Adams v Island Homes Construction Inc [2004] FMSC 55; 12 FSM Intrm. 644 (Pon. 2004) (30 September 2004)

FEDERATED STATES OF MICRONESIA
SUPREME COURT TRIAL DIVISION
Cite as Adams v Islands Homes Construction, [2004] FMSC 55; 12 FSM Intrm 644 (Pon. 2004)

YVETTE ETSCHEIT ADAMS, d/b/a POHNPEI ACE HARDWARE,
and ADAMS BROTHERS CORPORATION
Plaintiffs

vs.

ISLAND HOMES CONSTRUCTION, INC.,
JOE FELIX d/b/a ISLAND HOMES CONSTRUCTION,
FSM DEVELOPMENT BANK, PAULUS PERMAN and LORENZA PERMAN
Defendants.

CIVIL ACTION NO. 2000-012

ORDER AND MEMORANDUM

Martin Yinug
Associate Justice

Decided: September 30, 2004

APPEARANCES:

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

For the Defendants (Island Homes, Felix):
Salomon Saimon, Esq.
Law Offices of Saimon & Associates
P.O. Box 1450
Kolonia, Pohnpei FM 96941

For the Defendant (FSM Dev. Bank):
James Woodruff, Esq.
P.O. Box M
Kolonia, Pohnpei FM 96941

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HEADNOTES

Attachment and Execution; Civil Procedure - Discovery
Rule 69, which governs procedure on execution, is meant to benefit a judgment creditor, not a judgment debtor. It was intended to establish an effective and efficient means of securing the execution of judgments. As part of the process, it provides for the securing of information relating to the judgment-debtor’s assets. Adams v. Island Homes Constr., Inc., [2004] FMSC 55; 12 FSM Intrm. 644, 646 (Pon. 2004).

Attorney, Trial Counselor and Client - Fees
An attorney’s fee awardable pursuant to statute, contract, or court rule must be reasonable. It is an abuse of the court’s discretion to award such fees without first making a determination that the fees sought are reasonable. Adams v. Island Homes Constr., Inc., [2004] FMSC 55; 12 FSM Intrm. 644, 646 (Pon. 2004).

Attorney, Trial Counselor and Client - Fees
The general rule is that absent bad faith, a plaintiff is entitled to attorney’s fees in a collection case in an amount not to exceed 15% of the principal and interest of the amount sought to be collected. The 15% is not a guaranteed minimum by any means, but it does operate, in the absence of bad faith on the part of the party against whom the fees are sought, as a ceiling. Adams v. Island Homes Constr., Inc., [2004] FMSC 55; 12 FSM Intrm. 644, 646 (Pon. 2004).

Attorney, Trial Counselor and Client - Fees
A client may contract with a firm of attorneys for specified legal services, and commit itself to pay the amounts billed in accordance with the terms of the contract. But with respect to the court’s determination of a reasonable fee amount, what the client agrees to pay is irrelevant, since the reasonableness determination is arrived at without referring to any fee agreement that may be in place between the parties. Adams v. Island Homes Constr., Inc., [2004] FMSC 55; 12 FSM Intrm. 644, 647 (Pon. 2004).

Costs
Rule 68 provides that if a defendant makes an offer of judgment, and the judgment ultimately obtained is not more favorable than the offer, then the offeree must pay the costs accrued after the offer. It does not apply when the offers of judgment are for the amount claimed in the original complaint and the case is tried and judgment entered for the higher amount claimed in the amended complaint. Adams v. Island Homes Constr., Inc., [2004] FMSC 55; 12 FSM Intrm. 644, 647 (Pon. 2004).

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COURT’S OPINION

MARTIN YINUG, Associate Justice:

On August 2, 2004, the plaintiffs submitted their amended statement of attorney’s fees and costs as directed by the order of July 27, 2004. At issue are the fees and costs incurred by the plaintiffs in pursuing their claims against two of the defendants, Island Homes Construction, Inc., and Joe Felix d/b/a Island Homes Construction (collectively "Island Homes"). The court previously determined that those same fees and costs are awardable against Island Homes and the FSM Development Bank ("the Bank"). On August 11, 2004, Island Homes filed its opposition to the amended statement. On August 12, 2004, the Bank filed a motion for additional time (of 60 days) to respond, and also filed a motion for post-judgment discovery. On September 24, 2004, the Bank filed its objection to the plaintiffs’ revised statement of costs.

The Bank’s motion for an extension of time states that the Bank desires to have plaintiffs’ attorney’s fees reviewed by an expert. Rule 702 of the FSM Rules of Evidence provides that if "specialized knowledge . . . will assist the trier of fact," the court may allow expert testimony in the form of an opinion or otherwise. As noted further below, specific FSM precedent governs the fee issue here. The court cannot say that expert testimony, either from an expert within or outside the FSM, would assist the court here. With respect to the Bank’s motion for post judgment discovery, the Bank cites Rule 69 of the FSM Rules of Civil Procedure, which governs procedure on execution. This rule is meant to benefit a judgment creditor, not a judgment debtor. The Bank cites United States v. McWhirter, [1967] USCA5 327; 376 F.2d 102, 106 (5th Cir. 1967), but that case is inapposite, since it holds that "Rule 69 was intended to establish an effective and efficient means of securing the execution of judgments. As part of the process it provides for the securing of information relating to the assets of the judgment debtor." (emphasis added). But even if the court were inclined to permit discovery, the issue is essentially moot. All of the billing records that the Bank seeks have already been filed with the court, with the exception of the bills for June of 2004 and thereafter. As to the remaining documents, plaintiffs’ counsel makes the statement as an officer of the court in plaintiff’s August 19, 2004, response to the Bank’s motion that they do not exist. Accordingly, the Bank’s motions are denied. The Bank’s September 24, 2004, filing is stricken.

