7 FSM Intrm. 664-674

While it may be that in the usual case a judgment debtor would not have standing to contest or appeal the distribution of funds collected pursuant to the judgment, but where the result of the case will have a substantial financial impact on the judgment debtor, he is an aggrieved party with standing to appeal because standing exists where a party has a direct pecuniary interest in the outcome of the litigation. Senda v. Creditors of Mid-Pacific Constr. Co., 7 FSM Intrm. 664, 669 (App. 1996).

As a general rule interest ceases to accrue on a judgment when the money is paid into a court of competent jurisdiction pursuant to the court's order, unless a statute provides otherwise. If a part of the principal is paid, then the statutory interest stops on that part. Partial payments on a judgment are first to be applied to the accrued interest and then to reduction of the principal. The subsequent statutory interest is computed only on the remaining principal. Payments into court accrue interest for the benefit of the ultimate recipient as earned in the court's depository institution. Senda v. Creditors of Mid-Pacific Constr. Co., 7 FSM Intrm. 664, 670-71 (App. 1996).

A court should retain in its trust account any unclaimed judgments paid into court until the twenty years has run. Otherwise, a judgment creditor may appear and be unable to recover funds rightfully his without yet more litigation and collection efforts, and, if the funds have escheated to a government, a legislative act and appropriation. Senda v. Creditors of Mid-Pacific Constr. Co., 7 FSM Intrm. 664, 672 (App. 1996).

At least two Micronesian legislatures have considered some form of escheat suited for application in the FSM. Congress has enacted a limited escheat statute concerning the proceeds from property found in an unclaimed shipwreck. The Pohnpei Legislature has enacted a more general escheat statute concerning the real and personal property of an intestate who die without heirs. Senda v. Creditors of Mid-Pacific Constr. Co., 7 FSM Intrm. 664, 672 (App. 1996).

Escheat of property, as is property law in general, is primarily a state power. Therefore, based on the inherent power of the court in the absence of an applicable statute, any funds paid into court left unclaimed after the twenty-year statute of limitations has run will escheat to the state. Senda v. Creditors of Mid-Pacific Constr. Co., 7 FSM Intrm. 664, 673 (App. 1996).

When allowing attorney's fee awards courts have broad discretion based on a standard of reasonableness in light of the case's circumstances. A trial court has an obligation to see that the attorney's fee awards that it approves are reasonable even if the awards are made pursuant to contract or statute, and it should provide reasons on the record to explain its exercise of discretion in awarding the figure it selects. Senda v. Creditors of Mid-Pacific Constr. Co., 7 FSM Intrm. 664, 673 (App. 1996).

This appeal arises from a final order of distribution of funds paid into court to satisfy judgments against an insolvent business. Because of the particular provisions of the order we conclude that the judgment debtor has standing to appeal. We conclude that it was constitutional error for the trial court to base its order on a special master's report, not a part of the record and not available to the parties for inspection and comment prior to its decision, but that this error was harmless. The trial court's order concerning the computation of interest is modified in part in order to conform to law. We further conclude that funds that are the property of the non-releasing judgment creditors should remain on deposit with the court until twenty years after the entry of judgment. Any funds left unclaimed by then should escheat to the State of Pohnpei. We vacate the trial court's last two awards of attorney's fees as an abuse of discretion because the court did not determine the fees' reasonableness prior to the awards. Our reasoning follows.

In 1987, Mid-Pacific Construction Co. became insolvent, and writs of execution were returned unsatisfied to the company's judgment creditors. See In re Mid-Pacific Constr. Co., 3 FSM Intrm. 292 (Pon. 1988). The creditors then sued Senda for his unpaid stock subscription. Creditors of Mid-Pac Constr. Co. v. Senda, 4 FSM Intrm. 157, 158 (Pon. 1989). Senda was found jointly and severally liable for all debts ($222,073.36) of the insolvent corporation because as an incorporator he had violated the Corporations, Partnerships and Associations Regulations when he signed a falsely sworn stock affidavit. Mid-Pac Constr. Co. v. Senda, 4 FSM Intrm. 376 (Pon. 1990), aff'd, 5 FSM Intrm. 277 (App. 1992).

