FSM SUPREME COURT TRIAL DIVISION
Cite as FSM Dev. Bank v. Weilbacher 24 FSM R. 110 (Kos. 2023)
FSM DEVELOPMENT BANK,
Plaintiff,
vs.
JOSEPHA WEILBACHER and ESTATE OF ROBERT
WEILBACHER, by Josepha Weilbacher, administratrix,
Defendants.
CIVIL ACTION NO. 2019-2001
ORDER ON PENDING MOTIONS
Dennis L. Belcourt
Associate Justice
Hearing: January 14, 2022
Decided: May 8, 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
* * * *
Whether a Kosrae loan obligation is extinguished by the debtor's death is a substantive law question and is thus a matter of Kosrae state law. 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. Weilbacher, 24 FSM R. 110, 114 n.1 (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. Weilbacher, 24 FSM R. 110, 115 n.2 (Kos. 2023).
The effect of the maturity date term of a promissory note is that when it is reached, the entire unpaid balance of the principal amount and interest accrued and unpaid thereon is due and payable. Before the maturity date on an installment note, the promissee may only sue on installments that are past due, unless the whole principal obligation has been accelerated pursuant to a clause in the note. FSM Dev. Bank v. Weilbacher, 24 FSM R. 110, 116 n.3 (Kos. 2023).
An affirmative defense may be stricken under Rule 12(f) if it is legally or factually insufficient. A defense is insufficient if it would not, under the facts alleged, constitute a valid defense to the action. FSM Dev. Bank v. Weilbacher, 24 FSM R. 110, 116 (Kos. 2023).
Motions to strike under Rule 12(f) are viewed with disfavor and are infrequently granted. A motion to strike is not the proper device for placing the actual merits of the party's pleadings in issue. FSM Dev. Bank v. Weilbacher, 24 FSM R. 110, 116 (Kos. 2023).
Absent a showing of prejudice, courts are reluctant to strike a statute of limitations defense even when it is unlikely to succeed, but a defense may be stricken under Rule 12(f) absent a showing of prejudice, if it is clearly legally insufficient, such as there is clearly no bona fide issue of fact or law. FSM Dev. Bank v. Weilbacher, 24 FSM R. 110, 116 (Kos. 2023).
A statute of limitations defense will not be stricken at the pleading stage, when the pleadings do not establish the debtors' intent in making the individual payments and that is a question of fact, to be resolved by summary judgment if this is no genuine issue of fact, or if there is a genuine issue, to be resolved at trial. FSM Dev. Bank v. Weilbacher, 24 FSM R. 110, 117 (Kos. 2023).
Conclusory pleading of fraud 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 the affirmative defense will be stricken. This same pleading standard applies to a claim for relief based on fraud. FSM Dev. Bank v. Weilbacher, 24 FSM R. 110, 117 (Kos. 2023).
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. 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. FSM Dev. Bank v. Weilbacher, 24 FSM R. 110, 117 (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. Weilbacher, 24 FSM R. 110, 117 (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. Weilbacher, 24 FSM R. 110, 117 (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; b) matters known to him that he knows to be necessary to prevent his partial or ambiguous statement of the facts from being misleading; 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; 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. Weilbacher, 24 FSM R. 110, 117-18 (Kos. 2023).
Liability for fraudulent concealment and liability for nondisclosure causes of action must be pled with particularity. FSM Dev. Bank v. Weilbacher, 24 FSM R. 110, 118 (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. Weilbacher, 24 FSM R. 110, 118 (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, it will be dismissed to the extent it is a counterclaim, and it will be stricken to the extent it is an affirmative defense, both without prejudice since the defendant may move to amend under FSM Civil Procedure Rule 15. FSM Dev. Bank v. Weilbacher, 24 FSM R. 110, 118 (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. Weilbacher, 24 FSM R. 110, 118 (Kos. 2023).
