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CHARLES L. LIGHT, Special Trial Justice:
This matter came before the Court on the claim of Daniel Setik (hereinafter Daniel or "Claimant"), older brother of the decedent Raymond Setik, to all or a portion of the assets collectively referred to as the "Christopher Store Properties."1 The Estate has been represented at all relevant times by its attorney of record, Johnny Meippen, Esq. Claimant has been represented at all relevant times by his counselor of record, Kachuo Eko.2
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Following trial on the merits of the claims of Daniel Setik, including the introduction of documentary evidence and testimony, the claim was submitted for decision. For the reasons stated below, the Court finds that Daniel Setik shall recover from the estate the sum of $541,425.78, plus a life estate in the residence which he occupies on the property on which the Christopher Store is located.
II. Statement of the Case
Decedent died intestate on August 23, 1997. The first petition seeking distribution of any assets of decedent’s estate was filed by Petitioner Maryann Setik, wife of the decedent, on December 4, 1997, seeking substitution of her name on certain shares in Micronesian Development Association, Inc. in place and stead of the decedent. That petition was given Chuuk State Supreme Court probate number (CSSC-PRO-NO.) 48-1997. On December 8, 1997, Petitioner filed another verified petition seeking substitution of her name on certain bank accounts at the Bank of the FSM held in the name of Decedent. This separate action was designated CSSC-PRO-NO. 50-1997. On February 26, 1998, Claimant filed his claim to the Christopher Store Properties, that claim being designated CSSC-PRO-NO. 4-1998.
The proceedings languished. The cases were first assigned to Associate Justice Camillo Noket, who issued an order consolidating probate actions 50-1997 and 4-1998 on April 14, 1998. For unknown reasons, probate action 48-1997, which had also been assigned to Associate Justice Noket, was not consolidated with the other two actions.
Associate Justice Noket left the Chuuk State Supreme Court in 1999, and the cases were reassigned to Associate Justice Machime O’Sonis. A motion to disqualify Associate Justice O’Sonis was filed by counsel for another creditor of the Estate, and the motion was granted. All justices of the Chuuk State Supreme Court having been disqualified or having recused themselves, the Chief Justice, pursuant to General Court Orders 2-94 and 3-94, on March 22, 2001 appointed Jerry L. Coe, the Court Attorney, as Special Trial Justice in all three cases. Special Trial Justice Coe failed to resolve the issues presented by the Claimant, and left the court in September, 2001 without any significant action being taken on the claim.
On May 30, 2002, in response to a request from one of the other creditors of the Estate, the Chief Justice designated the new Court Attorney, Charles L. Light, as Special Trial Justice over all Estate cases. On May 31, 2002, the Special Trial Justice issued an order consolidating all Estate cases, and by separate order set a Status Conference for June 26, 2002.
Following various interim orders, and in light of the failure of the parties to resolve the dispute over the Christopher Store Properties without litigation, the Court on November 13, 2002 issued its Notice of Trial on the claim of Daniel Setik. Originally set for December 11, 2002, trial was continued to December 30, 2002 at the request of the parties.
At trial, as a result of the testimony of Daniel Setik, it became apparent to all parties that the initial claim, to the entirety of the Christopher Store Properties, could not be sustained as a matter of law. The parties further agreed that the Claimant did have an interest in the assets of the Christopher Store Properties, the form and extent of which would be determined by the parties or failing that by the Court. Following a conference with counsel in chambers, Claimant made an oral motion to amend his claim according to proof, which motion was granted. The parties then stipulated on the record that Claimant had an interest, the form and extent of which had not yet been determined, in the Christopher
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Store Properties.3 Trial on the remaining issues was continued in order to give the parties time for additional discovery, and to afford them time to attempt to settle the claim without litigation.
The parties failed to resolve the claim, and additional evidence was taken by the Court on April 2, 2003, and final argument was made by both counsel on April 30, 2003. The matter was submitted to the Court for determination following final argument. On May 13, 2003, the Court requested further evidence regarding certain real property owned by the Estate, which was provided, albeit with some delay. Following the death of counsel for Daniel,4 the decision was further delayed in order to permit Daniel to obtain substitute counsel for the purposes of appeal, should that option arise following the decision of the Court.
