Yokeno v. Cotton

Opinion

IN THE SUPERIOR COURT OF GUAM 7011 NOV I 7 PM o 2

3 EDDIE YOKENO, aka MATAO YOKENO,) CIVIL CASE NO. CV1l63-09 as Trustee and Secretary-Treasurer of Able )

4 Industries of the Pacific; and ABLE )

5 INDUSTRIES OF THE PACIFIC, ) DECISION AND ORDER ) ON DEFENDANTS' MOTION TO 6 Plaintiffs, ) RELEASE FUNDS HELD IN THE ) COURT REGISTRY ACCOUNT 7 VS. )

8 )

ELMORE COTTON, JOAQUIN LEON )

9 GUERRERO, JENNIFER DUFFIE, ) 10 PATRICIA MAE COTTON, and ) FRANCISCO FLORIG, )

11 )

Defendants. )

12 ----~--------------------~)

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14 This matter came before the HONORABLE VERNON P. PEREZ on November 10

15 2011. Attorney Mark S. Smith represented Defendants. Attorney Joseph C. Razzano represent 16 Plaintiff who was present. Attorney Richard Johnson represented First Hawaiian Bank. Th

17 Court took the motions under advisement. After having heard the Parties' arguments

18 considering the Parties' pleadings and the record, the Court now issues the following Decisio

19 and Order.

20 BACKGROUND

21 This case arises from a complaint for Declaratory and Injunctive Relief as well as oth

22 claims for Breach of Fiduciary Duty and Appointment of Provisional Director. Plaintiff Eddi

23 Y okeno (hereinafter "Plaintiff') alleges that Defendant Elmore Cotton (hereinafter "Defendan 24 Cotton") and others, breached their fiduciary duty and held a special meeting of the Board 0

25 Trustees for Able Industries of the Pacific (hereinafter "Able") without authority and permissio

26 of the Plaintiff. The following list of motions have followed from the inception of this case 27 Plaintiff's Motion for Preliminary Injunction filed August 4, 2009, Defendants' Motion 28 Dismiss or in the Alternative to Stay Proceedings filed August 24, 2009, Defendants' Motion t Dismiss Amended Complaint filed October 16,2009. Plaintiff's Ex-Parte Motion for Tempor

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Restraining Order and Ex-Parte Motion for Receivership filed December 2,2009, Plaintiff's Ex 2 Parte Motion to Lift Stay filed November 10, 2010, Plaintiff's Motion to Compel fil 3 September 26, 2011, Defendants' Ex-Parte Motion to Shorten Time and Motion for Protectiv 4 Orders filed September 21, 2011, Defendants' Motion to Release Funds in the Court Regis 5 Account filed August 31, 2011 and First Hawaiian Bank's (hereinafter "FHB") Ex-Parte Motio 6 to Intervene. Throughout the duration of this case, there have also been several motio 7 regarding withdrawal and substitution of counsel. 8 This Court ordered to stay proceedings in its May 12, 2010 Order until the resolution 0 9 the parallel District Court of Guam case CV09-00019. Then, this Court lifted the stay on Ap . 10 18, 2011 pursuant to stipulation by the Parties. Thus, the Motion to Stay has been resolved. Th 11 Court currently has Defendants' Motion to Dismiss, Defendants' Motion to Release Funds Hel 12 in the Court Registry Account (hereinafter "Motion to Release") and FHB' s Motion to Interven 13 under advisement. This Decision and Order will only address the Defendants' Motion to Release 14 The Court has yet to hear arguments regarding Plaintiff's Motion to Compel, Plaintiff's Motio 15 for Receivership, Plaintiff's Motion for Preliminary Injunction, Plaintiff's Motion for Tempo 16 Restraining Order and Defendants' Motion for Protective Order. Any remaining motions shall b 17 addressed by the Court subsequent to this Decision and Order. 18 DISCUSSION 19 Defendants have requested the release of Court held funds and also motioned to have th 20 time to hearing on the release of funds shortened. As the Court allowed arguments to be made a 21 the November 10,2011 hearing, Defendants' Ex-Parte Motion to Shorten Time was granted. A 22 to Defendant's Motion to Release, according to the Defendants, the release of funds is 23 essential matter as the Department of Labor may hold Able in violation of federal employmen 24 rules for not paying wages with funds held by this Court. The result of a violation would be th 25 loss of many contracts Able currently maintains which inevitably would lead to Able's closing 0 26 business. Defendants, without going into detail, cited to at least one contract that was terminat 27 due to the held funds. 28

