WEBSTER GEORGE dba, WEBSTER GEORGE & CO. v LYDON NENA

This matter is a contract case brought by Webster George against Lydon Nena for collection on an unpaid open book account. Defendant Nena was employed at the Webster Store at the time he reportedly purchased goods on account. Plaintiff George seeks judgment for the principal amount of $1659.44, post-judgment interest, costs and attorney's fees. Defendant maintains his defense that the claims are barred by the statute of limitations.

Defendant's motion to dismiss Plaintiff's opposition to Defendant's cross motion should be granted since Plaintiff's opposition was filed late. Plaintiff's motion to allow late opposition should be denied because the reason for the late filing does not satisfy the requirement of "excusable neglect" established by Rule six of the Kosrae Rules of Civil Procedure.

Defendant's cross motion for summary judgment should be granted because Plaintiff's claim appears to be barred by the statute of limitations. Plaintiff's application of Defendant's wages or "setoff' to the unpaid account was made without the knowledge or consent of the Defendant. Plaintiff's "setoff' of the account using Defendant's unpaid wages was an improper action not authorized by national or

state law. Therefore, as a matter' of' law, the setoff is null and void, and cannot be considered the "last item in the account." As a result, the "last item in the account" appears to be the purchase of Roods by Defendant in February 1990. which occurred prior to the 6 years statute of limitations. The Complaint was filed on March 5, 1990, more than 6 years after the last item in the account. Therefore, all of Defendant's purchases and consequently all of Plaintiff's claims fall before the statute of limitations :and are barred by law. The Court does not have jurisdiction to entertain Plaintiff's action and the suit should be dismissed with prejudice.

Plaintiff's motion for summary judgment seeks a judgment finding Defendant liable for payment on an open book account in the sum of $1,659.44, plus interest, fees and costs. Plaintiff relies upon KSC Section 6.2508 which states:

Mutual account. In an action brought to recover the balance due upon a mutual and open account, or in an action in which there has been partial payment, the cause of action accrues at the proven time of the last item in the account.

Plaintiff argues that the "last item in the account" is the application of $32.00 in wages due to Lydon Nena made by Plaintiff towards the debt on March 12, 1990. Defendant does not dispute the application of KSC Section x.2508 as the applicable statute of limitations. Defendant does, however, in his Memorandum in Opposition, dispute several material facts.

First, Defendant disputes the total amount claimed by Plaintiff. Defendant claims that his addition of Plaintiff's receipts add up to a different totai amount. (Defenuartt's Memo in opposition , page 4). The affidavit of Joannie Joab states a total debt of $1659.44. Defendant's memorandum claims that Plaintiff's receipts add up to $1574.33. This is a difference of $85.11 between the two parties' addition of the receipts.

Second, Defendant disputes the total indebtedness and also contests the individual purchases and authorization of purchases. (Defendant's memo in opposition, affidavit of Lydon Nena, para. 8). Since Plaintiff did not require Defendant to sign every receipt for merchandise, Defendant's objection to the individual receipts appear to be in good faith.

Third, Defendant claims that he did not consent to the payment or "setoff" applied on March 12, 1990 through Plaintiff's application of his unpaid wages to the account. (Defendant's memo in opposition, Affidavit of Lydon Nena, paras. 6-7.). According to Nena's affidavit, he first learned of Plaintiff's setoff action on April 16, 1996.

The FSM Supreme Court has established the standard for summary judgment. A court must deny a motion for summary judgment unless it finds there is no genuine issue as to any material facts and the moving party is entitled to judgment as a matter of law. The court must view the facts presented and inferences made in the light . most favorable to the non-moving party. The burden of showing a lack of triable issues of facts belongs to the moving party. Where the facts lead to differing reasonable inferences, thus establishing a genuine issue of fact, summary judgment is not available. Adams v.

