FSM SUPREME COURT APPELLATE DIVISION
Cite as Arthur v. FSM Dev. Bank,16 FSM Intrm. 653 (App. 2009)
ROBERT C. ARTHUR, PATRICIA ARTHUR,
BETHWEL HENRY and MARIHNE HENRY,
Appellants,
vs.
FSM DEVELOPMENT BANK,
Appellee.
APPEAL CASE NO. P1-2008
OPINION
Argued: July 9, 2009
Decided: December 17, 2009
Amended: December 24, 2009
BEFORE:
Hon. Martin G. Yinug, Associate Justice, FSM Supreme Court
Hon. Ready E. Johnny, Associate Justice, FSM Supreme Court
Hon. Camillo Noket, Temporary Justice, FSM Supreme Court*
*Chief Justice, Chuuk State Supreme Court, Weno, Chuuk
APPEARANCES:
For the
Appellants: Douglas F. Cushnie, Esq.
P.O. Box 500949
Saipan, MP 96950
For the Appellee: Michael J. Sipos, Esq.
P.O. Box 2069
Kolonia, Pohnpei FM 96941
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The Investment Development Fund consists wholly of funds granted by the United States to Federated States of Micronesia for certain development projects lending, and the FSM Development Bank is charged with the administration and documentation of IDF loans. Arthur v. FSM Dev. Bank, 16 FSM Intrm. 653, 657 (App. 2009).
Relief from a judgment under Rule 60 is addressed to the court's discretion, which is not an arbitrary one to be capriciously exercised but a sound legal discretion guided by accepted legal
principles. An appellate court therefore reviews a trial court's denial of a Rule 60(b) motion under an abuse of discretion standard. Arthur v. FSM Dev. Bank, 16 FSM Intrm. 653, 657 (App. 2009).
An abuse of discretion occurs when 1) the court's decision is clearly unreasonable, arbitrary, or fanciful; 2) the decision is based on an erroneous conclusion of law; 3) the court's findings are clearly erroneous; or 4) the record contains no evidence on which the court rationally could have based its decision. Such abuses must be unusual and exceptional; an appeals court will not merely substitute its judgment for that of the trial judge. Arthur v. FSM Dev. Bank, 16 FSM Intrm. 653, 657-58 (App. 2009).
A finding is clearly erroneous when the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed. Arthur v. FSM Dev. Bank, 16 FSM Intrm. 653, 658 (App. 2009).
The FSM Supreme Court's jurisdiction and ability to consider facts and arguments are dictated by Constitution, statute and rule, and the court will not ignore its constitutional duty by permitting the appellants to raise at the appeal's late date a different theory of the case and factual assertions not raised at the trial level. Arthur v. FSM Dev. Bank, 16 FSM Intrm. 653, 658 (App. 2009).
It is not important whether the trial judge considered the attack upon the judgment under 60(b) or as an independent equitable action, if based on all the evidence the trial judge in the exercise of his judicial and equitable discretion, denied relief. Arthur v. FSM Dev. Bank, 16 FSM Intrm. 653, 658 (App. 2009).
In an independent action, it is fundamental that equity will not grant relief if the complaining party has, or by exercising proper diligence would have had an adequate remedy at law, or by proceedings in the original action to open, vacate, modify or otherwise obtain relief against, the judgment. Arthur v. FSM Dev. Bank, 16 FSM Intrm. 653, 658-59 (App. 2009).
Relief under Rule 60(b)(6) is reserved for "extraordinary circumstances," which usually means that the movant himself was not at fault for his predicament. Arthur v. FSM Dev. Bank, 16 FSM Intrm. 653, 659 (App. 2009).
An independent action in equity to set aside a judgment must satisfy five essential 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 part of the defendant; and 5) the absence of any adequate remedy at law. If any one of these elements is missing the court cannot take equitable jurisdiction of the case. Arthur v. FSM Dev. Bank, 16 FSM Intrm. 653, 659 (App. 2009).
