FSM SUPREME COURT TRIAL DIVISION
Cite as FSM Dev. Bank v. Arthurs, 15 FSM Intrm. 625 (Pon. 2008)
FSM DEVELOPMENT BANK,
Plaintiff,
vs.
ROBERT C. ARTHUR, PATRICIA ARTHUR,
BETHWEL HENRY and MARIHNE HENRY,
Defendants.
CIVIL ACTION NO. 2001-007
ORDER DISPOSING OF PENDING MOTIONS
Dennis K. Yamase
Associate Justice
Hearing: April 18, 2008
Decided: June 2, 2008
APPEARANCES:
For the Plaintiff: Michael J. Sipos, Esq.
Sipos & Berman
P.O. Box 2069
Kolonia, Pohnpei FM 96941
For the Defendants: Douglas F. Cushnie, Esq.
P.O. Box 949
Saipan, Northern Marianas MP 96950
* * * *
When a partially legible document was received by facsimile transmission but no motion to file it by fax was received and when no original and a copy for filing were ever received, that document was not filed and the court will not consider it since filing by fax is permitted only by court order for special cause given. FSM Dev. Bank v. Arthur, 15 FSM Intrm. 625, 630 n.1 (Pon. 2008).
If the defendants succeed in vacating the judgment, then the next step would be to order a new trial because if the judgment were left in place and only its enforcement barred, the result would the anomalous situation of a valid money judgment which could not be enforced even though the judgment-debtors are solvent and within the jurisdiction. FSM Dev. Bank v. Arthur, 15 FSM Intrm. 625, 630 (Pon. 2008).
A Rule 60(b) motion must be made within a reasonable time, and for reasons (1), (2), and (3) not more than one year after the judgment, order, or proceeding was entered or taken. The one-year time limit is not suspended by the pendency of an appeal because a Rule 60(b) motion can be made even though an appeal has been taken and is pending. FSM Dev. Bank v. Arthur, 15 FSM Intrm. 625, 632-32 (Pon. 2008).
When an FSM court has not previously construed aspects of an FSM Civil Procedure Rule which is identical or similar to a U.S. rule, it may look to U.S. sources for guidance. FSM Dev. Bank v. Arthur, 15 FSM Intrm. 625, 632 n.2 (Pon. 2008).
The court is powerless to enlarge the one-year time limit to obtain relief from judgment under Rule 60(b) (1), (2), or (3) even if relief had been possible, and the concept of reasonable time cannot be used to extend the one-year limit. FSM Dev. Bank v. Arthur, 15 FSM Intrm. 625, 632 (Pon. 2008).
Relief from judgment cannot be for a mistake the bank made in preparing the loan agreement and promissory note when the court corrected that "mistake" by reforming the loan agreement and the promissory note to accurately reflect the agreement of the parties to it because the judgment from which relief is sought is not based on, or the result of, this "mistake," but is instead the result of the court's correction of the "mistake." FSM Dev. Bank v. Arthur, 15 FSM Intrm. 625, 632 (Pon. 2008).
Courts that have held that a court's legal error can be considered a "mistake" subject to relief from judgment under Rule 60(b)(1), have ruled that "reasonable time" to seek relief in those cases cannot exceed the time in which an appeal might have been timely filed. FSM Dev. Bank v. Arthur, 15 FSM Intrm. 625, 632 n.4 (Pon. 2008).
Legal rulings affirmed on appeal and therefore not error are not "mistakes" subject to relief from judgment under Rule 60(b)(1). FSM Dev. Bank v. Arthur, 15 FSM Intrm. 625, 632 (Pon. 2008).
Failure to sue the borrower as well as, or instead of, the guarantors cannot be considered a "mistake" subject to relief from judgment under Rule 60(b)(1) because, as a general legal principle, a lender holding a guaranty of payment can sue a guarantor directly, without naming the borrower and because the terms of the guaranty, under which the guarantors were found liable, permitted the bank, in the case of a loan default, to sue the guarantors without suing the borrower. FSM Dev. Bank v. Arthur, 15 FSM Intrm. 625, 632 (Pon. 2008).
There is no time limit to seek relief from a void judgment under Rule 60(b)(4). FSM Dev. Bank v. Arthur, 15 FSM Intrm. 625, 633 (Pon. 2008).
A judgment is void only if the court that rendered it lacked jurisdiction of the subject matter, or of the parties, or if it acted in a manner inconsistent with due process. FSM Dev. Bank v. Arthur, 15 FSM Intrm. 625, 633 (Pon. 2008).
When the defendants do not assert that the judgment is void and do not allege that the court lacked subject matter jurisdiction over the case or personal jurisdiction over the defendants or that the court acted inconsistent with due process, the defendants are not entitled to relief from judgment under Rule 60(b)(4). FSM Dev. Bank v. Arthur, 15 FSM Intrm. 625, 633 (Pon. 2008).
Motions for relief from judgment for Rule 60(b) reasons (5) and (6) must be made within a reasonable time. FSM Dev. Bank v. Arthur, 15 FSM Intrm. 625, 633 (Pon. 2008).
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. FSM Dev. Bank v. Arthur, 15 FSM Intrm. 625, 633 (Pon. 2008).
When the defendants have not shown good reason for waiting until March 2008 to seek relief from a 2004 judgment that was affirmed in 2006, the defendants have not moved for relief from judgment "within a reasonable time" as required and their motion to vacate the judgment can be denied on this ground alone. FSM Dev. Bank v. Arthur, 15 FSM Intrm. 625, 633 (Pon. 2008).