Etscheit, 6 FSM Inti-m. 580, 58?, 583 (App. 1994). Based upon Defendant's memo in opposition and the statements made in the affidavit of Defendant Nena, there are at least three genuine; issues Of material fact and therefore Plaintiff is not entitled to judgment as a matter of law.

2. Defendant's motion to dismiss Plaintiff's opposition to Defendant's cross motion for summary judgment, and Plaintiff's motion to allow late opposition to Defendant's cross motion for summary judgment.

Plaintiff's counsel reportedly made arrangements for arrival of his opposition in Kosrae on May 10, 1996, but it was filed three days late due to the inadvertance of Plaintiff's agent. No explanation was given as to what "inadvertance" caused the late filing of Plaintiff's opposition. The term "inadvertance" means "lack of attention, carelessness, failure of a person to pay careful prudent attention to the progress of a negotiation or a proceeding in court." Black's Law Dictionary, 6th Ed. page 759.

The Court for cause shown may at any time in its discretion upon motion made after the expiration of the specified period, permit the act to be done where the failure to act was the result of excusable neglect.

Excusable neglect means . a failure to take the proper steps at the proper time, not in consequence of the party. s own carelessness, inattention, or willful disregard of the process of the court, but in consequence of some unexpected or unavoidable hindrance or accident.. Black. s Law Dictionary, 6th Ed., page 566. The term

"inadvertance" as used by the Plaintiff, does not run in harmony with the term "excusable neglect". Examples of excusable neglect might be the following: the agent was sick and unable to file the piead10" or there was a delay in mail delivery and the pleading arrived late in Kosrae after the filing deadline. The Plaintiff's agent's inadvertance or carelessness is not "excusable neglect" and therefore the standard for enlargement of time under KRCP 6 is not satisfied.

Failure to file a timely opposition to a motion is deemed a consent to the granting of the motion under KRCP, Rule 6(d). However, proper grounds for the granting of the motion must still exist before the Court may grant it. Senda v. Mid-Pacific Construction Co., 6 FSM Intrm. 440 (App. 1994).

In summary, Defendant's motion to dismiss Plaintiff's opposition to Defendant's cross motion for summary judgment should be granted. Plaintiff's motion to allow late opposition to Defendant's cross motion for summary judgment should be denied. Plaintiff's opposition to Defendant's cross motion for summary judgment should be disregarded by the Court as failing to comply with KRCP 6(d). Based upon FSM caseload, Defendant's cross motion for summary judgment may be granted by the Court if proper grounds exist.

Defendant's cross motion for summary judgment is based upon the affirmative defense that all of Plaintiff's claims are barred by the statute of limitations. There is no dispute that Plaintiff applied Defendant's unpaid wages toward the account. (Plaintiff's motion for summary judgment, affidavit of Joannie Joab, para. 3 .and exhibit

"B"). There is no dispute that the Defelidant did not give consent to the Plaintiff to apply or setoff his unpaid wages toward the account. (Defendant's memo icy opposition, affidavit of Lydon Nena, paras. 4 to 7). There has been no new promises to pay the alleged debt nor any partial payments made by Defendant since the termination of Defendant's employment in March 1990. (Defendant's memo in opposition and cross motion for summary judgment, affidavit of Lydon Nena, paras.' 4-5). There are no genuine issues of material fact with respect to the setoff of Defendant's unpaid wages which were applied by the Plaintiff to the account.

All three issues are questions of law and are properly determined by this Court in Defendant's motion for summary judgment. In coming to a conclusion in these issues of law, it is helpful to examine the nature of a mutual and open account, the doctrine of set off, attachment and garnishment, and the authority upon which an employer may make deductions from an employee's wages.

Since there is no FSM or Kosrae authority which discusses generally the existence and description of Mutual and open accounts, this Court looked to US law for guidance. This is appropriate since the applicable Kosrae State Code provision was based upon FSM law, which was based upon the then-existing Trust Territory and US law.

