Island Development Company v Yap [1999] FMSC 36; 9 FSM Intrm. 220 (Yap. 1999) (6 September 1999)

FEDERATED STATES OF MICRONESIA
SUPREME COURT TRIAL DIVISION
Cite case as Island Development Company v State of Yap, [1999] FMSC 36; 9 FSM Intrm. 220 (Yap. 1999)

ISLAND DEVELOPMENT COMPANY,
Plaintiff,

vs.

STATE OF YAP,
Defendant.

CIVIL ACTION NO. 1999-3000

ISLAND DEVELOPMENT COMPANY,
Plaintiff,

vs.

STATE OF YAP,
Defendant.

CIVIL ACTION NO. 1999-3001

ORDER AND MEMORANDUM

Martin Yinug
Associate Justice

Decided: September 6, 1999

APPEARANCES:

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

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
There would be no basis for an abstention motion if the court lacks jurisdiction, since abstention presupposes that the court has jurisdiction in the first instance. Island Dev. Co. v. Yap, [1999] FMSC 36; 9 FSM Intrm. 220, 222 (Yap 1999).

Civil Procedure - Dismissal; Jurisdiction
Whenever it appears by suggestion of the parties or otherwise that the court lacks jurisdiction of the subject matter, the court shall dismiss the action. Thus subject matter jurisdiction may never be waived, and may be raised at any time, even after judgment. Island Dev. Co. v. Yap, [1999] FMSC 36; 9 FSM Intrm. 220, 222 (Yap 1999).

Business Organizations - Joint Enterprise; Business Organizations - Partnerships
A joint venture is defined as a legal entity in the nature of a partnership engaged in the joint undertaking of a particular transaction for mutual profit. Island Dev. Co. v. Yap, [1999] FMSC 36; 9 FSM Intrm. 220, 223 (Yap 1999).

Business Organizations - Joint Enterprise; Jurisdiction - Diversity
There is no statutory or decisional authority in the FSM which would permit a joint venture to be considered a citizen of the state where its principal place of business is located. Island Dev. Co. v. Yap, [1999] FMSC 36; 9 FSM Intrm. 220, 223 (Yap 1999).

Business Organizations - Corporations; Jurisdiction - Diversity
A corporation that has any foreign ownership at all is a noncitizen of the FSM for diversity purposes. Island Dev. Co. v. Yap, [1999] FMSC 36; 9 FSM Intrm. 220, 223 (Yap 1999).

Business Organizations; Jurisdiction - Diversity
Any business entity in which any ownership interest is held by a person who is not a citizen of the FSM is a non-citizen. Island Dev. Co. v. Yap, [1999] FMSC 36; 9 FSM Intrm. 220, 223 & n.1 (Yap 1999).

Business Organizations - Partnerships; Jurisdiction - Diversity
A general partnership is a foreign citizen for diversity purposes when a any ownership interest is held by a foreign citizen. Island Dev. Co. v. Yap, [1999] FMSC 36; 9 FSM Intrm. 220, 223-24 (Yap 1999).

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COURT'S OPINION

MARTIN YINUG, Associate Justice:

The court had previously granted Yap's Motion for Leave to File Reply Brief, which was filed on July 21, 1999, in both of the above captioned cases, which allege breach of separate and distinct contracts. By the two identical motions, Yap sought leave to file a reply to plaintiff's response to Yap's motion to reconsider dated April 26, 1999. Identical copies of those motions were also filed in both cases. By order of July 22, 1999, the court gave Yap until August 23, 1999, to file its reply brief. The court has not received any reply as of the date of this order.

The court denies the motion to reconsider for the following reasons.

The motion which Yap asked the court to reconsider was Yap's motion for abstention. In denying that motion, the court noted that Yap conceded that the court had diversity jurisdiction over the parties - indeed, there would have been no basis for Yap's abstention motion if the court had lacked jurisdiction, since abstention presupposes that the court has jurisdiction in the first instance. Ladore v. U Corp., [1995] FMSC 45; 7 FSM Intrm 296, 298 (Pon. 1995). The jurisdictional basis upon which the abstention motion proceeded is found in article XI, section 6(b) of the FSM Constitution, which provides that this court has jurisdiction over a dispute between a state, which in this instance is Yap, and a foreign citizen. As of the filing of the abstention motion, Yap did not contest the status of defendant Island Development Company ("IDC") as a foreign citizen.