III. Basis of the Claim and Financial Evidence
Daniel was one of the five initial investors in the business enterprise begun by decedent shortly after World War II in Tunnuk Village in Weno, which was then the administrative center of the Truk District of the Trust Territory of the Pacific Islands. From the beginning, the business in Tunnuk was known as Christopher Store. Daniel invested $1,000.00 in the business sometime prior to 1960 (Pet. Ex. 1, Est. Ex. A),5 and as of 1960 the initial investment of all investors totaled $4,672.00 (Pet. Ex. 2, 2a).6 Thus, Daniel paid in capital equal to 21.4% of the total initial investment.7 Decedent paid in $1,500.00, or 32.1% of the initial paid in capital. No timely claims against the Estate were filed by the other "investors," all of whom predeceased the Claimant and Decedent.
From the beginning, Decedent was the principal manager of the business, and the capital investments were used to acquire inventory for sale. The Decedent considered the investments to be capital "shares."8
The Christopher Store was very successful from the outset. Regular distributions, designated "interest" by the Decedent, were made to the investors. In the last half of 1976, for example, the business ) grown to include hotel rooms, automobile rentals, restaurants, a warehouse and hardware store, and other businesses ) had gross profits of $270,087.63, and net profits after operating expenses of $98,368.69.9 Most net profits were reinvested, resulting in growth and expansion of the business. For instance, the "interest" paid to Daniel for the four year period from January 1, 1975 through December 31, 1978 totaled $3,317.00, despite the fact that net profits for calendar year 1977
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alone exceeded $65,000.10 As of December 31, 1977, the capital account had grown to $40,287.42,11 and the Net Worth and Surplus stood at $1,045,993.88 after deducting losses for the second half of the year.12
Between 1954, the date Daniel testified that he made his investment, and 1964, Daniel did not work for the business. After the death of his father, Daniel came to Weno and began working for the business, first as manager of the hardware store, and thereafter as manager of the Stop & Shop. He received a salary for his work. He retired in 1990, and was paid retirement until it stopped for some undisclosed reason in 1993.
Despite the ups and downs of business cycles, between 1989 and 1994, the business never had a losing year. When the decedent passed away in August, 1997, financial records indicate that after "draw downs" of $2,394,261.01 (presumably by the decedent, as there is no record of payments having been made to Daniel or others after 1984), the "owner’s equity" for the Christopher Store Properties stood at $2,665,792.70.13 A significant portion of this equity is in the form of real estate and other fixed assets.
The parties do not dispute that the significant growth of the company was due primarily to the efforts of the decedent. It is also clear, however, that the decedent did not devote 100 percent of his time to the business, as he was a member of the Congress of Micronesia from at least 1968, and spent, according to the testimony of Maryann Setik, twenty years in the Congress. During the time he was involved in politics, it is clear that others, including Daniel, were responsible in part at least for the growth and success of the business.
Claimant asserts that due to his initial investment, he was and remains a partner, or shareholder, in the Christopher Store Properties; that he never surrendered his interest, whatever the extent of it was; and that he is presently entitled to a portion of the assets of the Christopher Store Properties.
Since the parties stipulated that Claimant has a present interest in the Christopher Store Properties, the Court is not required to determine whether such an interest exists. It is the duty of the Court to determine the form of the interest held by Claimant, and the present value of that interest.
IV. Equitable Principles
In general a probate court is not a court of equity, but it is recognized that a probate court may apply principles of equity in determining issues brought before it. 31 Am. Jur. 2d Executors and Administrators § 98 (1989), and cases therein cited.
The Court must, in deciding the issue presented by the parties, consider the investment made
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by Daniel, the efforts at growing the business made by the Decedent, the evidence regarding the "return on investment" expected by the parties, and all other relevant evidence presented by the Claimant and the Estate. The Court turns to this effort with the clear understanding that whatever decision the Court reaches, it will not satisfy either party completely, and it will be in many respects less acceptable than if the parties had resolved this dispute without the intervention of the Court.
