Cite as Pacific Islands Dev. Bank v. Sigrah, 22 FSM R. 600 (Pon. 2020)
CIVIL ACTION NO. 2019-027
Decided: July 6, 2020
APPEARANCE:
| For the Plaintiff: | Maximo A. Mida, Esq. |
| Ramp & Mida Law Firm | |
| P.O. Box 1480 | |
| Kolonia, Pohnpei FM 96941 | |
| For the Defendant: | Yoslyn G. Sigrah, Esq. |
| P.O. Box 3018 | |
| Kolonia, Pohnpei FM 96941 |
A sum that included, among other things, $1,200 in attorney's fees that had been added to the loan principal, is not a sum certain because an amount that includes attorney's fees can never be a sum certain. Pacific Islands Dev. Bank v. Sigrah, 22 FSM R. 600, 603 (Pon. 2020).
The "good cause" threshold for Rule 55(c) relief is a lower, and more easily overcome, than that which obtains under Rule 60(b) and this approach reflects a policy decision that a default judgment must enjoy a greater degree of finality and, therefore, should be more difficult to disturb than a mere entry of default. Pacific Islands Dev. Bank v. Sigrah, 22 FSM R. 600, 604 (Pon. 2020).
Rule 55(c) governs the setting aside of a default, but when a default judgment has already been entered, FSM Civil Rule 60(b) applies and must be used to set aside the default judgment. But, if a
court determines that, under Rule 60(b)'s requirements, a default judgment should be set aside, then the entry of default will also be set aside, as a matter of course, because, if the Rule 60(b)'s higher requirements for relief from judgment are met, then Rule 55(c)'s lower requirement of good cause is also met. Pacific Islands Dev. Bank v. Sigrah, 22 FSM R. 600, 604 (Pon. 2020).
Primarily salient to an analysis of an excusable neglect assertion are: 1) an explanation of the movant's diligent and good faith efforts and 2) the lack of prejudice to the opposing party, but good-faith efforts and lack of prejudice are not enough to justify a finding of excusable neglect. Pacific Islands Dev. Bank v. Sigrah, 22 FSM R. 600, 604 (Pon. 2020).
A prompt motion for relief from judgment once a default judgment is entered and served on the movant is a sign of good faith. Pacific Islands Dev. Bank v. Sigrah, 22 FSM R. 600, 604 (Pon. 2020).
In a close case, it is probably best for the court to err on the side of caution and call the neglect excusable. Pacific Islands Dev. Bank v. Sigrah, 22 FSM R. 600, 604 (Pon. 2020).
In addition to meeting the Rule 60(b)(1) excusable neglect standard, there are three other criteria that must be satisfied in order to justify setting aside a default judgment: 1) whether the default was willful, caused by the defendant's culpable conduct; 2) whether the defendant has a meritorious defense; and 3) whether setting aside the default judgment would prejudice the plaintiff. Most importantly, the defendant must have a meritorious defense in order to obtain relief from a default judgment. Pacific Islands Dev. Bank v. Sigrah, 22 FSM R. 600, 604 (Pon. 2020).
A meritorious defense is required for relief from a default judgment. Pacific Islands Dev. Bank v. Sigrah, 22 FSM R. 600, 604 (Pon. 2020).
An affirmative defense cannot be pled with only a conclusory statement, but must, in each instance, be tied to specific factual allegations so as to give the plaintiff notice of the defense. A defendant cannot claim to have meritorious defenses by just listing the possible affirmative defenses to the plaintiff's causes of action without supporting factual allegations. Pacific Islands Dev. Bank v. Sigrah, 22 FSM R. 600, 605 (Pon. 2020).
Fraud, unlike most other affirmative defenses, is an affirmative defense that must be pled with particularity. Pacific Islands Dev. Bank v. Sigrah, 22 FSM R. 600, 605 (Pon. 2020).
