FSM Dev. Bank v. Christopher Corp.
20 FSM R. 98 (Chk. 2015)

FSM SUPREME COURT TRIAL DIVISION

CIVIL ACTION NO. 2007-1008

FSM DEVELOPMENT BANK,
Plaintiff,

vs.

CHRISTOPHER CORPORATION, PATRICIA
(PEGGY) SETIK, MARIANNE B. SETIK, THE
ESTATE OF MANNEY SETIK, ATANASIO SETIK,
VICKY SETIK IRONS, IRENE SETIK WALTER,
MARLEEN SETIK, JUNIOR SETIK, ELEANOR
SETIK SOS, JOANITA SETIK PANGELINAN,
MERIAM SETIK SIGRAH, CHRISTOPHER JAMES
SETIK, GEORGE SETIK, individually and d.b.a.
CHRISTOPHER STORE,
Defendants.

ORDER

Lourdes F. Materne*
Temporary Justice

Decided: July 17, 2015

*Associate Justice, Palau Supreme Court, Koror, Palau

APPEARANCES:

For the Plaintiff:
Nora E. Sigrah, Esq.
P.O. Box M
Kolonia, Pohnpei FM 96941

For the Defendants:
Marstella E. Jack, Esq. (motions to set aside and to stay)
P.O. Box 2210
Kolonia, Pohnpei FM 96941