By March 10, 1993, $241,959.58 had been collected and paid into court. Shortly thereafter, Senda's counsel tried to get the distribution of this sum to the creditors started, but was denied. Creditors of Mid-Pac Constr. Co. v. Senda, 6 FSM Intrm. 140, 142 (Pon. 1993). When the creditors were granted judgment for additional sums Senda successfully appealed, Senda v. Mid-Pacific Constr. Co., 6 FSM Intrm. 440 (App. 1994), and on remand the creditors' motion for relief from judgment to add $72,082.99 to the judgment was denied. Mid-Pacific Constr. Co. v. Senda, 7 FSM Intrm. 129 (Pon. 1995). On May 18, 1995, Senda moved for an order distributing funds. The trial court issued such an order on November 10, 1995, and modified it January 17, 1996. Mid-Pacific Constr. Co. v. Senda, 7 FSM Intrm. 371 (Pon. 1996). Senda then appealed.

At the start of oral argument we denied all of the parties' pending motions. Most dealt, in one way or another, with creditors' counsel's attempt to supplement the appendix with documents not in the record certified by the clerk. These were denied as moot because the trial court order issued the day before argument granted in part and denied in part counsel's motion to supplement the record. The motions were not renewed. The record as supplemented by that order is thus before us. Senda moved to strike portions of the FSM's amicus curiae brief as exceeding the scope of what the FSM was granted leave to file. We denied this. The FSM government does not need leave of court to file an amicus brief. FSM App. R. 29. Appellees' attorney sought reversal of the July 22, 1996 single justice order, continuing him as counsel for the creditors. Senda v. Creditors of Mid-Pacific Constr. Co., 7 FSM Intrm. 520, 522 (App. 1996). We denied that motion and proceeded with oral argument.

Senda raises six issues: 1) whether the trial court erred in relying on a master's report, not of record, which the parties had no opportunity to review; 2) whether the trial court erred in calculating post-judgment interest from a date earlier than the judgment in this case; 3) whether the court erred in awarding a reasonable amount of post-judgment interest instead of the statutory nine per cent; 4) whether Senda is liable for interest after the judgment has been paid into court; 5) whether the law of escheat exists in the FSM, and runs in favor of the national government; and 6) whether the trial court properly granted every (there were sixteen) motion of creditors' counsel for fees and costs, including fees for work on a motion (later denied) made necessary by counsel's neglect and carelessness. The creditors rephrase these issues. They also question Senda's standing to appeal.

"`A "final decision" generally is one which ends the litigation on the merits and leaves nothing for the court to do but execute the judgment.'" In re Extradition of Jano, 6 FSM Intrm. 23, 24 (App. 1993) (quoting Catlin v. United States, 324 U.S. 229, 233, 65 S. Ct. 631, 633, 89 L. Ed. 911, 916 (1945)). Judgment was entered in this case on December 19, 1990. The judgment has been executed and paid into court, although the creditors dispute whether it has been entirely satisfied. Senda appeals the order disbursing the executed funds. That order is final and appealable.

for another $50,030.89 as of May 26, 1995.) Or Senda may have returned to him some of the money he already paid into court that are from "funds representing judgments that have been or which may be released." Id. at 375. Neither party appealed that portion of the trial court order. The result of this appeal will thus have a substantial financial impact on Senda. Standing exists where a party has a direct pecuniary interest in the outcome of the litigation. Cf. Innocenti v. Wainit, 2 FSM Intrm. 173, 180 (App. 1986). While it may be that in the usual case a judgment debtor would not have standing to contest or appeal the distribution of funds collected pursuant to the judgment, Senda, because of the particular facts of this case, is an "aggrieved party" with standing to appeal the trial court's distribution order.

The creditors also contend that Senda has no standing to appeal because he agreed to a stipulated settlement and order disbursing funds on December 7, 1995. The documents in the creditors' Supplemental Appendix used to show this agreement were not part of the certified record. The trial court's order supplemented the record to include one of the documents, a proposed stipulated order disbursing funds. That document was not signed by Senda's counsel. More importantly, although counsel presented the proposal to the court, the trial court never adopted it or issued it. Instead, the trial court framed its own order. It is that order that Senda appeals. A tentative agreement to a stipulated order cannot preclude a party from appealing the order actually entered by the trial court when it differs from the stipulation.

