Dela Cruz v. Hotel Nikko Saipan, Inc.

5 N. Mar. I. 96

• Court: Supreme Court of The Commonwealth of The Northern Mariana Islands
• Decided: September 22, 1997
• Docket: Appeal No. 95-031; Civil Action No. 91-0259
• Status: Published

Opinions

TAYLOR, Chief Justice:

¶1 Appellants, Teresita Camacho Déla Cruz (“Teresita”) and Estefanía Camacho Chong (“Estefanía”) appeal the Superior Court’s September 6, 1995, Order denying their motion for summary judgment on their quiet title claim and granting summary judgment in favor of the defendants: Hotel Nikko Saipan, Inc. (“Hotel Nikko”), Japan Airlines, Inc. (“JAL”), Blanco Vende, Ltd. (“Blanco Vende”), and Realty Trust Corp. (“Realty Trust”). We have jurisdiction pursuant to 1 CMC § 3102. We affirm.

ISSUES PRESENTED AND STANDARD OF REVIEW

¶2 The issues presented are as follows:

I. Whether the Superior Court erred in denying plaintiffs’ motion for summary judgment and holding that plaintiffs are not entitled to prevail as a matter of law on an agency-trust theory.

II. Whether the Superior Court erred in denying plaintiffs’ motion to disqualify the Carlsmith, Ball, Wichman, Case & Ichiki (“Carlsmith”) law firm.

III. Whether the Superior Court erred in not examining the constitutionality of Public Law (“PL”) 8-32.¹

¶3 We review de novo an order granting summary judgment. Apatang v. Marianas Pub. Land Corp., 1 N.M.I. 140, 146 (1990). Summary judgment motions will be affirmed if we determine that, as to the legal basis relied upon: (1) there was no genuine issue of material fact, and (2) the Superior Court correctly applied the substantive law. Rios v. Marianas Pub. Land Corp., 3 N.M.I. 512, 518 (1993). We may also affirm if we find the result is correct under a different theory. Id. In our de novo review of a summary judgment motion, we view the evidence and inferences to be drawn in favor of the non-moving party. Id.

¶4 We review a denial of a motion to disqualify counsel under the abuse of discretion standard. Commonwealth v. Oden, 3 N.M.I. 186, 191 (1992). We review a challenge to the constitutionality of a statute de novo. Office of the Attorney General v. Deala, 3 N.M.I. 110, 114-15 (1992).

FACTS AND PROCEDURAL BACKGROUND

I.The Transactions

¶5 On August 1,1983, Teresita and Estefanía, persons of Northern Marianas descent (“NMD”), sold a parcel of property in San Roque/Matansa, Saipan, identified as Lot Number 006 B 03 consisting of 3,183 square meters, to two corporations: Realty Trust and Blanco Vende. On the same day, Realty Trust conveyed its interest in the property to Blanco Vende. Blanco Vende remains the record owner of the property. The purchase price of the property was paid by Japan Air Lines Development Co. (“JDC”), which secured the debt through a mortgage on the property. Blanco Vende paid offthe JDC loan in 1988 and the mortgage was released. Blanco Vende subsequently leased the property to Hotel Nikko, which constructed a luxury hotel. Dela Cruz v. Hotel Nikko, Civ. No. 91-0259 (N.M.I. Super. Ct. May 2, 1995) (Memorandum Decision and Order on Defendants’ Motion for Summary Judgment at 2).

II. The Corporations

¡ Realty Trust was incorporated in the Commonwealth on July 30, 1981. According to the articles of incorporation, the corporation issued one thousand shares of stock, subscribed to by the following individuals: Bernie S. Cabrera (260 shares), a NMD; Josefa K. Flores (250 shares), a NMD; Roger Gridley (250 shares), a non-NMD; and First Commonwealth Corp. (240 shares), a non-NMD. Realty Trust had its principal place of business in the Commonwealth. Id.

