Federated States of Micronesia v GMP Hawaii, Inc. [2009] FMSC 42; 16 FSM Intrm. 601 (Pon. 2009) (22 October 2009)

FSM SUPREME COURT TRIAL DIVISION

CIVIL ACTION NO. 2008-004

FEDERATED STATES OF MICRONESIA,
Plaintiff-Counterdefendant,

vs.

GMP HAWAII, INC., a Hawaii corporation, d/b/a GMP ASSOCIATES,
Defendant-Counterclaimant.

__________________

ORDER DENYING DISMISSAL OF COUNTERCLAIMS

Dennis K. Yamase
Associate Justice

Decided: October 22, 2009

APPEARANCES:

For the Plaintiff: Dana Smith, Esq.
Program Management Unit
Office of the FSM President
P.O. Box PS-4
Palikir, Pohnpei FM 96941

For the Defendant: Daniel M. Benjamin, Esq. (pro hac vice)
La Bella & McNamara, LLP
401 West A Street, Suite 1150
San Diego, California 92101

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HEADNOTES

Sovereign Immunity; Transition of Authority
Chapter six of Title Six is the Trust Territory of the Pacific Islands sovereign immunity statute. If it ever had any application to the FSM, it would have been supplanted or repealed by implication when the FSM Congress enacted a sovereign immunity statute, FSM Pub. L. No. 1-141, specifically applicable to the FSM national government. It remained part of the FSM Code because, at the time the FSM laws were codified, the Trust Territory government retained vestigial functions and authority in the FSM. By its terms, chapter six relates only to the Trust Territory government's liability and not to the liability of any of the FSM constitutional governments. FSM v. GMP, Hawaii, Inc., 16 FSM Intrm. ---, --- (Pon. 2009).

Sovereign Immunity
Although the FSM Constitution's framers initially intended that there be no sovereign immunity in the FSM, they decided that that policy was too absolute and that the Constitution should remain silent on the subject so that the FSM Congress could decide which actions should be permitted against the government. FSM v. GMP, Hawaii, Inc., 16 FSM Intrm. ---, --- (Pon. 2009).

Statutes  Construction
Statutes are to be construed as Congress intended, which is first and foremost determined by the statute's language. FSM v. GMP, Hawaii, Inc., 16 FSM Intrm. ---, --- (Pon. 2009).

Sovereign Immunity
From the wording of the chapter seven policy statement, 6 F.S.M.C. 701, it is clear that Congress's intent was that chapter seven contained the FSM national government's entire assertion of, and limited waiver of, its sovereign immunity, and that Title Six, chapter six does not grant any, and has no effect on, the FSM national government's sovereign immunity. FSM v. GMP, Hawaii, Inc., 16 FSM Intrm. ---, --- (Pon. 2009).

Contracts  Implied Contracts; Remedies  Quantum Meruit; Sovereign Immunity
6 F.S.M.C. 702(3) waives the FSM's sovereign immunity only for claims, whether liquidated or unliquidated, upon an express or implied contract with the FSM. But, although the equitable doctrine of unjust enrichment operates in the absence of an enforceable contract when a party has received something of value and neither paid for it or returned it, unjust enrichment is a theory applicable to implied contracts. Thus, depending upon the facts of a case, 6 F.S.M.C. 702(3) does not bar an unjust enrichment claim since it does waive the FSM's sovereign immunity for implied (as well as express) contract claims. FSM v. GMP, Hawaii, Inc., 16 FSM Intrm. ---, --- (Pon. 2009).

Torts  Breach of Implied Covenant of Good Faith
Since contracts impose upon the parties an implied undertaking that each party will not intentionally or purposefully do anything to prevent the other party from carrying out its part on the agreement, breach of an implied covenant of good faith is a common law tort claim that arises out of a contractual relationship between the parties. The court has not yet extended this doctrine's application to contracts beyond insurance contracts. FSM v. GMP, Hawaii, Inc., 16 FSM Intrm. ---, --- (Pon. 2009).

Contracts; Torts  Breach of Implied Covenant of Good Faith
Subject to proof at trial, a breach of an implied covenant of good faith claim may sound, at least in part, in contract rather than in tort. FSM v. GMP, Hawaii, Inc., 16 FSM Intrm. ---, --- (Pon. 2009).

