Smith v Nimea [2019] FMSC 2; 22 FSM R. 131 (Pon. 2019) (3 January 2019)

FSM SUPREME COURT TRIAL DIVISION
CIVIL ACTION NO. 2005-004

GORDON SMITH,
Plaintiff,

vs.

FABIAN NIMEA, individually, and FSN
FINANCIAL GROUP, INC., d/b/a FFGI
CONSULTING GROUP,
Defendants.
__________________________________________

ORDER CLARIFYING JUDGMENT

Larry Wentworth
Associate Justice

Hearing: April 10-11, 2018
Decided: January 3, 2019

APPEARANCES:

For the Plaintiff: Mary Berman, Esq.
P.O. Box 163
Kolonia, Pohnpei FM 96941

For the Defendants: Stephen V. Finnen, Esq.
P.O. Box 1450
Kolonia, Pohnpei FM 96941

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HEADNOTES

Judgments
The court’s denial of a person’s motion to dismiss him "in his individual capacity" put that person on notice that any judgment in the plaintiff’s favor would, unless the court ordered otherwise, be against him personally. Smith v. Nimea, 22 FSM R. 131, 134 (Pon. 2019).

Judgments
When prior judge’s findings all indicate that the individual defendant was the plaintiff’s actual employer and liable to him on the judgment, the court will conclude that the prior judge considered his judgment to be against either just the individual defendant or against both him and the co-defendant corporation, jointly and severally, since the judgment was based on the holding that the individual defendant was the employer and thus liable under the employment contract. That being the "law of the case," the court will direct that a clarified judgment be entered naming the individual defendant as the judgment debtor and include the corporation as a joint and several judgment debtor since it was the plaintiff’s nominal employer. Smith v. Nimea, 22 FSM R. 131, 135 (Pon. 2019).

Business Organizations - Corporations; Civil Procedure - Parties
The alter ego doctrine treats two entities that are nominally separate as the same when a corporation has acted unjustly or fraudulently, and specific factors that are determinative include substantially identical management, business purpose, operation, equipment, customers, supervision, and ownership. Smith v. Nimea, 22 FSM R. 131, 135 (Pon. 2019).

Business Organizations - Corporations; Civil Procedure - Parties
Generally, a corporation and its shareholders are deemed separate entities and shareholders are not liable to third parties beyond their initial investment in the corporation’s stock, but, when the shareholders treat the corporation not as a separate entity but rather as an instrument to conduct their own personal business, the court may pierce the corporate veil for purposes of liability. Smith v. Nimea, 22 FSM R. 131, 135 (Pon. 2019).

Judgments - Interest on
When no payments have been made on the judgment, it has, since it was entered, accrued interest at the rate of 9% per year, simple interest. Smith v. Nimea, 22 FSM R. 131, 136 (Pon. 2019).

Judgments - Interest on
If a money judgment is affirmed, the interest allowed by law will be payable from the date the judgment was entered in the court appealed from. Smith v. Nimea, 22 FSM R. 131, 136 (Pon. 2019).

Judgments - Interest on
When the judgment on which it accrues is joint and several, the defendants’ liability for the post-judgment interest is also joint and several. Smith v. Nimea, 22 FSM R. 131, 136 (Pon. 2019).

Judgments - Interest on
Post-judgment interest compensates a successful litigant for being deprived of compensation for the litigant’s loss for the time between the court’s ascertainment of the damages amount owed and the defendant’s payment. Smith v. Nimea, 22 FSM R. 131, 136 (Pon. 2019).

Judgments - Interest on
When a legally sufficient judgment is basically sound but is, on remand, modified to include additional clarification or explanation, without considering new evidence or making additional findings, it will accrue interest from the date of the original judgment. Smith v. Nimea, 22 FSM R. 131, 136 (Pon. 2019).

Judgments - Interest on
When a final judgment has been entered as to liability and damages, the vacation of the damage award on appeal and issuance of an order requiring further proceedings to explain the basis for the recoverable damages will not prevent accrual of post-judgment interest on the amount common to the earlier and later judgments from the date the original judgment was entered. Smith v. Nimea, 22 FSM R. 131, 136 (Pon. 2019).

