FSM SUPREME COURT TRIAL DIVISION

CIVIL ACTION NO. 2008-1040

BANK OF THE FEDERATED STATES OF MICRONESIA,
Plaintiff/Counter-Defendant,

vs.

TRUK TRADING COMPANY, TRUK, and TRUK TRADING COMPANY, POHNPEI, INCORPORATED,
Defendants/Counter-claimants.

___________________________

ORDER GRANTING PLAINTIFF SUMMARY JUDGMENT

Ready E. Johnny
Associate Justice

Decided: January 30, 2009

APPEARANCES:

For the Plaintiff: Marstella Jack, Esq.
P.O. Box 2210
Kolonia, Pohnpei FM 96941

Richard L. Johnson, Esq.
Blair Sterling Johnson Martinez & Leon Guerrero
Suite 1008 DNA Building
238 Archbishop F.C. Flores Street
Hagatna, Guam 96910-5205

For the Defendants: Joseph Phillip, Esq.
P.O. Box 464
Kolonia, Pohnpei FM 96941

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HEADNOTES

Civil Procedure  Motions
 Although failure to oppose a motion is generally deemed a consent to the motion, the court still needs good grounds before it can grant the motion. Bank of the FSM v. Truk Trading Co., 16 FSM Intrm. 281, 284 (Chk. 2009).

Civil Procedure  Pleadings
 The Civil Procedure Rules authorize only seven pleadings: 1) a complaint; 2) an answer; 3) a reply to a counterclaim denominated as such; 4) an answer to a cross_claim, if the answer contains a cross_claim; 5) a third_party complaint, if a person who was not an original party is summoned under the provisions of rule 14; and 6) a third_party answer, if a third_party complaint is served; and 7) no other pleading is allowed except that the court may order a reply to an answer or a third_party answer. Bank of the FSM v. Truk Trading Co., 16 FSM Intrm. 281, 284 (Chk. 2009).

Civil Procedure  Pleadings
 A defendants' "reply" to the plaintiff's reply to the defendants' counterclaims is not an authorized pleading and will be stricken since a "pleading" unauthorized under the civil procedure rules and practice may be stricken. Bank of the FSM v. Truk Trading Co., 16 FSM Intrm. 281, 284 (Chk. 2009).

Civil Procedure  Summary Judgment
 There is no requirement that a party wait until after its discovery has been answered before moving for summary judgment since a summary judgment motion may be filed at any time after the expiration of 20 days from the commencement of the action. Bank of the FSM v. Truk Trading Co., 16 FSM Intrm. 281, 284 (Chk. 2009).

Civil Procedure  Summary Judgment
 A court must deny a summary judgment motion unless, viewing the facts presented and inferences made in the light most favorable to the nonmoving party, it finds that there is no genuine issue as to any material fact and the that moving party is entitled to judgment as a matter of law. The movant bears the burden of showing a lack of triable issues of fact. Bank of the FSM v. Truk Trading Co., 16 FSM Intrm. 281, 284-85 (Chk. 2009).

Civil Procedure  Summary Judgment
 A summary judgment movant must go forward not only on its allegations but also on the nonmovant's affirmative defenses, since the burden of demonstrating that no triable fact issues exist encompasses affirmative defenses as well as the movant's own factual allegations. Bank of the FSM v. Truk Trading Co., 16 FSM Intrm. 281, 285 (Chk. 2009).

Civil Procedure  Summary Judgment
 When the moving party has made out a prima facie case that there are no triable issues of fact and that it is entitled to summary judgment as a matter of law, the nonmoving party then has the burden to show by competent evidence that could be admitted at trial, that there is a genuine issue of material fact. Bank of the FSM v. Truk Trading Co., 16 FSM Intrm. 281, 286 (Chk. 2009).

Torts  Contributory Negligence and Assumption of Risk; Torts  Duty of Care
 "Assumption of the risk" usually describes a common law negligence or other tort defense that acts as a complete bar to the plaintiff's recovery because it relieves the defendant of any duty of care to the plaintiff. Bank of the FSM v. Truk Trading Co., 16 FSM Intrm. 281, 286 (Chk. 2009).

