Island Development Company v Yap [1999] FMSC 23; 9 FSM Intrm. 18 (Yap. 1999) (19 February 1999)

FEDERATED STATES OF MICRONESIA
SUPREME COURT TRIAL DIVISION
Cite as Island Dev. Company .v Yap[1999] FMSC 23; , 9 FSM Intrm. 18 (Yap 1999)

[1999] FMSC 23; [9 FSM Intrm. 18]

ISLAND DEVELOPMENT COMPANY,
Plaintiff,

vs.

STATE OF YAP,
Defendant.

CIVIL ACTION NO. 1999-3000

ORDER AND MEMORANDUM

Martin Yinug
Associate Justice

Decided: February 19, 1999

APPEARANCES:

For the Plaintiff:
Douglas Parkinson, Esq.
P.O. Box 2069
Kolonia, Pohnpei FM 96941

[9 FSM Intrm. 19]

For the Defendant:
Jennifer M. Link, Esq.
Office of the Yap Attorney General
P.O. Box 435
Colonia, Yap FM 96943

* * * *

HEADNOTES

Federalism - Abstention and Certification
The FSM Supreme Court may not abstain in cases involving interpretation of the FSM Constitution. Island Dev. Co. v. Yap, [1999] FMSC 23; 9 FSM Intrm. 18, 20 (Yap 1999).

Constitutional Law - Due Process
As a general proposition, a governmental entity's breach of a contract, without more, does not constitute a due process violation. Island Dev. Co. v. Yap, [1999] FMSC 23; 9 FSM Intrm. 18, 20 (Yap 1999).

Federalism - Abstention and Certification
Neither the state's mere presence in a lawsuit by virtue of a monetary claim against it, nor its presence plus the presence of even an important issue of state law serves as a sufficient basis for abstention. Always hovering in the background of any abstention analysis is a litigant's constitutional right under the FSM Constitution to avail himself of the national court's diversity jurisdiction under article XI, section 6(b). Island Dev. Co. v. Yap, [1999] FMSC 23; 9 FSM Intrm. 18, 21 (Yap 1999).

Federalism - Abstention and Certification
The likelihood of abstention, always discretionary, is increased when the state is a party; when the subject matter of the requested abstention is one involving local concerns that lie solidly within a state's sphere of interest, such as land or inheritance issues; when the state has developed an administrative approach to deal with the specified issues; and when the issue presented is a "clean" legal issue, as opposed to a factual one. Island Dev. Co. v. Yap, [1999] FMSC 23; 9 FSM Intrm. 18, 21-22 (Yap 1999).

Choice of Law
The national courts of the FSM have frequently been obliged to decide state law issues without the benefit of prior state court decisions. In such instances, the national courts strive to apply the law in the same way the highest state court would. Subsequently, should the state's highest court decide the issue differently in a different case, then prospectively that case will serve as controlling precedent for the national court on that state law issue. Island Dev. Co. v. Yap, [1999] FMSC 23; 9 FSM Intrm. 18, 22 (Yap 1999).

Jurisdiction - Diversity
In a diversity case, a litigant may avail himself of the FSM Supreme Court's jurisdiction even though state law may determine the outcome of the litigation. Island Dev. Co. v. Yap, [1999] FMSC 23; 9 FSM Intrm. 18, 22 (Yap 1999).

Federalism - Abstention and Certification
Yap's interest in establishing a body of contract jurisprudence is, without more, insufficient to cause the FSM Supreme Court to exercise its discretion and abstain in a case in which it has diversity jurisdiction under article XI, section 6(b) of the FSM Constitution. Island Dev. Co. v. Yap, [1999] FMSC 23; 9 FSM Intrm. 18, 22 (Yap 1999).

* * * *

[9 FSM Intrm. 20]

COURT'S OPINION

MARTIN YINUG, Associate Justice:

By identical motions filed in both of these matters, defendant state of Yap ("Yap") has moved for dismissal based on the abstention doctrine. Yap contends that these suits for money damages and other relief are fundamentally contract actions and that the state court is therefore the more appropriate forum for disposition of these cases. Plaintiff responds that it has alleged due process violations under the FSM Constitution, which fact alone precludes this court from abstaining. Plaintiff also urges that this court has diversity jurisdiction over the parties under article XI, section 6(b), of the FSM Constitution, and Yap does not contest that the court has diversity jurisdiction over these cases. Both parties cite Pryor v. Moses, [1989] FMSC 16; 4 FSM Intrm. 138 (Pon. 1989), as entitling them to a presumption in their favor on the abstention question.

For the reasons that follow, the motions for abstention in both cases are denied.

