Federated States of Micronesia Development Bank v Ifraim [2001] FMSC 45; 10 FSM Intrm. 1 (Chk. 2001) (9 January 2001)

FEDERATED STATES OF MICRONESIA
SUPREME COURT TRIAL DIVISION
Cite as Federated States of Micronesia Development Bank v Ifraim, [2001] FMSC 45; 10 FSM Intrm. 1 (Chk. 2001)

FEDERATED STATES OF MICRONESIA DEVELOPMENT BANK
Plaintiff,

vs.

WANTUS IFRAIM and AKIEKO IFRAIM,
Defendants.

CIVIL ACTION NO. 2000-1016

ORDER

Richard H. Benson
Associate Justice

Decided: January 9, 2001

APPEARANCES:

For the Plaintiff:
James P. Woodruff, Esq.
P.O. Box M
Kolonia, Pohnpei FM 96941

For the Defendants:
Camillo Noket, Esq.
Directing Attorney
Micronesian Legal Services Corporation
P.O. Box D
Weno, Chuuk FM 96942

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HEADNOTES

Jurisdiction - National Law
Determination of whether a case arises under the Constitution, national law, or a treaty, however, is based on the plaintiff's statement of his cause of action, not on whatever defenses that are or that might be raised. FSM Dev. Bank v. Ifraim, [2001] FMSC 45; 10 FSM Intrm. 1, 4 (Chk. 2001).

Jurisdiction - National Law
National law defenses do not constitute a basis for arising under national law jurisdiction pursuant to section 6(b). FSM Dev. Bank v. Ifraim, [2001] FMSC 45; 10 FSM Intrm. 1, 4 (Chk. 2001).

Jurisdiction
The FSM Development Bank is an instrumentality of the national government and part of the national government for purposes of Article XI, Section 6(a) of the Constitution. FSM Dev. Bank v. Ifraim, [2001] FMSC 45; 10 FSM Intrm. 1, 4 (Chk. 2001).

Jurisdiction
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, [2001] FMSC 45; 10 FSM Intrm. 1, 4 (Chk. 2001).

Civil Procedure - Pleadings
The term "at issue" has been defined as, whenever the parties come to a point in the pleadings which is affirmed on one side and denied on the other, they are said to be at an issue. FSM Dev. Bank v. Ifraim, [2001] FMSC 45; 10 FSM Intrm. 1, 4 (Chk. 2001).

Property - Mortgages
A mortgage foreclosure generally does not involve a dispute over who owns the land, but rather the mortgagor's undisputed ownership being transferred, often involuntarily, to a buyer or to the mortgagee to satisfy the mortgagor's debt. FSM Dev. Bank v. Ifraim, [2001] FMSC 45; 10 FSM Intrm. 1, 4 (Chk. 2001).

Jurisdiction - Diversity Jurisdiction
Since the FSM Supreme Court can decide a land issue under its diversity jurisdiction, the mere addition of the national government as another party to a diversity case should not divest the FSM Supreme Court of jurisdiction. FSM Dev. Bank v. Ifraim, [2001] FMSC 45; 10 FSM Intrm. 1, 5 (Chk. 2001).

Jurisdiction - Pendent Jurisdiction
The FSM Supreme Court can proceed on a mortgage foreclosure under its pendent jurisdiction because it arises from the same nucleus of operative fact as the promissory note (over which the FSM Supreme Court has exclusive jurisdiction) and is such that it would be expected to be tried in the same judicial proceeding. FSM Dev. Bank v. Ifraim, [2001] FMSC 45; 10 FSM Intrm. 1, 5 (Chk. 2001).

Jurisdiction; Property - Mortgages
The Constitution does appear not to bar the FSM Supreme Court from exercising jurisdiction over FSM Development Bank mortgage foreclosures. FSM Dev. Bank v. Ifraim, [2001] FMSC 45; 10 FSM Intrm. 1, 5 (Chk. 2001).

