LEONID SHCHEDRIN v. GALINA STAR (C-000051-16, ATLANTIC COUNTY AND STATEWIDE) ( 2022 )

NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
This opinion shall not "constitute precedent or be binding upon any court." Although it is posted on the
internet, this opinion is binding only on the parties in the case and its use in other cases is limited. R. 1:36-3.
SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NO. A-5362-18
LEONID SHCHEDRIN and
KONSTANTYN BONDAR,
Plaintiffs,
and
IMPERIAL KURSK, LLC,
Plaintiff-Appellant,
v.
GALINA and ARKADIY
STAR,
Defendants-Respondents.
__________________________
Submitted February 10, 2021 – Decided July 6, 2022
Before Judges Accurso, Vernoia and Enright.
On appeal from the Superior Court of New Jersey,
Chancery Division, Atlantic County, Docket No. C-
000051-16.
Arnall Golden Gregory LLP, attorneys for appellant
(Gene M. Burd, on the briefs).
Fox Rothschild, LLP, attorneys for respondents (Ely
Goldin, of counsel and on the brief; Ciera A. Logan,
on the brief).
The opinion of the court was delivered by
ACCURSO, J.A.D.
This is a dispute among business partners, all Russian nationals, over
ownership of a residential property in Atlantic City. Plaintiff Imperial Kursk,
LLC appeals from a final judgment and amended judgment on reconsideration
following a ten-day bench trial. The General Equity judge dismissed Imperial
Kursk and its sole member Leonid Shchedrin's complaint against defendants
Galina and Arkadiy Star, determined title to 2 N. Montgomery Avenue is in
Galina Star and awarded the Stars $63,923.29 on their counterclaim for unjust
enrichment.1 Imperial Kursk claims to accept the trial court's findings of fact
but insists the judge committed legal error in deciding Galina acquired an
ownership interest in 2 N. Montgomery at the time of purchase in 2014 and
engaged in self-dealing in transferring the property to herself in 2015. The
judge's legal conclusions, however, were based on factual determinations that
turned on the credibility of the witnesses. Because our review of the record
1
Because Galina and Arkadiy Star share the same last name, we refer to them
by their first names throughout this opinion. We intend no disrespect by this
informality.
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convinces us there is substantial credible evidence to support the judge's
findings, we affirm.
Although a great deal of the parties' trial testimony, all taken through an
interpreter, was at odds and there are no written agreements memorializing
their business arrangements, they are in accord on how their relationship
started. Plaintiff Leonid Shchedrin, a Russian citizen, owns a network of pawn
shops in Russia and invests in real estate there and in the United States.
Shchedrin does not speak English and was not physically present for the trial.
His testimony was taken, out-of-turn, from his home outside Moscow via
Skype. He is the sole member and owner of Imperial Kursk, which he formed
in June 2013 as a Pennsylvania limited liability company. At the time,
Imperial Kursk's business was the purchase and sale of antiques between the
United States and Russia.
Defendants Arkadiy (Art) and Galina Star are purported to be dual
citizens of Russia and the United States; they live here. Both speak English
although they testified in Russian. Shchedrin and the Stars agree they met in
2013 in Russia and quickly became business partners. Art, who had already
been buying and renovating residential properties in Atlantic City with Galina,
encouraged Shchedrin to change his enterprise from antiques to real estate
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based on their own experience buying, renovating, and renting property there.
Shchedrin took Art's advice and, in September 2013, Imperial Kursk was
registered as a foreign company in New Jersey with Galina as its registered
agent.
The three agree that Galina and Art managed Imperial Kursk's day-to-
day operations while Shchedrin continued to live in Russia. Shchedrin
testified both Galina and Art worked for Imperial Kursk. Galina's duties
included locating and buying properties in Atlantic City, advertising for
tenants, and collecting rents. Shchedrin and the Stars testified Shchedrin
orally agreed to compensate Galina by paying her fifteen percent of the rents
received. Shchedrin testified Art was "his eyes," as to the repairs and
renovations to the Atlantic City properties Imperial Kursk bought in 2013.
According to Shchedrin, Art did not undertake any of the work himself, he
only oversaw it.