Rule 60(b)(5) which permits relief from a judgment on the ground that "it is no longer equitable that the judgment have prospective application," properly applies only to judgments with prospective effect, and so does not cover the case of a judgment for money damages. While a money judgment may be "prospective" to the extent that the defendant has failed to pay it in a timely manner, it is nevertheless a final order and is not "prospective" for purposes of Rule 60(b)(5). FSM Dev. Bank v. Arthur, 15 FSM Intrm. 625, 634 (Pon. 2008).
Subsection 60(b)(6), which permits relief for "any other reason justifying relief," and the other subsections of Rule 60(b) are mutually exclusive. Thus, if the reasons offered for relief from judgment could have been considered under any of the subsections 60(b)(1) through (5), they cannot be considered under Rule 60(b)(6). FSM Dev. Bank v. Arthur, 15 FSM Intrm. 625, 634 (Pon. 2008).
Rule 60(b)(6) cannot be used to circumvent the one-year time limit for motions for relief from judgment under Rule 60(b) reasons (1), (2), and (3). FSM Dev. Bank v. Arthur, 15 FSM Intrm. 625, 634 (Pon. 2008).
Relief under Rule 60(b)(6) is reserved for extraordinary circumstances. FSM Dev. Bank v. Arthur, 15 FSM Intrm. 625, 634 (Pon. 2008).
The Investment Development Fund was created with money appropriated by the United States. The Federated Development Authority administers the IDF. The FSM Development Bank, pursuant to the FDA's direction, is responsible for administering all IDF loans and IDF money is restricted to financing development projects. Although each state has an earmarked subaccount within the IDF (there is also a private-sector reserve subaccount) and any state may propose a project to be financed from its earmarked subaccount, loans from these subaccounts must be approved by the FDA, and by the Development Bank. Thus, IDF funds are not a state's property, to do with as it chooses. FSM Dev. Bank v. Arthur, 15 FSM Intrm. 625, 634 (Pon. 2008).
The FSM Development Bank, in administering an IDF loan, is statutorily an agent of the Federated Development Authority and of the Investment Development Fund, not of the State of Pohnpei, even though the loan funds came from Pohnpei's earmarked subaccount. The mere fact that Pohnpei's approval was also needed if the loan funds came from the subaccount earmarked for Pohnpei, is not enough to make the Bank Pohnpei's agent because, by statute, the IDF, not the State of Pohnpei, profits from the repayment of an IDF loan since all repayments of principal and interest and penalties on loans made from the Fund, all cash assets recovered on loans made from the Fund, and all fees, charges, and penalties collected in relation to administration of the Fund must be deposited into the Fund and the money deposited into the Fund is then available for lending to other entrepreneurs or developers, who are the ultimate beneficiaries of any loan repayment. FSM Dev. Bank v. Arthur, 15 FSM Intrm. 625, 634-35 (Pon. 2008).
When the defendants do not allege that the FSM Development Bank, or IDF, or FDA committed any wrongdoing causing the borrower's non-performance on the loan repayments, they cannot rely on the principle that a promisor is discharged from liability when the promisor's non-performance is caused by the other contracting party since the other contracting party, the bank (and its principal, IDF) did not
cause the non-performance and they cannot rely on the principle that a person is not permitted to profit by his own wrong at another's expense since neither the bank nor IDF are alleged to have committed a wrong, and it is IDF that will profit if the loan is repaid. FSM Dev. Bank v. Arthur, 15 FSM Intrm. 625, 635 (Pon. 2008).
When the terms of the guaranty under which the guarantors have been held liable waived any right to the borrower's defenses, the guarantors would need to overcome this express waiver in order to be entitled to relief from the judgment against them based on the ground that another's wrongdoing is a defense against the borrower being required to repay its loan. FSM Dev. Bank v. Arthur, 15 FSM Intrm. 625, 635 n.7 (Pon. 2008).
A litigant, as a precondition to Rule 60(b) relief, must give the trial court reason to believe that vacating the judgment will not be a futile gesture or an empty exercise, that is, that the litigant has a meritorious defense. FSM Dev. Bank v. Arthur, 15 FSM Intrm. 625, 635 (Pon. 2008).
Relief from a judgment may be sought either by a Rule 60(b) motion or by an independent action – through filing a separate case. It cannot be sought by both. FSM Dev. Bank v. Arthur, 15 FSM Intrm. 625, 636 (Pon. 2008).
It is not the function of an independent action to relitigate issues finally determined in another action between the parties. FSM Dev. Bank v. Arthur, 15 FSM Intrm. 625, 636 n.8 (Pon. 2008).
When the defendants have not filed their Rule 60(b) motion seeking relief in a separate action in equity collaterally attacking the judgment, but have instead filed it as a post-judgment motion in the original case, the motion may only be treated as a Rule 60(b) motion for relief from judgment, and not as an independent action, despite the defendants styling their motion as one "in the nature of an independent action." FSM Dev. Bank v. Arthur, 15 FSM Intrm. 625, 636 (Pon. 2008).
Resort to an independent action may be had only rarely, and then only under unusual and exceptional circumstances. The defendants must satisfy all five of an independent action's elements, which are: 1) a judgment which ought not, in equity and good conscience, to be enforced; 2) a good defense to the alleged cause of action on which the judgment is founded; 3) fraud, accident or mistake which prevented the defendant in the judgment from obtaining the benefit of his defense; 4) the absence of fault or negligence on the defendant's part; and 5) the absence of any adequate remedy at law. FSM Dev. Bank v. Arthur, 15 FSM Intrm. 625, 636 (Pon. 2008).