Judgments - Interest on
When the appellate division did not vacate, but affirmed, the damages award, and when it did not alter the judgment amount, but merely required that the judgment be clarified so as to name the liable defendant(s), both defendants will be liable, jointly and severally, for the accrued interest since the judgment date. Smith v. Nimea, 22 FSM R. 131, 136 (Pon. 2019).

Judgments - Interest on
A litigant does not lose his judgment’s accrued interest merely because further proceedings are needed to enforce the judgment. Smith v. Nimea, 22 FSM R. 131, 136 (Pon. 2019).

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COURT’S OPINION

LARRY WENTWORTH, Associate Justice:

On April 10-11, 2018, this came before the court for post-judgment proceedings to clarify the judgment. As explained below, the court holds that the judgment should state that Fabian Nimea and FSN Financial Group, Inc. are jointly and severally liable to Gordon Smith.

I. PROCEDURAL BACKGROUND

After numerous pretrial rulings,^[1] this case was tried before then Acting Chief Justice Martin G. Yinug on March 17-18, 2011. On October 5, 2011, Chief Justice Yinug made his findings of fact and conclusions of law and directed that an $8,674.79 judgment be entered in Smith’s favor. Smith v. Nimea, 18 FSM R. 36, 48 (Pon. 2011). He concluded: "the court HEREBY ORDERS Nimea to pay to Smith the sum of $8,674.79. The court shall issue a judgment forthwith for entry by the clerk." Id. That judgment merely stated that "[t]he court found in favor of the plaintiff, Gordon Smith, on the first cause of action of unpaid commissions" and in Nimea’s favor on the other two causes of action. Judgment at 1 (Oct. 5, 2011).

Both sides appealed. The appellate court affirmed the judgment and remanded the case "for the trial court to determine against whom the judgment [wa]s entered and why and to take such further action as [would be] consistent with [its] opinion." Smith v. Nimea, 19 FSM R. 163, 174 (App. 2013). The appellate court gave instructions for post-remand proceedings. It ordered the trial court

to determine whether its $8,674.79 judgment is against Fabian Nimea and the FSN Financial Group, Inc. jointly and severally, or just against the FSN Financial Group, Inc., and why. Then, if the trial court decides that the judgment was or should now be entered only against FSN Financial Group, Inc., Smith must be given the opportunity to try to pierce the corporate veil, especially if the corporation is an empty shell, and proceed against Fabian Nimea personally as FSN Financial Group, Inc.’s alter ego.

Id. Chief Justice Yinug did not act on the appellate court’s directions before he untimely passed away. The matter then lay dormant, but once it was assigned to the current justice, a briefing schedule was set and arguments were heard.

II. CLARIFICATION OF JUDGMENT

A. Whether Judgment Is Joint and Several

1. Defendants’ Position

The defendants contend that Smith, on his breach of contract claim, sued only the FSN Financial Group, Inc. and that, on his tort claims for interference with business opportunities and for business libel, he only sued Fabian Nimea. The defendants assert that only FSN Financial Group, Inc. can be liable to Smith because the only damages awarded were those arising from the employment contract and that contract was between Smith and FSN Financial Group, Inc., not between Smith and Nimea.

The defendants assert that Nimea could not, and cannot, be liable for these damages since he was not a party to Smith’s employment contract (although Nimea did sign that contract on FSN Financial Group, Inc.’s behalf, as its self-proclaimed "Founder/Managing Director"). The defendants therefore maintain that only the corporate defendant, FSN Financial Group, Inc., can be liable for the $8,674.79 judgment. The defendants further argue that the "piercing the corporate veil" issue cannot be reached at this time because, in their view, that issue would require a whole separate trial and is thus premature.

2. Court’s Conclusion

Smith’s complaint named three parties to the action - Smith himself as the plaintiff, and Fabian Nimea and FSN Financial Group, Inc. - and further noted that FSN Financial Group, Inc. was also doing business as FFGI Consulting Group. Complaint at 1, para. 2 (Feb. 21, 2005). Smith’s complaint otherwise treated Nimea "and the corporation as one indivisible defendant and styled the corporation as a d/b/a of Fabian Nimea." Smith, 19 FSM R. at 173-74.

