In re Island Hardware Inc [1991] FMSC 23; 5 FSM Intrm. 170 (App. 1991) (4 September 1991)

[1991] FMSC 23; 5 FSM Intrm. 170 (App. 1991)

FEDERATED STATES OF MICRONESIA
SUPREME COURT APPELLATE DIVISION

FSM APPEAL CASE NO. P3-1988

IN RE ISLAND HARDWARE INC.
an insolvent Corporation

OPINION: Argued: September 6, 1990 - Decided: September 4, 1991

BEFORE: The Honorable Richard H. Benson, Associate Justice, FSM Supreme Court
The Honorable Judah C. Johnny, Temporary Justice, FSM Supreme Court*
The Honorable Jesus C. Borja, Temporary Justice, FSM Supreme Court**

*Associate Justice, Pohnpei State Supreme Court

**Associate Justice, Supreme Court of the Northern Mariana Islands

APPEARANCES: For Cross-Appellant/Appellee Bank of Guam: Daniel J. Berman; For the Appellants Chua Eng Chuan d/b/a Monco Marketing and Sets, Inc.: R. Barrie Michelsen, Attorney at Law

HEADNOTES

Debtors' and Creditors' Rights
"The statutory right of a judgment creditor to obtain immediate issuance of a writ of execution implies as well a legislative intent that holders of writs be paid on the basis of a first-in-time, first-in-right rule according to the dates of the individual parties' writs." In re Island Hardware[1991] FMSC 23; , 5 FSM Intrm. 170, 173 (App. 1991).

Debtors' and Creditor' Rights
Trial court did not abuse its discretion when it ruled that judgment creditor who had accepted assignment of debtor's accounts receivable should not otherwise participate in distribution of assets of insolvent debtor. In re Island Hardware[1991] FMSC 23; , 5 FSM Intrm. 170, 174 (App. 1991).

Civil Procedure - Sanctions
Where the information desired from another party's lawyer as a witness was material and necessary and unobtainable elsewhere and the party desiring it had not acted in bad faith in the late service of a subpoena, a motion for sanctions may be denied at the court's discretion. In re Island Hardware[1991] FMSC 23; , 5 FSM Intrm. 170, 174-75 (App. 1991).

Costs
Where there are elements of victory and loss for both parties there is not a prevailing party to which costs could be allowed. In re Island Hardware[1991] FMSC 23; , 5 FSM Intrm. 170, 175 (App. 1991).

Costs
The court commits no error, when a question of sufficiency of witness fees is not brought promptly to the attention of the court, to consider the matter as an allowance of costs. In re Island Hardware[1991] FMSC 23; , 5 FSM Intrm. 170, 175 (App. 1991).

COURT'S OPINION

RICHARD H. BENSON, Associate Justice:

This is an appeal from the opinion and order of the trial court dated March 28, 1988, published as In re Island Hardware at [1988] FMSC 14; 3 FSM Intrm. 332 (Pon. 1988). The facts are fully set out in the opinion and need not be repeated here.

Those appealing are Sets, Inc. ("Sets"), Chua Eng Chuan, d/b/a Monco Marketing ("Chua"), and the Bank of Guam ("the Bank").

I.

Sets contends that the trial court erred in not granting Sets priority because it was the first judgment creditor to obtain a writ of execution against the insolvent debtor, Island Hardware. Sets arrives at this position by averring that when it applied for the writ in November of 1985 the court should have issued it at that time, and since this should have been done, we should place Sets in first priority. Sets and Chua were the first to be issued writs by the court. This occurred on June 18, 1986.

Sets secondly contends that the government is not entitled to priority since at the time of the lien, ownership of the assets of Island Hardware had passed from the insolvent by virtue of the judicial sale following the levy.

Chua's contention is that the court erred in allowing the Bank, which acted after Chua's writ and levy, to share on a pro rata basis with Chua. Chua also appeals, as does Sets, the court's priority given the government.

On cross-appeal the Bank assigns as error the court's failure to give effect to the document given it by Island Hardware, either as a security instrument or in equity, against Sets and Chua.

Sets filed two post trial motions. One sought sanctions against the Bank on the ground that the Bank's subpoena of Sets' lawyer a few days prior to trial required Sets to obtain co-counsel. Sets asserts that the fee of co-counsel should be paid by the Bank.

In its second post trial motion Sets seeks an award of witness fees for the officer of Sets subpoenaed by the Bank.

II.

These motions were denied by the trial court.

We have carefully scrutinized the record of this case, and considered the written and extensive oral arguments of counsel. In this section we set forth our holdings involving the order of priority of distribution of the assets of the insolvent and by stating our conclusions which do not coincide with the priority assigned by the trial court. In section III we consider the remaining points on appeal.

First Priority. The conclusion of the trial court that the wage and salary tax of some $1,400 has first priority is affirmed. In arriving at this holding we affirm the trial court's reliance on 53 F.S.M.C. § 135(2), and note that actual notice of the tax lien was given to all parties prior to the judicial sale.

