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Batinich v. Renander

Court of Appeals of Iowa

March 22, 2017

MARY BATINICH as PERSONAL REPRESENTATIVE of the ESTATE of ALEX BATINICH, Plaintiff-Appellee,
v.
ARTHUR RENANDER, Defendant-Appellant,
v.
JACQUELINE ZARA RENANDER and RAI, LLC, Defendants.

         Appeal from the Iowa District Court for Johnson County, Mary E. Chicchelly, Judge.

         Arthur Renander appeals the remedies and damages awarded to Alex Batinich by the district court, including trial attorney fees, punitive damages, and dissociation from the parties' limited liability company, following the court's entry of a default judgment. AFFIRMED-IN-PART, VACATED-IN-PART, AND REMANDED WITH DIRECTIONS.

          Christopher J. Foster of Foster Law Office, Iowa City, for appellant.

          David M. Caves and Paul D. Burns of Bradley & Riley PC, Iowa City, for appellee.

          Heard by Potterfield, P.J., and Doyle and Tabor, JJ.

          DOYLE, Judge.

         Following entry of a default judgment against Arthur and Zara Renander and a subsequent hearing on remedies and damages, the district court awarded Alex Batinich[1] monetary damages, punitive damages, and trial attorney fees individually against the Renanders. The court also dissociated the Renanders from the parties' limited liability company. Arthur appeals the court's ruling on remedies and damages in various respects. Upon our review, we affirm in part, vacate in part, and remand with directions.

         I. Background Facts.

         RAI, LLC (RAI) is an Iowa limited liability company (LLC) that was organized in 2001 by Arthur and Zara Renander. At some point, Alex Batinich purchased a thirty-four-percent share of the company, and the Renanders retained the majority share as managing members. RAI's sole asset was a fifty-percent ownership interest in about one-hundred acres of land in Coralville, Iowa. Northern Investments, L.C., owned by Gary Aamodt, held the other half of the real-estate interest in the land.[2]

         The relevant parties have been involved in protracted litigation concerning the real estate for many years, and the saga continues. See, e.g., Renander v. High Country Dev. Co., No. 16-0424, 2016 WL 7393906, at *1 (Iowa Ct. App. Dec. 21, 2016); Renander v. Aamodt, No. 08-1321, 2009 WL 3775112 (Iowa Ct. App. Nov. 12, 2009); Batinich v. Renander, No. 05-1969, 2007 WL 913872 (Iowa Ct. App. Mar. 28, 2007). In the instant case, Batinich filed suit-individually and derivatively on behalf of RAI-against the Renanders and RAI in June 2014. The petition-and Batinich's affidavit attached thereto-stated the derivative claims were brought pursuant to Iowa Code section 489.902(2) (2013) because the ordinary notice and demand required under section 489.902(1) would have been futile. The petition then set forth four counts.

         Count I of the petition asserted the Renanders breached their fiduciary duties to Batinich and RAI and proximately caused damages to both Batinich and RAI. Batinich, individually and derivatively on behalf of RAI, requested that "judgment be entered against the Renanders to fully and fairly compensate [Batinich and RAI] for the damages caused by the Renanders, for costs, for attorney's fees, and for other such relief as the [court deemed] equitable." Count II requested the Renanders be ordered to make a complete accounting to Batinich of RAI's assets, liabilities, and other obligations, and also requested the same relief as Count I. Count III alleged the Renanders, as the majority owners and managers of RAI, were in violation of Iowa Code section 489.410 for failing to make company information requested by Batinich available for his inspection. Batinich, individually and on behalf of RAI, requested the Renanders

be ordered to comply with [section] 489.410, make available to Batinich the information and records required under section 489.410, make available information regarding RAI's activities, financial information, and other circumstances which [the Renanders] know and is material to Batinich, and request judgment against the Renanders to fully and fairly compensate them for the damages caused by the Renanders, for costs, for attorney's fees, and for other such relief as the [court deemed] equitable.

         Finally, Count IV requested the Renanders be ordered to escrow

any and all proceeds from the sale of the Real Estate [the Coralville property], or any other assets received for RAI, until such time as this litigation is concluded and the members resolve disputes over the amounts and calculations of the debts of the company and entitlement and amounts of distributions, and for costs, for attorney's fees, and for other such relief as the [court deemed] equitable.

