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HEADNOTES

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COURT'S OPINION

READY E. JOHNNY, Associate Justice:

This comes before the court on 1) defendant Phillip Ayin's Motion to Dismiss Complaint, filed November 8, 2011; 2) defendant John Mooteb's Motion to Dismiss with supporting affidavits, filed November 8, 2011; 3) Plaintiff's Opposition to Defendant Phillip Ayin's Motion to Dismiss with supporting affidavit, filed November 24, 2011; 4) Plaintiff's Opposition to Defendant Mooteb's Motion to Dismiss with supporting affidavit and exhibit, filed November 24, 2011; and 5) Plaintiff's Motion for Entry of Default and Default Judgment Against Defendant Henry Garangmaw with supporting affidavit and exhibits, filed December 2, 2011. Phillip Ayin's motion to dismiss is denied, Mooteb's motion to dismiss is granted, and the plaintiff's motion for a default judgment is denied and the complaint against Garangmaw is dismissed. The court's reasons follow.

I. BACKGROUND

This case arises from a $16,700 loan made on January 27, 2006, by the plaintiff, the FSM Development Bank, to Joseph C. Ayin. The loan was secured by a chattel mortgage on four motor vehicles and some radio equipment and by a real property mortgage on land, Parcel 008 F 13, owned in common by John Mooteb and Henry Garangmaw. The chattel mortgage was filed and registered with the FSM Secured Transactions Filing Office and the real property mortgage was duly recorded at the Yap Land Commission and inscribed on the certificate of title for Parcel 008 F 13.

The loan was to be repaid by equal monthly payments over a three-year period. Some payments were made, but the loan was not repaid in full. The bank served notice on the borrower and the mortgagors that the loan was in default and demanded payment and demanded the proceeds from the sale of two of the vehicles in which the bank held a security interest. The default notice was also registered with the Land Commission and inscribed on the certificate of title.

On October 19, 2011, the bank filed suit alleging that, including penalties and accrued interest, $12,087.95 was still due (with interest accruing at $2.78 per day). The bank's first cause of action alleges breach of contract by Joseph C. Ayin for his failure to repay the loan in full according to the terms of the promissory note he had executed in the bank's favor. The second cause of action, which is against Joseph C. Ayin and against Phillip Ayin,¹ who sold the vehicles subject to the chattel mortgage, seeks to foreclose the chattel mortgage and apply the proceeds to the unpaid loan. The third cause of action is against Henry Garangmaw and John Mooteb and seeks to foreclose the Parcel 008 F 13 real property mortgage and apply the proceeds to the defaulted loan.

[18 FSM R. 93]

II. PHILLIP AYIN'S MOTION

Phillip Ayin moves to dismiss this action because, in his view, the court lacks any jurisdiction over the subject matter. He asserts that the court lacks jurisdiction because an interest in land is at issue in this case and because any land disputes in Yap must be resolved through traditional arbitration or through a customary land dispute resolution in accordance with Yapese custom and tradition. For these propositions Phillip Ayin relies on the FSM constitutional provision that the FSM Supreme Court "has original and exclusive jurisdiction in cases . . . in which the national government is a party except where an interest in land is at issue," FSM Const. art. XI, § 6(a), and [apparently] the provision that "[c]ourt decisions shall be consistent with . . . Micronesian customs and traditions," FSM Const. art. XI, § 11, although he instead cites the Constitution's preamble for this point.

The bank notes that Ayin's argument is an implicit claim that the twenty-five-year-old Yap State Mortgage Act, Yap State Law No. 2-24 (codified in the Yap State Code at Title 29), is unconstitutional. The bank further lists a number of cases in which the court has enforced the Yap mortgage law.

Any claim that the court should dismiss the first two causes of action for lack of jurisdiction is, at best, frivolous. The court clearly has jurisdiction over those two causes of action because, under section 6(a), the court has exclusive jurisdiction in a case where a party is an instrumentality of the national government and the FSM Development Bank is an instrumentality of the national government. The FSM Supreme Court has original and exclusive jurisdiction over a suit on an FSM Development Bank promissory note because the national government is a party. FSM Dev. Bank v. Ifraim, 10 FSM Intrm. 1, 4 (Chk. 2001).

Since movant Phillip Ayin is a defendant only in the second cause of action, it is doubtful whether he has standing to move to dismiss the third (or even the first) cause of action. Nonetheless, the court notes that the phrase "except where an interest in land is at issue," does not preclude the court from exercising jurisdiction in a case where the national government entity is a party and land is involved. It does preclude the court from exercising exclusive jurisdiction – the jurisdiction becomes concurrent and a competent state court could instead entertain the matter. Furthermore, taking the complaint's allegations as true as the court must do on a motion to dismiss, it is doubtful whether an interest in land is "at issue." The fee simple ownership of Parcel 004 F 13 by John Mooteb and Henry Garangmaw is not at issue. The bank does not dispute their ownership. In fact, the bank relies upon their undisputed ownership in order to be able to have the property foreclosed and Joseph C. Ayin's debt. If the movant's allegations are true, then the bank is seeking to have done only what the land's mortgagors agreed to if the loan went into default. Thus, the section 6(a) jurisdictional language may not be applicable.

Accordingly, Phillip Ayin's motion to dismiss is denied.