Once either party has moved for an order in aid of judgment, the court, after notice to the opposite party, must hold a hearing on the question of the debtor's ability to pay and determine the fastest manner in which the debtor can reasonably pay a judgment based on its finding. FSM Dev. Bank v. Arthur, 15 FSM Intrm. 625, 637 (Pon. 2008).
Payment by cash on hand is always the fastest way in which the debtor can reasonably pay a judgment. The next fastest way to pay is through the sale of highly liquid assets that can readily be
reduced to cash. Unlike stock in closely-held corporations for which there is no readily identifiable market for their shares or easily ascertained value, stock, which is traded daily on major stock exchanges and the prices reported, is almost as liquid as cash. FSM Dev. Bank v. Arthur, 15 FSM Intrm. 625, 638-39 (Pon. 2008).
* * * *
DENNIS YAMASE, Associate Justice:
On April 22, 2008, this came before the court for hearing on 1) the defendants' Motion to Vacate Judgment and supporting memorandum, filed March 27, 2008; and the plaintiff's Opposition to Motion to Vacate Judgment, filed April 14, 2008;1 and on 2) the plaintiff's Motion for an Order in Aid of Judgment Directing Sale of Particular Assets, filed September 17, 2007; Defendants' Response to Motion for Order in Aid of Judgment, filed September 19, 2007; plaintiff's Reply Brief on Motion for Order in Aid of Judgment, filed September 20, 2007; Defendants' Supplemental Response to Motion for Order in Aid of Judgment, filed March 27, 2008; and the plaintiff's Supplemental Reply Brief on Motion for Order in Aid of Judgment, filed April 14, 2008.
The court denies the motion to vacate the judgment, and accordingly an order in aid of judgment issues herewith. The reasons for denying the motion to vacate follow first because if that motion had been granted there then would be no judgment for which an order in aid of judgment could issue.
This case was tried on the merits. On October 5, 2004, all four defendants, Robert C. Arthur, Patricia B. Arthur, Bethwel Henry, and Marihne Henry, were held jointly and severally liable to the FSM Development Bank for $504,960.15, with interest thereon at the 9% statutory rate and a judgment was entered to that effect. FSM Dev. Bank v. Arthur, 13 FSM Intrm. 1 (Pon. 2004). The defendants appealed. The judgment was affirmed on September 14, 2006. Arthur v. FSM Dev. Bank, 14 FSM Intrm. 390 (App. 2006).
The defendants now move to vacate that judgment, or, alternatively, to bar the judgment's prospective enforcement, on the grounds that the judgment ought to no longer be enforced because it is contrary to law, inequitable, against good conscience, and unjustly enriches the Bank's principal, which, in their view, is the State of Pohnpei. If the defendants succeed in vacating the judgment, then the next step would be to order a new trial. If, on the other hand, the judgment were left in place and only its enforcement barred, the result would the anomalous situation of a valid money judgment which could not be enforced even though the judgment-debtors are solvent and within the jurisdiction.
A. Grounds upon Which Defendants Seek Relief from Judgment
The defendants contend that circumstances entitle them to relief from judgment. The unpaid
loan for which the defendants were held liable was intended to help capitalize AHPW, Inc. ("AHPW") so that AHPW could process and export premium gourmet pepper and trochus shell buttons. The judgment-debtors/defendants were guarantors of the FSM Development Bank's loan to AHPW. The loan funds, although administered by the Bank, came from the Investment Development Fund ("IDF"). AHPW ceased business operations and payments on the loan when the State of Pohnpei, through its anti-competitive practices destroyed AHPW's commercial viability. See AHPW, Inc. v. FSM, 12 FSM Intrm. 544, 551-52 (Pon. 2004). AHPW was awarded $713,766 in damages against Pohnpei for Pohnpei's wrongful acts, AHPW, Inc. v. Pohnpei, 14 FSM Intrm. 188, 192 (Pon. 2006), plus attorney's fees of $28,338.76, AHPW, Inc. v. FSM, 13 FSM Intrm. 36, 43 (Pon. 2004).
The defendants contend that the Bank, in executing the AHPW loan, was an agent of the State of Pohnpei. Relying on the principle that a promisor is discharged from all liability when the promisor's non-performance is caused by the other contracting party and on the principle that a person is not permitted to profit by his own wrong at another's expense, the defendants contend that they are, or should be, relieved from any obligation to pay the judgment in this case because, if they did, the wrongdoer, State of Pohnpei, would benefit or profit from the non-performance it caused.
B. How Sought
The defendants assert that they are entitled to relief under FSM Civil Procedure Rule 60(b). When asked during oral argument what subsection of that rule their motion was brought under, the defendants responded that their motion was brought under a combination of all of Rule 60(b) and was in the nature of an independent action for relief from judgment. Since the defendants rely on any or all of Rule 60(b), the rule's entire text is set out below:
On motion and upon such terms as are just, the court may relieve a party or a party's legal representative from a final judgment, order, or proceeding for the following reasons: (1) mistake, inadvertence, surprise, or excusable neglect; (2) newly discovered evidence which by due diligence could not have been discovered in time to move for a new trial under Rule 59(b); (3) fraud (whether heretofore denominated intrinsic or extrinsic), misrepresentation, or other misconduct of an adverse party; (4) the judgment is void; (5) the judgment has been satisfied, released, or discharged, or a prior judgment upon which it is based has been reversed or otherwise vacated, or it is no longer equitable that the judgment should have prospective application; or (6) any other reason justifying relief from the operation of the judgment. The motion shall be made within a reasonable time, and for reasons (1),(2), and (3) not more than one year after the judgment, order, or proceeding was entered or taken. A motion under this subdivision (b) does not affect the finality of a judgment or suspend its operation. This rule does not limit the power of a court to entertain an independent action to relieve a party from a judgment, order, or proceeding, or to set aside a judgment for fraud upon the court. The procedure for obtaining any relief from a judgment shall be by motion as prescribed in these rules or by an independent action.
