Mobil Oil Micronesia Inc v Benjamin [2001] FMSC 62; 10 FSM Intrm. 100 (Kos. 2001) (16 March 2001)

FEDERATED STATES OF MICRONESIA
SUPREME COURT TRIAL DIVISION
Cite as Mobil Oil Micronesia Inc v Benjamin, [2001] FMSC 62; 10 FSM Intrm. 100 (Kos. 2001)

MOBIL OIL MICRONESIA, INC.,
Plaintiff,

vs.

PATTERSON BENJAMIN,
Defendant.

CIVIL ACTION NO. 1998-2004

ORDER AND MEMORANDUM

Martin Yinug
Associate Justice

Hearing: February 2, 2001
Decided: March 16, 2001

APPEARANCES:

For the Plaintiff:
Craig Reffner, Esq.
Law Offices of Fredrick L. Ramp
P.O. Box 1480
Kolonia, Pohnpei FM 96941

For the Defendants:
Canney Palsis, Esq.
Micronesian Legal Services Corporation
P.O. Box 38
Tofol, Kosrae FM 96944

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HEADNOTES

Contempt
In order for a person to be held in contempt, a court must find that he knew of the order and had the ability to comply with the order. Mobil Oil Micronesia, Inc. v. Benjamin, [2001] FMSC 62; 10 FSM Intrm. 100, 102 (Kos. 2001).

Contempt; Debtors' and Creditors' Rights
A debtor who knew of an order, since he stipulated to it, and who had some ability to pay, as evidenced by the payments that he did make, cannot be found in contempt for failing to meet the payments under the stipulated order when there was insufficient evidence presented to establish any income sufficient to confer on the debtor the ability to pay under the order because having some ability to pay is different from having the ability to make the payments specified in the order. Mobil Oil Micronesia, Inc. v. Benjamin, [2001] FMSC 62; 10 FSM Intrm. 100, 102 (Kos. 2001).

Attorney, Trial Counselor and Client - Fees; Debtors' and Creditors' Rights
An attorney's fee must be reasonable, and the court must make such a finding. Except in unusual circumstances, an attorney's fee in debt collection cases will be limited to a reasonable amount not to exceed 15% of the amount due on the loan at the time of default. Mobil Oil Micronesia, Inc. v. Benjamin, [2001] FMSC 62; 10 FSM Intrm. 100, 103 (Kos. 2001).

Attorney, Trial Counselor and Client - Fees; Debtors' and Creditors' Rights
The rationale for limiting attorney's fees in collection cases, whether the attorney's fees result from a loan agreement or a stipulated judgment, to a reasonable percentage of the amount collected is so that a debtor is not ultimately faced with an obligation far in excess of that originally anticipated, and to provide certainty to debtors and creditors alike. Mobil Oil Micronesia, Inc. v. Benjamin, [2001] FMSC 62; 10 FSM Intrm. 100, 103 (Kos. 2001).

Debtors' and Creditors' Rights; Judgments
Payments totaling the principal amount of a judgment have been paid do not fully satisfy the judgment when the judgment expressly provides for 9% interest and for attorney's fees incurred in enforcing the judgment. Even if it did not so state, the judgment creditor would be entitled to statutory interest of 9% under 6 F.S.M.C. 1401. Until such time as all interest and a reasonable attorney's fee is paid, the judgment remains unsatisfied. Mobil Oil Micronesia, Inc. v. Benjamin, [2001] FMSC 62; 10 FSM Intrm. 100, 103 (Kos. 2001).

Contracts - Assignment, Delegation and Novation; Debtors' and Creditors' Rights
While the fact that as part of an assignment another agreed to assume all of a debtor's liabilities under a stipulated judgment may provide the debtor with recourse against the other, it does not affect the debtor's obligation to the creditor under the judgment and payment order. Mobil Oil Micronesia, Inc. v. Benjamin, [2001] FMSC 62; 10 FSM Intrm. 100, 103 (Kos. 2001).

