FSM SUPREME COURT TRIAL DIVISION
Cite as FSM Dev. Bank v. Robert, 24 FSM R. 59 (Kos. 2023)
FSM DEVELOPMENT BANK,
Plaintiff,
vs.
YONE H. ROBERT also known as Yone Henry,
individually and in her capacity as Administratrix
of the ESTATE OF HENRY E. ROBERT, also
known as Henry Edwin, MICHAELA G. NODA,
Administratrix of the Estate of Gideon Noda and
the KOSRAE HOUSING AND RURAL
DEVELOPMENT AUTHORITY,
Defendants.
CIVIL ACTION NO. 2019-2000
ORDER ON REMAINING PENDING MOTIONS
Dennis L. Belcourt
Associate Justice
Hearing: January 14, 2022
Decided: March 6, 2023
Errata Corrected: June 27, 2024
APPEARANCES:
For the Plaintiff:
Nora E. Sigrah, Esq.
P.O. Box M
Kolonia, Pohnpei FM 96941
For the Defendant:
Yoslyn G. Sigrah, Esq.
P.O. Box 3018
Kolonia, Pohnpei FM 96941
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When no written opposition to a motion to substitute is filed, the lack of a memorandum of points and authorities in opposition is consent to the motion, but good grounds must exist for the court to grant the motion. FSM Dev. Bank v. Robert, 24 FSM R. 59, 64 (Kos. 2023).
Good grounds exist for a motion to substitute on death of a party if 1) the claim is not extinguished on the party's death, 2) a suggestion of death has been filed, and 3) a motion has been made to substitute an appointed legal representative such as an executor or an administrator within 90 days of the suggestion. The ninety-day period may be enlarged for cause shown, or, after the expiration of that period, for excusable neglect. FSM Dev. Bank v. Robert, 24 FSM R. 59, 64 (Kos. 2023).
A motion to substitute the administratrix of the estate for a deceased defendant meets all of Rule 25's requirements when the defendant died with a claim against him for a debt in the form of an outstanding loan, the debt was not extinguished on death, and a timely motion to substitute was made. FSM Dev. Bank v. Robert, 24 FSM R. 59, 64 (Kos. 2023).
Whether a Kosrae loan obligation is extinguished by the debtor's death is a substantive law question and thus a matter of Kosrae state law and Kosrae treats loan repayment obligations as not being extinguished by the obligor's death. An elementary reason for non-extinguishment of loan obligations is to avoid a windfall to the heirs of a borrower who receives loan proceeds and then passes on without full repayment. Windfalls are disfavored in FSM law. FSM Dev. Bank v. Robert, 24 FSM R. 59, 64 n.1 (Kos. 2023).
A motion for enlargement of time to substitute a party will be granted when it has shown cause because of the Kosrae State Court's delay in appointing an administratrix of the deceased party's estate when the petition for appointment was filed within three weeks of the suggestion of death and the motion for an enlargement of time to accommodate the Kosrae State Court's delay in appointing an administratrix was filed well within the 90-day period. FSM Dev. Bank v. Robert, 24 FSM R. 59, 65 (Kos. 2023).
A defendant's failure to file a memorandum in opposition to the plaintiff's motion to strike or dismiss parts of the answer may be deemed to be consent to the motion; nevertheless, even when there is no opposition, the court will decline to grant a motion in the absence of good grounds for it. FSM Dev. Bank v. Robert, 24 FSM R. 59, 65 (Kos. 2023).
When a motion does not include a Rule 6(d) certification that a reasonable effort has been made to obtain the agreement or acquiescence of the opposing party and that no such agreement was forthcoming, that failure could be a basis for denying the motion without prejudice, and recurrent noncompliance could be a basis for contempt. FSM Dev. Bank v. Robert, 24 FSM R. 59, 65 n.2 (Kos. 2023).
Pleading fraud without more as an affirmative defense does not meet the particularity requirements of Rule 9(b). A defendant who alleges no facts to support its conclusory statement of fraud as an affirmative defense, wholly fails to satisfy the heightened pleading standard set forth by Rule 9(b), and it will be stricken accordingly. FSM Dev. Bank v. Robert, 24 FSM R. 59, 65-66 (Kos. 2023).