Shchedrin claimed he and Art did not discuss Art's compensation for his
efforts. Shchedrin testified he told Art he was "going to make it up to him, but
first we needed to make sure that the renovations were complete." The Stars
testified Art undertook a great deal of the manual labor necessary to renovate
the properties and that Shchedrin orally agreed to pay Art twenty percent of
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the costs of renovations. Shchedrin testified he never made any such
agreement. Instead, he testified he "made it up" to Art in 2014 by buying Art a
van and paying $12,000 to renovate the basement of the Stars home in
Philadelphia.
The Stars countered that the van was purchased for the company but was
put in Art's name because Shchedrin couldn't sign the financing documents
because he lived in Russia. Although Art admitted Imperial Kursk made the
car payments, he claimed he got stuck paying an additional $3,000 when he
surrendered the van to the dealership after the parties' relationship ended. As
to the basement renovations, the Stars claimed they were done to provide
Shchedrin and his wife a place to stay on their visits to the States and
Shchedrin offered no proof to establish he'd paid for any of it.
In August 2013, Shchedrin executed a power of attorney authorizing Art
to act on behalf of Imperial Kursk to acquire real estate, to sell "any or all real
estate" Imperial Kursk owned "upon such terms as [Art] shall think fit," and to
manage, repair, alter, or improve any such real estate. The following August,
Shchedrin granted Art another power of attorney, giving him the power to
"[m]anage, control, and operate" Imperial Kursk, including the authority to
make decisions regarding "sales, purchases, employees, loans, and equipment,"
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"[e]nter into binding contracts on [Shchedrin's] behalf," and "[m]ake gifts f rom
[Shchedrin's] assets" to specific people and organizations. The 2014 power of
attorney explicitly stated that Art was not authorized to "gift, appoint, assign
or designate any of [Shchedrin's] assets" to himself or any of his creditors.
Shchedrin testified the signature on the 2014 power was not his. He claimed
the document was signed by someone else, although he admitted witnessing
the execution of the document via Skype from Russia. Shchedrin claimed he
believed he was only extending the 2013 power of attorney and never intended
to give Art broader powers in 2014.
Shchedrin testified he toured various properties in Atlantic City with
Art, Galina, and a realtor when he visited the States in the summer of 2014,
but claimed Art and Galina, not a realtor, showed him the property at 2 N.
Montgomery during that trip. According to Shchedrin, the property was not in
bad shape, although not in rentable condition. He agreed Galina could
purchase the property for Imperial Kursk, but he was unwilling to fund any
renovations for the time being. Shchedrin explained his and his wife's funds
were tied up in a restaurant and banquet hall he had recently purchased in
northeast Philadelphia that required extensive renovations. Shchedrin claimed
he paid Art $400 a week for being "his eyes" in connection with the restaurant
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renovations, while also claiming he was overseeing the renovations himself.
According to Shchedrin, Imperial Kursk purchased 2 N. Montgomery, and "put
it on standby while we [were] finishing up the renovations of the restaurant,"
with the understanding he would "revisit the idea of renting out that house"
after the restaurant was up and running.
The Stars' testimony about the purchase of 2 N. Montgomery as well as
Art's efforts in rehabbing Imperial Kursk's rental properties and the
renovations of the restaurant was very different. Galina testified that in
addition to looking for suitable rental properties for Imperial Kursk, she was
also looking for a place where she and Art could live in Atlantic City. She
found 2 N. Montgomery in August 2014, but the property was being marketed
for an all-cash quick sale. Because she and Art lacked the funds for an all-
cash deal, Galina testified she approached Shchedrin for help in acquiring the
house — either by lending them the money or permitting them to pull out some
of the money and sweat equity they had invested in Imperial Kursk.
According to Galina, Shchedrin said he would help, and if she liked the house,
"we'll find a way to make it happen." She claimed he eventually told her to
"go head and buy the house from the company money," and they would later
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figure out "who owes what to whom," including what was due Art for the work
he'd performed.