An issue that should have been known to the appellants when the original suit was filed should have been raised as a defense in the original suit or an excuse offered for not raising it then. Arthur
v. FSM Dev. Bank, 16 FSM Intrm. 653, 659 (App. 2009).
The FSM Development Bank and the State of Pohnpei are not one and the same. The bank is a creature of national statute, with its duties and functions delineated. In contrast, the State of Pohnpei is a constitutionally organized state of the FSM. Arthur v. FSM Dev. Bank, 16 FSM Intrm. 653, 659 (App. 2009).
No national statute regulates a state's duties and functions, except to the extent that a national statute may limit the state's lawmaking ability in specific areas through the supremacy clause. Arthur v. FSM Dev. Bank, 16 FSM Intrm. 653, 659 (App. 2009).
When there is no reason, other than the appellants' own carelessness or inadvertence, not to have raised a defense at the trial level or to have impleaded the State of Pohnpei for indemnification, but they did neither, the appellants fail to demonstrate that they were not at fault or negligent. Arthur v. FSM Dev. Bank, 16 FSM Intrm. 653, 659 (App. 2009).
When the appellants' first claim is that the contract reformation was a mistake on the court's part and that issue was already disposed of in their first appeal; when they have been before the trial court as well as the appeals court, and have had an opportunity to fully litigate their claims; when their claim that because the contract was reformed, they were unable to present their defense is unsupported and unpersuasive; when they were not denied any due process rights or remedies in law or equity as they were afforded an opportunity to fully litigate their claims and to present in the original action any meritorious defense against all claims; when they stipulated to the facts; and when many of their arguments are factual claims made in a prior appeal, in which that court already concluded were speculative arguments, the appellants have not demonstrated that their circumstances are in any way unusual and exceptional. Nor have they established that their own fault or negligence was not a factor in the resulting judgment. Therefore the trial court did not abuse its discretion in denying the appellants' request for relief from the judgment. Arthur v. FSM Dev. Bank, 16 FSM Intrm. 653, 659-60 (App. 2009).
When the appellants have had ample opportunity to present evidence on every ground or defense that they asserted, or could have asserted, but failed to do so; when the trial court comprehensively and correctly analyzed and denied their Rule 60(b) motion for relief from the trial court's judgment; and when they now urge on this appeal that the trial court's decision be vacated because it failed to treat their Rule 60(b) motion as an independent action under Rule 60(b)(6), this contention is spurious. Arthur v. FSM Dev. Bank, 16 FSM Intrm. 653, 660 (App. 2009).
When, in essence this is an appeal of an earlier final appellate court determination of the appellants' liability based on a defense they could have raised but waived in the trial court, it is yet another attempt to have a second bite of the appellate apple. When the appellants assert that the trial court erred in failing to vacate the judgment and raise claims either already argued and decided in their first appeal or not raised at the trial level, this is not an opportunity or an appropriate occasion for them to have a second bite of the appellate apple or to address issues that were not raised at the trial level. The trial court thus did not abuse its discretion by not vacating the judgment. Arthur v. FSM Dev. Bank, 16 FSM Intrm. 653, 661 (App. 2009).
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MARTIN G. YINUG, Associate Justice:
This appeal grows out of a suit for collection on a defaulted business development loan issued by the FSM Development Bank (the "Bank"). The guarantors of the loan were Robert C. Arthur, Patricia Arthur, Bethwel Henry and Marihne Henry. The trial court held the guarantors jointly and severally liable to the Bank, which ultimately requested aid in the enforcement of the judgment. In response, the guarantors filed for relief from the judgment, but the trial court denied their request. We affirm the trial court's decision in relation to the two alleged errors assigned for appellate review. Our reasoning follows.
On or about March 12, 2001, the Bank filed suit against the guarantors. An answer was filed on or about May 3, 2001. In December 2003, the Bank moved to amend its complaint seeking to reform the loan documents to reflect AHPW, Inc.1 ("AHPW") as the borrower. The guarantors objected to the request to amend the complaint. The parties agreed to stipulate to facts and submit briefs concerning the issue of amending the complaint and the other pending legal issues in the case. The trial court accepted this and suspended the pending trial.