Banks and Banking; Debtors' and Creditors' Rights  Secured Transactions
 Whenever a bank lends money, it always assumes a risk that the borrower will not repay it. The bank tries to manage or lessen its risk by requiring certain information about the borrower and the money's intended use and by evaluating that information before any money is lent. Even if satisfied that the borrower is creditworthy, a bank may also lessen its risk by attaching certain conditions to the loan and by acquiring a security interest in the borrower's collateral. Bank of the FSM v. Truk Trading Co., 16 FSM Intrm. 281, 286 (Chk. 2009).

Civil Procedure  Summary Judgment
 When the summary judgment opponents do not offer any affidavits or exhibits or point to any other competent evidence that would support their position, they have not met their burden of showing by competent evidence that could be admitted at trial showing that there is a genuine issue of material fact because argument alone cannot create a disputed fact that will defeat summary judgment. Bank of the FSM v. Truk Trading Co., 16 FSM Intrm. 281, 287 (Chk. 2009).

Business Organizations  Corporations  Liability; Contracts  Interpretation
 When a corporate resolution agreed to guarantee another corporation's loan and that guaranty included any and all of the borrower's indebtedness to the lender and was used in the most comprehensive sense and means and included any and all of the borrower's liabilities then existing or thereafter incurred or created, the guaranty was sufficiently broad to include any restructuring of the loan even if the restructuring was considered a debt thereafter incurred or created, and thus, no later corporate resolution was needed for the guaranty to cover the restructuring. Bank of the FSM v. Truk Trading Co., 16 FSM Intrm. 281, 287 (Chk. 2009).

Debtors' and Creditors' Rights  Secured Transactions
 If a security interest has been perfected under Title 33, chapter 10 of the FSM Code, the secured party will, by virtue of a judgment, be entitled to foreclose as a post-judgment remedy. Bank of the FSM v. Truk Trading Co., 16 FSM Intrm. 281, 288 (Chk. 2009).

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COURT'S OPINION

READY E. JOHNNY, Associate Justice:

 This comes before the court on 1) the Motion for Summary Judgment, with supporting affidavit and exhibits, filed on November 4, 2008, by plaintiff Bank of the Federated States of Micronesia; 2) the defendants' Opposition to Motion for Summary Judgment, filed December 1, 2008; 3) the bank's Motion to Expedite Resolution of Motion for Summary Judgment, filed December 12, 2008; 4) the defendants' Opposition to Motion for Summary Judgment; and Alternatively Motion for Partial Summary Judgment Dismissing Defendant TTC (Pohnpei Inc.) per Rule 12(b) and Motion to Set Trial Date, filed December 12, 2008; and 5) the Bank's Opposition to Motion for Partial Summary Judgment Dismissing Defendant TTC (Pohnpei, Inc.) Per Rule 12(b), filed December 29, 2008. Summary judgment is granted in favor of the plaintiff Bank of the Federated States of Micronesia. The defendants' partial summary judgment is denied. The court's reasons follow.

I. Background

 The bank moves for summary judgment that the defendants are indebted to it on the remaining balance of a $1,198,704 loan made in 2003 to Truk Trading Company ("TTC"), which the bank secured with a security interest in TTC property and which Truk Trading Company (Pohnpei), Incorporated ("TTCP") guaranteed, and which TTC used to buy T&S Mart from Tadashi Wainit. On May 25, 2006, the loan, which then had $927,627.38 still due on it, was restructured to reduce the monthly payments. TTC defaulted in December, 2007.

 On February 20, 2008, the bank demanded that TTC pay the $30,010 arrearage by February 29, 2008, or it would, as per the loan agreement, accelerate the entire debt. TTC did not pay anything. The bank then filed this suit, seeking payment of the $879,628.11 principal amount still due, plus accrued interest. The Bank also seeks to foreclose on the collateral securing the loan, and on which it claims to hold a perfected security interest.

