Carlos Etscheit Soap Company v Do It Best Hardware [2006] FMSC 9; 14 FSM Intrm. 152 (Pon. 2006) (16 March 2006)

FEDERATED STATES OF MICRONESIA
SUPREME COURT TRIAL DIVISION
Cite as Carlos Etscheit Soap Co. v. Do It Best Hardware, [2006] FMSC 9; 14 FSM Intrm. 152 (Pon. 2006)

CARLOS ETSCHEIT SOAP COMPANY,
Plaintiff,

vs.

DO IT BEST HARDWARE, a business
organization, form unknown, ERINE McVEY,
and BOARD OF TRUSTEES OF THE POHNPEI
STATE PUBLIC LANDS TRUST,
Defendants.

CIVIL ACTION NO. 2005-007

ERINE McVEY and DO IT BEST HARDWARE,
Plaintiffs,

vs.

CARLOS ETSCHEIT SOAP COMPANY,
Defendant.

CIVIL ACTION NO. 2005-008

ORDER DENYING MOTIONS TO DISMISS AND MOTION TO ABSTAIN

Andon L. Amaraich
Chief Justice

Decided: March 16, 2006

APPEARANCES:

[14 FSM Intrm. 157]

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):
Salomon Saimon, Esq.
Assistant Attorney General
Pohnpei Department of Justice
P.O. Box 1555
Kolonia, Pohnpei FM 96941

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HEADNOTES

Jurisdiction - Arising under National Law
When the case was first filed in the FSM Supreme Court as an action for civil rights and due process and certain fact-finding functions were referred to the Pohnpei Board of Trustees because it was best able, at least initially, to make those determinations, the remand or reference to the Board did not divest the court of jurisdiction because in making that remand or reference, the court was not transferring this case to the Board of Trustees and the Board does not have the authority to grant much of the relief sought in the case - damages for civil rights and due process violations and for trespass and injunctive relief. Jurisdiction over the case remained with the court the whole time. Carlos Etscheit Soap Co. v. Do It Best Hardware, [2006] FMSC 9; 14 FSM Intrm. 152, 156-57 (Pon. 2006).

Civil Procedure - Dismissal; Jurisdiction - Arising under National Law
When the remand or reference to the Board of Trustees was analogous to this court’s power to appoint a special master to make factual findings, which the court may or may not adopt as its own findings and was also similar to those cases that were initiated in the FSM Supreme Court in Chuuk and then "remanded" to the Chuuk Land Commission for certain factual determinations and those cases then either "appealed" back to, or referred back to, the FSM Supreme Court trial division when those determinations were either completed or some other issue came up that required court determination, and when the Board, in effect, acted as a special master - a court-designated fact finder. When the FSM Supreme Court had subject-matter jurisdiction over the complaint’s allegations when it was filed, the court still retained that jurisdiction and the remand or reference is thus not a ground upon which to grant dismissal. Carlos Etscheit Soap Co. v. Do It Best Hardware, [2006] FMSC 9; 14 FSM Intrm. 152, 157 (Pon. 2006).

Civil Procedure - Dismissal
Although not listed in Civil Rule 8(c), failure to exhaust administrative remedies is an affirmative defense. Carlos Etscheit Soap Co. v. Do It Best Hardware, [2006] FMSC 9; 14 FSM Intrm. 152, 157 (Pon. 2006).

Civil Procedure - Dismissal
A motion to dismiss for failure to state a claim should not be granted unless it appears to a certainty that no relief could be granted under any state of facts that can be proved in support of the claim. A court evaluates a motion to dismiss for failure to state a claim only on whether the complaint adequately states the plaintiff’s case, and does not resolve the case’s facts or merits. A court deciding such a motion must assume that the facts alleged in the complaint are true and view them in a light most favorable to the plaintiff, and then dismiss the complaint only if it appears certain that no relief could be granted under any

[14 FSM Intrm. 158]

facts which could be proven in support of the complaint. Carlos Etscheit Soap Co. v. Do It Best Hardware, [2006] FMSC 9; 14 FSM Intrm. 152, 157 (Pon. 2006).

Administrative Law - Judicial Review
When an administrative remedy is provided by statute, relief ordinarily must not only be sought initially from the appropriate administrative agency but such remedy usually must be exhausted before a litigant may resort to the courts. Carlos Etscheit Soap Co. v. Do It Best Hardware, [2006] FMSC 9; 14 FSM Intrm. 152, 157-58 (Pon. 2006).

