Western Sales Trading Co v Billy [2005] FMSC 35; 13 FSM Intrm. 273 (Chk. 2005) (6 June 2005)

FEDERATED STATES OF MICRONESIA
SUPREME COURT TRIAL DIVISION

Cite as Western Sales Trading Company v Billy, [2005] FMSC 35; 13 FSM Intrm. 273 (Chk. 2005)

WESTERN SALES TRADING CO.,
Plaintiff,

vs.

KARSON BILLY and RIAN CHUUK,
Defendants.

WESTERN SALES TRADING CO.,CIVIL ACTION NO. 2005-1004
Plaintiff,

vs.

HERSIN RUBEN and MORIA RUBEN d/b/a MORIA STORE)
Defendants.)

CIVIL ACTION NO. 2005-1003

ORDERS DENYING RELIEF FROM JUDGMENT

Dennis K. Yamase
Associate Justice

Decided: June 6, 2005

APPEARANCE:

For the Plaintiff:
Daniel J. Berman, Esq.
Berman O’Connor Mann & Shklov
111 Chalan Santo Papa, Suite 503
Hagatna, Guam 96910

* * * *

HEADNOTES

Civil Procedure - Default and Default Judgments
A judgment by default shall not be different in kind from or exceed in amount that prayed for in the demand for judgment. Western Sales Trading Co. v. Billy, [2005] FMSC 35; 13 FSM Intrm. 273, 277 (Chk. 2005).

Civil Procedure - Default and Default Judgments
When prejudgment interest is mentioned nowhere in the body of the complaint and is not prayed for in the demand for judgment at the end of the complaint, the court has no choice but to refuse to enter a default judgment that includes prejudgment interest. Western Sales Trading Co. v. Billy, [2005] FMSC 35; 13 FSM Intrm. 273, 277 (Chk. 2005).

Attorney and Client - Fees; Costs
While a prevailing plaintiff is entitled to the costs of suit as of course, a prevailing plaintiff is not automatically entitled to an attorney’s fees award because the court is generally without authority to award attorney’s fees in the absence of a specific statute or contractual provision allowing recovery of such fees. Western Sales Trading Co. v. Billy, [2005] FMSC 35; 13 FSM Intrm. 273, 277 n.1 (Chk. 2005).

Civil Procedure - Default and Default Judgments; Constitutional Law - Due Process
If the court enters a default judgment different in kind from or exceeds in amount the relief that was prayed for in the demand for judgment, such a default judgment would be void and subject to collateral attack. Serious due process questions would be raised. Western Sales Trading Co. v. Billy, [2005] FMSC 35; 13 FSM Intrm. 273, 277 (Chk. 2005).

Civil Procedure - Pleadings
Pleading practice in the FSM is notice pleading. Western Sales Trading Co. v. Billy, [2005] FMSC 35; 13 FSM Intrm. 273, 277 (Chk. 2005).

Civil Procedure - Default and Default Judgments; Civil Procedure - Pleadings
Although FSM’s notice pleading standard relies on liberal discovery rules and summary judgment motions to define disputed facts and issues and to dispose of unmeritorious claims, these procedures are neither available nor utilized in obtaining a default judgment when the defendant has never appeared. Western Sales Trading Co. v. Billy, [2005] FMSC 35; 13 FSM Intrm. 273, 277 (Chk. 2005).

Civil Procedure - Default and Default Judgments; Judgments
Civil Rule 54(c)’s clear command is that a default judgment cannot be different in kind from or exceed in amount that prayed for in the demand for judgment. This is in contrast to a case decided on the merits where every final judgment will grant the relief to which the party in whose favor it is rendered is entitled, even if the party has not demanded such relief in the party’s pleadings. Western Sales Trading Co. v. Billy, [2005] FMSC 35; 13 FSM Intrm. 273, 277-78 (Chk. 2005).

Civil Procedure - Pleadings
The contents of a letter that was not attached to or served with the original complaint cannot be considered as incorporated by reference in the pleading. Western Sales Trading Co. v. Billy, [2005] FMSC 35; 13 FSM Intrm. 273, 278 (Chk. 2005).