Based on the parties' stipulated facts and briefs, the trial court ruled on October 5, 2004 [FSM Dev. Bank v. Arthur, 13 FSM Intrm. 1 (Pon. 2004)], that the writings memorializing the loan to AHPW were reformed to reflect that AHPW was the borrower and principal obligor. The trial court also held that the AHPW loan was in default, that AHPW had received the required notice allowing the Bank to accelerate the loan, and the guaranty signed by the guarantors was valid and enforceable without making AHPW a party to the lawsuit. The guarantors were held jointly and severally liable to the Bank for $504,960.15, with interest thereon at the 9% statutory rate. The judgment was appealed. In September 2006, the judgment of the trial court was affirmed in its entirety.2
On or about September 17, 2007, the Bank filed an Order in Aid of Judgment Directing the Sale of Particular Assets. The guarantors replied in September 2007, and later filed a Supplemental Response on or about March 27, 2008. It is at this time that the guarantors also filed a Motion to Vacate Judgment. The Bank's Motion for Order in Aid of Judgment was granted. The guarantors' Motion to Vacate Judgment was denied and they now appeal the trial court's denial of their motion, again seeking relief from a judgment already affirmed on their first appeal.
In August 1993, AHPW was approved for a loan by the Federated Development Authority from the Pohnpei state-earmarked subaccount of the Investment Development Fund ("IDF"). The IDF is in part governed by Title 30, Section 201, et seq. of the FSM Code. The IDF consists wholly of funds granted by the United States to Federated States of Micronesia for certain development projects lending.
The Bank was charged with the administration and documentation of IDF loans. The loan to AHPW was documented in the form of a promissory note held by the Bank, as the IDF administrator. The promissory note was signed by Robert C. Arthur, Patricia Arthur, Bethwel Henry and Marihne Henry. The promissory note should have been made by AHPW in its corporate capacity. However, Robert C. Arthur, Patricia Arthur, Bethwel Henry and Marihne Henry also signed a guaranty for the subject loan to AHPW. The last payment of the guarantors on the subject loan was made on July 1, 1999.
The two issues submitted by the guarantors for review are:
A. Whether the trial court's analysis of FSM Civil Procedure Rule 60(b) and Independent Actions is in error; and
B. Whether the trial court erred in failing to vacate the judgment.
"Relief from a judgment under Rule 60 is addressed to the court's discretion." Elymore v. Walter, 10 FSM Intrm. 267, 268 (Pon. 2001). "The discretion is not an arbitrary one to be capriciously exercised, but a sound legal discretion guided by accepted legal principles.'" Id. (quoting Assam v. Fleming, 159 F.2d 332, 336 (8th Cir. 1947)). An appellate court reviews a trial court's denial of a Rule 60(b) motion under an abuse of discretion standard. Panuelo v. Amayo, 12 FSM Intrm. 365, 372 (App. 2004).
An abuse of discretion occurs when 1) the court's decision is clearly unreasonable, arbitrary, or
fanciful; 2) the decision is based on an erroneous conclusion of law; 3) the court's findings are clearly erroneous; or 4) the record contains no evidence on which the court rationally could have based its decision. Such abuses must be unusual and exceptional; an appeals court will not merely substitute its judgment for that of the trial judge. Id. A finding is clearly erroneous when the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed. Kinere v. Kosrae, 6 FSM Intrm. 307, 309 (App. 1993).
The trial court discussed at great length and with thoroughness the grounds upon which the guarantors could seek relief from judgment. The trial court analyzed, in its entirety, FSM Civil Procedure Rule 60(b) because the guarantors when asked during oral argument responded that it was a combination of all of Rule 60(b) that was the basis of their motion and their motion was in effect an independent action for relief from the judgment. The trial court held after extensive analysis that relief from judgment was not appropriate pursuant to any subsection of Rule 60(b) or as an independent action. Of particular relevance on this appeal is subsection (6) of Rule 60(b).