Yap now raises the issue of subject matter jurisdiction. Rule 12(h)(3) of the FSM Rules of Civil Procedure provides that "[w]henever it appears by suggestion of the parties or otherwise that the court lacks jurisdiction of the subject matter, the court shall dismiss the action." Thus subject matter jurisdiction may never be waived, and may be raised at any time, even after judgment. Cf. Hartman v. FSM, [1993] FMSC 53; 6 FSM Intrm. 293, 296 (App. 1993).

Yap asserts at paragraph 5 of its motion to reconsider that "[t]he plaintiff in this action, at the time of filing the Complaint, was registered in the State of Yap as a soul [sic] proprietorship by a Yapese citizen" ("[sic]" added by Yap). In support of this contention, Yap attaches a copy of defendant IDC's application for business license dated November 6, 1998. Under paragraph 2, after the printed notation, "Type of business organization," is the handwritten "Soul [sic] proprietorship." The application is signed by Mercy N. Hauge, and in the blank following "my citizenship is" is the handwritten notation "Yapese." On the strength of the "soul proprietorship" notation on the application for a business license signed by a Yapese citizen, Yap now contends that IDC itself is a citizen of Yap. If this be true, then diversity jurisdiction under article XI, section 6(b) of the FSM Constitution is defeated, and this court's subject matter jurisdiction over the instant dispute is destroyed, since such an alignment of the parties - a lawsuit by a citizen of Yap against Yap - does not fall with the specifically enumerated jurisdictional bases found in article XI, section 6(b) of the FSM Constitution.

According to IDC's submissions attached to its opposition to Yap's motion to reconsider, Mercy Nabetinag Hauge is the wife of Michael S. Hauge, an American citizen, who owned 19 percent of IDC as of the date this lawsuit was filed, while Mercy Nabetinag Hauge owned the remaining 81% interest. Under the terms of a general partnership agreement dated July 13, 1993, IDC was established as a general partnership with four partners having the following percentage interests: Rose Migyol Fread, 25%; Mercy Nabetinag Hauge 26%; Lonnie L. Fread, 24.5%; and Michael S. Hauge, 24.5%. Subsequently, on March 31, 1997, the same four individuals executed a transfer of interest in which Lonnie L. Fread and Rose Migyol Fread transferred their respective interests in IDC to Mercy Nabetinag Hauge, and Michael Hauge transferred all but 19% of his interest to Mercy Nabetinag Hauge. As noted, post transfer and as of the time of the filing of this lawsuit, Mercy Nabetinag Hauge held an 81% interest in IDC, and Michael S. Hauge held a 19% interest. Mercy Nabetinag Hauge avows in her affidavit that she filled out the business license application when she went to renew IDC's business license; that English is not her native language; and that she filled out the application form "in the way the Treasurer's Office employee told me to." IDC has also submitted a copy of IDC's foreign investment permit dated August 12, 1993, and expiring on August 12, 2013. Based on the facts now before the court, IDC is - and was at the time suit was filed - a general partnership with 19% foreign ownership, and not a sole proprietorship owned by a Yapese citizen.

Neither the trial nor the appellate division of this court has considered under what circumstances a general partnership is a foreign citizen for purposes of diversity jurisdiction, although this court has opined on the question as it relates to a joint venture and a corporation. The court in International Trading Corp. v. Hitec Corp., [1989] FMSC 25; 4 FSM Intrm. 1 (Truk 1989), addressed the citizenship of a joint venture, which is defined as "a legal entity in the nature of a partnership engaged in the joint undertaking of a particular transaction for mutual profit," Black's Law Dictionary 839 (6th ed. 1990). The court in International Trading held that a joint venture composed of three noncitizen joint venturers did not become a citizen of Truk by virtue of the fact that the joint venture was formed for the purpose of building the Truk Airport Terminal and because its principal place of business was in Truk. International Trading, 4 FSM Intrm. at 2. Noting that "[i]t does not appear that the joint venture has been registered under the regulation governing partnerships," the court concluded that "[t]here is no statutory or decisional authority in the FSM which would permit a joint venture to be considered as a citizen of the state where its principal place of business is located." Id. Dealing as it does with a joint venture where all of the joint venturers were foreign citizens, International Trading provides context but does not speak directly to the issue at hand. Here the issue is different. IDC is a general partnership, as opposed to a joint venture, and only 19% is owned by a foreign citizen. On these facts, the court must determine IDC's citizenship. If the parties are diverse, then the court has subject matter jurisdiction; if they are not, then subject matter jurisdiction is defeated, and the case must be dismissed.