Senda contends that the trial court erred when it relied on a special master's report (apparently issued July 25, 1995) that the parties have not seen, were unaware of, and had no notice of until the trial court issued its November, 1995 order, and which was not a part of the record. The report was never made a part of the record and is not before us now. In response to our questions at oral argument, Senda's counsel could not point to any prejudice to Senda that stemmed from the report.

It is constitutional error for the trial court to rely on a special master's report, not a part of the record, without prior notice to the parties and an opportunity for the parties to comment on it. Cf. Bowman Transp., Inc. v. Arkansas-Best Freight Sys., Inc., 419 U.S. 281, 288 n.4, 95 S. Ct. 438, 443 n.4, 42 L. Ed. 2d 447, 457 n.4 (1974) (agency use of evidence in way that forecloses opportunity to offer contrary presentation violates due process clause); Greene v. McElroy, 360 U.S. 474, 496, 79 S. Ct. 1400, 1413, 3 L. Ed. 2d 1377, 1390-91 (1959) (immutable principle of jurisprudence that documentary evidence and testimony upon which factual findings based must be disclosed); Moore v. California Minerals Prods. Corp., 252 P.2d 1005, 1007 (Cal. Dist. Ct. App. 1953) (when trial court sua sponte raises issue of law which it deems dispositive, the party against whom the decision impends is denied due process if not afforded opportunity to be heard before decision is announced); Minnesota v. Sax, 42 N.W.2d 680, 18 A.L.R.2d 929, 940 (Minn. 1950) (due process violation for trial court to rely on evidence not in the record concerning father's financial situation and deny mother opportunity to examine father when making award in paternity case). However, we conclude that in this case the error was harmless. A trial court's ruling will not be disturbed if the constitutional error is harmless. Cf. Jonah v. FSM, 5 FSM Intrm. 308, 314 (App. 1992). The error is harmless because of the lack of demonstrable prejudice to Senda. We therefore will not reverse the trial court's order because of this constitutional error.

The trial court ruled that the statutory interest should start when each creditor acquired his original judgment. Senda contends that it should start on December 19, 1990, when the judgment was entered in this case. The statute requires that "[e]very judgment for the payment of money shall bear interest at the rate of nine percent a year from the date it is entered." 6 F.S.M.C. 1401. The legislature's intention as to whether a provision is mandatory is determined from the language used. "The use of the word shall is the language of command and considered mandatory." In re Failure of Justice to Resign, 7 FSM Intrm. 105, 109 (Chk. S. Ct. App. 1995). Cf. Aten v. National Election Comm'r (III), 6 FSM Intrm. 143, 145 (App. 1993); In re Pacific Islands Distrib. Co., 3 FSM Intrm. 575, 582 (Pon. 1988). Congress has spoken. Unsatisfied judgments must accrue nine percent interest from date of entry. This nine percent is simple interest because the statute does not authorize compounding. 45 Am. Jur. 2d Interest and Usury § 76 (1969) ("the generally recognized rule is that interest should not bear interest, but . . . compound interest may be awarded if authorized by statute" (footnotes omitted)).

At oral argument creditors' counsel correctly pointed out that the December 19, 1990 judgment included both the amount of the original judgments and the interest (at 9%) that had already accrued on them. Because of this, no creditor would receive less if the interest were computed from the 1990 judgment. Nonetheless, we think the trial court correct on this point as a matter of law. The nature of the current action is one to enforce and satisfy the earlier judgments. We do not see why a creditor who has obtained a judgment should lose the interest that has accrued on that judgment merely because a second action and judgment is necessary to enforce the first. We therefore affirm the trial court's ruling that the interest due each creditor be computed from the date of entry of his original judgment.

The trial court ordered that the creditors' judgments receive nine percent interest through May 18, 1995, and thereafter receive the rate that the funds earned in the court's depository institution. May 18, 1995 was chosen because it was when Senda moved for a distribution order. (Senda's 1993 attempt to get the funds distributed, see Creditors of Mid-Pac Constr. Co. v. Senda, 6 FSM Intrm. 140 (Pon. 1993), was apparently disregarded.1) That choice of date is an error of law.

