AHPW, Inc v State of Pohnpei [2011] FMSC 40; 18 FSM Intrm. 1 (Pon. 2011) (6 September 2011)

FSM SUPREME COURT TRIAL DIVISION

CIVIL ACTION NO. 2010-024

AHPW, INC., ROBERT C. ARTHUR, PATRICIA B. ARTHUR, BETHWEL HENRY, and MARIHNE HENRY,
Plaintiffs,

vs.

STATE OF POHNPEI and FEDERATED STATES OF MICRONESIA DEVELOPMENT BANK,
Defendants.
___________________________________

ORDER OF DISMISSAL

Dennis K. Yamase
Associate Justice

Hearing: March 16, 2011
Decided: September 6, 2011

APPEARANCES:

For the Plaintiffs: Douglas F. Cushnie, Esq.

P.O. Box 949

Saipan, Northern Marianas MP 96950

For the Defendant: Ira J. Shiflett, Esq.

(Pohnpei) Assistant Attorney General

Pohnpei Department of Justice

P.O. Box 1555

Kolonia, Pohnpei FM 96941

For the Defendant: Nora E. Sigrah, Esq.

(FSM Dev. Bank) Legal Counsel

P.O. Box M

Kolonia, Pohnpei FM 96941

* * * *

HEADNOTES

Remedies – Restitution

An unjust enrichment or restitution claim cannot be maintained until money has been paid to or received by the person alleged to be unjustly enriched or has been paid in error to someone who should not retain it. AHPW, Inc. v. Pohnpei, [2011] FMSC 40; 18 FSM Intrm. 1, 6 (Pon. 2011).

Judgments - Relief from Judgment; Remedies – Restitution

A plaintiff seeking to maintain an action for unjust enrichment as the result of having paid money on a judgment must first have that judgment vacated or reversed before that plaintiff can pursue an unjust enrichment or restitution claim. AHPW, Inc. v. Pohnpei, [2011] FMSC 40; 18 FSM Intrm. 1, 7 (Pon. 2011).

Civil Procedure - Dismissal - Before Responsive Pleading; Remedies – Restitution

If, when a judgment that a party has paid is reversed on appeal or otherwise set aside, that party then has a restitution or unjust enrichment cause of action, then it follows that when a judgment has been affirmed on appeal and not otherwise set aside, that party does not have cause of action for restitution or unjust enrichment for sums paid on the judgment. AHPW, Inc. v. Pohnpei, [2011] FMSC 40; 18 FSM Intrm. 1, 7 (Pon. 2011).

Civil Procedure - Dismissal - Before Responsive Pleading; Remedies – Restitution

If a plaintiff has not had the judgment set aside or reversed, then the plaintiff's unjust enrichment claim fails to state a claim on which relief can be granted since the plaintiff cannot allege that it would be inequitable for the defendant to retain the benefit without paying for it because the plaintiff cannot truthfully allege that the judgment has been set aside. AHPW, Inc. v. Pohnpei, [2011] FMSC 40; 18 FSM Intrm. 1, 7 (Pon. 2011).

Judgments - Relief from Judgment; Remedies – Restitution

To maintain an action for unjust enrichment or for money had and received or for restitution, the recipient of the money had and received must be shown to be unjustly enriched. Unless and until a judgment on which the plaintiffs have paid the money is vacated or reversed that is something the plaintiffs are manifestly unable to do. They thus fail to state a claim for unjust enrichment or restitution when the judgment has not been set aside and remains valid and enforceable. AHPW, Inc. v. Pohnpei, [2011] FMSC 40; 18 FSM Intrm. 1, 7 (Pon. 2011).

Remedies – Restitution

Plaintiffs who did not make any payments of their own cannot seek the restitution of any funds or allege unjust enrichment since they have not paid any funds. AHPW, Inc. v. Pohnpei, [2011] FMSC 40; 18 FSM Intrm. 1, 7-8 (Pon. 2011).

Remedies – Restitution

A constructive trust is a remedy for an unjust enrichment or restitution cause of action and when the plaintiffs fail to state a claim for unjust enrichment or restitution, there can be no basis to employ a constructive trust remedy. AHPW, Inc. v. Pohnpei, [2011] FMSC 40; 18 FSM Intrm. 1, 8 (Pon. 2011).

Judgments - Relief from Judgment; Remedies – Restitution

Although the plaintiffs' argument for restitution which asserts that an earlier judgment should not be enforced does not explicitly say so, the court must consider the case to be an independent action for relief from judgment joined with, and thus presuming success on the independent action for relief, an action for unjust enrichment and restitution with the necessary element of the prior judgment having been set aside to be accomplished in the same action. AHPW, Inc. v. Pohnpei, [2011] FMSC 40; 18 FSM Intrm. 1, 8 (Pon. 2011).