At one point, Nimea sought the dismissal of all claims against him "in his individual capacity," but Justice Yinug denied this motion because there was "no legal basis for the Court to take this action." Smith v. Nimea, 16 FSM R. 186, 191 (Pon. 2008). The court’s denial of Nimea’s motion to dismiss him "in his individual capacity" put Nimea on notice that any judgment in Smith’s favor would, unless the court ordered otherwise, be against him personally.

The court did not order otherwise. After trial, Chief Justice Yinug found as fact that "Smith was under no physical or economic duress when he entered into the Contract with Nimea." Smith, 18 FSM R. at 40. He also found that "Smith was no longer Nimea’s employee at the time of Nimea’s letter."^[2] Id. at 41. He then concluded that "Nimea is liable to Smith for $8,674.79 in unpaid commissions." Id. When discussing the employment contract’s terms, Chief Justice Yinug further noted that "[d]uring his employment with Nimea, Smith’s work primarily revolved around two projects." Id. at 42. Relying on stipulated evidence, Chief Justice Yinug found that "Nimea paid Smith $4,087.52 on the [MCU] project," and further found that "Nimea ultimately paid Smith $2,500.00 on the ISIMS project." Id. at 43. Chief Justice Yinug found that since "Nimea paid Smith only $2,500 for this project . . . Nis liaor a fr a further ther $8,674.79." Id. at 44. Chief Justice Yinug ended with: "Therefore the court HEREBY ORDERS Nimea to pay to Smith the sum of $8,674.79. The court shall issuudgmerthwith for entryentry by t by the clerk." Id. at 48.

These court findings all indicate that Chief Justice Yinug concluded that Nimea was the actual employer and was liable to Smith on the judgment rendered after trial. The court therefore concludes that Chief Justice Yinug considered his judgment to be against just Fabian Nimea or against both Fabian Nimea and the FSN Financial Group, Inc. jointly and severally. Justice Yinug apparently considered FSN Financial Group, Inc. to be Nimea’s trade name or to be a corporate shell that could be disregarded as a legal fiction and the true situation be the basis of decision. The court concludes that the judgment was based on Chief Justice Yinug’s holding that Nimea was Smith’s employer and thus liable to pay Smith under his employment contract. That thus being the "law of the case," the court will now direct that a clarified judgment be entered naming Fabian Nimea as the judgment debtor and including FSN Financial Group, Inc. as a joint and several judgment debtor since it was Smith’s nominal employer.

The court notes that it would be poor public policy to permit an employer to avoid paying an employee because the employer required the employee to contract with a corporation that was an empty shell instead of contracting directly with the shell corporation’s principal. It would also be poor public policy to allow an employee to remain unpaid because someone had used a hollowed out shell corporation to hire him.

B. Piercing the Corporate Veil

The court further concludes that even if the judgment had been rendered solely against the corporate defendant, FSN Financial Group, Inc., there is enough now before the court for the court to conclude that the FSN Financial Group, Inc. is now, and was at the time of trial and judgment (and even when the complaint was filed), a shell corporation. The court can also conclude that since the FSN Financial Group, Inc. was, and is, an empty shell, Fabian Nimea is its alter ego and should be held liable for the judgment.

The FSM Assistant Registrar of Corporations Berthold Edmund testified that the Registrar’s records show that since September 30, 2001, when the FSN Financial Group, Inc.’s corporate charter was issued, only one annual report was ever filed, and that the only minutes for corporate board meetings were from 2004. Ownership was vested in Nimea and Nimea’s close family members (such as his then minor children). Nimea was, by his own representation, the FSN Financial Group, Inc.’s "Founder" and "Managing Director," and by Nimea’s own testimony, it has been "inactive" since 2007.