 The defendants dispute whether the loan and guaranty were properly authorized. They counterclaim that the bank should be liable for making an unauthorized loan to parties it knew would not be able to pay. Their answer raised as affirmative defenses: 1) that the complaint failed to state a claim against them and that the governing boards of directors of TTC and TTCP did not, as required by their articles and bylaws, authorize the loan or the guaranty; 2) that the bank is barred from asserting and has waived any claim against them because of its illegally issuing a loan in TTC's favor without the approval of its board of directors, as required by its articles and bylaws; and 3) that the bank assumed the risk when it illegally issued a loan to TTC without the approval of its board of directors to pay off a delinquent third-party loan. The defendants' counterclaims assert that the bank negligently issued the loan to TTC and that therefore it was been damaged to the amount of the loan still due plus the amount of the loan that has been paid off.

 The defendants do not dispute that a loan was made or the amount still due on the loan. They do contend that certain facts are in dispute and that they are not liable on the loan. They also seek summary judgment that the TTCP guaranty is void and that TTCP is therefore not liable on the loan.

II. Preliminary Points

 The defendants' September 8, 2008 answer contained counterclaims. The bank timely served and filed its reply to the counterclaims and the defendants filed, on September 16, 2008, a Reply to Plaintiff's Answer (Reply) to Defendants' Counterclaims. The bank, in its summary judgment motion, asks that the defendants' September 16, 2008 filing be stricken as an unauthorized pleading. The defendants did not respond to this part of the bank's motion. Although failure to oppose a motion is generally deemed a consent to the motion, FSM Civ. R. 6(d), the court still needs good grounds before it can grant the motion. Senda v. Mid-Pacific Constr. Co., 6 FSM Intrm. 440, 442 (App. 1994).

 The Civil Procedure Rules authorize only seven pleadings: 1) a complaint; 2) an answer; 3) a reply to a counterclaim denominated as such; 4) an answer to a cross_claim, if the answer contains a cross_claim; 5) a third_party complaint, if a person who was not an original party is summoned under the provisions of rule 14; and 6) a third_party answer, if a third_party complaint is served; and 7) "[n]o other pleading [is] allowed," except that the court may order a reply to an answer or a third_party answer. FSM Civ. R. 7(a). The defendants' "reply" to the bank's reply to the defendants' counterclaims is not an authorized pleading. A "pleading" unauthorized under the civil procedure rules and practice may be stricken. See, e.g., Controlled Env't Sys. v. Sun Process Co., 173 F.R.D. 509, 510 (N.D. Ill. 1997) (relying on identical U.S. rule to strike unauthorized pleading).

 There being good grounds to grant the motion, the defendants' September 16, 2008 Reply to Plaintiff's Answer (Reply) to Defendants' Counterclaims is hereby stricken.

 The defendants complain that the bank filed its summary judgment motion before the defendants had responded to the bank's discovery requests. There is no requirement that a party wait until after its discovery has been answered before moving for summary judgment. A summary judgment motion may be filed "at any time after the expiration of 20 days from the commencement of the action." FSM Civ. R. 56(a); FSM Dev. Bank v. Arthur, 10 FSM Intrm. 293, 294 (Pon. 2001) (summary judgment motion cannot be filed with the complaint). It was therefore not improper for the bank to move for summary judgment when it did, or for the court to consider it now.

III. Summary Judgment

 A court must deny a motion for summary judgment unless, viewing the facts presented and inferences made in the light most favorable to the nonmoving party, it finds that there is no genuine issue as to any material fact and the that moving party is entitled to judgment as a matter of law. Luzama v. Ponape Enterprises Co., 7 FSM Intrm. 40, 48 (App. 1995); Adams v. Etscheit, 6 FSM Intrm. 580, 582 (App. 1994). The movant bears the burden of showing a lack of triable issues of fact. Nanpei v. Kihara, 7 FSM Intrm. 319, 323 (App. 1995); Adams, 6 FSM Intrm. at 582. A summary judgment movant must go forward not only on its allegations but also on the nonmovant's affirmative defenses, since the burden of demonstrating that no triable fact issues exist encompasses affirmative defenses as well as the movant's own factual allegations. FSM Social Sec. Admin. v. Fefan Municipality, 14 FSM Intrm. 544, 546 (Chk. 2007).