Civil Procedure - Default and Default Judgments; Civil Procedure - Pleadings
A complaint’s prayer for "such other and further relief as may be deemed just and proper" cannot serve to incorporate an unpled prejudgment interest claim and circumvent Rule 54(c)’s clear command that a default judgment must not be different in kind from or exceed in amount that prayed for in the demand for judgment. Western Sales Trading Co. v. Billy, [2005] FMSC 35; 13 FSM Intrm. 273, 278 (Chk. 2005).
Civil Procedure - Default and Default Judgments; Civil Procedure - Pleadings
A court, in entering a default judgment, cannot take a blind leap of faith that a defendant would know, or should know, that the lawsuit was also seeking unpled prejudgment interest. Likewise, a defendant, in deciding whether to defend a case filed against him or to do nothing and let a default judgment be entered against him, ought to be able to rely on the demand for judgment prayed for in the complaint and the complaint’s contents to determine what his liability will be if a default judgment is entered. Western Sales Trading Co. v. Billy, [2005] FMSC 35; 13 FSM Intrm. 273, 278 (Chk. 2005).

Civil Procedure - Default and Default Judgments; Constitutional Law - Due Process
A default judgment that included damages for claims not raised in the complaint or sums not prayed for by the plaintiff and that was rendered against a defendant who never appeared would violate due process. Western Sales Trading Co. v. Billy, [2005] FMSC 35; 13 FSM Intrm. 273, 278 (Chk. 2005).

Civil Procedure - Pleadings
Although generally leave to amend a complaint should be freely granted, once judgment has been entered, the filing of an amended complaint is not permissible until the judgment has been set aside or vacated under Rule 59(e) or 60(b). The merit of this approach is that to hold otherwise would enable the liberal amendment policy of Rule 15(a) to be employed in a way that is contrary to the philosophy favoring the finality of judgments and the expeditious termination of litigation. Western Sales Trading Co. v. Billy, [2005] FMSC 35; 13 FSM Intrm. 273, 278 (Chk. 2005).

Judgments - Relief from Judgment
Relief from judgment is addressed to the discretion of the court, which must balance the policy in favor of hearing a litigant’s claims on the merits against the policy in favor of finality. Western Sales Trading Co. v. Billy, [2005] FMSC 35; 13 FSM Intrm. 273, 279 (Chk. 2005).

Judgments - Relief from Judgment
Courts generally disfavor default judgments and will set them aside rather than deprive a party of the opportunity to contest a claim on the merits so as to permit the claim to be resolved on its merits instead of on procedural grounds. Western Sales Trading Co. v. Billy, [2005] FMSC 35; 13 FSM Intrm. 273, 279 (Chk. 2005).

Civil Procedure - Default and Default Judgments; Judgments - Relief from Judgment
The standard for analyzing whether relief from a default judgment is warranted is whether the default was willful, that is, caused by the defendant’s culpable conduct, whether there is a meritorious defense, and whether setting aside the default judgment would prejudice the plaintiff, so when a plaintiff does not want the opportunity to contest a claim or assert a meritorious defense to a claim but wants to add a claim, the inapplicability of this standard to the case highlights the novelty of what the plaintiff is trying to do. No cases support the claim that Rule 60(b) relief is available for a prevailing plaintiff to be granted relief from a default judgment in its favor when the defendant had not appeared in the case prior to the default judgment. Western Sales Trading Co. v. Billy, [2005] FMSC 35; 13 FSM Intrm. 273, 279 (Chk. 2005).

Civil Procedure - Default and Default Judgments; Civil Procedure - Pleadings; Judgments - Relief from Judgment
A plaintiff should seek to amend its complaint to ask for prejudgment interest before asking for a default judgment if it wants an unpled interest claim included in the judgment. When it does not do so, the court cannot grant it leave to amend its complaint after the default judgment has been entered because that would make meaningless Rule 54(c)’s clear command limiting default judgments to the kind and the amount prayed for in the demand for judgment. Western Sales Trading Co. v. Billy, [2005] FMSC 35; 13 FSM Intrm. 273, 279 (Chk. 2005).

Civil Procedure - Pleadings
When the defendants have not appeared and served responsive pleadings, the plaintiff can amend its pleadings once as a matter of course and without leave of court. Western Sales Trading Co. v. Billy, [2005] FMSC 35; 13 FSM Intrm. 273, 279 (Chk. 2005).

Civil Procedure - Service
Although no service need be made on parties in default for failure to appear except that pleadings asserting new or additional claims for relief against them must be served upon them in the manner provided for service of summons in Rule 4, a proposed amended complaint should be served on defendants in default in conformity with Rule 4 since it is a pleading that asserts a new or additional claim for relief against the defendants. Western Sales Trading Co. v. Billy, [2005] FMSC 35; 13 FSM Intrm. 273, 279 (Chk. 2005).

