Opinion
Supreme Court Case No. CVA98-022
May 10, 1999, Argued and Submitted, Hagatna, Guam . May 2, 2000, Filed
For the Appellant: Steven A. Zamsky, Esq., Zamsky Law Firm, Hagatna, Guam.
For the Appellee: James T. Mitchell. Esq., Frederick J. Horecky, Esq. on the briefs, Law Offices of Horecky & Associates, Hagatna, Guam.
SIGUENZA, J.:
Oka Towers Corporation filed a Petition for the Dissolution of a Corporation. Trans Pacific Export Company entered an appearance and objected to the dissolution on the basis of an outstanding claim against the corporation which was being litigated by the parties in the Superior Court of Guam. That matter was subsequently disposed of by summary judgment in favor of Oka Towers and Trans Pacific appealed that ruling. In the dissolution matter, the lower court awarded sanctions against Trans Pacific for filing a legally unreasonable claim. Trans Pacific appeals the award of sanctions. Contrary to the lower court, we find that Trans Pacific's filing of its appearance and objection to dissolution was proper; consequently, we reverse the award of sanctions in this case.
FACTS
On September 22, 1997, Oka Towers Corporation (hereinafter "Appellee") filed a Petition for Voluntary Dissolution of a Corporation in the Superior Court of Guam. On October 15, 1997, an amended petition was filed. A Notice by the Clerk of Court of Petition for Voluntary Dissolution and Order to Show Cause was filed on November 26, 1997. On January 9, 1998, counsel for Trans Pacific Export Company (hereinafter "Appellant") filed an Entry of Appearance and Objection and objected to the dissolution of Appellee; however, no basis for the objection was articulated in this document.
It appears that two Amended Notices by Clerk for Voluntary Dissolution were subsequently filed on December 19, 1997, and January 12, 1998.
At the March 10, 1998, Order to Show Cause hearing before Judge Lamorena it was disclosed that another civil case between the parties was before Judge Manibusan, and that summary judgment motions were argued the previous week. Also at the hearing, it was discussed that Appellant's counsel had filed an objection and that there was some confusion as to whether a claim was to be filed in addition thereto. Judge Lamorena continued the hearing until April 7, 1998, ostensibly to allow time for either the Appellant to file a claim or for the parties to settle the matter. The Appellant, on the same day, filed its claim and incorporated by reference all documents and the entire record in the above-referenced civil case. See Appellee's Excerpts of Record (EOR) 7.
Transpacific Export Co. v. Oka Towers Corp., Superior Court Civil Case No. CV 1232-97. We have earlier decided the appeal of this case in 2000 Guam 3 and affirmed the trial court's grant of summary judgment against Appellant and the imposition of sanctions there.
In the interim, on March 16, 1998, Judge Manibusan issued a Decision and Order which granted Appellee's Summary Judgment motion in the civil case, dismissed that complaint with prejudice, and assessed sanctions pursuant to Rule 11 of the Guam Code of Civil Procedure. See Appellee's EOR 4. Judge Lamorena transferred the instant dissolution case to Judge Manibusan on April 7, 1998.
On April 17, 1998, Appellee filed a Motion for Award of Petitioner's Attorneys Fees and Costs. The hearing occurred on June 2, 1998, before Judge Manibusan. Although the court found that the Appellant's objection was timely filed, sanctions were appropriate because it had earlier dismissed the civil case. See Transcript, vol. --, p. 28 (Hearing on Motion for Award of Petitioner's Attorneys Fees and Costs, June 2, 1998). The court also opined that should the matter be appealed or resurrected and some award granted, then Section 5101 of Title 18 of the Guam Code Annotated would provide the means for Appellant to act on its claim. See Transcript, vol. --, p. 28 (Hearing on Motion for Award of Petitioner's Attorneys Fees and Costs, June 2, 1998). The court issued an Order for Payment of Petitioner's Attorneys Fees and Costs on July 30, 1998. See Appellant's EOR 4. The court articulated its findings by stating that Appellant's claim was legally unreasonable and that Appellee was entitled to its attorneys fees and costs incurred in defending against a claim that should not have been maintained from the outset. See Appellant's EOR 4. Judgment was issued for Voluntary Dissolution of Oka Towers Corporation and Payment of Petitioner's Attorneys Fees and Costs. See Appellant's EOR 5.
DISCUSSION
Jurisdiction of this court is not disputed and vests pursuant to Title 7 of the Guam Code Annotated sections 3107 and 3108 (1994).
We review orders imposing Rule 11 sanctions for an abuse of discretion. Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 405, 110 S. Ct. 2447, 2461, 110 L. Ed. 2d 359 (1990). A court abuses its discretion in imposing sanctions when it bases its decision on an erroneous view of the law or on a clearly erroneous assessment of the evidence. Mark Indus Ltd. v. Sea Captain's Choice, Inc., 50 F.3d 730, 732 (9th Cir. 1995).