FSM Civ. R. 60(b). The court will analyze each part of the rule to determine whether the defendants may obtain relief they seek. First, the court must determine whether the defendants' motion was timely made.
C. Grounds Subject to One-Year Time Limit
A Rule 60(b) motion must "be made within a reasonable time, and for reasons (1), (2), and (3) not more than one year after the judgment, order, or proceeding was entered or taken." FSM Civ. R.
60(b). The one-year time limit for reasons (1), (2), and (3) is not suspended by the pendency of an appeal because a Rule 60(b) motion "can be made even though an appeal has been taken and is pending." 11 Charles Alan Wright, Arthur R. Miller & Mary Kay Kane, Federal Practice and Procedure § 2866, at 390 (2d ed. 1995);2 cf. Stinnett v. Weno, 8 FSM Intrm. 142, 145 & n.1 (Chk. 1997)(Rule 60(b) motion can be made while appeal is pending). The time for making a motion for relief from judgment continues to run even while the judgment is on appeal. Walter v. Meippen, 7 FSM Intrm. 515, 518 (Chk. 1996). Thus, the time to move for relief for reasons (1), (2), or (3) expired on October 5, 2005, long before the defendants' motion to vacate was filed.
The defendants' motion was made too late to obtain relief under Rule 60(b) (1), (2), or (3) even if relief had been possible. The court is powerless to enlarge the one-year time limit, FSM Civ. R. 6(b),3 and "the concept of reasonable time cannot be used to extend the one-year limit." 11 Wright, Miller & Kane, supra, § 2866, at 391. Therefore the court must deny any Rule 60(b) relief based on reasons (1), (2), and (3) because the motion is untimely made for such relief.
The court further notes that the defendants' arguments do not seem to fall under any of the reasons that are listed in those three subsections with the possible exception of 60(b)(1) "mistake." The defendants point to the Bank's mistake in preparing the loan agreement and promissory note documenting the loan as a mistake entitling them to relief. Although the Bank made a mistake in preparing the loan agreement and promissory note, the court corrected that "mistake" by reforming the loan agreement and the promissory note to accurately reflect the agreement of the parties to it. Arthur, 13 FSM Intrm. at 8-10. No relief could be granted for this "mistake" since the judgment from which relief is sought is not based on, or the result of, this "mistake," but is instead the result of the court's correction of the "mistake."
The defendants also contend that the court made mistakes in its prior legal rulings, but even assuming that a court's legal errors could be considered a "mistake" subject to relief under 60(b)(1),4 those legal rulings were affirmed on appeal and were therefore not error. Another alleged possible "mistake" was that the Bank did not sue AHPW as well as, or instead of, the defendants. This also cannot be considered a "mistake." The terms of the guaranty, under which the defendants were found liable, permitted the Bank, in the case of a loan default, to sue the defendants without suing AHPW, and furthermore, as a general legal principle, "a lender holding a guaranty of payment can sue a guarantor directly, without naming the borrower." Arthur, 13 FSM Intrm. at 11. Moreover, the defendants themselves could have moved to add AHPW as a party and "[o]n more than one occasion the defendants stated on the written record that they would move to make AHPW a third party defendant at some future point, but they never did so." Id. at 8.
D. Grounds Not Barred by the One-year Time Limit
1. No Time Limit – Rule 60(b)(4) – Void Judgment
There is no time limit to seek relief from a void judgment under Rule 60(b)(4). See Hartman v. Bank of Guam, 10 FSM Intrm. 89, 97 (App. 2001); Ruben v. Petewon, 13 FSM Intrm. 383, 389 (Chk. 2005). But a judgment is void "only if the court that rendered it lacked jurisdiction of the subject matter, or of the parties, or if it acted in a manner inconsistent with due process." 11 Wright, Miller & Kane, supra, § 2862, at 326-29 (footnotes omitted).
The defendants, however, do not assert that the October 5, 2004 judgment is void. Nor do they allege that the court lacked subject matter jurisdiction over the case or personal jurisdiction over the defendants or that the court acted inconsistent with due process. The defendants are thus not entitled to any relief under this subsection.
2. Reasonable Time
Motions for relief from judgment for reasons (5) and (6) must be made within a reasonable time. 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. E.g., United States v. Boch Oldsmobile, Inc., 909 F.2d 657, 661 (1st Cir. 1990).
The only reason the defendants give for not acting sooner is that until their appellate remedies were exhausted, that is, until the appellate division affirmed the October 5, 2004 judgment, the judgment against them had not yet become inequitable. The judgment was affirmed on September 14, 2006. Arthur v. FSM Dev. Bank, 14 FSM Intrm. 390 (App. 2006). The defendants did not file their Motion to Vacate Judgment until March 27, 2008. The defendants do not explain why they waited until then to file this motion, and then filed it only after the court had inquired in its Order Resetting Hearing at 2 (Jan. 28, 2008) what the defendants meant when, in their response to the Bank's motion for an order in aid of judgment, they objected to paying Pohnpei a "profit" (which the court thought might be an objection to the payment of interest). Additionally, as noted above, the pendency of an appeal does not suspend Rule 60(b)'s timeliness requirement or bar the filing of a Rule 60(b) motion. Courts "have been unyielding in requiring that a party show good reason for the failure to take appropriate action sooner." 11 Wright, Miller & Kane, supra, § 2857, at 260.