Galina testified the purchase price for 2 N. Montgomery was $118,000
plus settlement charges; she and Art put up nearly $21,000 of their own money
and took $100,000 out of Imperial Kursk. According to her, she wanted to
take title in both her name and the company name, reflecting the contributions
of both to the purchase price. But the title agent — she was not represented by
an attorney in the transaction — told her "it's not really proper to put down the
name of the company and then an individual name." She claimed the agent
told her "because you are part of this company and you have these documents
proving it," he would "just write down c/o which will mean essentially the
same thing so we agreed." Accordingly, title was taken in the name of
Imperial Kursk, c/o Galina Star. Galina and Art both testified there was never
any question but that they were buying the property for themselves to live in.
Galina testified the house was in a good location and large enough to be
divided into a home for her and Art as well as a rental apartment, but was in a
very dilapidated condition, thus the low price. Art testified the roof was
partially caved in, resulting in birds nesting on the third floor, a number of the
floors were rotten, the pipes in the plumbing and heating systems required
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replacement, and there was standing water knee-deep in the basement,
resulting in mold throughout. He claimed Shchedrin had no involvement in 2
N. Montgomery, other than authorizing the Stars to use money from Imperial
Kursk to finance the purchase, and to his knowledge had "never set foot in it."
Art testified it took months of effort and nearly $50,000 to make the building
habitable, all of which he and Galina paid. The Stars testified Imperial Kursk
contributed nothing to the rehabilitation of 2 N. Montgomery, and that they'd
paid all the associated costs, including taxes, insurance and utilities, from the
time of purchase through trial.
As to Art's efforts on behalf of Imperial Kursk, he testified he was
responsible for virtually everything but renting the apartments, the work
Galina did. He explained that Shchedrin only visited the States for a week at a
time every three to four months and did so on a tourist visa. Art testified he
was responsible for all the renovations at all three of Imperial Kursk's rental
properties, which ran to hundreds of thousands of dollars, deciding what work
needed to be done, developing budgets, hiring contractors, assisting and
overseeing their work and arranging for inspections. Art testified he undertook
a great deal of the work himself because he "felt that this was [his] business,
too, and in a business, you cannot just waste money right and left." He
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testified that whatever he could do by himself, he "always did only by
[him]self."
According to Art, Shchedrin promised he would receive twenty percent
of the costs of the renovations to the Atlantic City rental properties, and that he
and Galina would become fifty/fifty partners with Shchedrin in Imperial Kursk
once they squared-up their contributions and the properties were all up and
running. As to the restaurant and banquet hall Shchedrin decided to develop in
Philadelphia, Art, who testified he had extensive experience in developing
restaurants having spent ten years of his career doing so, claimed he didn't
support the idea. According to Art, he told Shchedrin "the restaurant business
is very hard. You need to be there 24/7." Art claimed he explained that if he
were responsible for managing Shchedrin's restaurant in northeast
Philadelphia, he wouldn't be able to manage Imperial Kursk's rental properties
in Atlantic City.
Art testified Shchedrin told him he was going to buy the Philadelphia
property notwithstanding, and that Art would only be involved in weddings for
the catering hall; the restaurant and bar would be run by someone else.
Shchedrin purchased the property in May 2014, and Art agreed to run the
banquet facility. Art testified Shchedrin named it for him, calling it "Art's
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Banquet." Shchedrin admitted it was called Art's Banquet, but testified he did
not name the banquet hall for Art Star. Shchedrin claimed he came up with the
name after seeing an article on an "art ballroom" in a magazine at the Four
Seasons in Philadelphia where he stayed during one of his trips to the States.
He claimed he thought "Art" was short for "artist" in English, and that "the
banquet hall belongs to artists."
Although Art claimed he was to manage only the banquet hall and not
the restaurant and bar, he testified he "had the full responsibility to launch [the
entire] business so it would operate." He testified he found and hired the
general contractor and other workers, acquired the appliances and equipment
and found the chef and restaurant manager. According to Art, "it took from
the end of 2013 to roughly May 2014 to get the Atlantic City properties to a
point where they could be rented," and from May 2014 when Shchedrin
purchased the Philadelphia restaurant property through May 2015, when
Shchedrin sold it just before it opened, to get the restaurant and banquet hall
operational. According to Art, Shchedrin never paid him the promised twenty
percent of the renovations to the Atlantic City properties and the $400 weekly
he finally began receiving in May 2014 was not for his work in connection
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with the restaurant but pursuant to an agreement with Shchedrin relating to the
rental properties.