Contracts - Forum Selection Clause
Parties can designate by contract a forum in which any litigation is to take place, and such forum selection clauses are presumed valid and will be enforced unless there is a strong showing that it would be unreasonable or unjust, or fraud or overreaching is involved. FSM Dev. Bank v. Ifraim, [2001] FMSC 45; 10 FSM Intrm. 1, 5 (Chk. 2001).

Contracts - Forum Selection Clause
A forum selection clause must unambiguously name a forum. FSM Dev. Bank v. Ifraim, [2001] FMSC 45; 10 FSM Intrm. 1, 5 (Chk. 2001).

Contracts - Forum Selection Clause
When a court by the name Truk State Court no longer exists, and had not existed for several years at the time the mortgage with a forum selection clause naming the Truk State Court was executed and the Chuuk State Supreme Court was, and is, in all respects the Truk State Court's successor, a court must conclude that when they executed the mortgage the parties understood the phrase "Truk State Court" to mean the Chuuk State Supreme Court. FSM Dev. Bank v. Ifraim, [2001] FMSC 45; 10 FSM Intrm. 1, 5 (Chk. 2001).

Contracts - Forum Selection Clause
When the mortgagors have not expressly waived their right to require the FSM Development Bank to abide by the forum selection it made when it drafted the mortgage they signed and absent some other valid reason, the foreclosure must proceed in the Chuuk State Supreme Court, even though the FSM Supreme Court will determine the amount, if any, of the mortgagors' indebtedness on the promissory note. FSM Dev. Bank v. Ifraim, [2001] FMSC 45; 10 FSM Intrm. 1, 5-6 (Chk. 2001).

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COURT'S OPINION

RICHARD H. BENSON, Associate Justice:

In this action, the plaintiff FSM Development Bank asks for a judgment on the amount owed by the defendants, Wantus and Akieko Ifraim, on their promissory note of August 28, 1992, and, in order to satisfy that indebtedness, for foreclosure on property the Ifraims mortgaged to secure that promissory note. The Ifraims' Answer asserted as defenses that the FSM Supreme Court lacks jurisdiction over the mortgage foreclosure, that statutes of limitations and laches bar the action, that the Bank failed in its duty established under national law to provide them with technical assistance, and that the mortgaged properties are owned by others.

I. Parties' Contentions

A. The Ifraims' Contentions

On October 27, 2000, the Ifraims filed their Memorandum of Points and Authorities in Support of Defendants' Defenses. It challenges the court's jurisdiction. The Ifraims contend that the Constitution bars the FSM Supreme Court from exercising jurisdiction in this case. For this proposition they rely on the constitutional provision that states: "The trial division of the Supreme Court has original and exclusive jurisdiction in cases . .&#16n which the national gnal government is a party except where an interest in land is at issue." FSM Const. art. XI, § 6They nd that an interest iest in land is at issue in this case and that this constitutionalional provision means that the FSM Supremet cannot ever exercise jurisdiction when the national government is a party and an interesterest in land is at issue.

A factual basis for their position is their assertion that they did not own the properties when they mortgaged them and do not own them now. They attach two Determinations of Ownership, dated September 9, 1981, that show Wantus and Chieko [Wantus's wife then - now recently deceased] and their unnamed children as fee simple owners of one of the mortgaged parcels, and "Chieko Y. and her immediate family" as fee simple owners of the other. (It is unclear whether this language would give either Ifraim an ownership interest in the second parcel.) The Ifraims assert that this mortgage foreclosure therefore involves a land ownership issue. The Ifraims stress that the FSM's constitutional framework gives the state courts the primary responsibility in land matters.

The Ifraims also raise as a defense a statute, 30 F.S.M.C. 102(c), that, in their view, required the Bank to provide them with technical assistance for their poultry farm, and that the Bank's alleged failure to provide this assistance was the cause of their not repaying the loan.