An attorney’s fee awardable pursuant to statute, contract, or court rule must be reasonable. It is an abuse of the court’s discretion to award such fees without first making a determination that the fees sought are reasonable. Senda v. Creditors of Mid-Pacific Constr. Co., [1996] FMSC 18; 7 FSM Intrm. 664, 673 (App. 1996). The sole question now before the court is the amount of a reasonable attorney’s fee to be assessed against Island Homes pursuant to the credit agreements that provided that Island Homes was responsible for plaintiffs’ attorney’s fees incurred in any collection efforts required on plaintiffs’ behalf. Only secondarily are those fees awardable as plaintiffs’ damages against the Bank. Adams v. Island Homes Constr., Inc., [2004] FMSC 41; 12 FSM Intrm. 541, 543 (Pon. 2004).

As between the plaintiffs and Island Homes, the instant case is a collection action. Longstanding FSM precedent governs in these circumstances. The general rule is that absent bad faith, a plaintiff is entitled to attorney’s fees in a collection case in an amount not to exceed 15% of the principal and interest of the amount sought to be collected. J.S. Tenorio Enterprises, Inc. v. Sado, [1994] FMSC 17; 6 FSM Intrm. 430, 432 (Pon. 1994); Bank of Hawaii v. Jack, [1990] FMSC 7; 4 FSM Intrm. 216, 221 (Pon. 1990). The 15% is not a guaranteed minimum by any means, but it does operate, in the absence of bad faith on the part of the party against whom the fees are sought, as a ceiling. The Bank engaged in willful and bad faith conduct in this case in attempting to avoid discovery of a document that conferred liability upon the Bank on the underlying claim as a matter of law. No such bad faith has been established with respect to Island Homes.

This case was, however, fully litigated, and fully litigated through trial. The corporate defendant, Island Homes Construction, Inc., pled numerous defenses to the original complaint, which sought damages in the amount of $89,465.00. When discovery disclosed that Island Homes Construction, Inc., was not incorporated until after relevant events, and that at relevant times defendant Joe Felix was operating as a sole proprietorship doing business as Island Homes Construction, the court permitted the filing of the amended complaint to reflect this. In answering the amended complaint, both Joe Felix individually and Island Homes Construction, Inc., pled numerous affirmative defenses to the amended complaint. As late as its October 30, 2003, written closing argument, Island Homes was still contesting the liability of the corporate defendant, Island Homes Construction, Inc., and was also asserting that the liability of the individual defendant, Joe Felix dba Island Homes Construction, was limited. Judgment on the amended complaint was rendered jointly and severally against Joe Felix individually and Island Homes Construction, Inc., in the amount of $131,995.78. Considering all the circumstances, and considered the plaintiffs’ revised fee statement, the court determines that the full 15% of the outstanding principal and interest under Tenorio and Jack is awardable as a reasonable attorney’s fee against Island Homes. Based on the December 1, 2003 judgment, the amount of the fee based on the principal and accrued interest is $19,799.36 (.15 X (43,334.53 + $26,224.49 + $45,663.61 + 16,773.15) = .15 X $131,995.78 = $19,799.36). The judgment also awards additional interest of 1% of the $131,995.78 amount. This additional interest covers the one month period from November 1, 2003, until the entry of judgment on December 1, 2003. One percent of is $1,319.95, and in turn fifteen percent of that amount is $197.99. Thus the total fee awarded is $19,997.35 ($19,799.36 + $197.99). The amount awarded shall be inclusive of plaintiffs’ costs.

A client may contract with a firm of attorneys for specified legal services, and commit itself to pay the amounts billed in accordance with the terms of the contract. But with respect to the court’s determination of a reasonable fee amount, what the client agrees to pay is irrelevant, since the reasonableness determination is arrived at without referring to any fee agreement that may be in place between the parties. FSM Dev. Bank v. Kaminanga, [2004] FMSC 2; 12 FSM Intrm. 454, 455 (Chk. 2004). The plaintiffs’ revised statement of attorney’s fees seeks fees and costs of more than twice the amount awarded under the terms of this order. Even if the court were to determine that some of the individual entries were excessive, that fact alone would beg the question of reasonableness under Jack and Tenorio, since under those cases anything beyond 15% in the usual collection case is by definition excessive. The precise question here is whether the full 15% of principal and interest owed constitutes a reasonable attorney’s fee. For the reasons stated above, the court finds that it is.

In its August 11, 2004 response to the plaintiffs’ amended fee statement, Island Homes points to offers of judgment, one dated November 7, 2001, on behalf of Island Homes Construction Co., Inc., and a second dated January 27, 2003, on behalf of Joe Felix. Rule 68 of the FSM Rules of Civil Procedure provides that if a defendant makes an offer of judgment, and the judgment ultimately obtained is not more favorable than the offer, then the offeree must pay the costs accrued after the offer. The first offer of judgment is for $89,465.00, which is the amount claimed in the original complaint, while the second offer is "for the principal amount stated in the complaint." However, as previously noted, judgment in this case was rendered on the amended complaint, and plaintiffs obtained judgment jointly and severally against Joe Felix individually and Island Homes Construction, Inc., in the amount $131,995.78, which is substantially more than that claimed in the original complaint. Thus, the offers of judgment do not bear on the question of costs.

A separate award of attorney’s fees and costs issues herewith. The award is made jointly and severally against Island Homes and the Bank.

The plaintiffs’ August 19, 2004 motion for an enlargement of time to file a reply to Island Homes’ response to the amended fee statement is denied.