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

• Court: Supreme Court of Iowa
• Decided: December 29, 2017
• Docket: 16-1265
• Status: Published

Opinion

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.

10 of 11 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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