Remedies – Restitution

Some authorities indicate that after a judgment is reversed a timely demand for restitution of the judgment payment must first be made and that its refusal is a prerequisite for an unjust enrichment suit. This is sensible because the courts should not be burdened with an unjust enrichment lawsuit if the former judgment holder will return the payment after a demand for it. AHPW, Inc. v. Pohnpei, [2011] FMSC 40; 18 FSM Intrm. 1, 8 n.3 (Pon. 2011).

Civil Procedure - Res Judicata

The res judicata doctrine bars the parties or their privies from relitigating all matters that were or could have been raised in a prior action that was concluded by a final judgment on the merits and which has been affirmed on appeal or for which time to appeal has expired. AHPW, Inc. v. Pohnpei, [2011] FMSC 40; 18 FSM Intrm. 1, 8 (Pon. 2011).

Remedies - Restitution; Statutes of Limitation – Accrual

An unjust enrichment claim has not accrued (and may never accrue) when the prerequisite for the unjust enrichment claim - having an earlier judgment set aside - still has not occurred and may never occur. AHPW, Inc. v. Pohnpei, [2011] FMSC 40; 18 FSM Intrm. 1, 9 (Pon. 2011).

Statutes of Limitation

If Pohnpei had managed to breach contracts - the 1993 loan agreement and the guaranty - that it had never been a party to, it would have had to have done it well before 1999 when the plaintiff filed suit. In which case, the statute of limitations on that claim expired long before this action was filed in 2010 since, under Pohnpei state law, the limitations period on contract actions against the State of Pohnpei is two years. AHPW, Inc. v. Pohnpei, [2011] FMSC 40; 18 FSM Intrm. 1, 9 (Pon. 2011).

Statutes of Limitation

Tort actions against Pohnpei are subject to a two-year limitations period. AHPW, Inc. v. Pohnpei, [2011] FMSC 40; 18 FSM Intrm. 1, 9 n.4 (Pon. 2011).

Civil Procedure - Pleadings; Statutes of Limitation

A breach of contract counterclaim by loan guarantors against the bank would have a six-year limitation period. But, as that would have been a Civil Rule 13(a) compulsory counterclaim, the guarantors had to raise it in their earlier lawsuit or that claim was waived. AHPW, Inc. v. Pohnpei, [2011] FMSC 40; 18 FSM Intrm. 1, 9 (Pon. 2011).

Agency; Banks and Banking

The FSM Development Bank was not Pohnpei's agent in making the loan, in receiving the loan repayments, or in suing the guarantors when the borrower defaulted because until FSM Public Law No. 12-75 was enacted over the President's veto, Pohnpei could not even consider that any IDF funds might be its own money. If it had been Pohnpei's money, then Congress would not have had to enact a law to give it to Pohnpei. That Congress later decided to wind up IDF subaccount activity and allow the transfer of those funds to the states does not magically and retroactively relieve the guarantors of their judicially-determined liability to the bank and it does not create a new cause of action or cause a new claim to accrue upon which the plaintiffs can now sue for the first time. AHPW, Inc. v. Pohnpei, [2011] FMSC 40; 18 FSM Intrm. 1, 10 (Pon. 2011).

Civil Procedure - Res Judicata

Any claim based on the effect of an FSM public law's enactment on February 3, 2003, is a claim that, at the latest should have been (and certainly could have been) raised in a 2008 civil action if not earlier in a March 27, 2008 Rule 60(b) motion in another civil action. Since the FSM public law could have been raised in one of these instances (and in both of those instances, parties certainly made arguments which the public law could have been used to support), res judicata bars raising it now. AHPW, Inc. v. Pohnpei, [2011] FMSC 40; 18 FSM Intrm. 1, 10 (Pon. 2011).

Civil Procedure - Res Judicata

Res judicata bars parties from relitigating all matters that were or could have been raised in prior actions, not just those that were actually raised. To escape the bar of res judicata, it is not enough that the issue has not been raised before. The issue must be one that could not have been raised before. Litigants may not sit idly by during the course of litigation and then seek to present additional defenses in the event of an adverse outcome. AHPW, Inc. v. Pohnpei, [2011] FMSC 40; 18 FSM Intrm. 1, 10 (Pon. 2011).