The court could thus come to no other conclusion than that the FSN Financial Group, Inc. was an empty shell, with Nimea its alter ego. The testimony heard, and the evidence admitted, at the April 10-11, 2018 hearing leads to no other conclusion. This is because the alter ego doctrine treats two entities that are nominally separate as the same when a corporation has acted unjustly or fraudulently, and specific factors that are determinative include substantially identical management, business purpose, operation, equipment, customers, supervision, and ownership. Smith, 19 FSM R. at 174; People of Eauripik ex rel. Sarongelfeg v. F/V Teraka No. 168, 18 FSM R. 297, 300-01 (Yap 2012); Adams v. Island Homes Constr., Inc., 10 FSM R. 611, 614 (Pon. 2002).

Generally, a corporation and its shareholders are deemed "separate entities" and "shareholders are not liable to third parties beyond their initial investment in the stock of the corporation. However, when the shareholders treat the corporation not as a "separate entity" rather as an instrument to conduct their own personal business, the court may pierce the corporate veil for purposes of liability.

Camacho Dela Cruz v. Hotel Nikko Saipan, Inc., 1997 MP 16, 17, 1997 WL 3348 at 4 (citi(citing United Enterprises, Inc. v. King, 4 N.M.I. 304, 307 (1995)).

FSN Financial Group, Inc. was nominally separate from Fabian mea, but he used it as a vehicle for his business activitievities. It was entirely under his supervision, management, and operation, and was used to conduct his business. The corporation acted unjustly in not paying its employee, Smith, the compensation he was due. The elements for piercing the corporate veil have been met.

C. Liability for Interest on the Judgment

One further point should be addressed to avoid possible confusion. No payments have been made on the judgment. It has, since October 5, 2011, accrued interest at the rate of 9% per year, 6 F.S.M.C. 1401, simple interest. Senda v. Creditors of Mid-Pacific Constr. Co., 7 FSM R. 664, 670 (App. 1996). "[I]f a judgment for money in a civil case is affirmed, whatever interest is allowed by law shall be payable from the date the judgment was entered in the court appealed from." FSM App. R. 37. The appellate court affirmed Smith’s October 5, 2011 judgment.

Like the judgment on which it accrues, the defendants’ liability for the post-judgment interest is joint and several. Post-judgment interest compensates a successful litigant for being deprived of compensation for the litigant’s loss for the time between the court’s ascertainment of the damages amount owed and the defendant’s payment. AHPW, Inc. v. Pohnpei, 15 FSM R. 520, 528 (Pon. 2008). A legally sufficient judgment that is basically sound but on remand is modified to include additional clarification or explanation, without considering new evidence or making additional findings, will accrue interest from the date of the original judgment. Id.

Once a final judgment has been entered as to liability and damages, vacation of the damage award on appeal and issuance of an order requiring further proceedings to explain the basis for the recoverable damages will not prevent accrual of post-judgment interest on the amount common to the earlier and later judgments from the date the original judgment was entered.

Id. In this case, the appellate division did not vacate the damages award. It affirmed the award. And it did not alter the judgment amount. The appellate court merely required that the judgment be clarified so as to name the liable defendant(s). A litigant who has obtained a judgment should not lose the interest that has accrued on it merely because further proceedings are needed to enforce the judgment. See id. at 523 (citing Senda v. Creditors of Mid-Pacific Constr. Co., 7 FSM R. 664, 670 (App. 1996) (creditors needing second judgment to enforce first don’t lose interest on the first)).

Thus, both defendants are also liable, jointly and severally, for the accrued interest since the judgment date.

III. CONCLUSION

Accordingly, defendants Fabian Nimea and FSN Financial Group, Inc. are jointly and severally liable to Gordon Smith for the $8,674.79 judgment entered on the October 5, 2011, including the interest accrued since that date. A clarified judgment shall issue to reflect this. The time is long past when Smith, the uncompensated employee, was to be paid his due. The time has now come for Fabian Nimea to pay Gordon Smith his judgment.

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^[1] See, e.g., Smith v. Nimea, 16 FSM R. 186 (Pon. 2008); Smith v. Nimea, 17 FSM R. 125 (Pon. 2010); Smith v. Nimea, 17 FSM R. 284 (Pon. 2010); Smith v. Nimea, 17 FSM R. 333 (Pon. 2011).

^[2] This letter was the basis of Smith’s business libel and interference with business opportunities claims, on which Chief Justice Yinug ruled in Nimea’s favor.