Yoslyn G. Sigrah, Esq. (all motions)
P.O. Box 3018
Kolonia, Pohnpei FM 96941

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HEADNOTES
Judgments - Relief from Judgment - Time Limits
An April 4, 2014 motion for relief from a September 23, 2009 default judgment is well outside the time constraint for arguments based on Rule 60(b) subsections (1), (2), and (3), and as such, is untimely. FSM Dev. Bank v. Christopher Corp., 20 FSM R. 98, 102 (Chk. 2015).
Judgments - Relief from Judgment - Time Limits
A factor to be considered in determining whether Rule 60(b) relief has been sought within a reasonable time, is whether a good reason has been presented for failure to act sooner. Courts have been unyielding in requiring that a party show good reason for the failure to take appropriate action sooner. FSM Dev. Bank v. Christopher Corp., 20 FSM R. 98, 102 (Chk. 2015).
Judgments - Relief from Judgment - Time Limits
Since Rule 60(b)(6) relief is reserved for extraordinary circumstances and the language delineated therein: "any other reason justifying relief," cannot be utilized to circumvent the one-year time limit for motions brought pursuant to Rule 60(b) subsections (1), (2), and (3). FSM Dev. Bank v. Christopher Corp., 20 FSM R. 98, 102 (Chk. 2015).
Judgments - Relief from Judgment - Time Limits
The defendants have not proffered any rationalization for the inordinate delay in seeking relief from judgment when they have not opposed or otherwise responded to the entry of the default judgment, the order(s) in aid of judgment, or the writ of garnishment that they now move to set aside and when, although they allege that they were not privy to the respective hearing dates, the record denotes that their previous counsel was in receipt of the motions and had notice of the relevant proceedings. FSM Dev. Bank v. Christopher Corp., 20 FSM R. 98, 103 (Chk. 2015).
Civil Procedure - Notice
Notice served on a represented party's attorney of record is notice to the party. FSM Dev. Bank v. Christopher Corp., 20 FSM R. 98, 103 (Chk. 2015).
Civil Procedure - Motions - Unopposed
When there is no timely opposition filed after proper service of a motion, the adverse party is considered to have consented to the motion. FSM Dev. Bank v. Christopher Corp., 20 FSM R. 98, 103 (Chk. 2015).
Attorney and Client; Civil Procedure - Motions - Unopposed; Judgments - Relief from Judgment
A motion sounding in an attorney's purported negligence does not constitute a basis for Rule 60(b) relief from judgment, as clients are held accountable for their attorney's acts or omissions. FSM Dev. Bank v. Christopher Corp., 20 FSM R. 98, 103 (Chk. 2015).
Business Organizations - Corporations
A corporation is an artificial person created by law, as the representative of persons who contribute to or become holders of shares in it. FSM Dev. Bank v. Christopher Corp., 20 FSM R. 98, 103 (Chk. 2015).
Business Organizations - Corporations; Business Organizations - Partnerships
The defendants' transfer of assets from their partnership into a corporation, implies the corporation's assumption of the preexisting debt accrued by the prior family partnership, just as when a corporation and its predecessor sole proprietorship were, as a practical matter, identical since the business remained essentially unchanged as a result of incorporation, and both the predecessor and successor corporation were jointly and severally liable with respect to the debt incurred by the former. FSM Dev. Bank v. Christopher Corp., 20 FSM R. 98, 103 (Chk. 2015).
Equity - Estoppel
A claim that since the property is part of the late patriarch's estate and the state probate proceeding is still pending, the real property still belongs to this decedent, is belied by the fact that the decedent died on August 23, 1997, yet this did not prevent the defendants from pledging the property as collateral for a December 22, 1997 loan, or prevent, after the corporation's formation on October 20, 2004, the administratrix of this decedent's estate and the corporation's chairperson/president from notifying the bank on November 2, 2004, of the corporation's ownership of the subject real estate and businesses. FSM Dev. Bank v. Christopher Corp., 20 FSM R. 98, 103-04 (Chk. 2015).
Business Organizations - Corporations; Equity - Estoppel
A corporation, by having accepted the benefit of the contract, may be estopped to deny an officer's authority to act on its behalf. FSM Dev. Bank v. Christopher Corp., 20 FSM R. 98, 104 (Chk. 2015).