Under Kosrae State law, the elements of fraud are 1) a misrepresentation, 2) knowledge that the statements are untrue, 3) intent to cause reliance by that party on the misrepresentation, 4) actual reliance, 5) justifiable reliance, and 6) damages, and, when pleading fraud, the pleader must state the time, place, and content of the false misrepresentation, the fact misrepresented, and what was obtained as a consequence of the fraud. FSM Civil Rule 8(a), which requires a short and plain statement of the claim, guides the extent of the particularity required. FSM Dev. Bank v. Robert, 24 FSM R. 59, 66 (Kos. 2023).
Procedural matters in FSM Supreme Court litigation are governed by the FSM Rules of Civil Procedure and national statues, rather than by state law, but, when the FSM Supreme Court decides matters of tort law, it will apply, in the same way the highest state court would, the state's substantive law, which includes its common law as well as its statutory law. FSM Dev. Bank v. Robert, 24 FSM R. 59, 66 n.3 (Kos. 2023).
One party to a transaction, who, by concealment or other action, intentionally prevents the other from acquiring material information, is subject to the same liability to the other, for pecuniary loss as though he had stated the nonexistence of the matter that the other was thus prevented from discovering. FSM Dev. Bank v. Robert, 24 FSM R. 59, 66 (Kos. 2023).
One who fails to disclose to another a fact that he knows may justifiably induce the other to act or refrain from acting in a business transaction is subject to the same liability to the other as though he had represented the nonexistence of the matter that he has failed to disclose, if, but only if, he is under a duty to the other to exercise reasonable care to disclose the matter in question. FSM Dev. Bank v. Robert, 24 FSM R. 59, 66 (Kos. 2023).
One party to a business transaction is under a duty to exercise reasonable care to disclose to the other before the transaction is consummated, a) matters known to him that the other is entitled to know because of a fiduciary or other similar relation of trust and confidence between them; and b) matters known to him that he knows to be necessary to prevent his partial or ambiguous statement of the facts from being misleading; and c) subsequently acquired information that he knows will make untrue or misleading a previous representation that when made was true or believed to be so; and d) the falsity of a representation not made with the expectation that it would be acted upon, if he subsequently learns that the other is about to act in reliance upon it in a transaction with him; and e) facts basic to the transaction, if he knows that the other is about to enter into it under a mistake as to them, and that the other, because of the relationship between them, the customs of the trade or other objective circumstances, would reasonably expect a disclosure of those facts. FSM Dev. Bank v. Robert, 24 FSM R. 59, 66-67 (Kos. 2023).
Liability for fraudulent concealment and liability for nondisclosure causes of action must be pled with particularity. FSM Dev. Bank v. Robert, 24 FSM R. 59, 67 (Kos. 2023).
To state a claim for fraudulent concealment with sufficient particularity, a party would need to allege 1) that it and the other party were parties to a transaction; 2) that the other party intentionally prevented it from acquiring material information; 3) the manner in which the other party prevented them from acquiring the information; 4) the content of the material information; and 5) what was the damage to the claimant. FSM Dev. Bank v. Robert, 24 FSM R. 59, 67 (Kos. 2023).
To state a claim for nondisclosure with sufficient particularity, a party would need to allege 1) that the other party failed to disclose a fact that he knew would be a justifiable basis for the party to act or refrain from acting; 2) what was the fact that it failed to disclose; 3) the specific basis for the other party's duty to the claimant to disclose a matter or matters it has a duty to disclose; 4) how the claimant relied on the nondisclosure; and 5) what damages the claimant suffered. FSM Dev. Bank v. Robert, 24 FSM R. 59, 67 (Kos. 2023).
When a defendant's assertion of fraud is not pled with particularity and is ambiguous as to whether it is either a defense or counterclaim, to the extent it is a counterclaim, it will be dismissed, and to the extent it is an affirmative defense, it will be stricken, both without prejudice since the defendant may move to amend pursuant to FSM Rule of Civil Procedure 15. FSM Dev. Bank v. Robert, 24 FSM R. 59, 67 (Kos. 2023).
A statute may confer a right in private persons to sue, and whether a statute confers such a right is a matter of legislative intent. FSM Dev. Bank v. Robert, 24 FSM R. 59, 67-68 (Kos. 2023).
The evident intent of 30 F.S.M.C. 128 is to make explicit that FSM Development Bank is tax exempt. It does not create a right to a private cause of action. Nor does it create a basis for an affirmative defense since the test for whether a statute's violation confers an affirmative defense or right to affirmative relief is the same – whether the legislative body that enacted the statute intended it to have that effect. FSM Dev. Bank v. Robert, 24 FSM R. 59, 68 (Kos. 2023).
