Oceanic Lumber, Inc. v Vincent & Brothers Construction Company [2008] FMSC 69; 16 FSM Intrm. 222 (Chk. 2008) (24 December 2008)

FSM SUPREME COURT TRIAL DIVISION

CIVIL ACTION NO. 2008-1059

OCEANIC LUMBER, INC.,
Plaintiff,

vs.

VINCENT & BROTHERS CONSTRUCTION COMPANY, V & B ENTERPRISES, and KACHUTOSY PAULUS,
Defendants.

__________________________________

ORDER TO ENTER DEFAULT JUDGMENT

Ready E. Johnny
Associate Justice

Decided: December 24, 2008

APPEARANCE:

For the Plaintiff: Michael J. Sipos, Esq.
P.O. Box 2069
Kolonia, Pohnpei FM 96941

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HEADNOTES

Civil Procedure  Parties; Judgments
When one of two defendants against whom a judgment is to be entered is a d/b/a of the other, the other is essentially the only defendant against whom the judgment will be entered. Oceanic Lumber, Inc. v. Vincent & Bros. Constr. Co., [2008] FMSC 69; 16 FSM Intrm. 222, 223 n.1 (Chk. 2008).

Civil Procedure  Default and Default Judgments; Civil Procedure  Pleadings
When the defendants' default was entered before they filed their answer and when the default was not subsequently set aside under Civil Procedure Rule 55(c), the court cannot take cognizance of the later-filed answer. Oceanic Lumber, Inc. v. Vincent & Bros. Constr. Co., [2008] FMSC 69; 16 FSM Intrm. 222, 224 (Chk. 2008).

Civil Procedure  Default and Default Judgments
Once the court clerk has entered a default, the grant of a default judgment is not automatic, but left to the court's sound discretion. The requesting party is not entitled to a default judgment as of right. Oceanic Lumber, Inc. v. Vincent & Bros. Constr. Co., [2008] FMSC 69; 16 FSM Intrm. 222, 224 (Chk. 2008).

Civil Procedure  Default and Default Judgments
When a court determines that a defendant is in default, the complaint's factual allegations, except those relating to the amount of damages, will be taken as true, but liability is not deemed established simply because of the default. The court therefore must consider each of the items sought as damages before determining the amount of damages for which the defaulting defendants will be held liable. Oceanic Lumber, Inc. v. Vincent & Bros. Constr. Co., [2008] FMSC 69; 16 FSM Intrm. 222, 224-25 (Chk. 2008).

Civil Procedure  Default and Default Judgments; interest and Usury
Since 18% per annum is not a usurious rate of interest under FSM law, the defaulting defendants will be liable for this item of damages when the defaulting defendants agreed, by their agent's signature on the invoices, to pay this rate on overdue accounts. Oceanic Lumber, Inc. v. Vincent & Bros. Constr. Co., [2008] FMSC 69; 16 FSM Intrm. 222, 225 (Chk. 2008).

Attorney's Fees; Judgments
Generally, parties must bear their own attorney's fees unless otherwise authorized by law or by contract between the parties. Thus, when the sales contract provides that the buyer will pay the seller's attorney's fees and costs if an attorney is hired to collect the debt, the court will determine and award the seller its reasonable attorney's fees, which, except in unusual circumstances involving bad faith and vexatious litigation, will not exceed 15% of the outstanding principal and interest. Oceanic Lumber, Inc. v. Vincent & Bros. Constr. Co., [2008] FMSC 69; 16 FSM Intrm. 222, 225 (Chk. 2008).

Costs
Service costs are awarded as a matter of course to the prevailing party. Oceanic Lumber, Inc. v. Vincent & Bros. Constr. Co., [2008] FMSC 69; 16 FSM Intrm. 222, 225 (Chk. 2008).

Attorney's Fees; Contracts
A sales contract provision that the buyer "agrees to pay all attorney's collection and court fees and an additional 33% of the principal amount and accrued interest in the event this invoice is referred to an attorney or collection agency for collection" appears, since it is included in the same sentence as "all attorney's collection and court fees," to not only constitute "double-dipping" or double recovery of attorney's fees, but it would also award attorney's fees greatly in excess of the 15% maximum usually allowed in collection cases, and will therefore not be awarded. Oceanic Lumber, Inc. v. Vincent & Bros. Constr. Co., [2008] FMSC 69; 16 FSM Intrm. 222, 225 (Chk. 2008).

