Ponape Transfer & Storage Co v Federated Shipping Co Ltd [1987] FMSC 14; 3 FSM Intrm. 174 (Pon. 1987) (31 July 1987)

FEDERATED STATES OF MICRONESIA
SUPREME COURT TRIAL DIVISION (Pon.)
Cite as Ponape Transfer & Storage Co. v. Federated Shipping Co.[1987] FMSC 14; ,
3 FSM Intrm. 174 (Pon. 1987).

[1987] FMSC 14; [3 FSM Intrm. 174]

PONAPE TRANSFER & STORAGE CO.,
Plaintiff,

v.

FEDERATED SHIPPING CO., LTD.,
POHNPEI PUBLIC LANDS AUTHORITY,
Defendants.

CIVIL ACTION NO. 1986-085
MEMORANDUM OPINION

OPINION

Before Edward C. King
Chief Justice
FSM Supreme Court
July 31, 1987

APPEARANCES:

For the Plaintiff (Ponape Transfer & Storage Co.):
Daniel Berman
Law Office of Michael Berman
Kolonia, Pohnpei 96941

For the Defendant (Federated Shipping Co., Ltd.):
R. Barrie Michelsen
P.O. Box 1480
Kolonia, Pohnpei 96941

[3 FSM Intrm. 175]

For the Defendant (Pohnpei Public Lands Authority):
Randy Boyer
Pohnpei State Attorney
State Attorney's Office
Kolonia, Pohnpei 96941

* * * *

HEADNOTES

Civil Procedure - injunctions
The trial court is required to exercise broad discretion and weigh carefully the interests of both sides in order to arrive at a fair and equitable result. Ponape Transfer & Storage v. Federated Shipping Co., [1987] FMSC 14; 3 FSM Intrm. 174, 177 (Pon. 1987).

Civil Procedure - injunctions
Courts generally consider the likelihood of success on the merits of the party seeking injunctive relief, the possibility of irreparable injury as wall as the balance of possible injuries or inconvenience to the parties which would flow from granting or denying the relief, and any impact upon the public interest. Ponape Transfer & Storage v. Federated Shipping Co., [1987] FMSC 14; 3 FSM Intrm. 174, 177 (Pon. 1987).

Contracts
A contract ostensibly entered into by government officials on behalf of the government but in violation of applicable law is illegal. Ponape Transfer & Storage v. Federated Shipping Co., [1987] FMSC 14; 3 FSM Intrm. 174, 178 (Pon. 1987).

Remedies - equitable doctrines
Laches and estoppel are equitable doctrines which may be invoked only by parties who themselves have acted properly concerning the subject matter of the litigation. Ponape Transfer & Storage v. Federated Shipping Co., [1987] FMSC 14; 3 FSM Intrm. 174, 178 (Pon. 1987).

* * * *

COURT'S OPINION

EDWARD C. KING, Chief Justice:

Before the Court are two motions for preliminary injunction. One is the motion of the party that has now effectively become the plaintiff in this action, Federated Shipping Co., Ltd. ("FSCO"). FSCO seeks an order preventing the Pohnpei Public Lands Authority ("PPLA") from treating the December 7, 1982 lease covering the Taketik Island dock facility on Pohnpei Island between the PPLA and FSCO as void and particularly preventing PPLA from initiating and. carrying out a rebidding process looking toward the issuance of a new lease for the premises.

In addition, FSCO asks that Ponape Transfer and Storage, Co. ("PT&S") be

[3 FSM Intrm. 176]

enjoined from performing stevedore services at the premises on or after August 1, 1987 when the July 1981 stevedore agreement between FSCO and PT&S will expire.

For its part, PT&S maintains that despite the fact that the July 1981 stevedore agreement expires today, PT&S remains entitled to enter the dock facility and carry out stevedore functions by virtue of authorization recently given by PPLA in connection with the realignment of the parties described in the next portion of this opinion. PT&S therefore asks that the injunction issued December 9, 1986 remain in effect. See Ponape Transfer & Storage v. Pohnpei State Public Lands Auth., [1986] FMSC 21; 2 FSM Intrm. 272 (Pon. 1986).

For the reasons discussed in this opinion, FSCO's motion is denied and the injunction issued on December 9, 1986 shall remain in effect.

I. Background

The factual background as it was understood in December is set forth in this Court's previous opinion. 2 FSM Intrm. at 272-75. However, since that time a great deal of pretrial discovery has taken place. New information in turn has led to realignment of the parties.

Specifically, the Pohnpei Public Lands Authority, which originally supported FSCO's position in this litigation, has reversed course and now supports the claims of PT&S in opposition to FSCO.

On July 9, 1987, PT&S moved to dismiss its claims in this litigation. Accompanying that motion was a joint stipulation of PT&S and PPLA in which PPLA states that investigation has led it to conclude that: (1) the original lease executed by FSCO and PPLA on December 27, 1982 was not approved by PPLA's Board of Trustees and was executed by PPLA Chairman Hilary Conrad without authorization; (2) alteration of the terms of the lease from the publicly bid terms, by reducing the rental from $24,000 per year to $16,722.80 and by granting FSCO an option to renew the lease for fifteen years in addition to the publicly advertised ten year term, was improper; (3) these allegedly improper changes were made by Joseph Phillip, then commissioner of the PPLA; (4) Joseph Phillip is the brother of Yosuo Phillip, the President and majority stockholder of FSCO; and (5) the changes made by Joseph Phillip were not in the public interest.