* * * *

COURT’S OPINION

DENNIS K. YAMASE, Associate Justice:

The plaintiff, Western Sales Trading Company ("Western"), has moved for relief from the default judgments entered in its favor in each of the above-captioned cases. The motions are denied. The court’s reasons follow.

I.

Both of the above-captioned cases were filed on March 16, 2005 and the complaints and summons in each of these cases were served on the respective defendants on March 16, 2005 (Civil Action No. 2005-1003) and March 17, 2005 (Civil Action No. 2005-1004). Each of the two complaints stated a cause of action on an open account. Each complaint alleged that Western had, on February 21, 2005, made a demand in writing on that case’s defendants for the debt due. Each complaint’s prayer sought as damages a principal amount ($11,789.98 in Civil Action No. 2005-1003 and $6,475.80 in Civil Action No. 2005-1004), statutory interest on the judgment, costs of suit including reasonable attorney fees, and "such other and further relief as may be deemed just and proper."

No defendant in either case appeared to answer or otherwise defend against the claims asserted by Western. On April 19, 2005, Western filed in each case a request for entry of default and a motion for a default judgment. The clerk entered the defaults in each case on April 20, 2005.

The motions for default judgment asked in each case that judgment be entered for the principal amount in that case, for costs of suit of $50, for attorney’s fees of $200, for prejudgment interest of 18% on the principal (from October 11, 2004 in Civil Action No. 2005-1003 and from November 6, 2003 in Civil Action No. 2005-1004), and for interest on the judgment at the statutory rate of nine per cent. On May 2, 2005, the court entered a default judgment in each case. Those default judgments were each for the principal amount, $50 for costs of suit, $200 for attorney’s fees, and statutory interest of nine per cent on the amount of judgment until fully paid. Neither default judgment included prejudgment interest on the ground that Western had not pled it.

II.

On May 27, 2005, Western filed in each case, a motion, with essentially identical supporting memorandums, asking for relief from the judgment in each case and also asking to amend the complaint in each case. The stated purpose of each motion was "to collect unpaid prejudgment interest at 18% per annum on the principal amount due." Attached to the motion in each case was a copy of the February 21, 2005 demand letter addressed to the defendants in that case and a copy of a proposed amended complaint for that case. Neither motion was served on any defendant on the asserted ground that service was unnecessary because the defendants were in default.

III.

"A judgment by default shall not be different in kind from or exceed in amount that prayed for in the demand for judgment." FSM Civ. R. 54(c). Nowhere in the body of either complaint is prejudgment interest mentioned. Nor is prejudgment interest (unlike attorney’s fees[1]) prayed for in the demand for judgment at the end of either complaint. The court therefore had no choice but to refuse to enter a default judgment that included prejudgment interest. Compton v. Alton S.S. Co., [1979] USCA4 1244; 608 F.2d 96, 105-06 (4th Cir. 1979) (plaintiff’s default judgment cannot include penalty wages when only bare reference made to them in complaint’s prayer and no allegations made in the complaint’s body); Fong v. United States, [1962] USCA9 51; 300 F.2d 400, 413 (9th Cir.) (actual damages not to be added to default judgment when only liquidated damages prayed for), cert. denied, 370 U.S. 938 (1962); Marina B Creation S.A. v. Maurier, 685 F. Supp. 910, 912 (S.D.N.Y. 1988) (default judgment will not include treble damages for patent infringement because "court will not increase damages beyond what was originally sought"); but see In re Crazy Eddie Securities Litig., 948 F. Supp. 1154, 1163-64 & n.7 (E.D.N.Y. 1996) (when default entered against appearing defendant for discovery violations, even construing already pleaded allegations and claims broadly to allow damages, default judgment will not include newly asserted theory of liability to secure treble damages and attorney’s fees).

If the court had entered such judgments, the default judgments would have been different in kind from and also exceeded in amount the relief that was prayed for in the demands for judgment. Such default judgments would have been void and subject to collateral attack. 10 Charles Alan Wright, Arthur R. Miller & Mary Kay Kane, Federal Practice and Procedure § 2663, at 167-69 (3d 998). S8). Serious due process questions would be raised. Compton, 608 F.2d at 106.