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In furtherance of the argument, Defendants contend that Able has 90 days to discharg 2 wages to be in compliance. According to the Defendants, Able would need to pay AS 3 $332,585.66 in order to make payroll. FHB also explains that Able owes them roughl 4 $500,000.00 from a credit line granted to them in order to make previous payroll requirements 5 Defendant claims that the total release of funds would allow Able to be current. The Cou 6 recognizes FHB's desire to be paid, yet the Court also recognizes Plaintiffs argument that al 7 outstanding creditors have a better chance of repayment if Able can maintain its curren 8 contracts. As of now, not all creditors are known to the Court. 9 Plaintiff maintains that releasing funds will only endanger the long-term viability of Abl 10 as the release of funds is only a quick fix and will not satisfy all outstanding creditors. Plainti 11 argues that Able will still be in violation of federal employment rules even if the funds ar 12 released. In the parallel case before the District Court, the District Court did not release th 13 funds due to corporate mismanagement concerns that have also been raised by the Plaintiffs i 14 this case. Able Industries of the Pacific v. Porter, Civil No. 09-00019, Order, at *8 (D. Ct 15 Guam Mar. 31, 2011). It appears that the total release of funds without discretion as to where th 16 funds may go, may only jeopardize Able as opposed to assisting the current problems facin 17 Able. 18 In opposition to the release of funds, Plaintiff requests that the Court place a Receive 19 into Able to ensure productivity and longevity of the business. Plaintiff believes that the releas 20 offunds could not be possible until a Receiver is in place and has the ability to inform the Partie 21 of the fmancial situation Able is in. Only then, could the Court make an intelligent decisio 22 based on the financials of Able. Although the Court appreciates the desire for the judiciary t 23 make decisions based on the most current and relevant set of facts, the Court also understand 24 that a business cannot continue to operate without paying its employees. Thus, consideration 0 25 Plaintiffs request to have a Receiver in place must wait until the vital issue of payroll is decided. 26 The standard correctly put forth by Plaintiff for a modification of prior order is iterated' 27 Rufo v. Inmates of Suffolk County Jail, 502 U.S. 367, 384 (1992). In Rufo, the Court explaine 28 that the moving party must show a change of circumstances before a Court will conside

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modification. As Plaintiff has suggested, changed circumstances would need to be shown t 2 release even a portion of the funds and allow the Court to modify the prior order. See Us. v. 3 Swift & Co., 286 U.S. 106 (1932). The Court finds that the circumstances from the date that th 4 Court obtained the funds have changed. Recently, the Department of Labor is subjecting Able t 5 violations and potential termination of contracts if Able does not maintain current on its payroll. 6 Additionally, the funds held are known to be in excess of the funds needed to become current 0 7 payroll and keep Able from violation of the Federal employment regulations. Previously, it w 8 not known that the release of partial or total funds would benefit Able. Now, it is known to th 9 Court that partial release of funds would indeed benefit the longevity of Able. See Declaration 0 10 Armando De Jesus attached to Defendants' Second Supplemental Submission. 11 Accompanying Defendants' Motion to Release was a Declaration by Defendant Leo 12 Guerrero in Support of the Motion to Release filed August 31, 2011. That Declaration containe 13 several exhibits showing that the Department of Labor has initiated investigation on the paymen 14 of employee wages relating to Able's contracts with the U.S. Government. Without going int 15 detail on those investigations and notices of nonpayment of wages, the Court is highl 16 concerned. In addition, the military has recently been late in paying Able for past due bill 17 which complicates the ability for Able to make payments to its employees. See Defendants' 18 Request to Modify Relief. 19 The Court is also concerned with the priority given to Federal Income Taxes owed. Tha 20 fact considered along with all other arguments presented, the Court does not believe that Abl 21 will be current on all debts with the complete release of the all Court held funds. Unname 22 creditors may also exist that rank highly on the payout priority and FHB is owed $500,000.00 23 which alone is greater than the remaining funds held by the Court after the $332, 585.66 i 24 released. Thus, even though the Court finds that payroll will be current by partial release of th 25 Court held funds, total release of the funds would not satisfy all outstanding debts. Accordingly 26 the Court desires to ensure that Able has the potential to stay in business and maintain its curren 27 contracts. If Able fails to maintain its contracts, then the likely result is that Able with no 28 continue its business and all creditors will be at risk of nonpayment. Thus, the Court must allo

