Opinion
Supreme Court No. 05-0025-GA
May 24, 2006, Decided . May 24, 2006, Filed
ORDER VACATING THE OCTOBER 14TH "SPENDING CAP ORDER"
PER CURIAM:
P1 This case is an appeal from an order in a receivership case, Acting Secretary of Commerce Daniel L. Camacho v. Bank of Saipan, Inc., Civil Action No. 02-0268B (the lawsuit will be referred to as the "Receivership Lawsuit" while the court will be referred to as the "Receivership Court"). The Receivership Court issued an order that required, among other things, the Bank to secure indemnification pledges in the amount of $ 2,000,000 in private property. Because there has been no plenary hearing, as mandated by this Court's Atalig decision, and it is unclear whether, and to what extent, the Fennell Defendants enjoy immunity, the Receivership Court abused its discretion when it ordered the Bank to procure $ 2,000,000 worth of private property indemnification.
The groups involved in the instant appeal, are the Bank of Saipan (the "Bank"), its directors (the "Directors"), former receiver Randall T. Fennell (sometimes hereinafter referred to as "Fennell"), David Axelrod and the law firm of Schwabe, Williamson & Wyatt (hereinafter collectively referred to as the "Schwabe Firm") (Fennell and the Schwabe Firm will be collectively referred to as the "Fennell Defendants.") The ancillary lawsuit, Bank of Saipan v. Randall T. Fennell, et al., Civil Action No. 04-0449A suit will be referred to as the "Fennell Lawsuit" or "Fennell Litigation" and its court as the "Fennell Court."
P2 The Bank, and more importantly its depositors, have had to weather a legal typhoon that consisted of two receivers, possible liquidation, rehabilitation, and protracted and prodigious litigation. When placed into receivership, the Receivership Court appointed Randall T. Fennell the receiver for the Bank. For various reasons, the Receivership Court removed Fennell and replaced him with Mr. Antonio S. Muna. Subsequently, the Bank set off on a course of rehabilitation.
P3 As with most receiverships, it is possible for the entity in receivership, in this case the Bank, to pursue persons who wronged it. At some point, the Bank directors identified the Fennell Defendants as potential wrongdoers and decided to bring suit. Any suit against a former receiver, however, could prove potentially costly due to a receiver's qualified immunity.
P4 Originally, Fennell received blanket judicial immunity from a lower court for his actions taken while receiver. This Court held that such blanket immunity was improper.
In addition to the premature confirmation of immunity to Fennell, the obligation of the Bank to defend and indemnify Fennell for 'any and all claims' is patently overbroad. It is appropriate for a court to order indemnification and the obligation to defend for 'all cases arising out of acts done or omitted by receivers honestly and in good faith in the exercise of the authority derived from their appointment and in an honest endeavor to discharge their duties as officers of the courts. Here, however, the Exoneration Order and Clarification Order made no mention of the requirement of honesty or good faith. Instead, these Orders simply provide that Fennell is indemnified for "any and all claims," without any prerequisite at all. Consequently, the grant of indemnity here by the trial court is likely too broad and over-reaching
Bank of Saipan v. Atalig, 2005 MP 3, P14 (2005).
With its Atalig decision, this Court made it clear that Fennell could be entitled, as all receivers are, to immunity and indemnification. But, he is only so entitled after a plenary hearing on the matter that determines if his acts were done honestly, in a good faith, and in the exercise of the authority derived from his appointment.
P5 Receiver Muna, while not vetoing the idea of a lawsuit against Fennell, had concerns regarding the costs of a suit against Fennell. Additionally, the Receivership Court had the same concerns. The Receivership Court issued an order on November 16 ("November 16" Order") the purpose of which, both the Bank and the Fennell Defendants agree, was to control the costs of any suit against the Fennell Defendants. The Court ordered the Directors and Receiver Muna to:
See ER 307 1I. 1-3
…meet in the next 45 calendar days to discuss methods of limiting exposure. In conducting their negotiations, the [Directors] and Receiver should be aware that the Court will be reluctant to allow expenditure of Bank funds exceeding $ 200,000 total - including the costs of defending against counterclaims and paying damages on successful counterclaims. Should the Board and Receiver fail to agree, the Court will intervene after the 45-day period has elapsed and upon request.
[ILLEGIBLE FOOTNOTE]
P6 The ambiguity in this order coupled with animus that exists between the Bank and the Fennell Defendants produced a situation where it is simultaneously possible for: (1) the Bank, its directors, and Receiver Muna to agree upon sufficient cost controls without going before the Receivership Court; and (2) the Bank directors filing a lawsuit not sanctioned by the Receivership Court because it failed to follow the Receivership Court's November 16th Order.
