In re Panuelo [2007] FMSC 18; 15 FSM Intrm. 23 (Pon. 2007) (23 May 2007)

FEDERATED STATES OF MICRONESIA
SUPREME COURT TRIAL DIVISION

Cite as In re Panuelo[2007] FMSC 18; , 15 FSM Intrm. 23 (Pon. 2007)

In re IOANIS PANUELO, BANKRUPTCY
Debtor.

ORDER LIFTING STAY OF

CASE NO. PB 001-2007
CIVIL ACTION NO. 1999-091

Andon L. Amaraich
Chief Justice

Decided: May 23, 2007

[15 FSM Intrm. 24]

APPEARANCES:

For the Movants:
Daniel J. Berman, Esq.
P.O. Box 2069
Kolonia, Pohnpei FM 96941

For the Debtor:
Ron Moroni, Esq.
134 West Soledad Avenue, Suite 402
Hagatna, Guam 96910

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HEADNOTES

Bankruptcy
In a bankruptcy case, a "creditor" is someone who has a claim against the debtor that arose at the time of or before the order for relief concerning the debtor, and a "claim" is any right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured. An unliquidated claim is one whose amount has not been determined or calculated. In re Panuelo[2007] FMSC 18; , 15 FSM Intrm. 23, 26 (Pon. 2007).

Bankruptcy
An "interested party" who may appear in a bankruptcy proceeding includes any creditor of the debtor. In re Panuelo[2007] FMSC 18; , 15 FSM Intrm. 23, 26 (Pon. 2007).

Bankruptcy - Automatic Stay
An affected party may seek relief from the automatic stay by applying to the bankruptcy court and that court, for cause shown, shall either grant relief from stay or grant such other relief as will provide adequate protection for the party requesting relief from stay. In re Panuelo[2007] FMSC 18; , 15 FSM Intrm. 23, 26 (Pon. 2007).

Bankruptcy
The debtor’s estate that is subject to a bankruptcy receivership consists of, subject to the exemptions contained in section 209 of the Bankruptcy Act, all property owned by the debtor on the date of the application. In re Panuelo[2007] FMSC 18; , 15 FSM Intrm. 23, 27 (Pon. 2007).

Bankruptcy
Whether property is exempt from bankruptcy creditors is an issue that should be brought up after the appointment of a Receiver. A claim that the property is exempt is not an excuse for failing to list it in the official forms since a debtor must list property claimed as exempt under on the schedule of assets required to be filed by Bankruptcy Rule 1007. This allows creditors to object to the debtor’s claim of exemption. In re Panuelo[2007] FMSC 18; , 15 FSM Intrm. 23, 27 (Pon. 2007).

Bankruptcy; Statutes - Construction
When the Bankruptcy Act states the debtor’s estate consists of "all property owned by the debtor on the date of the application," the Act should not be interpreted to mean something other than what it says. "All" means "all." Since statutes are to be interpreted according to their plain meaning, and when a statute’s language is plain and unambiguous, it declares its own meaning and there is no room for construction. The meaning of "all" is plain and unambiguous." In re Panuelo[2007] FMSC 18; , 15 FSM Intrm. 23, 27 (Pon. 2007).

Bankruptcy; Statutes - Construction
Words and phrases used in the FSM Code (of which the Bankruptcy Act is a part) must be read with their context and must be construed according to their common and approved English language usage. In re Panuelo[2007] FMSC 18; , 15 FSM Intrm. 23, 27 n.1 (Pon. 2007).

Bankruptcy
Since the Bankruptcy Act’s purpose is to fairly balance the interests of creditors and debtors in circumstances where the debtor is unable to meet his financial obligations when due, it would be inherently unfair to the creditors’ interests if only a debtor’s property that happened to be in the FSM when the bankruptcy application was filed were included in the debtor’s estate (and the debtor’s property elsewhere not included). In re Panuelo[2007] FMSC 18; , 15 FSM Intrm. 23, 27 (Pon. 2007).

