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Air Marshall Islands v Dornier (2) [2002] MHSC 6; 2 MILR 211 (24 December 2002)

2 MILR 211

IN THE SUPREME COURT
REPUBLIC OF THE MARSHALL ISLANDS

S.Ct. CIVIL NO. 02-12

(High Ct. Civil No. 2000-195)

AIR MARSHALL ISLANDS, INC.,
Plaintiff-Appellee,

-v-

DORNIER LUFTFAHRT, GMBH,
Defendant-Appellant.

APPEAL FROM THE HIGH COURT

DECEMBER 24, 2002

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

Argued and Submitted November 20, 2002

SUMMARY:

The Supreme Court affirmed the High Court's default judgment over the Defendant-Appellant's objections that the High Court erred when it denied Defendant's motion to compel arbitration, when it entered default despite Defendant's attempts to defend, and when it violated Defendant's right to due process by not granting Defendant an opportunity to brief and argue several motions. The Supreme Court found no error in the High Court's determination that there was no arbitration agreement and that the default not be set aside. Further the Supreme Court found that the High Court's decision not to hold an evidentiary hearing on the 12(b)(1), if error was harmless error. The Supreme Court also affirmed the High Court's decision not to award punitive damages.

DIGEST:

1. ARBITRATION - Agreement to Arbitrate: It is well-settled that arbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit.

2. ARBITRATION - Agreement to Arbitrate: The existence of an agreement to arbitrate must be determined by the court.

3. CIVIL PROCEDURE - Default Judgments - Grounds to Set Aside: The factors to be considered in determining "good cause" under FRCP 55(c) [MIRCP44] and "excusable neglect" under FRCP 60(b) [MIRCP48(a)] are the same; a court will deny relief if (1) there was culpable conduct by the defaulting party causing the default, (2) the defaulting party had no meritorious defense, or (3) such relief will prejudice the non-defaulting party. A court may deny relief even if only one of the above elements exists.

4. JUDGMENTS - Grounds to Vacate - MIRCP Rule 48(a): The factors to be considered in determining "good cause" under FRCP 55(c) [MIRCP44] and "excusable neglect" under FRCP 60(b) [MIRCP48(a)] are the same; a court will deny relief if (1) there was culpable conduct by the defaulting party causing the default, (2) the defaulting party had no meritorious defense, or (3) such relief will prejudice the non-defaulting party. A court may deny relief even if only one of the above elements exists.

5. CIVIL PROCEDURE - Default Judgments - Grounds to Set Aside: Defendant's failure to answer complaint was culpable when defendant had filed motions to extend their time to answer, indicating an ability to deal with legal requirements.

6. JUDGMENTS - Grounds to Vacate - MIRCP Rule 48(a): Defendant's failure to answer complaint was culpable when defendant had filed motions to extend their time to answer, indicating an ability to deal with legal requirements.

7. CIVIL PROCEDURE - Default Judgments - Grounds to Set Aside: To show the existence of meritorious defense, the defaulting party must make a presentation or proffer of evidence, which, if believed, would permit either the Court or the jury to find for the defaulting party.

8. JUDGMENTS - Grounds a Vacate - RCP Rule 48(a): To show the existence of meritorious defense, the defaulting party must make a presentation or proffer of evidence, which, if believed, would permit either the Court or the jury to find for the defaulting party.

9. CIVIL PROCEDURE - Default Judgments - Grounds to Set Aside: With respect to prejudice to the non-defaulting party, the standard is whether plaintiff's ability to pursue its claim will be hindered.

10. JUDGMENTS - Grounds to Vacate - MIRCP Rule 48(a): With respect to prejudice to the non-defaulting party, the standard is whether plaintiff's ability to pursue its claim will be hindered.

11. CIVIL PROCEDURE - Default Judgments - Entry of Default: No notice or hearing is required for entering default.

12. DAMAGES - Punitive Damages - in General: In the absence of a finding of fraud, the court did not error in not awarding punitive damages.

OPINION BY GOODWIN, A.J.

Fairchild Domier, GmbH³ ("Domier") appeals a default judgment in favor of Air Marshall Islands ("AMI") for approximately $4.2 million. AMI cross-appeals for punitive damages.

Facts and Procedural History

AMI is a Republic of the Marshall Islands ("RMI") corporation and is wholly-owned by the RMI. Domier is a German public corporation in the business of aircraft manufacture.

On February 11, 1999, Tony A. de Brum, RMI Minister of Finance, signed a contract for the purchase of two aircraft manufactured by Dormer (the "Manila Agreement"). Three provisions of the Manila Agreement are relevant to this appeal. The first is Article 3, which requires a pre-delivery payment of 15% of the price of each aircraft to Domier, due on February 25, 1999. Domier agreed to arrange the financing for the remaining 85% of the purchase price. The second is Article 19.10, which provides that the Manila Agreement "shall come into force upon its signature" but conditions "effectiveness" on the occurrence of (1) Domier's receipt of the pre-delivery payment, (2) AMI board approval, issued on or before February 19, 1999, and (3) written approval by the Cabinet of the RMI, issued on or before February 19, 1999. The final paragraph of this Article states:

This Agreement is valid only if accepted and executed by Purchaser, the resolution and approval [of the AMI board and Cabinet] is [sic] issued on or before February 19, 1999 and the pre-delivery payment ... is received on or before February 25, 1999.

Finally, Article 18 provides that any "dispute arising out of or in connection with" the Manila Agreement will be submitted to an arbitration panel of three, in Munich Germany, and will be settled in accordance with the rules of the international Chamber of Commerce.

None of the conditions precedent to effectiveness was satisfied in accordance with the terms of the Manila Agreement. AMI asserts that it informed Dornier in April and May of 1999 that AMI considered the Manila Agreement null and void. Dornier responded that it considered the Manila Agreement "suspended." In any event, the failure to satisfy the agreement's conditions precedent is problematic.