Civil Procedure - Dismissal - Before Responsive Pleading

When the plaintiffs' other claim for relief is the injury they allege they suffered as a result of a judgment, their injury claims are premised on that judgment being found inequitable and unenforceable or otherwise invalid and when their claim that the judgment was invalid or unenforceable has failed, these injury allegations fail to state a claim for which the court can grant relief. AHPW, Inc. v. Pohnpei, [2011] FMSC 40; 18 FSM Intrm. 1, 10 (Pon. 2011).

Judgments - Relief from Judgment

There are only three methods by which judgment-debtors may have a judgment against them set aside. One is to appeal the judgment and convince the appellate court to reverse it. The second is a motion for relief from judgment as provided for in Civil Procedure Rule 60(b). The third is an independent action in equity (as acknowledged in Rule 60(b)) to set aside a judgment. AHPW, Inc. v. Pohnpei, [2011] FMSC 40; 18 FSM Intrm. 1, 11 & n.5 (Pon. 2011).

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COURT'S OPINION

DENNIS K. YAMASE, Associate Justice:

On March 16, 2011, this came before the court for hearing the State of Pohnpei's Motion to Dismiss, filed November 1, 2010; Defendant FSM Development Bank's Motion to Dismiss the Complaint and Amended Complaint, filed November 1, 2010; Plaintiff's Response to Motions to Dismiss, filed November 16, 2010; Pohnpei State's Reply to Response to Motion to Dismiss, filed November 25, 2010; and Defendant FSM Development Bank's Reply to Plaintiffs' Response to Motion to Dismiss, filed January 14, 2011. The motions to dismiss are granted. The reasons follow.

I. Prior Litigation

The plaintiffs seek the return of the $10,000 the Arthur plaintiffs paid toward the judgment in Civil Action No. 2001-007; they seek other damages alleged to have stemmed from that judgment; and they seek to be relieved from any liability for that judgment. In 2001-007, the plaintiff, the FSM Development Bank, and the defendants, Robert C. Arthur, Patricia B. Arthur, Bethwel Henry, and Marihne Henry, all agreed and stipulated as true that the borrower on a 1993 loan was AHPW, Incorporated; that the promissory note mistakenly named Robert C. Arthur, Patricia B. Arthur, Bethwel Henry, and Marihne Henry as the borrowers; and that Robert C. Arthur, Patricia B. Arthur, Bethwel Henry, and Marihne Henry had each signed a guaranty of the AHPW, Inc. loan. FSM Dev. Bank v. Arthur, [2004] FMSC 32; 13 FSM Intrm. 1, 6-7 (Pon. 2004).

The court reformed the promissory note to correctly reflect the agreement made when the loan was granted since, where, because of mistake, a writing fails to accurately state the parties' agreement, reformation of the contract is the exclusive remedy. Id. at 9-10. On October 5, 2004, the court held Robert C. Arthur, Patricia B. Arthur, Bethwel Henry, and Marihne Henry (hereinafter "the guarantors") liable, as guarantors, on the guaranty they had signed, for the balance due on a defaulted loan that the FSM Development Bank had made to AHPW, Inc. Id. at 12. Each guarantor had personally and unconditionally guaranteed that loan would be repaid when they each signed a guaranty to that effect. Id. at 11-12. Judgment was entered accordingly. The appellate division affirmed the judgment on September 14, 2006. Arthur v. FSM Dev. Bank, [2006] FMSC 59; 14 FSM Intrm. 390 (App. 2006).

On March 27, 2008, the guarantors moved, in Civil Action No. 2001-007, for relief from the judgment. Their motion was denied on June 2, 2008. FSM Dev. Bank v. Arthur, [2008] FMSC 37; 15 FSM Intrm. 625 (Pon. 2008). While the appeal of this denial was pending, they filed, on December 5, 2008, an independent action (docketed as Civil Action No. 2008-041) for relief from the Civil Action No. 2001-007 judgment and named as defendants the State of Pohnpei, the Investment Development Fund ("IDF"), and the Federated Development Authority ("FDA"), as well as the Development Bank. In the independent action (No. 2008-041), the court, on October 19, 2009, entered summary judgment against the guarantors on all claims. Arthur v. Pohnpei, [2009] FMSC 41; 16 FSM Intrm. 581, 600-01 (Pon. 2009). The guarantors appealed.

On December 17, 2009, the appellate court affirmed the trial court's June 2, 2008 denial of the guarantors' Rule 60(b) motion for relief from judgment in Civil Action No. 2001-007. Arthur v. FSM Dev. Bank, [2009] FMSC 54; 16 FSM Intrm. 653 (App. 2009). The guarantors later withdrew their appeal of Civil Action No. 2008-041.