Debtors' and Creditors' Rights - Orders in Aid of Judgment
When the previous sale of the RS Plaza Building still left a substantial outstanding balance, 6 F.S.M.C. 1409 allows for a successive request for an order in aid of judgment because the judgment has not been satisfied in full. FSM Dev. Bank v. Christopher Corp., 20 FSM R. 98, 104 (Chk. 2015).
Attachment and Execution - Garnishment; Debtors' and Creditors' Rights - Orders in Aid of Judgment
A writ of garnishment directing rent payments to the judgment creditor from the debtor corporation's commercial tenant, constitutes a proper exercise of the court's authority under the order-in-aid-judgment statute. FSM Dev. Bank v. Christopher Corp., 20 FSM R. 98, 104 (Chk. 2015).
Judgments - Relief from Judgment - Default Judgments
The court may refuse to set aside a default judgment when the default is due to the defendant's willfulness or bad faith. FSM Dev. Bank v. Christopher Corp., 20 FSM R. 98, 104 (Chk. 2015).
Debtors' and Creditors' Rights - Orders in Aid of Judgment; Judgments - Relief from Judgment - Default Judgments
When a meritorious defense has not been portrayed, the defendants' requests to set aside or vacate the default judgment, order(s) in aid of judgment, and writ of garnishment will be denied. FSM Dev. Bank v. Christopher Corp., 20 FSM R. 98, 104 (Chk. 2015).
Judgments - Relief from Judgment
In its discretion and on such condition for the adverse party's security as is proper, the court may, pending the disposition of a Rule 60 motion for relief from judgment, stay the execution of any proceeding to enforce a judgment. The criteria to be utilized when determining the propriety of a stay are: 1) whether the applicant has made a strong showing that the applicant is likely to prevail on the merits; 2) whether the applicant has shown that without a stay, the applicant will be irreparably harmed; 3) whether the stay's issuance would substantially harm other parties interested in the proceedings and 4) whether the public interest would be served by granting the stay. FSM Dev. Bank v. Christopher Corp., 20 FSM R. 98, 104 (Chk. 2015).
Judgments - Relief from Judgment
A motion to stay will be denied when the defendants' arguments have failed to denote a likelihood of prevailing on the merits of their Rule 60(b) motions; when there has been an inadequate showing that irreparable harm will befall them without a stay, as they do not dispute the debt but have made no attempt to meet their obligation with respect to the outstanding judgment; when the stay's issuance would further delay the plaintiff's ability to recoup monies due and owing, as reflected in the judgment that has been languishing for an inordinate length of time; and when a stay could conceivably set a troubling public policy precedent, in terms of allowing other debtors to stave off satisfaction of final judgments although an underlying justification for a suspension has not been adequately shown. FSM Dev. Bank v. Christopher Corp., 20 FSM R. 98, 104-05 (Chk. 2015).
Contempt
Contempt of court, under 4 F.S.M.C. 119(1)(a) and (b) is defined as any intentional obstruction of the administration of justice by any person, including an officer of the court acting in his official capacity, or any intentional disobedience or resistance to the court's lawful writ. FSM Dev. Bank v. Christopher Corp., 20 FSM R. 98, 105 (Chk. 2015).
Civil Procedure - Injunctions
Injunctive relief will be denied when the movants seek to enjoin the ongoing development and perceived deleterious effect on a parcel of property, the certificate of title for which is properly held by the individual undertaking the renovation and when the court-approved sale of this piece of real estate was proper, as it constituted an asset of the debtor corporation which could, under 6 F.S.M.C. 1410(2), be sold with payment of the net proceeds to the plaintiff in satisfaction of the outstanding judgment. FSM Dev. Bank v. Christopher Corp., 20 FSM R. 98, 105 (Chk. 2015).
Civil Procedure - Sanctions
Imposition of Rule 11 sanctions on the defendants will be denied when the defendants could have labored under the impression that they conceivably might, if they prevailed in their entreaties for relief from previously issued judgments, still maintain an interest in the property whose development they sought to enjoin. FSM Dev. Bank v. Christopher Corp., 20 FSM R. 98, 106 (Chk. 2015).
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COURT'S OPINION
LOURDES F. MATERNE, Temporary Justice:
Background