Civil Procedure  Dismissal; Torts  Conspiracy
Since civil conspiracy is not a cause of action unless an underlying civil wrong has been committed and caused damage, when certain tort counterclaims have survived dismissal motions, the civil conspiracy counterclaim, limited to those underlying torts, will survive a motion to dismiss. FSM v. GMP, Hawaii, Inc., 16 FSM Intrm. ---, --- (Pon. 2009).

Contracts  Specific Performance
Specific performance is a contract remedy that is available only when the usual measures of damages, expectancy, restitution, or reliance money damages, are inadequate compensation or cannot be computed or when a substitute cannot be purchased. FSM v. GMP, Hawaii, Inc., 16 FSM Intrm. ---, --- (Pon. 2009).

Civil Procedure  Dismissal; Civil Procedure  Pleadings; Contracts  Specific Performance
If a party prevails upon its contract counterclaim and if none of the contract money damage remedies are applicable, specific performance is a possible remedy, even if the party has not prayed for it since, except for default judgments, every final judgment must grant the relief to which the party in whose favor it is rendered is entitled, even if the party has not demanded such relief in the party's pleadings. Since specific performance, even when an unlikely remedy, is dependent upon the success of a breach of contract counterclaim and could be awarded even if it were dismissed, the dismissal of what is essentially a part of the prayer for relief will be denied. FSM v. GMP, Hawaii, Inc., 16 FSM Intrm. ---, --- (Pon. 2009).

Civil Procedure  Declaratory Relief
When a party is asserting a breach of contract counterclaim, it has standing to seek a declaration from the court of its rights under the contract. If the determination of the rights of others is necessary to determine the party's rights and obligations, then the party may seek a court declaration of the contract's terms as those affect the party. The party, however, cannot seek a determination of matters that do not affect it. FSM v. GMP, Hawaii, Inc., 16 FSM Intrm. ---, --- (Pon. 2009).

Attorney's Fees; Torts  Damages
A private party cannot seek an award under a private attorney general theory when it is suing for purely civil claims involving money damages that only vindicate the rights of just one plaintiff. FSM v. GMP, Hawaii, Inc., 16 FSM Intrm. ---, --- (Pon. 2009).

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COURT'S OPINION

DENNIS K. YAMASE, Associate Justice:

This comes before the court on 1) the plaintiffs' Motion to Dismiss Counterclaims with supporting Memorandum of Points and Authorities, filed September 1, 2009; 2) the defendant's Opposition to Plaintiffs' Motion to Dismiss Counterclaims, filed September 14, 2009; 3) the Plaintiff's Reply Memorandum of Points and Authorities in Response to Plaintiffs' Motion to Dismiss Counterclaims, filed September 23, 2009; and 4) the defendant's Surreply to Plaintiff's Reply Memorandum of Points and Authorities in Response to Plaintiffs' Motion to Dismiss Counterclaims, filed September 25, 2009. The motion is denied. The court's reasons follow.

I.

The plaintiff, Federated States of Micronesia, moves to dismiss most of the defendant's remaining counterclaims. The FSM contends that its sovereign immunity bars GMP Hawaii, Inc. ("GMP") from prevailing on any of its remaining counterclaims. The FSM relies on 6 F.S.M.C. 702 and 6 F.S.M.C. 601 and 602(5) for the proposition that it is immune from liability on GMP's counterclaims. The FSM contends that 6 F.S.M.C. 601 and 602 are FSM law applicable to the FSM national government pursuant to the FSM Constitution's Transition Clause, FSM Const. art. XV § 1, and that therefore the court has no jurisdiction over GMP's counterclaims for negligent misrepresentation (sixth counterclaim), civil conspiracy (seventh counterclaim), interference with business and contractual relationships (eighth counterclaim), and libel and slander (ninth counterclaim), since 6 F.S.M.C. 602(5) bars the Trust Territory High Court trial division from exercising any jurisdiction over "any claim [against the Trust Territory government] arising out of assault, battery, false imprisonment, false arrest, malicious prosecution, abuse of process, libel, slander, misrepresentation, deceit, or interference with contract rights."