The defendants have not shown good reason for waiting until March 2008 to seek relief from a 2004 judgment that was affirmed in 2006. The court therefore concludes that the defendants have not moved for relief from judgment "within a reasonable time" as required. The defendants' motion to vacate the judgment can be denied on this ground alone. But in an abundance of caution, the court will examine 60(b)(5) and (6) to see if relief were possible under either.
3. Rule 60(b)(5) – No Longer Equitable
Subsection (b)(5) permits relief if "the judgment has been satisfied, released, or discharged, or a prior judgment upon which it is based has been reversed or otherwise vacated, or it is no longer equitable that the judgment should have prospective application." The defendants do not claim that the judgment has been satisfied or that the law or precedent that the October 5, 2004 judgment relied upon has since been reversed or changed. The last phrase about relief when it is "no longer equitable for the judgment to have prospective application," seems in line with the defendants' position.
At oral argument, the defendants asserted that the prospective application of the judgment is
that they are now being asked to pay money to the Bank. But "Rule 60(b)(5) which permits relief from a judgment on the ground that 'it is no longer equitable that the judgment have prospective application,' properly applies only to judgments with prospective effect, and so does not cover the case of a judgment for money damages." Ryan v. United States Lines Co., 303 F.2d 430, 434 (2d Cir 1962); see also Marshall v. Board of Educ., 575 F.2d 417, 423-25 (3d Cir. 1978) (although injunctive portion of judgment may be modified under Rule 60(b)(5) relief from money award part of judgment was not permitted). While a money judgment "may be 'prospective' to the extent that [the defendant] has failed to pay it in a timely manner, it is nevertheless a final order and is not 'prospective' for purposes of Rule 60(b)(5)." Stokors S.A. v. Morrison, 147 F.3d 759, 762 (8th Cir. 1998). The defendants are thus not entitled to any relief under Rule 60(b)(5).
4. 60(b)(6) – Any Other Reason
Subsection 60(b)(6), which permits relief for "any other reason justifying relief," and the other subsections of Rule 60(b) are mutually exclusive. Thus, if the reasons offered for relief from judgment could have been considered under any of the subsections 60(b)(1) through (5), they cannot be considered under Rule 60(b)(6). Liljeberg v. Health Servs. Acquisition Corp., 486 U.S. 847, 863 & n.11, 108 S. Ct. 2194, 2204 & n.11, 100 L. Ed. 2d 855, 874 & n.11 (1988); Cotto v. United States, 993 F.2d 274, 277 (1st Cir. 1993); United States v. Real Property & Residence, 920 F.2d 788, 791 (11th Cir. 1991). Rule 60(b)(6) also cannot be used to circumvent the one-year time limit for motions for relief from judgment under reasons (1), (2), and (3). Therefore, to the extent that the defendants' motion relies on a party's mistake or excusable neglect, it is barred by the one-year time limit. Furthermore, relief under Rule 60(b)(6) is reserved for extraordinary circumstances. Farata v. Punzalan, 11 FSM Intrm. 175, 178 (Chk. 2002).
The money borrowed by AHPW and guaranteed by the defendants came from the Investment Development Fund. The IDF was created with money appropriated by the United States. 30 F.S.M.C. 201. The Federated Development Authority ("FDA") administers the IDF. 30 F.S.M.C. 303. The Bank, pursuant to the FDA's direction, is responsible for administering all IDF loans. 30 F.S.M.C. 303(5). IDF money is restricted to financing development projects. 30 F.S.M.C. 304. Although each state has an earmarked subaccount within the IDF (there is also a private-sector reserve subaccount) and any state may propose a project to be financed from its earmarked subaccount, 30 F.S.M.C. §§ 305, 308, 316(1), loans from these subaccounts must be approved by the FDA, 30 F.S.M.C. 309, and by the Development Bank, 30 F.S.M.C. 310. Thus, IDF funds are not a state's property, to do with as it chooses.
The Bank, in administering the AHPW loan, was statutorily an agent of the Federated Development Authority and of the Investment Development Fund, not of the State of Pohnpei,5 even
though the loan funds came from Pohnpei's earmarked subaccount. The mere fact that Pohnpei's approval of the AHPW loan was also needed if the loan funds came from the subaccount earmarked for Pohnpei, is not enough to make the Bank Pohnpei's agent. By statute, the IDF, not the State of Pohnpei, "profits" from the repayment of the AHPW loan.
[A]ll earnings accrued on investment of the [Investment Development] Fund, all repayments of principal and interest and penalties on loans made from the Fund, all cash assets recovered on loans made from the Fund, and all fees, charges, and penalties collected in relation to administration of the Fund shall be deposited into the Fund.
30 F.S.M.C. 201(2).6 The money deposited into the Fund is then available for lending to other entrepreneurs or developers. They, not Pohnpei, are the ultimate beneficiaries of any collection of this judgment.
The defendants do not allege, and the AHPW court did not judicially determine, that the Bank, or IDF, or FDA committed any wrongdoing causing AHPW's non-performance on the loan repayments. They therefore cannot rely on the principle that a promisor is discharged from liability when the promisor's non-performance is caused by the other contracting party since the other contracting party, the Bank (and its principal, IDF) did not cause AHPW's non-performance. Nor can they rely on the principle that a person is not permitted to profit by his own wrong at another's expense since neither the Bank nor IDF are alleged to have committed a wrong, and it is IDF that will "profit" if the loan is repaid.