The evident intent of 30 F.S.M.C. 128 is to make explicit that FSM Development Bank is tax exempt. 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. Since It does not create a right to a private cause of action, it cannot be used as an affirmative defense. FSM Dev. Bank v. Weilbacher, 24 FSM R. 110, 119 (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%. 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. Weilbacher, 24 FSM R. 110, 119 (Kos. 2023).
In ruling on a Rule 12(b) motion to dismiss, a court assumes that 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. Weilbacher, 24 FSM R. 110, 119 (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. FSM Dev. Bank v. Weilbacher, 24 FSM R. 110, 120 (Kos. 2023).
A motion to dismiss filed after an answer cannot be considered a motion to dismiss under Rule 12(b)(6), but rather should be considered a motion for judgment on the pleadings under Rule 12(c). FSM Dev. Bank v. Weilbacher, 24 FSM R. 110, 120 (Kos. 2023).
In ruling on a motion for judgment on the pleadings a court must presume the non-moving party's factual allegations to be true and view the inferences drawn therefrom in the light most favorable to the non-moving party, and judgment is granted only if the moving party is clearly entitled to judgment on the facts as so admitted. FSM Dev. Bank v. Weilbacher, 24 FSM R. 110, 120 (Kos. 2023).
When there is nothing in either statute, the Kosrae Deed of Trust law, or the trust deed itself that sets a limited effective period, the entry by a Kosrae state official on the certificate of a five year effective date, made two years later, does not establish the borrowers' right to a judgment on the pleadings dismissing the bank's cause of action for foreclosure. FSM Dev. Bank v. Weilbacher, 24 FSM R. 110, 121 (Kos. 2023).
Kosrae State Code section 11.836 does not apply to a 1991 deed of trust because the Kosrae State Mortgage Act of 2005 has only prospective effect and does not apply to mortgages, deeds of trust, or other such instruments entered into before the Act's effective date. FSM Dev. Bank v. Weilbacher, 24 FSM R. 110, 121 (Kos. 2023).
* * * *
DENNIS L. BELCOURT, Associate Justice:
This is a breach of contract and foreclosure action arising from an alleged default on a $98,000 loan that Defendants Robert and Josepha Weilbacher ("the Weilbachers") took out on September 10, 1991 for a bakery and snack shop. Plaintiff ("FSMDB") is the lender.
On January 14, 2022, the Court held a hearing on pending motions, which are, by order of filing: FSMDB's Motion to Strike Certain Affirmative Defenses, or in the Alternative, Motion to Dismiss Certain Counterclaims; the Weilbachers' Motion to Dismiss Complaint; and FSMDB's Motion for Substitution of Party Defendant Robert Weilbacher. I will first address the motion to substitute, followed by the motions on the pleadings.
On February 28, 2020, FSMDB filed a suggestion of death as to Defendant Robert Weilbacher, noting that a probate action had been commenced by Defendant Josepha Weilbacher. The suggestion of death was followed by FSMDB's motion, filed on April 20, 2020, to substitute Josepha, the appointed administratrix of the Estate of Robert James Weilbacher, as successor defendant to Robert.
The motion was timely filed and supported by attaching an order of the Kosrae State Court appointing Josepha as the administratrix of Robert's estate. No opposition was filed to this motion, and there being good grounds under FSM Rule of Civil Procedure 25(a), in that Robert passed away and the obligations in question survive him,1 I hereby grant the motion and amend the caption as shown hereinabove.
A. Background: Complaint and Answer
On January 9, 2019, FSMDB filed its complaint ("the Complaint") alleging causes of action for breach of contract and foreclosure. The Complaint alleges that the loan, evidenced by a promissory note dated September 10, 1991 and secured by a deed of trust on a parcel number of land (035-K-18) had an initial principal amount of $98,000 and carried five (5) percent interest over a term of five (5) years. The initial monthly installments were to be $1,849.38. The parties thereafter modified repayment terms through a series of three restructuring agreements, an acceleration of the amount due on November 23, 2006, followed by two forbearance agreements.