[15 FSM Intrm. 25]

Bankruptcy; Statutes - Construction
Since the FSM Code provisions are construed according to the fair construction of their terms with a view to effect its object and to promote justice, to construe the phrase "all property," to include the debtor’s property outside the FSM would construe the Bankruptcy Act and 31 F.S.M.C. 203(1)(a) according to the fair construction of their terms or with a view to effect the Bankruptcy Act’s object and to promote justice. In re Panuelo[2007] FMSC 18; , 15 FSM Intrm. 23, 28 (Pon. 2007).

Bankruptcy
The court may dismiss a bankruptcy application if it is in "the best interests of the debtor and the creditors" or if the debtor’s application was in bad faith. In re Panuelo[2007] FMSC 18; , 15 FSM Intrm. 23, 28 (Pon. 2007).

Bankruptcy
The Bankruptcy Act gives the bankruptcy court three choices in the case of disputed claims: the court may summarily determine the matter upon motion, conduct a trial on the claim, or refer the matter to another court for determination. In re Panuelo[2007] FMSC 18; , 15 FSM Intrm. 23, 28 (Pon. 2007).

Bankruptcy
A bankruptcy court’s summary determination of disputed claims is properly reserved for those cases where there are no debtor’s assets left to make any payments to the unsecured creditors so the amount of the debtor’s liability matters little since there will never be any money to pay it. In re Panuelo[2007] FMSC 18; , 15 FSM Intrm. 23, 28 (Pon. 2007).

Bankruptcy
A creditor’s disputed claim could be tried as part of a bankruptcy case, but when that would entail a full-blown trial with witnesses and evidence and another trial would still have to be conducted because the debtor is not the only defendant to the lawsuit, that would be a wasteful use of scarce judicial resources and leave the danger of inconsistent judgments. In re Panuelo[2007] FMSC 18; , 15 FSM Intrm. 23, 29 (Pon. 2007).

Bankruptcy - Automatic Stay
The bankruptcy court will grant relief from the automatic stay and permit "another court" to try creditors’ disputed claims against the debtor and determine the amount of the debtor’s liability (if any) to the creditors when it is in the interests of judicial economy and the expeditious and economical resolution of litigation and the parties were ready for trial before the bankruptcy application; when the impact of the stay on, and the harm to, the creditors is great, while the only harm to the debtor is that his attorney will have to try the case, something he was already prepared to do; when relief would result in complete resolution of the issues between the creditors and the debtor (except, of course, payment of any judgment); and when the litigation involves third parties and would not appear to prejudice the debtor’s other creditors since any judgment against the debtor in that case must be pursued only in this bankruptcy case since the stay will not be lifted so as to permit the enforcement of any judgment obtained against the debtor in any forum other than this bankruptcy case. In re Panuelo[2007] FMSC 18; , 15 FSM Intrm. 23, 29 (Pon. 2007).

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[15 FSM Intrm. 26]

COURT’S OPINION

ANDON L. AMARAICH, Chief Justice:

Alfredo Amayo, Elsa Amayo, Alfie Amayo, April Amayo, and Jilleen Amayo, the plaintiffs in Civil Action No. 1999-091, Amayo v. MJ Co., ("Amayos") are unliquidated, unsecured creditors of debtor Ioanis Panuelo. On February 5, 2007, they filed a motion to dismiss Panuelo’s bankruptcy application or to set aside the automatic stay triggered when Panuelo filed an application for bankruptcy protection so that trial in Civil Action No. 1999-091 could go forward and determine the amount, if any, of Panuelo’s liability to them. At Panuelo’s request, the court granted him leave to file an opposition, which he did on March 30, 2007. The Amayos filed their reply memorandum on April 10, 2007.

The motion is granted in part. The court’s reasons follow.

