FSM SUPREME COURT TRIAL DIVISION
Cite as UNK Wholesale, Inc. v. Robinson
11 FSM Intrm. 361 (Chk. 2003)

[11 FSM Intrm. 361]

UNK WHOLESALE, INC.,
Plaintiff,
 
vs.
 
PRISCILLA ROBINSON and PIUS ROBINSON, dba
ROBINSON RETAIL STORE, ROBINSON VIDEO
STORE, and ROBINSON WATER STORE,
Defendants.
 
CIVIL ACTION NO. 2002-1008
 
ORDER AND MEMORANDUM
 
Martin G. Yinug
Associate Justice
 
Decided: February 17, 2003
 
APPEARANCES:
 
For the Plaintiffs:                                      Daniel J. Berman, Esq.
                                                                   Berman OConnor Mann & Shklov
                                                                   111 Chalan Santo Papa, Suite 503
                                                                   Hagatna, Guam 96910
 
For the Defendants:                                Johnny Meippen, Esq.
                                                                  P.O. Box 705
                                                                  Weno, Chuuk FM 96941

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[11 FSM Intrm. 362]

HEADNOTES

Civil Procedure ) Intervention
     Both intervention of right and permissive intervention must be upon timely application. UNK Wholesale, Inc. v. Robinson, 11 FSM Intrm. 361, 364 (Chk. 2003).
 
Civil Procedure ) Intervention
     A motion to intervene must be accompanied by a pleading setting forth the claim. The motion can be denied solely on procedural grounds for failure to comply with the rule and supply a proposed pleading. Such a denial would be without prejudice. UNK Wholesale, Inc. v. Robinson, 11 FSM Intrm. 361, 364 (Chk. 2003).
 
Civil Procedure ) Intervention
     An intervenor must make a three part showing to qualify for intervention as a matter of right under Rule 24(a): a substantial interest, impairment of that interest, and inadequacy of representation by existing parties. UNK Wholesale, Inc. v. Robinson, 11 FSM Intrm. 361, 364-65 (Chk. 2003).
 
Debtors and Creditors Rights ) Secured Transactions
     It has long been recognized in the FSM, that secret liens are not enforceable against third parties. Banks in the past have attempted to assert a priority right for unpaid loan balances where the loan was used to purchase chattel property. The court has denied them and refused to uphold the asserted liens against third parties. This is controlling law in the FSM. UNK Wholesale, Inc. v. Robinson, 11 FSM Intrm. 361, 365 (Chk. 2003).
 
Debtors and Creditors Rights ) Secured Transactions; Property ) Mortgages
     If a judgment-creditor were to attempt to execute against a piece of land for which there was a certificate of title and that certificate showed an outstanding mortgage on the land, or if there was no certificate of title for the land but a mortgage had been duly and properly recorded at the Land Commission so that anyone searching the records there should necessarily find it, then that would be a security interest that was not a secret lien and therefore valid against third parties. UNK Wholesale, Inc. v. Robinson, 11 FSM Intrm. 361, 365 (Chk. 2003).
 
Property ) Certificate of Title; Property ) Mortgages
     Certificates of title are required to show all interests in the land except for rights of way, taxes due, and lease or use rights of less than one year. A mortgage can and must show on the certificate to be effective against third parties. UNK Wholesale, Inc. v. Robinson, 11 FSM Intrm. 361, 365 n.2 (Chk. 2003).
 
Admiralty ) Ships ) Mortgages
      If a judgment creditor were attempting to levy execution on an FSM-registered vessel, the competing priorities are regulated by statute based on whether, and when, the security interest had been properly recorded. UNK Wholesale, Inc. v. Robinson, 11 FSM Intrm. 361, 365 (Chk. 2003).
 
Debtors and Creditors Rights ) Secured Transactions
      Because there are no statutory schemes in the FSM to record liens and mortgages on chattel property and provide notice thereof because no Micronesian legislature has established any, except that for vessels, chattel mortgages are therefore secret liens which cannot be enforced against third parties who had neither notice nor reason to know of the security interest claim. UNK Wholesale, Inc. v. Robinson, 11 FSM Intrm. 361, 365 (Chk. 2003).