On September 3, 2007, Plaintiff filed a Complaint to collect the outstanding balance of a loan on which Defendants defaulted. Having failed to answer or otherwise respond, an Amended Default Judgment was entered against Defendants and in favor of Plaintiff on September 23, 2009. On October 6, 2011, Plaintiff moved for an Order in Aid of Judgment, seeking inter alia, foreclosure of the real property mortgage on the RS Plaza Building, that had secured the loan which had been reduced to Judgment. Following a July 5, 2012 Hearing on this motion, the Court entered an Order in Aid of Judgment on September 10, 2012, which provided for the sale of the RS Plaza Building. On March 12, 2013, Plaintiff filed a Motion for Modification of Terms of Sale, which sought approval of the sale of the subject building at a purchase price in excess of the minimum reserve set for an auction of this structure. Defendants did not oppose the motion or file any other response. In the aftermath of the April 4, 2013 Hearing on this motion, the Court issued an Order in Aid of Judgment on April 5, 2013, which countenanced the coveted modification of the terms of sale to this particular buyer.
Since the sale of the RS Plaza Building did not satisfy the Judgment in full, on August 23, 2013, Plaintiff filed another Motion for Order in Aid of Judgment. Neither an opposition, nor any other response, was filed by the Defendants. On February 14, 2014, this Court entered an Order in Aid of Judgment, in the wake of a Hearing conducted on February 12, 2014. This Court approved the subject request for an Order of Sale concerning a specific parcel of property owned by Defendants (Nepon #2) and a Writ of Garnishment, directing rental income from a commercial tenant of Defendant Christopher Corporation (BS Distributing Company) be paid to Plaintiff. The proceeds would be credited to the outstanding Judgment of $1,603,147.19, as of January 31, 2014.
On April 4, 2014, Defendants filed a Motion for Relief from Judgment, which sought to have both the September 23, 2009 Default Judgment and April 5, 2013 Order in Aid of Judgment set aside and vacated. On April 10, 2014, Defendants filed a Motion for Relief from [the] Judgment Entered on February 14, 2014, that coveted the subject Order, as well as Writ of Garnishment, be set aside and vacated. On April 30, 2014, Defendants filed a Motion to Stay Execution of [the] Judgment Entered on February 14, 2014[,] Pending Disposition of [the] Rule 60(b) Motions. On July 30, 2014, Plaintiff filed a Motion for an Order to Show Cause. On August 27, 2014, Defendants filed a Motion for Injunctive Relief. Finally, on August 28, 2014, Plaintiff filed a Motion for Rule 11 Sanctions.
Motion(s) to Set Aside the Judgment
Defendants move to set aside the Judgment(s), predicated on Rule 60(b)(1), (2), (3), (4), and (6). In addressing the time, within which such a motion might be brought, Rule 60(b) provides "The motion shall be made within a reasonable time and for reasons (1), (2), and (3)[,] not more than one year after the [J]udgment, [O]rder or proceeding was entered or taken. . . ." Defendants' April 4, 2014 Motion for Relief from Judgment seeks to set aside the September 23, 2009, Default Judgment and therefore the arguments brought pursuant to subsections (1), (2), and (3) are well outside the time constraint and as such, the Court finds them to be untimely.
A factor to be considered in determining whether Rule 60(b) relief has been sought within a reasonable time, is whether good reason has been presented for failure to act sooner. Courts have been unyielding in requiring that a party show good reason for the failure to take appropriate action sooner. Furthermore, in undertaking an analysis of motions under Rule 60(b)(6), this subsection is reserved for extraordinary circumstances and the language delineated therein: "any other reason justifying relief," cannot be utilized to circumvent the one-year time limit for motions brought pursuant to subsections (1), (2), and (3). FSM Dev. Bank v. Arthur, 15 FSM Intrm. 625, 633-34 (Pon. 2008).
With respect to Defendants' attempt to set aside the April 5, 2013, Order in Aid of Judgment, the Court notes that Defense Counsel did not file their Notice of Appearance in this matter until April 8, 2014, yet filed the subject motion for relief on April 4, 2014. On April 10, 2014, Defendants filed an additional Motion for Relief from [the] Judgment entered on February 14, 2014, seeking both the Order in Aid of Judgment and Writ of Garnishment be set aside and vacated.
This Court does not find adequate justification under subsections (1) (2) and (3) or the existence of extraordinary circumstances to warrant setting aside, the April 5, 2013, Order in Aid of Judgment; the February 14, 2014, Order in Aid of Judgment or the Writ of Garnishment issued on that same date (as previously noted the time frame within which to challenge the September 23, 2009 Default Judgment has already lapsed).Defendants were all represented by Counsel, as of April 2, 2008. Notwithstanding, until the filing of the subject Motion(s) for Relief, Defendants had not opposed or otherwise responded to this Court having entered the Default Judgment, Order(s) in Aid of Judgment or subject Writ, that they now move to set aside. Defendants have not proffered any rationalization for the inordinate delay, with the exception of an allegation that they were not privy to the respective Hearing dates. Notwithstanding, the Record denotes that Defendants' previous Counsel was in receipt of the motions and provided notice of the relevant proceedings.
