Mailo v Chuuk Health Care Plan [2013] FMSC 3; 18 FSM Intrm. 501 (Chk. 2013) (15 January 2013)

FSM SUPREME COURT TRIAL DIVISION

CIVIL ACTION NO. 2012-1031

MARK MAILO, individually and as President of the Chuuk State Legislature House of Senate,
Plaintiff,

vs.

CHUUK HEALTH CARE PLAN, a public corporation,
Defendant.
_______________________________________________

MEMORANDUM AND ORDER DENYING MOTIONS

Martin G. Yinug
Chief Justice

Hearing: January 9, 2013
Decided: January 15, 2013

APPEARANCES:

For the Plaintiff: Douglas J. Juergens, Esq.

Legislative Counsel

P.O. Box 377

Weno, Chuuk FM 96942

For the Defendant: Johnny Meippen, Esq.

P.O. Box 705

Weno, Chuuk FM 96942

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HEADNOTES

Civil Procedure - Dismissal - Lack of Jurisdiction; Civil Procedure - Injunctions
When the plaintiff does not have standing to pursue an action for a preliminary injunction, the court lacks subject matter jurisdiction over the action and the case will be dismissed. Mailo v. Chuuk Health Care Plan, [2013] FMSC 3; 18 FSM Intrm. 501, 504 (Chk. 2013).

Civil Procedure - Dismissal - Lack of Jurisdiction; Constitutional Law - Case or Dispute - Standing
A plaintiff has a personal stake in the litigation's outcome when the Plan's insurance premiums are taken from his senatorial salary and when, since he is one of the two co-equal heads of the Chuuk Legislature, it appears that he has standing in his representative capacity. Mailo v. Chuuk Health Care Plan, [2013] FMSC 3; 18 FSM Intrm. 501, 505 (Chk. 2013).

Separation of Powers - Chuuk - Legislative Powers
The legislative branch's filing of a lawsuit is not an attempt to execute a statute when the lawsuit attempts to obtain a judicial interpretation of the statute's effect or meaning. Mailo v. Chuuk Health Care Plan, [2013] FMSC 3; 18 FSM Intrm. 501, 505 (Chk. 2013).

Separation of Powers - Judicial Powers
It is the special province and duty of the courts, and of the courts alone, to say what the law is and to determine whether a statute is constitutional. Mailo v. Chuuk Health Care Plan, [2013] FMSC 3; 18 FSM Intrm. 501, 505 (Chk. 2013).

Jurisdiction - Arising under National Law; Separation of Powers - Judicial Powers
It is within the FSM Supreme Court's province to determine whether a Chuuk statute, as applied, runs afoul of the FSM Constitution. Mailo v. Chuuk Health Care Plan, [2013] FMSC 3; 18 FSM Intrm. 501, 505 (Chk. 2013).

Civil Procedure - Dismissal - Before Responsive Pleading
A motion to dismiss for failure to state a claim should not be granted unless, presuming that the plaintiff's allegations are true and giving the plaintiff the benefit of all reasonable inferences, 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. Mailo v. Chuuk Health Care Plan, [2013] FMSC 3; 18 FSM Intrm. 501, 505 (Chk. 2013).

Civil Procedure - Injunctions
In exercising its broad discretion in considering whether to grant a preliminary injunction, a court considers four factors: 1) the likelihood of success on the merits of the party seeking injunctive relief, 2) the possibility of irreparable injury to the movant, 3) the balance of possible injuries or inconvenience to the parties that would flow from granting or denying the relief, and 4) any impact on the public interest. Mailo v. Chuuk Health Care Plan, [2013] FMSC 3; 18 FSM Intrm. 501, 505 (Chk. 2013).

Civil Procedure - Injunctions
To support a preliminary injunction, a movant must show that there is a reasonable probability of success on the merits and that irreparable injury will occur unless injunctive relief is granted to maintain the status quo until a final adjudication on the merits. Mailo v. Chuuk Health Care Plan, [2013] FMSC 3; 18 FSM Intrm. 501, 505-06 (Chk. 2013).

