7 FSM Intrm. 037-039

THE SUPREME COURT OF THE

FEDERATED STATES OF MICRONESIA

Cite as Pan Oceania Maritime Services (Guam) Ltd. v.

Micronesia Shipping Inc., 7 FSM Intrm. 37 (Pohnpei 1995)

[7 FSM Intrm. 37]

PAN OCEANIA MARITIME SERVICES (Guam) LTD.,

a corporation d/b/a TNT Skypack International Express (Micronesia),

Plaintiff,

vs.

MICRONESIA SHIPPING INC. and WILLIAM C. WADE,

Defendants.

CIVIL ACTION NO. 1994-151

MEMORANDUM OF DECISION

Andon L. Amaraich

Chief Justice

Order Issued: December 27, 1994

Decided: February 16, 1995

APPEARANCES:

For the Plaintiff: Douglas Parkinson, Esq.

Law Offices of R. Barrie Michelsen

P.O. Box 1450

Kolonia, Pohnpei FM 96941

* * * *

HEADNOTES

Attachment and Execution

A writ of attachment is a process by which property is seized and held to satisfy an established debt or prospective judgment and may only issue against the property of a defendant debtor. The property of a third party, to which the debtor has no possessory rights, may not be seized, held, and

[7 FSM Intrm. 38]

eventually sold to satisfy the obligations of the debtor. Pan Oceania Maritime Servs. (Guam) Ltd. v. Micronesia Shipping, 7 FSM Intrm. 37, 38 (Pon. 1995).

Attachment and Execution

That a defendant debtor is a shareholder of a corporation that might receive a favorable settlement in the future and might pay a dividend to its shareholders does not entitle creditors to attach that corporation's assets. Pan Oceania Maritime Servs. (Guam) Ltd. v. Micronesia Shipping, 7 FSM Intrm. 37, 39 (Pon. 1995).

* * * *

COURT'S OPINION

ANDON L. AMARAICH, Chief Justice:

On December 21, 1994, plaintiff filed a Motion for Writ of Attachment seeking to secure funds to satisfy any judgment which eventually may be rendered against Defendant Wade. Plaintiff sought to attach funds to be distributed to Kaselehlia Investment and Trade Inc. ("KITL") as part of the settlement of an unrelated civil action. On December 27, 1994, this Court issued an Order denying plaintiff's Motion for Writ of Attachment. This Memorandum of Decision explains that Order.

Plaintiff's motion sought to attach KITL funds pursuant to Pohnpei state law, specifically Title 8, Section 51 of the Trust Territory Code. Title 8, Section 51 empowers the state trial courts to issue writs of attachment. Pursuant to the FSM Rules of Civil Procedure, Title 8, Section 51 also empowers this Court to issue writs of attachment:

[a]t the commencement of and during the course of an action, all remedies

providing for the seizure of person or property for the purpose of securing

satisfaction of judgment ultimately to be entered in the action are available

under the circumstances and in the manner provided by the law of the state in

which the court is held, existing at the time the remedy is sought . . .

FSM Civ. R. 64.

A writ of attachment is a process by which property is seized and held to satisfy an established debt or a prospective judgment. See 6 F.S.M.C. 1405. A writ of attachment may only issue against the property of a defendant debtor. E.E. Maxwell Co. v. Arti Decor, Ltd., 638 F. Supp. 749, 753 (N.D. Tex. 1986) (instructing that "[t]he purpose of attachment is to enable a plaintiff to secure his debt by seizure of the defendant's property"); 6 Am. Jur. 2d Attachment and Garnishment § 1, at 560 (1963) ("Attachment is a remedy for the collection of an ordinary debt, proceeding by seizure . . . of the property of the debtor."); see Bank of Guam v. Elwise, 4 FSM Intrm. 150, 152 (Pon. 1989) (noting that "[a]ttachment applies to assets in the defendant's possession"). It is a basic proposition that the property of a third party, to which a debtor has no possessory rights, may not be seized, held, and eventually sold to satisfy the obligations of the debtor. However, in this case, plaintiff seeks to do exactly that (i.e. seize the property of a third party to pay the prospective debts of one of the defendants).

Plaintiff's Motion for Writ of Attachment sought to satisfy a prospective judgment against Defendant Wade, out of the assets of KITL, which is neither a party to nor involved in any way in this action. Defendant Wade is a shareholder in KITL, but defendant's status as shareholder in no way makes KITL liable for the personal debts of defendant. KITL and Defendant Wade are not one and the

[7 FSM Intrm. 39]

same. The assets of KITL are not the assets of Defendant Wade, just as the liabilities of KITL are not the liabilities of Defendant Wade. Cash payments made to KITL as part of the settlement of the corporation's litigation are KITL funds to be used for KITL purposes only. Defendant Wade is not entitled to claim any assets of KITL. In the event KITL's board of directors decides to authorize the payment of a dividend to shareholders, Defendant Wade may receive a cash distribution. However, Defendant Wade is not entitled per se to any portion of KITL's judgment, and, conversely, creditors of Defendant Wade may not seize KITL assets to satisfy the personal debts of Defendant Wade.