A mutual account is an open account where there are items debited and credited on both sides of the account, rather than simply a series of transactions always resulting in a debit to one party and a credit to the other party; each party to a mutual account occupies both a debtor and a creditor relation with regard to the other party. In some cases, an account may not be considered mutual if all the items are on one side. 1 Am.Jur.2d at 564 (Accounts and Accounting, section 6). The statute of limitations for a mutual account runs from the date of the last item of the account, although an action might have been maintained on any of the items separately. Williston on Contracts, 3d Ed., Vol. 18, Section 2030, p.817.

An open account is an account with a balance which has not been ascertained, and which is kept open in anticipation for future transactions. 1 Am.Jur.2d at 562 (Accounts & Accounting, Section 4). An open account is said to be running or current where it continues with no time limitations fixed by either express or implied agreement. An account is generally not considered running or current for purposes of the statute of limitations, unless there has been items on both sides within the statutory period. Id. section 5. Under the authority of the Market v. Peleliu Club case discussed

In an action brought to recover the balance due upon a mutual account, the cause of action is deemed to accrue, and the statute of limitations begins to run at the time of the last item proved in the account, on either side. The "last item" within this rule must arise from the mutual act and consent of both parties, with the understanding. express or implied, that it is to enter into and become a part of their mutual dealing or account, and is the subject of future adjustment in ascertaining the general balance due on the account. 1 AmJur.2d at 581 (Accounts and Accounting, section 23) (emphasis added).

The "last item" in the account claimed by the Plaintiff is the application of Defendant's wages to the account. This act by Plaintiff did not occur from the mutual act and consent of both parties. This act did not occur with the understanding that it was to become a part of their mutual dealing or account. Defendant claims that he first learned of Plaintiff's application of his unpaid wages to the account during this lawsuit.

Plaintiff did not claim that Plaintiff routinely withholds wages as payments on open accounts of employees. Routine withholding of wages from the Defendant, with Defendant's consent, would suggest a course of mutual dealing between the parties. This did not occur. Plaintiff's withholding of Defendant's wages wages unilateral, without the knowledge or consent of the Defendant. Therefore, it was not a "mutual act" and cannot be considered the "last item" proved in the account.

The US doctrine of setoff is essentially an equitable doctrine ieyuiring that tile dcn-iands of mutually indebted parties be set off against each other and that only the balance be recovered in a judicial proceeding by one party against the other. 20 Am.Jur.2d at 232 (Counterclaim, recoupment and setoff, section 6). The right of setoff is an exercisable right, and until the right is exercised, either party may do as he or she pleases with his or her property. Setoff is usually the result of judicial proceedings in which both parties become actors and is accomplished only by judicial action. 20 Am.Jur.2d at 233. US law permits one exception to this rule: US law grants banks the right to setoff a debt when the debtor is indebted to the bank and the debts are mutual. 68 ALR.3d 192.

Generally, a setoff must rest on a claim enforceable in its own right. Thus, an obligation that is not enforceable in an action at law cannot be set off against an opposing claim. 20 Am.Jur.2d at 234, Section 7. A claim for unpaid wages would be an enforceable claim by the Defendant.

In applying the doctrine of setoff to our case, the right to assert setoff can be asserted only by the Defendant. If the Defendant would have chosen to setoff Plaintiff's claims by the wages due him, Defendant would have filed a counterclaim to apply the doctrine of setoff or asserted setoff as an affirmative defense. Plaintiff may not use Defendant's right of setoff. A defendant's claim to' set off against the plaintiff's claim must have been capable of being maintained in a suit against the plaintiff at the commencement of the plaintiff's action. 20 Am.Jur.2d at 238, Section 14. Defendant's right to use his

unpaid wages as setoff to Plaintiff's claims would have been permissible within the statute of limitations of 6 years at the outset of this suit. However, the statute of limitations now bars Defendant's application of setoff against the Plaintiff.