The record consists of those matters that were properly before the trial court. It does not include matters such as subsequently-filed suits nor facts or assertions that were not presented before the trial court. Much of the guarantors' assertions on appeal refer to facts or issues that are not in the record. The Bank objected to including any facts or issues that were not raised before the trial court and matters that are not in the record. This Court's jurisdiction and ability to consider facts and arguments are dictated by Constitution, statute and rule. This Court will not ignore its constitutional duty by permitting the guarantors to raise at this late date a different theory of the case and factual assertions not raised at the trial level.
Issue A: Whether the trial court's analysis of FSM Civil Procedure Rule 60(b) and Independent Actions is in error.
The guarantors argue on appeal that the trial court erred in denying their motion to vacate the judgment. The guarantors rely on National Surety Co. v. State Bank of Humboldt, 120 F. 593 (8th Cir. 1903) and Bankers Mortgage Company v. United States, 423 F.2d 73 (5th Cir. 1970). In National Surety Co. the plaintiff filed suit and secured a default judgment against the defendant. Sometime later, the defendant moved to set aside the judgment, arguing that it had never been served with the summons and complaint. Instead of serving the defendant – an out-of-state entity – the plaintiff served the state official designated to receive service on behalf of out-of-state companies. However, the official never notified the defendant of the lawsuit.
Although not discussed in those terms, National Surety Co. was a case in which the trial court violated the defendant's right to due process because the defendant was not given notice or an opportunity to defend. Under these circumstances, the trial court in National Surety Co. set aside the original judgment even though the Rule 60(b) time limits had run.
Relying also on Bankers Mortgage Co., the guarantors also assert that an independent action for relief from a judgment may be treated as a Rule 60(b) motion, and, conversely, a Rule 60(b) motion may also be treated as an independent action. As such, regardless of how they style the motion, the guarantors maintain that they should be relieved of the judgment pursuant to a Rule 60(b) motion or as a separate, independent action in equity. However, "it is not important whether the trial judge considered the attack upon the . . . judgment under 60(b) or as an independent equitable action," if based on all the evidence the trial judge in the exercise of his judicial and equitable discretion, denied relief. Winfield & Assocs., Inc. v. Stonecipher, 429 F.2d 1087, 1090 (1970). In an independent
action, "it is fundamental that equity will not grant relief if the complaining party has, or by exercising proper diligence would have had an adequate remedy at law, or by proceedings in the original action'. . . to open, vacate, modify or otherwise obtain relief against, the judgment." Id.
Relief under Rule 60(b)(6) is reserved for "extraordinary circumstances." Farata v. Punzalan 11 FSM Intrm. 175 (Chk. 2002) (quoting Ackermann v. United States, 340 U.S. 193, 199. 71 S. Ct. 209, 212, 95 L. Ed. 207, 211 (1950); United States v. Sparks, 685 F.2d 1128, 1130 (9th Cir. 1982); Ashford v. Steuart, 657 F.2d 1053, 1055 (9th Cir. 1981)). "[E]xtraordinary circumstances" usually means that the movant himself was not at fault for his predicament. 12 JAMES WM. MOORE ET AL., MOORE'S FEDERAL PRACTICE ¶ 60.48[3][b] (3d ed. 1999). An independent action in equity to set aside a judgment must satisfy five essential 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 part of the defendant; and 5) the absence of any adequate remedy at law. Election Comm'r v. Petewon, 6 FSM Intrm. 491, 499, 1 CSR 5, 11 (Chk. S. Ct. App. 1994). If any one of these elements is missing the court cannot take equitable jurisdiction of the case. Id.
The Arthurs and the Henrys were guarantors on a loan from the Bank to AHPW. AHPW defaulted on the loan and the Bank sued the guarantors and obtained a judgment against them. About a year later, the Bank began enforcement proceedings because the judgment had not been paid. Six months later, the guarantors filed a motion to vacate the judgment.