[11 FSM Intrm. 363]

Attachment and Execution; Civil Procedure ) Intervention
     When a banks chattel mortgage purchase money liens are not enforceable against third parties who have had no notice of them and are therefore not enforceable against and do not have priority over an execution lien, even if the bank were permitted to intervene, it could not prevail. Since that is so, the bank does not have an interest in the litigation that would be impaired if it were not allowed to intervene and therefore does not satisfy the elements required to intervene of right. UNK Wholesale, Inc. v. Robinson, 11 FSM Intrm. 361, 365-66 (Chk. 2003).
 
Civil Procedure ) Intervention
       Permissive intervention may be granted when the applicants claim or defense and the main action have a question of law or fact in common and if the intervention will not unduly delay or prejudice the adjudication of the rights of the original parties. UNK Wholesale, Inc. v. Robinson, 11 FSM Intrm. 361, 366 (Chk. 2003).
 
Civil Procedure ) Intervention
      Permissive intervention will be denied when the intervenors claim has no questions of law or fact in common with the main action and its sole claim is that it disputes whether the judgment can be enforced against certain of the defendants assets and when the court has already determined that the claim must fail. UNK Wholesale, Inc. v. Robinson, 11 FSM Intrm. 361, 366 (Chk. 2003).
 
Debtors and Creditors Rights ) Secured Transactions; Judgments ) Foreign
      When the FSM Supreme Courts concern in inquiring into a Guam bankruptcy case was not to determine whether the principles of comity should be applied, but rather whether any order the court might issue would subject a party to liability for contempt in the other court because the party was required by two courts to obey contradictory orders and when that concern has been assuaged, the court will take no position on whether, and under what circumstances, it might recognize U.S. bankruptcy law or proceedings and whether or when comity would apply in such a case. UNK Wholesale, Inc. v. Robinson, 11 FSM Intrm. 361, 366 (Chk. 2003).
 
Attachment and Execution
      A judgment holder is entitled to a writ of execution. UNK Wholesale, Inc. v. Robinson, 11 FSM Intrm. 361, 366 (Chk. 2003).

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COURTS OPINION

MARTIN G. YINUG, Associate Justice:

      On October 21, 2002 the FSM Development Bank ("bank") filed a Motion to Intervene and Motion to Recognize FSMDB Lien Rights, and on November 11, 2002, UNK Wholesale, Inc. ("UNK") filed its Second Motion for Writ of Execution. Also before the court is the Plaintiffs Response to Order Filed December 9, 2002, filed January 6, 2003; the banks Memorandum of FSMDB Regarding December 9, 2002 Order of the Court, filed January 13, 2002; UNKs Opposition to FSMDBs Motion to Intervene, filed January 31, 2003; and the banks Reply to UNKs Opposition to Motion to Intervene and Motion to Recognize FSMDB Lien Rights, filed February 7, 2003.

I. Background

      On April 26, 2002, the court entered a default judgment against all defendants ("the Robinsons") in this matter. The plaintiff, UNK, obtained a writ of execution on May 31, 2002, which was levied

[11 FSM Intrm. 364]

on the Robinsons businesses in Chuuk on June 17, 2002. The Robinsons then appeared and moved for a stay of the writ and for relief from judgment. The court granted a partial stay. On September 3, 2002, the court granted relief from judgment conditioned on the Robinsons posting a bond with the court within a certain time. UNK Wholesale, Inc. v. Robinson, 11 FSM Intrm. 118, 123-24 (Chk. 2002). No bond was ever posted. Instead, the Robinsons filed a bankruptcy petition in the U.S. District Court on Guam. The partial stay of the writ of execution eventually expired.

      On October 21, 2002, the bank filed its Motion to Intervene and Motion to Recognize FSMDB Lien Rights. UNK filed its Second Motion for Writ of Execution on November 11, 2002. On December 9, 2002, the court entered an order in which it noted that the partial stay of the first writ of execution had expired and that since the Robinsons had filed for bankruptcy in the U.S. District Court on Guam, the debt in this case might be a subject of that proceeding1 and asked whether further action by this court might subject any party to contradictory orders from different courts. The court therefore asked UNK and the bank to address these concerns and asked UNK to address the banks assertion that it was a secured creditor and how the enforcement of any writ would handle whatever rights the bank had. UNK and the bank have filed their responses and the Robinsons have not filed any comments (although they were invited to) on either UNKs or the banks position.