Rule 11 of the Guam Rules of Civil Procedure provides, in relevant part:
Rule 11. Signing of Pleadings, Motions, And Other Papers; Sanctions. Every pleading, motion, or other paper of a party represented by an attorney shall be signed by at least one attorney of record in the attorney's individual name, whose address shall be stated. A party who is not represented by an attorney shall sign the party's pleading, motion, or other paper and state the party's address. . .The signature of an attorney or party constitutes a certificate by the signer that the signer has read the pleading, motion, or other paper, that to the best of the signer's knowledge, information, and belief formed after reasonable inquiry it is well grounded in fact and is warranted by existing law or a good faith argument for the extension, modification or reversal of existing law, and that it is not interposed for any improper purpose, such as to harass or to cause unnecessary delay or needless increase in the cost of litigation. . . If a pleading, motion, or other paper is signed in violation of this rule, the court, upon motion or its own initiative, shall impose upon the person who signed it, a represented party, or both, an appropriate sanction, which may include an order to pay to the other party or parties the amount of the reasonable expenses incurred because of the filing of the pleading, motion, or other paper, including a reasonable attorney's fee.
Guam R. Civ. P. 11.
This rule was adopted from the corresponding provision of the Federal Rules of Civil Procedure. See Comment to GRCP 11. Rule 11 empowers federal courts to impose sanctions upon the signers of paper where: (a) the paper is frivolous or (b) the paper is filed for an improper purpose. Townsend v. Holman Consulting Corp., 929 F.2d 1358, 1362 (9th Cir. 1991). "Frivolous" is used to denote a filing that is both baseless and made without reasonable and competent inquiry. Id. (citation omitted). Lastly, a "reasonable inquiry" means an inquiry reasonable under all the circumstances of a case. Id. at 1364 (citing Cooter & Gell, 496 U.S. at 402, 110 S. Ct. at 2459).
In this case, the trial judge awarded sanctions because it held the claim was legally unreasonable and that Appellee had incurred fees and costs in defending against a claim that should not have been maintained from the outset. We are unsure whether the trial court's reason for the imposition of sanctions was because the objection and claim were frivolous, or they were brought for some improper purpose, or both. Under either inquiry, however, we hold that sanctions should not have been ordered.
Guam law provides a mechanism for the pursuit of claims against a corporation even after its corporate existence is terminated. We are of the view that it was not unreasonable for Appellant to seek to protect its interest by filing the objection and claim in the instant matter and that it was brought in good faith. Appellant proceeded to properly prosecute its claim against the Appellee by using the statutory procedure for resolution of claims in a dissolution. Although Appellee's application already contained an averment of the pending civil case between itself and Appellant and of an outstanding debt owed to Universe Insurance Underwriters, Inc., See Appellant's EOR 1, that fact alone does not preclude the respective creditor/claimant from filing their objections and claims. The resolution of Appellant's claims in the earlier civil case was still pending at the time the objection was filed. Moreover, Appellee's petition to dissolve came shortly after Appellant had instituted its breach of contract and fraud claims. We find nothing frivolous or improper with Appellant's pursuit of some protection of its interests by filing notice with the court of its pending claim against Appellee.
A corporation may be voluntarily dissolved by the Superior Court of Guam. See Title 18 GCA § 5102 (1992). The application for dissolution must be in writing and must set forth all claims and demands against the corporation and that dissolution was resolved by the affirmative vote of the stockholders holding or representing two-thirds of all shares of stock issued or subscribed. See Title 18 GCA § 5104 (1992). Notice for the application of dissolution must be published and the date on which the right of objection to the application must also be set out. See Title 18 GCA § 5106 (1992). Any person may file objections to the dissolution of the corporation. See Title 18 GCA § 5107 (1992). Any issue that arises from the application and the objection thereto shall be tried by the court. Id.
The record indicates that another creditor objected to the Appellee's dissolution, although it later withdrew its claim. See Transcript, vol. --, p. 29 (Hearing on Motion for Award of Petitioner's Attorneys Fees and Costs, June 2, 1998).
Had the civil case been undecided at the time dissolution was granted, then the court would have had an option to appoint a receiver for lawful distribution to shareholders, creditors or other interested parties. See 18 GCA § 5107.
In fact, it appeared that the trial court felt that Appellant's filing of the objection of January and the claim of March 10 was proper. See Transcript, vol. --, pp. 20-24 (Hearing on Motion for Award of Petitioner's Attorneys Fees and Costs, June 2, 1998). The court below seemed to agree with Appellee that any action taken by the Appellant after its decision and order granting summary judgment in the civil case would be frivolous. See Transcript, vol. --, pp. 24-28 (Hearing on Motion for Award of Petitioner's Attorneys Fees and Costs, June 2, 1998). However, the record does not indicate that Appellant did anything more in pursuit of the claims in the dissolution matter that justified the court's award of sanctions.
The trial court concluded that Appellant should have withdrawn its claim upon the rendition of the Decision and Order on the summary judgment motion of the civil case and that continued pursuit of the claim was frivolous. However, by its very terms, Rule 11 speaks only to the filing of a pleading, motion, or other paper that is frivolous or interposed for an improper purpose. See Townsend, 929 F.2d at 1362. We find no infirmity in the Entry of Appearance and Objection filed by the Appellant and hold that the trial court abused its discretion in imposing sanctions upon the Appellant for this filing.
Because the lower court relied on no other basis for the imposition of sanctions there is no need to address Appellee's arguments of alternative bases for the lower court's award.
CONCLUSION
The trial court abused its discretion by awarding fees and costs on the basis that Appellant's objection and claim were legally unreasonable.
Therefore, the trial court's imposition of sanctions is REVERSED.