A. The Bank's Motion

 In support of its summary judgment motion and in opposition to the defendants' affirmative defenses, the bank supplies the supporting affidavit of the bank's Senior Lending Manager Delson Ehmes, Jr., and copies of 1) TTC's August 6, 2003 corporate resolution, certified by the Secretary to TTC's Board of Directors, to borrow up to $1.7 million to buy the T&S Mart business; 2) a September 8, 2003 purchase agreement between TTC and T&S Mart, with appendixes; 3) a September 16, 2003 cover letter from TTC general manager to bank requesting a commercial loan of $1,198,704; 4) an October 9, 2003 letter to bank credit officer providing authorized signatures for the corporate borrowing resolution and the loan documents; 5) a October 13, 2003 proposal letter from the bank proposing terms for a loan to TTC including a provision that it be guaranteed by TTCP; 6) an October 16, 2003 letter from the bank requesting further information to complete the loan package; 7) November 25, 2003 certification of the corporate resolution to borrow from the bank; 8) the signed November 25, 2003 loan agreement; 9) TTC's November 25, 2003 promissory to the bank; 10) TTCP's November 25, 2003 certification of its corporate resolution to guarantee TTC's loan from the bank; 11) TTCP's November 25, 2003 guaranty of TTC's loan; 12) a November 25, 2003 security agreement between the bank and TTC granting the bank a floating security interest in TTC's furniture, fixtures, equipment, inventory, instruments, accounts, and contract rights; 13) a November 25, 2003 disbursement request by TTC for the loan funds; 14) a November 25, 2003 loan disbursement form disbursing $1,198,704 to TTC; 15) a November 25, 2003 bank billing statement billing TTC for $16,793.56 due on the signing of the TTC loan, including a $1,000 loan commitment fee; 16) November 25 and 26, 2003 debit notes, cash receipts, and loan entries and postings showing application of $16,793.56 of TTC funds and loan disbursed funds to T&S Mart and related loans that TTC had agreed to assume as part of the loan; 17) a December 14, 2005 letter from TTC to the bank requesting that the bank reduce the monthly payments from $15,463 to $10,000 and acknowledging that the loan's remaining balance was $971,828.94; 18) a January 17, 2006 letter from the bank to TTC asking for certain financial information from TTC and stating that the bank would assist in restructuring the TTC loan; 19) a February 24, 2006 bank letter to TTC stating the proposed terms for a restructured TTC loan, with a May 8, 2006 acknowledgment and agreement to the terms by the president of TTC and TTCP; 20) TTC's May 22, 2006 corporate resolution (#01-06) agreeing to the restructuring terms; 21) certification of TTC corporate resolution to borrow $927,627.38 as the restructured loan; 22) a May 25, 2006 loan agreement between TTC and the bank for the $927,627.38 restructured loan; 23) TTC's May 25, 2006 promissory note for $927,627.38; 24) a May 25, 2006 security agreement between the bank and TTC granting the bank a floating security interest in TTC's furniture, fixtures, equipment, inventory, instruments, accounts, and contract rights; 25) a May 25, 2006 commercial loan disclosure statement from the bank to TTC and acknowledged by TTC; 26) the same May 25, 2006 commercial loan disclosure statement from the bank to TTC and acknowledged by TTC but written in Chuukese; 27) a May 25, 2006 disbursement request and acknowledgment form disbursing $927,627.38 to TTC; 28) a June 1, 2006 letter from the bank president to TTC thanking it for its cooperation in closing the loan restructure; 29) a February 20, 2008 notice of default and demand letter from the bank to TTC stating that the loan was in default, that the amount due was $889,369.21 ($879,628.11 principal), and demanding payment of $30,010 by February 29, 2008 or the bank might exercise its remedies; 30) a March 4, 2008 letter from a TTC employee to the bank asking for certain documents and requesting the bank's forbearance due to TTC's then poor financial condition; 31) an April 11, 2008 letter from the bank to TTC (copy to TTCP), noting that TTC's default had not been cured and notifying TTC that the bank had retained the assistance of counsel to institute legal proceedings; 32) the bank's October 14, 2008 printout of the loan's history from November 25, 2003 to date; and 33) a printout of the bank's October 2, 2006 and March 30, 2008 Internet notices of security interest in TTC collateral in the FSM Secured Transactions Filing Office.