The FSM Development Bank loan to AHPW, Inc. was from IDF money. The bank, under the FDA's direction, was statutorily responsible for administering all IDF loans and for any legal action to enforce payment obligations for IDF loans, FSM Pub. L. No. 5-122, § 4(th Cong., 4th Spec. Sess.Sess. (1988), including the AHPW, Inc. loan.

The loan was for AHPW, Inc. to develop or expand a gourmet pepper export business and a trochus shell export bss. AHPW, Inc. v. FSM, [2004] FMSC 56; 12 FSM Intrm. 544, 548-50 (Pon. 2004). Pohnpei's anti-competitive acts (a violation of 32 F.S.M.C. 302(2)) effectively put AHPW, Inc. out of the pepper business. AHPW, Inc. sued Pohnpei and the national government[1] (docketed as Civil Action No. 1999-053) and obtained a $225,448 judgment against Pohnpei for AHPW, Inc.'s lost pepper profits which, under 32 F.S.M.C. 306(2), was trebled to $676,374, AHPW, Inc. v. FSM, [2004] FMSC 56; 12 FSM Intrm. 544, 550, 557 (Pon. 2004), plus another $28,338.76 in attorneys' fees, AHPW, Inc. v. FSM, [2004] FMSC 33; 13 FSM Intrm. 36, 43 (Pon. 2004).

The AHPW (No. 1999-053) judgment was affirmed on appeal, but the trebling of damages and the $10 (trebled to $30) award for the trochus business were vacated and remanded to the trial court for further consideration. Pohnpei v. AHPW, Inc., [2006] FMSC 1; 14 FSM Intrm. 1, 26 (App. 2006). On remand, the trial court reinstated treble damages for the lost pepper profits and added a $37,422 detrimental reliance award for AHPW's trochus shell business, making AHPW, Inc.'s total judgment $713,766, AHPW, Inc. v. Pohnpei, [2006] FMSC 14; 14 FSM Intrm. 188, 192 (Pon. 2006),[2] plus the original attorney's fees of $28,338.76, and 9% interest on the original $225,448 (as trebled to $676,344) pepper business judgment from the original July 8, 2004 judgment date, AHPW, Inc. v. Pohnpei, [2008] FMSC 22; 15 FSM Intrm. 520, 528 (Pon. 2008). The appellate court also upheld the trial court ruling that if AHPW, Inc. had remained in business, AHPW, Inc. would have had to repay the Development Bank loan out of AHPW, Inc.'s (lost) pepper profits, thus the judgment had included the means to repay the bank loan. AHPW, Inc., 14 FSM Intrm. at 22; AHPW, Inc., 12 FSM Intrm. at 556.

As of two years ago, AHPW, Inc. had a $742,104.76 ($713,766 plus $28,338.76 in fees and costs) judgment (with 9% interest on $676,344 from July 8, 2004 and 9% interest on $37,422 from April 14, 2006) against the State of Pohnpei, on which Pohnpei, on June 10, 2008, had paid $335,000 to AHPW, Inc., and the FSM Development Bank had a $504,960.15 judgment (plus 9% interest from October 5, 2004) against the loan guarantors, of which only $10,000 had been paid. Arthur v. Pohnpei, [2009] FMSC 41; 16 FSM Intrm. 581, 588-89 (Pon. 2009). If the parties in both cases had been the same, the judgments would have been offset against each other, which would have left $237,144.61 (and 9% interest on $676,344 from July 8, 2004 to October 5, 2004, which is about $14,842.50) due to AHPW, Inc. (AHPW, Inc. has already been paid $335,000.) The bank made the guarantors an offer that would have had the same effect as a setoff and which would have resolved the matter without any guarantor having to make any payment whatsoever to the bank, but the guarantors rejected this approach.

This suit was then filed on October 6, 2010.

II. Parties' Positions

The plaintiffs, in their First Amended Complaint, allege that the defendants have been unjustly enriched and that the plaintiffs are entitled to restitution of all money paid on the Civil Action No. 2001-007 judgment and that either defendant had and received. They pray that a constructive trust for the plaintiffs' benefit be imposed on any assets that either defendant receives from any guarantor. They also ask that the guarantors be awarded damages for injuries they may have suffered as a consequence of the Civil Action No. 2001-007 judgment being entered against them and the bank's efforts to collect it. They further contend that Pohnpei breached its contractual obligations to AHPW, Inc. and that Pohnpei or both defendants breached their contractual obligations on the guaranty.