B. The Bank's Contentions

The Bank contends that the Ifraims stated a separate and independent basis for the FSM Supreme Court's jurisdiction when they raised a defense based on 30 F.S.M.C. 102. The Bank contends that this means that this is also a case arising under national law over which the FSM Supreme Court may exercise jurisdiction pursuant to article XI, section 6(b), and that the court can end its jurisdictional inquiry there without further analysis of section 6(a). Section 6(b) in pertinent part states: "The national courts, including the trial division of the Supreme Court, have concurrent original jurisdiction in cases arising under this Constitution; national law or treaty . . . ."

The aank cono contends that since it is an agency or instrumentality of the national government that under article XI, section 6(a) the FSM Supreme Court is the only court in which it can sue or be sued. The Bank notes the exception for cases where an interest in land is at issue and contends that an interest in land is not at issue here because, in its view, the Bank and the Ifraims are not competing claimants for ownership. The Bank also contends that this exception merely means that the FSM Supreme Court's jurisdiction is no longer exclusive, not that it cannot hear the case. The Bank notes that it would not make sense if the FSM Supreme Court could hear a land case under its section 6(b) diversity jurisdiction but would be completely barred from hearing it if the national government is a party.

II. FSM Supreme Court Jurisdiction

A. Under National Law

Determination of whether a case arises under the Constitution, national law, or a treaty, however, is based on the plaintiff's statement of his cause of action, not on whatever defenses that are or that might be raised. Neimes v. Maeda Constr. Co., 1 FSM Intrm. 47, 48 (Truk 1982); Louisville & Nashville R.R. v. Mottley, [1908] USSC 148; 211 U.S. 149, 152[1908] USSC 148; , 29 S. Ct. 42, 53 L. Ed. 126, 127 (1908). The Ifraims' national law defenses thus do not constitute a basis for "arising under . . . national law"sdiction purn pursuant to section 6(b).

B. Under Section 6(a)

The FSM Development Bank "'is an instrumentality of the national government and part of the nal gment for purposesposes of A of Article XI, Section 6(a) of the Constitution.'" FSM Dev. Bank v. Mori, [1986] FMSC 14; 2 FSM Intrm. 242, 243-44 (Truk 1986) (quoting FSM Dev. Bank v. Estate of Nanpei, [1986] FMSC 8; 2 FSM Intrm. 217, 221 (Pon. 1986)). The national government is thus a party to this action. The Ifraims do not dispute this. In fact, their contention that the court is barred from exercising jurisdiction over the foreclosure is based on this premise and the section 6(a) exception clause.

This case has two parts. The first is the action on the promissory note. Because the national government is a party the FSM Supreme Court has original and exclusive jurisdiction over the suit on the promissory note. Mori, 2 FSM Intrm. at 244. The Ifraims agree with this.

The second part is the mortgage foreclosure remedy by which the Bank hopes to satisfy the judgment it expects to obtain on the promissory note. In the usual mortgage foreclosure, the mortgagors' ownership of the mortgaged property is unquestioned. In such a case an interest in land might not be considered "at issue" because "[t]he term 'at issue' has been defined as, 'whenever the parties come to a point in the pleadings which is affirmed on one side and denied on the other, they are said to be at an issue.'" Id. (quoting Black's Law Dictionary 114 (5th ed. 1979)). A mortgage foreclosure generally does not involve a dispute over who owns the land, but rather the mortgagor's undisputed ownership being transferred, often involuntarily, to a buyer or to the mortgagee to satisfy the mortgagor's debt. The interest in land may never be at issue.

The present case is unusual in that the mortgagors deny ownership of the property they mortgaged. The twenty-year-old Determinations of Ownership filed with their Memorandum indicates, that at a minimum, at least one defendant, Wantus Ifraim, had an undivided part interest in one of the parcels. Assuming that the parcels' ownership is as the Ifraims allege it, the Bank could foreclose on whatever interests the Ifraims do own in the two mortgaged parcels without affecting the other ownership interests. But the value to the Bank of an undivided part interest shared with the foreclosed mortgagors' relatives is dubious. (Those relatives are not parties to this action.)

