Federated States of Micronesia Development Bank v Adams [2004] FMSC 5; 12 FSM Intrm. 456 (App. 2004) (27 May 2004)

FEDERATED STATES OF MICRONESIA
SUPREME COURT APPELLATE DIVISION
Cite as FSM Dev. Bank v. Adams, [2004] FMSC 5; 12 FSM Intrm. 456 (App. 2004)

[2004] FMSC 5; [12 FSM Intrm. 456]

FEDERATED STATES OF MICRONESIA DEVELOPMENT BANK,
Appellant,

vs.

YVETTE ETSCHEIT ADAMS d/b/a POHNPEI ACE HARDWARE, ADAMS BROTHERS
CORPORATION, INC., JOE FELIX d/b/a ISLAND HOMES CONSTRUCTION, ISLAND
HOMES CONSTRUCTION, INC., PAULUS PERMAN, and LORENZA PREMAN,
Appellees.

APPEAL CASE NO. P8-2002
(APPEAL CASE NO. P3-2003)

ORDER DISMISSING APPEAL AND DENYING RULE 38 FEES

Argued: July 22, 2003
Decided: April 30, 2004
Modified: May 27, 2004

BEFORE:

Hon. Andon L. Amaraich, Chief Justice, FSM Supreme Court
Hon. Dennis K. Yamase, Associate Justice, FSM Supreme Court
Hon. Yosiwo George, Temporary Justice, FSM Supreme Court*

*Chief Justice, Kosrae State Court, Tofol, Kosrae

[12 FSM Intrm. 457]

APPEARANCES:

For the Appellant:
James Woodruff, Esq.
FSM Development Bank
P.O. Box M
Kolonia, Pohnpei FM 96941

For the Appellees (Adams):
Craig D. Reffner, Esq.
Law Office of Frederick L. Ramp
P.O. Box 1480
Kolonia, Pohnpei FM 96941

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HEADNOTES

Appellate Review - Decisions Reviewable; Constitutional Law - case or Dispute - Mootness
An interlocutory appeal may be considered moot when the trial court has issued a final judgment in the case below and the appellant has since filed a notice of appeal on the same issues. FSM Dev. Bank v. Adams, [2004] FMSC 5; 12 FSM Intrm. 456, 460 (App. 2004).

Appellate Review - Decisions Reviewable; Constitutional Law - Case or Dispute - Mootness
Under an exception to the mootness doctrine, when the court’s rulings will have a continuing effect on future events and future litigation and will offer guidance to future litigants, which should have the positive effect of eliminating or lessening unwarranted attempts at interlocutory appeals, thus conserving judicial resources, the court will review the matter. FSM Dev. Bank v. Adams, [2004] FMSC 5; 12 FSM Intrm. 456, 460 (App. 2004).

Appellate Review - Decisions Reviewable; Civil Procedures - Sanctions
When there are no monetary Rule 11 sanctions against party’s counsel and he is not appealing in his own name as the real party in interest and the Rule 11 sanctions run to the party and are identical to the Rule 37 sanctions (which can only be appealed after entry of a final judgment) imposed on the party, the Rule 11 sanctions are not properly before the court in an interlocutory appeal. FSM Dev. Bank v. Adams, [2004] FMSC 5; 12 FSM Intrm. 456, 461 (App. 2004).

Appellate Review - Decisions Reviewable
Appeals are not permitted when the appeal is over issues involving steps moving towards a final judgment and in which they will merge. The purpose of an appeal of a final judgment is to combine in one appellate review all stages of the proceeding if and when a final judgment or order results. This procedure advances the policy of judicial economy which dictates against piecemeal appeals from the same civil action. FSM Dev. Bank v. Adams, [2004] FMSC 5; 12 FSM Intrm. 456, 461 (App. 2004).