Civil Procedure - Dismissal
When none of the cited administrative remedies were remedies that could address the plaintiff’s claimed injury and since it is not necessary to exhaust administrative remedies before filing suit in court when it would be futile to try to do so, failure to exhaust one’s administrative remedies would thus not be a ground for the case’s dismissal. Carlos Etscheit Soap Co. v. Do It Best Hardware, [2006] FMSC 9; 14 FSM Intrm. 152, 158 (Pon. 2006).

Business Organizations - Corporations
A corporation has a perpetual existence until dissolved by the appropriate authority. Carlos Etscheit Soap Co. v. Do It Best Hardware, [2006] FMSC 9; 14 FSM Intrm. 152, 158 (Pon. 2006).

Business Organizations - Corporations
A corporation has the capacity to sue and be sued in its own name. Carlos Etscheit Soap Co. v. Do It Best Hardware, [2006] FMSC 9; 14 FSM Intrm. 152, 158 (Pon. 2006).

Business Organizations - Corporations; Civil Procedure - Dismissal
A contention that a corporation does not have the proper foreign investment permit to allow it to do the type of business that the movants suppose it would conduct, may be a defense that the movants can raise in an answer, but it is not a ground for dismissal at the pre-answer stage on the contention that the corporation lacked legal capacity. Only if it lacked the power to sue and be sued could its complaint be dismissed at this stage for the lack of legal capacity. Carlos Etscheit Soap Co. v. Do It Best Hardware, [2006] FMSC 9; 14 FSM Intrm. 152, 158 (Pon. 2006).

Federalism - Abstention and Certification
The choice to abstain from a decision lies wholly within the trial court’s sound discretion. Certain circumstances may give rise to an inclination in favor of abstention, such as a state request for abstention when there are identifiable, particularly strong state interests such as monetary claims against the state or questions concerning ownership of land, but national courts still have the obligation to carry out their own jurisdictional responsibilities. Carlos Etscheit Soap Co. v. Do It Best Hardware, [2006] FMSC 9; 14 FSM Intrm. 152, 158 (Pon. 2006).

Federalism - Abstention and Certification
A national court may not abstain from exercising its constitutional jurisdiction when it is directly faced with a constitutional issue and surely may never abstain completely from exercising jurisdiction in a case where there remains to be resolved a substantial issue under the national constitution. Carlos Etscheit Soap Co. v. Do It Best Hardware, [2006] FMSC 9; 14 FSM Intrm. 152, 159 (Pon. 2006).

Federalism - Abstention and Certification
When the case does not involve a question of land ownership, although land use rights are involved because the fairness and constitutionality of the process by which those rights were granted, is the central issue; when trying to separate the national constitutional issues from the state law issues would be difficult and impractical and would also cause considerable delay; and when abstaining from those parts of the case

[2006] FMSC 10; [14 FSM Intrm. 159]

which do not involve interpretation of the FSM Constitution due process clause (and the FSM civil rights statute) and separating it from the rest of the case would be difficult and impractical and cause unreasonable delay, the factors that favor the court’s retention of the case outweigh those that favor abstention. Carlos Etscheit Soap Co. v. Do It Best Hardware, [2006] FMSC 9; 14 FSM Intrm. 152, 159 (Pon. 2006).

* * * *

COURT’S OPINION

ANDON L. AMARAICH, Chief Justice:

On March 18, 2005, the plaintiff, Carlos Etscheit Soap Company ("Soap Company"), filed its complaint against the Board of Trustees of the Pohnpei State Public Lands Trust ("Board") alleging due process and civil rights violations and against Do it Best Hardware and Erine McVey ("McVey"), alleging trespass. The complaint alleges that the Board voided the Soap Company’s 1997 lot lease and leased the lot to McVey, who then occupied it, without any notice to it or an opportunity to be heard. The case was docketed as Civil Action No. 2005-007. On April 8, 2005, Civil Action No. 2005-008, in which Erine McVey and Do it Best Hardware sued the Soap Company alleging interference with property rights and tortious interference with contract, was consolidated with Civil Action No. 2005-007. All parties then executed a stipulation, approved by the court on April 14, 2005, that referred the matter to the Board of Trustees for it to conduct its own fact-finding hearing on the circumstances of the issuance of two different leases (one to the Soap Company in 1997 and one to McVey in 2005) for the same lot in Kolonia, Lot No. 014-A-08, and stayed further proceedings in this court until that process was complete.

