Nagata v Pohnpei [2002] FMSC 39; 11 FSM Intrm. 265 (Pon. 2002) (2 December 2002)

FEDERATED STATES OF MICRONESIA
SUPREME COURT TRIAL DIVISION
Cite as Nagata v. Pohnpei, [2002] FMSC 39; 11 FSM Intrm. 265 (Pon. 2002)

[2002] FMSC 39; [11 FSM Intrm. 265]

ISAO NAGATA and PACIFIC DREAM CORPORATION,
Plaintiffs,

vs.

STATE OF POHNPEI, STATE OF POHNPEI
OFFICE OF ECONOMIC AFFAIRS, and
YALMER HELGENBERGER, in his capacity as
Administrator of the State of Pohnpei Office
of Economic Affairs,
Defendants.

CIVIL ACTION NO. 2002-046

MEMORANDUM OF DECISION

Andon L. Amaraich
Chief Justice

Hearing and Trial: November 27-28, 2002
Decided: December 2, 2002

APPEARANCES:

For the Plaintiffs:
Andrea Hillyer, Esq.
P.O. Drawer D
Kolonia, Pohnpei FM 96941

[11 FSM Intrm. 266]

For the Defendants:
Marstella Jack, Esq.
Emeka E. Akimigbo, Esq.
Assistant Attorneys General
Pohnpei Department of Justice
P.O. Box 1555
Kolonia, Pohnpei FM 96941

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HEADNOTES

Marine Resources
As a result of the Pohnpei Executive Reorganization Act, the Department of Land and Natural Resources, not the Office of Economic Affairs, has the power to authorize the harvest and marketing of trochus in Pohnpei. Therefore, any actions taken by the Office of Economic Affairs with regard to publication of solicitations to bid, designating successful bidders, or entering into contracts on the state's behalf for the sale of trochus, were ultra vires, or without any legal authority. Nagata v. Pohnpei, [2002] FMSC 39; 11 FSM Intrm. 265, 270-71 (Pon. 2002).

Public Contracts
A contract for public work or public property or supplies must be executed on the public body’s behalf by some officer or officers possessed of the power to contract on behalf of the governmental body which they represent. The fundamental rule is that a public officer, who has only such authority as is conferred upon him by law, may make for the government he represents only such contracts as he is authorized by law to make. Nagata v. Pohnpei, [2002] FMSC 39; 11 FSM Intrm. 265, 271 (Pon. 2002).

Equity - Estoppel and Waiver
The doctrine of equitable estoppel operates to preclude a party from asserting a right he otherwise might have had, based upon his previous conduct. But a plaintiff is not equitably estopped from challenging the Office of Economic Affairs's authority to conduct a trochus harvest because any past acquiescence to the Office's authority does not alter the Office's powers and duties vested in it by Pohnpei state law when, as a matter of law, the Office's activities with regard to the trochus harvest were illegal. Nagata v. Pohnpei, [2002] FMSC 39; 11 FSM Intrm. 265, 271 (Pon. 2002).

Contracts - Illegality
A contract that is entered into ultra vires is void and illegal. As a general rule, an illegal contract is unenforceable. Even when performance occurs and a benefit has been conferred, no recovery in either expectation damages or quantum meruit may be had. Nagata v. Pohnpei, [2002] FMSC 39; 11 FSM Intrm. 265, 271 (Pon. 2002).

Public Contracts
The terms and conditions of a contract with a successful bidder for public contracts where competitive bidding is required are to be gathered from the terms and specifications of the advertisement or solicitation for bids. Nagata v. Pohnpei, [2002] FMSC 39; 11 FSM Intrm. 265, 271 (Pon. 2002).

Banks and Banking
An irrevocable standby letter of credit provides the same security as a commercial letter of credit, as it provides a guarantee of payment in the event that a party does not perform according to a contract's terms. A time certificate of deposit for the amount of performance of a contract, with possession of the certificate surrendered to the state, would also provide the state with full security and evidence of funds available. Nagata v. Pohnpei, [2002] FMSC 39; 11 FSM Intrm. 265, 272 (Pon. 2002).

[11 FSM Intrm. 267]

Administrative Law
It was arbitrary and an abuse of discretion for the state to accept an irrevocable letter of credit as security for a transaction from one company and reject the same irrevocable letter of credit from another company. Nagata v. Pohnpei, [2002] FMSC 39; 11 FSM Intrm. 265, 272 (Pon. 2002).