Appellate Review - Decisions Reviewable
Generally, the only interlocutory appeals allowed are those for which permission has been sought and granted, or those from certain orders concerning injunctions, or concerning receivers or receiverships, or from decrees determining parties’ rights and liabilities in admiralty cases. FSM Dev. Bank v. Adams, [2004] FMSC 5; 12 FSM Intrm. 456, 461 (App. 2004).

Appellate Review - Decisions Reviewable
Immediate appeals from collateral orders will sometimes be necessary when they have a final and irreparable effect on the rights of the parties or non-parties. An immediate appeal may be taken, in that

[12 FSM Intrm. 458]

small class which finally determine claims of right separable from, and collateral to, rights asserted in the action, too important to be denied review and too independent of the cause itself to require that appellate consideration be deferred until the whole case is adjudicated. FSM Dev. Bank v. Adams, [2004] FMSC 5; 12 FSM Intrm. 456, 461 (App. 2004).

Appellate Review - Decisions Reviewable
The three requirements for an appeal under the collateral order doctrine are that the order appealed from: 1) conclusively determine the disputed question; 2) resolve an important issue completely separate from the merits of the action; and 3) be effectively unreviewable on appeal from a final judgment. FSM Dev. Bank v. Adams, [2004] FMSC 5; 12 FSM Intrm. 456, 461 (App. 2004).

Appellate Review - Decisions Reviewable
A Rule 11 sanction establishing a party’s liability to the plaintiffs based on a third-party beneficiary claim and an agreement would be reviewable in an appeal from a final judgment setting forth, among other things, the amount of damages. The same can be said of the sanction awards of attorney fees and costs. When the sanctions all run to a party and can be reviewed on appeal after a final judgment is rendered, an adjudication on liability without determining damages (the amount of that liability) is not a final judgment, and is thus not appealable. FSM Dev. Bank v. Adams, [2004] FMSC 5; 12 FSM Intrm. 456, 462 (App. 2004).

Appellate Review; Costs
If the Supreme Court appellate division determines that an appeal is frivolous, it may award just damages and single or double costs, including attorney’s fees, to the appellee. FSM Dev. Bank v. Adams, [2004] FMSC 5; 12 FSM Intrm. 456, 462 (App. 2004).

Appellate Review
Determining whether to award Rule 38 damages is a two step process. First, it must be determined that the appeal was frivolous and second, it must be determined that sanctions are appropriate. FSM Dev. Bank v. Adams, [2004] FMSC 5; 12 FSM Intrm. 456, 462-63 (App. 2004).

Appellate Review
An appeal is frivolous when the result is obvious, or when the appellant’s arguments are wholly without merit or groundless, or when the court has previously ruled on the question on appeal. FSM Dev. Bank v. Adams, [2004] FMSC 5; 12 FSM Intrm. 456, 463 (App. 2004).

Appellate Review - Decisions Reviewable
A Civil Rule 11 attorney sanction order is immediately appealable, but only if the sanctioned attorney proceeds under his or her own name, as the real party in interest. FSM Dev. Bank v. Adams, [2004] FMSC 5; 12 FSM Intrm. 456, 463 (App. 2004).

Appellate Review
When an action was filed based upon the application or good faith argument for the extension of the Berman rule and upon the contention that the collateral order doctrine allowed an interlocutory appeal; when no previous decisions had specifically dealt with the application or limits of the collateral order doctrine and related issues; and when there was also some question raised as to how a party should seek appellate review of the issues (by writ of mandamus or by an interlocutory appeal), the appeal was not wholly without merit or groundless, or frivolous and no Rule 38 attorney’s fees will be granted. FSM Dev. Bank v. Adams, [2004] FMSC 5; 12 FSM Intrm. 456, 463 (App. 2004).