I. Background

The Amayos are creditors with a disputed, unsecured, unliquidated claim. Panuelo disputes his liability. The claimed debt to the Amayos has not been reduced to judgment and the amount (which may be zero if there is no liability) determined. Nevertheless, the Amayos meet the definition as Panuelo’s creditors because, under the Bankruptcy Act, a "creditor" is someone who "has a claim against the debtor that arose at the time of or before the order for relief concerning the debtor." 31 F.S.M.C. 102(3). A "claim" is any right to payment, "whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured." 31 F.S.M.C. 102(2)(a). The Amayos’ claim, which is based on Alfredo Amayo’s injury on July 17, 1999, arose before Panuelo applied for bankruptcy relief in January 2007. An unliquidated claim is one whose amount has not been determined or calculated. Black’s Law Dictionary 1378 (5th ed. 1978).

The Amayos are "interested parties" who may appear in the bankruptcy proceeding since an "interested party" may be "any creditor of the debtor . . . ." 31 F.S.M.C. 102(h). TnkrBankruptcy Act provides that the Amayos, as affected parties, may seek relief from the automatic stay by applying to the bankruptcy court and that court causwn, shall either: (a) grant relief from from stay stay; or ; or (b) grant such other relief as will provide adequate protection for the party requesting relief from stay." 31 F.S.M.C. 106(4).

The Amayos contend that Panuelo’s bankruptcy application should be dismissed and that Panuelo be barred from filing any further bankruptcy applications for six months because he filed his bankruptcy application for an improper purpose (delay) and in bad faith. In the alternative, the Amayos ask that the stay be set aside so that the Civil Action No. 1999-091 trial may proceed to determine Panuelo’s liability to them.

Panuelo asserts that the Amayos’ motion should be denied because the Amayos served it only on his attorney and not on both him and his attorney. The Amayos dispute whether this is required by the law, but have since cured this defect by also serving Panuelo personally.

II. Motion to Dismiss

The Amayos contend that Panuelo’s application must have been in bad faith since he did not list the Amayos as creditors; he did not list property in Hawaii with an assessed valuation of $1,095,200; he did not list his real estate on Pohnpei; the Official Forms 1 and 2 were not sworn as required; and, in the Amayos’ view, the only reason he filed for bankruptcy was to further delay their suit against him. The Amayos contend that this warrants the dismissal of Panuelo’s bankruptcy application and an award to them of their attorney’s fees and costs.

[15 FSM Intrm. 27]

Panuelo notes that he has since corrected the omission of failing to submit Official Forms 1 and 2 under oath and the omission of the Amayos as creditors. Panuelo asserts that he did not have to include the Hawaii property because, in his view, this court has no jurisdiction over property located outside the FSM. He argues that the FSM Bankruptcy Act does not apply to that property because the Act does not specifically state that it applies to the debtor’s property outside the FSM. Panuelo also asserts that his Pohnpei real estate did not have to be listed because the Pohnpei Constitution prohibits the sale of land so therefore that land is exempt from this case.

A. Pohnpei Property

The debtor’s estate that is subject to a bankruptcy receivership consists of, "subject to the exemptions contained in section 209 [of the Bankruptcy Act], all property owned by the debtor on the date of the application." 31 F.S.M.C. 203(1)(a). Whether Panuelo’s Pohnpei real estate is exempt is an issue that should be brought up after the appointment of a Receiver. However, a claim that the property is exempt is not an excuse for failing to list it in the official forms. A debtor must list property claimed as exempt under 31 F.S.M.C. 209 on the schedule of assets required to be filed by Bankruptcy Rule 1007. FSM Bankr. R. 4003(a). This allows creditors to object to the debtor’s claim of exemption. FSM Bankr. R. 4003(b). When Panuelo first filed his schedule of assets, he should have listed any property claimed as exempt on Bankruptcy Official Form 6, Schedule C. But since Panuelo did amend his filings to list his Pohnpei real estate on Schedule C, once he filed Form 6 and accompanying schedules, this is not a ground to find bad faith.

