Adams v Island Homes Construction, Inc [2006] FMSC 30; 14 FSM Intrm. 473 (Pon. 2006) (26 October 2006)

FEDERATED STATES OF MICRONESIA
SUPREME COURT TRIAL DIVISION
Cite as Adams v. Island Homes Constr., Inc., [2006] FMSC 30; 14 FSM Intrm. 473 (Pon. 2006)

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 CONCERNING INTEREST

Martin Yinug
Associate Justice

Decided: October 26, 2006

APPEARANCES:

For the Plaintiffs:
Fredrick L. Ramp, Esq.
P.O. Box 1480
Kolonia, Pohnpei FM 96941

For the Defendant (FSM Dev. Bank):
Michael J. Sipos, Esq.
Sipos & Berman
P.O. Box 2069
Kolonia, Pohnpei FM 96941

* * * *

HEADNOTES

Civil Procedure - Sanctions; Costs
The general proposition is that sanctions as such do not bear interest, but the Rule 37 sanctions scheme presumes that when sanctions are imposed they will be promptly paid, generally well before the case has proceeded to judgment. Once final judgment has been entered in a matter, any unpaid Rule 37 sanctions previously imposed should be considered costs. Adams v. Island Homes Constr., Inc., [2006] FMSC 30; 14 FSM Intrm. 473, 475 (Pon. 2006).

Civil Procedure - Sanctions; Costs; Judgments
If the awarded sanctions are unpaid at judgment and payable to the prevailing party they should be included as taxable costs. If the sanctions are unpaid at judgment and payable to the non-prevailing party, they ought to be deducted from the money judgment due the prevailing party. Adams v. Island Homes Constr., Inc., [2006] FMSC 30; 14 FSM Intrm. 473, 475 (Pon. 2006).

[14 FSM Intrm. 477]

Civil Procedure - Sanctions; Costs; Judgments
All money judgments bear nine percent interest. As part of the judgment, taxable costs bear that same interest imposed by statute and attorney’s fee sanctions are a form of "costs" which will bear interest after judgment has been entered. Adams v. Island Homes Constr., Inc., [2006] FMSC 30; 14 FSM Intrm. 473, 475 (Pon. 2006).

Civil Procedure - Sanctions; Costs; Judgments
When unpaid Rule 37 sanctions are not specifically named and included as costs in either the judgment or the later order that fixed and entered the costs and fees that were to be added to the judgment, they should be included in the original judgment by implication, if not specifically, since the court was unaware that the sanctions fixed seven months earlier had not been paid. It would be better practice for the plaintiffs to ask that the amount of unpaid sanctions be specifically included in the court’s judgment. Adams v. Island Homes Constr., Inc., [2006] FMSC 30; 14 FSM Intrm. 473, 475-76 (Pon. 2006).

Civil Procedure - Sanctions; Costs; Judgments
Since, if costs are allowed without express mention in the judgment, the date of the judgment starts the accrual of interest on the costs due, therefore earlier awarded Rule 37 attorney fee sanctions would bear interest from the date the judgment was entered because failing to allow attorneys’ fees awards to bear interest would give parties against whom such awards have been entered an artificial and undesirable incentive to appeal or otherwise delay payment. Adams v. Island Homes Constr., Inc., [2006] FMSC 30; 14 FSM Intrm. 473, 476 (Pon. 2006).

Civil Procedure - Sanctions; Costs
Affirmed Rule 37 sanctions are considered costs that should be included in the money judgment and bear nine percent interest from the date judgment is entered until paid. Adams v. Island Homes Constr., Inc., [2006] FMSC 30; 14 FSM Intrm. 473, 476 (Pon. 2006).

* * * *

COURT’S OPINION

MARTIN G. YINUG, Associate Justice:

On August 30, 2006, defendant FSM Development Bank filed its Motion for Order Deeming Judgment Satisfied and for Order of Dismissal in Favor of FSM Development Bank. On September 5, 2006, the court entered a satisfaction of judgment and dismissal order in the bank’s favor. On September 8, 2006, the plaintiffs filed their Motion to Reconsider and Vacate Order Entered 9/5/06 Entitled "Satisfaction of Judgment and Dismissal Order in Favor of FSMDB"; Motion for an Order Compelling Defendant FSMDB to Pay Post Judgment Interest on Sanctions Award. On September 12, 2006, the bank filed its opposition to the reconsideration motion.