Plaintiff argues that an affidavit submitted by Defendant Wade in an unrelated action, in which a judgment has been entered against him, demonstrates that KITL funds are available to satisfy defendant's personal debts. Defendant's affidavit states that he has no funds at present with which to pay his debts, but then goes on to imply that he may have future income with which to pay his debts due to KITL's ongoing litigation: "I am involved in another piece of litigation where an arbitration board awarded our side compensatory and punitive damages. This award is being challenged in court and I have not received any payments to date." Ex. A to Pl.'s Motion for Writ of Attachment (Aff. Bill Wade) (June 14, 1994). Defendant's statement, implying that resolution of the KITL litigation will result in his ability to pay his outstanding debts, can be interpreted in two ways, neither of which gives plaintiff any right to seize the assets of KITL for the purpose of satisfying defendant's prospective debts.

First, defendant's statement can be interpreted to mean merely that he expects the favorable resolution of the KITL litigation to result in the payment of a cash dividend to him as a KITL shareholder. Defendant may of course use that personal income to pay his debts, and plaintiff may seek to attach that personal income as security for any ultimate judgment. However, this interpretation of defendant's statement does not suggest that defendant intends to use KITL assets to pay his personal debts, and accordingly, does nothing to suggest that plaintiff is entitled to attach KITL assets.

Second, defendant's statement can be interpreted to mean that he intends to use KITL funds to satisfy his personal debts. If this is defendant's intention, his suggestion and any eventual use of KITL funds to pay defendant's personal debts is improper. Corporate assets may not be used to pay the personal debts of shareholders.1 The Court cannot condone and participate in the improper dissipation of corporate assets by attaching KITL funds for the purpose of satisfying Defendant Wade's prospective personal obligations. Accordingly, this interpretation of defendant's statement also does nothing to entitle plaintiff to attach the assets of KITL.

Whatever Defendant Wade's intention may be, Mr. Wade cannot authorize plaintiff to attach the assets of an independent third party for the purpose of satisfying the defendant's debts.

* * * *

Footnote:

1. The Court does not mean to imply that a corporation may not make loans to its shareholders, which in turn may be used to pay a shareholder's debts, merely that corporate assets may not be given away or used without fair consideration being given to the corporation.