Even for a consumer loan, the usury rate under 34 F.S.M.C. 203(3) for a loan made in 2008, is an annual percentage rate of 24%. FSM Dev. Bank v. Robert, 24 FSM R. 59, 68 (Kos. 2023).
A usury violation occurs when an annual percentage rate in excess of 24% is "received or charged." Relief for a usury violation may then be available under 34 F.S.M.C. 206. FSM Dev. Bank v. Robert, 24 FSM R. 59, 68 (Kos. 2023).
In ruling on a Rule 12(b) motion to dismiss, a court assumes the allegations in the complaint are true and gives the defendants the benefit of all reasonable inferences, and a motion to dismiss for failure to state a claim may be granted only if it appears to a certainty that no relief could be granted under any state of facts which could be proven in support of that claim. FSM Dev. Bank v. Robert, 24 FSM R. 59, 69 (Kos. 2023).
The defendants' usury allegations will survive a motion to dismiss because, if the defendants are able to prove, as alleged, that they were charged in excess of 24% interest, even though that was not the agreed rate, they may be entitled to relief under title 34 of the FSM Code. FSM Dev. Bank v. Robert, 24 FSM R. 59, 69 (Kos. 2023).
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DENNIS L. BELCOURT, Associate Justice:
In this proceeding, Plaintiff FSMDB ("FSMDB") is suing Defendants Henry and Yone Robert on claims of breach of contract for failure to repay a loan it made to them and foreclosure on parcels of real property owned by them and pledged as security for the loan. FSMDB is also suing, for foreclosure and to establish priority, Defendants Michaela G. Noda and Gideon Noda, who, subsequent to the secured loan to Defendant Henry, received a deed to a subdivided portion of Defendant Roberts' property securing the loan, and suing Kosrae Housing and Rural Development Authority, which is the holder and beneficiary of a deed of trust given by the Roberts over one of the three parcels remaining under the Roberts' ownership.
On January 14, 2022, this Court held a hearing on pending motions in this matter, which then consisted of FSMDB's motion to strike certain defenses or dismiss certain counterclaims, motion to disqualify Defendants' counsel from representing two defendants, a motion to enlarge time for filing a motion to substitute for Gideon Noda, and motions to substitute Yone Noda, as administratrix, for defendant Henry Robert. The Court heard argument on all motions, deciding the motion to enlarge time and substitute parties during the hearing, concerning which it further elaborates below, and taking the disqualification motion and motion to strike under submission.
On October 7, 2022, this Court issued an order disqualifying Defendants' counsel, Ms. Yoslyn Sigrah, from representing any of the Defendants and holding in abeyance all dispositive motions for ninety days to afford Defendants the opportunity to obtain new counsel, seek leave to amend, or otherwise replace or supplement pleadings, motions or other filings. Defendants have not appeared through new counsel, amended, replaced, or supplemented pleadings, motions, or other filings.
The Court elaborates as follows on its reasons for granting the motions to substitute.
FSMDB's motion sought to substitute Yone H Robert, also known as Yone Henry, as administratrix of the estate of Defendant Henry E Robert, also known as Henry Edwin, and Michaela Noda, administratrix of the estate of Gideon Noda, for the estate of Gideon Noda. The motions are made under Rule 25(a) of the FSM Rule of Civil Procedure, which provides as follows:
(1) If a party dies and the claim is not thereby extinguished, the court may order substitution of the proper parties. The motion for substitution may be made by any party or by the successors or representatives of the deceased party and, together with the notice of hearing, shall be served on the parties in the manner provided in Rule 5 and upon persons not parties in the manner provided in Rule 4 for the service of a summons. Unless the motion for substitution is made not later than 90 days after the death is suggested upon the record by service of a statement of the fact of the death as provided herein for the service of the motion, the action shall be dismissed as to the deceased party.
(2) In the event of the death of one or more of the plaintiffs or of one or more of the defendants in an action in which the right sought to be enforced survives only to the surviving plaintiffs or against the surviving defendants, the action does not abate. The death shall be suggested upon the record and the action shall proceed in favor of or against the surviving parties.