The court must reject this contention. Chapter six (6 F.S.M.C. 601 through 603) of Title Six is the Trust Territory of the Pacific Islands sovereign immunity statute. If it ever had any application to the FSM, it would have been supplanted or repealed by implication when the FSM Congress enacted a sovereign immunity statute, FSM Pub. L. No. 1-141, 1st Cong., 3rd Spec. Sess. (1981), specifically applicable to the Federated States of Micronesia national government. See 6 F.S.M.C. 701. Chapter six, Title Six remained part of the FSM Code because, at the time the FSM laws were codified, the Trust Territory government retained vestigial functions and authority in the FSM and because chapter six might have retained some transitional vitality as state law until the each respective sovereign state had legislated on the subject. Cf. In re Raitoun[1984] FMSC 10; , 1 FSM Intrm. 561, 564 (App. 1984) (Title 5, the Trust Territory High court judiciary statute, remained part of body of FSM national law because the High Court retained extensive jurisdiction in the FSM when FSM law was codified); FSM v. Kuranaga, [2000] FMSC 24; 9 FSM Intrm. 584, 586 (Chk. 2000) (Title six, chapter 10, subchapter 1 applies only to the Trust Territory High Court, not FSM courts); Semens v. Continental Air Lines, Inc. (II), [1986] FMSC 7; 2 FSM Intrm. 200, 205 (Pon. 1986) (6 F.S.M.C. 1018 regarding taxation of costs, applies only to Trust territory courts, not FSM courts); see also Burke v. Torwal, [1996] FMSC 7; 7 FSM Intrm. 531, 534 (Pon. 1996) (FSM Code, Title Six, chapter 17, regarding reciprocal child support enforcement, remains in effect as state law). But chapter six, by its terms, relates only to the Trust Territory government's liability and not to the liability of any of the FSM constitutional governments. Panuelo v. Pohnpei, [1986] FMSC 2; 2 FSM Intrm. 150, 159 n.6 (Pon. 1986). Chapter six does not apply to the national government.

Although the FSM Constitution's framers initially intended that there be no sovereign immunity in the FSM, SCREP No. 36, II J. of Micro. Con. Con. 836, they decided that that policy was too absolute and that the Constitution should remain silent on the subject so that the FSM Congress could decide which actions should be permitted against the government, I J. of Micro. Con. Con. 531-32. See SCREP No. 1-318, J. of 1st Cong., 3rd Spec. Sess. 130, 131 (1981). Statutes are to be construed as Congress intended, which is first and foremost determined by the statute's language. Rodriguez v. Bank of the FSM, [2003] FMSC 12; 11 FSM Intrm. 367, 379 (App. 2003). From the wording of the chapter seven policy statement, 6 F.S.M.C. 701, it is clear that Congress's intent was that chapter seven contained the FSM national government's entire assertion of, and limited waiver of, its sovereign immunity. Title Six, chapter six does not grant any, and has no effect on, the FSM national government's sovereign immunity, which is governed solely by Title Six, chapter seven.

The FSM's motion to dismiss GMP's sixth, seventh, eighth, and ninth counterclaims is accordingly denied.

II.

The FSM also seeks to dismiss GMP's unjust enrichment (second counterclaim), breach of implied covenant of good faith (fourth counterclaim), civil conspiracy (seventh counterclaim), specific performance (tenth counterclaim), and declaratory judgment (eleventh counterclaim) counterclaims on the grounds that they either do not state a claim upon which relief can be granted or that the claim is not permitted by 6 F.S.M.C. 702.

The FSM contends that FSM law does not permit a suit against it on an unjust enrichment theory because, in its view, unjust enrichment is not an express or implied contract theory of recovery and thus not permitted since 6 F.S.M.C. 702(3) waives the FSM's sovereign immunity only for "[c]laims, whether liquidated or unliquidated, upon an express or implied contract with the Federated States of Micronesia."

Although the equitable doctrine of unjust enrichment operates in the absence of an enforceable contract and when a party has received something of value and neither paid for it or returned it, unjust enrichment is a theory applicable to implied contracts. Ponape Island Transp. Co. v. Fonoton Municipality, [2005] FMSC 50; 13 FSM Intrm. 510, 515 (App. 2005); see also Etscheit v. Adams, [1994] FMSC 6; 6 FSM Intrm. 365, 392 (Pon. 1994) (unjust enrichment doctrine has been expanded to include cases where there is an implied contract). Thus, depending upon the facts of a case, 6 F.S.M.C. 702(3) does not bar an unjust enrichment claim since it does waive the FSM's sovereign immunity for implied (as well as express) contract claims. Therefore, to the extent that GMP's counterclaim expresses a implied contract claim, the FSM's motion to dismiss GMP's second counterclaim is denied.