When a borrower made a $410 payment after the date the bank ended the accounting of her loan, she has a meritorious payment defense, at least as far as the $410 payment is concerned. Pacific Islands Dev. Bank v. Sigrah, 22 FSM R. 600, 605 (Pon. 2020).
The statutory limitation period for an unpaid bank loan is, under 6 F.S.M.C. 805, six years after the cause of action accrues since unpaid loans are not covered in the specific limitations periods set
forth in Sections 801 to 804. Pacific Islands Dev. Bank v. Sigrah, 22 FSM R. 600, 606 (Pon. 2020).
When the borrowers made numerous payments and substantially reduced the principal from $17,831.33 to $6,468.20 (as of October 21, 2019), all of the earlier installments have been paid off, leaving only the later installments unpaid and very clearly within the statute of limitations period. Pacific Islands Dev. Bank v. Sigrah, 22 FSM R. 600, 606 (Pon. 2020).
A bank expects to be paid the amount the bank would be owed (and paid) if all installment payments were made precisely on time and in full. The bank, of course, expects to be paid more (and the note provides for it) if any of the installment payments were late or short. Pacific Islands Dev. Bank v. Sigrah, 22 FSM R. 600, 606 (Pon. 2020).
The FSM usury statutes prohibit (make usurious) commercial credit transactions that directly or indirectly exceed an annual interest rate of 24%, and consumer credit transactions made after October 31, 1998, that exceed an annual interest rate of 24%. Pacific Islands Dev. Bank v. Sigrah, 22 FSM R. 600, 606-07 (Pon. 2020).
When borrowers signed a November 17, 2014 promissory note that superseded and replaced an earlier April 20, 2012 promissory note after they requested that the original loan be restructured and the monthly payments lowered, the bank offered to do so under the terms in its response, and, by signing the bank's commitment letter and the November 17, 2014 amended and restated promissory note, the borrowers accepted that offer and agreed to those "restructured" terms and agreed and acknowledged that their remaining indebtedness to the bank was $17,831.33. Since the $17,831.33 credit the bank extended to the borrowers through the November 17, 2014 amended and restated promissory note paid off and retired the original April 20, 2012 promissory note and its debt, the borrowers' lament that the borrowers never received the $17,831.33 in cash is misguided. Pacific Islands Dev. Bank v. Sigrah, 22 FSM R. 600, 607 (Pon. 2020).
When a defendant has a meritorious payment defense to part of the default judgment against her, the court will grant partial relief from the default judgment because any other approach would be unfairly detrimental or prejudicial to the debtor. Pacific Islands Dev. Bank v. Sigrah, 22 FSM R. 600, 607 (Pon. 2020).
LARRY WENTWORTH, Associate Justice:
This comes before the court on the Defendant's Verified Motion to Set Aside Default Judgment and Relief from Default Judgment; Motion to Allow Defendant's Filing of Her Answer and Affirmative Defense to Plaintiff's Complaint, filed on March 10, 2020 (along with a proposed answer including affirmative defenses); and the plaintiff's Opposition to Motion to Set Aside Default Judgment and Enlargement Request, filed on April 2, 2020. The defendant did not file a reply to the plaintiff's opposition.
On December 17, 2019, the plaintiff, the Pacific Islands Development Bank, filed this case against Yoslyn G. Sigrah and Jason F. Sigrah. The bank sought judgment for a loan balance not fully paid off. Defendant Yoslyn G. Sigrah was personally served with the complaint and summons on December 18, 2019. 1
Although served, Yoslyn G. Sigrah did not answer the complaint or otherwise defend. On January 28, 2020, the clerk, upon the bank's request, entered Sigrah's default.