On October 28, 2005, the Board rendered its decision, finding McVey’s lease to Lot 014-A-08 valid and the Soap Company’s earlier lease to the same lot invalid. On November 4, 2005, the Soap Company filed its Motion for Temporary Restraining Order and Preliminary Injunction; Notice of Appeal or in the Alternative Motion to Resume Jurisdiction. The Soap Company considered this filing to be, among other things, either an appeal^[1] to this court from the Board of Trustees’ decision or a motion for this court to resume jurisdiction or move forward with the proceedings that had been stayed by the April 14, 2005 stipulation and order. On November 18, 2005, the court granted the temporary restraining order.

On November 14, 2005, McVey filed a motion to dismiss the "appeal" or an opposition to motion to resume jurisdiction. On November 16, 2005, the Board filed its Motion to Dismiss with a supplement to that motion filed the next day. On November 24, 2005, the Soap Company filed its opposition to both motions to dismiss. On November 25, 2005, the Board supplemented its motion to dismiss and, on November 29, 2005, replied to the Soap Company’s opposition to its motion to dismiss.

On February 17, 2006, the Board and McVey filed their Joint Renewed Motion to Dismiss Civil Action 2005-007; Supplement to Motion to Dismiss Appeal and Opposition to Resumption of Jurisdiction; Motion to Abstain. On February 24, 2006, the Soap Company filed its Opposition to Motion to Dismiss or in the Alternative to Abstain.

By the parties’ February 17, 2006 agreement, and the court’s February 20, 2006 order, the hearing on the Soap Company’s preliminary injunction motion and on McVey’s order to show cause motion was continued until the court ruled on the pending jurisdictional motions to dismiss and to abstain. The court’s November 18, 2005 temporary restraining order, as extended by the parties’ agreement and the court’s

[14 FSM Intrm. 160]

February 20, 2006 order and earlier agreements and orders, remains in place until the court rules on the pending jurisdictional motions and, if those motions are denied, until the pending preliminary injunction motion is heard. The court’s ruling follows. The motions to dismiss are considered first because if the court has no jurisdiction then it cannot grant a motion to abstain. It can only dismiss the case. A motion to abstain presumes that the court has jurisdiction.

I. Motions to Dismiss

The Soap Company’s November 4, 2005 filing asked this court to consider that filing either as an appeal from the Board of trustees’ October 28, 2005 decision or a motion for this court to resume jurisdiction. McVey’s November 14, 2005 motion to dismiss contended that the case should be dismissed because the Soap Company had failed to exhaust its administrative remedies by not appealing the Board’s earlier decision to award a lease to McVey. McVey further contended that since the Board’s October 28, 2005 decision was not an independent action before the Board, the Pohnpei statute permitting an appeal from the Board to a court did not apply. McVey, however, also noted that this court retained jurisdiction over the underlying case but opposed any injunctive relief. The Board moved to dismiss on the ground that this court lacked subject matter jurisdiction over the matter and that the Soap Company’s complaint failed to state a claim upon which relief could be granted. The Board contended that this court divested itself of jurisdiction by allowing the Board to perform its statutory functions and that the Board’s decision was final subject only to judicial review in the FSM Supreme Court appellate division. The Board also contends that since matters outside the pleadings have been submitted, its motion should be considered one for summary judgment.

The joint renewed motion to dismiss of McVey and the Board added the ground that the Soap Company has no legal capacity and repeated the assertion that the Soap Company had failed to exhaust its administrative remedies before coming to court.

The three motions to dismiss state four grounds for dismissal: 1) the court lacks subject matter jurisdiction; 2) the Soap Company’s complaint fails to state a claim upon which relief can be granted; 3) the Soap Company failed to exhaust its administrative remedies before filing this case; and 4) the Carlos Etscheit Soap Company lacks legal capacity.

A. Subject Matter Jurisdiction

The movants contend that the court lacks subject matter jurisdiction because, in their view, once the matter was referred to the Board of Trustees this court lost, or divested itself of, jurisdiction and then once the Board rendered its decision, the matter could not come back to this court or this court could not resume jurisdiction. Two different forums have been suggested as to where, other than here, the Soap Company should have proceeded after the Board of Trustees decision - the FSM Supreme Court appellate division and the Pohnpei Supreme Court trial division.

This case was originally filed in this court as an action for civil rights and due process. Certain fact-finding functions were referred to the Board because it was best able to make those determinations, at least initially. This court entered a stay until that process was complete. This is not a case that started before the Board of Trustees and then an aggrieved party tried to appeal an unfavorable decision directly to this court.