 With the above documents, the bank has made out a prima facie case that there are no triable issues of fact on either its allegations or the defendants' affirmative defenses that the loans were not properly authorized by TTC or guaranteed by TTCP and that it is entitled to judgment on the defaulted loan as a matter of law. When the moving party has made out a prima facie case that there are no triable issues of fact and that it is entitled to summary judgment as a matter of law, the nonmoving party then has the burden to show by competent evidence that could be admitted at trial, that there is a genuine issue of material fact. Nanpei, 7 FSM Intrm. at 325; Federated Shipping Co. v. Ponape Transfer & Storage Co., 4 FSM Intrm. 3, 11 (Pon. 1989).

 The defendants argue that the following facts remain in dispute: 1) that TTCP's board of directors did not, as required by its articles and bylaws, authorize TTCP to guarantee the loan; 2) that TTC's board of directors, as required by its articles and bylaws, authorize TTC to borrow for the purpose of paying off Wainit's and other loans from the Bank of the FSM; 3) that the purported TTC resolution to borrow $1.7 million to buy T&S Mart from Wainit was an arrangement not authorized by TTC directors; 4) that the bank was eager to clear up the Wainit loans by having TTC assume liability for them; and 5) that the bank knew or should have known that T&S Mart was failing and its loan was delinquent and that, if the loan was shifted to TTC, TTC would be unable to pay. The defendants further assert that the bank assumed the risk by "relending" to TTC when it knew that the T&S Mart business was failing.

 The defendants support their contention that the bank was eager to clear up the Wainit loans by having TTC borrow to pay them off, by providing an unauthenticated (and therefore probably inadmissible) copy of a September 2, 2003 letter from the bank to Wainit responding to a letter form Wainit and notifying him that under the terms of Wainit's loan that Wainit was prohibited from disposing of all or substantially all of his assets; that loan was not assumable, but must be paid off, and Wainit remained liable until then; and that the bank was willing to review a loan request from a third party interested in acquiring Wainit's business. But that the bank was willing to review a loan application from a buyer of Wainit's business is not in dispute and is not material to whether the defendants are liable for the loan.

 The defendants' assertion that the bank cannot recover on its loan because it assumed the risk is disingenuous. "Assumption of the risk" usually describes a common law negligence or other tort defense that acts as a complete bar to the plaintiff's recovery because it relieves the defendant of any duty of care to the plaintiff. Kileto v. Chuuk, 15 FSM Intrm. 16, 17-18 (Chk. S. Ct. App. 2007). The bank does not seek to recover from the defendants on a tort or negligence cause of action. Its cause of action is breach of contract.

 Whenever a bank lends money, it always assumes a risk that the borrower will not repay it. The bank tries to manage or lessen its risk by requiring certain information about the borrower and the money's intended use and by evaluating that information before any money is lent. Even if satisfied that the borrower is creditworthy, a bank may also lessen its risk by attaching certain conditions to the loan and by acquiring a security interest in the borrower's collateral. That is what the bank has tried to do here.

 Even assuming without deciding that the other "facts" the defendants claim are in dispute are material, the defendants' opposition does not offer any affidavits or exhibits or point to any other competent evidence that would support their position. Argument alone cannot create a disputed fact that will defeat summary judgment. Nahnken of Nett v. United States, 7 FSM Intrm. 581, 589 (App. 1996). The defendants have not met their burden of showing by competent evidence that could be admitted at trial showing that there is a genuine issue of material fact.