A. Estate of Robert
FSMDB is suing Yone and Henry Robert (1) to collect on loans alleged to have been made to them and not repaid according to the promissory notes and (2) foreclosing on the Roberts' real property used to secure payment of the loans. By suggestion of Henry Robert's death made of record on October 1, 2019, and by February 6, 2020, motion, the issue of whether Yone Robert may be substituted as administratrix for Henry Robert is now properly before this Court.
According to the record, the suggestion of Mr. Robert's death was filed on November 25, 2019, and served on all Defendants through counsel that same day. On February 6, 2020, within less than the ninety (90) days required by Rule 25, FSMDB filed a motion to substitute, which attached a copy of the Kosrae State Court order appointing Yone as administratrix for Robert.
No written opposition to the motion to substitute was filed. The lack of a memorandum of points and authorities in opposition by Defendants is consent to the motion. FSM Civ. R. 6(d). However, good grounds must exist for the Court to grant the motion. FSM Dev. Bank v. Paul, 18 FSM R. 149, 150 (Pon. 2012).
Good grounds exist for a motion to substitute on death of a party under Rule 25(a) if (1) the claim is not extinguished on death of the party, (2) a suggestion of death has been filed, (3) and a motion has been made to substitute an appointed legal representative as an executor or an administrator within ninety (90) days of the suggestion. Id. at 151. The ninety-day period may be enlarged for cause shown, or, after the expiration of that period, for excusable neglect. FSM Civ. R. 6(b).
At oral argument at the hearing on January 14, 2022, Defendants noted an additional requirement for "good grounds" for substitution: subject matter jurisdiction. Defendants claim that this Court lacks subject matter jurisdiction over the claim against Henry; instead, they claim that jurisdiction lies at Kosrae State Court.
Based on the record, I conclude that the motion to substitute met all of the requirements set forth above: Henry died with a claim against him for a debt in the form of an outstanding loan, the debt was not extinguished on death,1 and a timely motion to substitute was made. Finally, this Court has jurisdiction to order substitution as requested, and indeed over the entire proceeding, under Article XI, section 6(a) as an instrumentality of the FSM National Government. FSM Dev. Bank v. Estate of Edmond, 19 FSM R. 425, 431 (App. 2014).
B. Estate of Noda
Substitution of Michaela Noda, administratrix, for the late Gideon Noda is not materially different. Gideon's obligation (and FSMDB's claim) is likewise a loan obligation. What is different about the substitution motion is that FSMDB was running up against the ninety (90) day deadline, because of the Kosrae State Court's delay in appointing Michaela as the administratrix of Gideon's estate, and, on December 20, 2019, it filed for an enlargement of time to accommodate the delay in the Kosrae State Court's appointing Michaela as administratrix. Such is authorized under language of FSM Rule of Civil Procedure 6(b), on a showing of cause, which I find to exist. The petition for her appointment was filed on October 21, 2019, within three weeks of the suggestion of death. The motion for enlargement was filed well within the ninety (90) day period.
For the above reasons, I granted the motion to enlarge time until February 6, 2020 for FSMDB to file its motion.
Defendants filed a timely answer, consisting of admissions, denials, and affirmative defenses. Although they did not assert any counterclaims denominated as such, or otherwise articulate a legal basis for affirmative basis., in their prayer for relief, Defendants requested general, special and punitive damages and other affirmative relief.
In lieu of a further pleading to the answer, FSMDB filed a motion to strike or dismiss, asserting that if certain of the defenses are to be treated as defenses, they should be stricken under FSM Rule of Civil Procedure 12(f), or, if they are to be treated as counterclaims, they should be dismissed pursuant to FSM Rule of Civil Procedure 12(b).
Defendant did not file a memorandum in opposition to the motion to strike or dismiss and thus may be deemed to have consented to the motion. FSM Civ. R. 6(d). Nevertheless, even where there is no opposition, this court will decline to grant a motion in the absence of good grounds for the motion. FSM Social Sec. Admin. v. Chuuk Public Utility Corp.16 FSM R. 333, 334 (Chk. 2009) (failure to assert meritorious defense as grounds for denial of motion to vacate an entry of default); Berman v. Pohnpei, 17 FSM R. 360, 374 (App. 2011) (trial court denied unopposed cost request on ground of inadequate factual showing); Pacific Fin. Corp. v. David, 21 FSM R. 5, 6 (Chk. 2016) (motion for summary judgment failed to overcome statute of limitations defense); In re Parcel No. 046-A-01, 6 FSM R. 149, 152 (Pon.1993) (unopposed motion that fails to comply with Civil Rule 7(b) is denied).2
A. Fraud Claim or Defense
FSMDB contends that Defendants' allegations of fraud are deficient because they lack the requisite specificity. "In all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity. Malice, intent, knowledge, and other condition of mind of a person may be averred generally." FSM Civ. R. 9(b). Therefore, pleading fraud without more as an affirmative defense does not meet the particularity requirements of Rule 9(b). A defendant who "alleges no facts to support its conclusory statement of "fraud" as an affirmative defense, wholly fails to satisfy the heightened pleading standard set forth by Rule 9(b), and it will be stricken accordingly." Macayon v. FSM, 22 FSM R. 544, 555 (Chk. 2020). This is the same pleading standard as applies to a claim for relief based on fraud. Id.