As stated above, all judgments, by statute, accrue nine percent simple interest from the date of entry of judgment until satisfaction of judgment. "[A]s a general rule interest ceases to accrue when money is paid into a court of competent jurisdiction pursuant to the court's order," unless a statute provides otherwise.United States v. Augspurger, 508 F. Supp. 327, 329 (W.D.N.Y. 1981). See also Schaefer & Assocs. v. Schirmer, 590 P.2d 1087, 1092 (Kan. Ct. App. 1979) (judgment debtor may avoid the accrual of interest on appeal by tendering amount of judgment or paying amount into court). No FSM statute provides otherwise. If a part of the principal is paid, then the statutory interest stops on that part. Partial payments on a judgment are first to be applied to the accrued interest and then to reduction of the principal. Moncrief v. Harvey, 816 P.2d 97, 106-07 (Wyo. 1991); Jorgensen v. Aetna Casualty & Sur. Co., 769 P.2d 809, 813 (Utah 1988). The subsequent statutory interest is

computed only on the remaining principal. 45 Am. Jur. 2d Interest and Usury § 99 (1969). "[W]hile deposited in the [court], the money presumably will be invested and accrue interest for the benefit of the ultimate recipient." Atlin v. Security-Connecticut Life Ins. Co., 788 F.2d 139, 142 (3d Cir. 1986). Therefore each of the creditors shall be entitled to the statutory nine percent simple interest from the date of entry of the original, underlying judgment until sufficient funds were deposited in court to pay that judgment. Thereafter those funds earn the interest paid by the court's depository institution. The date chosen by the trial court bears no relation to any date on which payments were made, or any portion of the judgment satisfied. Therefore the nine percent statutory interest cannot cease running on that day.

There is one particularly unusual aspect to this case. At least one, and probably three, of the judgment creditors have affirmatively released or waived any right to collect the judgments they have obtained. The trial court ruled that the creditors with lower priorities than the releasing creditors would move up in their priority and that Senda would receive back any of the releasing creditors' funds left over after accounting for all non-releasing creditors, attorney's fees and costs and sanctions. Neither party appealed this ruling. We will not disturb it. Creditors' counsel concedes that enough funds were on deposit by March 10, 1993, to satisfy the non-waiving creditors. Thus, if the trial court confirms all three releases, the statutory nine percent interest would cease to accrue on March 10, 1993. If, because not all three releases are confirmed, some portion of the principal remained unsatisfied after March 10, 1993, then the statutory nine percent continues to accrue, but only on that portion of the principal that remains unsatisfied.

As a matter of law, the trial court's order as to the calculation of interest on the judgment is hereby modified as follows: The nine percent statutory simple interest shall be computed from the date of entry of each of the original underlying judgments of the non-releasing creditors. Payments on the judgment shall be credited first to the outstanding interest and then to the reduction of the principal amount. Statutory interest shall cease on each portion of the principal when that portion was paid into court. Payments into court shall accrue interest thereafter as earned in the court's depository institution. On remand, the trial court shall calculate, with the assistance of the parties if necessary, the amounts due each of the creditors in conformity with the principles outlined above, and proceed with the distribution without further delay.

The second priority among judgment creditors consists of nine Filipino employees who have left the FSM. The trial court ordered that if the Filipino employees failed to collect their judgments2 within one year their funds would escheat to the national government. Senda questions this application of escheat. He contends that the law of escheat is a foreign concept unsuited for application in the FSM, that it is undesirable because there are no FSM statutes that give a person the right to reclaim escheated property as there are in the United States, and that in the United States (on which the FSM

We invited amicus curiae briefs on escheat from the attorneys general of both Pohnpei and the FSM. Both have submitted briefs and we have considered them. The national government contends that it is within the equitable powers of the trial court to dispose of unclaimed funds on deposit with the court. It argues that a judgment debtor who has paid damages for his wrongful act has no right to receive any part of the payment left unclaimed by the parties. Despite acknowledging that escheat is a "reversion of property to the state," it contends that the court's disposition of unclaimed funds to the national government, while contingent on events that may not occur, is within the court's equitable powers. The State of Pohnpei contends that, under the constitutional scheme of government in the FSM, escheat of property is a power that properly belongs to the states, and that Pohnpei has legislated on the subject.