Two issues present themselves for determination. First, the form of the interest which Daniel had in the Christopher Store Properties, and second, the extent of the interest at the time of death of the Decedent Raymond Setik.
A. Form of the interest.
Business entities take three general forms. One of these, a sole proprietorship, can be eliminated from consideration in this case as a result of the stipulation of the parties that Daniel has an interest, of some form and extent, in the Christopher Store Properties. Since the parties agree that both the Decedent and Daniel have an interest, the entity cannot be considered a "sole" proprietorship.
Of the two other generally accepted forms which business ventures can take, a partnership of some form, rather than a corporation, is indicated by the evidence. This is due to the unique nature of a corporation. A corporation has been defined as: "an artificial person created by law as the representative of persons who contribute to or become holders of shares in the property entrusted to it for a common purpose."14
Here, no evidence was introduced from which the Court can conclude that the business entity which operated the Christopher Store Properties was a corporation. While the ledger sheet for Daniel Setik and Family15 does refer to "Capital shear [sic] Stock," there is no other evidence before the Court which would imply or prove the creation of a corporate entity ) no evidence of a board of directors, of registration with the Truk District or the Trust Territory as a corporation, of officers other than the Decedent, or by-laws which would indicate a corporate existence. The Court must conclude that the reference to "capital shear [sic] stock" was made due to the unfamiliarity of the Decedent in the late 1950's and the early 1960's of the terms applicable to forms of business ownership.
Partnerships take various forms as well. A joint venture, for example, is defined as "a legal entity in the nature of a partnership engaged in the joint undertaking of a particular transaction for profit." Island Dev. Co. v. Yap, 9 FSM Intrm. 220, 223 (Yap 1999). The Uniform Partnership Act (UPA), adopted by all 50 states of the United States, defines a partnership, within the meaning of the Act, as "an association of two or more persons to carry on as co-owners a business for profit." UPA, § 6(1). Also, "the Supreme Court of the United States held that those persons are partners who contribute either property or money to carry on a joint business for their common benefit, and who own and share its profits in certain proportions." 59 Am. Jur. 2d Partnership § 3, at 236 (1987).
Two basic forms of partnerships exist by statutes adopted by the states of the United States. General partnerships, with the UPA providing the statutory framework and rules, and limited
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partnerships, created with the adoption of the Uniform Limited Partnership Act. The distinctions between the two are not significant here, because the association formed between the decedent and his partners was for the most part an oral agreement, and neither Chuuk State nor the Federated States of Micronesia have adopted statutory schemes which would effect the form of the business association here.
Inasmuch as a limited partnership is a legal fiction usually created by statute, and given that the business arrangement at issue here was based upon an oral agreement, the Court concludes that the business was a general partnership,16 with the Decedent filling the position of "managing general partner."
Designating one general partner as the managing partner does not destroy the unity of interest necessary for the creation of a partnership. See 59A Am. Jur. 2d Partnership § 159, at 323 (1987). Thus, the fact that decedent was the sole or principal manager of the business enterprises in no way alters the relationship between the parties.
Finally, once it is established that a partnership exists, there is a presumption that the partnership continues "until the contrary is shown, or until it is dissolved and its affairs are wound up, or until knowledge of its termination comes to persons dealing with the partnership." 59A Am. Jur. 2d Partnership § 209, at 350 (1987). Thus, it is not inconsistent with the existence of a partnership that Daniel made no claim to partnership assets until his brother passed away.
B. Extent of Daniel’s partnership interest.
The most difficult question before the Court, due to the lack of substantial evidence on the subject, is the extent of Daniel’s interest in the partnership as of the date of death of the decedent. The only evidence before the Court regarding the initial partnership shares indicates that Daniel invested 21.4% of the initial paid in capital. The balance sheet for the seven months ending on August 31, 1997 indicates that owners’ equity totaled $5,060,053.71, before "owner’s drawing." Ex. F. This equity existed despite the significant accounting depreciation of physical assets of the partnership.
