Rudolph v Louis Family Inc [2005] FMSC 18; 13 FSM Intrm. 118 (Chk. 2005) (24 January 2005)

FEDERATED STATES OF MICRONESIA
SUPREME COURT TRIAL DIVISION
Cite case as Rudolph v Louis Family Inc, [2005] FMSC 18; 13 FSM Intrm. 118 (Chk. 2005)

MINO RUDOLPH, for himself and on behalf of his Sorlap Lineage of Wichap,
Plaintiffs,

vs.

LOUIS FAMILY, INC. and the FEDERATED
STATES OF MICRONESIA DEVELOPMENT BANK,
Defendants.

_______________________________________________

CIVIL ACTION NO. 2003-1014

ORDER

Dennis K. Yamase
Associate Justice

Hearing: August 4, 2004
Decided: January 24, 2005

APPEARANCES:

For the Plaintiff:
Wesley Simina, Esq.
P.O. Box 94
Weno, Chuuk FM 96942

For the Defendant (FSM Dev. Bank):
James Woodruff, Esq.
P.O. Box M
Kolonia, Pohnpei FM 96941

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HEADNOTES

Civil Procedure - Motions
Failure to file responsive papers to a motion is deemed a consent to the motion, and a party failing to file responsive papers to a motion will not be allowed to argue it orally. Rudolph v. Louis Family, Inc., [2005] FMSC 18; 13 FSM Intrm. 118, 123-24 (Chk. 2005).

Evidence - Judicial Notice
When portions of court files in other cases are introduced into evidence, a court may take judicial notice of all the papers and pleadings on file in those other cases. Rudolph v. Louis Family, Inc., [2005] FMSC 18; 13 FSM Intrm. 118, 125 n.2 (Chk. 2005).

Civil Procedure - Summary Judgment
When matter outside the pleadings is presented to and not excluded by the court, a motion to dismiss for failure to state a claim upon which relief can be granted (under Rule 12(b)(6)), shall be treated as one for summary judgment under Rule 56. Rudolph v. Louis Family, Inc., [2005] FMSC 18; 13 FSM Intrm. 118, 125 (Chk. 2005).

Civil Procedure; Sovereign Immunity
On a motion to dismiss brought by the FSM Development Bank, the bank’s claim of sovereign immunity will be considered first since, if the bank prevails on this ground, the merits of the bank’s other claims need not be considered. Rudolph v. Louis Family, Inc., [2005] FMSC 18; 13 FSM Intrm. 118, 125 (Chk. 2005).

Sovereign Immunity

[13 FSM Intrm.134]

Generally, sue-and-be-sued clauses in statutes creating or empowering a governmental corporation or agency are waivers of immunity, and waivers by Congress of governmental immunity in case of such instrumentalities should be liberally construed. Rudolph v. Louis Family, Inc., [2005] FMSC 18; 13 FSM Intrm. 118, 126 (Chk. 2005).

Sovereign Immunity
The sue-and-be-sued language in 30 F.S.M.C. 105(3) is a general waiver of sovereign immunity so that when Congress launched the FSM Development Bank into the commercial world and endowed it with the power "to sue and be sued," the bank was as amenable to a civil suit as a private enterprise would be under like circumstances. Rudolph v. Louis Family, Inc., [2005] FMSC 18; 13 FSM Intrm. 118, 126 (Chk. 2005).

Civil Procedure - Dismissal; Civil Procedure - Res Judicata
The doctrine of claim preclusion (a form of res judicata) does not bar a later action when the court order denying the plaintiff’s intervention (in part) in an earlier action shows that intervention was denied because the intervenor had no interest in the subject matter of the litigation, and a motion to dismiss on that ground or on the grounds that that the court lacks subject matter jurisdiction because the earlier court already had the case, or that the plaintiff is barred by his alleged "unclean hands" because he omitted mention of the earlier action allegedly to circumvent the other court’s jurisdiction are therefore without merit. Rudolph v. Louis Family, Inc., [2005] FMSC 18; 13 FSM Intrm. 118, 126 (Chk. 2005).

Statutes of Limitation
The six-year statute of limitations applies and the twenty year statute of limitations for the recovery of an interest in land does not when no interest in land is at issue because the land title case is pending in state court, and since the real property mortgage has never been enforced, no foreclosure proceedings have ever taken place. Rudolph v. Louis Family, Inc., [2005] FMSC 18; 13 FSM Intrm. 118, 127 (Chk. 2005).

Statutes of Limitation
The six-year statute of limitations cannot bar an action when all the payments that the plaintiff seeks to recover appear to have taken place within the six years before the complaint was filed. Rudolph v. Louis Family, Inc., [2005] FMSC 18; 13 FSM Intrm. 118, 127 (Chk. 2005).

Torts - Damages
Failure to mitigate damages will usually not bar a claim but rather reduce any damages awarded, although in some cases it may reduce the damages to zero. Rudolph v. Louis Family, Inc., [2005] FMSC 18; 13 FSM Intrm. 118, 127 (Chk. 2005).

Civil Procedure - Summary Judgment; Equity - Laches
Laches and failure to mitigate damages are not grounds on which to grant summary judgment when a sufficient factual basis to support either ground has not yet been developed. Rudolph v. Louis Family, Inc., [2005] FMSC 18; 13 FSM Intrm. 118, 127 (Chk. 2005).