A court has inherent equitable power to allow or compel a setoff when equity and justice so demands. The right of setoff itself is essentially an equitable right which courts may enforce at their discretion. Id at 236, Section 11. The failure to allege setoff as an affirmative defense can bar the defense of setoff in the same manner as any other waiver of an affirmative defense by the failure to plead it. `?0 Am.Jur.2d at 305, Section 104. Here, if Defendant would have plead the defense of setoff, the Court would have equitable power to enforce the setoff. However, Defendant failed to plead setoff as a defense.

Plaintiff's March 12, 1990 action in applying Defendant's wages to the account payable may be considered an attachment of Defendant's wages. Attachment is the involuntary dispossession of the defendant prior to any adjudication of the rights of the plaintiff: that is, a seizure in advance of trial and judgment. 6 Am.Jur.2d at 560-561 (Attachment and Garnishment, Section 1). The proper method to attach Defendant's wages would be to bring a request for attachment of wages in the complaint. A petition for writ of attachment is subject to Kosrae State Code, Section 6.2405. The statute provides that:

A debt owed to a defendant is subject to attachment by Court order except salary or wages which the Court finds necessary for the support of the defendant or his dependents. KSC Section 6.2405(2) The Kosrae State Code provides for the procedure of attachment of wages. Plaintiff failed to follow that procedure.

The FSM Code provides authority for an employer to make certain deductions from an employee's wages. The deductions authorized from an employee's wages are social security contributions under Title 53, Chapter 9, taxation of wages and salaries under Title 54, Chapter 1, Subchapter III, and health insurance premiums for the National Health Insurance Plan under Title 52, Chapter 4. No other deductions from an employee's wages are authorized under FSM law.

I could not find any statutory authority under the Kosrae State Code which requires or allows other deductions from an employee's wages. I reviewed Kosrae State Code, Title 5, which provides some guidance on employment of individuals in the executive department and sets out an employee's rights in detail. Generally, the KSC executive service provisions provide for due process hearings and appeal in taking actions adverse to an employee. The KSC does not authorize the State government to withhold or use -a person's wages to setoff a debt owed to the government.

pay an outstanding debt to the employer. Generally, US statutory authority permits employers to deduct from employee's wages the reasonable value of board, lodging, of other facilities, only if iijr: employee is told of the value of facilities being deducted from their wages and the employee's acceptance of the wage deduction is voluntary. Employment Law, Practitioner- Treatise Series, Vol. 1 (Wages, Hours, and Benefits, p. 341). US statutory law also permits amounts to be deducted from an employee's wages for voluntary assignment by the employee to a third party. Typical assignments include union dues, charitable contributions and insurance premiums. Id. page 342.

Most US state wage laws commonly limit deductions and withholding from an employee's pay. Most states prohibit deductions unless required or permitted by law or made with the written consent of the employee. Id. page 382. Here, the deduction taken by Plaintiff by application of Defendant's entire last paycheck to the account due was not authorized by law and was not authorized in writing or even verbally by Defendant. Under US law, Plaintiff's action was not authorized and was an improper deduction of Defendant's wages.

Most US state wage laws also regulate the payment of wages upon termination of employment. In some states, the employer must pay all accrued wages on the last day of employment, while in other states the payment may be made on the next regularly scheduled payday. In several states, unclaimed, unpaid wages, which remain unclaimed by the former employee, for periods between. 1 and 5

I could not find any Kosrae or FSM employment law rey2-ulatinly the payment of wages to terminated persons. My sense is that most tern offlated entpioyces wine back to (lie einployet to claim their final wages and therefore this is not common problem. In this case, the Plaintiff employer did not hold on to Defendant's wages for any length of time after his termination. Apparently, Plaintiff simply applied Defendant's unpaid wages to the account on the next payday, March 12, 1990. A standard' of reasonableness would suggest that an employer hold on to a terminated employee's final unpaid wages for a minimum of a few months. This would allow a terminated employee who is sick or off-island adequate time to claim his final wages.