The bank then asked that a default judgment be entered against Yoslyn G. Sigrah. It contended that the $7,869.19 it sought was a sum certain and therefore asked the court clerk to enter a default judgment. Since the $7,869.19 sum included, among other things, $1,200 in attorney's fees that had been added to the loan principal, the court itself, instead of the court clerk, determined the proper judgment amount and ordered the entry of a default judgment against Yoslyn G. Sigrah in the amount of $6,869.19. Pacific Islands Dev. Bank v. Sigrah, 22 FSM R. 495, 498 (Pon. 2020). The court acted because an amount that includes attorney's fees can never be a sum certain. George v. Albert, 17 FSM R. 25, 30 (App. 2010); Bank of the FSM v. Bartolome, 4 FSM R. 182, 184 (Pon. 1990). A default judgment against Yoslyn G. Sigrah was entered on March 2, 2020.
On March 10, 2020, Sigrah moved to set aside the default judgment and asked the court to permit her to file an answer to the bank's complaint. Along with these two motions, she filed her proposed answer. Sigrah contends that there was good cause she neglected to timely file an answer or that her neglect was excusable. She asserts that she did not file a timely answer because, although she did ask the opposing counsel for an enlargement of time, she was busy with the Fourth FSM Constitutional Convention sessions and meetings from January 6, through January 22, 2020; because, shortly after that her Micronesian Shipping Commission work partner passed away and she was on Kosrae in February for the mourning process; and because she needed time to locate and consult her payment records before filing an answer.
The bank opposes granting relief because the higher excusable neglect standard applies to relief from a default judgment, not the lower, Rule 55(c) good cause standard that applies only when a default that has been entered but a default judgment has not yet been entered. The bank contends that Sigrah cannot show the excusable neglect needed for relief from a default judgment because she had until January 7, 2020, to timely respond and thus had enough time to either file an answer or to seek an enlargement of time to file one before the Constitutional Convention started, but instead chose to wait another 62 days after the answer was due and eight days after the default judgment was entered before seeking to file an answer. The bank also asserts that it sent Sigrah a notice, on October 15, 2019, informing her of the outstanding loan balance and on the next day, at Sigrah's request, forwarded her the most updated loan payment history, so that Sigrah had two months before the bank filed its complaint for her to consult and reconcile her loan payment records. The bank further asserts that Sigrah, in response to an e-mail warning that if her account was not brought up to date the bank would have to seek legal action, e-mailed on November 18, 2019, that she would make another payment that week, but she did not. The bank argues that all of this demonstrates a lack of good faith on Sigrah's part.
A. Proper Standard
1. Good Cause or Excusable Neglect?
The "good cause" threshold, that Sigrah urges, for Rule 55(c) relief is a lower, and more easily overcome, than that which obtains under Rule 60(b) and this approach reflects a policy decision that a default judgment must enjoy a greater degree of finality and, therefore, should be more difficult to disturb than a mere entry of default. Pohnpei Transfer & Storage, Inc. v. Shoniber, 19 FSM R. 614, 616 (Pon. 2014); FSM Dev. Bank v. Gouland, 9 FSM R. 375, 378 (Chk. 2000). Rule 55(c) governs the setting aside of a default, but when a default judgment has already been entered, FSM Civil Rule 60(b) applies and must be used to set aside the default judgment. Bank of Hawaii v. Susaia, 19 FSM R. 66, 69 n.1 (Pon. 2013). But, if a court determines that, under Rule 60(b)'s requirements, a default judgment should be set aside, then the entry of default will also be set aside, as a matter of course, because, if the Rule 60(b)'s higher requirements for relief from judgment are met, then Rule 55(c)'s lower requirement of good cause is also met. Setik v. FSM Dev. Bank, 21 FSM R. 505, 514 (App. 2018).
2. Excusable Neglect?
Primarily salient to an analysis of an excusable neglect assertion are: 1) an explanation of the movant's diligent and good faith efforts and 2) the lack of prejudice to the opposing party, but good-faith efforts and lack of prejudice are not enough to justify a finding of excusable neglect. FSM Dev. Bank v. Neth, 17 FSM R. 131, 134 (Pon. 2010).