The rationale behind the motion was that the Bank is the agent, or legal equivalent, of the State of Pohnpei, which put AHPW out of business, and whose actions prevented AHPW from repaying the loan. This issue was not raised as a defense in the original suit. The issue should have been known to the guarantors when the original suit was filed. No excuse is offered for not raising it then. Nevertheless, the defense is meritless.
The Bank and the State of Pohnpei are one and the same, as the guarantors would have us believe for purposes of the lawsuit. This is simply not so. The Bank is a creature of national statute, with its duties and functions delineated. In contrast, the State of Pohnpei is a constitutionally organized state of the FSM. No national statute regulates a state's duties and functions, except to the extent that a national statute may limit the state's lawmaking ability in specific areas through the supremacy clause.
Even assuming that the guarantors are correct in the assertion that the Bank and the State of Pohnpei are one and the same, there is no reason, other than the guarantors' own carelessness or inadvertence, not to have raised this as a defense at the trial level, nor to have impleaded the State of Pohnpei for indemnification. They did neither. Thus, the guarantors fail to demonstrate that they were not at fault or negligent.
The trial court denied the guarantors' motion to vacate the judgment because it was not filed within one year of the judgment and met none of the requirements of Rule 60(b) for setting aside a judgment. The guarantors appealed that ruling alleging the trial court erred by not considering the motion as an independent action that is not subject to the one year time limit in Rule 60(b), and that they had a good defense to the suit which they were prevented from raising at the trial level by the reformation of the contract. What the guarantors allege is that a mistake prevented them from presenting a meritorious defense in the original action. They first claim that the contract reformation was a mistake on the court's part. That issue has already been disposed of in the first appeal in this litigation.
The guarantors have been before the trial court as well as the appeals court, and have had an opportunity to fully litigate their claims. They claim again in the instant appeal that because the contract was reformed, they were unable to present their defense. Such a claim is unsupported and unpersuasive.
Here, unlike the plaintiff in National Surety Co., the guarantors were not denied any due process rights or remedies in law or equity as they assert on appeal. The guarantors were afforded an opportunity to fully litigate their claims and to present any meritorious defense in the original action against all claims made by the Bank. They stipulated to the facts. Many of the guarantors' arguments on this appeal are factual claims made in a prior appeal, in which that appellate court has already concluded as speculative arguments. The guarantors have not demonstrated that their circumstances are in any way unusual and exceptional. Nor have they established that their own fault or negligence was not a factor in the resulting judgment. We conclude that the trial court did not abuse its discretion in denying the guarantors' request for relief from the judgment.
Issue B: Whether the trial court erred in failing to vacate the judgment.
The guarantors' argument can be summarized as follows: the judgment in good conscience and equity ought not to be enforced against them; they have a good legal defense to the action; there was fraud, accident, or mistake which prevented them from obtaining the benefit of their defense; there was no fault or negligence on their part; and they no longer have any remedy at law, appeals having been taken. Therefore, they argue that the judgment should be vacated.
The guarantors have thoroughly litigated this matter. Judgment was entered against them in FSM Development Bank v. Arthur, 13 FSM Intrm. 1, 6-7 (Pon. 2004). They appealed the judgment, which the appellate division affirmed on September 14, 2006. Arthur v. FSM Dev. Bank, 14 FSM Intrm. 390 (App. 2006). On March 27, 2008, the guarantors moved for relief from the same judgment. The motion was denied on June 2, 2008, and they filed the instant appeal on June 28, 2008. On December 5, 2008, they then filed a separate, independent action for relief from the same 2004 trial court's judgment. This separate action, docketed as Civil Action No. 2008-041, brought long before oral argument in the present appeal was heard on July 9, 2009, has been decided by summary judgment against the guarantors, Arthur v. Pohnpei, 16 FSM Intrm. 581 (Pon. 2009).
