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Stanley v Stanley [2002] MHSC 4; 2 MILR 194 (5 June 2002)

2 MILR 194

IN THE SUPREME COURT
REPUBLIC OF THE MARSHALL ISLANDS

S.Ct. CIVIL NO. 00-03

(High Ct. Civil No. 1997-066)

MICHELLE STANLEY,

Plaintiff-Appellee,

-v-

CURTIS STANLEY,

Defendant-Appellant,

APPEAL FROM THE HIGH COURT

JUNE 5, 2002

FIELDS, C.J.
GOODWIN, A.J. pro tem,¹ and KURREN, A.J. pro tem²

Argued and Submitted April 17, 2002

SUMMARY:

Plaintiff filed for divorce from defendant. After failed attempts to serve defendant with the divorce papers, plaintiff obtained authorization from the High Court to serve defendant by publication. Defendant failed to appear at the divorce proceeding, and default judgment was entered against him, awarding plaintiff all marital assets, including control of the couple's company and custody of their two children. Defendant then moved the High Court to set aside the default judgment, which it refused to do. The Supreme Court affirmed.

DIGEST:

1. APPEAL AND ERROR - Review - Default Judgments: The standard of review for a High Court's refusal to set aside a default judgment under MIRCP Rule 48(a) is abuse of discretion.

2. CIVIL PROCEDURE - Default Judgments - Disposition on the Merits Preferred: A trial on the merits is favored over default judgment and that close cases should be resolved in favor of the party seeking to set aside default judgment.

3. CIVIL PROCEDURE - Default Judgments - Burden of Proof to Set Aside: When a default judgment has been entered, the party seeking to set aside the judgment bears the burden of proving that MIRCP Rule 48(a) relief is justified and that a meritorious defense exists.

4. APPEAL AND ERROR - Review - Questions of Law: Purely or predominantly legal issues are reviewed de novo.

5. APPEAL AND ERROR -Same - Same: Although typically the standard of review for a denial of a motion to vacate a judgment under MIRCP Rule 48(a) is abuse of discretion, where the motion to vacate is based on an assertion of a void judgment under MIRCP Rule 48 (ax4), the standard of review is de novo.

6. JUDGMENTS - Grounds to Vacate - MIRCP Rule 48(a)(4): Judgment may be vacated as void under MIRCP Rule 48(a)(4) only if the rendering court lacked personal jurisdiction, subject matter jurisdiction, or acted in a manner inconsistent with due process of law.

7. APPEAL AND ERROR – Review - Findings of Fact: Findings of fact are reviewed for clear error.

8. CIVIL PROCEDURE - Service of Process - Service by Publication: Where plaintiff's attempts to serve defendant at his last know address are to no avail, service by publication is the only option remaining and is therefore appropriate.

9. CIVIL PROCEDURE – Same - Same: Service of process by court ordered service by publication is effective and proper under 27 MIRC § 255.

10. JUDGMENTS - Grounds to Vacate - MIRCP Rule 48(a)(1): The High Court has the discretion to deny a MIRCP Rule 48(a)(1) motion if (1) the defendant's culpable conduct led to the default, (2) the defendant has no meritorious defense, or (3) the plaintiff would be prejudiced if the judgment is set aside.

11. JUDGMENTS - Same- Same: Defendant's actual or constructive notice of the filing of an action and his failure to answer is culpable conduct that precluded relief from default judgment under MIRCP Rule 48(a)(1).

12. JUDGMENTS - Same - MIRCP Rule 48(a)(3): In order to obtain relief under MIRCP Rule 48(a)(3), the moving party must demonstrate misconduct, like fraud and misrepresentation, by clear and convincing evidence, and must than show that the misconduct foreclosed full and fair preparation or presentation of his case.

OPINION BY KURREN, A.J.

