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HEADNOTES

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COURT'S OPINION

DENNIS K. YAMASE, Associate Justice:

This comes before the court on matters in which the court asked all interested parties for further briefing on:

1) whether the FSM Supreme Court has the jurisdiction to discharge debts incurred in a foreign nation to a foreign sovereign or whether the debtor should be required to seek bankruptcy protection for that debt in a proceeding in that nation;

2) whether the court has jurisdiction to conduct a bankruptcy proceeding for a

[18 FSM R. 602]

debtor who is resident in one foreign country (the Phillippines) and is a citizen of yet another foreign country (according to the debtor's notarization of Exhibit A he used a "USA Passport" to identify himself to the notary); and

3) where in the priorities a debt to a foreign sovereign ranks.

The debtor filed his brief on August 2, 2012, and the FSM national government creditor filed its brief on February 15, 2013. Oral presentations on these points were heard on January 30, 2013.

I. JURISDICTION OVER DEBTOR

The FSM Supreme Court has jurisdiction to entertain a bankruptcy proceeding over a debtor's estate if the debtor resides in or has a domicile in the FSM or has a place of business or property in the FSM. 31 F.S.M.C. 103(3). The debtor, Anthony James Mix, alleged in his original bankruptcy application that he has property in Pohnpei and it appeared that his application for bankruptcy protection arose from a failed business operation in Pohnpei. Debtor Mix appeared personally at the January 30, hearing and it further appears that although Mix may currently be resident in the Philippines, he is a domiciliary¹ of Pohnpei. The court therefore has jurisdiction over debtor Mix's estate and may afford him bankruptcy protection.

II. THE MARSHALL ISLANDS DEBT

According to Mix's schedules, he is indebted to the Marshall Islands Social Security Administration in the amount of $90,000. That administration is an instrumentality of a foreign sovereign – the Republic of the Marshall Islands. The court therefore inquired about the extent of its authority to grant bankruptcy protection from a debt to a foreign sovereign, which debt, by its nature, must have arisen in the Marshall Islands.

Mix concedes that the bankruptcy court does not have the power to discharge debts owed to an entity outside of the FSM that were incurred outside of the FSM, but contends that the bankruptcy court has the power to discharge or render unenforceable an FSM court judgment rendered to collect those debts in the FSM. The bankruptcy court, as noted by the FSM, is granted comprehensive jurisdiction, see FSM Pub. L. No. 13-73, § 1, 13th Cong., 5th Spec. Sess. (2004) (bankruptcy code "gives the courts substantial latitude to protect the interests of creditors and debtors"), to deal with all matters concerning the bankruptcy estate and that as long as the court has jurisdiction over the applicant debtor. The court may issue such orders as are enforceable in the FSM.² The court can

[18 FSM R. 603]

therefore discharge in the FSM the debt owed to the Marshall Islands because "[a] discharge operates as an injunction against the . . . continuation of any act or action to collect a debt as a personal liability of the debtor." 31 F.S.M.C. 208(4). Since the discharge or injunction would be enforceable only in the FSM, the Marshall Islands Social Security Administration might still seek to collect its claim in the Republic of the Marshall Islands or some other foreign country, constrained only by the application of comity by those countries' courts.

The last question was, if the Marshall Islands debt is dischargeable, in which FSM bankruptcy proceeding priority class should the Marshall Islands debt lie. Debtor Mix and creditor FSM both assert that the Marshall Islands debt should be classified under 31 F.S.M.C. 108(1)(e) as an allowed unsecured claim. There seems to be no other place to put it in the statutory scheme. It is not a secured debt – a claim in which the creditor has a security interest in collateral. It is an unsecured claim.

The priorities ahead of the Marshall Islands debt are for: administrative expenses of the bankruptcy estate, 31 F.S.M.C. 108(1)(a); liens held by the FSM Social Security Administration, 31 F.S.M.C. 108(1)(b); unsecured claims of the FSM national government, or an FSM state government, or an FSM local government, 31 F.S.M.C. 108(1)(c); and employees' claims for wages and salaries, 31 F.S.M.C. 108(1)(d). There are no obvious or sound reasons why the Marshall Islands Social Security Administration claim, even though reduced to judgment, should take priority over any of these classes of claims. For the purpose of administering a bankruptcy estate in the FSM, a foreign government's unsecured claim will be relegated to the class of allowed unsecured claims in 31 F.S.M.C. 108(1)(e). The Marshall Islands Social Security Administration claim will therefore be given that priority.

III. CONCLUSION

Accordingly, the court has jurisdiction over debtor Anthony James Mix's estate and, to the extent that the debt that Anthony James Mix owes the Marshall Islands Social Security Administration is not satisfied by the court's administration of Mix's estate, the court can discharge the FSM court judgment based on that debt although this order cannot discharge the debt within the Republic of the Marshall Islands or elsewhere abroad.

A further hearing is hereby set for April 3, 2013, at 9:30 a.m., to monitor the progress of the case and, if the matter is ready by then, to rule on any disputed exempt property claims and to consider any plan to marshal the estate's assets, to pay the creditors from the estate in accordance with the 31 F.S.M.C. 108 priorities, and to discharge the remaining debts in accordance with 31 F.S.M.C. 208.

Footnotes:

¹ Legal residence is usually defined as the place of domicile or permanent abode, Berman v. Lambert, 17 FSM Intrm. 442, 448 (App. 2011), and while the term "legal residence" is often the equivalent of domicile and "actual residence" is used to refer to one's current physical location, a person may have more than one legal residence, Chuuk Health Care Plan v. Pacific Int'l, Inc., 17 FSM Intrm. 617, 620 (Chk. 2011), but a person can have only one domicile, 25 AM. JUR. 2D Domicil § 8, at 11-12 (rev. ed. 1996).

² Although the court cannot enforce its orders in another country, the court does have a certain extraterritorial reach. For instance, the bankruptcy court can, in appropriate circumstances, hold in contempt a debtor or dismiss the debtor's bankruptcy application when the debtor has not obeyed a court order to sell property the debtor has in another country and remit the proceeds to the receiver of the debtor's estate. In re Panuelo, 15 FSM Intrm. 23, 27 (Pon. 2007). Since a 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), a debtor's estate will include property owned by the debtor anywhere in the world on the date of the bankruptcy application and the court can make orders to the debtor that affect that property. In re Panuelo, 15 FSM Intrm. at 27-28.