Interest and Usury
If the additional 33% charge for collection were considered a penalty instead of attorney's fees, it would then have to be added to the any other penalties and interest to determine the true interest rate, and adding 33% to the 18% contract rate would yield an interest rate over 50%, which is usurious interest. When a creditor seeks a usurious interest rate, the penalty is that the creditor will not be permitted to recover any interest whatsoever. Oceanic Lumber, Inc. v. Vincent & Bros. Constr. Co., [2008] FMSC 69; 16 FSM Intrm. 222, 225 (Chk. 2008).

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COURT'S OPINION

READY E. JOHNNY, Associate Justice:

The clerk shall enter a default judgment against defendants Vincent & Brothers Construction Company and V & B Enterprises[1] for $34,450.28. The court's reasons follow.

I.

Pursuant to the court's order, the clerk, on October 2, 2008, entered the default of defendants Vincent & Brothers Construction Company and V & B Enterprises for failing to answer or otherwise defend. Later on October 2, 2008, an unadmitted trial counselor filed a Motion to Appear as Counsel for Defendants Without the Supervision of an Attorney; a Motion to Extend Time to File Answer to Complaint; and an Answer, all on behalf of defendants Vincent & Brothers Construction Company and V & B Enterprises. Defendants Vincent & Brothers Construction Company and V & B Enterprises have not moved to set aside the entry of default. On October 30, 2008, the plaintiff filed its opposition to the October 2nd motions and a motion to enlarge to file its opposition because it had not received the motions until the deadline to respond to them had passed.

The court's October 2, 2008 order also provided that any party could, no later than October 13, 2008, brief whether the 33% attorney-collection agency penalty and payment of all attorney collection and court fees clauses of the sales contracts are enforceable under FSM case law, and, if so, to what extent. No one filed a memorandum on this issue.

Since the default of defendants Vincent & Brothers Construction Company and V & B Enterprises was entered before they filed their answer and since the default has not been subsequently set aside under Civil Procedure Rule 55(c), the court cannot take cognizance of their later-filed answer. Thus, as per the court's October 2, 2008 order, a default judgment will be entered against them.

II.

The plaintiff, Oceanic Lumber, Inc. ("Oceanic") seeks judgment for $28,761.25 for goods sold on November 24, 2007 ($10,691.25), November 25, 2007 ($12,960), and December 12, 2007 ($5,110); plus 18% interest on those amounts starting from 30 days after the sale dates; plus 33% of the goods' sale price and accrued interest; plus reasonable attorney's fees and costs of $550 ($125 per hour for four hours of attorney work plus $50 in service costs). The claims for 18% interest, 33% surcharge, and attorney's fees and costs are all based on a provision in the "Terms of Sale" printed on each of the invoices (attached to the complaint as Exhibit A) signed by Kachutosy Paulus as agent for defendants Vincent & Brothers Construction Company and V & B Enterprises, the parties to be charged. That provision reads:

All Charged invoices are due and payable in full after 30 days from invoice date. Buyer agrees to pay 18% interest p.a. on all overdue accounts. Buyer agrees to pay all attorney's collection and court fees and an additional 33% of the principal amount and accrued interest in the event this invoice is referred to an attorney or collection agency for collection.

III.

Once the court clerk has entered a default, the grant of a default judgment is not automatic, but left to the court's sound discretion. Pohl v. Chuuk Public Utility Corp., [2005] FMSC 53; 13 FSM Intrm. 550, 553 (Chk. 2005). The party making the request is not entitled to a default judgment as of right. Id. at 554. When a court determines that a defendant is in default, the complaint's factual allegations, except those relating to the amount of damages, will be taken as true. Id. Liability is not deemed established simply because of the default. Id. The court therefore must consider each of the items sought as damages before determining the amount of damages for which the defaulting defendants will be held liable.