Attorney, Trial Counselor and Client - Fees; Equity
An award of attorney's fees, depending as it does upon a finding of reasonableness, is an exercise in equity. Mobil Oil Micronesia, Inc. v. Benjamin, [2001] FMSC 62; 10 FSM Intrm. 100, 103 (Kos. 2001).

Attorney, Trial Counselor and Client - Fees; Debtors' and Creditors' Rights
When a debtor has engaged in the unreasonable conduct that he has no further liability on the judgment, it is equitable to award an attorney's fee of 30% of the remaining amount due on the loan for work done to collect on the judgment, rather than the 15% allowed in Bank of Hawaii v. Jack. Mobil Oil Micronesia, Inc. v. Benjamin, [2001] FMSC 62; 10 FSM Intrm. 100, 103 (Kos. 2001).

Attorney, Trial Counselor and Client - Fees; Debtors' and Creditors' Rights
When a debtor's unreasonable conduct occurred in opposing the collection of the remainder of a judgment after the bulk of it had been paid and the creditor is entitled to reasonable attorney's fees, it is equitable to award the creditor reasonable attorney's fees not to exceed 15% for work done in collecting the bulk of the judgment, and reasonable attorney's fees not to exceed 30% of the judgment's remainder, rather than attorney's fees not exceeding 15% of the total judgment. Mobil Oil Micronesia, Inc. v. Benjamin, [2001] FMSC 62; 10 FSM Intrm. 100, 103-04 (Kos. 2001).

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COURT'S OPINION

MARTIN G. YINUG, Associate Justice:

For the reasons set forth below, plaintiff's motion for an order holding defendant Patterson Benjamin ("Benjamin") in contempt is denied. Plaintiff Mobil Oil Micronesia, Inc. ("Mobil") is awarded attorney's fees of $2,496.22. Benjamin is ordered to pay $30 bi-weekly by allotment on the remaining principal of $2,031.73 pursuant to the stipulated judgment and payment order entered September 21, 1999, and on the fee award until paid. The stipulated judgment continues to bear interest at the statutory rate of 9%. The fee award will bear interest at the statutory rate of 9% from March 15, 2001.

Memorandum

On February 2, 2001, the court held a hearing on plaintiff's motion for order to show cause why Benjamin should not be held in contempt of the judgment and payment order entered on September 21, 1999. The judgment and payment order were entered pursuant to the parties' stipulation entered the day before, on September 20, 1999. Also on September 20, 1999, the parties stipulated to a writ of execution, with execution to be delayed until such time as Benjamin failed to meet the payments required under the order. The judgment was for $25,000. It provided for payments of $1,000 a month starting October 31, 1999, with the entire amount to become due in the event a payment was missed; for statutory post-judgment interest at 9% per annum; and that Benjamin would pay collection costs associated with any efforts necessary to enforce the judgment, including attorney's fees and expenses actually incurred by Mobil. The first payment of $1,000 was made on November 1, 1999; a second payment of $2,000 was made on January 3 or 4, 2000; a third payment of $1,000 was made on March 4, 2000; and a final payment of $21,000 was made on September 1, 2000. The writ of execution was served on the defendant on May 8, 2000, but it does not appear that anything was realized as a result of the execution. The last payment came from money received by Benjamin for his assignment of his interest in a fuel station to Thurston Siba. Mobil first applied the payments received from Benjamin to outstanding interest, and the remainder to the principal balance of the judgment, an appropriate practice. 45 Am. Jur. 2d Interest and Usury § 99 (1969). ipal in the amou amount of $2,031.73 remains owing.