In determining Daniel’s partnership interest, the Court must take into account the fact that the primary force behind the growth of the business over the years was the decedent, and that Daniel’s role, other than management of the "Stop and Shop," was as a passive investor. It is reasonable to conclude that Decedent’s share of the partnership exceeded his paid in capital share, and included a significant interest arising out of his creation of and his services to the partnership. See 59A Am. Jur. 2d Partnership § 194, at 343 (1987). Thus, to the extent that the decedent’s interest included substantial services to the partnership, it is not unreasonable to conclude that Daniel had a partnership interest significantly less than the actual share of his financial contribution.
The Court concludes, in the absence of evidence to the contrary, that the decedent’s interest in the partnership arising from his contribution of skills and services in the management of the partnership amounts to fifty percent (50%) of the entire partnership. The paid in capital contributions of the partners therefore must equal the other fifty percent (50%) of the partnership, and Daniel’s paid
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in capital investment in the partnership therefore provides him with a 10.7% share in the partnership assets, calculated as of August 31, 1997. Daniel is therefore entitled to 10.7% of the owner’s equity in the partnership as of August 31, 1997, or $541,425.78.17 Daniel is therefore entitled to judgment against the estate, which succeeds to the decedent’s interest in the Christopher Store Properties, in the sum of $541,425.78.
The Court also finds that in addition to his partnership interest, Daniel received the right to reside in a residence located on real property owned by the decedent and used by the partnership for conduct of its business. The Court concludes that Daniel’s right to reside in this residence is part of his interest in the partnership itself. The Court therefore awards Daniel a life estate in the residence, which he uses to this day, and that the life estate shall continue until Daniel passes away and for 120 days thereafter. No heir at law of Daniel shall have any claim to the residence after the passing of the 120 day period.
VI. Satisfaction of the Judgment
The Court is mindful of the fact that a judgment the size of that awarded in this action may be difficult for the estate to satisfy in cash or cash equivalents. The Court on the other hand does not want to compel the estate to sell Christopher Store Properties assets or other assets to satisfy the judgment. The Court holds that the judgment may be satisfied out of any assets of the estate, the value of which may be agreed upon by the parties, or alternatively submitted to the Court for factual determination.
The estate is the owner, according to documents provided to the Court, of significant land holdings in Lukionoch, as well as land holdings in Chuuk and in Pohnpei. Assuming agreement may be reached between the parties, the Court finds no impediment to satisfying the judgment, in whole or in part, by a transfer of such lands from the estate to Daniel.
Additionally, while the residence in which Daniel resides is located on Christopher Store property, the Court has no evidence before it regarding whether or not the residence can be subdivided out from the larger parcel.18 If such a subdivision could occur, the Court finds no impediment in the parties agreeing on, or independently determining the value of the part so severed, and transferring the residence and land so severed to Daniel in fee simple as partial payment of the judgment.
The Court apologizes to the parties in this dispute for the unjustifiable delays in rendering this decision. Taking almost a year to decide any case is taking too long. Unfortunately, the Court was in
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part delayed by the absence of definitive evidence from which it could easily reach a decision on the matters submitted.
The Court is certain that this decision will not satisfy Daniel completely, and most probably will not be considered satisfactory by the estate and heirs of Ray Setik. Unfortunately, despite the Court’s efforts to get the parties to discuss this matter, and to reach a settlement of the dispute without intervention by the Court, the parties could not come together on an agreed settlement, and this decision is the inevitable result of that failure to agree.
This decision resolves the issue of the claim of Daniel Setik against the Estate of Raymond Setik, deceased. There remains to the next Court assigned this case the more difficult process of completing an accurate inventory and appraisal of the estate, the opening of ancillary probate proceedings in Pohnpei, Guam and Hawai’i, and the distribution of the remaining assets of the estate. Inasmuch as this is an interlocutory decision and not a final judgment in this probate matter, appeal of this decision must await conclusion of the probate of the entire estate.
