Carlos Etscheit Soap Co v McVey [2006] FMSC 57; 14 FSM Intrm. 458 (Pon. 2006) (18 October 2006)

FEDERATED STATES OF MICRONESIA
SUPREME COURT TRIAL DIVISION
Cite as Carlos Etscheit Soap Co. v. McVey, [2006] FMSC 57; 14 FSM Intrm. 458 (Pon. 2006)

CARLOS ETSCHEIT SOAP COMPANY,
Plaintiff/Counterdefendant,

vs.

ERINE McVEY and DO IT BEST HARDWARE,
a business organization,
Defendants/Counterclaimants,

vs.

BOARD OF TRUSTEES OF THE POHNPEI STATE
PUBLIC LANDS TRUST,
Defendant/Counterdefendant.

CIVIL ACTION NO. 2005-007

ORDER GRANTING PLAINTIFF PRELIMINARY INJUNCTION

[14 FSM Intrm. 462]

Andon L. Amaraich
Chief Justice

Decided: October 18, 2006

APPEARANCES:

For the Plaintiff:
Stephen V. Finnen, Esq.
P.O. Box 1450
Kolonia, Pohnpei FM 96941

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

For the Defendant (Board of Trustees):
Leonito M. Bacalando, Jr., Esq.
Assistant Attorney General
Pohnpei Department of Justice
P.O. Box 1555
Kolonia, Pohnpei FM 96941

* * * *

HEADNOTES

Civil Procedure - Injunctions
In exercising its broad discretion in considering whether to grant a preliminary injunction, a court looks to four factors: 1) the likelihood of success on the merits of the party seeking injunctive relief, 2) the possibility of irreparable injury to the moving party, 3) the balance of possible injuries or inconvenience to the parties which would flow from granting or denying the relief, and 4) any impact on the public interest. A preliminary injunction’s object is to preserve the status quo pending litigation on the merits. Carlos Etscheit Soap Co. v. McVey, [2006] FMSC 57; 14 FSM Intrm. 458, 461 (Pon. 2006).

Constitutional Law - Due Process - Notice and Hearing; Equity - Estoppel
When the Board of Trustees gave a party a lease to Lot No. 014-A-08 (which was duly recorded at the State Land Registry) and took its lease payments for years up to and including the January, 2005 lease payment, even assuming that the Board’s later ruling that the party’s lease is invalid is correct, the Board is estopped from asserting that the party had no rights in Lot No. 14-A-08 in January 2005 and the party had a right to, at a minimum, notice and an opportunity to be heard when the Board was determining whether there was a valid lease to the lot or should it be advertised for lease. Carlos Etscheit Soap Co. v. McVey, [2006] FMSC 57; 14 FSM Intrm. 458, 461-62 (Pon. 2006).

Equity - Estoppel; Property - Public Lands
The doctrine of equitable estoppel operates to preclude a party from asserting a right he otherwise might have had, based upon his previous conduct. Equitable estoppel is applied to governments in the FSM when this is necessary to prevent manifest injustice and where the interests of the public will not be significantly prejudiced. Equitable estoppel thus applies to prevent (or estop) the Board of Trustees from claiming that a party had no existing right to a lot when it had given that party a lease (which was duly recorded at the State Land Registry) to that lot and had taken that party’s lease payments for years. Carlos Etscheit Soap Co. v. McVey, [2006] FMSC 57; 14 FSM Intrm. 458, 462 (Pon. 2006).

[2006] FMSC 58; [14 FSM Intrm. 463]

Constitutional Law - Due Process - Notice and Hearing; Property - Public Lands
When a party had some right to a lot, it was, at a minimum, entitled to notice that the Board of Trustees believed the party’s lease was invalid and that the Board intended to revoke the lease and put that lot up for public bid. The party was also entitled to notice and an opportunity to be heard on the issue of the lease’s validity before the Board revoked the lease. When the Board did not give the party any notice and revoked its lease and issued a lease to another, this lack of notice to the party would thus make the later issuance of a lease invalid. Carlos Etscheit Soap Co. v. McVey, [2006] FMSC 57; 14 FSM Intrm. 458, 462 (Pon. 2006).

Civil Procedure - Injunctions
When the movant’s likelihood of success on the merits of its due process claim is almost certain; when the other three factors do not outweigh the likelihood-of-success-on-the-merits factor; and when the movant faces irreparable injury if the defendants develop the property for their own uses, a preliminary injunction will be granted to maintain the status quo. Carlos Etscheit Soap Co. v. McVey, [2006] FMSC 57; 14 FSM Intrm. 458, 462 (Pon. 2006).

Civil Procedure - Injunctions
The impact-on-the-public-interest factor favors neither side when although one side is more eager to put the lot to immediate productive use in accordance with the purpose of commercial leaseholds in Kolonia, the public has an interest in seeing that the Board of Trustees adheres to its public land lease regulations and its decisions. Carlos Etscheit Soap Co. v. McVey, [2006] FMSC 57; 14 FSM Intrm. 458, 462 (Pon. 2006).