Torts - Negligence
Under Chuuk law, the elements of actionable negligence are the breach of a duty on the part of one person to protect another from injury, and that breach is the proximate cause of an injury to the person to whom the duty is owed. Rudolph v. Louis Family, Inc., [2005] FMSC 18; 13 FSM Intrm. 118, 127 (Chk. 2005).

Torts - Negligence
For a plaintiff to recover for negligence, the defendant must owe a duty of care to the plaintiff and have breached that duty. Rudolph v. Louis Family, Inc., [2005] FMSC 18; 13 FSM Intrm. 118, 127 (Chk. 2005).

Property - Mortgages; Torts - Duty of Care

[13 FSM Intrm.135]

While a mortgagee bank may have policies and rules it must follow that require it to inquire into the purported collateral or security and require ownership documents and certified maps of the property’s location when land is used as collateral or security for its loans, it has not been shown that violation of these policies and rules creates a duty to a stranger to the mortgage. They may create a duty to the bank’s shareholder, and failure to follow them may result in the bank holding worthless security, but the bank has not been shown to have a general duty to all landowners not to accept a mortgage to land one of them might later claim. Rudolph v. Louis Family, Inc., [2005] FMSC 18; 13 FSM Intrm. 118, 127-28 (Chk. 2005).

Property - Mortgages; Torts - Negligence
The result of "negligence" in failing to properly record a mortgage on unregistered land is that the mortgage is ineffective against third parties - someone other than the mortgagor who had no notice of the mortgage (and the result is the same for registered land when a mortgage is not properly endorsed on the certificate of title). Rudolph v. Louis Family, Inc., [2005] FMSC 18; 13 FSM Intrm. 118, 128 & n.4 (Chk. 2005).

Property - Mortgages
A mortgagor can only mortgage an interest in land that he owns at the time the mortgage is granted. If the mortgagors held no interest in the land they mortgaged, the bank would never be able to foreclose the mortgage (essentially it holds no security) since it can only foreclose the interests that the mortgagors held and mortgaged. Rudolph v. Louis Family, Inc., [2005] FMSC 18; 13 FSM Intrm. 118, 128 (Chk. 2005).

Property - Mortgages
There is some authority that a mortgagor can mortgage land that he does not own but will own in the future and that the mortgage then becomes effective when he acquires the land. Rudolph v. Louis Family, Inc., [2005] FMSC 18; 13 FSM Intrm. 118, 128 n.5 (Chk. 2005).

Property - Mortgages
A mortgagee that fails to ascertain the mortgagor’s true interest in the mortgaged property does so at its own risk. Its punishment, if it can be called that, is that it has no security for the debt it is owed. Rudolph v. Louis Family, Inc., [2005] FMSC 18; 13 FSM Intrm. 118, 128 (Chk. 2005).

Property - Mortgages; Torts - Causation
When a plaintiff’s determination of ownership is for a lot with one number and the bank holds mortgages on lots with other numbers, the bank does not have a mortgage for the plaintiff’s lot and there is no proximate cause between the bank acquiring the mortgage and any later alleged damage to the plaintiff’s lot. Whether the mortgage was properly recorded is immaterial. If the plaintiff was damaged, the mortgage did not cause it. Rudolph v. Louis Family, Inc., [2005] FMSC 18; 13 FSM Intrm. 118, 128 (Chk. 2005).

Civil Procedure - Summary Judgment; Property - Mortgages; Torts - Duty of Care; Torts - Negligence
Since a bank owed no duty of care to a plaintiff when it took a mortgage to secure a loan to another, and that mortgage, even if it is unenforceable, was not the proximate cause of the plaintiff’s alleged damages, the bank is entitled to summary judgment as a matter of law on the plaintiff’s negligence and void mortgage causes of action. Additional reasons for this are that the bank has not attempted to foreclose its mortgage and that the mortgage does not cover the lot for which the plaintiff has a determination of ownership. Rudolph v. Louis Family, Inc., [2005] FMSC 18; 13 FSM Intrm. 118, 128 (Chk. 2005).

Torts - Conversion
The elements of an action for conversion are the plaintiff’s ownership and right to possession of the personalty, the defendant’s wrongful or unauthorized act of dominion over the plaintiff’s property inconsistent with or hostile to the owner’s right, and resulting damages. Rudolph v. Louis Family, Inc., [2005] FMSC 18; 13 FSM Intrm. 118, 128-29 (Chk. 2005).

[13 FSM Intrm.136]

Property - Mortgages
Holding a mortgage to property in which the mortgagor had no interest cannot be taking dominion over property. A mortgagee may take dominion over a mortgaged property only when it has foreclosed on the property and either taken title to it itself or had it sold to another. Rudolph v. Louis Family, Inc., [2005] FMSC 18; 13 FSM Intrm. 118, 129 (Chk. 2005).

[13 FSM Intrm.137]

Property - Mortgages
By taking a mortgage, a mortgagee does not claim title to (or dominion over) the property. A mortgage creates a lien on the land, but does not pass title to the mortgagee. Rudolph v. Louis Family, Inc., [2005] FMSC 18; 13 FSM Intrm. 118, 129 n.6 (Chk. 2005).