The case was filed in this court first. The remand or reference to the Board of Trustees did not divest this court of jurisdiction. In making that remand or reference, the court was not transferring this case to the Board of Trustees. Furthermore, the Board does not have the authority to grant much of the relief sought in this case - damages for civil rights and due process violations and for trespass and injunctive relief. Jurisdiction over this case remained with this court the whole time.

[14 FSM Intrm. 161]

The remand or reference to the Board of Trustees was, in some ways, analogous to this court’s power to appoint a special master to make factual findings, which the court may or may not adopt as its own findings. See FSM Civ. R. 53. This is also similar to those cases that were initiated in the FSM Supreme Court in Chuuk and then "remanded" to the Chuuk Land Commission for certain factual determinations and those cases then either "appealed" back to, or referred back to, the FSM Supreme Court trial division when those determinations were either completed or some other issue came up that required court determination. See, e.g., Church of the Latter Day Saints v. Esiron, [2004] FMSC 3; 12 FSM Intrm. 473 (Chk. 2004); Kiniol v. Kansou, [2004] FMSC 1; 12 FSM Intrm. 335 (Chk. 2004); Wito Clan v. United Church of Christ, [1997] FMSC 25; 8 FSM Intrm. 116 (Chk. 1997); see also Small v. Roosevelt, Innocenti, Bruce & Crisostomo, [2001] FMSC 31; 10 FSM Intrm. 367 (Chk. 2001). In this case, the Board, in effect, acted as a special master - a court-designated fact finder.

It is unquestioned that this court had subject-matter jurisdiction over the complaint’s allegations when it was filed. This court still retains that jurisdiction. This is thus not a ground upon which to grant dismissal.

B. Failure to State a Claim upon Which Relief Can Be Granted

The movants contend that the complaint does not state a claim upon which relief may be granted. The basis for this contention is that the Soap Company has failed to state any violation of its due process rights and that it has failed to exhaust its administrative remedies. Although not listed in Civil Rule 8(c), failure to exhaust administrative remedies is an affirmative defense. Pohnpei v. Ponape Constr. Co., [1996] FMSC 13; 7 FSM Intrm. 613, 618 (App. 1996). It will be discussed below separately.

A motion to dismiss for failure to state a claim should not be granted unless it appears to a certainty that no relief could be granted under any state of facts that can be proved in support of the claim. Nahnken of Nett v. United States, [1996] FMSC 9; 7 FSM Intrm. 581, 586 (App. 1996). A court evaluates a motion to dismiss for failure to state a claim only on whether the complaint adequately states the plaintiff’s case, and does not resolve the facts or merits of the case. A court deciding such a motion must assume that the facts alleged in the complaint are true and view them in a light most favorable to the plaintiff, and then dismiss the complaint only if it appears certain that no relief could be granted under any facts which could be proven in support of the complaint. Dorval Tankship Pty, Ltd. v. Department of Finance, [1997] FMSC 24; 8 FSM Intrm. 111, 114 (Chk. 1997).

The court cannot say that it appears certain that no relief could be granted on any set of facts that could be proven on the complaint’s due process and civil rights allegations. Those allegations are sufficient to state a claim. This is therefore not a ground upon which to grant dismissal.

C. Failure to Exhaust Administrative Remedies

The movants contend that the complaint should be dismissed for the Soap Company’s failure to exhaust administrative remedies, that is, remedies an aggrieved parties must try in the administrative process before resorting to court action. When an administrative remedy is provided by statute, relief ordinarily must not only be sought initially from the appropriate administrative agency but such remedy usually must be exhausted before a litigant may resort to the courts. Choisa v. Osia, [1998] FMCSC 1; 8 FSM Intrm. 567, 569 (Chk. S. Ct. Tr. 1998). The movants contend that Pohnpei rules and regulations provide the Soap Company with procedures for correcting the Board of Trustees’ mistakes after an award has been made, for bidding irregularities, and for bid protests. The Soap Company used none of these remedies.

However, none of these remedies would have addressed the Soap Company’s claimed injury. The Soap Company does not assert that there were bidding irregularities or that a mistake had been made in the award process. The Soap Company’s claimed injury is that there never should have been a bidding or award process because it already had a lease for the Lot or, alternatively, it should have been notified and given

[14 FSM Intrm. 162]

the opportunity to correct any deficiencies in its lease before any bidding process might begin. The movants’ cited administrative remedies were thus not remedies that could address the Soap Company’s claimed injury. Furthermore, it is not necessary to exhaust administrative remedies before filing suit in court when it would be futile to try to do so. Dorval Tankship Pty, Ltd., 8 FSM Intrm. at 115; Chuuk v. Secretary of Finance, [1996] FMSC 59; 7 FSM Intrm. 563, 566 n.4 (Pon. 1996). That would appear to be the case here when the available administrative remedies cannot address the claimed injury. Failure to exhaust one’s administrative remedies is thus not a ground for dismissal of this case.