' Blanco Vende was incorporated in the Commonwealth on July 8, 1983. Its articles of incorporation list one thousand shares of stock outstanding, subscribed to by the following persons: Riichi Yamamoto (490 shares), a non-NMD; RitaH. Sabían (255 shares), a NMD; and Bernie S. Cabrera (255 shares), a NMD. Mr. Yamamoto held his stock for JDC, the entity which furnished the purchase price of the stock. According to the amended articles of incorporation, any transfer of real property owned by the corporation had to be approved by 75% of the voting shares. Blanco Vende had its principal place of business in the Commonwealth. Id. at 2-3.

III. The Motion to Disqualify the Carlsmith law firm

¶8 The plaintiffs filed a motion to disqualify the Carlsmith law firm from the defendants based on assertions that representing multiple clients with potentially adverse interests created an impermissible conflict of interest. This motion was subsequently denied. Tudela v. Layne, Civ. No. 88-0715 (N.M.I. Super. Ct. July 15,1993) (Order Denying Motion to Disqualify Carlsmith at 3).

IV. The Summary Judgment Motion

¶9 On September 6, 1995, the Superior Court denied plaintiffs’ motion for summary judgment and entered judgment in favor of the defendants. Dela Cruz, (N.M.I. Super. Ct. Sept. 6,1995) (Order on Plaintiffs’ Motion for Summary Judgment at 1); Déla Cruz, (Judgment at 1). Appellants timely appealed.

ANALYSIS

I. The Superior Court did not err when it granted appellees’ motion for summary judgment and held as a matter of law that Realty Trust and Blanco Vende’s purchase of the properly complied with Article XII, §5 of the Commonwealth Constitution.

A. Realty Trust and Blanco Vende are valid NMD Corporations.

¶10 Article XII of the Commonwealth Constitution restricts the “acquisition of permanent and long-term interests in real property within the Commonwealth” to “persons of Northern Marianas descent.” N.M.I. Const., art. XII, § 1. In 1976, the Constitution classified a corporation as a NMD so long as it:

a) is incorporated in the Commonwealth;

b) has its principal place of business in the Commonwealth;

c) has directors fifty-one percent of whom are persons of Northern Marianas descent; and

d) has voting shares fifty-one percent of which are of Northern Marianas descent.

N.M.I. Const, art. XII, § 5 (1976) (emphasis added).²

¶11 Thus, Realty Trust and Blanco Vende, when they were incorporated in 1981 and in 1983, had to meet the four prerequisites of Article XII, § 5 as stated above in order to be a properly formed NMD corporation so that the corporations could lawfully acquire, hold and transfer real property in the Commonwealth.

¶12 First, Realty Trust and Blanco Vende were incorporated under the laws of the CNMI on July 30, 1981, and July 8, 1983, respectively. Second, the principal place of business for both corporations have always been Saipan. Realty Trust’s principal place of business is listed in its articles of incorporation as P.O. Box 859, Saipan, MP. The articles of incorporation list Blanco Vende’s principle place of business as P.O. Box 795, Saipan, MP. Third, fifty-one percent of the directors for Realty Trust and Blanco Vende were NMDs. The initial directors of Realty Trust were Josefa K. Flores (NMD), Bemie S. Cabrera (NMD), and Roger Gridley (non-NMD) so that at least 2/3rds or 66% of the board of directors were NMDs. The initial directors of Blanco Vende were Rita H. Sabían (NMD), Bemie S. Cabrera (NMD), and Riichi Yamamoto (non-NMD) so that at least 2/3rds or 66% of the board of directors were NMDs. Fourth, fifty-one percent of Realty Trust and Blanco Vende’s voting shares were held by NMDs. Realty Trust issued 1000 shares of common stock at a par value of $1.00 each to Josefa K. Flores (250 shares), Bernie S. Cabrera (260 shares), RogerGridley (260 shares) andFirst Commonwealth Corp. (240 shares). The combined total of the voting share of Realty Trust was therefore divided into 51 % NMD, 49% non-NMD. Blanco Vende maintained a similar fifty-one, forty-nine percent, NMD, non-NMD split in voting shares, issued to: Rita H. Sabían (255 shares), Bernie S. Cabrera (255 shares), and Riichi Yamamoto (490 shares). At the time of the conveyance in 1983, Realty Trust and Blanco Vende met all the necessary requirements of being a NMD corporation. Therefore, as a matter of law, under Article XII, § 5, both corporations were and are qualified to own land in the Commonwealth.