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the partial release of funds for the specific purpose of paying Able's employees. To mak 2 payroll, it has been suggested Able needs $332,585.66. 1 The Court will allow just enough mone 3 to be released so that payroll is made and Able may continue business. In Defendants' Motion t 4 Release they concluded by requesting the release of funds be paid directly to the Department 0 5 Labor. The Court will not allow the funds to go anywhere but to the payment of employee 6 satisfy Department of Labor requirements. In any event, the Court finds that Defendants hav 7 sufficiently shown changed circumstances that warrants modification of this Court's prior order. 8 The Court's hope in using its inherent power this way is that Able will pay its employees an 9 keep all remaining contracts with the Federal Government so that Able can still receive futur 10 income and pay all creditors in full. Recent submissions by the Parties and additions to th II record at hearing have revealed that $265,000.00 would allow Able to be current on al 12 November payrolls. I3 /I 14

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28 I In a November 9, 2011 letter from Donald Clark at ASC Trust Corporation, to Armando De Jesus at Able, Mr. Clark explained to Mr. De Jesus, that Able would be current with its payroll with a payment of $332,585.66.

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CONCLUSION 2 Defendants' Motion to Release is GRANTED in part and DENIED in part. The Cou 3 understands that approximately $800,000.00 is in the Court Registry Account. Enough mone 4 will be released to make payroll in order to allow Able to maintain its current contracts. Th 5 remaining money will be kept due to concerns over the management of Able. The Cou 6 additionally orders that the released funds be tracked with an accounting that will be reporte 7 back to this Court after funds are dispersed such that payroll is met. The released amount will b 8 $265,000.00 as that should bring Able into compliance for two payrolls. A document trackin 9 the payment of payroll with the funds will be prepared by the Defendants as they requested th 10 release of the funds. All released funds determined to be in excess of payroll needs shall b 11 returned to the Court Registry Account. The Court orders that a check in the amount 0 12 $265,000.00 be released before Friday November 18,2011 11:00a.m. to Able Industries with th 13 specific purpose of making payroll. 14 As explained at the hearing held November 10,2011, the Court is interested in additiona 15 briefing on the issue of Plaintiff s Motion for Receivership. The Parties have until January 15 16 2012 to submit any additional briefings relating to the receivership issue if they so choose. Th 17 Court is also interested in any update as to Defendants' requested Protective Orders an 18 Plaintiff s Motion for Preliminary Injunction. 19 So ORDERED this da:¥ of November, 2011. 20 HOV [1£011 Orig' O~: P. PEREZ 21

22 HONORABLE VERNON P. PEREZ JUDGE, SUPERIOR COURT OF GUAM 23 I do hereby certify that the fOffllOio.

24 Is • (..11 true aIId correct copy of the original 00 01" in the office of the dtrk or riOt Court of Gtltla 25

26 2011 27

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