Civil Procedure - Injunctions
When there is little likelihood of success on the merits; when the claimed economic loss that the movant’s business sales volume will not be able to grow as quickly or as large as it otherwise would, is speculative and does not represent irreparable harm; when the balance of interests does not weigh in the movant’s favor; when the public interest does not favor the injunction; and when it would not preserve the status quo pending the litigation, the movant will not be granted preliminary injunctive relief. Carlos Etscheit Soap Co. v. McVey, [2006] FMSC 57; 14 FSM Intrm. 458, 462-63 (Pon. 2006).

* * * *
COURT’S OPINION

ANDON L. AMARAICH, Chief Justice:

On January 25, 2006, this came before the court for hearing on (1) the Carlos Etscheit Soap Company’s ("the Soap Company") Motion for Preliminary Injunction, filed November 4, 2005; (2) Opposition to Issuance of Preliminary Injunction, filed November 14, 2005 by Erine McVey and Do It Best Hardware ("McVey"); (3) the Board of Trustees of the Pohnpei State Public Lands Trust’s ("the Board") Opposition to Motion for Preliminary Injunction, filed November 16, 2005; (4) the Board’s Supplement to Opposition to Application for Temporary Restraining Order and Motion for Preliminary Injunction, filed November 17, 2005; and (5) the Board’s Second Supplement to the Opposition to the Motion for Preliminary Injunction, filed November 25, 2005. After the hearing, the Soap Company filed a Supplemental Reply Supporting Motion for Preliminary Injunction on February 7, 2006.

On May 22, 2006, McVey filed a Motion for Temporary Restraining Order and Preliminary and Permanent Injunction. The Soap Company filed its Opposition to [McVey’s] Motion for Preliminary Injunction on June 1, 2006.

[14 FSM Intrm. 464]

Pursuant to the parties’ discussion in the September 15, 2006 status conference and the court’s September 15, 2006 order, the parties were given time to submit further filings and affidavits concerning their respective motions for preliminary injunction and to request a hearing date if they felt the filings were inadequate for their purposes. On September 29, 2006, the Soap Company filed its Supplemental Response for Preliminary Injunction Motions. McVey filed a Supplemental Response re Preliminary Injunction Motions; Request to Take Judicial Notice on October 3, 2006. The Soap Company filed its Additional Supplemental Response for Preliminary Injunctions Motions on October 6, 2006. No party asked for a hearing date. The matter is thus ready for decision.

I. The Preliminary Injunction Motions

The Soap Company’s motion for a preliminary injunction results from the Pohnpei State Public Land Trust Board of Trustees’ decision on the matters referred to it. That ruling decided that the 1998 lease of Lot No. 14-A-08 to the Soap Company was prepared and registered through error and was invalid because of the lack of the government’s express written consent to the lease’s assignment to the Soap Company. The Board ruled that, although it had accepted Soap Company’s lease payments for five years, it was proper for it to have put the lot up for public lease and that no notice or opportunity to be heard was due to the Soap Company because, in its view, the Soap Company had no right to the lot. The Board concluded that it properly leased the lot to Erine McVey on February 3, 2005.

The Soap Company asks that a preliminary injunction be issued to maintain the status quo while it obtains judicial review of the Board of Trustees’ decision that it has no rights in Lot No. 14-A-08. It asserts that its lease was valid, or, that if it was not, it was entitled to notice and an opportunity to be heard before the Board ruled the lease invalid and before it publicly advertised Lot No. 14-A-08 for lease.

McVey’s motion asks that the court grant a preliminary injunction to restrain the Soap Company from preventing McVey from conducting business operations on Lot No. 14-A-08 or from impeding development of, and construction on, that lot. McVey asks the court to judicially notice the proceedings in Civil Action No. 1995-083, California Pacific Associates. v. Federation of Cooperative Associations, which, in McVey’s view, further support the contention that the Soap Company’s lease was invalid.

II. Factors to Consider

In exercising its broad discretion in considering whether to grant a preliminary injunction, the court looks to four factors: (1) the likelihood of success on the merits of the party seeking injunctive relief, (2) the possibility of irreparable injury to the moving party, (3) the balance of possible injuries or inconvenience to the parties which would flow from granting or denying the relief, and (4) any impact on the public interest. The object of a preliminary injunction is to preserve the status quo pending the litigation on the merits. Ponape Enterprises Co. v. Bergen, [1993] FMSC 52; 6 FSM Intrm. 286, 288 (Pon. 1993).