Through my research of Kosrae, FSM and US law, I could not find any legal authority that would support Plaintiff's unilateral, unconsented application of Defendant's wages to the account. FSM law permits the employer to make certain deductions from an employee's wages. If we consider the guidance of US law, Plaintiff, at a minimum, would have been required to get written consent from Defendant to apply his unpaid wages towards the account. That did not occur here. Plaintiff unilaterally applied Defendant's wages to payment of the account. In addition to the lack of FSM or Kosrae statutory authority, public policy cannot condone an employer's unilateral taking of an employee's wages without his or her consent (unless authorized by law). Therefore, Plaintiff's action taken on March 12, 1990 should be considered unauthorized by this Court and disregarded in the further consideration of this case. Statute of Limitations

Both parties acknowledge the statute of limitations established by KSC Section 6.2508 as the appropriate limitation in this case. KSC Section 6.2508 provides a 6 year limitations for a mutual acid upeii account. This provision is based upon 6 TTC, section 307 and is also based on the FSM Code, Title 6, section 807. Since all three provisions have very similar language, it is appropriate to look at FSM and Trust Territory cases interpreting them.

Plaintiff relies upon the case of Techona v. Peleliu Club 6 TTR 275 (1973), in his untimely Memorandum in Opposition to Defendant's Cross Motion for Summary Judgment. Although Plaintiff's Memo should be stricken by this Court pursuant to the discussion above, I discuss this case because it is instructive.

Plaintiff relies upon Techong v. Peleliu Club to establish the proposition that the bar of the statute of limitations can be removed by a promise to pay, partial payment, or an acknowledgment of the debt from which a promise can be inferred. Plaintiff claims that Defendant's failure to object to Plaintiff's withholding of his wages constitutes an "acknowledgment" of the debt. Plaintiff's reasoning is tortured and is also not supported by the cited case.

In the Techong v. Peleliu Club case, the defendants admitted in a response to the complaint that defendants owe plaintiffs "some sum of money." The Trial Court held that the "some sum" acknowledgment was sufficient to remove the bar of statute of limitations as to the liability for payment. The amount due was then determined by the Trial Court.

were barred by the statute of limitations. 7 TTR 364 (HCTT App. Div. 1976). The lower court's finding that defendant's statement that theN"owe plaintiffs some sum of money" was not adequate to revive the debt and that the lower court's finding was clearly erroneous. The Appellate Court stated the rule concerning the revival of a debt barred by the statute of limitations as follows: ...an acknowledgment which will revive the original cause of action must be unqualified and unconditional. It must show positively that the debt is due in whole or in part. 7 TTR at 366 (citation omitted). Since there were several debts, it could not be determined from defendant's statement which debt it referred to, therefore the acknowledgment was insufficient to revive those debts barred by statute. Id.

As in Techong v. Peleliu Club, Defendant has not made an unqualified and unconditional acknowledgment that the debt is due in whole or in part. Plaintiff has not asserted any affirmative action by the Defendant which would qualify as an unqualified and unconditional acknowledgment of the debt. The rule established by the Appellate Court has not been satisfied and the Defendant's debt was not revived by Plaintiff's action on March 12, 1990.

If a case is cited to this Court as authority for a proposition of law, it is counsel's responsibility to research whether the case is still "good law" or whether it has been overturned, modified or reversed on appeal-by an appellate court. Here, the 'trial Court decision was in Volume 6 of the Trust Territory Reports, the

All counsel are required to adhere to the ABA Code of Professional Responsibility. GCO 1985-5. Counsel before the FSM Supreme Court are required to adhere to the ABA Model Rules of Professional Conduct. FSM S.Ct. GCO 1983-2. The ABA Code and the Rules of Professional Responsibility require candor toward the tribunal. Specifically, Rule 3.3 states that:

(3) fail to disclose to the tribunal legal authority in the controlling jurisdiction known to the lawyer to be directly adverse to the position of the client and not disclosed by opposing counsel... Without determining whether the Trust Territory case is "controlling", I believe the Court is justified in requiring counsel to disclose cases which they rely upon which have been overturned or reversed. The Appellate Case for Techong v. Peleliu Club could have been easily found by Plaintiff's counsel.