Accordingly, Pohnpei's wrongdoing cannot be "any other reason"7 upon which the defendants may be relieved from payment of the judgment against them.
5. Additional Bar to Relief
There is an additional sentry that guards the door to Rule 60(b) relief. A litigant, as a precondition to Rule 60(b) relief, must give the trial court reason to believe that vacating the judgment will not be a futile gesture or an empty exercise, that is, that the litigant has a meritorious defense. See, e.g., Teamsters, Chauffeurs, Warehousemen & Helpers Union v. Superline Transp. Co., 953 F.2d 17, 20-21 (1st Cir. 1992).
Since the facts are not in dispute and were stipulated to by the parties, Arthur, 13 FSM Intrm. at 6-7, if the defendants were granted a new trial, the only new defense is the defendants' assertion that equity bars the Bank's legal remedy of money damages because the Bank is the agent of the entity,
Pohnpei, that destroyed AHPW's commercial viability. As seen above, that argument fails.
E. Independent Action
Relief from a judgment may be sought either by a Rule 60(b) motion or by an independent action – through filing a separate case. It cannot be sought by both. See Goodyear Tire & Rubber Co. v. H.K. Porter Co., 521 F.2d 699, 700 (6th Cir. 1975) (having chosen to raise issue by Rule 60(b) motion, litigant does not have available to it the right to proceed for the same relief by independent action).8 The defendants in this case have sought relief from judgment by motion, not through an independent action.
The defendants nevertheless assert, relying on Bankers Mortgage Co. v. United States, 423 F.2d 73 (5th Cir. 1970), that an independent action may be treated as a Rule 60(b) motion, and, conversely, a Rule 60(b) motion may be treated as an independent action. 423 F.2d at 77 n.7. In Bankers Mortgage, a litigant filed a Rule 60(b) motion in a U.S. district court seeking relief from a judgment against it in a U.S. tax court. The Bankers Mortgage court held that a Rule 60(b) motion filed in a different court was not a proper vehicle for securing relief and so treated the motion as an independent action to obtain relief. 423 F.2d at 78.
The defendants here have not filed their Rule 60(b) motion seeking relief in a separate action in equity collaterally attacking the judgment, but have instead filed it as a post-judgment motion in the original case. The court therefore concludes that, despite the defendants styling their motion as one "in the nature of an independent action," the motion may only be treated as a Rule 60(b) motion for relief from judgment, and not as an independent action.
Even if they had filed an independent action, success would have been unlikely. "Resort to an independent action may be had only rarely, and then only under unusual and exceptional circumstances." 11 Wright, Miller & Kane, supra, § 2868, at 397-98. The defendants cannot satisfy several (and they must satisfy all) of an independent action's elements. An independent action in equity to set aside a judgment has five elements: 1) a judgment which ought not, in equity and good conscience, to be enforced; 2) a good defense to the alleged cause of action on which the judgment is founded; 3) fraud, accident or mistake which prevented the defendant in the judgment from obtaining the benefit of his defense; 4) the absence of fault or negligence on the defendant's part; and 5) the absence of any adequate remedy at law. Enlet v. Bruton, 12 FSM Intrm. 187, 190 (Chk. 2003). For reasons discussed above, several of these elements could not be satisfied. Furthermore, the defendants themselves may have been negligent in not adding AHPW as a party.
F. Summary
Accordingly, the motion to vacate the judgment is denied since it was not timely made. Even if the motion had not been untimely, the circumstances do not entitle these defendants to Rule 60(b) relief.
Since the defendants are not entitled to relief from the October 5, 2004 judgment, the Bank, having moved for an order in aid of judgment and the statutorily-required hearing having been held, is
entitled to an order in aid of the October 5, 2004 judgment. 6 F.S.M.C. 1409.
A. Order Sought
The judgment-creditor Bank asks that the judgment in this case be used to offset part of the judgment AHPW, Inc. has against the State of Pohnpei in Civil Action No. 1999-053 since the Bank's judgment is for a loan it made to AHPW from the State of Pohnpei's earmarked portion of the Investment Development Fund and the loan was guaranteed by the judgment-debtors. Alternatively, the Bank asks for an order putting the defendants' shares in AHPW up for auction with the Bank willing to bid the value of its judgment for the shares.
The defendants object to these suggestions on the grounds that only two of them are AHPW shareholders and that those two do not hold all of the shares and that allowing the Bank (as an agent for Pohnpei) to acquire AHPW's stock and then using that stock to pay the (larger) judgment that AHPW holds against Pohnpei would be unfair since it was Pohnpei that unlawfully destroyed AHPW's value. Lastly, the defendants object that they are being asked to pay Pohnpei a "profit" (through the Bank's judgment) although it was Pohnpei that was judicially determined to have unlawfully destroyed AHPW's business even though it was Pohnpei's IDF money that provided the business loan whose non-repayment is the basis for the judgment in this case. The defendants developed this last objection as the basis of their motion to vacate judgment. That motion having been denied above, this objection will not preclude enforcement of the judgment.