Civil Procedure - Summary Judgment; Torts - Conversion
When, viewing the facts in the light most favorable to the plaintiff and accepting his well-pled allegations (which remain to be proven) as true, a corporation (while under receivership) took dominion over the plaintiff’s property; quarried it for rock; crushed the rock into aggregate; sold it; paid various expenses, including workers’ wages, the operator’s fees, and the receiver’s fee; and then paid the royalties, to which the corporation was entitled, to the bank to reduce its indebtedness to the bank, the bank never took dominion over the property the plaintiff alleges is his and the bank is therefore entitled to summary judgment in its favor as a matter of law on the plaintiff’s conversion and the "unauthorized sale of property" (the quarried aggregate) claims. Rudolph v. Louis Family, Inc., [2005] FMSC 18; 13 FSM Intrm. 118, 129 (Chk. 2005).

Civil Procedure - Summary Judgment; Torts - Trespass
When the bank’s real property mortgage has never been enforced because receivership was the chosen remedy; when no agent of the bank is alleged to have entered or to have quarried the property the plaintiff contends is his; when the receivership was not the bank’s agent over which it had control, direction, or authority; when the execution of a mortgage, even an invalid mortgage, is not an "authorization" by the mortgagee for anyone to either enter the mortgaged land or to trespass on another’s land, viewing the facts in the light most favorable to the plaintiff, the bank, by asking for and obtaining amended receivership terms to facilitate aggregate production to meet another’s needs and to set up a payment plan for the judgment-creditors’ benefit, did not commit or authorize a trespass. The bank is therefore entitled to summary judgment in its favor on the trespass cause of action. Rudolph v. Louis Family, Inc., [2005] FMSC 18; 13 FSM Intrm. 118, 129-30 (Chk. 2005).

Property - Mortgages; Torts - Duty of Care
A mortgagee, is not an insurer or guarantor of the mortgagor’s actions. Rudolph v. Louis Family, Inc., [2005] FMSC 18; 13 FSM Intrm. 118, 129 (Chk. 2005).

Remedies - Restitution
The doctrine of unjust enrichment generally applies where there is an unenforceable contract due to impossibility, illegality, mistake, fraud, or another reason and requires a party to either return what has been received under the contract or pay the other party for it. Rudolph v. Louis Family, Inc., [2005] FMSC 18; 13 FSM Intrm. 118, 130 (Chk. 2005).

Remedies - Restitution
The unjust enrichment doctrine is based on the idea one person should not be permitted unjustly to enrich himself at another’s expense and this doctrine has been expanded to cover cases where there is an implied contract. The generally accepted elements of an unjust enrichment cause of action are: 1) the plaintiff conferred a benefit on the defendant, who has knowledge of the benefit, 2) the defendant accepted and retained the conferred benefit, and 3) under the circumstances it would be inequitable for the defendant to retain the benefit without paying for it. Rudolph v. Louis Family, Inc., [2005] FMSC 18; 13 FSM Intrm. 118, 130 (Chk. 2005).

Remedies - Restitution
The classic situation to which the unjust enrichment doctrine is applied is where there is an unenforceable contract due to impossibility, illegality, mistake, fraud, or another reason and the doctrine requires a party to either return what has been received under the contract or pay the other party for it. Rudolph v. Louis Family, Inc., [2005] FMSC 18; 13 FSM Intrm. 118, 130 (Chk. 2005).

[13 FSM Intrm.138]

Remedies - Restitution
There was no classic unjust enrichment situation when there was no contract, unenforceable or otherwise, between the plaintiff and the bank and no implied contract between the two and when the plaintiff did not confer a benefit on the bank that the bank had knowledge of, accepted and retained, because not only was there no contract between the plaintiff and the bank, but also because the plaintiff had no contact with the bank at all and was not in privity with the bank. Rudolph v. Louis Family, Inc., [2005] FMSC 18; 13 FSM Intrm. 118, 130 (Chk. 2005).

Remedies - Restitution
When a borrower did not pay the money to the bank under the mistaken belief that it owed the bank money because it actually did owe the bank money and when it did not mistakenly pay to the bank money that it owed to another, the money was not paid to the bank by mistake as that term is used in unjust enrichment cases - often referred to as an action for money had and received. Rudolph v. Louis Family, Inc., [2005] FMSC 18; 13 FSM Intrm. 118, 130 (Chk. 2005).

Remedies - Restitution
There is a certain limited instance where a plaintiff may recover under an unjust enrichment theory from a third party with which he has had no contact, either directly or through its agents. The requisite "privity" does exist between a plaintiff and such a defendant when that defendant has received money from another fraudulently obtained by the latter only when the recipient was aware of the fraud. Rudolph v. Louis Family, Inc., [2005] FMSC 18; 13 FSM Intrm. 118, 130-31 (Chk. 2005).

Remedies - Restitution
Money received in the regular course of business from one who fraudulently or feloniously obtained it from another may not be recovered by the true owner from the recipient, even though the latter received it in payment of an antecedent debt and parted with no new consideration for the same, if he had no knowledge of the fraud or of the felony. Rudolph v. Louis Family, Inc., [2005] FMSC 18; 13 FSM Intrm. 118, 131 (Chk. 2005).

Remedies - Restitution
A defendant bank, having received money from a debtor to it in the regular course of business to pay an antecedent debt which the debtor unquestionably owed to it and having no reason to believe or knowledge that the money might have been fraudulently obtained, is not liable to pay restitution to the plaintiff under the unjust enrichment doctrine. Rudolph v. Louis Family, Inc., [2005] FMSC 18; 13 FSM Intrm. 118, 131 (Chk. 2005).