II. Banks Motions to Intervene and to Recognize its Lien Rights

      The bank seeks to intervene in this action because it loaned the Robinsons money for the water purification business and it holds a purchase money chattel mortgage on the Robinsons water purification machinery and equipment. The bank seeks intervention as a matter of right or, alternatively, permissive intervention.

      Both intervention of right and permissive intervention must be upon timely application. Tom v. Pohnpei Utilities Corp., 9 FSM Intrm. 82, 88 (App. 1999). The bank contends that its intervention is timely because it moved to intervene as soon as it learned of UNKs efforts to execute on what it claims is its collateral. UNK does not oppose this argument.

       UNKs opposition contends that the motion must be denied because of the banks failure to comply with Civil Procedure Rule 24(c), which requires that any motion to intervene "be accompanied by a pleading setting forth the claim," and the banks motion has no accompanying pleading. UNK is correct. The banks motion could have been denied solely on procedural grounds for failure to comply with the rule and supply a proposed pleading. Such a denial would be without prejudice. The bank could have then renewed its motion. To cure this defect, the bank, in fact, did, belatedly, attach a proposed Complaint in Intervention to its reply to UNKs opposition.

       Regardless of whether this tardy proposed pleading can pass procedural muster, the court concludes, however, that these motions must be denied on the merits. The reasons follow.

A. Intervention and Lien Priorities

      An intervenor must make a three part showing to qualify for intervention as a matter of right under Rule 24(a): a substantial interest, impairment of that interest, and inadequacy of representation

[11 FSM Intrm. 365]

by existing parties. Moses v. Oyang Corp., 10 FSM Intrm. 210, 212 (Chk. 2001); California Pac. Assocs. v. Alexander, 7 FSM Intrm. 198, 200 (Pon. 1995); FSM Civ. R. 24(a)(2). The bank claims its interest is its lien rights in the Robinsons property that UNK is attempting to execute upon and that UNKs execution on that property will impair the banks interest. It is undisputed that no other party can adequately protect this asserted interest.

       The banks motions therefore turn on whether the court can recognize the banks claimed liens on the Robinsons property as effective against third parties or, as the bank puts it, grant the banks liens priority status. If the court can recognize the banks liens as effective against a third party, the bank then has a substantial interest that would be impaired if it is not allowed to intervene.

      It has long been recognized in the FSM, that secret liens are not enforceable against third parties. Bank of Guam v. Island Hardware, Inc., 2 FSM Intrm. 281, 290 (Pon. 1986). Banks in the past have attempted to assert a priority right for unpaid loan balances where the loan was used to purchase chattel property. The court has denied them and refused to uphold the asserted liens against third parties. In re Island Hardware, 3 FSM Intrm. 332, 339-42 (Pon. 1988). The appellate division expressly affirmed this ruling and the reasoning behind it. In re Island Hardware, 5 FSM Intrm. 170, 174 (App. 1991). It is thus controlling law in this jurisdiction.

      If a judgment-creditor (such as UNK) were to attempt to execute against a piece of land for which there was a certificate of title and that certificate showed an outstanding mortgage on the land,2 or if there was no certificate of title for the land but a mortgage had been duly and properly recorded at the Land Commission so that anyone searching the records there should necessarily find it, then that would be a security interest that was not a secret lien and therefore valid against third parties. Or, if a judgment creditor were attempting to levy execution on an FSM-registered vessel, the competing priorities are regulated by statute based on whether, and when, the security interest had been properly recorded. See Bank of the FSM v. Pacific Foods & Servs., Inc., 10 FSM Intrm. 327 (Pon. 2001). Likewise, if a motor vehicle were properly registered with the state authorities and if the state registration system for vehicles were to show the presence of a lien on the vehicle then that would not be a secret lien.3 Those situations do not apply to this case. There are no statutory schemes in the Federated States of Micronesia to record liens and mortgages on chattel property and provide notice thereof because no Micronesian legislature has established any, except that for vessels.

       The banks chattel mortgages are therefore secret liens which cannot be enforced against third parties who had neither notice nor reason to know of the security interest claim. In re Island Hardware, 3 FSM Intrm. at 339; Bank of Guam, 2 FSM Intrm. at 290. The bank relies on Luke v. Cason, 66 S.E. 493 (Ga. Ct. App. 1909) to support its claim for priority. Luke is inapplicable to this situation. It involved an equitable lien by a lender in chattels purchased by a judgment-debtor with a loan made after the judgment had been entered and which put new property in the debtors hands. The present case involves chattels that had been the defendants property for quite some time before this case was filed.