The first two restructuring agreements, entered into respectively on October 26, 1993 and November 10, 1994 (see Exhibits B and C to the Complaint), state that the Weilbachers were behind on payments as previously agreed, and, in consideration for FSMDB's agreement to forbear from accelerating payments under the promissory note, the parties agreed to adhere to payment schedules as set forth in the agreements. The payment schedule in the second restructuring agreement had the Weilbachers paying $1,300 per month.
The third restructuring agreement, dated November 6, 1997, referred to in paragraph 9 of the Complaint and attached thereto as Exhibit D, also acknowledges that the Weilbachers are in arrears, agreeing to continued forbearance in exchange for a new interest rate of nine per cent (9%) and a new monthly payment of $816.40.
FSMDB alleges that on November 23, 2006, "the outstanding debt was accelerated, making all outstanding amounts including principal and accrued interest to be then due and payable." Compl. ¶ 10. FSMDB and the Weilbachers entered into a forbearance agreement on December 27, 2006, which recites that the Weilbachers had "been unable to pay the debt evidenced by the Loan Documents by its original maturity date and the outstanding principal and interest balance under the Loan Agreement, and the Note is now wholly due and payable." Ex. E. The agreement states that the outstanding balance of principal, interest, fees and other charges is $64,929.52 as of December 6, 2006. Under the agreement, if the Weilbachers failed to make a monthly $600 payment, FSMDB could demand the full amount due and outstanding.
A second forbearance agreement, Exhibit F dated October 23, 2008, stated the remaining balance owed was $59,944.63, called for the Weilbachers to pay $600 per month over the ensuing ten years and ten months, the final payment, to be made in August 25, 2019, which is identified as a new maturity date.
The Complaint alleges that payments were not made in compliance with the note, restructuring agreements, and forbearance agreements, that the last payment was made on or about January 22, 2018, and that the outstanding balance as of January 8, 2019, in principal, interest and penalty, was $11,375.43.
The Complaint further alleges a deed of trust, attached as Exhibit G, on parcel 035-K-18 (later renumbered as 035-K-19), was delivered as security for the loan, that the Weilbachers are in default on the loan, and that FSMDB is entitled to sell the encumbered property on default, that the Weilbachers were given notice of default on December 15, 2010, and that FSMDB is entitled to sell the parcel or cause it to be sold. FSMDB prays for a money judgment jointly and severally against the Weilbachers, including interest, costs of suit, and attorney's fees.
On January 28, 2019, the Weilbachers filed an answer to the complaint, variously admitting and denying the allegations in the complaint, and stating, in summary terms, as affirmative defenses, fraud, illegality, laches, estoppel, statute of limitations, payment, release, accord, satisfaction, that FSMDB's loan documents are illusory, usurious, extremely unjust, and contrary to good conscience and fair business practices; that the allocations of loan repayments were arbitrary and faulty, constituting fraud, and were illegal; that FSMDB misrepresented the terms of the loan, failed to disclose unfair terms resulting in excess payments unjustly enriching FSMDB including failure to state any claims upon which relief may be granted, fraud, usury, and statute of limitations, illegality and unclean hands; and, finally, failure to state a claim for relief. The answer prays for a refund of excess monetary payments, general, consequential and punitive damages, loss of income and profit.