The Bank's proposal has a certain attraction to it because it would cause a minimum of disruption in the operations of the judgment-debtors in both this case and in No. 1999-053 because the judgment-debtors in this case would not have to make any payment on the judgment and their current assets would remain intact and the judgment-debtor [Pohnpei] in No. 1999-053 would have to make a still substantial, but a much smaller, payment to AHPW on that judgment. There are, however, major obstacles to such an order. As noted above, the Bank loan money came from the Investment Development Fund and IDF money is not Pohnpei's money to do with as it pleases so it is not a matter of setting off a judgment in Pohnpei's favor against a judgment adverse to Pohnpei. Admittedly, a similar result would be achieved if AHPW assigned the equivalent portion of its judgment against Pohnpei to the judgment-debtors in this case who could then offer the assignment to the Bank in payment of this judgment, and, assuming the Bank was willing to take the assignment in payment, the Bank would then collect from Pohnpei its money for the IDF. But the court could not make such an order since AHPW is not a party to this case.
B. Findings
Once either party has moved for an order in aid of judgment
the court, after notice to the opposite party, shall hold a hearing on the question of the debtor's ability to pay and determine the fastest manner in which the debtor can reasonably pay a judgment based on the finding. In making this determination the court shall allow the debtor to retain such property and such portion of his income as may be necessary to provide the reasonable living requirements of the debtor and his dependents, including fulfillment of any obligations he may have to any clan, lineage, or other similar group, in return for which obligations he, or his dependents, receive any necessary part of the food, goods, shelter, or services required for their living.
6 F.S.M.C. 1409. Thus, the court is required to make findings from the hearing and then determine the fastest way in which the debtor can pay the judgment. The Bank deposed each defendant before
the hearing, and then presented evidence at the hearing only about those defendants which have sufficient assets to make substantial payment on the judgment.
The court finds that originally, defendants Patricia B. Arthur and Marihne Henry and a third person, Mammer Perin, each owned 700 shares in AHPW. In 1988, Perin returned her 700 shares to the corporation and Patricia Arthur "converted" a $120,000 loan she had made to AHPW into 12,000 shares. Since AHPW's articles of incorporation only authorized 2,800 shares (par value $10 each) and since AHPW's Corporate Charter required that at least 51% be available for ownership by FSM citizens, AHPW's board rescinded the issuance of the 12,000 shares in 2007. Because the conversion of the loan into shares was improper, the court concludes that, at all times, AHPW owed Patricia Arthur $120,000, an asset that has varied in value along with AHPW's fortunes.
Also in 2007, the Arthurs' daughter-in-law, Elizabeth Y. Arthur, subscribed to the remaining 1,400 AHPW treasury and unissued shares and Patricia Arthur and Marihne Henry each transferred 50 shares to Elizabeth Arthur. Elizabeth Arthur paid Patricia Arthur and Marihne Henry $125 each ($2.50 per share) for the shares she received from them and she paid for the 1,400 shares with a $3,500 promissory note which required that she pay AHPW $120 on the first of each month until fully paid. The Bank contends that these transactions constitute fraudulent transfers, which may be voided, in part, because the 1,400 shares were subscribed for (and the 100 shares bought) at well below par value.
Other assets owned by the judgment-debtors, which might be used to satisfy the judgment, consisted of 2,375 shares of U Corporation, owned jointly by Patricia and Robert Arthur as tenants by the entirety; $17,714.57 (plus unposted interest, if any) in a Bank of Guam account, owned jointly by Patricia and Robert Arthur, in which there has been no activity since November 18, 2005; and 2,600 shares of Apple Computer stock (valued at $437,216 the day of the hearing) bought in May, 1998,9 owned jointly by Patricia and Robert Arthur with the right of survivorship (held in a Merrill Lynch brokerage account in Guam).
C. Fastest Manner
The statute requires that the court determine the "fastest manner in which the debtor can reasonably pay a judgment." 6 F.S.M.C. 1409. Payment by cash on hand is always the fastest way to pay. However, less than $18,000 is available in that form. Since it is in an account that has not shown any activity since November 2005, the court may safely find that these funds are not needed to provide the debtors' reasonable living requirements. Since these funds may be being held to cover unforeseen personal emergencies and since they do not go anywhere near to satisfying the outstanding judgment, the court will order that $10,000 from the Bank of Guam account be paid to the FSM Development Bank within fifteen days of the entry of this order.
The next fastest way to pay is through the sale of highly liquid assets that can readily be reduced to cash. Both AHPW, Inc. and U Corporation are closely-held corporations for which there is no readily identifiable market for their shares or easily ascertained value. (No party at the hearing suggested a value for these.) AHPW's only asset (besides Elizabeth Arthur's monthly $120 payments)10 appears to be its judgment against the State of Pohnpei. Its liabilities would be the $120,000 it owes Patricia
Arthur and its loan from the Bank. The defendants contend, without further explanation, that AHPW cannot now be legally compelled to repay the Bank's loan. These facts make it difficult to evaluate how AHPW shares should be valued if the court were to order them transferred. It also makes it difficult to determine, if the court were to order the AHPW and the U Corporation shares put up for auction, whether the court could confirm any price bid for them as fair. The U Corporation and AHPW shares are not liquid assets, particularly if, in the case of Elizabeth Arthur's stock, there must first be proceedings to determine if the transfers to her should be voided as fraudulent.
Apple Computer stock does not present such difficulties. It is traded daily on major stock exchanges and the prices are reported. It is thus almost as liquid as cash. The Apple Computer investment has been left untouched since May 1998, and so the court may safely find that the Apple Computer shares are not needed to provide the debtor's reasonable living requirements. The court will therefore order that defendants Robert C. Arthur and Patricia B. Arthur sell all of that stock within thirty (30) days of this order and remit the proceeds to the judgment-creditor Bank within that time. The record shows that both Robert C. Arthur and Patricia B. Arthur are United States citizens. Since it is common knowledge that U.S. citizens owe income tax to the U.S. government on income, earned or unearned, from anywhere in the world and that, for sale of stock, capital gains tax will be due to the U.S. Treasury, the Arthurs may withhold sufficient funds to meet their estimated U.S. capital gains tax liability provided that they inform the Bank of the amount withheld and how they calculated their estimated tax liability.