Specifically, Art testified that when the renovations to the Atlantic City
properties were essentially complete in May 2014, he "started conversations"
with Shchedrin as to the twenty percent payment Shchedrin had promised, as
Art had worked for nearly eighteen months without any compensation. Art
claimed he and Shchedrin agreed Art would be in charge of maintenance for
the three rentals and taking care of people moving in and out for which he
would be paid $400 a week. Art testified that agreement, like the rest of those
he and Galina entered into with Shchedrin, was not in writing. He claimed he
and Galina had tried repeatedly to get Shchedrin to "prepare the paperwork
with an accountant" documenting "how much money Galina invested in the
company," and how much, if any, was still owed from the $100,000 they
received from Imperial Kursk to purchase 2 N. Montgomery, but that
Shchedrin kept putting them off.
According to Art, in August 2014, Shchedrin demanded the Stars make
interest payments on the $100,000 from Imperial Kursk, which they did. Art
testified Shchedrin was having money problems by that point because in
addition to the $800,000 Shchedrin had spent to purchase the restaurant
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property, he'd had to spend another $450,000 in renovations and the project
was not nearly finished, forcing him to borrow an additional $320,000 at one
percent monthly interest from a hard-money lender. During a vacation in St.
Maarten the Stars took with Shchedrin and his wife in November 2014,
Shchedrin suggested the Stars borrow against 2 N. Montgomery to obtain
additional capital for the company. Galina testified she expressed a
willingness to do so, but explained the property would have to be transferred
solely to her name in order to permit her to obtain a loan using the property as
security. Galina and Art both testified Shchedrin told her to go ahead and
transfer the property to her name, which she did in January 2015. She claimed
the loan Shchedrin wanted to take against the property never happened because
the process took too long, and Shchedrin changed his mind.
Shchedrin testified he never gave Galina permission to transfer 2 N.
Montgomery to herself, and he only learned of the transfer, and that the Stars
were living in the property, in February 2015, when he was advised of both by
Imperial Kursk's bookkeeper. Shchedrin testified he had started to "feel
uncomfortable" with the Stars toward the end of 2014, although he admitted
having vacationed with the couple for ten days in St. Maarten in November.
Shchedrin explained "when you're being told things such as everybody loves
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your houses, things are going great, we're doing great, and the money is
coming in, but you are not seeing any physical money, you begin to feel
uncomfortable." He claimed the relationship cooled, asserting there "wasn't
anything particular or specific, but somehow they began to feel less friendly."
According to Art, the parties' relationship unraveled when Shchedrin
presented him with a post-dated contract in 2015 purporting to document that
Art had borrowed $680,000 from Shchedrin's wife. Art testified he
complained to Shchedrin about being asked to sign, saying "Why should I be
the only one who will sign it, we are doing business together, so let's sign it
together. Why should I be responsible for that money as if I was the one who
borrowed it." Art testified he "assumed that [Shchedrin] did not like that,"
because he stopped "cooperating with me." Art claimed Shchedrin told him he
didn't need them any longer; the houses were up and running and the restaurant
had been built. Art testified they "split ways" in May 2015 and Shchedrin sued
them in January 2016, claiming they'd stolen 2 N. Montgomery from him.
In addition to the parties, two other fact witnesses of note testified. The
realtor who represented Imperial Kursk in the purchase of a couple of the
Atlantic City rentals and represented the Stars in the purchase of 2 N.
Montgomery testified about working with Art and Galina and meeting
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Shchedrin when he showed the parties various properties in Atlantic City. The
realtor testified to the dilapidated condition of the properties on purchase and
to seeing Art putting up sheetrock, working on the plumbing, and installing a
water heater in one of the units. The realtor testified he had no contact with
Shchedrin in relation to 2 N. Montgomery, and understood the Stars were
buying it as their personal residence.