This court may not abstain in cases involving interpretation of the FSM Constitution. Gimnang v. Yap, 5 FSM Intrm. 13, 15 (App. 1991). The due process violations in both cases are based on Yap's alleged breach of the contracts. Courts in the United States have held that at least as a general proposition, a governmental entity's breach of a contract, without more, does not constitute a due process violation. Jimenez v. Almodovar, [1981] USCA11 53; 650 F.2d 363, 370 (1st Cir. 1981) ("A mere breach of contractual right is not a deprivation of property without constitutional due process of law.") (emphasis in the original); Schlake v. Beatrice Prod. Credit Ass'n, [1979] USCA8 132; 596 F.2d 278, 281 (8th Cir. 1979) ("We are certain that the due process clause of the fifth amendment [applicable to the U.S. government] does not constitutionalize contract law. Nor is a constitutional violation committed when a governmental agency breaches a contract it has entered into in the commercial world.")

In Ponape Construction Co. v. Pohnpei, [1993] FMSC 23; 6 FSM Intrm. 114, 128 (Pon. 1993), the court found that the plaintiff corporation had a constitutionally protected due process interest in its contract with Pohnpei. That case involved a contract for dredging work at the Dekehtik causeway site in Pohnpei. In finding this interest, the trial court relied on Suldan v. FSM (II), [1983] FMSC 14; 1 FSM Intrm. 339 (Pon. 1983). However, Suldan (II) is readily distinguishable from both the facts of Ponape Construction and the facts of the cases before the court. Suldan (II) was an employment case where the court found a constitutionally protected property interest because plaintiff's expectation of continued employment was protected by the National Public Service System Act, § 1>et seq. 1 FSM Intrm. trm. 352. Although the decision of the court in Ponape Construction was appealed, the property interest question was not one of the issues raised. Ponape Constr. Co. v. Pohnpei, [1996] FMSC 13; 7 FSM Intrm. 613, 615-16 (App. 1996). Concerns of due process notwithstanding however, and looking only to the breach of contract allegations as such, the court concludes that abstention is not appropriate in these two cases.

Both cases present contract issues. Civil Action 1999-3000 alleges that Yap breached its contract with plaintiff Island Development Company ("IDC") for the construction of the Mal'ay/Thabeth causeway project in Yap proper, while Civil Action 1999-3001 alleges that Yap breached a contract for repairs to various water catchment systems in the Outer Islands of Yap. In addition to the breach of contract and due process violations, both complaints also seek declaratory judgments that plaintiff did not breach the contracts, and injunctive relief against Yap precluding it from making statements that IDC breached the agreements.

In support of its contention that this court should abstain, Yap cites the proposition that in a case in the national court for money damages against a state, and where a state makes a "'reasoned request'" for abstention, there is a presumption that the request will be granted "'unless the opposing

[9 FSM Intrm. 21]

party establishes that the benefits of abstention in terms of federalism and judicial harmony, and respect for state sovereignty, would be substantially outweighed by delay, harm or injustice.'" Pryor v. Moses, [1989] FMSC 16; 4 FSM Intrm. 138, 141 (Pon. 1989) (quoting Panuelo v. Pohnpei (I), [1986] FMSC 2; 2 FSM Intrm. 150, 156 (Pon. 1986)). Like the instant cases, Panuelo (I) was a suit to which a state, Pohnpei, was a party. Pohnpei had filed a motion to dismiss the case based on Pohnpei's sovereign immunity, "an important issue of state law." 2 FSM Intrm. at 152, 153. The court considered the abstention issue on its own motion. In denying abstention, the court noted that the "national courts do have responsibility to exercise their own jurisdiction under Article XI, Section 6 of the Constitution. This court surely may not simply foist off on the state courts every difficult question of state law presented in cases within this Court's jurisdiction." Id. at 153. The Panuelo (I) court further noted that the issue presented was not one dealing with land, inheritance, or other area of concern identified by the Constitutional Convention as being one of critical importance to the states; that Pohnpei had not adopted administrative procedures to deal with questions of the sort at issue; and that the issue presented was a "clean" legal issue that the national court was well able to handle.^[1] Id. at 156.

Unlike Panuelo (I) and the two cases at bar, a state was not a party in Pryor v. Moses, [1989] FMSC 16; 4 FSM Intrm. 138 (Pon. 1989). Pryor was a defamation action, and defendants moved for abstention, or in the alternative for certification, on the basis that the state law issue presented was one of first impression. While acknowledging that tort law and liability fell "principally within the province of state, not national lawmaking power," id. at 143, the court denied abstention. The court focused on the fact that the national court's diversity jurisdiction "derives from a constitutional grant of jurisdiction, pursuant to article XI, section 6(b) of the Constitution of the Federated States," id. at 144, and then went on to make the statement on which plaintiff relies: "[t]here is an exceptionally strong presumption that this Court is obligated to exercise that jurisdiction." Id. (citing Bank of Guam v. Semes, [1988] FMSC 7; 3 FSM Intrm. 370 (Pon. 1988)). Further, a litigant right's to take advantage of the diversity jurisdiction provided for by article XI, section 6(b) of the FSM Constitution should be limited "[o]nly under a combination of highly compelling circumstances." Id. Nothing requires the national court to abstain from deciding questions of state law, even where those issues are one of first impression, or where construction of a state constitution is involved. Id. at 141.