The elements of fraud under Kosrae State law3 are 1) a misrepresentation, 2) knowledge that the statements are untrue, 3) intent to cause reliance by that party on the misrepresentation, 4) actual reliance, 5) justifiable reliance, 6) damages. Kinere v. Sigrah, 13 FSM R. 562, 568-9 (Kos. S. Ct. Tr. 2005). When pleading fraud the pleader must state the time, place, and content of the false misrepresentation, the fact misrepresented and what was obtained as a consequence of the fraud. Pacific Agri-Products, Inc. v. Kolonia Consumer Coop. Ass'n, 7 FSM R. 291, 293 (Pon. 1995). The extent of the particularity required when pleading fraud is guided by FSM Civil Rule 8(a), which requires a "short and plain statement of the claim." Chen Ho Fu v. Salvador, 7 FSM R. 306, 309 (Pon. 1995).
Citing Pacific Agri-Products, Inc., 7 FSM R. 291, FSMDB refers to paragraphs 65, 67, and 68 of Defendants' answers as Defendants' legally or factually insufficient attempts to assert fraud as a counter claim or defense. Paragraph 65 merely states the words fraud and misrepresentation, and is therefore by itself meaningless. Paragraph 67 contends that allegations of the complaint that a $75,000 payment has been made are misrepresentation and fraud. Paragraph 67 cannot be sufficient, as Defendants, when they allege the complaint is untrue, are clearly not relying on its veracity.
Paragraph 68 offers more detail, alleging "a misrepresentation of the terms of the loan" by nondisclosure or concealment of terms of the loans—i.e., affirmative defenses or claims of fraudulent concealment or nondisclosure. Neither party has brought to this Courts attention any Kosrae state law authority that recognizes concealment and nondisclosure as bases for claims or affirmative defenses, and this Court need not determine now, as Defendants' answer fails to state with particularity the circumstances constituting common law fraudulent concealment or nondisclosure, which can be found in the American Law Institute's Restatement (Second) of Torts sections 550-51.
Those restatement provisions read as follows:
§ 550. Liability for Fraudulent Concealment.
One party to a transaction who by concealment or other action intentionally prevents the other from acquiring material information is subject to the same liability to the other, for pecuniary loss as though he had stated the nonexistence of the matter that the other was thus prevented from discovering.
§ 551. Liability for Nondisclosure.
(1) One who fails to disclose to another a fact that he knows may justifiably induce the other to act or refrain from acting in a business transaction is subject to the same liability to the other as though he had represented the nonexistence of the matter that he has failed to disclose, if, but only if, he is under a duty to the other to exercise reasonable care to disclose the matter in question.
(2) One party to a business transaction is under a duty to exercise reasonable care to disclose to the other before the transaction is consummated,
(a) matters known to him that the other is entitled to know because of a fiduciary or other similar relation of trust and confidence between them; and
(b) matters known to him that he knows to be necessary to prevent his partial or ambiguous statement of the facts from being misleading; and
(c) subsequently acquired information that he knows will make untrue or misleading a previous representation that when made was true or believed to be so; and
(d) the falsity of a representation not made with the expectation that it would be acted upon, if he subsequently learns that the other is about to act in reliance upon it in a transaction with him; and
(e) facts basic to the transaction, if he knows that the other is about to enter into it under a mistake as to them, and that the other, because of the relationship between them, the customs of the trade or other objective circumstances, would reasonably expect a disclosure of those facts.