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COURT’S OPINION

DENNIS K. YAMASE, Associate Justice:

This comes before the court on defendant FSM Development Bank’s Motion to Dismiss, filed September 17, 2003 and the Plaintiff’s Response to FSMDB’s Motion to Dismiss, filed November 14, 2003. Defendant Louis Family, Inc. filed nothing in relation to the motion. The motion was heard on August 4, 2004. The plaintiff, Mino Rudolph and the bank were each represented by their respective counsel. Although given proper notice, no one appeared for the Louis Family, Inc. If counsel had appeared, it is doubtful whether the court would have allowed participation in oral argument. Failure to file responsive papers to a motion is deemed a consent to the motion, and a party failing to file responsive papers to a motion will not be allowed to argue it orally. Bank of the FSM v. O’Sonis, 8 FSM Intrm. 67, 68 (Chk. 1997); Actouka v. Etpison, [1983] FMSC 3; 1 FSM Intrm. 275, 276 (Pon. 1983).

[13 FSM Intrm.139]

On September 3, 2004, the bank submitted, by leave of court, its Supplement to Motion to Dismiss. Rudolph sought, and was granted, an enlargement of time in which to file his own supplemental brief. Rudolph, however, did not file one.

I. Background

On November 28, 1988, the Louis Family, Inc. borrowed $250,000 from the FSM Development Bank to open and operate a quarrying operation in Wichap. It executed a promissory note for that amount and, to secure the indebtedness, six individual members of the Louis family personally executed a real property mortgage for Parcel Nos. 64436, 64444, 64438, 63890, and 64442. On August 8, 1989, to further secure this indebtedness, it executed a chattel mortgage on a rock crusher and a dump truck used in the quarrying operation.

In 1994, the bank filed suit against Louis Family, Inc. to collect on the promissory note, which was in default, and to foreclose on the chattel mortgage. A money judgment in that case, Civil Action No. 1994-1008, was entered on March 31, 1995. The Louis Family, Inc. quarry, along with the adjoining quarry of Sasuo Haruo, who was a judgment-debtor of the bank in a FSM Supreme Court Civil Action No. 1994-1002 (which was then consolidated with Civil Action No. 1994-1008), were put into a joint receivership. Substantial sums, totaling about $117,000, were thereafter paid to the bank toward its judgment against the Louis Family, Inc.

The bulk of these payments were made in 2000, when the quarry was supplying aggregate to Penta Ocean, Inc., a Japanese company then rebuilding the Chuuk International Airport runway. In February 2001, Mino Rudolph filed a claim at the Chuuk Land Commission for title to land where blasting and quarrying had been taking place. On September 4, 2001, the Land Commission issued its Determination of Ownership for "Lot 64440 known as Nekein (part)" on which Rudolph asserted that the Louis family quarrying was taking place. That determination was timely appealed to the Chuuk State Supreme Court trial division (CSSC CA No. 213-2001) on October 17, 2001. Aggregate Sys., Inc. v. FSM Dev. Bank, [2003] FMSC 82; 11 FSM Intrm. 514, 517 (Chk. 2003). It is still pending in the state court.

On March 4, 2002, Rudolph moved to intervene as a party in the post-judgment consolidated receivership case. Id. Because that case was in its post-judgment phase, and had been so for a long time, and because Rudolph’s claim was unrelated to the lawsuits’ subject matter (debts owed on bank loans), that motion was denied except for Rudolph’s claim to money still held by the Receiver and not yet paid to the bank toward the Louis Family loan.^[1] Id. at 519-20.

On June 25, 2003, Rudolph filed this action against Louis Family, Inc. and the FSM Development Bank. He seeks an order that the defendants "reimburse or pay" him all sums derived from the sale of aggregate from Nekein and paid over to the bank pursuant to the receivership plus 9% prejudgment interest from the date(s) of the alleged conversion(s). He also asks the court to declare invalid any mortgage between the bank and the Louis family and to enjoin the bank and the Louis family from asserting any interest or claim to Nekein (part) or to any proceeds from future sales of aggregate. Rudolph asserts the following causes of action against the bank: 1) trespass (on Nekein); 2) conversion of property (the rock quarried from Nekein); 3) negligence; 4) unauthorized sale of property (the aggregate from Nekein); 5) void mortgage; and 6) unjust enrichment. Only the trespass, conversion, unjust enrichment, and possibly void mortgage causes of action are also asserted against the Louis Family Inc.

[13 FSM Intrm.140]

II. The Motion

The bank’s motion to dismiss is brought under Rules 12(b)(1) and 12(b)(6). In support of the motion, the bank attached as exhibits various filings in the consolidated case of Civil Actions Nos. 1994-1002 and 1994-1008.^[2] When matter outside the pleadings is presented to and not excluded by the court, a motion to dismiss for failure to state a claim upon which relief can be granted (under Rule 12(b)(6)), shall be treated as one for summary judgment under Rule 56. Moses v. M.V. Sea Chase, [2001] FMSC 56; 10 FSM Intrm. 45, 50 (Chk. 2001). Summary judgment is appropriate when, viewing the facts in the light most favorable to the party against whom judgment is sought, there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law; otherwise the court must deny the motion. Weno v. Stinnett, [1999] FMSC 34; 9 FSM Intrm. 200, 206 (App. 1999); Iriarte v. Etscheit, [1998] FMSC 3; 8 FSM Intrm. 231, 236 (App. 1998).