Mobil seeks an order of contempt against Benjamin for failure to pay the total amount owed under the terms of the September 21, stipulated judgment, incluincluding attorney's fees incurred to date in collecting the judgment. The court considers each point in turn.

a. Contempt

In order for Benjamin to be held in contempt, this court must find that he knew of the order and had the ability to comply with the order. Hadley v. Bank of Hawaii, [1996] FMSC 54; 7 FSM Intrm. 449, 452 (App. 1996). Benjamin knew of the order, since he stipulated to it. Obviously, Benjamin had some ability to pay, as evidenced by the payments that he did make through March of 2000. However, having some ability to pay is different from having the ability to make the $1,000 monthly payments specified in the September 21, 1999, order. Based on the evidence presented, the court is unable to conclude that the debtor had this ability. The evidence presented as to Benjamin's present income was that he has a salary of $16,000 a year; and that $300 of that is allotted bi-weekly, which would leave $7,200, well under the $12,000 required for the monthly payment. At the time that Benjamin stipulated to the order, he was presumably relying on income from the fuel station to meet the payments, but there was insufficient evidence presented to establish that any income so generated was sufficient to confer on him the ability to pay under the order and within the meaning of Hadley. Consequently, the court does not find that Benjamin was in contempt when he failed to meet the payments under the stipulated order.

b. Attorney's fees

Mobil is seeking the attorney's fees it incurred in seeking to enforce the terms of the stipulated judgment and payment order. An attorney's fee must be reasonable, and the court must make such a finding. Bank of the FSM v. Bartolome, 4 FSM Intrm. 182, 184 (Pon. 1990). Except in unusual circumstance, under a stipulation for the payment of attorney's fee payment in debt collection cases, an attorney's fee will be limited to a reasonable amount not to exceed 15% of the amount due on the loan at the time of default. Bank of Hawaii v. Jack, [1990] FMSC 7; 4 FSM Intrm. 216, 221 (Pon. 1990), followed in J.C. Tenorio Enterprises, Inc. v. Sado, [1994] FMSC 17; 6 FSM Intrm. 430, 432 (Pon. 1994). The attorney's fees in Jack resulted from a loan agreement, which provided for the payment of attorney's fees, whereas the obligation to pay the fees at issue result from a stipulated judgment in a suit to collect a promissory note. The rationale for the rule, to limit attorney's fees in a collection case to a reasonable percentage of the amount collected so that a debtor is not ultimately faced with an obligation far in excess of that originally anticipated, and to provide certainty to debtors and creditors alike, still applies however.

According to Mobil's exhibit 2 to its written closing argument, and adding up the figures for the fees incurred after the order entered September 21, 1999, through September 1, 2000, which is the date of the $21,000 payment, attorney's fees totaled $1,857.40. This is less than 15% of the total amount due at any time prior to the $21,000 payment, and thus is in line with Jack. The amounts billed for this period, based on the records of the work done, are also reasonable.

The principal remaining after the September 1, 2000, payment was $2,031.73, and accrued interest on that amount through March 15, 2001, is $97.69, for a total of $2,129.42. Fifteen percent of this amount is $319.41. However, Benjamin contends that since payments totaling the principal amount of the judgment have been paid, the judgment is fully satisfied. That is plainly not the case, because the judgment expressly provides for 9% interest and for attorney's fees incurred in enforcing the judgment. Even if it did not so state, the judgment creditor would be entitled to statutory interest of 9% under 6 F.S.M.C. 1401. Until such time as all interest and a reasonable attorney's fee is paid, the judgment remains unsatisfied. The fact that as part of the assignment Thurston Siba agreed to assume all of Benjamin's liabilities under the stipulated judgment, while it may provide Benjamin with recourse against Siba, does not affect Benjamin's obligation to Mobil under the judgment and payment order.

Benjamin's position that he has no further liability on the judgment is unreasonable in light of the clear language of the judgment, and supports a finding of unusual circumstances under Jack, and a consequent departure from the 15% rule where a debtor has engaged in unreasonable conduct. 4 FSM Intrm. at 221. An award of attorney's fees, depending as it does upon a finding of reasonableness, is an exercise in equity. The court finds that it is equitable to award an attorney's fee for work done to collect the judgment after September 1, 2000, in the amount of 30% of the remaining amount due on the loan, or $638.82, which is also reasonable to this extent in terms of what was done as substantiated by the billing statements submitted. The court cannot determine from the records submitted to the court at precisely what point it was after the $21,000 payment that Benjamin took the untenable position that he owed nothing further, although from a reference to a letter of Benjamin's counsel of September 15, 2000, it was probably at that time. In any event, at least enough enforcement effort by Mobil's counsel to make this determination and then to set the matter for an order to show cause in face of Benjamin's refusal to pay was necessary. The court finds that after looking at the work done to this end, $638.82 is a reasonable fee. Accordingly, the total fee awarded is $2,496.22 ($1,857.40 + $638.82). The fee award will bear interest at the statutory rate of 9%.