Civil Procedure - Injunctions; Public Contracts
When the plaintiffs have shown that the state has acted ultra vires with regard to soliciting bids, designating successful bidders, and entering into contracts for trochus, and has acted arbitrarily in determining what constitutes evidence of available funds and in attaching other conditions to the contract awards which were not included in the solicitation to bid documents, they have demonstrated that they will be irreparably injured if the trochus harvest is permitted to proceed, as the bid solicitation and contract award processes were contrary to Pohnpei state law. The plaintiffs are thus entitled to a declaratory judgment that the defendants' trochus harvest activities are illegal and to a permanent injunction, prohibiting the defendants from proceeding with any trochus harvest until the state has implemented procedures to conduct a fair and transparent bidding process for trochus, through the department authorized by law to conduct it. Nagata v. Pohnpei, [2002] FMSC 39; 11 FSM Intrm. 265, 272 (Pon. 2002).

Public Contracts
A fair and transparent bidding process requires that regulations for soliciting bids, designating successful bidders, and awarding contracts for trochus be properly noticed, published, and distributed by the authorized department and that the department's solicitations to bid set forth in clear terms each and every term and condition of the contract to be formed with a successful bidder for a trochus harvest, which terms may not be varied by the state after a bid is awarded. Nagata v. Pohnpei, [2002] FMSC 39; 11 FSM Intrm. 265, 272 (Pon. 2002).

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COURT'S OPINION

ANDON L. AMARAICH, Chief Justice:

The Court ordered that the hearing on plaintiffs' motion for a preliminary injunction be consolidated with the trial on the merits of this case, and the hearing and trial were held on November 27-28, 2002. Plaintiffs appeared and were represented by Andrea Hillyer, Esq. Defendants were represented by Pohnpei State Assistant Attorneys General Marstella Jack and Emeka E. Akimigbo. The parties stipulated to the admissibility of 56 exhibits for the Court to consider, labeled A to Z, A-1 to Z-1, A-2 to C-2, and T-2 and T-3.^[1] The Court received these exhibits into evidence. Plaintiffs' case in chief consisted of the testimony of three witnesses: Ms. Vida, the Branch Manager of the Bank of Guam - Pohnpei Branch, Mr. Isao Nagata, a plaintiff and the Vice-President of Pacific Dream Corporation, and Mr. James Movick, owner of Center-Pac Trading Company. Defendants also presented the testimony of three witnesses: Mr. Youser Anson, Director of the Pohnpei State Department of Land and Natural Resources, Mr. Donald David, the Chief of Marine Development in the Office of Economic Affairs, and Mr. Evans Raymond, the Pohnpei State Planner and Acting Administrator for the Pohnpei State Office of Economic Affairs.

The following are the Court's findings of fact and conclusions of law.

[11 FSM Intrm. 268]

I. Findings of Fact

1. Plaintiff Isao Nagata is a citizen of Japan, and is a foreign investor and the Vice President of plaintiff Pacific Dream Corporation.

2. Pacific Dream Corp. holds a valid foreign investment permit issued by the State of Pohnpei authorizing it to engage in purchase and export of local products including trochus. Ex. B.

3. Defendants are the State of Pohnpei, the State of Pohnpei Office of Economic Affairs (Office of Economic Affairs), and Yalmer Helgenberger, in his capacity as Administrator of the Office of Economic Affairs.

4. Before the Executive Reorganization Act of 2000, trochus harvest in the State of Pohnpei was conducted under the authority of the Pohnpei State Government through its Department of Resource Management and Development. Ex. A.

5. After the Executive Reorganization Act of 2000, the Office of Economic Affairs began to issue solicitations to bid on trochus in Pohnpei State.^[2] The Office of Economic Affairs issued at least five solicitations to bid. On December 18, 2000, Pacific Dream Corp. was designated the successful bidder for 20 metric tons of trochus from Sapwuafik atoll, based upon a bid the company submitted on December 11, 2000. The bid price offered by Pacific Dream Corp. in the first Sapwuafik harvest was $1.05/lb. wet or $1.50/lb. dry. Exs. D, F.

6.The second solicitation to bid issued by the Office of Economic Affairs was for 8 metric tons of trochus from Sapwuafik. Pacific Dream Corp. also was designated the successful bidder for that trochus harvest on April 2, 2001, at a price of $1.05/lb. wet or $1.50/lb. dry. Exs. M, O.

7.Pacific Dream Corp. provided the Office of Economic Affairs with verification of funds for the first harvest by presenting a letter from the Bank of Guam that stated that Pacific Dream Corp. had over $50,000 on deposit with the Bank. One day before the first Sapwuafik harvest, the Office of Economic Affairs requested that Pacific Dream Corp. transfer money to a savings account with the Bank of Guam and surrender its passbook to that account to Yalmer Helgenberger to be held as collateral for the harvest. Pacific Dream Corp. placed over $46,000 in a savings account and surrendered its passbook to Mr. Helgenberger. Exs. G, H.

