed the debt.
In September 2007, the Shcharansky Group bought out the Shapiro
Group, pursuant to a written stock purchase agreement. In the agreement, the
Shcharansky Group agreed to “use best efforts” to have CCS “satisfy and repay
in full all debt obligations” of CCS “to Wells Fargo Bank, N.A.”
CCS did not make any principal payments to Wells Fargo. As a result, in
October 2008, Wells Fargo filed a petition at law seeking to collect the amount
due on two defaulted notes. In April 2009, judgment was entered in favor of the
bank on its claims against CCS and the eight guarantors, in the amount of
$909,338.27 plus interest.
In June 2009, Wells Fargo entered into a forbearance agreement with
CCS, Alexander, and his wife, Tatiana. Tatiana had not previously been one of
the guarantors of the debt—bringing the guarantors to a total of nine. As
additional collateral to secure the forbearance agreement, Tatiana gave Wells
Fargo a mortgage lien on a condo she owned in New York. Pursuant to the
agreement, CCS agreed to make an initial payment of $400,000 at the time of
signing and then quarterly payments of $76,022.11 thereafter until the debt was
discharged.
According to Alexander, CCS was unable to make the quarterly payment
due in June 2010. Alexander asked his parents for money so he—as opposed to
the company—could make the payment. His father took money from his
retirement account and put it in a joint account held by Alexander and his
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parents. Alexander then wrote a personal check to Wells Fargo for the June
payment. At trial, Alexander testified he “borrowed the money from [his]
parents.” During cross-examination, he conceded that he did not have a formal
loan agreement with his parents, there was no date by which he was expected to
pay back the money, and he had not paid any of it back so far—more than five
years later. Alexander clarified that, although his parents were unlikely to
attempt to compel him to pay back the funds, he felt an obligation to do so.
When the next quarterly payment came due in September 2010, the
Shcharansky Group again believed the company could not afford to make the
payment. In a similar situation, Tatiana received money from her parents to
make the payment. Again, there were no written documents memorializing loan
terms, there was no date by which the money was to be paid back, no interest
accumulating in the meantime, and—as of the time of trial in December 2015—
Tatiana had not yet returned any money to her parents. She testified she felt a
moral obligation to pay her parents back but stated she had not yet had an
opportunity to do so.
When the December 2010 payment came due, Tatiana again asked for
and received money from her parents. This time, she paid off the entire balance
of the loan—approximately $240,000. She testified she received the money from
her parents for the specific purpose of paying off the loan. She paid the loan off
early—rather than waiting to see if CCS would have the ability to make future
payments, as it was contractually obligated to do—because she wanted to “clear
[her] apartment from the debt.”
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In January 2011, Alexander and Tatiana initiated this lawsuit. The Shapiro
Group filed a motion for summary judgment, and the district court granted it. A
panel of our court reversed, finding “that the source of the funds is critical to
Alexander and Tatiana’s claim of contribution, whether the funds were loans or
gifts (or distributed as a part of an underlying conspiracy) is a disputed factual
issue” that should not have been decided on summary judgment. Shcharanksky
v. Shapiro, No. 13-0131, 2013 WL 611883, at *1 (Iowa Ct. App. Nov. 20, 2013).
The matter then proceeded to a bench trial in December 2015. The
district court denied the Shcharanskys’ claim for equitable contribution, noting
that “[p]ayment by anyone other than an obligor, even though for the obligor’s
benefit, gives the obligor no right of contribution.” 18 Am. Jur. 2d Contributions
§ 11 (2d ed. May 2017). Additionally, the court found “the evidence clearly
demonstrates that Plaintiffs’ parents actually made the payments to Wells Fargo
and the monies simply passed through Plaintiffs’ bank accounts on their way to
Wells Fargo.”
Alexander and Tatiana filed a rule 1.904(2) motion, asking the court to
change its ruling based on a different understanding of specific case law, arguing
that the monies used to pay the debt was a gift received from their parents, and
asking the court if it would expand its ruling to explain why contribution is not
warranted when debts are paid using gifted funds.