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[12 FSM Intrm. 459]

COURT’S OPINION

PER CURIAM:

I. Background

On November 19, 2002, the FSM Development Bank ("Bank") filed a notice of appeal challenging a trial court order entered on November 12, 2002 in Adams v. Island Homes Construction, Inc., [2002] FMSC 38; 11 FSM Intrm. 218 (Pon. 2002) ("case below"). The appellant Bank is one of the defendants in the case below. The plaintiffs in the case below are Yvette Etscheit Adams d/b/a Pohnpei Ace Hardware and Adams Brothers Corporation, Inc. (collectively "Adams" or appellee), who are the only appellees who participated in this appeal. The appeal was from parts A(2) to A(7), and all parts related to it, of the order. Id. at 222.

On February 4, 2003, appellee Adams filed a motion to dismiss this appeal since the appeal was not from a final judgment or order of the court. On May 6, 2003, defendant Bank filed a notice of appeal from Part A of an order entered on March 26, 2003 by the trial court. This appeal was docketed as FSM Development Bank v. Yvette Etscheit Adams et al., App. No. P3-2003. The Bank noted that part of the March 26 order directly related to an order appealed from in this case and requested that these appeals be consolidated. This appeal was then consolidated with App. No. P3-2003 by order of May 16, 2003.

On July 22, 2003 oral argument was heard on the appellee’s motion to dismiss and on her request for attorney’s fees pursuant to FSM Appellate Rule 38. On December 1, 2003, the trial court in the case below issued a final judgment in favor of plaintiffs and against certain defendants, including the appellant. Adams v. Island Homes Constr., Inc., [2003] FMSC 57; 12 FSM Intrm. 234 (Pon. 2003). The defendants in the case below, including the appellant, have filed notices of appeal of that final judgment. That appeal has been docketed FSM Development Bank v. Yvette Etscheit Adams et al., App. No. P5-2003.

II. Discussion

Adams moved to dismiss this appeal on the ground that the November 12, 2002 order was not a final judgment or order and therefore could not be appealed at this stage of the proceedings. Adams asserted that no judgment had been entered establishing the amount of the Bank’s liability to the plaintiffs and that this matter remained pending before the trial court for further proceedings.

The Bank’s position was that the sanctions imposed by parts A(2) to A(6) were imposed without notice and hearing, and were imposed notwithstanding the fact that it believes that no contract was ever made. It asserts that jurisdiction for this appeal is based upon FSM Appellate Rule 4(a)(1)(E), which allows appeals to be taken in any other civil case in which an appeal is permitted as a matter of law and that this rule has been interpreted as allowing immediate appeals of attorney sanctions under the collateral order doctrine. In re Sanction of Berman[1996] FMSC 16; , 7 FSM Intrm. 654 (App. 1996).

The Bank further asserted that the collateral order doctrine should be applied to allow immediate appeal of a default judgment and related sanctions in multi-party and multi-issue cases like the one before us. As support for this position, it cited Diaz v. Southern Drilling Corp., [1970] USCA5 568; 427 F.2d 1118 (5th Cir. 1970) and Transamerica Commercial Finance Corporation v. Banton, Inc., [1992] USCA11 1412; 970 F.2d 810 (11th Cir. 1993).

The Bank asks us to adopt the collateral order doctrine set forth by the United States Supreme Court in Cohen v. Beneficial Industrial Loan Corp., [1949] USSC 81; 337 U.S. 541, 69 S. Ct. 1221, 93 L. Ed. 1528

[12 FSM Intrm. 460]

(1949). Cohen provided three requirements that must be met in order to apply this doctrine. The Bank contends that this case meets the requirements for the application of the doctrine, while Adams contends that this case does not meet any of the three Cohen requirements.

This appeal may be considered moot since the trial court has issued a final judgment in the case below and since the Bank has filed a notice of appeal on the same issues raised here. We nevertheless deal with the issues as to Rule 11 sanctions and to the collateral order doctrine, which pertain to interlocutory appeals, because these issues may have a continuing effect on future litigation. FSM v. Louis, [2000] FMSC 39; 9 FSM Intrm. 474, 480 (App. 2000).