Notice served on a represented party's Attorney of record is notice to the party. Saimon v. Wainit, 18 FSM Intrm. 211 (Chk. 2012). When there is no timely opposition filed after proper service of a motion, the adverse party is considered to have consented to the motion. Maruwa Shokai Guam Inc., v. Pyung Hwa, 6 FSM Intrm. 238, 240 (Pon. 1993). An affirmation sounding in purported negligence of an Attorney does not constitute a basis for Rule 60(b) relief from Judgment. Amayo v. MJ Co., 10 FSM Intrm. 371, 381 (Pon. 2001), as clients are held accountable for their Attorney's acts and/or omissions. Miochy v. Chuuk State Election Comm'n 15 FSM Intrm. 426, 429 (Chk. S. Ct. App. 2007).
Defendants additionally contend that the Christopher Corporation (formed on October 20, 2004) could not be held accountable for the obligation incurred by its predecessor (the Christopher Store Partnership). This Court previously found that the Record demonstrated Christopher Corporation to be in possession and control of the RS Plaza Building and as such, received all rental revenue from the tenants therein. "The [R]ecord further establishes that the other [J]udgment debtor [D]efendants in this action transferred whatever claims, interests and rights of ownership in those buildings and appurtenant structures to Christopher Corporation as their paid-in capital contributions in exchange for shares of stock in the company." Order in Aid of J. at 2-3 (Sept. 10, 2012).
A corporation is an artificial person created by law, as the representative of persons who contribute to or become holders of shares in it. Albatross Trading Co. v. Aizawa, 13 FSM Intrm. 380, 382 (Chk. 2005). The Defendants/Judgment debtors/family members who comprised the family partnership subsequently became shareholders of the corporation and absent this eventual reclassification of the entity itself, the business for all intents and purposes, remained the same.
When a corporation and its predecessor sole proprietorship are identical, as a practical matter, because the business remained essentially unchanged as a result of incorporation, both the predecessor and successor corporation are jointly and severally liable, with respect to the debt incurred by the former. Adams v. Island Homes Constr. Inc., 12 FSM Intrm. 234, 239 (Pon. 2003). As a result, the Defendants' transfer of assets from the Christopher Store Partnership (that included the RS Plaza Building, which had been partially constructed with proceeds from the loan in issue) into the Christopher Corporation, implies an assumption of the preexisting debt accrued by the prior family partnership.
Defendants additionally claim, that because the property in issue is part of the late patriarch's estate and the state probate proceeding is still pending, the real property still belongs to this decedent; who is not a Judgment debtor and it is therefore beyond the reach of the Plaintiff/creditor. This averment is belied by the fact that the decedent passed away on August 23, 1997, yet this did not prevent Defendants from pledging the subject property as collateral for the loan on December 22, 1997. In addition, after the formation of the Christopher Corporation on October 20, 2004, Defendant Marianne Setik, who was, not only the Administratrix of this decedent's estate, but Chairperson/President of Christopher Corporation, harbored zero compunction, in terms of notifying Plaintiff on November 2, 2004, of the corporation's ownership of the subject real estate and businesses. The missive dispatched to the attention of Plaintiff further represented, that "the land on which these individual businesses sit are now owned by the company." A corporation may be estopped to deny an officer's authority to act on behalf of same, by having accepted the benefit of the contract. Asher v. Kosrae, 8 FSM Intrm. 443, 452 (Kos. S. Ct. Tr. 1998).
Defendants' remaining claim, to wit: that the sale of a non-mortgaged parcel of property (Nepon #2) owned by a debtor could not be countenanced by the Court through an Order in Aid of Judgment, is similarly without merit. Since the previous sale of the RS Plaza Building still left a substantial outstanding balance, 6 F.S.M.C. 1409 allows for this successive request for an Order in Aid of Judgment when a Judgment has not been satisfied in full. Consequently, Nepon #2 constituted an asset owned by Defendant Christopher Corporation and 6 F.S.M.C. 1410(2) clearly provides for the transfer or sale of particular assets of a Judgment debtor at a price determined by the Court and payment of the net proceeds to the creditor. Finally, the Writ of Garnishment directing rent payments from a commercial tenant, as per a lease agreement of another business asset (a warehouse) belonging to Defendant Christopher Corporation, similarly constituted a proper exercise of the Court's Authority under the statute.
There is no dispute as to the existence of the debt. Defendants were all provided ample notice, along with an opportunity to be heard, yet neither filed an opposition, nor otherwise responded (i.e. the default was the result of their own volitional/willful and culpable conduct). The Court may refuse to set aside a Default Judgment when the default is due to the willfulness or bad faith of the Defendant. Adams v. Island Homes Constr. Inc., 10 FSM Intrm. 159, 162 (Pon. 2001). Furthermore, a rather protracted length of time has elapsed and Defendants' recalcitrance, in terms of satisfying the amount due and owing, continues unabated.
As a result, a meritorious defense has not been portrayed and Defendants' request to set aside or vacate the Default Judgment, Order(s) in Aid of Judgment and Writ of Garnishment is hereby denied.
Motion to Stay Execution of [the] Judgment Entered on February 14, 2014[,] Pending Disposition of [the] Rule 60(b) Motions