B. Truk Trading Company (Pohnpei), Inc.'s Motion

 TTCP moves that it be dismissed from the case because, in its view, it is undisputed that the TTCP board never authorized a guaranty of the loan. Additionally, the defendants assert that the only collateral the bank should be entitled to foreclose on is the property that the loan was used to purchase. The defendants also question whether the bank's banking board ever reviewed and approved the TTC loan for the purposes for which it was made.

 The bank responds to this question by supplying another Delson Ehmes affidavit and October 2003 memorandums to six of the bank's eight directors, each approving the loan to TTC. One director even added the comment, "Excellent review on the package!" Also attached is a February 22, 2006 memorandum to the bank's board about TTC's loan restructure request with a notation that the board approved the loan restructure request at its February 24, 2006 meeting.

 The basis of TTCP's motion is that TTCP's governing board did not authorize or reauthorize a guaranty of the loan when the loan was restructured. A new TTCP resolution was not needed. In the November 25, 2003 corporate resolution, TTCP agreed to guarantee the TTC loan executed the same date. In that guaranty, TTCP guaranteed all of TTC's indebtedness

includ[ing] any and all of Borrower's [TTC's] indebtedness to Lender [bank] and is used in the most comprehensive sense and means and includes any and all of Borrower's liabilities, obligations, and debts to Lender, now existing or hereinafter incurred or created, including without limitation, all loans, advances, interest, costs, debts, overdraft indebtedness, credit card indebtedness, lease obligations, other obligations, and liabilities of Borrower, or any of them . . . .

TTCP Guaranty at 1 (Nov. 25, 2003) (Ex. K). This guaranty is sufficiently broad to include the any restructuring of the TTC loan even if the restructuring is considered a TTC debt to the bank "hereinafter incurred or created." Thus, no later TTCP resolution was needed for the TTCP guaranty to cover the May 25, 2006 restructuring. TTCP's partial summary judgment motion is therefore denied as a matter of law.

C. Summary Judgment

 The bank seeks judgment for the $879,628.11 loan principal; $45,105.51 in interest accrued through October 13, 2008; $144.20 per day in interest thereafter [$15,717.80 as of January 30, 2009]; $65 in late fees; and its attorney's fees and costs. As discussed above, there is no genuine issue of material fact and TTCP's motion having been denied, the bank is thus entitled, as a matter of law, to summary judgment against both defendants, jointly and severally, for $940,516.42, not counting attorney's fees and costs. TTC's May 25, 2006 promissory note allows the bank to recover its attorney's fees and expenses if TTC does not pay and the bank hires someone to help it collect. Promissory Note at 2 (May 25, 2006). The bank shall file and serve its attorney's fees and costs request by February 27, 2009.

 The defendants' motion to set trial date is accordingly denied as moot.

 The bank also asks that its security interest in the collateral be foreclosed. The defendants contend that only the assets that the TTC loan was used to purchase can be foreclosed. They offer no legal basis or points or authorities for this contention. The bank claims a floating security interest in TTC's furniture, fixtures, equipment, inventory, instruments, accounts, and contract rights perfected by its compliance with the Secured Transactions Act, Title 33, chapter 10 of the FSM Code. If the security interest is perfected, the bank will, by virtue of this judgment, be entitled to foreclose. This is a post-judgment remedy. The bank also has other post-judgment remedies available to it against both TTC and TTCP. The bank shall file and serve its proposal for post-judgment procedure by February 27, 2009.

IV. Conclusion

 The bank's summary judgment motion is granted and Truk Trading Company (Pohnpei), Incorporated's partial summary judgment is denied. Truk Trading Company and Truk Trading Company (Pohnpei), Incorporated are jointly and severally liable to the Bank of the Federated States of Micronesia for $940,516.42 plus reasonable attorney's fees and costs. The clerk shall enter judgment accordingly. The bank shall file and serve, by February 27, 2009, its attorney's fees and costs request and its proposal about foreclosure on Truk Trading Company's collateral and other post-judgment remedies.

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