Pohnpei and the bank both move to dismiss the plaintiffs' amended complaint because this action is barred by res judicata and by the statute of limitations and because the plaintiffs fail to state a claim upon which relief can be granted. The defendants note that the amended complaint rarely mentions any dates and asserts that this is because the statute of limitations has expired on any claim based on the manner in which AHPW, Inc. obtained its loan from the bank or on how Pohnpei's anti-competitive practices put AHPW, Inc. out of business. The bank also contends that this suit should be dismissed because the common-law litigation privilege gives it absolute immunity from civil liability for a wide spectrum of legal theories involving acts, such as obtaining and enforcing judgments, taken in relation to legal proceedings.

The plaintiffs reject the application of res judicata and the statute of limitations. They assert that this is a new cause of action that did not accrue until the Arthur plaintiffs made one [involuntary] $10,000 payment on the Civil Action No. 2001-007 judgment on October 10, 2008; that their cause of action is thus well within the six-year statute of limitations for a restitution or unjust enrichment action; that it was not possible to maintain the present suit before the $10,000 was paid; that the earlier litigation could not operate as res judicata for this restitution cause of action because either it had not yet accrued or the issue had not been raised; and that there is no basis to adopt a litigation privilege in the FSM or in this case since the privilege relates to communications by a lawyer during the course of litigation and the bank should present a factual basis first.

III. Analysis of the Merits

A. Whether Unjust Enrichment or Restitution Claim Is Stated

The plaintiffs are correct that an unjust enrichment or restitution claim cannot be maintained until money has been paid to or received by the person alleged to be unjustly enriched or has been paid in error to someone who should not retain it. Also true is that there are circumstances where a plaintiff may maintain a restitution or unjust enrichment action seeking the return of money paid towards the satisfaction of a judgment.

A plaintiff seeking to maintain an action for unjust enrichment as the result of having paid money on a judgment must first have that judgment vacated or reversed before that plaintiff can pursue an unjust enrichment or restitution claim. See, e.g., In re Zurn[2002] USCA7 213; , 290 F.3d 861, 863 (7th Cir. 2002) (independent action for restitution available when satisfied judgment is reversed); Caldwell v. Puget Sound Elec. Apprenticeship & Training Trust, 824 F.2d 765, 767 (9th Cir. 1987) (restitution based on theory of unjust enrichment can be ordered for part of judgment paid when the judgment has been reversed); Woodson v. Chamberlain, [1963] USCA4 194; 317 F.2d 245, 246 (4th Cir. 1963) (when judgment that has been paid is reversed on appeal restitution can be enforced); Gerald M. Moore & Son, Inc. v. Drewry & Assocs., Inc., 945 F. Supp. 117, 120 (E.D. Va. 1996) (person who complied with judgment entitled to restitution if judgment reversed or set aside unless restitution would be inequitable or the parties contract otherwise); Liberty Mut. Ins. Co. v. Zambole, 491 N.E.2d 132, 134 (Ill. App. Ct. 1986) (well-established rule that if party received benefits due to erroneous judgment he must, after reversal, make restitution); Phipps v. Chesson, 682 So. 2d 935, 937 (La. Ct. App. 1996) (a party who on appeal secures a reduction or reversal of a judgment is owed the sum that party had paid in response to that judgment). The one other instance in which a plaintiff may allege unjust enrichment for payment on a money judgment is when the plaintiff has, in error, paid a sum in excess of the amount owed on the judgment and seeks restitution of the excess. SeeNew Orleans Public Serv. Inc. v. Vanzant, 580 So. 2d 533 (La. Ct. App. 1991).

It ought to be abundantly apparent that if, when a judgment that a party has paid is reversed on appeal or otherwise set aside, that party then has a restitution or unjust enrichment cause of action, then it follows that when a judgment has been affirmed on appeal and not otherwise set aside, that party does not have cause of action for restitution or unjust enrichment for sums paid on the judgment. Thus, if a plaintiff has not had the judgment set aside or reversed, then the plaintiff fails to state a claim on which relief can be granted since the plaintiff cannot allege that it would be inequitable for the defendant to retain the benefit without paying for it because the plaintiff cannot truthfully allege that the judgment has been set aside.