Second Priority. The conclusion of the trial court that the employee is entitled to his wages of some $1,300.00 is not appealed by any party and is affirmed.

Third Priority. At this point we depart from the conclusions of the trial court and hold that Chua alone is entitled to third priority (subject to leaving untouched $696.00 for the reasons stated in the trial court's opinion). Chua is not required to share pro rata with the Bank.

Chua was awarded judgment on June 16, 1986, and a writ of execution was issued on the judgment on June 19, 1986. Levy on the assets of Island Hardware pursuant to the writ occurred on July 7, 1986.

The Bank did not file its complaint until August 5, 1986. It obtained judgment on August 11, 1986, and a writ of execution on August 13, 1986.

The court found that "[n]o equities stand in the way of full participation by Chua Eng Chuan as an execution creditor." In re Island Hardware, 3 FSM Intrm. at 349. We agree with this assessment, and approve the holding in In re Pacific Islands Distributing Co., 3 FSM Intrm. 576 (Pon. 1988): "The statutory right of a judgment creditor to obtain immediate issuance of a writ of execution implies as well a legislative intent that holders of writs be paid on the basis of a first-in-time, first-in-right rule according to the dates of the individual parties; writs." Id. at 582.

The value of this rule is shown in this case in which the court relegated the government's claim for gross revenue taxes to fourth priority even though that claim became effective (according to the trial court) on August 29, 1986. No reason is apparent to us which led the court to place the Bank and Chua in the same priority although the writs were issued about 55 days apart, while the Bank and the government have different priorities although separated by only 16 days.

We note here that no consolidation had occurred at the times pertinent to the court's fixing of the third and fourth priority classification. The court's consolidation occurred on May 27, 1988.

Fourth Priority. Bank of Guam (subject to leaving untouched $696.00 for the reasons found in the trial court's opinion).

Fifth Priority. The national government, as to its claim for gross revenue taxes.

The priorities do not have to be further listed because the available proceeds from the judicial sale are exhausted.

III.

As to the Bank's assignment of error that the trial court found no security interest or equitable lien, we are satisfied with the reasoning and conclusions of the trial court which carefully dealt with these contentions. Accordingly the order is affirmed on these issues for the reasons stated by the trial court in In re Island Hardware, 3 FSM Intrm. at 341-45.

We next consider one additional argument raised by Sets. Although we have approved the rule announced in In re Pacific Distributing Co. above, that does not require us, at this time, to apply the reasoning that Sets suggests. Sets contends that since it was entitled to a writ of execution at the time it applied for it in November, 1985, the writ should be deemed to have been granted, thus placing Sets in first priority. The difficulty with this suggestion is that Sets consented to an alternative means of collecting its judgment by agreeing to the assignment of the insolvent's accounts receivable in November, 1985.

The court, in considering the claims of Sets stated that it "confirms the November 1985 assignment of Island Hardware accounts receivable to Sets but holds that Sets shall not receive any other assets, or participate in other distribution of proceeds of Island Hardware. In re Island Hardware, 3 FSM Intrm. at 349. In this highly fact-specific matter we cannot say that the trial court abused its discretion in the exercise of its broad, equitable powers. The court's decision in t his regard is therefore affirmed for the reasons stated by the trial court. See id. at 345-49.

The affirmance is not inconsistent with our earlier approval of the first-in-time rule of In re Pacific Islands Distributing Co., 3 FSM Intrm. at 582. There, the comment of the court which follows what we have quoted above is, "The court therefore shall apply such a rule, but may in the future stay the enforcement of such writs in order to achieve the goals referred to in Mid-Pac." Id. Exceptional circumstances such as those that exist in this instance may thus cause equitable principles to be invoked.

As to the post trial motions, the trial court denied the motion for sanctions for the late calling of Sets' lawyer as a witness on the ground that the information that the Bank wished to obtain from the lawyer was material and necessary, and was unobtainable elsewhere, and upon the ground that the Bank had not acted in bad faith in the late service of a subpoena on Sets' lawyer.

The record supports the factual determinations of the court, and its denial of sanctions was certainly within the bounds of sound judicial discretion. We therefore do not disturb the court's decision.

The trial court denied the post trial motion for an award of witness fees on the ground that, at the late stage in the proceedings, the question was considered as a part of an award of costs. The trial court concluded that since "there are elements of victory and of loss for both Bank of Guam and Sets," there was not a prevailing party to which costs would be allowed.

Before the trial court and before us Sets relies on 6 F.S.M.C. § 1013, urging that it terms require the award. That provision however requires that "[a]ny question as to the sufficiency of the amount tendered [to the witness] shall be brought promptly to the attention of the court..." Trial was October 9, 1987. The post trial motion was filed November 16, 1987. Because of this delay, the court committed no error in considering the matter as an allowance of costs.

For the reasons set out in this opinion the decision of the trial court is affirmed in part, and reversed to the extent that it grants Chua and the Bank the same priority.

The case is remanded to the trial division for the distribution of the debtor's assets in accordance with this opinion.