Civil Procedure - Injunctions - Likelihood of Success; Insurance
A plaintiff has a reasonable probability of success on the merits that insurance premiums will be ruled an income tax when the contributions are computed as a percentage of income earned as wages or salaries. Mailo v. Chuuk Health Care Plan, [2013] FMSC 3; 18 FSM Intrm. 501, 506 (Chk. 2013).

Taxation - Constitutionality
A tax computed as a percentage of any form of income is a tax on that income. Only the national government can impose a tax on income. A state cannot impose a tax on income. Mailo v. Chuuk Health Care Plan, [2013] FMSC 3; 18 FSM Intrm. 501, 506 (Chk. 2013).

Insurance; Statutes - Construction
A statute that provides only that the Plan's Board "may prescribe" or "may establish" differing premium amounts based on the number of the enrollee's dependants, or on their risk factors, does not appear to require that differing premium amounts be set. Mailo v. Chuuk Health Care Plan, [2013] FMSC 3; 18 FSM Intrm. 501, 506 (Chk. 2013).

Civil Procedure - Injunctions - Irreparable Harm
The threat of irreparable harm before the litigation's conclusion is a prerequisite to preliminary injunctive relief and when money damages or other relief will fully compensate for the threatened interim action, irreparable harm does not exist and a preliminary injunction should be denied. Mailo v. Chuuk Health Care Plan, [2013] FMSC 3; 18 FSM Intrm. 501, 506 (Chk. 2013).

Civil Procedure - Injunctions - Irreparable Harm
When a plaintiff seeks to enjoin payment of money to a defendant, money damages ought to constitute full compensation if the payments are later held unconstitutional. The perceived difficulty in obtaining a refund from the defendant would not make the threatened injury irreparable because the defendant could easily accommodate any refunds to the enrolled wage-earners by allowing them credits on future premium payments. On this ground alone the preliminary injunction application can be denied. Mailo v. Chuuk Health Care Plan, [2013] FMSC 3; 18 FSM Intrm. 501, 506 (Chk. 2013).

Civil Procedure - Injunctions
A preliminary injunction's object is to preserve the status quo pending litigation on the merits. Mailo v. Chuuk Health Care Plan, [2013] FMSC 3; 18 FSM Intrm. 501, 506 (Chk. 2013).

Civil Procedure - Injunctions - Balance of Injuries; Insurance
The balance-of-harms factor favors the defendant when the harm that it would suffer is that it would receive 16_% less revenue than it had expected or budgeted for on the basis of the 3% contribution it has been collecting instead of the 2½% that the plaintiff asks the court to enforce and when the harm to the plaintiff is the extra ½% contribution he is paying which could be credited to future health insurance premium contributions if found unlawful. Mailo v. Chuuk Health Care Plan, [2013] FMSC 3; 18 FSM Intrm. 501, 506 (Chk. 2013).

Civil Procedure - Injunctions - Public Interest
Because the Chuuk Health Care Plan provides universal coverage, the public interest would favor its continued and uninterrupted funding as currently budgeted. Mailo v. Chuuk Health Care Plan, [2013] FMSC 3; 18 FSM Intrm. 501, 506 (Chk. 2013).

Civil Procedure - Injunctions
When the plaintiff's application for a preliminary injunction is denied, the issue of whether he is entitled to a permanent injunction will await final adjudication on the merits. Mailo v. Chuuk Health Care Plan, [2013] FMSC 3; 18 FSM Intrm. 501, 506 (Chk. 2013).

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COURT'S OPINION

MARTIN G. YINUG, Chief Justice:

On January 9, 2013, this came before the court to hear the plaintiff's request for a preliminary injunction and the defendant's motion to dismiss. The preliminary injunction and the motion to dismiss are denied. The reasons follow.

I. Background

The Chuuk Health Care Plan ("the Plan") was created by the Chuuk Health Care Plan Act of 1994, Chuuk State Law No. 2-94-06. The Act created a health care insurance system for the residents of the State of Chuuk. The system was not implemented until 2004 when the Plan began to collect health insurance premiums of 2½% of Chuuk residents' wages and salaries and a 2½% matching contribution from their employers. The employee pays half and the employer pays half. Chk. S.L. No. 2-94-06, § 5-4(1) and (2). In June 2012, the premium assessment was increased from 2½% to 3%.