According to the Bank's Notice of Ruling, filed May 29, 2008, payment of a least $335,000 from Pohnpei to AHPW on AHPW's judgment seems fairly imminent. AHPW owes Patricia Arthur $120,000. The court will therefore issue a writ of attachment, attaching any payment from AHPW to Patricia Arthur, and order that all such sums be paid over to the judgment-creditor Bank.
Issued with this order will be an order in aid of judgment to which the defendants named therein must comply by the stated times unless the parties have all earlier agreed to satisfy this judgment in some other manner. The court will set a further hearing in this matter for the week of August 4, 2008, for the parties to report to the court the extent to which the above measures have satisfied the outstanding judgment and to determine if a further order in aid of judgment should issue.
The defendants' motion to vacate judgment is denied since it was untimely filed and if it had been timely filed, there were insufficient grounds to justify relieving the defendants from judgment. In order to satisfy the judgment, Robert C. Arthur and Patricia B. Arthur shall, within fifteen days of entry of this order, pay the Development Bank $10,000 from their Bank of Guam account; Robert C. Arthur and Patricia B. Arthur shall, within thirty days of the entry of this order, sell all of their Apple Computer stock and pay the Development Bank the proceeds from that sale, minus the amount they would need to pay the U.S. capital gains tax on that sale provided that their calculations of their estimated tax are given to the Bank; and Patricia B. Arthur shall pay to the Development Bank any money paid to her by AHPW, Inc. in repayment of her loan to that corporation.
A further hearing in aid of judgment shall be held August 8, 2008, at 10:00 a.m.
_____________________________________Footnotes:
1 The court also received by facsimile transmission on April 14, 2008, a partially legible copy of a document entitled Defendants' Reply Memorandum re: Vacating Judgment. No motion to file it by fax was received. Since filing by fax is permitted only by court order for special cause given, FSM Civ. R. 5(e), the memorandum was not filed then. And since an original and a copy for filing were never received, that document was not filed and the court has not considered it.
2 When an FSM court has not previously construed aspects of an FSM Civil Procedure Rule which is identical or similar to a U.S. rule, it may look to U.S. sources for guidance. E.g., Primo v. Pohnpei Transp. Auth., 9 FSM Intrm. 407, 413 n.3 (App. 2000); Tom v. Pohnpei Utilities Corp., 9 FSM Intrm. 82, 87 n.2 (App. 1999); Senda v. Mid-Pacific Constr. Co., 6 FSM Intrm. 440, 444 (App. 1994). FSM Civil Rule 60(b) is virtually identical to the U.S. Federal Rule of Civil Procedure 60(b) as it existed from 1948 to 2007.
3 The court "may not extend the time for taking any action under rule[] . . . 60(b), except to the extent and under the conditions stated in [it]." FSM Civ. R. 6(b).
4 The court takes no position on whether a court's legal error can be considered a "mistake" under Rule 60(b)(1), but notes that the courts that have so held have ruled that "reasonable time" to seek relief in those cases cannot exceed the time in which an appeal might have been timely filed. See 11 Wright, Miller & Kane, supra, § 2858, at 296-98; § 2866, at 389.
5 The court also notes that, although AHPW filed suit against Pohnpei and the national government two years before the Bank filed this suit to collect on its loan, AHPW did not name the Bank (or IDF or FDA) as a defendant in that suit (or in a separate suit) or seek recision of the loan, but instead sought to collect as damages the amount it still owed on the loan in addition to its lost profits. See AHPW, Inc. v. FSM, 12 FSM Intrm. 544, 556 (Pon. 2004). The AHPW court refused to award as damages the amount AHPW owed to the Bank because any loan repayments would necessarily have come out of AHPW's (lost) profits, which the court did award.Id.
The defendants urge as an equitable ground for relief that AHPW was only awarded four years of lost profits although AHPW had (and had asked for damages for) fifteen years of loan repayments remaining. The defendants cite no authority that because the defaulted borrower could only prove four years of profits lost due to Pohnpei's wrongdoing, they, as guarantors, are entitled to relief from their guaranty.
6 Repayments on loans from a state's subaccount are credited to that state's subaccount and other repayments are credited to the private-sector reserve subaccount. 30 F.S.M.C. 316(2).
7 Neither side discusses whether, assuming that AHPW could successfully plead Pohnpei's wrongdoing as a defense against AHPW being required to repay its loan, the defendants could utilize Pohnpei's wrongdoing as their own ground for relief since the defendants [guarantors], under the terms of the guaranty under which they have been held liable, waived any right to the AHPW's defenses. Guaranty para. 5 (Dec. 10, 1993) ("Guarantor waives any defense arising by reason of any disability or other defenses of Borrowers or by reason of the cessation from any cause whatsoever of Borrowers."). The defendants assert that they should be relieved of all liability because the cessation of AHPW was caused by Pohnpei's wrongdoing. The defendants would need to overcome this express waiver in order to be entitled to relief from the judgment against them. They have not addressed it.
8 "It is not the function of an independent action to relitigate issues finally determined in another action between the parties." 11 Wright, Miller & Kane, supra, § 2868, at 398.
9 In 1998, they bought 650 shares, which have split twice since then, equaling the 2,600 they own today.
10 There may also be some unused manufacturing equipment.
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