         In April 2015, the district court found the Renanders in contempt for "knowingly, willfully, and without justification, disregard[ing] their discovery obligations and disobey[ing the] court's discovery orders." Citing Iowa Rule of Civil Procedure 1.517(2)(b)(3), the court concluded a default judgment should be entered against the Renanders on all counts of Batinich's petition following "a hearing . . . to consider and determine the appropriate damages and remedies" to be awarded to Batinich. The court ordered the Renanders to produce any documents previously ordered but not yet given to Batinich. The court also ordered the Renanders to pay Batinich $7355 in attorney fees, which the court found was reasonable and incurred as a result of the Renanders' discovery abuses.

         The hearing on damages and remedies commenced in July 2015. At that time, Batinich's health was declining, and the parties' agreed his testimony would be given via deposition, to be held after the hearing. The parties agreed the record would be held open after the hearing for submission of the deposition.

         The court heard testimony at the hearing from Batinich's wife, Mary, and also from Gary Aamodt, and Arthur Renander. Prior thereto, Batinich's attorney gave an opening statement, explaining the course of the litigation and the numerous ways Batinich believed the Renanders breached their fiduciary duties as the member-managers of RAI. Batinich's counsel stated:

Batinich has over the years advanced his personal funds to pay bills on behalf of RAI, everything from landscaping bills and snow shoveling to paying property taxes to paying attorney's fees that RAI incurred. We've asked for an accounting. We've asked repeatedly to see the books of RAI reflecting those contributions, those loans to the company.
There's nothing resembling a proper accounting, nothing resembling a financial statement, a proper accounting of the loans that have been advanced over the years. We've asked for corporate records under the Iowa corporate records statute. That's one of the claims in this case. Basically, we're told they don't exist. Most of them just don't exist, all of which is another breach of his duty of standard of care of managing the company . . . .

         Counsel advised that in detailing the parties' history and their dealings to the court, "it wasn't in order to establish liability. And when you see the documents and the exhibits, it's not to establish liability. It's to show the persistent nature of these abuses, to give you a sense of a problem when you're fashioning a remedy." Batinich's counsel suggested the following damages to the court: (1) dissociation of the Renanders from RAI to allow Batinich to get an honest accounting of RAI's financials and to allow RAI's percentage of the real estate to be sold; (2) monetary damages, which counsel suggested could be calculated by subtracting the lesser profit Batinich could expect to receive as a member of RAI from the pending $4.5 million sale from the larger profit Batinich would have received had the property been sold in 2010 for $4.7 million but for the Renanders interference; counsel advised the difference between the two profit figures did not even account for the loans Batinich made to RAI; and (3) punitive damages for breach of fiduciary duty.

         Batinich's wife testified Batinich initially invested $125, 000 in RAI, and then invested another $250, 000. She testified that, since that time, Batinich had invested at least another $380, 000 and, if legal fees were factored in, Batinich had spent about $1.2 million concerning RAI. Mrs. Batinich testified Batinich initially believed the Renanders were keeping accounting records for RAI but, after Batinich requested the records and received none, Batinich started keeping his own records. The Renanders objected to the relevance of this testimony and an exhibit listing monies Batinich had paid for RAI, noting that some of the listed expenditures went all the way back to 2003, "a time period not contemplated at all by the petition or really any of the things that are at issue." Batinich's counsel explained both were relevant, though Batinich was not

representing that all of these monies [listed on the exhibit were] owed from RAI to [Batinich]. It's just an illustration of money that has been advanced, some of which is relevant in here. We need an accounting so we can sort out which of these are proper debts owed from RAI to Mr. Batinich and which ones aren't. That's the job of the manager of the LLC to do that, to have it done. We've asked for an accounting.

         The court allowed the testimony and exhibit.

         Aamodt testified he had "[n]o doubt whatsoever" that the real estate could have sold in 2010 for $4.7 million. He testified the parties received an actual offer for that amount, but he believed they could get more than $5 million for the property and wanted to submit a counter offer. He admitted that if a counter offer had been submitted the buyers could have walked away altogether, but he explained that he knew the persons offering to purchase the land were very interested in the property and, based upon conversations he had had with one of the potential buyers, he believed they could get about $5.2 million. He testified he had urged Arthur to agree to his proposed counter offer, but Arthur refused unless the offer included a transfer of part of the land to the Renanders.

         Arthur testified he thought the potential buyers in 2010 "were highly motivated" and "would have gotten the money together." But Arthur admitted he did want land, and he testified his request of land as part of the deal bothered Batinich and Aamodt "enormously . . . because they could see that the way to make money was to sell this land in parcels retail rather than dump it wholesale with the whole ...


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