Sigrah did move promptly for relief from judgment once the default judgment was entered and served on her. Her motion for relief from judgment is, itself, timely. That is a sign of good faith. But her actions before then do not seem to be as diligent, but, given the circumstances, may be excusable. The court notes that the twenty-day time period for Sigrah to respond to the bank's complaint contained two national holidays that would always be expected to divert someone's attention to other matters. On the other hand, the court also notes that the Constitutional Convention was held in a building next door to the FSM courthouse and Sigrah could have conveniently filed a response there anytime before the bank obtained its entry of Sigrah's default.
The bank is not prejudiced because the bank should be just as able to prosecute its claims against Sigrah now as it was before the default judgment was entered. In a close case such as this, it is probably best for the court to err on the side of caution and call the neglect excusable.
B. Basis for Relief
The analysis does not end here. In addition to meeting the Rule 60(b)(1) excusable neglect standard, there are three other criteria that must be satisfied in order to justify setting aside a default judgment: 1) whether the default was willful, caused by the defendant's culpable conduct; 2) whether the defendant has a meritorious defense; and 3) whether setting aside the default judgment would prejudice the plaintiff. UNK Wholesale, Inc. v. Robinson, 11 FSM R. 118, 122 (Chk. 2002); see also Western Sales Trading Co. v. Billy, 13 FSM R. 273, 279 (Chk. 2005). But most importantly, the defendant must have a meritorious defense in order to obtain relief from a default judgment - a meritorious defense is required for relief from a default judgment. UNK Wholesale, Inc., 11 FSM R. at 123; Truk Transp. Co. v. Trans Pacific Import Ltd., 3 FSM R. 512, 514 (Truk 1988).
The court cannot hold that Sigrah's default was willful since the court has just concluded that her conduct may have been excusable neglect. Nor can the court conclude that setting aside the default judgment would prejudice the bank since Sigrah's motion for relief was fairly prompt and there is no showing that the bank would be hindered in its ability to prosecute its claims. Thus, the court's analysis will focus on whether Sigrah presents a meritorious defense.
C. Meritorious Defense?
In her proposed answer, Sigrah pleads as affirmative defenses 1) misrepresentation, unconscionability, fraud, and estoppel; 2) payment, release, accord and satisfaction; 3) statute of limitations; 4) Sigrah's payments exceeded the bank's "expectancy amount of repayment"; and 5) violation of the FSM usury statutes. Sigrah also argues that the default judgment is defective and must be vacated because the bank's claim was not for a sum certain and because documents recording Sigrah's payments to the bank in 2012, 2013, and much of 2014 were missing. These will be addressed in turn.
1. Misrepresentation, Unconscionability, Fraud, Estoppel
Sigrah asserts, as affirmative defenses, that the bank misrepresented the loan terms; that the loan terms were unconscionable; that the loan terms constituted fraud; and that the bank was estopped from enforcing the promissory note. Sigrah does not allege any facts in support of the misrepresentation, fraud, and estoppel defenses. Nor does she indicate which loan term(s) were unconscionable or how the bank is estopped from seeking enforcement of its note.
An affirmative defense cannot be pled with only a conclusory statement, but must, in each instance, be tied to specific factual allegations so as to give the plaintiff notice of the defense. See FSM Dev. Bank v. Talley, 22 FSM R. 587, 594 (Kos. 2020); Macayon v. FSM, 22 FSM R. 544, 555 n.10 (Chk. 2020); Senda v. Semes, 8 FSM R. 484, 493-94 (Pon. 1998). None of these defenses were. They are therefore not meritorious defenses. A defendant cannot claim to have meritorious defenses by just listing the possible affirmative defenses to the plaintiff's causes of action without supporting factual allegations.
Furthermore, under Civil Procedure Rule 9(b), fraud, unlike most other affirmative defenses, is an affirmative defense that must be pled with particularity. Macayon, 22 FSM R. at 555. Sigrah's conclusory reference to "fraud" does not satisfy the particularity pleading standard and therefore fails as a meritorious defense.