B. FSMDB's Motion to Strike Certain Defenses or Dismiss Counterclaims
FSMDB filed its motion to strike certain affirmative defenses or dismiss certain counterclaims on February 8, 2019, asserting that the Weilbachers incorrectly characterized as affirmative defenses what are actually counterclaims. Pursuant to Rule 12(f) of the FSM Rules of Civil Procedure, FSMDB seeks to have this Court strike the allegations so mischaracterized as affirmative defenses, because they are legally insufficient, or, should the court treat them as counterclaims, pursuant to Rule 8(c), requests that the Court dismiss them pursuant to Rule 12(b)(6) as failing to state claims upon which relief can be granted. The affirmative defenses/counterclaims that FSMDB seeks to have stricken as legally insufficient or dismissed as failing to state a claim are (1) the defense of statute of limitations, (2) the defense or claim of fraud, (3) the defense or counterclaim for violation of title 30 of the FSM Code, and (4) the defense or counterclaim of usury violation.2
1. Statute of Limitations Defense
The Weilbachers allege in their answer, as a basis for the statute of limitations defense, that the promissory note "expired" on June 10, 1997, the maturity date set forth in the promissory note, and, because FSMDB waited twenty-one years to bring suit, that the six-year statute of limitations bars FSMDB's claim. Weilbachers' Answer ¶¶ 33 and 37.3
FSMDB contends in its motion that the six-year bar does not apply, because the Weilbachers made a partial payment in 2018, only one year before FSMDB filed suit.4 As legal support, FSMDB cites Sam v. FSM Development Bank, 20 FSM R. 409, 419 (App. 2016). In cases prior to Sam involving partial payments made on installment agreements, the FSM Supreme Court stated with approval the general rule that where a note is payable in installments, each installment is a distinct cause of action and the statute of limitations begins to run against each installment from the time it becomes due, that is, from the time when an action might be brought to recover it. Waguk v. Kosrae Island Credit Union, 6 FSM R. 14, 17 (App. 1993).
In Sam, the appellate division affirmed on appeal an order granting summary judgment that partial payments made by the debtor on the loan at issue started the statute of limitations to run anew on all of the outstanding balance rather than only on some of the installments. Based on the intent of the debtor, the payments were determined to be partial payments on the whole debt, as the evidence before the court was that payments of $100 were made under a new "repayment plan for the outstanding balance of the loan," and not payments on individual installments of the loan. The court thus concluded that the trial division properly found that there was no triable issue of fact as to the tolling of the statute of limitations on the whole debt. Sam, 20 FSM R. at 414, 418.
An affirmative defense may be stricken under Rule 12(f) if it is legally or factually insufficient. Senda v. Semes, 8 FSM R. 484, 494 (Pon. 1998). A defense is insufficient if it would not, under the facts alleged, constitute a valid defense to the action. Id. at 494-95. Motions to strike under Rule 12(f) are viewed with disfavor and are infrequently granted. Medabalmi v. Island Imports Co., 10 FSM R. 32, 35 (Chk. 2001). A motion to strike is not the proper device for placing the actual merits of the party's pleadings in issue. Zappala v. Hub Foods, Inc., 683 F. Supp. 127, 131 (W.D. Pa, 1988). Absent a showing of prejudice, courts are reluctant to strike a statute of limitations defense even where it is unlikely to succeed. Oliner v. McBride's Indus., Inc., 106 F.R.D. 14, 18 (S.D.N.Y. 1985). A defense may be stricken under Rule 12(f) absent a showing of prejudice if it is clearly legally insufficient, such as there is clearly no bona fide issue of fact or law. United States v. 729.773 Acres of Land, 531 F. Supp. 967, 970 (D. Haw. 1982).
On October 23, 2008, FSMDB and the Weilbachers agreed to the second forbearance agreement, under which the Weilbachers would pay one hundred thirty-one (131) monthly individual payments of $600, totaling $78,600. See exhibit F to the Complaint. The new agreement set a new maturity date, i.e., date on which principal and outstanding interest would become due and could be sued upon. As noted, the Weilbachers' admit that they paid FSMDB for twenty-seven years, from which admission one can infer admission that establishes that the statute of limitations is probably not a complete bar to FSMDB's suit, i.e., the payments under this new agreement were either applied to individual installments or to the obligation collectively.
As in Sam, in which the trial division had decided by summary judgment, what were the intentions of the Weilbachers in making the individual payments under the second forbearance agreement is a question of fact, to be resolved by summary judgment if this is no genuine issue of fact, or if there is a genuine issue, to be resolved at trial. This matter is at the pleading stage, and the pleadings do not establish the Weilbachers' intent.
Based on the foregoing, I deny the motion to strike the defense of statute of limitations.
2. Fraud Defense or Counterclaim
FSMDB contends that the Weilbachers' 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). Conclusory pleading of fraud 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 the affirmative defense 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.
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).