We think the one-year deadline improper. An action on a judgment may be maintained up to twenty years after the date of entry of the judgment. 6 F.S.M.C. 802(1)(a). Therefore the trial court shall retain any unclaimed Filipino creditors' funds in its trust account until the twenty years has run. (This is not as long as it seems since all the original judgments are now at least eight years old.) Otherwise, a judgment creditor may appear and be unable to recover funds rightfully his without yet more litigation and collection efforts, and, if the funds have escheated to a government, a legislative act and appropriation.

Generally, a judgment debtor who has paid damages for his wrongful act has no right to receive any part of the payment left unclaimed by the parties. Hodgson v. Wheaton Glass Co., 446 F.2d 527, 535 (3d Cir. 1971) ("A State may succeed via escheat to the money, but the defendant may not claim the unpaid amounts." (citations omitted)); Hansen v. United States, 340 F.2d 142, 143 (8th Cir. 1965) ("judgment debtor who has paid his judgment is not the rightful owner of unclaimed portions of the judgment"); Louisville & N.R.R. v. Robin, 135 F.2d 704, 706 (5th Cir. 1953); In re Folding Carton Antitrust Litig., 557 F. Supp. 1091, 1105 (N.D. Ill. 1983), rev'd on other grounds, 744 F.2d 1252 (7th Cir. 1984). Unlike the three creditors who affirmatively released their rights to collect on their judgments, knowing full well that the release would benefit Senda financially, these judgment creditors who fail to claim their funds do not manifest any intention that the wrongdoer should benefit thereby. Therefore any of these funds left unclaimed should not be returned to Senda. The next question is to which government should they escheat.

At least two Micronesian legislatures have considered some form of escheat suited for application in the FSM. Congress has enacted one limited escheat statute. The proceeds from property found in an unclaimed shipwreck are deposited in the national government's general fund after one year. 19 F.S.M.C. 809. That statute was presumably enacted pursuant to Congress's power to legislate as to navigation and shipping matters. The Pohnpei Legislature enacted a more general escheat statute. Under it both the real and personal property of an intestate who dies without heirs escheats to the State of Pohnpei. Pon. D.L. No. 4L-155-78, § 4. Neither statute applies specifically to the funds that may be escheated in this case.

In the absence of an applicable statute we must consider the general framework of governmental powers in the FSM. The Constitution reserves to the states all powers not prohibited to them or expressly delegated to the national government or of such indisputably national character as to be beyond the power of a state to control. FSM Const. art. VIII, §§ 1, 2. Pohnpei contends that this leaves the general power of escheat to the states. It has support for this position in United States practice. In re Folding Carton Litig., 744 F.2d 1252, 1258 (7th Cir. 1984) (Flaum, J., concurring in

part, dissenting in part) ("Traditionally, unclaimed property escheats to the states."); Hodgson, 446 F.2d at 535 ("There is never a permanent escheat to the United States. A State may succeed via escheat to the money . . . ." (citations omitted)); In re Folding Carton Antitrust Litig., 687 F. Supp. 1223, 1233 (N.D. Ill. 1988) ("There is no statutory or common law basis for escheat to the federal government. Unclaimed funds generally . . . can only escheat to the appropriate state government."). The FSM contends that it is within the equitable powers of the national court to escheat funds on deposit with it to the national government. For support it points to the practice of the U.S. federal courts that turn over unclaimed funds on deposit with the court to the national treasury. This is done pursuant to statutes, 28 U.S.C. §§ 2041, 2042, that leave the funds on deposit in the U.S. Treasury where the rightful owner can reclaim them.

We think Pohnpei makes the better argument. Money deposited in the U.S. Treasury is not a permanent escheat, which can only be to a state. Hodgson, 446 F.2d at 535. Our federal system of government generally gives at least as much, if not more, power to the states than the U.S. system. Escheat of property, as is property law in general, is primarily a state power. Therefore, based on the inherent power of the court in the absence of an applicable statute, any of these funds left unclaimed once the twenty-year statute of limitations has run will escheat to the State of Pohnpei. This holding should not be construed to prevent escheat to national government in a proper case.

