Pohnpei v Kailis [1994] FMSC 12; 6 FSM Intrm. 460 (Pon. 1994) (3 August 1994)

FSM SUPREME COURT TRIAL DIVISION
CIVIL ACTION NO. 1994-059
Pohnpei v. Kailis
[1994] FMSC 12; 6 FSM Intrm. 460 (Pon. 1994)

STATE OF POHNPEI, CAROLINE FISHERIES CORPORATION,
POHNPEI STATE
ECONOMIC DEVELOPMENT AUTHORITY,
and NATIONAL FISHERIES CORPORATION,
Plaintiffs,

vs.

THEODOSIOS GEORGE KAILIS and TUNA
DEVELOPMENT COMPANY PTY., LTD.,

Defendants.
__________________________________________

MEMORANDUM OF ORDER

Richard H. Benson
Associate Justice

Hearing: July 18, 1994
Order Issued: July 22, 1994
Opinion Entered: August 3, 1994

APPEARANCES:

For the Plaintiffs: Fredrick L. Ramp, Esq.
P.O. Box 1480
Kolonia, Pohnpei FM 96941

For the Defendants: R. Barrie Michelsen, Esq.
Law Offices of R. Barrie Michelsen
P.O. Box 1450
Kolonia, Pohnpei FM 96941

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HEADNOTES

Torts - Fraud
The elements of fraud are 1) misrepresentations, 2) made to induce action by the plaintiffs, 3) with reliance by the plaintiffs upon the misrepresentations, 4) to their detriment. Pohnpei v. Kailis, [1994] FMSC 12; 6 FSM Intrm. 460, 462 (Pon. 1994).

Civil Procedure - Pleading; Torts - Fraud
Rule 9(b) requires that in allegations of fraud that the circumstances constituting the fraud sbe stated with particulariularity. The extent of the particularity is guided by FSM Civil Rule 8(a) which requires a short and statement of the claim. Pohnpei v. Kailis, [1994] FMSC 12; 6 FSM Intrm. 460, 462 (Pon. 1994).

Attorney, Trail Counselor and Client - Disqualification of Counsel
An attorney is not disqualified from representing multiple parties against a defendant on the grounds that he did not join as defendants former employees of some of the plaintiffs who would be liable if the defendant is liable. Pohnpei v. Kailis, [1994] FMSC 12; 6 FSM Intrm. 460, 462-63 (Pon. 1994).

Federalism; Jurisdiction
The FSM Supreme Court will not interfere in a pending state court proceeding where no authority has been cited to allow it to do so, where the case has not been removed from state court, where it has not been shown that the national government is a party to the state court proceeding thereby putting the case within the FSM Supreme Court's exclusive jurisdiction, and where it has not been shown that the movants are parties to the state court proceeding and thus have standing to seek national court intervention. Pohnpei v. Kailis, [1994] FMSC 12; 6 FSM Intrm. 460, 463 (Pon. 1994).

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COURT'S OPINION

RICHARD H. BENSON, Associate Justice:

On July 22, 1994, I signed an order granting and denying certain pending motions. This memorandum explains my reasoning.

This case came before me for oral argument on four motions on July 18, 1994. All parties appeared by counsel. The complaint alleges that the individual defendant, as an incorporator and director of Caroline Fisheries Corporation, failed to follow regulatory prerequisites for incorporation and is individually liable for debts owed to the creditors of Caroline Fisheries Corporation who are the plaintiffs other than Caroline Fisheries Corporation. The complaint also alleges that the defendants defrauded the plaintiffs.

I.

On June 15, 1994, the defendants filed their motion for a more definite statement, contending that the fraud allegations in the complaint were not "stated with particularity." FSM Civ. R. 9(b).

The plaintiffs in their opposition agreed that the defendants were entitled to additional particularization, and moved for leave to amend their complaint. They attached a proposed amended complaint to their motion. The defendants opposed the motion to amend on the ground that the amended complaint still failed to allege adequate particulars of the fraud.