III. JOHN MOOTEB'S MOTION

John Mooteb moves to dismiss just the bank's third cause of action since he is named as a defendant only in that cause of action. He contends that the real property mortgage's forum selection clause requires that this cause of action be pursued in the Yap State Court. That clause provides that "[a]ny action to foreclose this mortgage shall be pursued in the Trial Division of the Yap State Court in accordance with the provisions of Yap State Law No. 2-24." Real Property Mortgage para. 22 (Jan. 27, 2006) (Complaint, Ex. E). Mooteb also relies on Yap state law which provides that "all judicial actions for the foreclose of a mortgage shall be brought in the Trial Division of the State Court." 29 Y.S.C. § 123(a). Mooteb further contends that this cause of action should be dismissed because, in his view, the mortgage is invalid since he did not sign it (only Garangmaw did) and the power of

[18 FSM R. 94]

attorney that he gave Henry Garangmaw to deal with his land interests in Yap was not supposed to cover this parcel; because one co-tenant cannot bind another or alienate or encumber an entire undivided estate; and because the "mafen" to the land did not consent to the mortgage.

The bank contends that the motion must be denied 1) because Mooteb has no standing since he did not sign it and thus he is not a party to the mortgage; 2) because a Yap state statute cannot divest the FSM Supreme Court of jurisdiction; 3) because a mafen's signature was not needed since, under 29 Y.S.C. § 109(a), a mafen's signature is not required for a valid mortgage and because the mortgaged property did not have a mafen when it was mortgaged, the mortgagor told the bank that the land did not have a mafen, and the person who now claims to be the mafen does not assert that he was the property's mafen when the land was mortgaged; and 4) because the mortgage was valid since the Yap Mortgage Act defines a mortgagor as someone who has "all or some part of title to the property," 29 Y.S.C. § 103(k), and it is undisputed that Garangmaw has some part of the title to Parcel 008 F 13.

The bank is correct that a Yap state statute cannot divest the FSM Supreme Court of jurisdiction conferred on it by the FSM Constitution, which is the supreme law of the land. Gimnang v. Yap, 5 FSM Intrm. 13, 23 (App. 1991); Faw v. FSM, 6 FSM Intrm. 33, 36-37 (Yap 1993).

The court, however, must reject the bank's assertion that Mooteb cannot seek to enforce the mortgage's forum selection clause because his signature is not on the mortgage. The bank alleges that Mooteb is bound by the mortgage because Garangmaw held Mooteb's power of attorney to act on Mooteb's behalf in regard to Parcel 008 F 13. That being so, the bank is estopped from and cannot deny that Mooteb is a party to the mortgage. Since Mooteb is a party to the mortgage, he has standing to enforce its provisions.

In FSM Development Bank v. Ifraim, 10 FSM Intrm. 1 (Chk. 2001), the court considered a similar forum selection clause. The Ifraim court concluded

that if the FSM Supreme Court is to enforce the mortgage it must give effect to the forum selection clause unless the mortgagors were to expressly waive their right to require the Bank to abide by the forum selection it made when it drafted the mortgage the Ifraims signed. . . . Absent the Ifraims' waiver, or some other valid reason, the foreclosure must proceed in the Chuuk State Supreme Court, even though this court will determine the amount, if any, of the Ifraims' indebtedness on the promissory note.

Ifraim, 10 FSM Intrm. at 5-6. In this case, the bank drafted the mortgage and the bank chose to include the forum selection clause as one of the terms it insisted upon in the preprinted mortgage form it used to execute the mortgage for Parcel 008 F 013. Mooteb not only does not expressly waive the bank's forum selection but he affirmatively insists upon the forum selection clause's enforcement. No other valid reason is apparent or has been asserted by the bank that would allow the clause's waiver.

Accordingly, the court will grant Mooteb's motion to dismiss the third cause of action in order to allow the bank to pursue the foreclosure of the Parcel 008 F 013 real property mortgage in the forum which it chose – the Yap State Court. The bank may assert its mortgage foreclosure remedy in the Yap State Court and Mooteb may raise his defenses to the mortgage's validity there. As suggested by Ifraim, this court will adjudicate the bank's action on the promissory note and on the chattel mortgage.

IV. THE BANK'S MOTION

The bank moves that an entry of default and a default judgment be entered against defendant

[18 FSM R. 95]

Henry Garangmaw because he was properly served and has neither answered nor otherwise defended within the allotted time. The bank seeks as part of the default judgment against Garangmaw an order that the mortgaged real property be sold and the proceeds brought into court and applied to the amount due the bank on the loan.

Since the mortgage foreclosure portion of this action is being dismissed without prejudice pursuant to the mortgage's forum selection clause that leaves no cause of action against Garangmaw in this case. The court thus deems it advisable to deny this motion. The bank does not allege that only Garangmaw's undivided half interest in Parcel 008 F 13 was mortgaged and that it only seeks to foreclose just Garangmaw's half-interest in Parcel 008 F 13. If it had, the bank may have been entitled to a default judgment against just Garangmaw's half-interest,² but the bank alleges that the entire fee simple interest in Parcel 008 F 13 was mortgaged to it and asks that all interests in Parcel 008 F 13 be sold.

Since Mooteb's motion to dismiss the third cause of action is granted, there is no cause of action left against Garangmaw and therefore he must also be dismissed as a defendant. Since Garangmaw is dismissed as a defendant no default or default judgment can be entered against him. The bank's motion must therefore be denied as moot.

V. CONCLUSION

Accordingly, the FSM Development Bank's third cause of action is dismissed without prejudice to any Yap State Court adjudication on the merits and defendants John Mooteb and Henry Garangmaw are hereby dismissed from this action. Phillip Ayin's motion to dismiss is denied and this action will proceed on the first two causes of action. Phillip Ayin and Joseph C. Ayin shall answer the bank's complaint within ten days of the date of this order. FSM Civ. R. 12(a).

Footnotes:

¹ Although Phillip Ayin was not the borrower or the mortgagor, the second cause of action contains what could be considered as a fraudulent transfer claim against Phillip Ayin for selling two of the mortgaged vehicles.

² Whether the bank would ever be able to find a buyer for an undivided half-interest for any amount more than a nominal sum is a different question.