In its ruling on the motion, the court reiterated its understanding of case
law regarding equitable contribution, stating “The critical question . . . is: Can the
party seeking contribution demonstrate that they were forced to pay more than
their equal share?” The court noted it still did not believe the funds received by
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Alexander and Tatiana from their parents constituted either loans or gifts; the
court did not provide further characterization of the funds. The court then denied
the motion.
The plaintiffs appeal.
II. Discussion.
A. Jurisdiction and Timeliness of Appeal.
Generally, a notice of appeal from an order, judgment, or decree must be
filed within thirty days from the time the judgment is entered. Iowa R. App.
P.6.101(1)(b). A “proper” 1.904(2) motion tolls the thirty-day period until the
ruling on the motion is entered.2 In re Marriage of Okland, 699 N.W.2d 260, 263
(Iowa 2005). But “an untimely or improper rule 1.904(2) motion cannot extend
the time for appeal.” Id. at 265–66. Timeliness rules are “mandatory and
jurisdictional, requiring us to dismiss a case not meeting these deadlines even if
the parties do not raise the issue.” Explore Info. Servs. v. Ct. Info. Sys., 636
N.W.2d 50, 54 (Iowa 2001). Thus, we must decide whether the Shcharanskys’
rule 1.904(2) motion was proper before we may consider other issues in the
case. See Hedlund v. State, 875 N.W.2d 720, 724 (Iowa 2016).
The 1.904(2) motion “is a tool for correction of factual error or
preservation of legal error, not a device for rearguing the law.” Id. at 726. One
2
We note rule 1.904 was amended, effective March 1, 2017. According to comments on
the amended rule, the addition of subsections (3) and (4) to rule 1.904 “supersede prior
case law that held a timely rule 1.904(2) motion must also have been ‘proper’ to extend
the time for appeal.” This change was made “[t]o obviate controversies over whether a
rule 1.904(2) motion tolls the time for appeal.” Iowa R. App. P. 1.904 cmt (2017). Now,
“the rule authorizes any timely rule 1.904(2) motion to extend the appeal deadline,
subject to one exception in rule 1.904(4).” Id. Neither party has addressed the rule
change and whether it affects our review. We assume without deciding the
Shcharanskys’ motion—filed almost one year before the rule change took effect—must
still be reviewed under prior case law.
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“proper” use of the motion is “to attack ‘specific adverse findings or rulings in the
event of an appeal’ by requesting additional findings and conclusions.” Okland,
699 N.W.2d at 266 (quoting Johnson v. Kaster, 637 N.W.2d 174, 182 (Iowa
2001)). While we agree with the defendants that the Shcharanskys used their
motion to rehash some legal arguments, the Shcharanskys also asked the court
to clarify its determination that the money used to pay off the joint debt was
neither a gift nor a loan and to expand on whether it was holding that gifted
monies could never be used to pay a joint debt if the obligor wanted to seek
equitable contribution. The latter requests are proper uses of a 1.904(2) motion,
so the time to file an appeal was tolled and the Shcharanskys’ appeal was timely.
B. Equitable Contribution.
Next, we consider the plaintiffs’ claim that they were entitled to equitable
contribution from the defendants. Both parties agree this was tried to the district
court in equity and, accordingly, our review is de novo. See Iowa R. App. P.
6.907; see also Johnson, 637 N.W.2d at 177 (“Generally, we will hear a case on
appeal in the same manner in which it was tried in the district court.”).
“Generally, one party who satisfies a claim can seek reimbursement
through contribution.” Hills Bank & Trust Co. v. Converse, 772 N.W.2d 764, 772
(Iowa 2009). “This right of contribution is equitable in nature and is used to
prevent unjust enrichment.” Id.