Senda objects that the trial court has granted without modification all sixteen motions by creditors' counsel for his fees and costs. Senda raised objections in the trial court to the last two motions. In particular, Senda objects to those fees that were for a Rule 60(b) motion to increase the judgment by $72,082.99, but which was unsuccessful due to counsel's own errors, see Mid-Pacific Constr. Co. v. Senda, 7 FSM Intrm. 129 (Pon. 1995). We understand Senda's appeal to be limited to the trial court's grant of creditors' counsel's fifteenth and sixteenth motions for attorney's fees and costs, which cover attorney services rendered from February, 1994 to October, 1995. The November 10, 1995 Order of Distribution granted the fifteenth motion. That order, when modified in January, 1996, also granted the sixteenth. Creditors' counsel contests Senda's position on the grounds of standing and that the court did not abuse its discretion to award fees and costs consistent with its retainer order of September 15, 1988. We have already disposed of the standing issue. Any reduction in the award of attorney's fees may enlarge the pool of money that might be returned to Senda.

When allowing attorney's fee awards courts have broad discretion based on a standard of reasonableness in light of the case's circumstances. Angoff v. Goldfine, 270 F.2d 185, 188 (1st Cir. 1959). A court has an obligation to see that the attorney's fee awards that it approves are reasonable even if the awards are made pursuant to (as here) contract, Bank of the FSM v. Bartolome, 4 FSM Intrm. 182, 185 (Pon. 1990), or statute, Tolenoa v. Kosrae, 3 FSM Intrm. 167 (App. 1987). A trial court should provide reasons on the record to explain its exercise of discretion in awarding the figure it selects. Islamic Ctr. of Miss. v. Starkville, 876 F.2d 465, 474 (5th Cir. 1989).

We conclude that it was an abuse of the trial court's discretion to award attorney's fees and costs without first determining their reasonableness. We therefore reverse the grant of the fifteenth and sixteenth motions and remand to the trial court for such a determination. The trial court shall explain on the record its reasons for any awards made. Some hours and expenses may not be compensable if the litigation was needlessly protracted or went forward unreasonably, and are thus unnecessary. Cf. FSM Social Sec. Admin. v. Mallarme, 6 FSM Intrm. 230, 232 (Pon. 1993); Gregg v. U.S. Indus., Inc., 715 F.2d 1522, 1542 (11th Cir. 1983) (fees denied where both parties prolonged litigation unnecessarily).

Creditors' counsel also requests that we award him attorney's fees for defending this appeal. We decline to make such an order. Fees for previous appeals in this matter were awarded by the trial court. On remand he may make whatever application he thinks proper to the trial court. Cf. Dunson Contractors, Inc. v. Koury, 418 P.2d 66, 67 (N.M. 1966) (trial court to determine whether allowance of attorney's fees for appeal should be made).

Senda has standing for this appeal because he has a direct financial interest in its outcome. The trial court committed constitutional error by basing its decision, at least in part, on a special master's report not a part of the record and not available to the parties for inspection prior to its decision. In this case, however, that error was harmless. The trial court order that the nine percent statutory interest be computed from the date of entry of each of the original underlying judgments of the non-releasing creditors is affirmed. The rest of the order as to interest is modified. Payments shall be credited first to the outstanding interest and then to the reduction of the principal amount. The nine percent statutory simple interest ceases on each portion of the principal when that portion is paid into court. Payments into court will accrue interest thereafter at the rate paid by the court's depository institution. The court shall keep any unclaimed funds due the non-releasing creditors in its trust account until the twenty-year statute of limitations has run. At such time, any unclaimed funds shall escheat to the State of Pohnpei. The trial court's grant of creditors' counsel's fifteenth and sixteenth motions for attorney fees is reversed. On remand the trial court shall determine what fee awards are reasonable and explain its reasoning on the record. This matter is hereby remanded to the trial court for further proceedings consistent with this opinion.

2. The trial court ordered that an attempt be made to locate the Filipino creditors by means of a letter through proper diplomatic channels and a Manila newspaper advertisement. We think that the FSM Immigration Office should have sufficient information ) such as name, date and place of birth, Philippine passport number and date and place of issuance, and address at time they applied for entry permits for the FSM ) in its files concerning these alien workers so as to make locating them, or their heirs, much more likely if this detailed information is provided the Philippine government than a newspaper advertisement would.