Here, the Arthurs have paid only a small percentage of a judgment that was affirmed on appeal. Arthur v. FSM Dev. Bank, [2006] FMSC 59; 14 FSM Intrm. 390 (App. 2006), aff'g [2004] FMSC 32; 13 FSM Intrm. 1 (Pon. 2004), although they have the ability to pay most, 15 FSM Intrm. at 638 & n.9, if not all of the judgment. The guarantors' motion for relief from that judgment was denied and that denial was affirmed on appeal. Arthur v. FSM Dev. Bank, [2009] FMSC 54; 16 FSM Intrm. 653 (App. 2009), aff'g [2008] FMSC 37; 15 FSM Intrm. 625 (Pon. 2008). The 2001-007 judgment was thus twice affirmed on appeal. The guarantors'independent action for relief from that judgment ended with summary judgment entered against them, Arthur v. Pohnpei, [2009] FMSC 41; 16 FSM Intrm. 581 (Pon. 2009), and they later withdrew their appeal of that summary judgment.

To maintain an action for unjust enrichment or for money had and received or for restitution, the recipient of the money had and received must be shown to be unjustly enriched. Unless and until the Civil Action No. 2001-007 judgment is vacated or reversed (a very unlikely prospect at this point) that is something the plaintiffs are manifestly unable to do. Without a reversal or vacation of the Civil Action No. 2001-007 judgment, there is no set of facts that the plaintiffs could prove that would state a cause of action under which either of the two defendants could be held liable for being unjustly enriched. The plaintiffs thus fail to state a claim for unjust enrichment or restitution because the Civil Action No. 2001-007 judgment has not been set aside. It remains valid and enforceable.

Another reason the plaintiffs fail to state a claim for unjust enrichment or restitution is that only the Arthur plaintiffs made a payment from their personal funds on the Civil Action No. 2001-007 judgment. The Henry plaintiffs and AHPW, Inc. did not make any payments of their own toward the Civil Action No. 2001-007 judgment. And AHPW, Inc. was not even a party in that action although the guarantors could have joined AHPW, Inc. as a party to that case but neglected to do so. Arthur v. FSM Dev. Bank, [2009] FMSC 54; 16 FSM Intrm. 653, 659 (App. 2009). The Henry plaintiffs and AHPW, Inc. thus cannot seek the restitution of any funds or allege unjust enrichment since they have not paid any funds.

The plaintiffs' prayer for a constructive trust seeks the same result as, and is a remedy for, the unjust enrichment or restitution cause of action and it suffers from the same infirmities. Since the Civil Action No. 2001-007 judgment has not been set aside, the plaintiffs cannot show that the bank unjustly received any of the guarantors' funds or that any defendant was unjustly enriched. Since the plaintiffs fail to state a claim for unjust enrichment or restitution, there can be no basis to employ a constructive trust remedy.

B. The 2001-007 Judgment's Validity or Enforceability

1. Independent Action for Relief and Restitution Claim

The plaintiffs seek more than just restitution. They argue as a ground for restitution and in support of their unjust enrichment claim that the Civil Action No. 2001-007 judgment is one that in equity and good conscience should not be enforced. Apparently, the guarantors also seek to be relieved from any liability for the Civil Action No. 2001-007 judgment, and, as for AHPW, Inc., it seems to seek the overturn of the Civil Action No. 2001-007 judgment so that there will be no chance that the two judgments could ever be set off against each other or that it would be expected to pay off the AHPW, Inc. loan from its judgment. Although the plaintiffs' argument that the 2001-007 judgment should not be enforced does not explicitly say so, the court must consider this to be an independent action for relief from judgment joined with, and thus presuming success on the independent action for relief, an action for unjust enrichment and restitution with the necessary element of the prior judgment having been set aside to be accomplished in the same action.

The court will, for the purposes of deciding the pending motions and evaluating the plaintiffs' amended complaint, assume that the two claims - an independent action for relief from judgment and an unjust enrichment or restitution for the return of payments made on that judgment - may be joined in one action (an uncertain proposition[3]). The plaintiffs still face a daunting hurdle. They have already pursued an independent action for relief from judgment and lost - it resulted in a judgment against them on the merits. Arthur v. Pohnpei, [2009] FMSC 41; 16 FSM Intrm. 581 (Pon. 2009). They appealed that adverse judgment and then withdrew their appeal. Thus the 2008-041 judgment is final on the issue of relief from the 2001-007 judgment.