The FSM contends that GMP's breach of implied covenant of good faith counterclaim must be dismissed since, in its view, it is a tort claim barred by 6 F.S.M.C. 702(4), and not a contract claim permitted by 6 F.S.M.C. 702(3). Breach of an implied covenant of good faith is a common law tort claim that arises out of a contractual relationship between the parties since contracts impose upon the parties an implied undertaking that each party will not intentionally or purposefully do anything to prevent the other party from carrying out its part on the agreement. Phillip v. Marianas Ins. Co., [2004] FMSC 8; 12 FSM Intrm. 301, 307 (Pon. 2004) (limiting an implied covenant of good faith to insurance contracts).

Although the court has not yet extended this doctrine's application to contracts beyond insurance contracts, id., the court cannot say that GMP's counterclaim does not state a claim. Subject to proof at trial, a breach of an implied covenant of good faith claim may sound, at least in part, in contract rather than in tort. See, e.g., Simmons v. Mobil Oil Corp., [1994] USCA9 2273; 29 F.3d 505, 513 (9th Cir. 1994). If so, the counterclaim is permitted by 6 F.S.M.C. 702(3). Assuming that an implied covenant of good faith can be shown to apply to the parties' contract in this case (which has not been decided), GMP's breach of an implied covenant of good faith may state a claim upon which the court may grant relief. The FSM's motion to dismiss it is therefore denied.

The FSM seeks to dismiss GMP's civil conspiracy counterclaim on the ground that civil conspiracy is not a cause of action unless an underlying civil wrong has been committed and caused damage. The FSM contends that the alleged underlying civil wrong is the civil rights and tortuous interference with contract relations counterclaims previously dismissed by the court, FSM v. GMP, Hawaii, Inc., [2009] FMSC 31; 16 FSM Intrm. 479, 484 (Pon. 2009), and that therefore there is no underlying civil wrong to support a conspiracy claim. GMP asserts that it has valid underlying tort claims against the FSM under its sixth (negligent misrepresentation), eighth (interference with business and contractual relationships), and ninth (libel and slander) counterclaims. Since those claims have survived the FSM's dismissal motions, the civil conspiracy counterclaim, limited to those underlying torts, will survive this motion. The FSM's motion to dismiss it is therefore denied.

The FSM contends that GMP's specific performance counterclaim should be dismissed because it is a remedy and not a cause of action. Specific performance is a contract remedy that is available only when the usual measures of damages, expectancy, restitution, or reliance money damages are inadequate compensation or cannot be computed or when a substitute cannot be purchased.

GMP has a breach of contract counterclaim. If it prevails upon that counterclaim and if none of the contract money damage remedies are applicable, specific performance is a possible remedy, even if GMP has not prayed for it. FSM Civ. R. 54(c) (except for default judgments "every final judgment shall grant the relief to which the party in whose favor it is rendered is entitled, even if the party has not demanded such relief in the party's pleadings"). Thus, specific performance, even though an unlikely remedy, is dependent upon the success of GMP's breach of contract counterclaim and could be awarded even if it were dismissed. The dismissal of what is essentially a part of the prayer for relief is denied.

The FSM also seeks to dismiss GMP's counterclaim for a declaratory judgment on the grounds that GMP has no standing to assert the rights of third parties not before the court and cannot assert a private attorney general claim.

Since GMP is asserting a breach of contract counterclaim, it has standing to seek a declaration from the court of its rights under the contract. If the determination of the rights of others is necessary to determine GMP's rights and obligations, then GMP may seek a court declaration of the contract's terms as those affect GMP. GMP, however, cannot seek a determination of matters that do not affect it. It also cannot seek an award under a private attorney general theory since a private party suing for purely civil claims involving money damages and only vindicates the rights of just one plaintiff, GMP, a private attorney general fee and cost award is not available. See M/V Kyowa Violet v. People of Rull ex rel. Mafel, [2008] FMSC 53; 16 FSM Intrm. 49, 64-65 (App. 2008).

III.

Accordingly, the FSM's motion to dismiss GMP's counterclaims is denied with the exception that GMP cannot advance a private attorney general claim.

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