Michelle Stanley ("Michelle") filed for divorce from Curtis Stanley ("Curtis"). After failed attempts to serve Curtis with the divorce papers, Michelle obtained authorization from the High Court to serve Curtis by publication. Curtis failed to appear at the divorce proceeding, and default judgment was entered against him, awarding Michelle all marital assets, including contra of the couple's company and custody of their two children. Curtis then moved the High Court to set aside the default judgment, which it refused to do. The instant appeal followed. We have jurisdiction pursuant to Article VI, Section (2) of the Marshall Islands Constitution, and we affirm.

FACTS AND PROCEDURAL HISTORY

Curtis and Michelle were married in Reno, Nevada in 1988 and have two school-age children. In 1990, they moved to the Marshall Islands where Curtis started and later incorporates an import/export business, Pacific Basin Company, Inc. ("Pacific"). By 1994, Pacific was grossing nearly two million dollars. In 1994 or 1995, Curtis moved to Honolulu, Hawaii in order, he claims, to develop new products for the business. He asserts he left Michelle in charge of watching the money and paying the bills. Michelle contends she was left to "run" Pacific.

On March 24, 1997, Michelle traveled to Honolulu where she met with Curtis and allegedly informed him that she was about to file for divorce and would seek custody of the children as well as division of ownership of Pacific. A week later, on April 1, 1997, Michelle filed a Complaint for divorce, an ex parte motion for temporary restraining order ("TRO") to enjoin Curtis from interfering with the operations of Pacific, and a motion for service by mail to authorize service of the Complaint on Curtis at his last known address, 773 Kapulena Loop, Honolulu, Hawaii 96825. The court authorized service by mail the same day. The court also granted the TRO and set the hearing for a preliminary injunction for April 11, 1997.

The next day, on April 2, 1997, Michelle's counsel sent the Complaint and Summons, the TRO, and notice of hearing to Curtis at the Kapulena Loop address, by registered mail with return receipt requested. As neither the receipt nor letter was returned, Michelle hired a Honolulu attorney to serve Curtis personally. The attorney enlisted the services of the Honolulu Sheriff. The Sheriff, however, could not find Curtis at the Kapulena Loop address. Michelle's attorney then contacted Curtis' landlord who informed them that Curtis was delinquent in rent and had "apparently abandoned" his residence.

Meanwhile, Michelle contends that Curtis told her he was aware of the action against him but would not accept the summons unless she put money in his account. She claims that she gave him money, but that he still would not accept service.³

In or around the beginning of April, Curtis attempted to access Pacific's accounts at the Bank of Hawaii, but was prohibited from doing so. The Vice-President of the Bank informed him that Pacific's accounts were closed to him due to a TRO prohibiting the Bank from recognizing Curtis as a signatory on the account. Curtis made no further inquiries.

The hearing on the preliminary injunction was held on April 11, 1997, but Curtis failed to show.

In late April, Curtis sent his brother to the Marshall Islands to look into Curtis' interests at Pacific. His brother was denied access to Pacific's offices and records and was informed of the TRO. He relayed this information to Curtis.

Following her inability to serve Curtis by mail or through the Sheriff, on July 1, 1997, Michelle moved for an order authorizing service by publication. On July 2, 1997, the High Court granted the motion and ordered service of process on Curtis by placing a notice containing the summons in a newspaper of general circulation in Honolulu to be run for seven consecutive days. Michelle placed notice in the Honolulu Advertiser from July 10 through 16, 1997.

In late July 1997, Curtis himself traveled to the Marshall Islands to look into his interests at Pacific. He spoke by phone with Michelle, who told him he could not obtain money from Pacific but that he would be provided with an airline ticket back to Hawaii. Curtis returned to Hawaii.

On August 21, 1997, a default hearing was held. Curtis did not appear. Judgment was entered in favor of Michelle, awarding her all of Curtis' property, including his controlling interest in Pacific, and sole custody of their children.