The Weilbachers allege "a misrepresentation of the terms of the loan" by nondisclosure or concealment of terms of the loan—i.e., affirmative defenses or claims of fraudulent concealment or nondisclosure. Neither party has brought to this Court's 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 the Weilbachers' 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, the Weilbachers would need to allege (1) that they and FSMDB were parties to a transaction; (2) that FSMDB intentionally prevented the Weilbachers from acquiring material information; (3) how FSMDB prevented them from acquiring the information; (4) the content of the material information; and (5) what was the damage to the Weilbachers. The Weilbachers 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 the Weilbachers suffered.
The Weilbachers' 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 dismissed, and to the extent it is an affirmative defense, it is stricken, in either case without prejudice—Defendants may move to amend pursuant to FSM Rule of Civil Procedure 15.5
3. Violation of Title 30
The Weilbachers 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 their loan. Def. Ans., ¶ 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 on private persons a right 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 it might be included in the catch-all phrase "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.
4. Usury Claim or Defense
The Weilbachers 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%." 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 a 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, as the stated interest rate on the loan was not usurious. Therefore, 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 maximum 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%.6 A usury violation thus occurs when an annual percentage rate in excess of 24% is "received or charged." Id. Relief for a 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 the Weilbachers, as counterclaimants, 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).
The Weilbachers' allegations survive the motion to dismiss. In the event that Defendants are able to prove precisely what they alleged, that they were charged in excess of 24% interest, even if that was not the agreed rate, the Weilbachers 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) the Weilbachers' claim (or defense) is therefore denied.
C. Weilbachers' Motion to Dismiss the Complaint
Having answered FSMDB's Complaint on January 28, 2019, on March 24, 2020 the Weilbachers moved to dismiss the Complaint, contending that it was barred by the six-year statute of limitations and that the deed of trust for which sale is sought is stale.7 The Weilbachers contend that the statute of limitations on the promissory note began running on June 10, 1997 and therefore FSMDB was barred from bringing a complaint on June 10, 2003. They contend that the deed of trust is no longer effective because (1) there is a notation on the back of the certificate of title that the deed of trust, registered October 12, 1993, was valid for a period of five years, i.e., until October 12, 1998 or that (2) it is a stale mortgage under section 836 of title 11 of the Kosrae State Code.
FSMDB opposes the motion to dismiss on procedural and substantive grounds. Procedurally, it contends (1) that the motion is untimely, as a Rule 12(b)(6) motion to dismiss must be made before any answer is filed and (2) that it cannot apply to Robert Weilbacher, who passed away.
Substantively, FSMDB contends that the motion to dismiss on statute of limitations grounds must be denied because (1) the partial payments made over the years, most recently in January 2018, toll the statute of limitations, pursuant to FSM Development Bank v. Sam, 20 FSM R. at 419; (2) because the deed of trust validity is not affected by the "5 years" notation on the certificate of title, but is rather governed by the terms of the deed of trust itself; and further (3) because the law that the Weilbachers rely on in their contention that the deed of trust is "stale" is inapplicable.
1. Timeliness of Motion to Dismiss
Filed as it was after their answer, the Weilbachers' motion cannot be considered as a motion to dismiss under Rule 12(b)(6) but rather should be considered a motion for judgment on the pleadings pursuant to Rule 12(c). Semwen v. Seaward Holdings, Micronesia, 7 FSM R. 111, 113 (Chk. 1995). In ruling on a motion for judgment on the pleadings a court must presume the non-moving party's factual allegations to be true and view the inferences drawn therefrom in the light most favorable to the non-moving party. Id. Judgment is granted only if the moving party is clearly entitled to judgment on the facts as so admitted. In re Kuang Hsing 182, 7 FSM R. 465, 467 (Yap 1996).
2. Status of Robert Weilbacher
This issue has been rendered moot by the granting herein of the motion to substitute Josepha Weilbacher in her capacity as administratrix for Robert's estate.
3. Statute of Limitations
As discussed above, the statute of limitations on part or all of the balance the Weilbachers owed on the promissory note was tolled, in part or in its entirety, by the partial payments as recently as 2018. Thus, the statute of limitations defense does not clearly entitle the Weilbachers to judgment as to part or all of the amount owed to FSMDB.