By the court’s September 20, 2006 order, the court vacated its September 5, 2006 order since it was prematurely issued (issued before the ten days for nonmovants to respond had expired, FSM Civ. R. 6(d)) and gave the FSM Development Bank until October 10, 2006 to respond to plaintiffs’ motion and the plaintiffs seven days thereafter to reply to the bank’s opposition. The court asked the parties to address whether the $8,513.82 Rule 37 attorney’s fee sanction award bears interest and if it bore interest, from what date did it bear interest and why - March 26, 2003 (the date the sanction was awarded); December 1, 2003 (the date the trial court judgment was entered); May 30, 2006 (the date the appellate court affirmed $8,513.82 of attorney fee award sanctions and entered its judgment); June 27, 2006 (the date the trial court issued its order in compliance with the appellate court’s judgment); or some other date.

[14 FSM Intrm. 478]

The bank did not file a response.

Thus the issue now before the court is whether the Rule 37 discovery sanctions imposed in this case bear interest, and, if so, from what date? The plaintiffs contend that the Rule 37 sanctions should bear nine percent interest from the date, March 26, 2003, the amount of the sanctions was fixed and an order entered (Adams v. Island Homes Constr., Inc., [2003] FMSC 38; 11 FSM Intrm. 445, 448 (Pon. 2003)). For this proposition they rely on 6 F.S.M.C. 1401 (money judgments bear 9% interest) and their assertion that the sanctions were entered in the form of a judgment. The bank, in its opposition to the reconsideration motion, contends that sanctions, as such, do not bear interest - only money judgments, by statute, 6 F.S.M.C. 1401, bear interest. The bank asserts that it properly challenged the sanctions through the appellate process; was partially successful; and, when the appellate court reduced the sanction to $8,513.82, FSM Dev. Bank v. Adams, [2006] FMSC 21; 14 FSM Intrm. 234, 255 (App. 2006), promptly paid that sum, so consequently there was therefore no undue delay and no interest due.

The court concludes that the bank is correct in its general proposition that sanctions as such do not bear interest. However, the sanctions scheme created by Rule 37 presumes that when sanctions are imposed they will be promptly paid, generally well before the case has proceeded to judgment. The court further concludes that once final judgment has been entered in a matter, any unpaid Rule 37 sanctions previously imposed should be considered costs. If the awarded sanctions are unpaid at judgment and payable to the prevailing party they should be included as taxable costs. If the sanctions are unpaid at judgment and payable to the non-prevailing party, they ought to be deducted from the money judgment due the prevailing party.

All money judgments bear nine percent interest. 6 F.S.M.C. 1401. As part of the judgment, taxable costs bear that same interest imposed by statute. E.g., Devex Corp. v. General Motors Corp., [1984] USCA3 1443; 749 F.2d 1020, 1026 (3d Cir. 1984). Attorney’s fee sanctions are a form of "costs" which will bear interest after judgment has been entered. See In re A.S.M., Inc., 110 B.R. 802, 806 (Bankr. W.D. Tex. 1990) (allowing interest on money judgments means that sanctions awarded under Bankruptcy Rule 9011, the equivalent of Civil Rule 11 bear interest); In re Mapson, 93 B.R. 161, 171 (Bankr. C.D. Ill. 1988); see also Fleet Inv. Co. v. Rogers, 505 F. Supp. 522, 524 (W.D. Okla. 1980) (attorney fee awards are considered part of judgment and interest allowed on such fees). The Rule 37 sanctions at issue were not specifically named and included as costs in either the December 1, 2003 judgment or the September 30, 2004 order that fixed and entered the costs and fees that were to be added to the December 1, 2003 judgment. They should have been included in the December 1, 2003 judgment by implication, if not specifically, since, on December 1, 2003, the court was unaware that the sanctions fixed seven months earlier had not been paid. It would have been better practice for the plaintiffs to have asked that the amount of unpaid sanctions be specifically included in the court’s judgment. Nevertheless unspecified "costs" were included in that judgment, and the amount of the Rule 37 sanctions had already been fixed by the March 26, 2003 order.

"If costs are allowed without express mention in the judgment, the date of the judgment starts the accrual of interest on the costs due." Copper Liquor, Inc. v. Adolph Coors Co., [1983] USCA5 419; 701 F.2d 542, 544 (5th Cir. 1983) (citation omitted). Therefore the earlier awarded Rule 37 attorney fee sanctions would bear interest from the date the judgment was entered - December 1, 2003. There is sound logic for reasoning thus and adopting this principle. "Failing to allow awards of attorneys’ fees to bear interest would give parties against whom such awards have been entered an artificial and undesirable incentive to appeal or otherwise delay payment." R.W.T. v. Dalton, [1983] USCA8 486; 712 F.2d 1225, 1235 (8th Cir. 1983).

Accordingly, the court concludes that the $8,513.82 in affirmed Rule 37 sanctions are considered costs that should be included in the money judgment and bear nine percent interest from the date judgment was entered in this case, December 1, 2003, until paid.

[2006] FMKSC 18; [14 FSM Intrm. 479]