B. “Alter-Ego” Theory

¶13 Appellants also contend that since Realty Trust and Blanco Vende were the “alter ago” or “agent” of JAL, JAL acquired an impermissible fee simple interest in the property in violation of Article XII. Appellants’ main argument is parallel to the one used in Ferreira v. Borja, 2 N.M.I. 514 (1992) vacated and remanded Ferreira v. Borja, 1 F.3d 960 (9th Cir. 1993), Ferreira v. Borja, 4 N.M.I. 211 (1995).

¶14 In Ferreira, appellant Rosalia MafnasBorj a (Mafnas) asserted that although the legal title was held by Diana Ferreira, a qualified NMD, since the money for the purchase came from non-NMDs (James Grizzard, Barbara Grizzard, and Frank Ferreira), the non-NMDs acquired an impermissible equitable fee simple interest in the property under a resulting trust principle and the transactions should be declared void ab initio as violative of Article XII’s restrictions on land ownership. On remand, this Court rejected both the agency and resulting trust theory and held the non-NMDs received no fee interest in the property and the NMD’s interest was proper. Ferreira v. Borja, 4 N.M.I. at 212.

¶15 We see no difference from the analysis in Ferreira to the arguments presented here. Appellants are asserting that Realty Trust and Blanco Vende acted as agents for JAL in purchasing the land in question and that JAL subsequently acquired an impermissible fee simple interest in the property. Under Ferreira, even if JAL provided the money to Realty Trust and Blanco Vende to purchase the property, JAL received no interest in the property and the transaction was proper.

C. Piercing the Corporate Veil

¶16 Appellants further claim that Realty Trust and Blanco Vende were “shams” created to circumvent and usurp the intent of Article XII and as shams, they should be set aside by the Court. Appellants have failed to show how the local corporations were “shams.” Mere allegations without unsupported evidence are insufficient. The Registrar of Corporation’s filing of the articles of corporation is conclusive proof that the incorporators satisfied all conditions precedent to incorporation and once a corporation is incorporated, it exists until it is dissolved.³ Because no evidence has been presented that a dissolution has occurred, Realty Trust and Blanco Vende continue to exist as lawful NMD corporations.

¶17 “Piercing the corporate veif’is a doctrine of law which allows individual shareholders to be held personally liable for the debts of the corporation, and not to void the entity of the corporation itself. United Enterprises, Inc. v. King, 4 N.M.I. 304 (1995). Generally, a corporation and its shareholders are deemed “separate entities” and “shareholders are not liable to third parties” beyond their initial investment in the stock of the corporation. Id. at 307 (internal citations omitted). However, when the shareholders treat the corporation not as a “separate entity” but rather as an instrument to conduct their own personal business, the court may “pierce the corporate veil” for purposes of liability. Id. In the instant case, even if the Court were to pierce the corporate entity status of Blanco Vende and Realty Trust, the result would be that the individual shareholders (Bemie S. Cabrera, for example) would be personally liable for the debts of the corporation. The corporation would subsequently still continue to exist.