       The banks chattel mortgage purchase money liens in the Robinsons equipment are, accordingly, not enforceable against third parties that have had no notice of it and are therefore not enforceable

[11 FSM Intrm. 366]

against UNK and do not have priority over UNKs execution lien. Thus, even if the bank were permitted to intervene, it could not prevail over UNK. Since that is so, the bank does not have an interest in the litigation that would be impaired if it were not allowed to intervene in UNKs suit against the Robinsons. The bank therefore does not satisfy the elements required to intervene of right.

      Alternatively, the bank asks for permissive intervention. Permissive intervention may be granted when the "applicants claim or defense and the main action have a question of law or fact in common" and if the intervention will not "unduly delay or prejudice the adjudication of the rights of the original parties." FSM Civ. R. 24(b)(2). The banks claim has no questions of law or fact in common with UNKs main action against the Robinsons, which is whether the Robinsons owed UNK money and how much. The banks sole claim is that it disputes whether UNK can enforce the judgment against certain of the Robinsons assets. As noted above, that claim must fail.

       The banks motions must accordingly be denied. While the bank may feel aggrieved that the chattel mortgages it uses to secure its loan do not carry the priority it argued here that they should, this is the legal framework under which it has operated for most, if not all, of its existence. It is a framework that can only be changed by legislation, not by the courts.

B. Bankruptcy in Guam

       In its response to the courts December 9th order, UNK states that, with respect to its execution lien on the debtors property in Chuuk, the U.S. Bankruptcy Court on Guam lifted the statutorily-imposed automatic stay of collection efforts against a debtor who has filed for bankruptcy, 11 U.S.C.  362, and allowed UNK to proceed with its execution levy in Chuuk. UNK further contends that the automatic stay is still in effect against other creditors, such as the bank, with claims against the debtors property in Chuuk and that this court should recognize that stay as a matter of comity.

       The bank contends that this court should not, as a matter of comity, recognize U.S. bankruptcy law and court proceedings on the grounds that while this court may, in its discretion, apply comity to foreign judgments, no judgment has been entered in the Guam bankruptcy case; that since there is no bankruptcy law in the FSM it would be contrary to FSM public policy to recognize foreign bankruptcy proceedings here; and because the bank has done nothing to subject itself to the Guam courts jurisdiction and that court has no jurisdiction here.

       This courts concern, however, in inquiring into the Guam bankruptcy case was not to determine whether the principles of comity should be applied, but rather whether any order this court might issue would subject a party to liability for contempt in the other court because the party was required by two courts to obey contradictory orders. That concern has been assuaged. The court takes no position on whether, and under what circumstances, it might recognize U.S. bankruptcy law or proceedings and whether or when comity would apply in such a case.

III. Writ of Execution

       Although UNK already has an outstanding writ of execution it asks for a second writ. As a judgment holder, it is entitled to a writ of execution, 6 F.S.M.C. 1407; FSM Civ. R. 69. Its issuance will not subject a party to liability in another court. The writ shall issue herewith.

IV. Conclusion

       Accordingly, the FSM Development Banks Motion to Intervene and Motion to Recognize FSMDB Lien Rights is denied and UNK Wholesale, Inc.s writ of execution shall issue.

[11 FSM Intrm. 367]

        One last point: the court, which was once a Robinson Water Store customer, has in its possession a check for a small sum which is its last payment for water it bought. Parties may suggest the proper disposition of this check.

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_______________________________________

Footnotes:

1. The Robinsons are Guam residents, see UNK Wholesale, Inc. v. Robinson, 11 FSM Intrm. 118, 121 (Chk. 2002), and UNKs principal place of business is on Guam. In all likelihood, the debt that gave rise to this judgment was contracted on Guam, so it was not unlikely that this debt would be included in the Guam bankruptcy proceeding.

2. Since certificates of title are required to show all interests in the land except for rights of way, taxes due, and lease or use rights of less than one year, 67 TTC 117(1), a mortgage can and must show on the certificate to be effective against third parties.

3. The court, however, is not aware of any state vehicle registration system in the FSM which shows the liens on the vehicle.