The proposed amended complaint identifies the places where the misrepresentations occurred as Perth, Australia; Guam; Pohnpei; "and other locations," and the time which such representations were made as between March 23, 1989 and December 31, 1990. The alleged misrepresentations appear in six categories and occupy more than three pages of the proposed amended complaint. In addition the following elements of fraud are alleged: (1) misrepresentations, (2) made to induce action by the plaintiffs, (3) with reliance by the plaintiffs upon the misrepresentations, (4) to their detriment.

Rule 9(b) requires that in allegations of fraud that "the circumstances constituting the fraud . . . shall be stated with particularity." The extent of the particularity is guided by FSM Civil Rule 8(a) which requires a "short and plain statement of the claim." 5 Charles A. Wright & Arthur R. Miller, Federactid Procedure &/u> §#167; 1298, at 617 (1990).

Considering the guidance of the rules and the relative simplicity of the alleged fraud I conclude that the proposed amended complaint is adequate, even taking into consideration the generality of the times and places of the misrepresentations and the absence of who made what representations to whom.

The motion to amend was accordingly granted, and leave granted to file and serve the first amended complaint upon the defendants.

II.

On June 28, 1994, the defendants filed their motion for the disqualification of the attorney for Caroline Fisheries Corporation. One lawyer represents the four plaintiffs. The defendants contend that the disqualification arises because the remaining two incorporators were, at the time of the incorporation, officers in Economic Development Authority and National Fisheries Corporation, and thus the lawyer for Caroline Fisheries Corporation is protecting the interests of these two plaintiffs instead of seeking damages from the other two incorporators, who would be liable if defendant Kailis is liable.

In opposition the plaintiffs contend principally that the two incorporators are victims of the defendants' fraud, and not participants. This, of course, is no answer at all, since the fraud allegations have nothing to do with the incorporator's liability for failure to follow regulations governing incorporation. See Corporations, Partnerships and Associations Regulations pts. 2.5, 2.7; Mid-Pac Constr. Co. v. Senda, [1990] FMSC 23; 4 FSM Intrm. 376, 385 (Pon. 1990), aff'd[1991] FMSC 26; , 5 FSM Intrm. 277 (App. 1992) for incorporator's liability as alleged in this case against defendant Kailis. The plaintiffs also represent that it was the choice of the plaintiffs not to join the other two incorporators. Lastly, the plaintiffs state that the defendants are free to make the other two incorporators defendants because the regulations impose joint and several liability on directors and incorporators who fail to follow the regulations in the incorporation process. C.P.A. Regulations pt. 2.7.

In oral argument the defendants raised a number of arguments in support of the disqualification. In general these points involve the circumstance of the plaintiff's lawyer representing both the debtor (here, Caroline Fisheries Corporation) and the creditors (here, all the remaining plaintiffs).

I have carefully considered the arguments of counsel because of the assertion of impropriety within the profession. I cannot identify a conflict that requires me to disqualify the plaintiffs' attorney from representing Caroline Fisheries Corporation in the grounds raised by the defendants. The motion was accordingly denied.

III.

On July 4, 1994, the defendants filed their motions to remove the present receiver and to appoint a new receiver.

On January 24, 1994, the Pohnpei Supreme Court appointed a receiver for Caroline Fisheries Corporation. In their motions the defendants contend that the case involves national law, and there is no jurisdictional grant under state law for the state court to hear insolvency cases. The defendants also ground their motion on the assertion of exclusive jurisdiction in the FSM Supreme Court since National Fisheries Corporation, an agency of the national government is a party to the state court receivership proceeding. The defendants' third ground is that since no summons was ever issued or served in the state court case, the court never acquired jurisdiction over the parties.

The defendants request that I "assume full jurisdiction over this matter, order the current receiver to resign, and order the plaintiff to dismiss their state court proceedings . . . [ando appan i an impartiaartial receiver, and permit that receiver to request impartial counsel."

I could not grant the relief requested.

1. No authority has been cited that would permit me to act on a pending state court proceeding in this extraordinary way.

2. The defendants are not seeking removal under FSM General Court Order 1992-2, stating that the 60 days for such action has passed.

3. From what is before me I cannot say that National Fisheries Corporation is a party in the state court receivership.

4. Defendant Kailis, who is not a party in state court, does not have standing to make this motion; defendant Tuna Development Company represents that it is a party in the state court proceeding, but that is not satisfactorily shown to me.

The motion was accordingly denied.

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