The bank contends that the action against it must be dismissed because it fails to state a claim upon which relief can be granted; because Rudolph’s claims against it are barred by sovereign immunity; because Rudolph is estopped from asserting these claims against it by the doctrine of claim preclusion; Rudolph’s claims are barred by the statute of limitations; because the court lacks subject matter jurisdiction; because Rudolph’s claims are barred by laches; because Rudolph has failed to mitigate his damages; and because Rudolph has "unclean hands." In its supplement, the bank also asserts that Rudolph cannot sue the bank in the absence of a cognizable theory to link the bank to Rudolph.

III. Discussion

The bank’s claim of sovereign immunity will be considered first since, if the bank prevails on this ground, the merits of the bank’s other claims need not be considered.

A. Sovereign Immunity Ground

The bank contends that sovereign immunity bars Rudolph’s claims. The bank asserts that since it is an arm of the FSM national government, the sovereign immunity statute, 6 F.S.M.C. 702, applies to it and that that statute does not waive the type of tort claims Rudolph asserts. Rudolph contends that the sue-and-be-sued clause, 30 F.S.M.C. 105(3) (bank’s functions include the power "[t]o sue and be sued in its corporate name"), in the statute creating the bank and granting powers to it, is a general waiver of any sovereign immunity. The bank counters that similar clauses in statutes creating U.S. government agencies are not construed by U.S. courts to be general waivers of sovereign immunity and that under relevant U.S. caselaw these clauses bar plaintiffs from suing government agencies for the types of tort claims Rudolph asserts in this action and a plaintiff’s only recourse is through the U.S. Federal Tort Claims Act procedure.

Generally, sue-and-be-sued clauses in statutes creating or empowering a governmental corporation or agency are waivers of immunity, and "waivers by Congress of governmental immunity in case of such federal instrumentalities should be liberally construed." Federal Housing Admin. v. Burr, [1940] USSC 31; 309 U.S. 242, 244[1940] USSC 31; , 60 S. Ct. 488, 490[1940] USSC 31; , 84 L. Ed. 724, 728 (1940); see also Keifer & Keifer v. Reconstruction Finance Corp., [1939] USSC 44; 306 U.S. 381, 388-92[1939] USSC 44; , 59 S. Ct. 516, 517-20[1939] USSC 44; , 83 L. Ed. 784, 788-91 (1939).

[W]hen Congress establishes such an agency, authorizes it to engage in commercial and business transactions with the public, and permits it to "sue and be sued," it cannot lightly be assumed that restrictions on that authority are to be implied. Rather if the general authority

[13 FSM Intrm.141]

to "sue and be sued" is to be delimited by implied exceptions, it must be clearly shown that certain types of suits are not consistent with the statutory or constitutional scheme . . . . In the absence oh sucwingowing, it must be presumed that when Congress launched a governmental agency into the commercial world and endowedith tthori "sue or be sued," that agency is not less amenable to judicial processocess than than a pr a private enterprise under like circumstances would be.

Burr, 309 U.S. at 245, 60 S. Ct. at 490, 84 L. Ed. at 728-29. Thus "[b]efore the adoption of the Federal Tort Claims Act [a governmental corporation with a sue-and-be-sued clause in its enabling statute] would have been amenable to suit . . . bson o sue-anue-and-be-sube-sued language . . . . The Federat Torimslact moct modified the sue-and-be-sued doctrine by making a suit under the Act the exclusive remedy for any tort covered by the Act." Federal Deposit CorpCitizank & Trust Co.[1979] USCA7 65; , 592 F.2d 364, 364, 369 (369 (7th C7th Cir. 1979).

There is no FSM statute comparable to the U.S. Federal Tort Claims Act. The court therefore concludes that 30 F.S.M.C. 105(3)’s sue-and-be-sued language is a general waiver of sovereign immunity and that when Congress launched the Development Bank into the commercial world and endowed it with the power "to sue and be sued," the bank was as amenable to a civil suit as a private enterprise would be under like circumstances. Thus this ground must be rejected.

B. Other Rejected Grounds

Most of the bank’s other grounds may be summarily rejected. The court’s reasons follow.

The bank’s assertion that Rudolph is estopped by claim preclusion, that the court lacks subject matter jurisdiction, and that Rudolph is barred by his alleged "unclean hands" are all based on the purported effect of Rudolph’s attempt to intervene in Civil Action No. 1994-1008. The bank asserts that the doctrine of claim preclusion (a form of res judicata) bars this action because Rudolph could and should have raised his claims in Civil Action No. 1994-1008. The bank further asserts that this court lacks subject matter jurisdiction over this case because there already is a case involving these claims - Civil Action No. 1994-1008. And the bank asserts that these claims are barred by Rudolph’s "unclean hands" because his complaint is artfully drafted to omit mention of Civil Action No. 1994-1008 and to circumvent the "other" court’s jurisdiction over that case. A brief review of the order denying Rudolph’s intervention (in part) in Civil Action No. 1994-1008 shows that intervention was denied because Rudolph had "no interest in the subject matter of the litigation, the loan between the bank and the Louis Family." Aggregate Sys., Inc., 11 FSM Intrm. at 519. These grounds are therefore without merit.