The stipulation further announces PPLA's intention to "require a rebid of the lease on terms to be determined by it in light of present conditions and the public interest."

The PT&S motion to dismiss its claims was unopposed and has been granted. In a related move, PPLA's third party complaint against Joseph Phillip also was dismissed.

In response, FSCO obtained leave of court, then filed an amended complaint against PPLA and PT&S. The net result is that most of the same

[3 FSM Intrm. 177]

substantive issues remain before the Court but FSCO now is effectively the plaintiff and is opposed by PPLA as well as by PT&S.

II. Legal Analysis

The Court's previous opinion in this litigation noted that in considering whether to grant a preliminary injunction pursuant to FSM Civ. R. 65, the trial court "is required to exercise broad discretion and weigh carefully the interests of both sides in order to arrive at a fair and equitable result." 2 FSM Intrm. at 275. In particular, courts generally consider the likelihood of success on the merits of the party seeking injunctive relief, the possibility of irreparable injury as well as the balance of possible injuries or inconvenience to the parties which would flow from granting or denying the relief, and any impact upon the public interest. Id.

The injunctive relief sought by PT&S was granted although the Court was not then persuaded that PT&S was the likely victor in this litigation. Injunctive relief was granted then because other relevant factors, aside from likelihood of success on the merits, pointed toward the desirability of an injunction. The facts unearthed through discovery and now before the Court furnish much greater support for PT&S's substantive position and point toward a present likelihood that PT&S will prevail in this litigation.

FSCO contends that the lease actually went into effect in May 1981 when FSCO was accepted as the winning bidder in response to the public notice. Based upon this premise, FSCO urges that all actions or inactions complained of by PT&S or PPLA occurred after the contract came into existence. According to FSCO's analysis, improper or illegal actions taken after FSCO's bid was accepted would affect only the altered terms, leaving the original award intact. The appropriate solution, FSCO says, is to reinstate the terms specified in the original bidding process.

There seems little possibility that such an argument will prevail in this litigation. The bidding procedure manifestly contemplated consummation through execution of a lease. The regulatory requirement that documentation be completed within a 30-day period suggests that mere selection of a bidder is not sufficient to establish a contractual right.^[1]

[3 FSM Intrm. 178]

The requirement that an alternate, in addition to the primary candidate, be selected confirms that a bid award alone does not establish contract or land rights in the primary bidder, but is subject to further actions consummating the arrangement. Such a requirement flatly contradicts FSCO's insistence that selection of FSCO as the primary bidder rendered irrelevant anything that occurred or failed to occur thereafter.

The conduct of FSCO after the March 1981 bid selection and before the December 1982 execution of the lease further belies FSCO's current position that the essential terms of the lease were fixed and effective on April 1, 1981.

FSCO did not immediately begin paying rent at the rate of $24,000 per year when it obtained possession of the premises. Instead, FSCO President Yosuo Phillip sought lower rent. Indeed, the record now before the Court shows no rental payments whatever by FSCO prior to execution of the December 27, 1982 lease.

A contract ostensibly entered into by government officials on behalf of the government but in violation of applicable law is illegal. This Court has previously held that when the action of the government in awarding a contract is carried out in violation of the applicable law, that contract will be regarded as illegal. Falcam v. FSM Postal Service, [1987] FMSC 13; 3 FSM Intrm. 112, 121 (Pon. 1987). Courts will seldom enforce such a contract where both parties failed to comply with the applicable requirements. Id.

Finally, there appears little likelihood that FSCO will prevail with arguments based upon the passage of time or waiver or acquiescence by PT&S. Doctrines such as laches and estoppel, pointed to by FSCO here, are equitable doctrines which may be invoked only by parties who themselves have acted properly concerning the subject of the litigation.

The record is pregnant with suggestion that insertion and implementation of the unauthorized terms did not flow from innocent oversight. It appears unlikely that FSCO will be successful in any attempt to rely upon equitable doctrines in this litigation.

I also see no basis for a conclusion that PT&S has waived any rights it may have had to challenge the PPLA-FSCO lease.

The Court has reviewed the other factors mentioned in this opinion as bearing upon the propriety of injunctive relief. The circumstances now as to those factors are substantially the same as they were at the time of the previous opinion. 2 FSM Intrm. at 276-77. Now that PT&S's position on the merits is strengthened, continuation of the injunction is even more appropriate. Conclusion

[1987] FMSC 9; [3 FSM Intrm. 179]

It appears unlikely that FSCO will prevail in its contention that it has leasehold or other rights which must be upheld. Therefore FSCO's motion to prevent PPLA from initiating rebidding procedures is denied.

It is in the public interest to permit terminal and stevedoring operations to continue at the Taketik Dock without disruption. The preliminary injunction previously granted is therefore continued pending completion of this litigation.

---

^[1] See PPLA Regulations For The Leasing of Public Trust Lands, Part 5.D., effective April 4, 1981: "The rights of successful applicant for a lease is extinguished if the applicant does not within 30 days of public notification, execute the lease. Upon such extinguishment, the alternative candidate shall be given the opportunity to execute the lease agreement. If the alternative candidate fails to execute lease within 30 days of notification, any remaining applicants shall again be reviewed in accordance with this part, and if any found to be acceptable, the successful candidate shall be notified to execute the lease."