A year later, on August 21, 1998, Curtis filed a Motion for Relief from Judgment pursuant to Marshall Islands Rule of Civil Procedure ("MIRCP") Rule 48(a), arguing that (1) he had never been served with the summons or complaint; (2) he was not aware that a complaint for divorce had been filed against him; and (3) misrepresentations were made to the court regarding certain issues with respect to custody and division of property.

The matter came on for hearing before the High Court on February 22, 2000. On March 3, 2000, the High Court issued an Order Overruling Defendant's Motion to Set Aside Judgement, finding that although service on Curtis was defective, Curtis had "actual constructive notice," and thereby had waived any complaint for failure to be served.

Curtis appealed the High Court's ruling on March 10, 2000, arguing that the High Court should have set aside the default judgment under MIRCP Rule 48(a)(4) as void; under MIRCP Rule 48(a)(1) on the grounds of mistake, inadvertence, surprise, or excusable neglect; and under MIRCP Rule 48(a)(3) on the grounds of fraud, misrepresentation, or other misconduct.

STANDARD OF REVIEW

[1-3] We review a High Court's refusal to set aside a default judgment under MIRCP Rule 48(a)⁴ for abuse of discretion. TTSoc. Sec. Sys. Board v. Kabua, 1 MILR (Rev.) 83; 84 (Nov 12, 1987). Review should be guided by the well-established principles that a trial on the merits is favored over default judgment and that close cases should be resolved in favor of the party seeking to set aside default judgment. Default judgments are generally disfavored. See Hammer v. Drago (In re Hammer), 940 P.2d 524, 525 (9th Cir. 1991); Anilina Fabrique de Colorants v. Aakash Chems. & Dyestuffs, Inc.[1988] USCA7 669; , 856 F.2d 873, 878-79 (7th Cir. 1988); Zawadski de Bueno v. Buena Castro, [1987] USCA3 674; 822 F.2d 416, 420 (3rd Cir. 1987); Gulf Coast Fan Inc. v. Midwest Elecs. Importers, Inc.[1984] USCA11 1639; , 740 F.2d 1499, 1510 (11th Cir. 1984); United Coin Meter Co. v. Seaboard Coastline R.R.[1983] USCA6 559; , 705 F.2d 839, 846 (6th Cir. 1983); Seven Elves. Inc. v. Eskenazi, 635 F.2d 396, 401-02 (5th Cir. 1981); Jackson v. Beech, [1980] USCADC 352; 636 F.2d 831, 835 (D.C. Cir. 1980). However, when a default judgment has been entered, the party seeking to set aside the judgment bears the burden of proving that MIRCP Rule 48(a) relief is justified and that a meritorious defense exists. See In re Hammer, 940 F.2d at 526.

[4-7] Purely or predominantly legal issues are reviewed de novo. See Torres-Lopez v. May, [1997] USCA9 1092; 111 F.3d 633, 638 (9th Cir. 1997). Thus, although we typically review a denial of a motion to vacate a judgment under MIRCP Rule 48(a) for an abuse of discretion, where the motion to vacate is based on an assertion of a void judgment under MIRCP Rule 48 (a)(4), our review is de novo. See Retail Clerks Union Food Center, Inc.[1991] USCA9 567; , 938 F.2d 136, 137 (9th Cir. 1991) ("We review de novo [] a district court's ruling upon a Rule 60(b)(4) motion to set aside a judgment as void, because the question of the validity of a judgment is a legal one"); Recreational Properties, Inc. v. Southwest Mortgage Service Corp., 804 F.2d 311, 313-14 (5th Cir. 1986); Compton v. Alton SS. Co.[1979] USCA4 1244; , 608 F.2d 96, 107 (4th Cir. 1979). Consequently, judgment may be vacated as void under MIRCP Rule 48(a)(4) only if the rendering court lacked personal jurisdiction, subject matter jurisdiction, or acted in a manner inconsistent with due process of law. Eberhardt v. Integrated Design & Constr., Inc.[1999] USCA4 19; , 167 F.3d 861, 871 (4th Cir. 1999). Findings of fact, on the other hand, are reviewed for clear error. See MIRC, Title 27, Chap. 11, § 266(2) ("[t]he findings of fact of the High Court in cases tried by it shall not be set aside by the Supreme Court unless clearly erroneous").