The bookkeeper for Imperial Kursk also testified — in Russian through
an interpreter. She claimed 2 N. Montgomery was listed on Imperial Kursk's
books as an asset of the company but that Galina had never paid over any of
the $89,000 in net profits she received from the property. The bookkeeper
could not explain why the company's books didn't reflect any expenses for 2 N.
Montgomery.
The only non-fact witness to testify was the accountant the Chancery
judge had appointed to conduct a forensic analysis of the three Imperial Kursk
rental properties in Atlantic City as well as 2 N. Montgomery, over which the
parties disputed ownership, "to determine the accounting, distribution of
profits, waste and management" of the properties since 2013. He testified
consistent with his report that Imperial Kursk was "funded by advances from
Shchedrin-related sources." According to the accountant, from 2013 to the
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time of his analysis in 2018, Imperial Kursk reported overall losses of
$678,610.30. He claimed, however, that after adjusting for losses and
expenses attributable to the restaurant property, non-business expenses paid on
behalf of Shchedrin and unrecorded rental income from 2 N. Montgomery as
well as certain other "reclassifications," Imperial Kursk actually turned a net
profit of $290,993.92.
The accountant testified that outside an immaterial commission check,
there was no indication in the Imperial Kursk books that Art or Galina had
been paid anything.2 The books, however, did reflect a loan from Galina to
Imperial Kursk of $73,550 in 2014, which was reduced by $38,000 in
payments to third-parties charged to the loan and the balance zeroed out
through journal entries in 2015.
As to 2 N. Montgomery, the accountant testified the property was
"unusual" from an accounting perspective. Specifically, the accountant
testified the property was purchased in 2014 and recorded on Imperial Kursk's
books as an asset in the amount of $119,456.15, but there was no rental income
or expense of any sort attributable to the property, including real estate taxes.
2
Galina testified she took her fifteen percent out of the rents before depositing
the net proceeds in an Imperial Kursk account.
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The accountant, however, was able to secure a hand-written summary from
Galina's counsel listing rent income through 2018 of $165,743, less expenses
of $76,040 for a net profit of $89,703.
After hearing the testimony, the Chancery judge wrote a comprehensive
sixty-four-page opinion finding in favor of Galina and Art, whom he found
decidedly more credible than Shchedrin. The judge found both Stars reliable
witnesses, finding their testimony reasonable and corroborated by the
documents and the photographs of the properties in evidence. The judge
specifically found Galina's testimony that Shchedrin told her to transfer 2 N.
Montgomery to herself, subject to "squar[ing] up" later was believable, noting
Galina answered questions forthrightly and was "not evasive, hostile, or
defensive" in responding to questions from Shchedrin's counsel as well as her
own. Shchedrin, in contrast, the judge found "defensive" and "not credible,"
deeming his testimony "self-serving" and beset by inconsistencies.
As to 2 N. Montgomery, the judge found the property "was not an asset
of [Imperial Kursk], but rather the residential home of the [Stars]." The judge
found Shchedrin agreed Imperial Kursk would advance the Stars $100,000
toward the purchase price, "subject to a final 'true up' at some later point in
time," and noted Imperial Kursk's bookkeeper corroborated Galina's testimony
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that the Stars tendered the remainder of the purchase price and paid the closing
costs.
Acknowledging that "[o]riginally, the property was registered to both
[Galina] and [Imperial Kursk] reflecting that both parties had an interest in the
property," the judge found the Stars' subsequent $50,000 investment in
renovations and payment of all carrying costs supported the Stars' claim to sole
ownership. The trial court found particularly significant the court-appointed
accountant's findings that while the property "was purchased in 2014 and was
subsequently recorded as an asset on the [Imperial Kursk] books . . . [t]here
were no improvement costs, carrying costs, rental income, or rental expenses
. . . associated with the property" recorded on the company's books.
The judge also concluded Galina's transfer of the property to herself in
January 2015 was "done with . . . Shchedrin's knowledge," which was
"corroborated by . . . Shchedrin's own testimony . . . that he was aware of the
transfer by February 2015." The judge also found that even if Shchedrin did
not become aware of the transaction until February 2015 as he testified, there
was no evidence he objected at that time, noting Shchedrin and the Stars
continued to do business with each other for months afterwards, with
Shchedrin even naming the banquet hall for Art — an explanation for the name
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the judge found more credible than Shchedrin's "art ballroom" version.