The bank also asserts that the action is barred by the six year statute of limitations. Rudolph asserts that the statute of limitations should start to run from 1999 when he allegedly "discovered" that his land was being quarried, or alternatively, the twenty year statute of limitations for the recovery of an interest in land should apply. This ground must also fail. No interest in land is at issue. The land title case is pending in state court, not here. The six-year statute of limitations therefore applies. However, since all payments to the bank that Rudolph seeks to recover appear to have taken place within the six years before the complaint was filed, and since the real property mortgage has never been enforced, no foreclosure proceedings have ever taken place. The six-year statute of limitations cannot bar this action.

The bank also asserts that laches bars Rudolph’s claims and that he has failed to mitigate his damages. Failure to mitigate damages will usually not bar a claim but rather reduce any damages awarded, although in some cases, and the bank evidently contends that this is such a case, it may reduce the damages to zero. Regardless, neither of these grounds can prevail at this stage since a sufficient factual basis to support either ground has not yet been developed.

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C. Failure to State a Claim upon Which Relief May Be Granted

The bank further contends that none of Rudolph’s asserted causes of action state a claim upon which the court could grant relief against it because the only "act" the bank undertook was, pursuant to court order, to receive money from the Receiver to satisfy its valid judgment against the Louis Family, Inc. in Civil Action No. 1994-1008. It also characterizes this ground as the absence of a cognizable theory to link the bank to Rudolph.

1. Negligence and "Void Mortgage"

Rudolph contends that the bank is liable to him for its alleged failure to do "due diligence" in researching the title held by the Louis family members who mortgaged real property to secure the loan and the location of the land mortgaged. He contends that the bank was negligent to obtain a mortgage on property for which the mortgagors had neither determinations of ownership nor certificates of title. He asserts further that the bank failed to properly record the mortgage and that it is thus a disfavored secret lien. The bank asserts that the mortgage has been properly recorded. Rudolph contends that the mortgage is void as to Nekein (part), Lot 64440.

Under Chuuk law, "the elements of actionable negligence are ‘the breach of a duty on the part of one person to protect another from injury,’ and that breach is the proximate cause of ‘an injury to the person to whom the duty is owed.’" Fabian v. Ting Hong Oceanic Enterprises, 8 FSM Intrm. 63, 65 (Chk. 1997) (quoting Ludwig v. Mailo, [1992] FMCSC 1; 5 FSM Intrm. 256, 259 (Chk. S. Ct. Tr. 1992)); see also Estate of Mori v. Chuuk, [2001] FMSC 49; 10 FSM Intrm. 6, 14 (Chk. 2001); Kaminanga v. FSM College of Micronesia, [1998] FMSC 26; 8 FSM Intrm. 438, 442 (Chk. 1998). For a plaintiff to recover for negligence, the defendant must owe a duty of care to the plaintiff and have breached that duty.

No authority has been cited, and the court is unaware of and has not located any, that a mortgagee owes a duty to a stranger to the mortgage or to a possible unknown claimant to the mortgaged property. Rudolph asserts that the bank has policies and rules it must follow when land is used as collateral or security for its loans that require it to inquire into the purported collateral or security and require ownership documents and certified maps of the property’s location and that it violated these policies and rules. Assuming that these rules and policies exist,^[3] Rudolph has not shown that these alleged policies and rules create a duty to him, a stranger to the mortgage. They may create a duty to the bank’s shareholder, and failure to follow them may result in the bank holding worthless security, but the bank has not been shown to have a general duty to all landowners not to accept a mortgage to land one of them might later claim.

The bank owed no duty of care to Rudolph when it took the mortgage in 1988. The result of "negligence" in failing to properly record a mortgage on unregistered land is that the mortgage is ineffective against third parties - someone other than the mortgagor who had no notice of the mortgage. In re Engichy[2003] FMSC 79; , 11 FSM Intrm. 520, 530-31 (Chk. 2001).^[4] A mortgagor can only mortgage an interest in land that he owns at the time the mortgage is granted.^[5] If the mortgagors held no interest in the land they mortgaged, the bank would never be able to foreclose the mortgage

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(essentially it holds no security) since it can only foreclose the interests that the mortgagors held and mortgaged. FSM Dev. Bank v. Ifraim, [2001] FMSC 45; 10 FSM Intrm. 1, 4-5 (Chk. 2001). A mortgagee that fails to ascertain the mortgagor’s true interest in the mortgaged property does so at its own risk. Its punishment, if you want to call it that, is that it has no security for the debt it is owed.

It also appears, from the documents’ face, that the bank may not hold a mortgage for the land to which Rudolph has a determination of ownership. Rudolph’s determination of ownership is for Lot No. 64440, while the bank’s mortgages are on Parcel Nos. 64436, 64444, 64438, 63890, and 64442. The bank does not have a mortgage for Lot No. 64440. There is no proximate cause between the bank acquiring the mortgage in 1988 and later alleged damage to Lot No. 64440. Also, whether the mortgage was properly recorded is immaterial. If Rudolph was damaged, the mortgage did not cause it.

Rudolph contends, among other things, that the bank has received over $100,000 derived from a "wrongful" mortgage. Even assuming that the mortgage is wrongful, this contention is incorrect. All payments to the bank "derive" not from the mortgage, which has never been enforced, but from the judgment in Civil Action No. 1994-1008, which is based upon the promissory note, not the real property mortgage.