DISCUSSION

I. MIRCP Rule 48(a)(4)

Curtis argues that service, upon him was defective for two reasons: first, that service by publication was unjustified, and second, the High Court committed clear legal error in ordering publication for a period of seven, as opposed to fourteen, days. Curtis maintains that as a result of defective service, the judgment rendered against him was void.

A. Service by publication warranted

Curtis first contends that in procuring the order for service by publication, Michelle and/or her attorney made certain misrepresentations to the Court and that, consequently, service by publication should never have been granted in this case.

[8] Michelle first attempted to serve Curtis by registered mail. Neither the letter nor the receipt was returned. Through her attorney, Michelle then enlisted the Honolulu Sheriff to serve Curtis, which also proved unsuccessful. Michelle thereafter moved for an order permitting service by publication. In the supporting affidavit, Michelle's attorney Dennis Reeder stated that Curtis had "abandoned" his home at Kapulena Loop and moved to another location. Curtis insists that he had not abandoned Kapulena Loop; that he resided there during the period in question; that certain facts prove his residence at this address; and that furthermore Michelle could have taken certain remedial steps, such as contacting his sister, to discover where he in fact lived. Nevertheless, Curtis fails to appreciate that Michelle attempted to serve him at the correct address, but to no avail. Service by publication was the only option remaining and was therefore appropriate.

B. Order for service by publication not contrary to RMI law

Curtis next argues that the High Court's order for publication in a Honolulu newspaper for a period of seven days was contrary to the law of the RMI, which requires service by publication for a period not less than 14 days, rendering service defective and, as a result, the default judgment void.

[9] The motion for an order granting service by publication was brought pursuant to Title 27, Div. 2, which is, contrary to Curtis' assertion, the applicable provision.⁵ Title 27, Div. 2 is entitled "CIVIL JURISDICTION OVER NONRESIDENT" and provides that:

A person who has lived in a marital relationship within the territorial limits of the Republic is subject to the jurisdiction of the courts of the Republic as to alimony, child support and property rights under the laws of the Republic relating to domestic relations, marriage, annulment and divorce, adoption, reciprocal enforcement of support, child abuse and family law generally, notwithstanding his departure from the Republic, if the other party to the relationship continues to reside in the Republic.

Title 27, § 251(2) (emphasis added). This section fits squarely the facts of this case. Section 252 of the same provision provides that "Service of process may be made upon any person subject to the jurisdiction of a court of the Republic under this Division [established to be Cutis] by personally servicing the process on him outside the territorial limits of the republic." While Title 27 provides that such service outside the jurisdiction must be made in the same manner as service within the territorial limits, see Section 252(2), the provision specifically provides that "Nothing in this Division limits or affects the right to serve process in any other manner provided by law or by the Rules of Court, or allowed by order of the court concerned." Title 27, Div. 2, § 255. Therefore, ordering service by publication for a period of seven days was within the discretion of the High Court, and in accordance with the laws of the RML.⁶ As there is no argument that the order for service by publication was not followed, service in this case was effective and proper. As a result, the High Court had personal jurisdiction over Curtis when it entered default judgment against him. Accordingly, the High Court did not commit error in refusing to set aside the default judgment as void.

II. MIRCP Rule 48(a)(1)

Curtis argues that the High Court abused its discretion in denying his motion to set aside the default judgment based on mistake, inadvertence, surprise, or excusable neglect, arguing that he failed to answer the complaint due to illness which was out of his control.⁷ He further attests that the problems with his bank account, which the High Court found should have placed Curtis on notice that a lawsuit had been filed against him, did not alert him in any way as he had had problems with his accounts in the past and expected Michelle to remedy them, as she had done in the past.