B. Hawaii Property

But Panuelo should also have listed all property owned in Hawaii and anywhere else. While generally a court does not have jurisdiction over real estate in another jurisdiction because it cannot enforce its orders there, the court does have jurisdiction over the person of the debtor. Thus, if the court were to order a debtor to sell real estate in another country and deposit the proceeds with the court-appointed Receiver, and, if the debtor did not obey that order, the court could then impose sanctions on the debtor, such as, contempt of court, dismissal of his bankruptcy application or both.

The Bankruptcy Act states the debtor’s estate consists of "all property owned by the debtor on the date of the application." 31 F.S.M.C. 203(1)(a). Panuelo contends that "all" means just the property he owns that happens to be in the FSM. The court rejects this contention. The Act should not be interpreted to mean something other than what it says. "All" means "all." Statutes are to be interpreted according to their plain meaning,[1] Rodriguez v. Bank of the FSM, [2003] FMSC 12; 11 FSM Intrm. 367, 379 (App. 2003); Setik v. FSM, [1992] FMSC 19; 5 FSM Intrm. 407, 410 (App. 1992), and when a statute’s language is plain and unambiguous, it declares its own meaning and there is no room for construction, FSM v. Wainit, [2003] FMSC 64; 12 FSM Intrm. 105, 111 (Chk. 2003). The meaning of "all" is plain and unambiguous.

[15 FSM Intrm. 28]

Another reason the Act must be interpreted so that "all property owned by the debtor" means just that is that to interpret it otherwise would be to encourage fraud and deception upon the court and the creditors and to frustrate the Bankruptcy Act’s purpose. The Act’s purpose is to "fairly balance the interests of creditors and debtors in circumstances where the debtor is unable to meet his financial obligations when due." FSM Pub. L. No. 13-73, § 1, 13tg., 5th Spec. Sess. (ss. (2004). It would be inherently unfair to the creditors’ interests if only a debtor’s property that happened to be in the FSM when the bankruptcy applicatio filed were included in then the debtor’s estate. It would, contrary to the Act’s intent, encourage debtors to conceal and move their assets out of the FSM before applying for bankruptcy protection. A debtor could then be "bankrupt" in the FSM and have all his debts discharged here while being perfectly solvent and having more than sufficient assets outside the FSM to pay all his debts in full with money left over. The FSM Code is "construed according to the fair construction of their terms, with a view to effect its object and to promote justice." 1 F.S.M.C. 211. To construe the phrase "all property," to include property outside the FSM would construe the Bankruptcy Act and 31 F.S.M.C. 203(1)(a) according to the fair construction of their terms or with a view to effect the Bankruptcy Act’s object and to promote justice.

Panuelo shall therefore, within fifteen days of entry of this order, amend his filings to include all property he owns that is outside of the FSM.

C. Dismissal Denied

The court may dismiss a bankruptcy application if it is in "the best interests of the debtor and the creditors" or if the debtor’s application was in bad faith. 31 F.S.M.C. 201(2); 208(1)(b). And if the debtor’s application was in bad faith, then the court may also award "interested parties injured thereby" their reasonable costs and attorney’s fees to be paid by the debtor. 31 F.S.M.C. 201(2).

However, at this point, it appears that Panuelo’s actions are not a matter of bad faith, but just unfamiliarity with the Bankruptcy Act since he has corrected most of the deficiencies the Amayos complained about, except listing the Hawaii real estate, which the court fully expects he will correct once he is served this order. Accordingly, the Amayos’ motion to dismiss denied. (Of course, if the circumstances and evidence warrants it, any creditor may later move to dismiss Panuelo’s bankruptcy application on the ground of bad faith.)

III. Motion to Lift or Set Aside Stay

The Amayos also ask that the automatic stay, as it affects Civil Action No. 1999-091, be set aside so that that case may proceed to trial and the extent of Panuelo’s liability to them can be determined. Panuelo contends that the Amayos should not be given relief because, in his view, it is never proper to set aside the automatic stay for an unsecured creditor.