The long history of this litigation demonstrates clearly that the guarantors have had ample opportunity to present evidence on every ground or defense that they asserted, or could have asserted but failed to do so. The trial court comprehensively and correctly analyzed and denied the guarantors' Rule 60(b) motion for relief from the trial court's judgment. The guarantors now urge on this appeal that the trial court's decision be vacated because it is erroneous in that it failed to treat their Rule 60(b) motion as an independent action under Rule 60(b)(6). We reject this contention as spurious.
As noted earlier, the trial court rendered summary judgment in favor of the Bank and dismissed on the merits the complaint in Civil Action No. 2008-041, the guarantors' separate, independent action. In its order granting summary judgment, the trial court left no stones unturned in its meticulous and painstaking treatment of all issues that the guarantors raised or could have raised, making the point that an independent action is not a vehicle for the relitigation of issues. The trial court entered summary judgment against the guarantors as a matter of law on the ground that their independent action was barred by res judicata.
We concur in the appellate court's opinion in the first appeal of this matter, and we also concur in the trial court's rationale in dismissing the guarantors' independent action in equity on October 19, 2009. We will not tread the same grounds already covered in those well-reasoned court decisions.
In essence this appeal is an appeal of a final appellate court determination of the guarantors' liability to the Bank based on a defense the guarantors could have raised but waived in the trial court. It is yet another attempt, as the trial court aptly put it, "to have a second bite of the appellate apple."
The guarantors assert that the trial court erred in failing to vacate the judgment, raising claims either already argued and decided in the first appeal or not raised at the trial level. This is not an opportunity for the guarantors to have a second bite of the appellate apple. Nor is it an appropriate occasion to address issues which were not raised at the trial level. We hold that the court did not abuse its discretion by not vacating the judgment.
Based on the foregoing we affirm the trial court's decision.
_______________________________Footnotes:
1 AHPW, Inc. is a nonparty entity incorporated in the Federated States of Micronesia. Its business plan included the manufacturing of trochus buttons and processing black pepper. Robert C. Arthur, Patricia Arthur, Bethwel Henry and Marihne Henry were all business affiliates of AHPW, Inc. Robert C. Arthur, Patricia Arthur, Bethwel Henry and Marihne Henry comprised the entire board of directors of AHPW, Inc. Patricia B. Arthur and Marihne Henry were at all relevant times the shareholders of AHPW, Inc. Robert Arthur was at all relevant times the principal officer of AHPW, Inc.
2 In Arthur v. FSM Development Bank, 14 FSM Intrm. 390 (App. 2006), the guarantors argued that the trial court erred in allowing the complaint to be amended. In addition, they asserted error concerning their status as guarantors. The Appellate Court held that the trial court reformed the loan documentation only to reflect the stipulated intent of the parties and to correct a scrivener's error. Furthermore, the Appellate Court concluded that the guarantors were not guaranteeing their own obligation but were guaranteeing AHPW's obligation on the promissory note. The appellate court held that leave to amend a complaint shall be given freely when justice so requires. There was no motive shown or proven that the delay to amend the complaint was to harass guarantors or was done in bad faith. Furthermore, the guarantors were not prejudiced by the amendment because the facts underlying the original complaint were substantially similar to the claims of the amended complaint. They asserted that prejudice did exist because the Bank's failure to file a timely amendment resulted in the denial of a motion to consolidate this matter with a then pending case, Civil Action 1998-053 (AHPW sued the FSM and the State of Pohnpei for the destruction of AHPW's business and was ultimately awarded treble damages in that matter against Pohnpei.) The guarantors argued that the facts in Civil Action 1998-053 which showed the Bank's complicity in the government's destruction of the AHPW might have affected the recovery against the Bank in this case. The Appellate Court rejected the guarantors' argument as speculative and concluded that the tort liability of the State of Pohnpei to AHPW was not a credible defense to the Bank's contract claims against the guarantors, nor was it a likely offset against the Bank's recovery. [Arthur, 14 FSM Intrm. at 395.]
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