8.Pacific Dream Corp. reserved money for the second Sapwuafik harvest, held April 5, 2001, in a savings account at the Bank of the FSM, the passbook for which again was held by the Office of Economic Affairs as collateral. Ex. P.

9.Both Sapwuafik harvests were conducted without any problems regarding security arrangements, and there is no dispute that Pacific Dream Corp. timely paid the local participants for the trochus collected in the Sapwuafik harvests.

10.The third solicitation to bid issued by the Office of Economic Affairs was for 100 metric tons of wet trochus from Pohnpei proper. The deadline stated in this bid solicitation was October 19, 2001. Pacific Dream Corp. submitted a bid of $.63/lb. wet or $.90/lb. dry. Exs. R, T.

[11 FSM Intrm. 269]

11. On November 14, 2001, the Office of Economic Affairs notified Pacific Dream Corp. that "the Office of Economic Affairs, Pohnpei State, and the majority of Municipal Governments had declined to accept your proposed bidding to purchase trochus." Ex. U. The Office announced in its letter that bidding would be reopened until December 19, 2001. Id.

12. The fourth bid solicitation issued by the Office of Economic affairs again was for 100 metric tons of wet trochus. However, the fourth solicitation added a $2,500 administrative fee to the cost of the trochus and changed the size of permissible trochus to be harvested from 3-4 inches to 3-3.5 inches.

13. On December 19, 2001, Pacific Dream Corp. submitted a bid of $.63/lb. in wet weight or $.90/lb. in dry weight if the administrative fee were imposed, or a price of $.64/lb. wet or $.91/lb. dry weight if the administrative fee were not imposed. Ex. A-1.

14. On February 14, 2001, the Office of Economic Affairs informed Pacific Dream Corp. that it was the successful bidder for that year's harvest of trochus. The award letter stated that,

[a]long with this, we require you to secure a bond in the form of a joint checking account, which can accommodate 100 metric tons or $63,000.00 US, at any bank branch provided with our signature for security and monitoring purposes. You must have this account secure and submit to the Office of Economic Affairs no later than 5:00 p.m. Monday, February 18, 2002. By failing to submit this at the set time and date may result in disqualifying your company in purchasing trochus and move to consider the next bidder."

Ex. I-1.^[3]

15. Pacific Dream Corp. responded to this award letter the same day, requesting that the company be permitted to provide security in the form of a "Standby Letter of Credit," requesting that the State guarantee that 100 metric tons of wet trochus would be provided from the harvest, and requesting that the State set a date for the harvest within 7-14 days that Pacific Dream Corp. and its overseas partners obligated funds as collateral for the harvest.

16. On February 26, 2002, the Office of Economic Affairs negated Pacific Dream Corp.'s bid for the following reasons: (1) that it appeared Pacific Dream Corp. was not ready to buy trochus yet; (2) a Standby Letter of Credit was too precarious, and the State could not accept it; and (3) Pacific Dream Corp.'s needs with respect to obligation of money and its relationship with its overseas buyers were not the State's responsibility, and Pacific Dream Corp. was causing problems by pressuring the Office to allow trochus harvesting. Ex. K-1.

[11 FSM Intrm. 270]

17. On February 27, 2002, Pacific Dream Corp. responded by stating it was prepared to proceed with the harvest, and offering to place $63,000.00 US in a Time Certificate of Deposit ("TCD") for security. The only subsequent written response from the Office of Economic Affairs was a letter dated March 18, 2002, from Yalmer Helgenberger, stating that he did not have any more to explain to Pacific Dream Corp., and that he had designated Mr. Donald David to deal with the company.

18. After negating Pacific Dream Corp.'s bid, the Office of Economic Affairs began to search for overseas companies interested in purchasing trochus.

19. The fifth bid solicitation issued by the Office of Economic affairs again was for 100 metric tons of wet trochus. It changed the size of permissible trochus to be harvested back to 3-4 inches, and deleted the administrative fee of $2,500. It also stated that the successful bidder would have 10 days to provide necessary financial assurances, and set a minimum price for the trochus at $2.30 per kilo ($1.05/lb.).

20. A Korean company called 88 Shell Button Co. was designated the successful bidder for the trochus harvest. 88 Shell Button Co. submitted a bid in the amount of $2,308.80 per metric ton of dried trochus shell, or $2.308 per kilo.