The Louis case involved an appeal from a trial court’s order garnishing funds that the FSM held for the State of Chuuk. The FSM challenged the trial court’s action on a number of grounds including sovereign immunity. Before oral arguments were held in the Louis appeal, the FSM paid the writ of garnishment and the FSM Congress enacted a new law prohibiting future garnishment of funds owed by the national government to a state. Id. at 478-79. Thus the appeal was moot because the judgment was satisfied and the law had been changed so that it was not a situation capable of repetition. Id. at 483. In Louis, the FSM argued that the court should still deal with the issue of sovereign immunity under the exception to the mootness doctrine. The Louis court acknowledged that certain exceptions to the mootness doctrine exist, but were not present in that case because there would be no effect on future events, including future litigation involving the FSM government as a result of the trial court’s decision.

Under the exception to the mootness doctrine we recognized in Louis, we apply it in this case because, unlike in Louis, we find that our rulings here on Rule 11 sanctions and on the collateral order doctrine, which pertains to interlocutory appeals, will have a continuing effect on future events and future litigation. Our ruling on both the sanctions and the collateral order doctrine offer guidance to future litigants. This guidance should have the positive effect of eliminating or lessening unwarranted attempts at interlocutory appeals, thus conserving judicial resources.

A. Rule 11 Sanctions

We first discuss the issue of whether the FSMDB properly appealed the Rule 11 sanctions pursuant to our ruling in In re Sanction of Berman. Berman involved an appeal by an attorney sanctioned under Rule 11 to pay a monetary amount. The attorney was not a party to the case and filed the appeal under her own name and as the real party in interest.

There are significant differences between this case and Berman. While this case appeals from parts A(4) and A(6) of the November 12, 2002 order and part A of the March 26, 2003 order, which do make reference to or involve Rule 11 sanctions, there is no monetary sanction against the counsel for the FSMDB. Consequently, this appeal was not taken under the name of the counsel for the FSMDB, as the real party in interest.

The Berman court stated that,

In the United States, federal circuit courts of appeal allow for the immediate appeal of orders of sanctions against attorneys who are not parties to the underlying case, frequently citing the collateral order doctrine. See, e.g., Frazier v. Cast, [1985] USCA7 867; 771 F.2d 259, 261-62 (7th Cir. 1985). Such an order is immediately appealable, but only if the sanctioned attorney proceeds, as Berman has here, under her own name, and as the real party in interest. See, e.g., Federal Trade Comm’n v. Amy Travel Serv., Inc.[1989] USCA7 339; , 894 F.2d 879, 881 (7th Cir. 1989).

[12 FSM Intrm. 461]

Berman, 7 FSM Intrm. at 656, (emphasis added); see also In re Sanction of Michelsen[1997] FMSC 23; , 8 FSM Intrm. 108, 110 (App. 1997).

This case is distinguishable from Berman. There are no monetary Rule 11 sanctions against the Bank’s counsel and he is not appealing in his own name as the real party in interest. The Rule 11 sanctions run to the Bank, who is a party. These Rule 11 sanctions are identical to the Rule 37 sanctions imposed on the Bank. Adams, 11 FSM Intrm. at 229. Rule 37 sanctions can only be appealed after entry of a final judgment. For all of these reasons, the Rule 11 sanctions are not properly before this court in this appeal.

B. Collateral Order Doctrine

The Bank argued that we should adopt the collateral order doctrine and the requirements for its application set forth in Cohen. We first recognize that appeals are not permitted where the appeal is over issues involving steps moving towards a final judgment and in which they will merge. The purpose of an appeal of a final judgment is to combine in one appellate review all stages of the proceeding if and when a final judgment or order results. This procedure advances the policy of judicial economy which dictates against piecemeal appeals from the same civil action. Damarlane v. United States, [1997] FMSC 31; 8 FSM Intrm. 14, 17 (App. 1997). Generally, the only interlocutory appeals allowed are those for which permission has been sought and granted, FSM App. R. 5(a); or those from certain orders concerning injunctions, FSM App. R. 4(a)(1)(B); or concerning receivers or receiverships, FSM App. R. 4(a)(1)(C); or from decrees determining parties’ rights and liabilities in admiralty cases, FSM App. R. 4(a)(1)(D). Etscheit v. Adams, [1994] FMSC 55; 6 FSM Intrm. 608, 610 (App. 1994).