P7 On its face, the November 16" Order puts the onus on the Receivership Court to make sure the Bank complied rather than on the Bank itself. By its own terms, if the Bank and the Receiver agree, the Receivership Court did not have to intervene. Not surprisingly, the Bank and the Fennell Defendants have conflicting interpretations on the November 16th Order. Since the onus was on the Receivership Court and "the Court neither expressly authorized the lawsuit nor expressly denied permission to continue[]", it seems reasonable that the Receivership Court, the Bank and the Fennell Defendants could all be correct in their respective interpretations. Such confusion necessitated the order at issue in this appeal.
P8 Although the Bank's Directors and their lawyers arranged for some cost controls, the Receivership Court was not impressed with these efforts. Thus, the Receivership Court ordered that the Bank: (1) couldn't expend additional corporate funds to support the Fennell Litigation; (2) must, within forty-five days, submit a new cost control plan that met certain requirements; and (3) must submit indemnification agreements from individuals and/or corporations regarding expenses related to the Fennell Litigation. Additionally, the individuals or corporations that agreed to indemnification must pledge $ 2,000,000 in real or personal property in the event the costs came due (the "Spending Cap Order"). The Spending Cap Order is the only subject of the instant appeal.
See Re: The Matter of The Bank of Saipan, No. 02-0268; (Order Concerning the Court's Order of November 16, 2004, signed October 14, 2005).
I.
P9 We have jurisdiction to hear appeals from final judgments and orders from the superior court. Absent the final order rule, a litigant must demonstrate that his appeal fits within an exception. The Bank failed to argue that the Spending Cap Order is a regular final order or that its appeal falls within a recognized exception to the final order doctrine. Since these issues were not argued and the Bank offered no support for any such arguments, we will not address these issues. The Bank, however, argues that the Spending Cap Order amounts to an injunction, and is therefore appealable. The Spending Cap Order requires the Bank to solicit a very large amount of private property for an indemnification that may or may not be necessary, and it requires this before the Bank may proceed with its suit. Without this security, the bank may not move forward with its lawsuit, and because such relief is clearly injunctive in nature, we have jurisdiction for this appeal.
N.M.I. Const., art. IV, § 3.
See, e.g. Tyler v. Runyon, 70 F.3d 458, 464-65 (7th Cir.1995) (deeming argument waived because litigant and attorney failed to cite case law or statutory authority).
See Villanueva v. Tinian Shipping & Transp., Inc., 2005 MP 12, P6.
P10 The Bank contends that the standard of review in this case is de novo. While we accept that the Spending Cap Order was injunctive in nature, it is an order in a receivership action. Therefore, the proper standard of review is abuse of discretion.
See Bank of Saipan's Opening Brief at 22.
See Commodity Futures Trading Comm'n. v. Topworth International, Ltd., 205 F.3d 1107, 1115 (9th Cir. 1999) .
II.
P11 A reading of the Spending Cap Order indicates that the Receivership Court was concerned with the costs that a lawsuit against the Fennell Defendants might impose on the Bank in two forms: (1) the cost of defending the Bank, the Board, and the current Receiver against counterclaims; and (2) the expense of Fennell's fees and costs because of his claim of qualified immunity. Cost controls placed on an entity in receivership are a necessary and legitimate measure for a receivership court to take. Indemnification that holds a lawsuit hostage until satisfied is a more drastic remedy. Here, the Receivership Court ordered indemnification even though there is no determination as to the extent the Fennell Defendants enjoy immunity or what actions were taken in good faith.
See CLARK ON RECEIVERS, § 583(a), p. 950.
P12 Again, "[w]hether or not a receiver is entitled to immunity is to be resolved at a plenary hearing with sworn witnesses and documentary proof. . ." There has been no determination of immunity in the Fennell Litigation because the Fennell Litigation has not progressed to that stage yet. Regardless of this fact, the Receivership Court has issued the Spending Cap Order which forces the Bank to secure a large amount of private property before it may proceed with the suit. Not only is the $ 2,000,000 amount cost prohibitive, shutting the Fennell Litigation down by requiring the deposit before a determination of the need for it violates Atalig.
Bank of Saipan v. Atalig, 2005 MP 02, P10 (2005)
P13 Upon a plenary hearing, a determination can be made in the Fennell Lawsuit regarding the Fennell Defendants' immunity, if any. With this determination, the Receivership Court can then make a decision about the amount of money required for indemnification, if any. All of this, however, assumes that the Receivership is even open at the time of the plenary hearing. That determination, however, is not for this Court.
While the Bank appears to be demanding a plenary hearing, the Commonwealth Rules of Civil Procedure allow for a resolution of these matters and the lower courts need no instructions on how to follow the procedural rules.