Relatedly, the judge found the Stars had never made any false representations
to Imperial Kursk or Shchedrin about the title to 2 N. Montgomery, and thus
rejected Imperial Kursk's fraud claim as unsupported.
As to Imperial Kursk's claim for unjust enrichment against the Stars, the
judge found the claim barred by Shchedrin's unclean hands. See A. Hollander
& Son, Inc. v. Imperial Fur Blending Corp., 2 N.J. 235, 246 (1949).
Specifically, the judge stated Shchedrin "caused [Imperial Kursk] to pay a
substantial amount for non-business expenses" he incurred, payments to third-
parties were recorded as reducing the balance of Galina's loan to the company,
Imperial Kursk "failed to record any wages paid to anyone associated with the
company," and admittedly failed to keep its books in accordance with the tax
laws.3
The judge ruled for the Stars on their counterclaim for breach of
contract, finding they had an oral agreement with Shchedrin to find properties,
3
The judge further found the evidence established Imperial Kursk's
"managers" "potentially engaged in visa fraud, tax fraud, customs fraud, false
notarizations, procurement of false witnesses, and possibly even money
laundering" prior to the start of trial, referencing Shchedrin's activities on a
tourist visa; certain customs declarations he may or may not have made when
entering the country, and the possibility the bookkeeper notarized a forgery of
his signature on Art's second power of attorney.
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oversee projects, provide necessary manual labor, advertise, collect rents, and
otherwise manage properties for Imperial Kursk, while Shchedrin would
provide funding, finding Art was to be compensated at a rate of twenty percent
of the construction costs for each of the rental properties, while Galina would
be paid fifteen percent of the rental income.
Based on the evidence in the record and the accountant's review of
Imperial Kursk's books, the judge calculated Imperial Kursk owed Art $49,362
for unpaid work at two properties and owed Galina $179,623.29 based on a
proper accounting of monies she provided the company. To those sums the
judge added the $3,000 penalty Art incurred when he returned the van leased
on Shchedrin's behalf and a $1,300 penalty Galina testified she incurred when
she canceled a cable contract in her name at one of the rental properties after
the parties parted ways. The judge thus concluded Imperial Kursk breached its
contract with the Stars, owing them $183,923.29. The judge reduced that
award by the $100,000 Imperial Kursk advanced for the purchase of 2 N.
Montgomery, thus completing the "true up" the parties had intended , and
reduced it by a further $89,703, representing the amount Galina "deposited
into her personal account [for] rents received from 2 N. Montgomery," leaving
a balance of $5,779.71 from the Stars to Imperial Kursk. Based on those
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offsets, the judge denied the Stars' counterclaim for unjust enrichment. He
also denied their counterclaims for declaratory judgment and dissolution of
Imperial Kursk, finding they were not members of the company and did not
have an equity stake in Imperial Kursk. The judge entered judgment in favor
of Imperial Kursk in the amount of $5,779.71 based on the offsets.
The Stars filed a timely motion for partial reconsideration, arguing the
judge erred in offsetting their damages award by the $89,703 in rental income
for 2 N. Montgomery, pointing out that as the court found the property had
always belonged to them, any rents should logically belong to them as well.
Imperial Kursk cross-moved for reconsideration, arguing the Stars had
"abandoned" their claim to the rental income from 2 N. Montgomery by having
never pressed the claim at trial, making any award offensive to traditional
notions of res judicata. It further contended the $20,000 representing the Stars'
contribution to the purchase of 2 N. Montgomery should not have been added
to their breach of contract damages and demanded judgment of $311,635.35
based on rental income withheld on other properties and other adjustments to
Galina's loan account.