The district court ruled the Shcharanskys were not entitled to equitable
contribution from the defendants because, while the money used to discharge
the joint obligation came from the Shcharanskys’ accounts, they were mere
conduits for their parents’ money. In other words, although the plaintiffs had
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signed checks to discharge the obligation, the plaintiffs themselves had not
suffered the detriment or harm involved in paying more than their share. See 18
Am. Jur. 2d Contributions § 1 (2d ed. May 2017) (“The general rule is that one
who is compelled to pay or satisfy the whole or to bear more than his or her just
share of a common burden or obligation, upon which several persons are equally
liable or which they are bound to discharge, is entitled to contribution against the
others to obtain from them their respective shares.” (emphasis added)). The
Shchranskys urge us to find that the source of the money is immaterial since it
indisputably came from their accounts. Alternatively, they maintain they were
gifted the funds by their parents, and thus they suffered the loss of the gifted
funds when they discharged the entire debt.
The Shcharanskys’ argument that we need not consider the source of the
funds since they physically wrote the checks to discharge the debt is tantamount
to urging us not to peer behind the curtain. But we must. “Payment by anyone
other than an obligor, even though for an obligor’s benefit, gives the obligor no
right of contribution.” Id.; see also Jackson v. Lacy, 100 P.2d 313, 317–18 (Cal.
Ct. App. 1940) (“It is elementary that a party acquires a right of contribution as
soon as he pays more than his share but not until then.”). Thus, in order to
determine if the plaintiffs are entitled to equitable contribution from the
defendants, we must determine if the monies used to discharge the debt were
actually those of the plaintiffs—due to loan, gift, or some other method of
receipt—or whether the district court was right “that Plaintiffs’ parents actually
made the payments to Wells Fargo and the monies simply passed through
Plaintiffs’ banks accounts on their way to Wells Fargo.”
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We agree with the district court that the Shcharanskys are not entitled to
equitable contribution. As noted above, the right of equitable contribution is to
reimburse a party who paid more than their share of a debt. But here, the
Sharanskys are in the exact same position they were in at the time they decided
to pay off the debt. Although they argue they used gifted funds to discharge the
debt, both Alexander and Tatiana made clear in their testimony that they asked
their parents for money in order to make payments on the debt, and it was
provided to them for the same specific purpose. There is nothing in the record
that suggests the parents would have provided the funds otherwise. In other
words, the Shcharanskys needed approximately $394,000 in order to pay off the
debt. They asked their parents for that amount in order to pay off the debt, they
were given that amount, and they paid it off. Moreover, Alexander’s and
Tatiana’s testimony that each felt compelled or as if they had a moral obligation
to return the funds belies their claims that the money was gifted to them.
The record also does not support claims that the funds were given
temporarily, as a loan. At the time of trial, it had been more than five years since
the money was received, and Alexander and Tatiana had yet to pay back a
single cent of the money. They agreed their parents were unlikely to take
negative action against them if they did not pay back the funds. We believe this
suggests that the parents were not going to be paid back until or unless the
plaintiffs were successful in their action for equitable contribution. But a
“claimant cannot maintain an action for the benefit of the person actually making
the payment since that person has no protectable interest in the action.” 18 Am.
Jur. 2d Contributions § 11 (2d ed. May 2017).
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The Shcharanskys attempt to fall back on a general argument that the
defendants will be unjustly enriched if we do not find they are entitled to equitable
contribution. But we note that if the parents had given or loaned the needed
funds to CCS—as they had several times before—rather than Alexander and
Tatiana as individuals, the company, as the primary obligor, would have no claim
for contribution.
Although the money used to discharge the joint debt came from the
Shcharanskys’ accounts, they have been unable to establish that they personally
were forced to bear more than their just share of the debt. Thus, we affirm the
district court’s dismissal of their action for contribution.
AFFIRMED.
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State of Iowa Courts
Case Number Case Title
16-1265 Shcharansky v. Shapiro
Electronically signed on 2017-07-06 08:28:17
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