P14 While it may be necessary for the Receivership Court to issue a comprehensive order requiring indemnification, it is premature to order one before a plenary hearing on the matter. Cost controls, however, may, and can be, separate and apart from any indemnification order. Although the Spending Cap Order does not indemnify the Fennell Defendants per se it's requirements are onerous enough as to operate as a defacto indemnification of the Fennell Defendants. As this Court has previously ruled, indemnification should only take place after the Fennell Court holds a plenary hearing on the matter.
P15 Further, it is unclear as to what costs the Bank would incur in a countersuit. Does the contingency fee agreement include fees incurred in a countersuit? The Fennell Defendants claim that it does not while the Bank claims that it does. There isn't a finding of fact in the Spending Cap Order either way. Without more information it is impossible to determine how much protection the depositors of the Bank need. At this stage, however, $ 2,000,000 is a prohibitive amount and an abuse of discretion. Further, after reviewing the briefs in this case as well as the record, it becomes difficult to tell who the Spending Cap Order is designed to protect, the depositors of the Bank (and thereby the Bank itself) or the Fennell Defendants.
P16 In its amicus brief, Fennell states that "in determining whether -- and, if so, on what conditions -- the company in receivership may bring a lawsuit, has nothing to do with whether Fennell is entitled to qualified immunity." We agree with this proposition. Likewise, the Fennell Defendants have nothing whatsoever to do with whether -- and, if so, on what conditions -- the company in receivership may bring a lawsuit. If the Receivership Court makes a determination that the depositors will be protected that is one thing, but the record and the amicus briefs seem to indicate that the Fennell Defendants are the ones being protected by the Spending Cap Order.
See Brief of Amicus Randall T. Fennell, p. 38.
This Court is mindful of the Fennell Defendants' arguments regarding the proper person to bring a suit in a receivership. Without commenting on the defense itself, the Court notes that it is entirely appropriate to raise this issue in the Fennell Court, but doubts the propriety of bringing it in the Receivership Court.
P17 The Bank receivership exists for the benefit of the shareholders and depositors. The Spending Cap Order coupled with Fennell's assertion that "[n]o one is more affected by the determination of these issues than Fennell" indicate that the Spending Cap Order isn't crafted to protect the depositors, but rather the Fennell Defendants. While a plenary hearing may indicate that the Fennell Defendants are entitled to protection, no such determination has yet been made. The Spending Cap Order seems crafted to protect the Fennell Defendants primarily and the depositors as an afterthought. Such an order is an abuse of discretion.
See Valley View State Bank v. Owen, 241 Kan. 343, 737 P.2d 35, 38 (Kan.1987).
P18 The Fennell Defendants have pointed out that the Directors and not Receiver Muna brought the Fennell Litigation. They have every right to use this defense in the Fennell Court, using it in the Receivership Court, however, is a different matter. The Receivership Court must protect the Bank's assets, but it must follow the edicts of this Court in Atalig. While the Fennell Defendants are correct and the Bank has no "right" to demand the timing of a plenary hearing, the Fennell Defendants have no "right" to request the Bank seek $ 2,000,000 in indemnification before a plenary hearing on the matter. Both the Bank and the Fennell Defendants would do well to remember that the Receivership Court does not exist to gain an advantage in the Fennell Litigation.
P19 Although the instant appeal was from the Spending Cap Order, the Directors and their attorneys have used the appeal to request all manner of remedies. For example, the Bank requests that this Court reassign the Receivership and Fennell Litigation, instruct the Receivership Court on "void" or "vacated" orders, instruct the Fennell Court on the plenary hearing, issue a show cause order to the Attorney General, and terminate the receivership. Putting aside the fact that most of these requests are so strikingly premature they could be sanctioned, proceeding as requested would involve this Court in motions that are currently pending. The Bank has requested remedies that are unavailable and untimely, and thus we decline any invitation to go beyond our jurisdiction or intrude in matters that are not properly before us.
P20 Because the Spending Cap Order requires a substantial amount of private property, before the Bank may proceed with the Fennell litigation, it operates as an injunction. An injunction that requires the Bank to indemnify, before a determination that indemnification is needed, is premature and a violation of the Atalig decision. Therefore, the Spending Cap Order is premature considering the stage of the Fennell Litigation.
P21 For the foregoing reasons, we VACATE the Spending Cap Order, the Receivership Court may issue orders that control costs, but absent a plenary hearing in the Fennell Court, as required by this Court in Atalig, it may not require indemnification for immunity that may or may not exist. All other requests made by the Bank, the Fennell Defendants or the Secretary of Commerce, not herein specifically granted are DENIED.
SO ORDERED this 24th day of May 2006.
MIGUEL S. DEMAPAN, Chief Justice
ALEXANDRO C. CASTRO, Associate Justice
JOHN A. MANGLONA, Associate Justice