Jurisdictions that have in place a requirement that fraud be stated with particularity and that have recognized the causes of action in sections 550 and 551, have applied the particularity requirement to those causes of action. Pitts v. Volkswagen Grp. of Am., Inc., 2021 WL 503710 at *6 (E.D. Va. Feb. 10, 2021); Television Events & Mktg., Inc. v. Amcon Distrib. Co., 488 F. Supp. 2d 1071, 1082 (D. Haw. 2006).
In order to state a section 550 claim with sufficient particularity, Defendants would need to allege (1) that they and FSMDB were parties to a transaction; (2) that FSMDB intentionally prevented Defendants from acquiring material information; (3) the manner in which FSMDB prevented them from acquiring the information; (4) the content of the material information; and (5) what was the damage to Defendants. Defendants fail to allege what the content of the material information was, that FSMDB intentionally prevented them from acquiring it, how it did so, and what damages Defendants suffered.
In order to state a section 551 claim with sufficient particularity, Defendants would need to allege (1) FSMDB failed to disclose a fact that he knew would be a justifiable basis for Defendants to act or refrain from acting; (2) what was the fact that it failed to disclose; (3) the specific basis for FSMDB's duty to Defendants to disclose a matter or matters specified in section 551(2); (4) how Defendants relied on the nondisclosure; and (5) what damages Defendants suffered. Defendants failed to plead the foregoing.
Defendant's assertion of fraud is ambiguous as to whether it is intended as either or both a defense or counterclaim. To the extent it is a counterclaim, it is hereby dismissed, and to the extent it is an affirmative defense, it is stricken, both without prejudice—Defendants may move to amend pursuant to FSM Rule of Civil Procedure 15.4
B. Violation of Title 30
Defendants assert that FSMDB violated public policy its statute, which states that it "shall exist and operate solely for the benefit of the public," in administering Defendants' loan. Def.'s Answer ¶ 71 (citing 30 F.S.M.C. 128). FSMDB asserts that violation of title 30 and public policy do not give rise to a private cause of action or affirmative defense.
A statute may confer a right in private persons to sue. Palasko v. Pohnpei, 20 FSM R. 90, 94 (Pon. 2015) (11 F.S.M.C. 701(3) creates a private right of action against any person, including governmental entities, for the violation of rights guaranteed by the Constitution). Whether a statute does confer such a right is a matter of legislative intent. Pohnpei Cmty. Action Agency v. Christian, 10 FSM R. 623, 634 (Pon. 2002) (The over-obligation of funds statute, 55 F.S.M.C. 220(3), was not intended to create a basis for private parties to sue government officials, but for the government to be able to punish employees and officials who are found to be misusing public funds.); Ambros & Co. v. Board of Trustees, 11 FSM R. 17, 25 (Pon. 2002) (The Pohnpei Crimes Act is not intended to create a basis for private parties to sue other parties, but to enable the Pohnpei state government to be able to punish those persons who violate provisions of the Act. Statutes which do not by their terms provide citizens with a cause of action for money damages cannot be the basis for private damages claims.)
The evident intent of 30 F.S.M.C. 128 is to make explicit that FSMDB is tax exempt, as it makes clear in portions of that section not cited by defendant. Therefore, it does not confer a right of action on Defendants.
There remains the question of whether a violation of 30 F.S.M.C. 128 confers an affirmative defense on those who might contend they are aggrieved by it. A statutory violation is not among the enumerated affirmative defenses found in FSM Rule of Civil Procedure 8(c), although might be included in the catchall "any other matter constituting an avoidance or affirmative defense."
The test for whether a violation of a statute confers an affirmative defense or right to affirmative relief should be the same, i.e., whether the legislative body that enacted the statute intended it to have that effect. As we find that 30 F.S.M.C. 128 was included to confer a tax exemption and nothing else, we find no basis in it for an affirmative defense.
C. Usury Claim or Defense
Defendants assert in their answer that the FSMDB violated the usury law by charging in excess of the statutory limits—"far exceed[ing] the usury limits of 15% and 24%." Def.'s Answer ¶ 71. FSMDB, noting that the stated interest rate on the loan is nine percent, invokes as precedent for its motion to strike/dismiss the opinion in Salomon v. Mendiola, 20 FSM R. 138 (Pon. 2015).
In Salomon, the allegation that the loan was usurious was that "the design and setup of the faulty Promissory Note led FSMDB to allocate more of the monthly payments toward interests than principal resulting in a bank's actual charge of an high interest rate." Compl. in Civil Action No. 2014-021, at 23, para. 75.