More to the point is Federated Shipping Co. v. Ponape Transfer & Storage (III), [1987] FMSC 19; 3 FSM Intrm. 256 (Pon. 1987), where the court determined that a corporation that has any foreign ownership at all is a noncitizen of the FSM for diversity purposes. The court by way of preface observed that

the framers of the FSM Constitution were quite familiar with corporations and how to distinguish between "citizen" and "citizen" corporations. Indeed, the basic concept appears in the Constitution itself. The Constitution specifically bars noncitizen from acquiring title to land or waters in Micronesia and includes within that prohibition any corporation "not wholly owned by citizens." FSM Const. art. XIII, § 4.

3 FSM Intrm. at 259. The court noted that "noncitizen" is defined in § 202(4) of the FSM Foreign Investment Act, 32 F.S.M.C. 201 et seq., as "any business in which any interest is owned by a person who is not a citizen of the Federated States of Micronesia."[1] Id. The Federated Shipping court concluded that any interest held in a corporation by a person who is not a citizen of the FSM renders the corporation a foreign citizen for purposes of this court's diversity jurisdiction. 3 FSM Intrm. at 259-60. The appellate division approved Federated Shipping's holding on this point in Luzama v. Ponape Enterprises Co., [1995] FMSC 11; 7 FSM Intrm 40, 44 (App. 1995).

The Federated Shipping analysis applies as well to a general partnership as it does to a corporation. IDC is a "noncitizen" both under the former § 202(4) of the Foreign Investment Act discussed in Federated Shipping ("a business in which any interest is owned by a person who is not a citizen of the Federated States of Micronesia") and under the present § 203(11) of the Foreign Investment Act of 1997 ("any business entity in which any ownership interest is held by a person who is not a citizen of the FSM"). Michael S. Hauge, an American citizen, holds a 19% interest in IDC. IDC is therefore a foreign citizen for purposes of this court's diversity jurisdiction under article XI, section 6(b) of the FSM Constitution, which confers jurisdiction in this court over any dispute involving a state and a foreign citizen.

For the foregoing reasons, the court concludes that it has subject matter jurisdiction in this dispute. Accordingly, Yap's motion to reconsider is denied.

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^[1] Public Law No. 10-49, effective October 1, 1997, amended the Foreign Investment Act, which was renamed as the "Foreign Investment Act of 1997." Pub. L. No. 10-49, § 4 (10th Cong. 1st Spec. Sess. 1997). Chapter 2 of the former act, which at 32 F.S.M.C. 202(4) contained the definition of "noncitizen" discussed in Federated Shipping, was repealed in its entirety. Pub. L. No. 10-49, § 1. Section 203 of the new Chapter 2 now contains the definitions section. Id. § 6. The definition of "noncitizen" found at the new § 203(11) is essentially identical to the definition found at the former § 202(4). Section 202(4) of the former act reads: "(4) `Noncitizen' means any person who is not a citizen of the Federated States of Micronesia, and any business in which any interest is owned by a person who is not a citizen of the Federated States of Micronesia." Section 203(11) of the Foreign Investment Act of 1997 reads: "(11) `noncitizen' means any person who is not a citizen of the FSM, and any business entity in which any ownership interest is held by a person who is not a citizen of the FSM;" Taking the amendments to Title 32 contained in Public Law 10-49 in their entirety, the court sees nothing which changes the citizenship analysis as it applies to a corporation and as set out in Federated Shipping.