[10-11] A High Court has the discretion to deny a MIRCP Rule 48(a)(1) motion if (1) the defendant's culpable conduct led to the default, (2) the defendant has no meritorious defense, or (3) the plaintiff would be prejudiced if the judgment is set aside. See Meadows v. Dominican Republic, 817 P.2d 517, 521 (9th Cir. 1987); See also Davis v. Musler, [1983] USCA2 737; 713 F.2d 907, 915 (2nd Cit. 1982). We balance the three factors in determining whether to grant relief for excusable neglect under MIRCP Rule 48(a)(1). See Zawadski, 822 F.2d at 419; Jackson, 636 F.2d at 835; Seven Elves, 635 F.2d at 402; Berthelsen v. Kane, [1990] USCA6 1734; 907 F.2d 617, 620 (6th Cir. 1990); Meehan v. Snow, [1981] USCA2 582; 652 F.2d 274, 277 (2nd Cir. 1981). However, where a defendant has received actual or constructive notice of a lawsuit, relief under this provision is precluded. Hammer v. Drago (In re Hammer)[1991] USCA9 669; , 940 F.2d 524, 526 (9th Cir. 1991) (a defendant's action is culpable if he has received actual or constructive notice of the filing of the action and failed to answer); Direct Mail Specialists, Inc. v. Eclat Computerized Techs, Inc.[1988] USCA9 274; , 840 F.2d 685, 690 (9th Cir. 1988) (defendant's actual notice of filing of action and his failure to answer was culpable conduct that precluded relief from default judgment).

At the hearing before the High Court on Curtis' motion to set aside the default judgment Curtis testified that when he traveled to Majuro in late July 1997, after the service period in question but prior to entry of default in the case, Curtis was aware that "something was wrong:"

[Curtis]: ... Michelle called me at the hotel and said, we're not paying for any more days this room. The company will buy you a ticket and that's it. They'll take care of the ticket, you're out of here.

...

[Atty]: Did you think at that point that something might be wrong?

[Curtis]: Oh, yeah I knew there was something wrong. Sure.

[Atty]: Why didn't you do anything?

[Curtis]: Well, first of all I had no cash, no place to stay and I was still quite sick at the time

Given the accumulation of clues by that point - the TRO on Curtis' bank accounts, both his and his brother's inability to access Pacific, as well as the manner in which Michelle treated Curtis - it is difficult to believe that Curtis was not aware that a divorce suit had been filed against him.⁸

In the High Court's Order, the High Court found this very trip to Majuro as one telling event in a string of events supporting the finding that Curtis had constructive notice of the lawsuit. As such a conclusion is a reasonable deduction of the facts, this Court does not find an abuse of discretion. Accordingly, as Curtis had constructive notice of the lawsuit, relief under MIRCP Rule 48(a)(1) is precluded, see Direct Mail, 840 F.2d at 690 (defendant's notice of filing of action and his failure to answer was culpable conduct that precluded relief from default judgment), and the High Court did not commit error in refusing to set aside the default judgment on these grounds.

III. MIRCP Rule 48(a)(3)

Curtis argues that the district court [High Court] abused its discretion in denying Curtis' motion to set aside the default judgment based on fraud, misrepresentation, or other misconduct of an adverse party.