However, we also recognize that immediate appeals from collateral orders will sometimes be necessary when they have a final and irreparable effect on the rights of the parties or non-parties. An immediate appeal may be taken, "in that small class which finally determine claims of right separable from, and collateral to, rights asserted in the action, too important to be denied review and too independent of the cause itself to require that appellate consideration be deferred until the whole case is adjudicated." Cohen, 337 U.S. at 546, 69 S. Ct. at 1225-26, 93 L. Ed. at 1536.

We acknowledge that collateral orders justifying immediate appeal will occur and, therefore, adopt the collateral order doctrine and examine this case in line with the requirements set forth in Cohen. We examine whether the remaining parts of the appeal meet the requirements for the application of the collateral order doctrine. The three requirements set forth in Cohen are that the order must: (1) conclusively determine the disputed question; (2) resolve an important issue completely separate from the merits of the action; and (3) be effectively unreviewable on appeal from a final judgment.

In this case, the first requirement of Cohen is met. The sanctions imposed by the trial court were the final disposition of the Bank’s actions with regard to its refusal to provide the loan document between it and the defendant Perman, and with regard to the imposition of attorney fees and costs. Some of these issues were entirely distinct from the action’s merits, although it is questionable whether the sanction of liability could be considered separate. However, the Cohen requirement that is most critical in the analysis of the present case is whether the issues raised are effectively unreviewable. The FSMDB relies on Diaz and Transamerica for support.

While Diaz can be cited for the general proposition that collateral orders may be considered final for purposes of appeal even though issued in the context of incomplete multiple-claim or multiple-party suits, 427 F.2d at 1122, it lacks persuasive force because it did not consider the question of non-reviewability, the third Cohen requirement. Instead Diaz sets forth a third requirement as being the

[12 FSM Intrm. 462]

finality issue that should "be examined in light of practical, rather than narrowly technical, considerations." 427 F.2d at 1123. The Diaz analysis is incomplete with regard to the Cohen requirements. We, therefore, take a more detailed look at whether Transamerica provides the FSMDB with the support that it asserts.

Transamerica involved a unique procedural history. In that case, the U.S. District Court for the Northern District of Alabama imposed Rule 11 sanctions in the form of an order entering default judgment against one defendant, James F. Banton, and summary judgment against another defendant, Susan A. Banton. These defendants appealed and the court in Transamerica took jurisdiction over this appeal under the Cohen collateral order doctrine.

In Transamerica the district court’s order imposing sanctions on the defendants in the form of default and summary judgments was effectively unreviewable on appeal from a final judgment and therefore immediately appealable under Cohen. The Transamerica court stated,

In a highly unusual move, the court in effect fashioned the remedy requested by Transamerica in the ancillary proceeding regarding the Bantons’ Wisconsin action to remove the Bantons from the underlying case. Its order specifically states that its disposition of the ancillary matter raised by Transamerica rendered moot the motions for summary judgment and for default judgment pending in the underlying suit . . . . Thesions only could have have become moot if the Bantons no longer were parties in the underlying lawsuit.

970 F.2d at 815.

This is where the Transamerica case is diuisharom tse befo before usre us. In . In this case, the Rule 11 sanction establishing liability of the Bank to the plaintiffs for the construction materials that they supplied for the Panasang project based on the third-party beneficiary claim and the September 27, 1997 agreement would be reviewable in an appeal from a final judgment setting forth, among other things, that amount of damages. The same can be said of the sanction awards of attorney fees and costs. These sanctions all run to the Bank, as a party, and can be reviewed on appeal after a final judgment is rendered. An adjudication on liability without determining damages (the amount of that liability) is not a final judgment, and is thus not appealable. Santos v. Bank of Hawaii, [1999] FMSC 38; 9 FSM Intrm. 285, 287 (App. 1999); Kosrae v. Melander, [1993] FMSC 40; 6 FSM Intrm. 257, 259 (App. 1993). Cohen’s third requirement, that of unreviewability, is not met in this case and this appeal, therefore, is not one going to a collateral order.