On November 20, 2012, the plaintiff, Mark Mailo, filed this lawsuit alleging that the percentage method of assessing the h insurance premium is an u an unconstitutional tax and sought a preliminary injunction to stay the increase of the premium from 2½% to 3%. On December 7, 2012, the Plan moved to dismiss this case.

II. Motion to Dismiss

The motion to dismiss will be addressed first because if it is granted then the preliminary injunction application will not need to be decided. The Plan moves to dismiss this action because the plaintiff, Mark Mailo, as President of the Chuuk House of Senate, lacks standing to sue, because the action violates the separation of powers, and because the complaint fails to state a claim on which relief can be granted.

The Plan contends that Mailo lacks standing to sue. It asserts that Mailo, in his representative capacity as President of the Chuuk House of Senate, does not have a stake in the litigation's outcome because the House of Senate as a body is not an employer subject to pay the insurance premiums since all staff and legislators are employees of the Legislature as a whole and not of the House of Senate. When the plaintiff does not have standing to pursue an action for a preliminary injunction, the court lacks subject matter jurisdiction over the action and the case will be dismissed. Eighth Kosrae Legislature v. FSM Dev. Bank, [2003] FMSC 27; 11 FSM Intrm. 491, 501 (Kos. 2003).

Mailo certainly has a personal stake in the litigation's outcome because the Plan's insurance premiums are taken from his senatorial salary. The Plan contends that, as the Senate President, he lacks standing because only the Chuuk Legislature pays the employer's contribution and withholds the employees' contributions, and not the Senate. But since there are two co-equal heads of the Chuuk Legislature, the Speaker of the House of Representatives and the Senate President, the Plan has not shown that when only one of the two has appeared that the appearing official cannot have standing.

The Plan also contends that this lawsuit violates the principle of separation of powers because the legislative branch is trying to implement or execute a statute that it has enacted, and because the execution of the laws is an executive branch function. However, the filing of a lawsuit by the legislative branch is not an attempt to execute a statute when the lawsuit attempts to obtain a judicial interpretation of the statute's effect or meaning. It is the special province and duty of the courts, and the courts alone, to say what the law is and to determine whether a statute is constitutional. Pacific Foods & Servs., Inc. v. National Oceanic Res. Mgt. Auth., [2010] FMSC 26; 17 FSM Intrm. 181, 187 (Pon. 2010) (Constitution unmistakably places on the judicial branch the ultimate responsibility for interpretation of the Constitution and for determining the statutes' constitutionality). It is within the FSM Supreme Court's province to determine in this case whether the Chuuk statute, as applied, runs afoul of the FSM Constitution.

The Plan also contends that Mailo's complaint fails to state a claim on which the court can grant relief because the FSM Constitution permits the states to have the concurrent power to establish public welfare systems and because, in the Plan's view, the insurance premiums are not an income tax. A motion to dismiss for failure to state a claim should not be granted unless, presuming that the plaintiff's allegations are true and giving the plaintiff the benefit of all reasonable inferences, 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); Sipos v. Crabtree, [2005] FMSC 37; 13 FSM Intrm. 355, 362 (Pon. 2005); Semwen v. Seaward Holdings, Micronesia, [1995] FMSC 17; 7 FSM Intrm. 111, 113 (Chk. 1995); Jano v. King, [1992] FMSC 27; 5 FSM Intrm. 388, 390 (Pon. 1992).

Mailo does not contend that the Chuuk Health Care Plan Act is unconstitutional. He only contends that the method that the Plan has chosen to assess its premiums is unconstitutional. Mailo has alleged that the health insurance premiums are a tax. If they are a tax, a matter not yet decided, it is possible that Mailo could prove a state of facts to support his claim that it is an unconstitutional tax.

Accordingly, the Plan's Rule 12(b)(1) (lack of subject-matter jurisdiction) and Rule 12(b)(6) (failure to state a claim) motion to dismiss is denied.

III. Preliminary Injunction

Mailo seeks to enjoin the increase in the health insurance premiums from 2½% to 3% of an employee's wages or salary. Mailo contends that the percentage assessment on employees' wages and salaries is unconstitutional because it is a tax on income. Mailo also contends that since the premium assessment does not vary based on the number of an enrollee's dependents or on their risk factors, it violates the statutory guidelines, found in section 5-1, for the establishment of the Plan's premium amounts.