Even were I to conclude that a mortgage foreclosure involved an interest in land at issue, I could not conclude that the FSM Supreme Court is barred from ever exercising jurisdiction over a foreclosure by the FSM Development Bank because of the exception clause in section 6(a). There are three possible interpretations of this clause. One is that is that if the national government is a party and an interest in land is at issue the FSM Supreme Court would be completely barred from ever hearing the case. This cannot be so. If it were, it would mean that while the FSM Supreme Court can decide a land issue under its diversity jurisdiction, see, e.g., Luzama v. Ponape Enterprises Co., [1995] FMSC 11; 7 FSM Intrm. 40 (App. 1995); Etscheit v. Adams, [1991] FMSC 30; 5 FSM Intrm. 243, 246 (Pon. 1991), the mere addition of the national government as another party to a diversity case would divest the FSM Supreme Court of jurisdiction. That would be an illogical result. Another possible interpretation is that the FSM Supreme Court could have jurisdiction in an interest in land at issue case where the national government was a party only if some other jurisdictional basis, such as diversity or "arising under" or the case affects foreign government officials or is a dispute between states, were also present. The third possible interpretation is that jurisdiction still exists, but that it is not exclusive.

I do not have to decide whether the second or the third interpretation is the correct analysis because under either interpretation the FSM Supreme Court could proceed on the mortgage foreclosure under its pendent jurisdiction because it arises from the same nucleus of operative fact as the promissory note (over which the FSM Supreme Court has exclusive jurisdiction) and is such that it would be expected to be tried in the same judicial proceeding. See Ponape Constr. Co. v. Pohnpei, [1993] FMSC 23; 6 FSM Intrm. 114, 116 (Pon. 1993); Ponape Chamber of Commerce v. Nett, [1984] FMSC 2; 1 FSM Intrm. 389, 396 (Pon. 1984). The Constitution would thus appear not to bar the FSM Supreme Court from exercising jurisdiction over FSM Development Bank mortgage foreclosures.

C. Under the Mortgage Contract

The mortgage contract itself, however, may bar the court's exercise of jurisdiction in this case. I hold that I do have sufficient jurisdiction over the mortgage to determine if the mortgage's provisions require its enforcement in another court. The mortgage contains a choice of law and forum selection clause which states: "Any action to foreclose this mortgage shall comply with the provision set forth in section 25, subsections (1) et seq., inclusive, of Truk State Law No. 4-91. The foreclosure proceeding shall be brought in the Truk State Court." Mortgage para. 19. Parties can designate by contract a forum in which any litigation is to take place, and such forum selection clauses are presumed valid and will be enforced unless there is a strong showing that it would be unreasonable or unjust, or fraud or overreaching is involved. National Fisheries Corp. v. New Quick Co., [1999] FMSC 28; 9 FSM Intrm. 120, 125 (Pon. 1999). The clause must unambiguously name another forum. Id. These parties' mortgage contract has unambiguously named the Truk State Court as the forum for any mortgage foreclosure action. A court by the name Truk State Court no longer exists, and had not existed for several years at the time the mortgage was executed. The Chuuk State Supreme Court was, and is, in all respects its successor. I conclude that when they executed the mortgage the parties understood the phrase "Truk State Court" to mean the Chuuk State Supreme Court.

I further conclude 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. It seems unlikely the Ifraims would waive this provision when they have from the start contested the FSM Supreme Court's jurisdiction over the mortgage foreclosure. 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. Accord FSM Dev. Bank v. Gouland, [2000] FMSC 26; 9 FSM Intrm. 605, 607-08 (Chk. 2000). The Bank may, as it is advised, move, within twenty days of this order's entry, for reconsideration of this portion of this order setting forth reasons why I should retain jurisdiction over the mortgage foreclosure.

III. Conclusion

The Ifraims' motion for dismissal of the mortgage foreclosure for lack of subject matter jurisdiction under article XI, section 6(a) is accordingly denied. The mortgage contract, however, may place the mortgage foreclosure in another forum - the Chuuk State Supreme Court.