III. Motion for Rule 38 Attorney’s Fees

The Appellee seeks an award of attorney’s fees under FSM Appellate Rule 38. The Appellee contends that this appeal was frivolous with respect to the trial court’s discovery sanctions and done to cause delay and inflict unnecessary expenses on the Appellees for their pursuit of the case below. Rule 38 applies to damages for delay and provides that: "If the Supreme Court appellate division shall determine that an appeal is frivolous, it may award just damages and single or double costs, including attorney’s fees, to the appellee."

The Appellant, maintains that the trial court judge had imposed discovery sanctions against Appellant without notice and an opportunity to be heard and that this justified an interlocutory appeal. It also contends that this interlocutory appeal was permissible under the collateral order doctrine.

To determine whether to award Rule 38 damages we have adopted a two step process. FSM

[12 FSM Intrm. 463]

Dev. Bank v. Yinug, 12 FSM Intrm. 437, 440 (App. 2004). First, it must be determined that the appeal was frivolous and second, it must be determined that sanctions are appropriate. Id. An appeal is frivolous when the result is obvious, or when the appellant’s arguments are wholly without merit or groundless, or when the court has previously ruled on the question on appeal. Id.

In this case, Appellant sought an interlocutory appeal from this court. In dismissing this appeal we distinguished this set of circumstances from those found in Berman. The Berman court held that a FSM Civil Procedure Rule 11 attorney sanction order is immediately appealable, but only if the sanctioned attorney proceeds under his or her own name, as the real party in interest. In this case, no attorney was being sanctioned under his or her own name and as the real party in interest. FSM Dev. Bank, 11 FSM Intrm. at 442. We also held that the circumstances of this case did not meet the requirements of the collateral order doctrine and therefore could not stand as an interlocutory appeal. Additionally, we recognize that a notice of appeal was filed on December 11, 2003, based on many of the same issues as this interlocutory appeal. That appellate proceeding will determine the issues’ and merits.

This action was filed based upon the application or good faith argument for the extension of the Berman rule and upon the contention that the collateral order doctrine allowed this interlocutory appeal. We recognize that no previous decisions from this court had dealt specifically with the application or limits of the collateral order doctrine and related issues. We, therefore, do not find that this appeal was wholly without merit or groundless, or that the appeal was frivolous because the issues raised had previously been ruled upon. Additionally, there was also some question raised as to how a party should proceed to seek appellate review of the issues, either by writ of mandamus or an interlocutory appeal. The decision in this case and in FSM Dev. Bank v. Yinug, [2003] FMSC 31; 11 FSM Intrm. 405 (App. 2003) provides future guidance in this area.

If we had determined that this was an appropriate case in which to award Rule 38 damages, those damages would have been determined in this court and not remanded to the trial court for determination. The trial court does not have jurisdiction to impose Appellate Rule 38 sanctions. FSM Dev. Bank v. Yinug, 12 FSM Intrm. at 441.

Since we determine that this appeal was not frivolous we need not determine whether sanctions are appropriate. In light of our determinations, we hereby deny the Appellee’s motion for an award of attorney’s fees under FSM Appellate Rule 38.

IV. Conclusion

This case does not meet the third requirement of unreviewability in the test we adopt today for appealable collateral orders. It, therefore, is not a collateral order which can be brought as an interlocutory appeal. We lack jurisdiction in this case and, therefore, grant the Appellees’ motion to dismiss. We further determine that this appeal was not frivolous and hereby deny the Appellee’s motion for an award of attorney’s fees under Rule 38.

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