In exercising its broad discretion in considering whether to grant a preliminary injunction, a court considers four factors: 1) the likelihood of success on the merits of the party seeking injunctive relief, 2) the possibility of irreparable injury to the movant, 3) the balance of possible injuries or inconvenience to the parties that would flow from granting or denying the relief, and 4) any impact on the public interest. FSM v. GMP Hawaii, Inc., [2011] FMSC 27; 17 FSM Intrm. 555, 593 (Pon. 2011). To support a preliminary injunction, a movant must show that there is a reasonable probability of success on the merits and that irreparable injury will occur unless injunctive relief is granted to maintain the status quo until a final adjudication on the merits. Setik v. Pacific Int'l, Inc., [2010] FMSC 40; 17 FSM Intrm. 277, 279 (Chk. 2010).

If the Plan's health insurance premium contributions are a tax, then Mailo has a reasonable probability of success on the merits since the contributions are computed as a percentage of income earned as wages or salaries. A tax computed as a percentage of any form of income is a tax on that income. SeeTruk Continental Hotel, Inc. v. Chuuk, [1995] FMSC 19; 7 FSM Intrm. 117, 120 (App. 1995) overrulingSigrah v. Kosrae, [1993] FMSC 34; 6 FSM Intrm. 168 (App. 1993) and Youngstrom v. Kosrae, 5 FSM Intrm. 73 (Kos. 1991). A tax on income can only be imposed by the national government. FSM Const. art. IX, § 2(e).aA stannot impose a ta a tax on income. Truk Continental Hotel, Inc., 7 FSM Intrm. at 119. Mailo's probability of success on his other ground - that the current premiums violate the statutory guidelines - is not as likely. The statute provides only that the Plan's Board "may prescribe" or "may establish" differing premium amounts based on the number of the enrollee's dependants, Chk. S.L. No. 2-94-06, § 5- or on their risk factorsctors, id.§ 5-1(3). It doesappear to reto require it.

The threat of irreparable harm before the litigation's conclusion is a prerequisite elimiinjunctive reliefelief and when money damages or other relief will fully compensate for ther the threatened interim action, irreparable harm does not exist and a preliminary injunction should be denied. GMP Hawaii, Inc., 17 FSM Intrm. at 593. Since Mailo seeks to enjoin payment of money (the ½% increase) to the Plan, money damages ought to constitute full compensation if the premium assessments are later held unconstitutional. Mailo contends that the perceived difficulty in obtaining a refund from the Plan would nevertheless make the threatened injury irreparable. The court does not see it that way. The Plan could easily accommodate any refunds to the enrolled wage-earners by allowing them credits on future premium payments since Mailo concedes that an enrollee's contribution can only come out of his or her wages or salary. There is no other source. On this ground alone the preliminary injunction application can be denied.

Moreover, a preliminary injunction's object is to preserve the status quo pending litigation on the merits, Marsolo v. Esa, [2011] FMSC 7; 17 FSM Intrm. 377, 381 (Chk. 2011), but that is not what Mailo seeks. He wants a preliminary injunction that would not preserve the current status quo but which would revert back to the status quo before June 2012.

The balance-of-harms factor appears to favor the Plan. The harm that the Plan would suffer is that it would receive 16_% less revenue than it had expected or presumably budgeted for on the basis of the 3% contribution it has been collecting instead of the 2½% that Mailo asks the court to enforce. The harm to Mailo is the extra ½% contribution he is paying. But that could be credited to future health insurance premium contributions if found unlawful. The balance favors the Plan.

The public interest would also seem to favor the Plan. Because the Plan provides universal coverage, the public interest would favor its continued and uninterrupted funding as currently budgeted.

Weighing all the requisite factors, those factors do not favor the issuance of a preliminary injunction. Mailo's application for a preliminary injunction is therefore denied.

IV. Conclusion

Accordingly, the Chuuk Health Care Plan's motion to dismiss is denied, as is Mark Mailo's application for a preliminary injunction. The Chuuk Health Care Plan shall file and serve its answer to the complaint within ten days. FSM Civ. R. 12(a). The issue of whether the plaintiff is entitled to a permanent injunction will await final adjudication on the merits.