21. At the time of issuance of the temporary restraining order in this case, 88 Shell Button Co. had not provided evidence of available funds for the harvest.

22. The Office of Economic Affairs stated that it would permit 88 Shell Button Co. to present an Irrevocable Letter of Credit as evidence of available funds for the harvest.

23. An Irrevocable Letter of Credit provides the same security as an irrevocable Standby Letter of Credit.

24. No regulations have been issued by Pohnpei State regarding appropriate bid terms or procedures.

II. Conclusions of Law

1. The Executive Reorganization Act of 2000 resulted in the former Department of Resource Management and Development being separated into different departments in the executive branch of Pohnpei State. The Act itself determined the functions of certain departments, and provided that "[t]he Governor may, in addition, provide for specific prescriptions of such duties, responsibilities and functions therefor by issuance of administrative directives that are not inconsistent with the Pohnpei Constitution or the laws of Pohnpei." Pon. S.L. No. 5L-14-00, § 2-2.

2. The Governorernor issued an Executive Order on December 29, 2000, related to the Executive Reorganization Act; however, this Executive Order did not mn trochus, nor did it give any authority to the Office of E of Economic Affairs with respect to soliciting bids for sale of marine resources. The Executive Order specifically states that "[t]he Office [of Economic Affairs] is responsible for delivery of technical services to economic development by private producers and entrepreneurs. It is responsible for development policies, plans, and projects. . . Offiallshot enot engage dige directly in commercial activity." Executive Order at 28-29 (Dec. 29, 2000).

3. Pursuant to the Executive Reorganization Act, the Director of the Department of Land and Natural Resources has the power and duty concerning the harvesting and marketing of trochus to conduct activities, including the following: to establish seasons for the harvesting of trochus that may vary from year to year or from area to area, such that harvesting may be partially or completely limited or prohibited within a given time frame or within a designated location, to limit the size of the trochus that may be lawfully harvested, to include maximum and minimum limits; to establish procedures for the announcement of harvesting seasons and other notices and information, to establish quota systems for the number of trochus that may be harvested; to regulate the times, places, and methods for the sale, transfer, delivery, and shipment of the

[11 FSM Intrm. 271]

trochus, and where necessary, establish penalties for the illegal harvesting or sale of trochus, and, to establish and implement such other policies, procedures, and requirements to achieve a desirable balance between the exploitation of trochus as an economic resource and the preservation of trochus as a renewable resource. Pon. S.L. No. 2L-106-81 § 2-3; Pon. No. 5L-14-00, &#1, § 3-31.

4. The powers wers and duties of Director of the Department of Land and Natural Ress concerning the harvesting and marketing of trochus include the power and duty to publish lish solicitations to bid on trochus within the State of Pohnpei, to designate successful bidders pursuant to that process, to announce and conduct trochus harvests in the State of Pohnpei, and to enter into contracts on behalf of the State of Pohnpei for the sale of trochus.

5. The Office of Economic Affairs of the State of Pohnpei has no authority to publish such solicitations to bid, designate successful bidders, or enter into contracts on behalf of the State of Pohnpei for the sale of trochus.

6. Any actions taken by the Office of Economic Affairs with regard to publication of solicitations to bid, designating successful bidders, or entering into contracts on behalf of the State of Pohnpei for the sale of trochus, were ultra vires, or without any legal authority.

7. A contract for public work or public property or supplies must be executed on behalf of the public body by some officer or officers possessed of the power to contract on behalf of the governmental body which they represent. The fundamental rule is that a public officer, who has only such authority as is conferred upon him by law, may make for the government he represents only such contracts as he is authorized by law to make.

8. The doctrine of equitable estoppel operates to preclude a party from asserting a right he otherwise might have had, based upon his previous conduct.

9. Pacific Dream Corp. is not equitably estopped from challenging the authority of the Office of Economic Affairs to conduct a trochus harvest. Any acquiescence by Pacific Dream Corp. to the authority of the Office of Economic Affairs in the past does not in any way alter the status of the Office of Economic Affairs with regard to its powers and duties vested in it by Pohnpei state law.

10. Plaintiff has proven as a matter of law that the activities of the Office of Economic Affairs with regard to the trochus harvest were illegal, and accordingly judgment in favor of plaintiffs will be entered as to Count I of their complaint.

11. A contract that is entered into ultra vires is void and illegal. As a general rule, an illegal contract is unenforceable. Even when performance occurs and a benefit has been conferred, no recovery in either expectation damages or quantum meruit may be had. Ponape Constr. Co. v. Pohnpei, [1993] FMSC 23; 6 FSM Intrm. 114, 125 (Pon. 1993).