Since the bank owed no duty of care to Rudolph when it took a mortgage to secure the Louis Family, Inc. loan, and that mortgage, even if it is unenforceable, was not the proximate cause of the alleged damages, the bank is entitled to summary judgment as a matter of law on Rudolph’s negligence and void mortgage causes of action. Additional reasons for this conclusion are that the bank has not attempted to foreclose its mortgage and that the mortgage does not cover the lot for which Rudolph has a determination of ownership.

This ruling is not an adjudication of the interests the mortgagors held when they granted the mortgage - whether they owned any or all of the properties mortgaged - or whether the mortgage would be effective against third parties.

2. Conversion and Unauthorized Sale of Property

Both the conversion (of the rock quarried from Nekein) and the "unauthorized sale of property" (the quarried aggregate) are allegations of conversion. The elements of an action for conversion are the plaintiff’s ownership and right to possession of the personalty, the defendant’s wrongful or unauthorized act of dominion over the plaintiff’s property inconsistent with or hostile to the owner’s right, and resulting damages. Bank of Hawaii v. Air Nauru, [1996] FMSC 35; 7 FSM Intrm. 651, 653 (Chk. 1996). Rudolph, in his opposition, contends that the bank’s liability stems from its negligence in executing the mortgage resulting in both defendants exercising dominion over Rudolph’s personal property (the rock and aggregate from Nekein).

Rudolph has not alleged or documented any particular act by which the bank took dominion over Rudolph’s purported rocks and aggregate except the bank’s taking of a mortgage in 1988. That "act" is outside the statute of limitations, but even if it were not, holding a mortgage, as explained above, to property in which the mortgagor had no interest cannot be taking dominion over property.^[6] A mortgagee may take dominion over a mortgaged property only when it has foreclosed on the property and either taken title to it itself or had it sold to another. The bank has never foreclosed on its real property mortgage. More importantly, however, conversion is a cause of action that applies only to personal property (here alleged to be rocks and aggregate) and not to real property. The mortgage was on real property.

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Viewing the facts in the light most favorable to Rudolph and accepting his well-pled allegations (which remain to be proven) as true, the Louis Family, Inc. (while under receivership) took dominion over Rudolph’s property; quarried it for rock; crushed the rock into aggregate; sold it; paid various expenses, including workers’ wages, the operator’s fees, and the receiver’s fee; and then paid the royalties, to which the Louis Family, Inc. was entitled, to the bank to reduce its indebtedness to the bank. The bank never took dominion over the property Rudolph alleges is his. The bank is therefore entitled to summary judgment in its favor as a matter of law on these two counts.

3. Trespass

Rudolph contends, in his opposition, that but for the bank’s enlisting the court’s aid in motions for receivership and for orders in aid of judgment "thereby triggering the mortgage on Nekein," the trespass and quarrying would not have occurred on Nekein. Rudolph thus contends that the existence of a negligently executed mortgage caused the alleged trespass. Rudolph further contends that summary judgment is inappropriate because there is a genuine issue of material fact in dispute - whether the quarrying took place on Nekein or on Sopwis (nearby land owned by a Louis family member) - that must be resolved at trial.

As explained above, the bank’s real property mortgage has never been enforced. Instead, receivership was the chosen remedy. No agent of the bank is alleged to have entered or to have quarried the property Rudolph contends is his. The receivership was not the bank’s agent. The bank had no control, direction, or authority over it.

Whether the quarrying took place on Nekein (part) or on Sopwis is not a genuine issue of material fact in the causes of action against the bank, although, of course, it would be in the causes of action against Louis Family, Inc. The execution of a mortgage, even an invalid mortgage, is not an "authorization" by the mortgagee for anyone to either enter the mortgaged land or to trespass on another’s land.

Viewing the facts in the light most favorable to Rudolph, the bank (along with other interested parties), by asking for (and obtaining in January, 2000) amended receivership terms to facilitate aggregate production to meet Penta Ocean’s needs and to set up a payment plan for the consolidated receivership cases’ judgment-creditors’ benefit, did not commit or authorize a trespass. The bank is therefore entitled to summary judgment in its favor on the trespass cause of action.

Rudolph’s contentions on this and the previous causes of action amount to an assertion that because the bank (allegedly) has a mortgage to the land in question, it is responsible (and liable) for all of the mortgagor’s acts on that mortgaged land. The bank, as mortgagee, is not an insurer or guarantor of the mortgagor’s actions.

4. Unjust Enrichment

Rudolph’s last cause of action is unjust enrichment. The doctrine of unjust enrichment generally applies where there is an unenforceable contract due to impossibility, illegality, mistake, fraud, or another reason and requires a party to either return what has been received under the contract or pay the other party for it. Etscheit v. Adams, [1994] FMSC 6; 6 FSM Intrm. 365, 392 (Pon. 1994). The unjust enrichment doctrine is based on the idea one person should not be permitted unjustly to enrich himself at the expense of another and this doctrine has been expanded to cover cases where there is an implied contract. Id. The generally accepted elements of an unjust enrichment cause of action are: 1) the plaintiff conferred a benefit on the defendant, who has knowledge of the benefit, 2) the defendant accepted and retained the conferred benefit, and 3) under the circumstances it would be inequitable for the defendant to retain the

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benefit without paying for it. Fonoton Municipality v. Ponape Island Transp. Co., [2004] FMSC 11; 12 FSM Intrm. 337, 345 (Pon. 2004).