D. Lack of Legal Capacity

Lastly, the movants contend that the complaint should be dismissed because the Soap Company lacks legal capacity. The Soap Company is a corporation, and, as such has a perpetual existence until dissolved by the appropriate authority. Cf. Nix v. Etscheit, [2001] FMSC 34; 10 FSM Intrm. 391, 397 (Pon. 2001). A corporation has the capacity to sue and be sued in its own name. See Goyo Corp. v. Christian, [2003] FMSC 67; 12 FSM Intrm. 140, 147 (Pon. 2003) (even insolvent corporation has capacity to sue and be sued). The movants contend that the Soap Company does not have the proper foreign investment permit to allow it to do the type of business that the movants suppose the Soap Company would conduct on the lot in question. While this may be a defense that the movants can raise in an answer, this is not a ground for dismissal at this pre-answer stage. Only if the Soap Company lacked the power to sue and be sued could the Soap Company’s complaint be dismissed at this stage for the lack of legal capacity. Legal capacity is therefore not a ground to grant dismissal.

Accordingly, the three motions to dismiss are denied.

II. Motion to Abstain

The joint motion of McVey and the Board also asks that the court, if it does not grant their motion to dismiss, abstain from deciding the case and let the matter proceed in the state court. The movants contend that this is an appropriate case for abstention because an interest in land is at issue and the state is a party.

The choice to abstain from a decision lies wholly within the trial court’s sound discretion. Nanpei v. Kihara, [1995] FMSC 49; 7 FSM Intrm. 319, 322 (App. 1995); Gimnang v. Trial Division, [1994] FMSC 28; 6 FSM Intrm. 482, 485 (App. 1994). Certain circumstances may give rise to an inclination in favor of abstention, such as a state request for abstention when there are identifiable, particularly strong state interests such as monetary claims against the state or questions concerning ownership of land, but national courts still have the obligation to carry out their own jurisdictional responsibilities. Nanpei, 7 FSM Intrm. at 322. The FSM Supreme Court has previously abstained when land use rights were at issue, the state was attempting to develop a coherent policy concerning public lands disposition, similar litigation was already pending in state court, the state asked for abstention in an action which might expose it to monetary damages, and when Congress had not asserted any national interests which might be affected by the litigation’s outcome, and when abstention would not result in delay or injustice to the parties. Ponape Transfer & Storage, Inc. v. Federated Shipping Co., 4 FSM Intrm. 37, 39 (Pon. 1989).

However, a national court may not abstain from exercising its constitutional jurisdiction when it is directly faced with a constitutional issue and surely may never abstain completely from exercising jurisdiction in a case where there remains to be resolved a substantial issue under the national constitution. Gimnang v. Yap, 5 FSM Intrm. 13, 25 (App. 1991); see also Island Dev. Co. v. Yap, [1999] FMSC 23; 9 FSM Intrm. 18, 20 (Yap 1999) (FSM Supreme Court may not abstain in cases involving interpretation of the FSM Constitution).

This case does not involve a question of land ownership, although land use rights are involved

[14 FSM Intrm. 163]

because the fairness and constitutionality of the process by which those rights - the lot leases - were granted is the central issue. Trying to separate the national constitutional issues from the state law issues would be difficult and impractical. It would also cause considerable delay. Abstaining from those parts of this case which do not involve interpretation of the FSM Constitution due process clause (and the FSM civil rights statute) and separating it from the rest of the case would be difficult and impractical and cause unreasonable delay. Thus the factors that favor the court’s retention of the case outweigh those that favor abstention. Ambros & Co. v. Board of Trustees, [2001] FMSC 43; 10 FSM Intrm. 639, 644 (Pon. 2001); cf. Asumen Venture, Inc. v. Board of Trustees, [2003] FMSC 63; 12 FSM Intrm. 84, 90 (Pon. 2003).

The motion to abstain is accordingly denied.

III. Conclusion

Accordingly, the three motions to dismiss are denied, as is the motion to abstain. The Board of Trustees and Do it Best Hardware and Erine McVey shall file their responsive pleadings within ten days of notice of this order. FSM Civ. R. 12(a)(1).

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^[1] The Soap Company had filed, on November 2, 2005, a Protest and Appeal of Award before the Board, pursuant to that Board’s rules. The Board denied that protest by November 17, 2005.