The judge agreed he had miscalculated the damages by reducing the
sums owed to the Stars on account of rents received for 2 N. Montgomery,
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finding the rents associated with that property, like the property itself,
belonged to the Stars. Correcting that error resulted in judgment to the Stars
of $83,923.29. The judge also agreed Imperial Kursk was correct that the
$20,000 the Stars contributed to the purchase of 2 N. Montgomery should not
have been included in their damages, and that aspect of its motion related back
to the Stars' motion pursuant to Rule 1:6-3(b) (noting "[a] cross-motion
relating to the subject matter of the original motion shall, if timely filed
pursuant to this rule, relate back to the date of the filing of the original
motion"), thereby reducing their award to $63,923.29. The judge rejected the
balance of Imperial Kursk's motion as untimely pursuant to Rule 4:49-2
(providing a motion to reconsider or amend a judgment must be served "not
later than 20 days after service of the judgment").
Imperial Kursk appeals, contending the judge erred in concluding the
2014 deed conveyed any interest to Galina by virtue of the deed to Imperial
Kursk c/o Galina Star. Imperial Kursk further contends Galina had no
authority to transfer Imperial Kursk's property to herself in January 2015, as
neither she nor Art had been granted a power of attorney that would have
allowed them to "self-deal" in the company's assets, and, it claims, the judge
erred in concluding Shchedrin ratified or assented to the transfer by continuing
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to do business with the Stars thereafter. Finally, Imperial Kursk contends the
trial judge erred by failing to address its res judicata argument made on its
motion for reconsideration and failed to make findings as required by Rule
1:7-4. We reject those arguments as without sufficient merit to warrant any
extended discussion in a written opinion. See R. 2:11-3(e)(1)(E).
Final determinations made by the trial court sitting in a non-jury case are
subject to a limited and well-established scope of review: "'we do not disturb
the factual findings and legal conclusions of the trial judge unless we are
convinced that they are so manifestly unsupported by or inconsistent with the
competent, relevant and reasonably credible evidence as to offend the interests
of justice.'" In re Trust Created By Agreement Dated December 20, 1961, ex
rel. Johnson, 194 N.J. 276, 284 (2008) (quoting Rova Farms Resort, Inc. v.
Invs. Ins. Co. of Am., 65 N.J. 474, 484 (1974)). Deference is especially
appropriate in a case such as this one where "'the evidence is largely
testimonial and involves questions of credibility.'" Seidman v. Clifton Sav.
Bank, S.L.A., 205 N.J. 150, 169 (2011) (quoting Cesare v. Cesare, 154 N.J.
394, 412 (1998)). Because the trial court "'hears the case, sees and observes
the witnesses, [and] hears them testify,' it has a better perspective than a
reviewing court in evaluating the veracity of witnesses." Pascale v. Pascale,
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113 N.J. 20, 33 (1988) (quoting Gallo v. Gallo, 66 N.J. Super. 1, 5 (App. Div.
1961)). Because that judge's "'feel of the case' . . . can never be realized by a
review of the cold record," N.J. Div. of Youth & Family Servs. v. I.H.C., 415
N.J. Super. 551, 578 (App. Div. 2010) (quoting N.J. Div. of Youth & Family
Servs. v. E.P., 196 N.J. 88, 104 (2008)), factual "'findings by the trial court are
binding on appeal when supported by adequate, substantial, credible
evidence.'" Seidman, 205 N.J. at 169 (quoting Cesare, 154 N.J. at 411-12).
Notwithstanding Imperial Kursk's protestations that its focus on this
appeal is on the Chancery judge's legal errors, its arguments indisputably
reduce to quarrels with the judge's fact-finding which we are simply in no
position to reject. There is no question but that the trial judge misspoke in
saying the 2014 deed to 2 N. Montgomery was "registered to both" Imperial
Kursk and Galina, "reflecting that both parties had an interest in the property."
The 2014 deed was solely in Imperial Kursk. But the error is of no moment
because the judge's finding that 2 N. Montgomery was purchased by Galina
and Art as their home and was not an asset belonging to the company was not
based on the form of the deed. It was based on Art and Galina's testimony that
they purchased the house with funds advanced by Imperial Kursk with
Shchedrin's express permission.
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Because the judge believed Galina and Art that they bought the property
for themselves to live in and rejected as false Shchedrin's claim that Imperial
Kursk purchased it as a potential rental, the form of the deed is irrelevant.
"Equity looks to the substance rather than the form." Applestein v. United Bd.