2. Prior Judgments' Res Judicata Effect

The res judicata doctrine bars the parties or their privies from relitigating all matters that were or could have been raised in a prior action that was concluded by a final judgment on the merits and which has been affirmed on appeal or for which time to appeal has expired. Iriarte v. Etscheit, [1998] FMSC 3; 8 FSM Intrm. 231, 236-37 (App. 1998); Nahnken of Nett v. United States, [1996] FMSC 9; 7 FSM Intrm. 581, 586 (App. 1996); Luzama v. Ponape Enterprises Co., [1995] FMSC 11; 7 FSM Intrm. 40, 51 (App. 1995); Berman v. FSM Supreme Court (II), [1995] FMSC 2; 7 FSM Intrm. 11, 16 (App. 1995). The judgments in Civil Actions No. 2001-007 and 2008-041 were on the merits and are thus res judicata.

The plaintiffs contend that res judicata cannot bar this action because their claims had not accrued when those cases were decided because the Arthurs had not paid $10,000. For the Arthurs' unjust enrichment claim this is most certainly true because their claim has still not accrued (and may never accrue) because the prerequisite for their unjust enrichment claim - having the Civil Action No. 2001-007 judgment set aside - still has not occurred.

3. "Contractual Obligations"

The plaintiffs also contend that their equitable relief claim (essentially an action to set aside the Civil Action No. 2001-007 judgment) to bar enforcement of the Civil Action No. 2001-007 judgment is not res judicata because they are now raising issues that had not, in their view, been raised or considered in either Civil Action No. 2001-007 or No. 2008-041. AHPW, Inc. now contends that Pohnpei breached its contractual obligations of good faith and fair dealing to AHPW, Inc. on the loan obligation and the guarantors contend that Pohnpei breached its contractual obligations of good faith and fair dealing to them on the guaranty that they signed and that this issue had not been raised before. But Pohnpei was not a party to the loan agreement or the guaranty, and if it had been then AHPW, Inc. could have raised this claim in Civil Action No. 1999-053, its suit against Pohnpei because any contractual obligation on Pohnpei's part would have been breached by then since its anti-competitive acts had ended AHPW, Inc.'s pepper business and the guarantors could have counterclaimed against it in Civil Action No. 2001-007.

If Pohnpei managed to breach contracts - the 1993 loan agreement and the guaranty - that it had never been a party to, it would have had to have done it well before 1999 when AHPW, Inc. filed suit. In which case, the statute of limitations on that claim expired long before this action was filed in 2010 since, under Pohnpei state law, the limitations period on contract actions against the State of Pohnpei is two years.[4] Pon. S.L. No. 2L-192-91, § 4(3) (now codified at 58 C.n. C. §§ 2-104(3), 2. (A breach of c of contract counterclaim by the guarantors against the bank would have had a six-year limitation period, 6 F.S.M.C. 805, but as that would have been a Civil Rule 13(a) compulsounterclaim, the guarantorsntors had to raise it in that lawsuit or that claim was waived.) The guarantors could have raised an affirmative defense of breach of contractual obligations and named Pohnpei as a cross-defendant in Civil Action No. 2001-007, but did not do so and cannot do so now.

4. FSM Public Law No. 12-75

The plaintiffs also contend that the effect of FSM Public Law No. 12-75, which became law on February 3, 2003 and which authorizes, upon proper application, disbursement of IDF state subaccount funds to the individual states, is a new issue not raised and decided in earlier litigation. At oral argument, plaintiffs' counsel added that Pohnpei had not made an application for that disbursement until "about a year ago."

This is directly contrary to the plaintiffs' continual theme since they first started to seek relief from the 2001-07 judgment - their position is that the bank has never been anything but a collection agent for Pohnpei to collect "Pohnpei's money." When AHPW, Inc. borrowed the money from the bank-administered IDF fund, Pohnpei had no right to any of the proceeds of the loan repayments. When Pohnpei was committing its anti-competitive acts that eventually caused AHPW, Inc. to cease making loan repayments, Pohnpei had no right to any of the proceeds of the loan repayments. When, in 2001, the bank filed suit against the guarantors since they had not honored their guaranty, Pohnpei had no right to any of the proceeds of the loan repayments, whether made by AHPW, Inc. or by the guarantors as payments on a judgment. And even when the court entered judgment against the guarantors, Pohnpei still did not have the right to any AHPW, Inc. loan repayment proceeds since Pohnpei had not yet made a proper application to implement FSM Public Law No. 12-75. The bank was not Pohnpei's agent in making the loan, in receiving the loan repayments, or in suing the guarantors when the borrower, AHPW, Inc. defaulted.

Until FSM Public Law No. 12-75 was enacted over the President's veto, Pohnpei could not even consider that any IDF funds might be its own money. If it had been Pohnpei's money, then Congress would not have had to enact a law to give it to Pohnpei. That Congress later decided to wind up IDF subaccount activity and allow the transfer of those funds to the states does not magically and retroactively relieve the guarantors of their judicially-determined liability to the bank and it does not create a new cause of action or cause a new claim to accrue upon which the plaintiffs can now sue for the first time. Congress's action to transfer funds and Pohnpei's later acceptance of it cannot retroactively alter the result.