At the same time that the Pryor court, relying explicitly on Panuelo (I), pays heed to a presumption favoring abstention in a case for money damages against a state, 4 FSM Intrm. at 141, it also points to "an exceptionally strong presumption" that the national court will exercise its jurisdiction to preserve a litigant's right to have his case heard in that court. 4 FSM Intrm. at 144. Pryor, of course, was a case to which a state was not a party. In reconciling these diverging presumptions, one thing appears certain. The presumption favoring abstention in Panuelo (I), where a state was a party, was subject to circumscription in practice. Neither the state's mere presence in a lawsuit by virtue of a monetary claim against it, nor its presence plus the presence of even "an important issue of state law," 2 FSM Intrm. at 153, served as a sufficient basis for abstention. Always hovering in the background of any abstention analysis is a litigant's constitutional right under the FSM Constitution to avail himself of the national court's diversity jurisdiction under article XI, section 6(b), a consideration which appears to have informed the court's decision in Panuelo (I). That having been said, it remains fair to conclude that the likelihood of abstention, always discretionary, Gimnang v. Trial

[ 9 FSM Intrm. 22]

Division[1994] FMSC 28; , 6 FSM Intrm. 482, 485 (App. 1994); Pryor v. Moses, [1989] FMSC 16; 4 FSM Intrm. 138 (Pon. 1989), is increased where the state is a party; where the subject matter of the requested abstention is one involving local concerns that lie solidly within a state's sphere of interest, such as land or inheritance issues; where the state has developed an administrative approach to deal with the specified issues; and where the issue presented is a "clean" legal issue, as opposed to a factual one. Panuelo (I), 2 FSM Intrm. at 156.

Such is not the case here. Although these are suits in which plaintiff is pursuing a monetary claim against Yap, the subject matter is not one involving local concerns, like land or inheritance, nor is there any allegation that Yap has established specific administrative procedures for handling contract matters of the sort at issue here. Moreover, the issues as they appear at this pre-answer point in the litigation are both factual and legal in nature. Yap does not identify any specific "clean" legal issue in the Panuelo (I) sense that arises to the level of a "difficult question of state law," which the Panuelo (I) court counseled was not, even then, a sufficient basis on which to grant abstention. 2 FSM Intrm. at 153. Hence, it seems plain from Panuelo (I), supra, and Pryor, supra, that abstention is not appropriate.

Yap urges that abstention would "support the efforts of the state court to develop a body of law on contracts within the state." Def.'s Mem. of Law in Support of Motion to Abstain at 4 (filed in Civ. Action No. 1999-3000 on February 5, 1999, and in Civ. Action No. 1999-3001 on February 8, 1999). On this point, the court's discussion in Edwards v. Pohnpei, [1988] FMSC 6; 3 FSM Intrm. 350, 360 n.22 (Pon. 1988), which plaintiff cites, is instructive. Edwards is a certification case, but is nevertheless apt. Acknowledging generally a "dearth of state law guidance" in the areas of contract and tort, the Edwards court noted that the national courts of the FSM have frequently been obliged to decide state law issues without the benefit of prior state court decisions. Id. In such instances, the national courts strive to "apply the law in the same way the highest state court would."^[2] Id. Subsequently, should the state's highest court decide the issue differently in a different case, then prospectively that case will serve as controlling precedent for the national court on that state law issue. Id. This procedure as outlined in Edwards ensures that in a diversity case, a litigant may avail himself of this court's jurisdiction even though state law may determine the outcome of the litigation. Edwards leads to the conclusion that Yap's interest in establishing a body of contract jurisprudence, as valid as it is, is without more insufficient to cause this court to exercise its discretion and abstain in this case in which it has diversity jurisdiction under article XI, section 6(b) of the FSM Constitution.

For these reasons, the motions to abstain in both Civil Action No. 1999-3000 and Civil Action 1999-3001 are denied.

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^[1] Keeping in mind that in Panuelo (I) the court considered the abstention issue on its own motion, the court concluded its discussion of the question by stating: "Finally, and most important, no party has requested the Court to abstain from deciding the issues." 2 FSM Intrm. at 155. In the cases at bar of course one party, Yap, has requested abstention. However, nothing about Panuelo (I) would suggest that such a request is ipso facto a basis for granting the request. The abstention criteria set out in Panuelo (I) are apposite to an abstention analysis irrespective of how the issue came before the court.
^[2] This notion is ensconced in American case law via the venerable Erie R.R. v. Tompkins, [1938] USSC 94; 304 U.S. 64, 78[1938] USSC 94; , 58 S. Ct. 817, 822[1938] USSC 94; , 82 L. Ed. 1188, 1194 (1937) ("There is no federal general common law.").