12. Accordingly, even if a contract was formed between plaintiffs and the Office of Economic Affairs after the fourth solicitation to bid, that contract is unenforceable against the State, and judgment will be entered in favor of defendants on Counts II and III of plaintiffs' complaint.

13. The terms and conditions of a contract with a successful bidder for public contracts where competitive bidding is required are to be gathered from the terms and specifications of the advertisement or solicitation for bids.

[11 FSM Intrm. 272]

14. An irrevocable standby letter of credit provides the same security as a commercial letter of credit, as it provides a guarantee of payment in the event that a party does not perform according to the terms of a contract. A TCD for the amount of performance of a contract, with possession of the certificate surrendered to the State, also provided the State with full security and evidence of funds available.

15. It was arbitrary and an abuse of discretion for the State to accept an irrevocable letter of credit as security for a transaction from one company, 88 Shell Button Co., and reject the same irrevocable letter of credit from another company, Pacific Dream Corp. Pacific Dream Corp. offered to provide objectively reasonable evidence of available funds, and post a good and sufficient bond, but the State arbitrarily refused to accept it.

16. Pohnpei State, through its Office of Economic Affairs, has acted ultra vires with regard to soliciting bids, designating successful bidders, and entering into contracts for trochus, and has acted arbitrarily in determining what constitutes evidence of available funds and in attaching other conditions to the award of contracts which were not included in the solicitation to bid documents.

17. Plaintiffs have demonstrated that they will be irreparably injured if the trochus harvest is permitted to proceed, as the bid solicitation and contract award processes were contrary to Pohnpei State law, and arbitrary conditions have been attached to the contract award process. Plaintiffs are entitled to a declaratory judgment that activities of defendants with regard to the trochus harvest are illegal. The public interest is served by requiring that the Pohnpei State Department of Land and Natural Resources conduct any future activities with regard to the trochus harvest, as it is empowered to do by Pohnpei State law. The public interest also is served by prohibiting the State from conducting any bid solicitations or awarding any contracts until such time as regulations are properly noticed, published and distributed pursuant to Pon. S.L. No. 2L-12-80, § 1 (June 28, 1

1

18. Accordingly, plaintiffs are entitled to a permanent injunction, prohibiting the defendants from proceeding with any trochus harvest until the State has implemented procedures to conduct a fair and transparent bidding process for trochus, through the Pohnpei State Department of Land and Natural Resources. See Ponape Transfer & Storage v. Federated Shipping Co., [1987] FMSC 14; 3 FSM Intrm. 174, 177 (Pon. 1987); Ponape Transfer & Storage v. Pohnpei State Public Lands Auth., [1986] FMSC 21; 2 FSM Intrm. 272, 276-77 (Pon. 1986).

19. A fair and transparent bidding process requires that regulations for soliciting bids, designating successful bidders, and awarding contracts for trochus be properly noticed, published, and distributed by the Pohnpei State Department of Land and Natural Resources, and that solicitations to bid issued by that Department set forth in clear terms each and every term and condition of the contract to be formed with a successful bidder for a trochus harvest, which terms may not be varied by the State after a bid is awarded.

20. It is in the public interest that this Court decision have only prospective application. FSM Telecomm. Corp. v. Department of Treasury, [1999] FMSC 40; 9 FSM Intrm. 292 (Pon. 1999).

III. Conclusion

Accordingly, the Court HEREBY ORDERS that judgment be entered concurrently herewith in favor of plaintiffs and against defendants on Count I (Declaratory Judgment), and in favor of defendants and against plaintiffs on Counts II and III (Specific Performance and Breach of Contract) of plaintiffs'

[2002] FMCSC 16; [11 FSM Intrm. 273]

complaint. The Court also HEREBY ORDERS that a permanent injunction be entered which shall, upon its issuance, dissolve the temporary restraining order that is in effect. Defendants are HEREBY ORDERED to comply with all terms and conditions set forth in the permanent injunction which is issued concurrently with this opinion.

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^[1] In reviewing the list of exhibits and marking them, it was noted that no Exhibit numbered U-1 exists.

^[2] The Office of Economic Affairs is an entirely separate office from the Department of Land and Natural Resources under the Executive Reorganization Act of 2000.

^[3] The amount of $63,000.00 US was a mistaken calculation, as a metric ton equals approximately 2,205 lbs.; thus, 100 x 2,205 x $.63 = $138,915.00 US. This point was clarified by plaintiff's counsel in closing argument.