[12] In order to obtain relief under MIRCP Rule 48(a)(3), the moving party must demonstrate misconduct, like fraud and misrepresentation, by clear and convincing evidence, and must than show that the misconduct foreclosed full and fair preparation or presentation of his case. See, e.g., In re M/V Peacock v. M/V Peacock, [1987] USCA9 163; 809 F.2d 1403, 1404-05 (9th Cir. 1987); Harre v. A.H. Robins Co., [1985] USCA11 112; 750 F.2d 1501, 1503 (11th Cir. 1985); Stridiron v. Stridiron, [1983] USCA3 119; 698 F.2d 204, 207 (3rd Cir. 1983); Square Construction Co. v. Washington Metropolitan Area Transit Authority, [1981] USCA4 1082; 657 F.2d 68, 71 (4th Cir. 1981); Rozier v. Ford Motor Co.[1978] USCA5 1111; , 573 F.2d 1332, 1339 (5th Cir. 1978); Londsdorf v. Seafeldt, [1995] USCA7 205; 47 F.3d 893, 897 (7th Cir. 1995).

Curtis' allegations that Michelle committed fraud in her procurement of the order for service by publication, in her representations to the bank in order to obtain a TRO against Curtis' bank accounts, and in her deliberate nondisclosure of the lawsuit to him, whether or not they are true, are inconsequential as Curtis knew that something was amiss after these alleged occurrences - and because of these occurrences - mid should have taken the steps necessary to protect his interests. The Court can only conclude that Curtis' failure to timely engage in this lawsuit is a product of his own omissions. As Curtis' own actions are the only conduct foreclosing full and fair presentation of his case, relief under MIRCP Rule 48(a)(3) is not warranted.

AFFIRMED.

________________

¹Honorable Alfred T. Goodwin, senior Judge, United States Court of Appeals for the Ninth Circuit, sitting by designation of the Cabinet.

²Honorable Barry M. Kurren, Magistrate Judge, District of Hawaii, sitting by designation of the Cabinet.

³Since Curtis' move from the Marshall Islands to Hawaii, he made approximately $350,000 in withdrawals from, or charges on, Pacific's bank accounts or charge accounts. It is unclear whether these charges were authorized. Michelle contends that the money was for Curtis' personal use; Curtis contends that a great portion of the funds was used for business purposes and that regardless, since he owned Pacific he had every right to access its funds. Nevertheless, it is undisputed that the money was withdrawn and/or charged.

⁴MIRCP 48(a) is identical to Fed. R. Civ. P. 60(b).

⁵Curtis claims the applicable provision is Title 29, Part III, which covers "ABSENT DEFENDANTS." Curtis is more appropriately defined as a "nonresident," as discussed herein.

⁶Therefore, the High Court's findings that service by publication neither complied with RMI law nor was done in a way reasonably calculated to give Curtis notice of the lawsuit (Findings of Fact 1 and 2) are clearly erroneous, as service by publication in fact complied with Title 27. Had service been defective, however, the default judgment would indeed have been void, for actual or constructive knowledge of a lawsuit can never cure defective service. See Friedman v. Estate of Presser, 929 F.2d 1152, 1155 (6th Cir. 1991) ("For the great majority of Courts, [] actual knowledge of the lawsuit does not substitute for proper service of process under Rule 4(c)(2)(C) (ii)"). Consequently, the High Court also erred when it concluded that "[c]onstructive actual notice of the suit for divorce herein fulfills the requirements of the law of the RMI for notice" (Conclusion of Law C).

⁷In February 1997, while working on the prototype of a childproof socket cover, Curtis accidentally burned himself with molten plastic. The burn became infected and spread to his arms, causing debilitating fever and other complications. He was admitted to the hospital where doctors removed significant amounts of tissue from his arms.

⁸Curtis cites Rooks v. American Brass Co.[1959] USCA6 22; , 263 F.2d 166 (6th Cir. 1959) and American Alliance Ins. Co., Ltd. v. Eagle Ins. Co.[1996] USCA2 713; , 92 F. 3d 57 (2nd Cir. 1996), in support of his contention that the High Court should have found excusable neglect based on his incapacitating illness. These cases, however, are distinguishable as the courts found in both cases that the defendant had no knowledge whatsoever that a case had been filed against him. Here, in contrast, Curtis had constructive knowledge of the suit.