III. Analysis

Do It Best Hardware and Erine McVey oppose the Soap Company’s requested preliminary injunction. The Board also opposes a preliminary injunction. Both McVey and the Board also moved to dismiss on the ground that the FSM Supreme Court trial division could not review the Board’s decision; that the court no longer had jurisdiction once the case had been referred to the Board for its decision; and that, based on that decision, no triable issue of fact existed and McVey was entitled to judgment as a matter of law. This court has already ruled that it did not divest itself of jurisdiction when it referred certain issues to the Board for its investigation and decision and, by its March 16, 2006 order, denied the motions to dismiss. [Carlos Etscheit Soap Co. v. Do It Best Hardware, [2006] FMSC 9; 14 FSM Intrm. 152, 156-57 (Pon. 2006).]

[14 FSM Intrm. 465]

The Board gave the Soap Company a lease to Lot No. 014-A-08 (which was duly recorded at the State Land Registry) and took its lease payments for years up to and including the Soap Company’s January, 2005 lease payment. Thus, even assuming that the Board is correct and the Soap Company’s lease is invalid, the Board is estopped from asserting that the Soap Company had no rights in Lot No. 14-A-08 in January 2005. The Soap Company had a right to, at a minimum, notice and an opportunity to be heard when the Board was determining whether there was a valid lease to the lot or should it be advertised for lease. The doctrine of equitable estoppel operates to preclude a party from asserting a right he otherwise might have had, based upon his previous conduct. Nagata v. Pohnpei, [2002] FMSC 39; 11 FSM Intrm. 265, 271 (Pon. 2002). Equitable estoppel is applied to governments in the Federated States of Micronesia when this is necessary to prevent manifest injustice and where the interests of the public will not be significantly prejudiced. KCCA v. Tuuth, [1991] FMSC 35; 5 FSM Intrm. 118, 120 (Pon. 1991). Equitable estoppel thus applies to prevent (or estop) the Board of Trustees from claiming that the Soap Company had no existing right to Lot No. 14-A-08.

The Soap Company’s right to due process was thus violated. See Etscheit v. Micha, slip op. at 5-10 (Pon. S. Ct. App. Jan. 9, 2001). Because the Soap Company had some right to the lot, it was, at a minimum, entitled to notice that the Board believed the lease was invalid and that the Board intended to revoke the lease and put the lot up for public bid. The Soap Company was also entitled to notice and an opportunity to be heard on the issue of the lease’s validity before the Board revoked the lease. The Board did not give the Soap Company any notice. This lack of notice to the Soap Company would thus make the February 3, 2005 issuance of a lease to McVey invalid.^[1] The Soap Company’s likelihood of success on the merits of the due process claim is thus almost certain.
[14 FSM Intrm. 466]

The other three factors do not outweigh the likelihood-of-success-on-the-merits factor. The Soap Company faces irreparable injury if the McVey defendants develop the property for their uses and then the Soap Company’s lease turns out to be valid and are able to renew the lease (or if the Soap Company acquires the lease when, and if, the Board has to readvertize it).

The balance of possible injuries or inconvenience to the parties which would flow from granting or denying the relief, cannot be said to favor either side. McVey would have been delayed in putting the lot to productive use if they prevail. The same would apply to the Soap Company (although it has not yet tried to do very much with the lot since it obtained its lease). The balance of injuries to the parties favors neither side.

The impact on the public interest favors neither. McVey is more eager to put the lot to immediate productive use in accordance with the purpose of commercial leaseholds in Kolonia. But weighing in the Soap Company’s favor is that the public has an interest in seeing that the Board adheres to its public land lease regulations and its decisions.

Having shown irreparable harm if the injunction is not granted and a very strong likelihood of success on the merits, the court concludes that the Soap Company’s motion for a preliminary injunction should be granted to maintain the status quo.

In contrast, while McVey also claims irreparable harm if not granted a preliminary injunction in her favor, McVey’s claimed harm is that the Do It Best Hardware business sales volume will not be able to grow as quickly or as large as it otherwise would. McVey’s estimates of what the new business’s sales would be if it were now utilizing Lot No. 14-A-08 are speculative. For the reasons that the Soap Company has a strong likelihood of success on the merits, McVey is unlikely to succeed on the merits. Furthermore, the McVey motion does not seek to preserve the status quo while the litigation is pending. Where there is little likelihood of success on the merits, where economic loss is speculative and does not represent irreparable harm, where the balance of interests does not weigh in the movant’s favor, and where the public interest does not favor the injunction, no preliminary injunctive relief will be granted to a movant when it would not preserve the status quo pending the litigation. Simon v. Pohnpei, [1994] FMSC 49; 6 FSM Intrm. 314, 316-18 (Pon. 1994).

IV. Conclusion

Accordingly, the Carlos Etscheit Soap Company’s Motion for Preliminary Injunction is granted and the Motion for Temporary Restraining Order and Preliminary and Permanent Injunction filed by Erine McVey and Do It Best Hardware is denied. The terms of the temporary restraining order currently in place will continue as the terms of the preliminary injunction with the bond as it is currently set.

* * * *

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^[1] If neither lease is valid, the result could be that the Board would have to readvertize that lot. The Soap Company’s lease expired July 1, 2005. The Soap Company would like to renew its lease.