2. Payment, Release, Accord and Satisfaction
Sigrah also lists payment, release, and accord and satisfaction as affirmative defenses. She does not refer the court to any factual allegations or documentary evidence that the bank ever released her from her November 17, 2014 debt obligation or that the bank and the borrowers ever reached an accord and satisfaction about that debt obligation. Sigrah's conclusory assertions of release and of accord and satisfaction are not meritorious defenses.
Sigrah does, however, allege that the bank's complaint does not account for a payment she made to the bank of $410 on December 13, 2019, and she provides a copy of a receipt documenting that payment. The bank did not dispute this payment in its opposition. The bank's accounting, attached to its December 17, 2019 complaint ends as of December 5, 2019. Sigrah thus does have a meritorious payment defense, at least as far as the $410 December 13, 2019 payment is concerned.
3. Statute of Limitations
Sigrah pleads the statute of limitations as an affirmative defense. The statutory limitation period for an unpaid bank loan is, under 6 F.S.M.C. 805, six years after the cause of action accrues since unpaid loans are not covered in the specific limitations periods set forth in Title 6, sections 801 to 804. FSM Dev. Bank v. Chuuk Fresh Tuna, Inc., 16 FSM R. 335, 338 (Chk. 2009); see also Bank of Hawaii v. Susaia, 19 FSM R. 66, 70 (Pon. 2013). Since the bank's suit, filed December 17, 2019, is on a promissory note executed on November 17, 2014, this suit is clearly within the six-year limitations period.
Even if this suit had been filed beyond six years from the promissory note's execution date, the statute of limitations would likely still not bar the suit. That is because the debtors made numerous payments and substantially reduced the principal from $17,831.33 to $6,468.20 (as of October 21, 2019), which means all of the earlier installments have been paid off, leaving only the later installments unpaid and very clearly within the statute of limitations period. See Waguk v. Kosrae Island Credit Union, 6 FSM R. 14, 17 (App. 1993); Bank of Hawaii v. Susaia, 19 FSM R. 66, 70 (Pon. 2013); Chuuk Fresh Tuna, Inc., 16 FSM R. at 338; Segal v. National Fisheries Corp., 11 FSM R. 340, 342 (Kos. 2003). Sigrah's statute of limitations defense is thus not meritorious.
4. The Bank's "Expectancy Amount of Repayment"
Sigrah contends, as an affirmative defense, that the bank has, over the years, been paid an amount that exceeds the bank's "expectancy amount of repayment." Sigrah apparently contends, without citing any particular facts or figures, that the debtors may have paid the bank more over the years than the bank had stated that it would be paid over the period of the loan.
The court notes that what Sigrah believes to be the bank's "expectancy" is only the sums the bank would be owed (and paid) if all installment payments were made precisely on time and in full. The bank, of course, expects to be paid more (and the note provides for it) if any of the installment payments were late or short. (And many in this case were.) And if the borrower makes installment payments larger or earlier than required (and this is perhaps a secret that banks and other lending institutions are not too eager for borrowers to realize), the bank would then expect to be paid and will have received less than what Sigrah calls the bank's "expectancy amount of repayment" by the time the borrower has paid off and extinguished the debt.
Sigrah's conclusory statement about the bank's expectancy is devoid of any merit as a defense.
5. Violation of the FSM Usury Statutes
Sigrah contends that the bank's loan violates the FSM usury rates of 15% and 24%. She does not address whether the Guam usury statutes should be applied, although it seems that the promissory note may have been executed on Guam.
The FSM usury statutes prohibit (make usurious) commercial credit transactions that directly or indirectly exceed an annual interest rate of 24%, 34 F.S.M.C. 204, and consumer credit transactions made after October 31, 1998, 2 that exceed an annual interest rate of 24%, 34 F.S.M.C. 203(3). In her conclusory statement, Sigrah does not explain how her loan with a stated 13% interest rate
exceeded, directly or indirectly, an annual rate of 24%. Sigrah's usury affirmative defense therefore lacks merit.