More importantly, any claim based on the enactment of FSM Public Law No. 12-75 is barred by res judicata. Since FSM Public Law No. 12-75 became law on February 3, 2003, the effect of its enactment is a claim that, at the latest should have been (and certainly could have been) raised in Civil Action No. 2008-041, if not earlier in the guarantors' March 27, 2008 Rule 60(b) motion in Civil Action No. 2001-007. Since FSM Public Law No. 12-75 could have been raised in one of these instances (and the guarantors, in both of those instances, certainly made arguments which FSM Public Law No. 12-75 could have been used to support), res judicata bars raising it now.

The plaintiffs have misunderstood the application of res judicata. Res judicata bars the guarantors from relitigating all matters that were or could have been raised in prior actions, not just those that were actually raised. To escape the bar of res judicata, it is not enough that the issue has not been raised before. The issue must be one that could not have been raised before. As the court has earlier commented about this, litigants "'may not sit idly by during the course of litigation and then seek to present additional defenses in the event of an adverse outcome.'" Arthur v. Pohnpei, [2009] FMSC 41; 16 FSM Intrm. 581, 599 (Pon. 2009) (quoting Griffin v. Federal Deposit Ins. Corp., [1987] USCA8 962; 831 F.2d 799, 803 (8th Cir. 1987)). FSM Public Law No. 12-75 and the breach of contract issues, if not raised before, could have been raised in previous litigation, and are thus barred by res judicata.

C. Other Injury Claims

The plaintiffs' other claim for relief is the injury the guarantors allege they suffered as a result of the 2001-007 judgment - attorney's fees incurred, lost credit ratings, inability to borrow, loss of liberty interests, and other injury. The guarantors' injury claims are premised on the 2001-007 judgment being found inequitable and unenforceable or otherwise invalid. The guarantors do not allege that they were deprived of due process procedural rights or that, as part of the collection process, they were the victims of unlawful acts, such as threats of physical injury if they did not pay. Since all their alleged injury is based on the 2001-007 judgment being found invalid or unenforceable and since that claim has failed, these injury allegations fail to state a claim for which the court can grant relief. The court thus need not consider the bank's litigation privilege claim.

There are only three methods[5] by which judgment-debtors may have a judgment against them set aside. The guarantors have tried all three avenues and not succeeded with any of them. This case is an attack on a judgment that has been upheld at every turn in both the trial division and the appellate division, but which remains unsatisfied.

IV. Conclusion

Accordingly, the defendants' motions to dismiss are granted since the plaintiffs fail to state a claim on which relief can be granted and much of what they allege is barred by res judicata or by statutes of limitation.

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^[1] AHPW’s claims against the national government were dismissed in 2003. AHPW, Inc. v. FSM, [2003] FMSC 50; 12 FSM Intrm. 164, 166-68 (Pon. 2003); AHPW, Inc. v. FSM, [2003] FMSC 48; 12 FSM Intrm. 114, 118-19 (Pon. 2003). Those dismissals were affirmed on appeal. Pohnpei v. AHPW, Inc., [2006] FMSC 1; 14 FSM Intrm. 1, 23-24 (App. 2006).

^[2] This trial court decision was not appealed.

^[3] Some authorities indicate that after a judgment is reversed a timely demand for restitution of the judgment payment must first be made and that its refusal is a prerequisite for an unjust enrichment suit. See, e.g., In re Zurn, 290 F.3d at 863. This is sensible because the courts should not be burdened with an unjust enrichment lawsuit if the former judgment holder will return the payment after a demand for it.

^[4] Tort actions against Pohnpei are also subject to a two-year limitations period. 58 Pon. C. §§ 2-104(1), 2-127.

^[5] One is to appeal the judgment and convince the appellate court to reverse it. The second is a motion for relief from judgment as provided for in Civil Procedure Rule 60(b). This is not an appeal, and since Rule 60(b) motions are filed in the same case as the judgment sought to be set aside, FSM Dev. Bank v. Arthur, [2008] FMSC 60; 16 FSM Intrm. 132, 139 (Pon. 2008), aff’d[2009] FMSC 54; , 16 FSM Intrm. 653, 658 (App. 2009), this case is not a Rule 60(b) motion. The third is an independent action in equity (as acknowledged in Rule 60(b)) to set aside a judgment.