Defendants' Motion to Stay is brought pursuant to Rule 62(b) of the FSM Rules of Civil Procedure and predicated on the April 10, 2014 Motion for Relief from [the] Judgment Entered on February 14, 2014. Rule 62(b) sets forth, in pertinent part: "In its discretion and on such condition for the security of the adverse party, as [is] proper, the [C]ourt may stay the execution of any proceeding to enforce a [J]udgment[,] pending the disposition of . . . a motion for relief from [J]udgment made pursuant to [R]ule 60." Ponape Enterprises Co. v. Luzama, 6 FSM Intrm 274, 277-78 (Pon. 1993), sets forth the criteria to be utilized when determining the propriety of a coveted stay: 1) whether the applicant has made a strong showing that he/she is likely to prevail on the merits of the appeal; 2) whether the applicant has shown that without a stay, he/she will be irreparably harmed; 3) whether issuance of the stay would substantially harm other parties interested in the proceedings and 4) whether the public interest would be served by granting the stay.
Undertaking an evaluation of Defendants' Motion to Stay, against the backdrop of Luzama factors, the movant would not qualify for a suspension of the proceedings. The arguments marshaled by Defendants have failed to denote a likelihood of prevailing on the merits of the respective Rule 60(b) Motion. There has similarly been an inadequate showing by Defendants, that irreparable harm will befall them without a stay, as they do not dispute the debt, yet have made no attempt to meet their obligation, with respect to the outstanding Judgment. In addition, the coveted issuance of a stay would further delay Plaintiff's ability to recoup monies due and owing, as reflected in the Judgment that has been languishing for an inordinate length of time. Finally, the stay would hardly affect any modicum of public interest and quite the contrary, could conceivably set a troubling public policy precedent, in terms of allowing other debtors to stave off satisfaction of final Judgments when an underlying justification for suspension has not been adequately depicted.
Accordingly, Defendants Motion to Stay is hereby denied.
Motion for an Order to Show Cause
On February 14, 2014, this Court issued a Writ of Garnishment directed toward BS Distributing Company, to pay its respective monthly rental payments of $500.00 (for the lease of a warehouse owned by Defendant Christopher Corporation, pursuant to a lease agreement) to the Plaintiff commencing March 1, 2014. On July 30, 2014, Plaintiff moved for an Order to Show Cause to be entered and directed at Defendants, given a missive drafted by Defense Counsel on April 21, 2014. The subject letter instructed the garnishee to contravene the Writ of Garnishment and remit its monthly rent to Defendant Christopher Corporation.
Defendants do not refute the fact that the letter was dispatched to the President of BS Distributing Company or the subornation contained therein. Therefore, Defense Counsel directly contradicted the sum and substance of the subject Writ issued by this Court and sua sponte, instructed the garnishee to disregard this edict.
Contempt of Court, under 4 F.S.M.C. 119(1)(a) and (b) is defined as "(a) any intentional obstruction of the administration of justice by any person, including . . . [an] officer of the [C]ourt acting in his official capacity or (b) any intentional disobedience or resistance to the [C]ourt's lawful writ . . . ." This Court finds that the contumacious conduct exhibited by Defense Counsel in directing the garnishee BS Distributing Company to intentionally defy the February 14, 2014 Writ of Garnishment, clearly falls within the penumbra of the movant's allegation sounding in Contempt of Court.
Accordingly, this Court hereby issues an Order to Show Cause to Defendants' Counsel, as to why this officer of the Court should not be held in Contempt Of Court. A Hearing will be calendared by the FSM Supreme Court to allow Defense Counsel an opportunity to present a defense and mitigation. Defense Counsel is further ordered to countermand its previous directive issued to the BS Distributing Company (as set forth in the April 21, 2014 letter dispatched to this tenant) and thereby have this garnishee comply with the mandate of the February 14, 2014 Writ of Garnishment.
Motion for Injunctive Relief
Defendants' August 27, 2014 Motion for Injunctive Relief, seeks to enjoin the ongoing development and perceived deleterious effect on the Nepon #2 parcel of property, however the Certificate of Title is properly held by the individual undertaking the renovation. As set forth above, the Court-approved sale of this piece of real estate was proper, as it constituted an asset of Christopher Corporation which could be sold, under 6 F.S.M.C. 1410(2), with payment of the net proceeds to Plaintiff, in satisfaction of the outstanding Judgment.
Accordingly, Defendants' Motion for Injunctive Relief is hereby denied.
Motion for Rule 11 Sanctions
On August 28, 2014, Plaintiff moved for the imposition of Rule 11 against Defendants, in light of the latters' motion seeking injunctive relief. The relief coveted in Defendants' subject motion was not warranted for the reasons set forth above, coupled with the post-judgment posture of this case. Nevertheless, the movant could have labored under the impression that forthcoming Rulings on Defense Counsel's numerous pending motions compelled the filing in issue, in order to thwart what was interpreted as immediate or irreparable injury to property in which,Defendants could conceivably still maintain an interest should they prevail in those respective entreaties for relief from previously issued Judgments.
Accordingly, Plaintiff's Motion to Impose Rule 11 Sanctions against Defendants is hereby denied.