	THE SUPREME COURT OF THE FEDERATED STATES OF MICRONESIA Cite as Pan Oceania Maritime Services (Guam) Ltd. v. Micronesia Shipping Inc., 7 FSM Intrm. 37 (Pohnpei 1995) [7 FSM Intrm. 37] PAN OCEANIA MARITIME SERVICES (Guam) LTD., a corporation d/b/a TNT Skypack International Express (Micronesia), Plaintiff, vs. MICRONESIA SHIPPING INC. and WILLIAM C. WADE, Defendants. CIVIL ACTION NO. 1994-151 MEMORANDUM OF DECISION Andon L. Amaraich Chief Justice Order Issued: December 27, 1994 Decided: February 16, 1995 APPEARANCES: For the Plaintiff: Douglas Parkinson, Esq. Law Offices of R. Barrie Michelsen P.O. Box 1450 Kolonia, Pohnpei FM 96941 * * * * HEADNOTES Attachment and Execution A writ of attachment is a process by which property is seized and held to satisfy an established debt or prospective judgment and may only issue against the property of a defendant debtor. The property of a third party, to which the debtor has no possessory rights, may not be seized, held, and [7 FSM Intrm. 38] eventually sold to satisfy the obligations of the debtor. Pan Oceania Maritime Servs. (Guam) Ltd. v. Micronesia Shipping, 7 FSM Intrm. 37, 38 (Pon. 1995). Attachment and Execution That a defendant debtor is a shareholder of a corporation that might receive a favorable settlement in the future and might pay a dividend to its shareholders does not entitle creditors to attach that corporation's assets. Pan Oceania Maritime Servs. (Guam) Ltd. v. Micronesia Shipping, 7 FSM Intrm. 37, 39 (Pon. 1995). * * * * COURT'S OPINION ANDON L. AMARAICH, Chief Justice: On December 21, 1994, plaintiff filed a Motion for Writ of Attachment seeking to secure funds to satisfy any judgment which eventually may be rendered against Defendant Wade. Plaintiff sought to attach funds to be distributed to Kaselehlia Investment and Trade Inc. ("KITL") as part of the settlement of an unrelated civil action. On December 27, 1994, this Court issued an Order denying plaintiff's Motion for Writ of Attachment. This Memorandum of Decision explains that Order. Plaintiff's motion sought to attach KITL funds pursuant to Pohnpei state law, specifically Title 8, Section 51 of the Trust Territory Code. Title 8, Section 51 empowers the state trial courts to issue writs of attachment. Pursuant to the FSM Rules of Civil Procedure, Title 8, Section 51 also empowers this Court to issue writs of attachment: [a]t the commencement of and during the course of an action, all remedies providing for the seizure of person or property for the purpose of securing satisfaction of judgment ultimately to be entered in the action are available under the circumstances and in the manner provided by the law of the state in which the court is held, existing at the time the remedy is sought . . . FSM Civ. R. 64. A writ of attachment is a process by which property is seized and held to satisfy an established debt or a prospective judgment. See 6 F.S.M.C. 1405. A writ of attachment may only issue against the property of a defendant debtor. E.E. Maxwell Co. v. Arti Decor, Ltd., 638 F. Supp. 749, 753 (N.D. Tex. 1986) (instructing that "[t]he purpose of attachment is to enable a plaintiff to secure his debt by seizure of the defendant's property"); 6 Am. Jur. 2d Attachment and Garnishment § 1, at 560 (1963) ("Attachment is a remedy for the collection of an ordinary debt, proceeding by seizure . . . of the property of the debtor."); see Bank of Guam v. Elwise, 4 FSM Intrm. 150, 152 (Pon. 1989) (noting that "[a]ttachment applies to assets in the defendant's possession"). It is a basic proposition that the property of a third party, to which a debtor has no possessory rights, may not be seized, held, and eventually sold to satisfy the obligations of the debtor. However, in this case, plaintiff seeks to do exactly that (i.e. seize the property of a third party to pay the prospective debts of one of the defendants). Plaintiff's Motion for Writ of Attachment sought to satisfy a prospective judgment against Defendant Wade, out of the assets of KITL, which is neither a party to nor involved in any way in this action. Defendant Wade is a shareholder in KITL, but defendant's status as shareholder in no way makes KITL liable for the personal debts of defendant. KITL and Defendant Wade are not one and the [7 FSM Intrm. 39] same. The assets of KITL are not the assets of Defendant Wade, just as the liabilities of KITL are not the liabilities of Defendant Wade. Cash payments made to KITL as part of the settlement of the corporation's litigation are KITL funds to be used for KITL purposes only. Defendant Wade is not entitled to claim any assets of KITL. In the event KITL's board of directors decides to authorize the payment of a dividend to shareholders, Defendant Wade may receive a cash distribution. However, Defendant Wade is not entitled per se to any portion of KITL's judgment, and, conversely, creditors of Defendant Wade may not seize KITL assets to satisfy the personal debts of Defendant Wade. Plaintiff argues that an affidavit submitted by Defendant Wade in an unrelated action, in which a judgment has been entered against him, demonstrates that KITL funds are available to satisfy defendant's personal debts. Defendant's affidavit states that he has no funds at present with which to pay his debts, but then goes on to imply that he may have future income with which to pay his debts due to KITL's ongoing litigation: "I am involved in another piece of litigation where an arbitration board awarded our side compensatory and punitive damages. This award is being challenged in court and I have not received any payments to date." Ex. A to Pl.'s Motion for Writ of Attachment (Aff. Bill Wade) (June 14, 1994). Defendant's statement, implying that resolution of the KITL litigation will result in his ability to pay his outstanding debts, can be interpreted in two ways, neither of which gives plaintiff any right to seize the assets of KITL for the purpose of satisfying defendant's prospective debts. First, defendant's statement can be interpreted to mean merely that he expects the favorable resolution of the KITL litigation to result in the payment of a cash dividend to him as a KITL shareholder. Defendant may of course use that personal income to pay his debts, and plaintiff may seek to attach that personal income as security for any ultimate judgment. However, this interpretation of defendant's statement does not suggest that defendant intends to use KITL assets to pay his personal debts, and accordingly, does nothing to suggest that plaintiff is entitled to attach KITL assets. Second, defendant's statement can be interpreted to mean that he intends to use KITL funds to satisfy his personal debts. If this is defendant's intention, his suggestion and any eventual use of KITL funds to pay defendant's personal debts is improper. Corporate assets may not be used to pay the personal debts of shareholders.1 The Court cannot condone and participate in the improper dissipation of corporate assets by attaching KITL funds for the purpose of satisfying Defendant Wade's prospective personal obligations. Accordingly, this interpretation of defendant's statement also does nothing to entitle plaintiff to attach the assets of KITL. Whatever Defendant Wade's intention may be, Mr. Wade cannot authorize plaintiff to attach the assets of an independent third party for the purpose of satisfying the defendant's debts. * * * * Footnote: 1. The Court does not mean to imply that a corporation may not make loans to its shareholders, which in turn may be used to pay a shareholder's debts, merely that corporate assets may not be given away or used without fair consideration being given to the corporation.