Now therefore, good cause appearing, the Court makes the following orders:
1. Daniel Setik shall have judgment against the Estate of Raymond Setik, deceased, in the amount of $541,425.78, which judgment may be satisfied out of any unencumbered assets of the estate as agreed by the parties;
2. Daniel Setik shall have judgment against the estate awarding him a life estate plus 120 days in the residence property occupied by Daniel on the Stop & Shop property, unless the parcel can be severed and awarded to Daniel as part payment of the monetary judgment, in which case the life estate shall merge into the parcel so severed and awarded;
3. Each party shall bear their own fees and costs arising out of this dispute; and
4. The Chuuk State Supreme Court, by and through the next Associate Justice or Special Trial Justice to be assigned this case, shall retain jurisdiction over this probate matter to conclude the probate and to undertake any and all necessary actions to enforce the judgment entered herein.
It is so ordered.
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1. The "Christopher Store Properties," as that phrase is used here, and as the Decedent himself viewed them according to the financial evidence admitted at trial, include the Christopher Store in Tunnuk, the Stop & Shop, Christopher Inn, Roof Garden Steak House, Rainbow Coffee Shop, warehouse, hardware store, car rental, and other subsidiary businesses. By stipulation of the parties, the Christopher Store Properties does not include either the C-Star Apartelle in Pohnpei or the RS Plaza in Weno.
2. Trial Counselor Eko passed away after the Court began the preparation of this Memorandum of Decision. Trial Counselor Julio Akapito has substituted in as counsel of record for Claimant.
3. See Order entered January 8, 2003.
4. See note 2, above.
5. Est. Ex. A is a more legible copy of Pet. Ex. 1.
6. Pet. Ex. 2a is an agreed translation of Pet. Ex. 2.
7. Maryann Setik, wife of the decedent, testified that the decedent was the source of the funds for Claimant’s investment. However, this does not appear plausible, in light of the other evidence, see, e.g., Pet. Ex. 1 and Est. Ex. A, and Pet. Ex. 2, 2a. These exhibits, especially Pet. Ex. 1 and Est. Ex. A, written in the decedent’s own hand, establish that the decedent considered Claimant to have invested $1,000.00 in the business enterprise.
8. Pet. Ex. 1, Est. Ex. A. See also Pet. Ex. 2, 2a, at 3.
9. Est. Ex. B.
10. Est. Exs. C and D.
11. One of the difficulties in determining the extent of Claimant’s interest is the lack of evidence about the growth of the capital account. The Court has no evidence from which it can determine whether the capital account grew as a result of reinvested profits, or further infusions of cash from the principal investor, Decedent Raymond Setik.
12. Est. Ex. D.
13. Est. Ex. F.
14. 59 Am. Jur. 2d Partnership § 15 (rev. ed. 1987) (emphasis added) (citing 18 Am. Jur. 2d Corporations § 1).
15. See Estate Ex. A in evidence.
16. A partnership created by oral agreement is considered a "partnership at will," with no definite term, which may be terminated at any time "by the express will of any one partner." 59A Am. Jur. 2d Partnership § 89, at 282 (1987). No evidence was introduced, however, that the partnership had been expressly terminated, and the parties stipulated that the business relationship remained in existence at the time of death of the decedent.
17. In arriving at this conclusion, the Court is mindful that the actual value of the assets held by the partnership may in fact exceed the sum stated in the Balance Sheet of August 31, 1997, due to the depreciation of the assets as an accounting tool. The Court balances this possible shortfall with the knowledge that Daniel did not assert his partnership claims until after the death of his brother, despite the opportunity to do so at any time prior to August, 1997. The Court also takes note of the fact that an award of this size provides Daniel with a more than 500-fold return on his initial paid in capital investment.
18. Following submission of the case, the Court requested any documents which would reflect whether the parcel containing Daniel’s residence was a separate parcel. From documents submitted by the estate, it appears that the residence is on a larger parcel containing the Stop & Shop store. From the title documents and map, the Court cannot determine whether the part of the parcel containing Daniel’s residence is severable from the larger parcel.