4. Expiration of Trust Deed (Notation on Certificate of Title)
The Weilbachers rely on attachments to the pleadings, specifically FSMDB's Exhibit H, as proof that the deed of trust that FSMDB is seeking to have foreclosed in the Complaint is no longer enforceable. Specifically, the Weilbachers seek to give legal effect to the notation on the back of the certificate of title that notes the effect as "5 yrs." As reflected in FSMDB's Exhibit G and H, the Weilbachers signed the deed of trust concurrently with and as security for the promissory note that is sued upon in the first claim for relief of the Complaint, but the notation of the deed of trust was entered two years later.
Whether the deed of trust was intended to have an abbreviated life span is a matter in dispute. As FSMDB notes, there is nothing in either statute (the Kosrae Deed of Trust law, chapter 4 of title 11 of the Kosrae State Code) or the trust deed itself that sets a limited effective period. The entry by a Kosrae State official of a five year effective date, made two years later, does not establish the intent—it at best raises an issue that needs further inquiry. Thus, this Court does not find that the entry on the certificate establishes the Weilbachers' right to a judgment on the pleadings dismissing FSMDB's cause of action for foreclosure.
5. Stale Deed of Trust
The Weilbacher's deed of trust was granted in 1991 and noted on the certificate of title for parcel number 035-K-18 in 1993. FSMDB is correct that Kosrae State Code section 11.836 does not apply to the Weilbachers' deed of trust, on the basis that section 11.836, as part of the Kosrae State Mortgage Act of 2005 ("the Act"), has only prospective effect, because of Kosrae State Code section 11.841, which provides as follows:
(1) The provisions of this Act shall have prospective effect only and shall not apply to mortgages, deeds of trust, or other such instruments entered into before the effective date of this Act.
(2) Any mortgage or deed of trust law superseded by this Act shall nevertheless continue in effect with respect to any mortgage, deed of trust, or other such instrument which was governed by that law before the effective date of this Act.
FSMDB's motion to strike the Weilbachers' statute of limitations defense is denied. Its motion to strike or dismiss the Weilbachers' fraud affirmative defenses or counterclaims for fraud and violation of title 30 is granted. FSMDB's motion to strike or dismiss the claim of a violation of 34 F.S.M.C. 203 is denied. The Weilbachers' motion to dismiss, which the Court treats as a motion for judgment on the pleadings pursuant to FSM Rule 12(c), is denied.
_______________________________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 put on notice of this requirement.
3 The Weilbacher's interpretation that the promissory note expires or otherwise ceases when it reaches its maturity date is not descriptive of what the maturity date term of the promissory note does. The effect of the maturity date is that when it is reached, "the entire unpaid balance of the principal amount and interest accrued and unpaid thereon shall be due and payable." Pl.'s Ex. A para. 1. Before the maturity date on an installment note, the promissee may only sue on installments that are past due, unless the whole principal obligation has been accelerated pursuant to a clause in the note. Sam v. FSM Dev. Bank, 20 FSM R. 409, 418 (App. 2016).
4 FSMDB alleges that the Weilbachers' last payment was in 2018. Compl. ¶ 14. It further points to the Weilbachers' allegation in their answer that FSMDB "collected funds from Defendants for 27 years." Answer ¶ 14. Doing the math, 1991 plus 27 years equals 2018. Thus, it can only be said that the parties' pleadings are in agreement that partial payments were made on the loan during the six years leading up to the filing of the complaint.
5 Defendants are reminded to comply with the certification requirement in FSM Rule of Civil Procedure 6(d). See note 1, supra.
6 The reference to "15% and" is in any case unnecessary, because when an interest rate exceeds 24%, it also exceeds 15%.
7 The Weilbachers' motion to dismiss fails to comply with the certification requirement in FSM Rule of Civil Procedure 6(d) and are put on notice that future noncompliance may result in denial and possibly sanctions. See note 1, supra.
* * * *