For this proposition, Panuelo cited a number of American bankruptcy cases that held it was improper for an unsecured creditor to obtain relief from the automatic stay because relief from the stay would deplete the debtor’s resources available to pay his other creditors. However, in all of those cases, the amount of the unsecured creditor’s claim was known (that is, liquidated), and the unsecured creditor was trying to, in effect, obtain an advantage or priority over the other unsecured creditors. The Amayos’ claims are unliquidated. The Amayos want their claims reduced to (the certainty of a) judgment and have stated their willingness to share and share alike with the other unsecured creditors in the bankruptcy proceeding once the amount of Panuelo’s debt to them is known. They only ask that the stay be lifted so that they can get a judicial determination of the amount owed them; they do not ask that the stay be lifted to enforce any judgment they may obtain against Panuelo.

The Act gives the court three choices in the case of disputed claims, such as the Amayos’. "[T]he court may (a) summarily determine the matter upon motion, (b) conduct a trial on the claim, or (c) refer the matter to another court for determination." 31 F.S.M.C. 107(3). When ruling on a motion to set aside the automatic stay, the court, for cause shown, must either grant relief from stay; or grant such other relief as will adequately protect the party requesting relief from stay. 31 F.S.M.C. 106(4). Summary determination is properly reserved for those cases where there are no debtor’s assets left to make any payments to the unsecured creditors so the amount of the debtor’s liability matters little since there will never be any money to pay it. That does not seem to be the case here. This is not a no asset case.

[15 FSM Intrm. 29]

That leaves the other two choices. The Amayos’ claim could be tried as part of this bankruptcy case. That would entail a full-blown trial with witnesses and evidence. But if the Amayos’ claims against Panuelo were tried in this bankruptcy case, another trial would still have to be conducted in Civil Action No. 1999-091 because Panuelo is not the only defendant to the Amayos’ lawsuit. That would be a wasteful use of scarce judicial resources and leave the danger of inconsistent judgments.

The third choice is to grant relief from the automatic stay and permit "another court" to try the Amayos’ claims against Panuelo and the other defendants (MJ Company and Ron Pangelinan) in Civil Action No. 1999-091 and determine the amount of Panuelo’s liability (if any) to the Amayos. The interests of judicial economy and the expeditious and economical resolution of litigation and the fact that the parties were ready for trial in Civil Action No. 1999-091 in January 2007 (a date they chose), strongly favor granting this relief. The impact of the stay on, and the harm to, the Amayos is great, while the only harm to Panuelo is that his attorney will have to try the case, something he was prepared to do in January. Relief would result in complete resolution of the issues between the Amayos and Panuelo (except, of course, payment of any judgment). The litigation in Civil Action No. 1999-091 involves third parties and would not appear to prejudice Panuelo’s other creditors since any judgment against Panuelo in that case must be pursued only in this bankruptcy case.

Accordingly, the Amayos’ motion to lift the stay so that Civil Action No. 1999-091 can proceed to trial and judgment is granted. The stay is not lifted so as to permit the enforcement of any judgment the Amayos might obtain against Panuelo in any other forum. Any collection efforts shall be made in this bankruptcy case.

IV. Conclusion

Accordingly, the motion to dismiss this case is denied. Debtor Ioanis Panuelo shall, within fifteen days of entry of this order, amend his filings of Official Forms and Schedules to include all assets and property he owns that is outside of the Federated States of Micronesia. The Bankruptcy Act’s automatic stay is hereby lifted so that Civil Action No. 1999-091 can proceed to trial and judgment, but if the plaintiffs in that action obtain a money judgment against debtor Panuelo, no steps to enforce or collect on that judgment shall take place in any forum other than in this bankruptcy case.

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[2007] FMCSC 7; [15 FSM Intrm. 30]

Footnotes:

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[1].The FSM Code states that words and phrases used in the FSM Code (of which the Bankruptcy Act is a part) must be read with their context and must be construed according to their common and approved English language usage. 1 F.S.M.C. 208.