The court considered using the entire $25,000 amount of the stipulated judgment, plus accrued interest, as the benchmark for determining a 15% attorney's fee under Jack. However, the facts of this case fall along a dividing line in terms of the fee analysis equities - i.e., the fees incurred through September 1, 2000, when Benjamin made the $21,000 payment, bringing the total paid as of that date to $25,000, which was the principal amount of the judgment; and the fees incurred after that date. Based on plaintiff's exhibit 4, fees incurred after the payment of the $21,000 through January 31, 2001, amounted to $3,256.15, versus the $1,857.40 incurred prior to the payment. The latter amount was incurred while the bulk of the original indebtedness of $25,000, plus interest, was outstanding, while the $3,256.15 was incurred while principal in the amount of $2,031.73, plus interest, remained unpaid. As previously noted, Mobil applied the payments first to principal and then to statutory interest, which resulted in a principal deficiency even though sums totaling the original principal had been paid. Excluding interest for ease of discussion in illustrating the point - the principle, so to speak, remains the same - fifteen percent of $25,000 is $3,750, and the difference between this amount and the attorney's fees incurred through September 1, 2000, or $1,857.40, is $1,892.60. To award the full $3,750 as a fee - providing it was reasonable in other respects - for work done to date would apportion $1,892.60 to work done to collect the remaining principal balance of $2,031.73. Thus more than half of the fee would be for work done to collect less than 10% of the loan principal, a substantial disparity. Furthermore, when viewed in this light the fee for the post September 1, 2000, legal work to enforce the judgment would have been 93% of the remaining balance. At least as to the initial balance, Jack disapproved a fee that was 85% of the amount owed. 4 FSM Intrm. at 220. Given the reasoning supporting the rule in Jack, the equities of the matter lead the court to reject this approach.

Benjamin contends that Mobil's attorney's fees incurred prior to the $21,000 payment represents duplication of effort. This argument is directed mainly toward various telephone calls made by Mobil's counsel to the Kosrae branch of the FSM Development Bank to assess the status of the loan to Thurston Siba so that Siba could purchase Benjamin's interest in the fuel station. Benjamin contends that these calls were unnecessary in light of his own counsel's calls for the same purpose. The court has reviewed the billing statements for the period prior to the September 1, 2000, payment. In addition to "attempts to phone Lucas Salii," which were billed as part of a 1 hour conference with Thurston Siba on March 20, 2000, the records show seven phone calls billed from December of 1999 through August of 2000, which is the cutoff date for discussion purposes, since the $21,000 payment was made on September 1st of 2000. The calls billed were as follows: one each on April 5th, May 5th, August 10th, August 14th; and three on August 17th. For the most part, the court cannot determine the time allotted to those calls, because the calls are combined with other tasks. Notwithstanding the fact that the court can see valid reasons why Mobil's counsel would want to communicate directly with the FSM Development Bank regarding the loan to Siba, Benjamin has not specifically identified any calls in the billing records that he feels shows duplicated effort or unnecessary effort, and having reviewed the records, the court is unable to conclude that the fees incurred for these calls were clearly unreasonable.

c. Conclusion

The court also heard evidence regarding the debtor's financial circumstances at the hearing. Benjamin annual salary is $16,000 a year, of which $300 bi-weekly is presently allotted for loan repayments. He has a wife and eight children, six of whom reside with him. Benjamin will pay $30 bi-weekly by allotment on the existing judgment ($2,031.73 plus accruing interest) and fee award ($2,496.22 plus accruing interest) until paid.