II. The Superior Court did not err in denying the motion to disqualify the Carlsmith law firm.

¶18 The appellants’ argue that Carlsmith should be disqualified because of the firm’s representation of multiple clients with potentially adverse interests creating an impermissible conflict of interest. A threshold issue in the Superior Court was whether the plaintiffs had standing to contest Carlsmith’s representation. The Superior Court noted that Rule 1.7 of the Model Rules of Professional Conduct⁴ limits a non-client litigant’s standing to disqualify opposing counsel based upon a conflict of interest only where the non-client litigant demonstrates “personal detriment or misconduct which taints the fairness of the proceeding” citing Appeal of Infotechnology, Inc., 582 A.2d 215, 219 (1990). The Superior Court found that the plaintiffs “failed to show how Carlsmith’s representation would interfere with their respective rights to a fair judicial proceeding and would thus taint the underlying trial” and denied the plaintiffs’ motion. Tudela v. Layne, Civ. No. 88-0715 (N.M.I. Super. Ct. July 15, 1993) (Order Denying Motion to Disqualify Carlsmith at 3) (emphasis in original) (citations omitted).

¶19 We are not persuaded that the trial judge abused his discretion in denying appellants’ motion to disqualify the Carlsmith law firm from representing multiple defendants. As indicated in the record, the firm obtained the consent of its clients to common representation after consultation regarding the implications of representing multiple parties.⁵ Accordingly, we find no abuse of discretion in the trial court’s decision.

III. The Constitutionality of Public Law 8-32

¶20 Since we find that summary judgment was proper, and since we have previously noted that a court must never “formulate a rule of constitutional law broader than is required by the precise facts to which it is to be applied”, Oden, 3 N.M.I. at 202 (citations omitted), we find it unnecessary to address the constitutionality of P.L. 8-32.

CONCLUSION

¶21 For the reasons stated above, we hereby AFFIRM the Superior Court’s September 6, 1995 granting of summary judgment in appellees’ favor and AFFIRM the denial of plaintiffs motion to disqualify the Carlsmith Ball law firm.

1 The sub-issues are: (1) Whether P.L. 8-32 forecloses this action to set aside the corporate entity of Realty Trust and Blanco Vende; (2) Whether P.L. 8-32 is an unconstitutional legislative infringement upon the powers of the judiciary; (3) Whether retroactive application of P.L. 8-32 violates vested property rights; (4) Whether P.L. 8-32 violates appellants’ rights to due process, equal protection, free speech and access to the courts.

2 Article XII, § 5 was amended on January 7, 1986 to define a corporation as an NMD so long as: it is incorporated in the Commonwealth; has its principal place of business in the Commonwealth; has directors one-hundred, percent of whom are persons of Northern Marianas descent; and has voting shares one-hundred percent of which are owned by persons ofNorthern Marianas descent. N.M.I. Const, art. XII, § 5 (1986) (emphasis added). This amendment was not made retroactive to corporations which were formed before January 7, 1996.

3 Rules and Regulations of Corporations, 12 Com. Reg. 6.922 (1990). There are two types of dissolutions: voluntary and involuntary. No evidence has been presented that a dissolution by either the parties or by an administrative or judicial entity has occurred.

In addition, prior to lending money to Blanco Vende, LDC sought, obtained, and relied upon assurances from the CNMI Government that Realty Trust was qualified under CNMI law to hold and transfer clear title to property. LDC obtained a written certification from Commonwealth Land Commissioner Antonio B. Camacho stating:

THIS IS TO CERTIFY THAT REALTY TRUST CORPORATION IS A REGISTERED NORTHERN MARIANAS CORPORATION ELIGIBLE TO HOLD AND TRANSFER CLEAR TITLE TO REAL ESTATE IN THE COMMONWEALTH OF THE NORTHERN MARIANA ISLANDS.

Supp. E.R. at 68.

4 Rule 1.7(b) of the Model Rules of Professional Conduct (1994 edition) provides:

A lawyer shall not represent a client if the representation of that client may be materially limited by the lawyer’s responsibilities to another client or to a third person, or by the lawyer’s own interests, unless:

(1) the lawyer reasonably believes the representation will not be adversely affected; and

(2) the client consents after consultation. When representation of multiple clients in a single matter is undertaken, the consultation shall

include explanation of the implications of the common representation and the advantages and

risks involved.

5 See Declaration of Marcia K. Schultz in Opposition to Plaintiff’s Motion for the Disqualification ofthe Carlsmith Law Firm, E.R. at 4-10.