6. Sum Certain Argument
Sigrah's "sum certain" argument is meritless because whether an amount is a sum certain only matters if it is the court clerk who, under Civil Procedure Rule 55(b)(1), enters the default judgment on his or her own. In this case, it was the court itself that ordered the default judgment entered under Civil Procedure Rule 55(b)(2). The Rule 55(b)(1) sum certain requirement is thus not applicable.
7. "Missing" 2012-2014 Payments
Sigrah also contends that the absence of her 2012 through 2014 payments to the bank somehow makes the default judgment defective. The "missing" 2012-2014 payments are irrelevant. This case is an action on the amended and restated promissory note that Sigrah signed on November 17, 2014, not on the earlier April 20, 2012 promissory note that the November 17, 2014 promissory note superseded and replaced after Sigrah requested, on September 29, 2014, that the original loan be restructured and the monthly payments lowered. The bank offered to do so under the terms it set out in its October 15, 2014 response.
By signing, on October 16, 2014, the bank's October 15, 2014 commitment letter, and by signing the November 17, 2014 amended and restated promissory note, the debtors 3 accepted that offer and agreed to those "restructured" terms and agreed and acknowledged that, because of their 2012-14 payments on the earlier promissory note, their remaining indebtedness to the bank was $17,831.33, and that they would satisfy that debt through $405.72 monthly payments. The $17,831.33 credit the bank extended to the debtors through the November 17, 2014 amended and restated promissory note paid off and retired the original April 20, 2012 promissory note and its debt. Sigrah's lament that the borrowers never received the $17,831.33 in cash is thus misguided. Only the November 17, 2014 amended and restated promissory note debt remains. Thus, it is only the payments on that note (and debt) that matter.
D. Partial Relief from Judgment
In Bank of Hawaii v. Susaia, 19 FSM R. 66, 69-70 (Pon. 2013), the judgment debtor had a meritorious defense to only part of the default judgment, which would affect the judgment amount. The Susaia court reasoned that not setting aside the default judgment would prejudice the defendant, but not the plaintiff, because the defendant would be liable for an amount greater than what the law required him to pay. Id. at 70. The Susaia court therefore granted partial relief from judgment and reduced the judgment amount by the figure for which it was undisputed that Susaia had a meritorious defense. Id. at 72.
The court concludes that the Susaia court's approach is well-suited for this case. Sigrah has a meritorious payment defense for part of the default judgment. The court will therefore grant Sigrah partial relief from judgment for the December 2019 unattributed $410 payment. The court hereby reduces the March 2, 2020 judgment by $410 to $6,459.19 with 9% interest on that reduced amount from March 2, 2020, onward, until satisfied.
Any other approach would be unfairly detrimental or prejudicial to Sigrah, the debtor. That is
because, if the court were to grant Sigrah relief from the entire judgment, her loan's 13% interest rate would be reinstated for the entire time period up until when a new judgment is entered sometime in the future. The bank would also be able to pursue further attorney's fees and costs, as incurred. It is thus entirely likely that Sigrah might then be liable for additional amounts that would exceed the $410 for which she has a meritorious defense. The court has no desire to unnecessarily increase a judgment debtor's burden.
Accordingly, Yoslyn G. Sigrah's motion for relief from judgment is granted in part, and the March 2, 2020 judgment against her is reduced by $410 to $6,459.19 with 9% interest on that reduced amount from March 2, 2020, onward, until satisfied. The clerk shall issue a modified judgment to reflect that.
__________________________
1 Jason F. Sigrah was never served. The case against him was thus dismissed, on April 24, 2020, without prejudice for the lack of service. FSM Civ. R. 4(j).
2 Consumer loans that were made before October 31, 1998, were usurious if they, directly or indirectly, exceeded an annual percentage rate of 15%. 34 F.S.M.C. 203(1).
3 Yoslyn G. Sigrah and Jason F. Sigrah.