Rudolph asserts that the bank is liable to him for unjust enrichment since the money was, in his view, paid to the bank by mistake and therefore restitution by the bank is proper. The bank’s situation is not similar to the classic situation to which the unjust enrichment doctrine is applied - where there is an unenforceable contract due to impossibility, illegality, mistake, fraud, or another reason and it requires a party to either return what has been received under the contract or pay the other party for it. Etscheit, 6 FSM Intrm. at 392. Here there was no contract, unenforceable or otherwise, between Rudolph and the bank. Nor was there an implied contract between the two. Nor did Rudolph confer a benefit on the bank that the bank had knowledge of, accepted and retained. Fonoton Municipality, 12 FSM Intrm. at 345. Not only was there no contract between Rudolph and the bank, but also Rudolph had no contact with the bank at all. He was not in privity with the bank.

The money was not paid to the bank by mistake as that term is used in unjust enrichment cases - often referred to as an action for money had and received. The Louis Family, Inc. did not pay the money to the bank under the mistaken belief that it owed the bank money. It actually did owe the bank money. Nor did the Louis Family, Inc. mistakenly pay to the bank money that it owed to another.

When the bank asked to submit a supplemental brief, the court granted the motion and further invited the parties to brief this particular cause of action. The court asked whether this is a case where money received by one party (in this case, the Louis Family, Inc., in receivership) from a certain source (the quarry operation) and then paid by that party to a third party (FSM Development Bank) to pay its just debts to that third party, and, if so, what are the rights of a stranger to the debt (Mino Rudolph) who claims the right to the funds from that source (quarry), to obtain redress or recovery from the third party (bank).

There is a certain limited instance where a plaintiff may recover under an unjust enrichment theory from a third party with which he has had no contact, either directly or through its agents. The requisite "privity" does exist between a plaintiff and such a defendant when that defendant has received money from another fraudulently obtained by the latter only when the recipient was aware of the fraud. 42 C.J.S. Implied Contracts § 191).

[M]oney rney received in the regular course of business from one who fraudulently or feloniously obtained it frother may not be recovered by the true owner from the recipient, even though the latter recr received it in payment of an antecedent debt and parted with no new consideration for the same, if he had no knowledge of the fraud or of the felony.

66 Am. Jur. 2d Restitution and Implied Contracts § 11 1054-55 (1973). Even assn assuming that Rudolph could show, although he did not plead it, that the Louis Family, Inc. committed a fraud against him, Rudolph has not alleged, and no evidence sts that the bank was aware ware of it. Rudolph alleges that he informed Transco, the quarry operator, and Penta Ocean in September, 2000 that he claimed to own land in the quarry. He does not allege that the bank was ever informed or that it was aware that he had a claim to the land or the proceeds from it until he moved to intervene in Civil Action No. 1994-1008 in March, 2002. (Rudolph instead alleges that the bank was negligent for not knowing (in 1988 when it took the mortgage as security) the land did not belong to the Louis family, although he himself had no claim to the land in front of the Land Commission until September, 2000.) The bank, having received money from the Louis Family, Inc. receiver in the regular course of business to pay an antecedent debt which was unquestionably owed to it by the Louis Family, Inc., and having no reason to believe or knowledge that the money might have been fraudulently obtained, is not liable to pay restitution to Rudolph under the unjust enrichment doctrine.

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IV. Conclusion

The court accordingly concludes that the motion must be granted since there are no genuine issues of material fact the FSM Development Bank is entitled to summary judgment as a matter of law on each cause of action against it. There being no just cause for delay, the clerk is directed to forthwith enter final judgment in the FSM Development Bank’s favor. FSM Civ. R. 54(b). The parties are to bear their own costs.

The remaining parties shall submit, no later than ten days after entry of this order, their proposals for further proceedings in this matter. Since the outcome of Rudolph’s claim against defendant Louis Family, Inc. is contingent upon whether Rudolph owns any land that was blasted and quarried, the parties may wish to have this case held in abeyance until the state court proceeding has been resolved and is final.

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^[1] The court, in that case, halted any further payments to the bank by the Receiver once it became aware of the Land Commission decision. That money remains in an interest-bearing account awaiting final resolution of the land ownership issue currently in the state court.
^[2] When portions of court files in other cases are introduced into evidence, a court may take judicial notice of all the papers and pleadings on file in those other cases. Kaminaga v. Chuuk, [1995] FMCSC 7; 7 FSM Intrm. 272, 273 (Chk. S. Ct. Tr. 1995). The Civil Action No. 1994-1008 court file is helpful in understanding this case and the court takes judicial notice of that file.
^[3] The court notes that no such ownership documents and maps may exist for much of the land in Chuuk, even land over which there is no dispute about the ownership.

^[4] The result is the same for registered land when a mortgage is not properly endorsed on the certificate of title. In re Engichy[2003] FMSC 62; , 12 FSM Intrm. 58, 68-69, 71 (Chk. 2003).

^[5] There is some authority that a mortgagor can mortgage land that he does not own but will own in the future and that the mortgage then becomes effective when he acquires the land. See 54A AM. JUR. 2D Mortgages § 37 (rev. ed. 1996). That is not the situation here.
^[6] By taking a mortgage, a mortgagee does not claim title to (or dominion over) the property. A "mortgage creates a lien on and, but does not pass titl title to the mortgagee." Truk S.L. No. 4-91, § 28. See In > Engichy, 1hy[2003] FMSC 62; , 12 FSM Intrm. 58, 68 (Chk. 2003).