IV.

Judgment will be entered for the $28,761.25 for goods Oceanic sold to the defendants. Even the one defendant who answered the complaint does not dispute that this amount is owed. The defaulting defendants are liable for this sum. Oceanic also seeks 18% interest per annum on this amount. The defaulting defendants agreed, by their agent's signature on the invoices, to pay this rate on overdue accounts. Since 18% per annum is not a usurious rate of interest under FSM law, see 34 F.S.M.C. 204, the defaulting defendants appear liable for this item of damages as well.

Oceanic also seeks $500 in attorney's fees and $50 in service costs. Generally, parties must bear their own attorney's fees unless otherwise authorized by law or by contract between the parties. FSM Dev. Bank v. Adams, [2006] FMSC 21; 14 FSM Intrm. 234, 256 (App. 2006); Hartman v. Krum, [2007] FMSC 1; 14 FSM Intrm. 526, 532 (Chk. 2007). Thus, where, as here, the sales contract provides that the buyer will pay the seller's attorney's fees and costs if an attorney is hired to collect the debt, the court will determine and award the seller its reasonable attorney's fees, which, except in unusual circumstances involving bad faith and vexatious litigation, will not exceed 15% of the outstanding principal and interest. Albatross Trading Co. v. Aizawa, [2005] FMSC 13; 13 FSM Intrm. 380, 382 (Chk. 2005); LPP Mortgage Ltd. v. Maras, [2003] FMSC 47; 12 FSM Intrm. 112, 113 (Chk. 2003); Mobil Oil Micronesia, Inc. v. Benjamin, [2001] FMSC 62; 10 FSM Intrm. 100, 103 (Kos. 2001); Bank of Hawaii v. Jack, [1990] FMSC 7; 4 FSM Intrm. 216, 221 (Pon. 1990). The court finds that Oceanic's attorney fees incurred at $125 per hour for four hours of attorney work are reasonable and within the 15% limitation and will therefore be awarded. Service costs (here $50) are awarded as a matter of course to the prevailing party. Udot Municipality v. FSM, [2002] FMSC 2; 10 FSM Intrm. 498, 501 (Chk. 2002).

The "additional 33% of the principal amount and accrued interest" appears, since it is included in the same sentence as "all attorney's collection and court fees," to not only constitute "double-dipping" or double recovery of attorney's fees, but it would also award attorney's fees greatly in excess of the 15% maximum usually allowed in collection cases. If instead the additional 33% were considered a penalty, it would have to be added to the any other penalties and interest to determine the true interest rate. See 34 F.S.M.C. 202(1). Since the debt is less than a year old, adding 33% to the 18% would yield an interest rate over 50%. Such a rate is usurious, and when a creditor seeks a usurious interest rate, the penalty is that the creditor will not be permitted to recover any interest whatsoever. Uehara v. Chuuk, [2006] FMSC 19; 14 FSM Intrm. 221, 225-26 (Chk. 2006); Walter v. Damai, 12 FSM Intrm. 648, 650 (Pon. 2004). But, as stated above, the 33% "penalty" is an attorney fee or collection charge in excess of the allowable 15% and will therefore not be awarded.

V.

There being no just cause for delay, the clerk shall enter judgment against the defaulting defendants herewith. FSM Civ. R. 54(b). Accordingly, the clerk shall enter judgment for Oceanic Lumber, Inc. for $28,761.25 with 18% interest thereon of $3,451.61 as of August 27, 2008 (and accruing thereafter at $14.18 per day until entry of judgment for an additional $1,687.42 as of December 22, 2008, for a total of $5,110.67) plus $550 in reasonable attorney's fees and costs, equaling $34,450.28. The judgment shall bear interest at the statutory rate of 9% per annum simple interest. 6 F.S.M.C. 1401.

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^[1]Since V & B Enterprises is a d/b/a of Vincent & Brothers Construction Company, Vincent & Brothers Construction Company is essentially the only defendant against whom this judgment will be entered. See Jackson v. Pacific Pattern, Inc., [2003] FMSC 42; 12 FSM Intrm. 18, 20 (Pon. 2003).