Western, however, asserts that since pleading in the FSM is notice pleading - that the original complaints, to satisfy due process, need only give the defendants notice of the claims against them and not detail facts or plead legal theories - its complaints were sufficient to support its prejudgment interest damage claims. Western is correct that pleading practice in the FSM is notice pleading. See, e.g., Semwen v. Seaward Holdings, Micronesia, [1995] FMSC 17; 7 FSM Intrm. 111, 114 (Chk. 1995) (the rules require only notice pleading, and are flexible and informal rather than technical; the complaint need only be a short and plain statement of the claim and give the defendant fair notice of the factual wrong on the basis of the facts asserted and if a legal theory is advanced, it need not be correct).

Western further contends that FSM’s notice pleading standard relies on liberal discovery rules and summary judgment motions to define disputed facts and issues and to dispose of unmeritorious claims. While this is true, these procedures are neither available nor utilized in obtaining a default judgment where the defendant has never appeared. Western overlooks this point and Civil Rule 54(c)’s clear command that a default judgment cannot "be different in kind from or exceed in amount that prayed for in the demand for judgment." This is in contrast to a case decided on the merits. "Except as to a party against whom a judgment is entered by default, every final judgment shall grant the relief to which the party in whose favor it is rendered is entitled, even if the party has not demanded such relief in the party’s pleadings." FSM Civ. R. 54(c). All defendants in both of these cases are parties against whom judgments were entered by default since none of them ever appeared to plead or otherwise defend.

Western also asserts that its prejudgment interest claims were incorporated in its complaints by reference by the complaints’ reference to the February 21, 2005 demand letters in which the prejudgment interest claims were asserted. Those letters were not attached to or served with the original complaints. Those letters’ contents therefore could not have been incorporated by reference. Nor can each complaint’s prayer for "such other and further relief as may be deemed just and proper" serve to incorporate the unpled prejudgment interest claim and circumvent Rule 54(c)’s clear command that a default judgment must not "be different in kind from or exceed in amount that prayed for in the demand for judgment."

Thus the court, in entering the default judgments, could not take such a blind leap of faith that any defendant in either of these cases would know, or should know, that the lawsuit was also seeking prejudgment interest. Likewise, a defendant, in deciding whether to defend a case filed against him or to do nothing and let a default judgment be entered against him, ought to be able to rely on the demand for judgment prayed for in the complaint and the complaint’s contents to determine what his liability will be if a default judgment is entered. See, e.g., Growth Properties, Inc. v. Klingbeil Holding Co., 419 F. Supp. 212, 221 (D. Md. 1976). A default judgment that included damages for claims not raised in the complaint or sums not prayed for by the plaintiff and rendered against a defendant who never appeared would violate due process. (A defendant who receives a demand letter that includes a claim for prejudgment interest and who later is served a complaint that does not include the prejudgment interest claim would be within his rights to assume that the plaintiff had decided not to pursue that claim.) The court therefore could not include damages for prejudgment interest in the default judgments entered May 2, 2005.

IV.

Western’s motions ask that, without notice to any defendant, Western be relieved from judgments in which it got everything it prayed for in its demands for judgment so that it can now ask for more (the prejudgment interest). Western contends that this should be allowed because of the principle that amendments to complaints should be freely granted.

Although generally leave to amend a complaint should be freely granted, Primo v. Pohnpei Transp. Auth., [2000] FMSC 35; 9 FSM Intrm. 407, 413 (App. 2000), once judgment has been entered, the filing of an amended complaint is not permissible until the judgment has been set aside or vacated under Rule 59(e) or 60(b). Patterson-Stevens, Inc. v. International Union of Operating Eng’rs, 164 F.R.D. 4, 6 (W.D.N.Y. 1995); see also Cooper v. Shumway, [1985] USCA10 332; 780 F.2d 27, 29 (10th Cir. 1985). "The merit of this approach is that ‘[t]o hold otherwise would enable the liberal amendment policy of Rule 15(a) to be employed in a way that is contrary to the philosophy favoring the finality of judgments and the expeditious termination of litigation.’" National Petrochemical Co. of Iran v. M/T Stolt Sheaf, [1991] USCA2 402; 930 F.2d 240, 245 (2d Cir. 1991).

Relief under Rule 60(b)[2] can be granted for six enumerated reasons. Western does not specify which of the six Rule 60(b) grounds its motions rely on. Western makes no attempt to show that the facts and circumstances satisfy any one of the grounds.