In the case of Market v. Peleliu Club, 6 TTR 458 (1974), the statute of limitations as applicable to mutual and open accounts was addressed by the Court. Here, the plaintiff sold merchandise to the defendant and credited defendant for payments received. At the end of each year, the plaintiff submitted a report of the indebtedness to the defendant. The last item in the account for merchandise was sold within the 6 year statute of limitations. The court determined that this relationship constituted a "mutual and open account" subject to the 6 year statute of limitations in 6 TTC Section 307. The

president of the defendant Peleliu Club also made a clear and unqualified acknowledgment of the debt in writing by letter to the plaintifi. 'efendant was unable to produce any probative; evidence reducing plaintiff's claim, therefore the Court entered judgment for the plaintiff in the entire amount due. Based upon Market v. Peleliu Club, the account in this case qualifies as a "mutual and open account" subject to ;the 6 year statute of limitations.

In Creditors of Mid-Pac Construction Co. v. Senda, 4 FSM Intrm. 157 (Pon. 1989), Court addressed the statute of limitations with respect to stock subscriptions. The Court held that the statute of limitations begins to run on an action for the collection of unpaid stock subscriptions when either:

The FSM Supreme Court has also addressed the application of the statute of limitations with respect to installment contracts. Where a note is payable in installments, each installment is a distinct action and the statute of limitations begins to run against each installment from the time it becomes due, that is, from the time when an action might be brought to recover it. Waguk v. Kosrae Island Credit Union, 6 FSM Intrm. 14, 17 (App. 1993). Our case does

The policy of enforcing a statute of Iiinitations is 1- L1'. established. The primary purpose of a statute of limitations is to compel the exercise of a right of action within a reasonable time so that the opposing party has a fair opportunity to defend. Statutes of limitation are designed to ;prevent undue delay in bringing suit on a claim and to suppress fraudulent and stale claims from being asserted . , . . The purpose of a limitation upon the time within which an action may be commenced is to insure repose and to require that claims be advanced while the evidence to rebut them is still fresh. 51 Am.Jur.2d at 612 (Limitation of Actions, Section 17). Where a time requirement has been statutorily established, the court is without jurisdiction to hear the action unless it is filed within the time period prescribed by statute. By comparison, time , requirements set by court rules are more subject to relaxation than are those established by statute. Charley v. Cornelius, 5 FSM Intrm. 316 (Kos. S. Ct. App. 1992).

Plaintiff made a .unilateral setoff of Defendant's wages to the unpaid account. This setoff cannot be consideredconsidered, an acknowledgment which would revive the debt under the authority of Techong v. Peleliu Club.. This setoff also cannot serve as the "last item in the account" on three other independent grounds. First,

under contract law, the setoff was not a mutual act, made with the consent of both parties in the course of their dealings. Second, the setoff may be considered air attachment which was not conducted pursuant to the procedure for attachment of wages established in the KSC. Third, under employment law, there is no authority for the plaintiff to withhold or make deductions from an employee's wages unless authorized by law or authorized by written consent of the employee. Therefore, the March 12, 1990 "payment" to the account by Plaintiff's unilateral application of Defendant's unpaid wages must be considered unauthorized and void. As a result, the "last item in the account" occurred in February 1990, prior to the 6 year statute of limitations and all of Plaintiff's claims are barred. Pursuant to KSC Section 6.2501, and Charley v. Cornelius , this Court does not have jurisdiction over this matter and the case should be dismissed with prejudice.