Examining that allegation, the trial division concluded that what the FSMDB was doing, applying payments on a loan to interest first, then to principal, did not make the loan usurious, if the stated interest rate on the loan was not usurious, and no cause of action for usury was stated. Salomon, 20 FSM R. at 140-41. As in the loan at issue here, the interest rate in Salomon was nine percent (9%).
In this matter, in contrast, the allegation is simply that Defendants were charged more than the usury rate of 15% and 24% as an annual interest rate. Even if the loan were a consumer loan, the usury rate under 34 F.S.M.C. 203(3) for the subject loan, which was made in 2008, is an annual percentage rate of 24%.5 A usury violation thus occurs when an annual percentage rate in excess of 24% is "received or charged." Id. Relief for a usury violation may then be available under 34 F.S.M.C. 206.
In ruling on a Rule 12(b) motion to dismiss, a court assumes the allegations in the complaint are true and gives Defendants the benefit of all reasonable inferences. A motion to dismiss for failure to state a claim may be granted only if it appears to a certainty that no relief could be granted under any state of facts which could be proven in support of that claim. Chuuk v. Secretary of Finance, 7 FSM R. 563, 569-70 (Pon. 1996).
Defendants' allegations survive a motion to dismiss. In the event that Defendants are able to prove, as alleged, that they were charged in excess of 24% interest, even if that was not the agreed rate, Defendants may be entitled to relief under title 34 of the FSM Code. Yoruw v. FSM Dep't of Educ., 22 FSM R. 596, 599 (Yap 2020). FSMDB's motion to dismiss or strike Defendant's claim is therefore denied.
The Court's granting of FSMDB's motions to substitute Yone Robert, in her capacity as administratrix, for Defendant Henry Robert, and Michaela Noda, in her capacity as administratrix, for Gideon Noda, is herein explained. FSMDB's motion to strike or dismiss are granted as to the fraud grounds and the allegations of violations of title 30 of the F.S.M.C. Code, but not as to the allegations of the usury provisions in title 34 of the F.S.M.C. Code.
_______________________________Footnotes:
1 Whether a Kosrae loan obligation is extinguished by the death of the debtor is a substantive law question and therefore is a matter of Kosrae state law. FSM Dev. Bank v. Jonah, 17 FSM R. 318, 325 (Kos. 2011); I have found no cases on point, but as near as can be determined, Kosrae treats loan repayment obligations as not being extinguished by the death of the obligor. See, e.g., Kos. S.C. § 11.808. An elementary reason for non-extinguishment of loan obligations is to avoid a windfall to the heirs of a borrower who receives loan proceeds and then passes on without full repayment. Windfalls are disfavored in FSM law. See, e.g., Elymore v. Walter, 9 FSM R. 450, 457 (Pon. 2000). Other jurisdictions have stated a principle that remedial or compensatory obligations do not abate on death of the parties. Irvin-Jones v. Equifax Info. Servs. LLC, 2019 WL 4394684, at *2 (S.D. Tex. Sept. 13, 2019) (remedial (compensatory) awards survive death of the party, while punitive awards do not).
2 Plaintiff's motion does not include a certification, pursuant to FSM Rule of Civil Procedure 6(d), "that a reasonable effort has been made to obtain the agreement or acquiescence of the opposing party and that no such agreement has been forthcoming." In and of itself, that failure could be a basis for denying the motion without prejudice. Calvary Baptist Church v. Pohnpei Bd. of Land Trustees, 9 FSM R. 238, 239 (Pon. 1999). Recurrent noncompliance could be a basis for contempt. In re Contempt of Jack, 20 FSM R. 452, 466 (Pon. 2016). While this Court does not, in this order, deny requested relief based on this noncompliance, movant is hereby put on notice of this requirement.
3 Procedural matters in litigation before the FSM Supreme Court are governed by the FSM Rules of Civil Procedure and national statues, rather than by state law. Salik v. U. Corp., 4 FSM R. 48, 49-50 (Pon. 1989). On the other hand, when the FSM Supreme Court decides matters of tort law, it will apply, in the same way the highest state court would, the state's substantive law, which includes its common law as well as its statutory law. Peniknos v. Nakasone, 18 FSM R. 470, 479 & n.5 (Pon. 2012).
4 Defendants are reminded to comply with FSM Rule of Civil Procedure 6(d). See note 2, supra.
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