Relief from judgment is addressed to the discretion of the court, which must balance the policy in favor of hearing a litigant’s claims on the merits against the policy in favor of finality. UNK Wholesale, Inc. v. Robinson, [2002] FMSC 28; 11 FSM Intrm. 118, 122 (Chk. 2002). Courts generally disfavor default judgments and will set them aside rather than deprive a party of the opportunity to contest a claim on the merits and permit the claim to be resolved on its merits instead of on procedural grounds. Id.; O’Sullivan v. Panuelo, [2001] FMSC 11; 10 FSM Intrm. 257, 260 (Pon. 2001). But Western does not want the opportunity to contest a claim or assert a meritorious defense to a claim. It wants to add a claim. The standard for analyzing whether relief from a default judgment is warranted is whether the default was willful, that is, caused by the defendant’s culpable conduct, whether there is a meritorious defense, and whether setting aside the default judgment would prejudice the plaintiff. See, e.g., Robinson, 11 FSM Intrm. at 122; College of Micronesia-FSM v. Rosario, [2001] FMSC 3; 10 FSM Intrm. 175, 180 (Pon. 2001).

The inapplicability of this standard to these cases highlights the novelty of what Western is trying to do. Western has cited no cases to support its claim for Rule 60(b) relief. Nor did the court’s own research locate any cases where a prevailing plaintiff was granted relief from a default judgment in its favor when the defendant had not appeared in the case prior to the default judgment. In Paddington Partners v. Bouchard, [1994] USCA2 897; 34 F.3d 1132, 1139-40 (2d Cir. 1994) the court held that the trial court abused its discretion when it granted a prevailing party Rule 60(b) relief from judgment in order to add predecision interest. In ARA Servs. Inc. v. Olympia Vending & Amusement Corp., No. 88CIV. 0794(MJL) 1990 WL 41733 at *4 (S.D.N.Y. Apr. 4, 1990) the prevailing plaintiff made a cross motion for relief from a default judgment in the plaintiff’s favor and for leave to file a second amended complaint. The relief was denied on the ground that the various orders the plaintiff sought in his proposed second amended complaint should have been sought before it requested and submitted a default judgment. Id.; cf. Ely v. Gray, 274 Cal. Rptr. 536, 539-40 (Cal. Ct. App. 1990) (in an action for an accounting, when the default judgment included monetary damages not prayed for and defendant not given notice of plaintiff’s money damages claim before default judgment entered, money damage portion of default judgment reversed because due process required notice be given of limits of financial liability for a defaulting defendant).

That is the route Western should have taken here. It should have sought to amend its complaints to seek prejudgment interest before asking for the default judgments. Since the defendants had not appeared and served responsive pleadings, Western could have amended its pleadings "once as a matter of course" and without leave of court. FSM Civ. R. 15(a). It did not do so then. The court cannot grant it leave to do so now. That would make meaningless Rule 54(c)’s clear command limiting default judgments to the kind and the amount prayed for in the demand for judgment.

Lastly, Western stated that "[b]ased on the default of the Defendant [sic], this instant motion was not served on any party pursuant to FSM Rule of Civil Procedure 5." That rule provides that "[n]o service need . . . be made on the ps tiedefa default for failure to appear except that pleadings asserting new or additional claims for relief against them shall be served upon them in the mannerided ervice of summons in Rule 4." Western’s pros proposedposed amended complaint is a pleading that asserts a new or additional claim for relief against the defendants. Thus it seems that it should have been served on the defendants in conformity with Rule 4. See Lee v. Lee, [2005] FMSC 25; 13 FSM Intrm. 252, 258 (Chk. 2005).

V.

Accordingly, the motions in each above-captioned case for relief from judgment in that case and for leave to amended its complaint in that case are denied and the amended complaints are stricken.

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^[1] While a prevailing plaintiff is entitled to the costs of suit "as of course," FSM Civ. R. 54(d), a prevailing plaintiff is not automatically entitled to an attorney’s fees award. The court is generally without authority to award attorney’s fees in the absence of a specific statute or contractual provision allowing recovery of such fees. Phillip v. Marianas Ins. Co., [2004] FMSC 21; 12 FSM Intrm. 464, 471 (Pon. 2004). In both of these cases liability for attorney’s fees was not alleged but was prayed for in the demand for judgment.

^[2] Rule 59(e) appears inapplicable here because a motion to alter or amend judgment under that rule must be made within ten days of entry of judgment. Also Western did not cite it.