& Carton Corp., 60 N.J. Super. 333, 348 (Ch. Div. 1960). As Judge Kilkenny
explained in Applestein over sixty years ago, "a deed absolute on its face, if in
truth a mortgage, will be treated in equity as a mortgage. This court of
conscience never pays homage to the mere form of an instrument or
transaction, if to do so would frustrate the law or place justice in chains." Ibid.The judge found Galina and Art purchased the property as their home
with $100,000 borrowed from Imperial Kursk, based on their testimony as well
as the undisputed proof that they shouldered all the costs of the renovations
and the property's upkeep, and thus he disregarded the form of the deed and
gave effect to the substance of the transaction by reducing the Stars' damages
award by $100,000, the amount Imperial Kursk contributed to the purchase.
See Killeen v. Killeen, 140 N.J. Eq. 387, 387-89 (Ch. 1947), remanded on
other grounds, 141 N.J. Eq. 312, 313-16 (E. & A. 1948) (finding married
couple owned tavern despite husband's brother's name on the deed, because
couple took physical possession, paid all carrying costs, rented portions of the
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property, and testified brother took title on their behalf because they had
"judgments" against them). We see no error.
Similarly, in arguing Galina lacked authority to transfer the property to
herself in 2015 and breached her fiduciary obligation to it in doing so, Imperial
Kursk ignores the judge's finding that Shchedrin authorized the transfer while
the parties were vacationing in St. Maarten in November 2014. In addition,
because the judge found Galina and Art were the actual owners of the
property, they didn't need Shchedrin's power of attorney to transfer the
property to themselves. The Stars didn't breach any fiduciary duty to Imperial
Kursk by transferring the property to themselves because the company didn't
have any ownership interest in it. Thus, Galina's actions did not damage
Imperial Kursk or deprive it of a company asset. Because the judge's factual
findings on the property's ownership are well-supported by the record and thus
binding on appeal, see Seidman, 205 N.J. at 169, Imperial Kursk's legal
arguments about the Stars' alleged self-dealing are unavailing.
Finally, we find no error in the court's order on reconsideration, which
we review only for abuse of discretion. See Giannakopoulos v. Mid State
Mall, 438 N.J. Super. 595, 599 (App. Div. 2014). Imperial Kursk does not
challenge the court's finding that its cross-motion for reconsideration was
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untimely under Rule 4:49-2, and thus that relief was necessarily limited to
items relating to the subject matter of the Stars' motion under Rule 1:6-3(b).
As the Stars' motion was limited to reconsideration of the $89,703 offset
for rents from 2 N. Montgomery, Imperial Kursk's request was necessarily
limited to the calculation of damages relating to that property. Its argument
that the court erred in including the $20,000 the Stars paid toward the purchase
of the property in their damages, which the court conceded, clearly fell within
that category, and the remainder of its affirmative requests, which, as best we
can tell from the documents Imperial Kursk chose to include in its appendix,
related to adjustments to Galina's loan account and rents from other properties
totaling $311,635.35, clearly did not. As the judge set forth which portion of
the cross-motion related back to the Stars' motion and rejected the remainder
as time-barred, Imperial Kursk was provided a clear explanation of which
aspects of the cross-motion were barred and why. Nothing further was
required.
Imperial Kursk's argument that the Stars' claim to rents from 2 N.
Montgomery was barred by res judicata by their having failed "to
affirmative[ly] state a claim" for those rents at trial is plainly meritless. As the
Stars retained the rents, we fail to see the basis on which they could have
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asserted an affirmative claim to them at trial. The rents only became an issue
for the Stars after trial when the court erroneously offset them against their
damages. Because the judge's reason for reversing himself on that offset —
the Stars' ownership of the property entitled them to the rents — is
incontrovertible, denying the Stars the rents would have been obviously
inequitable even if Imperial Kursk's res judicata argument had any merit,
which it does not. See Trenton v. Howell, 132 N.J. Eq. 125, 130 (Ch. 1942)
(observing "proceedings in equity are and should be conducted with less
regard to mere matters of form and technical objections than proceedings at
law"). We thus find no error in the court's failure to address the matter further.
Affirmed.
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