Pacific International, Inc. v FSM [2017] FMSC 26; 21 FSM R. 283 (Pon. 2017) (9 June 2017)

FSM SUPREME COURT TRIAL DIVISION

CIVIL ACTION NO. 2014-046

PACIFIC INTERNATIONAL, INC., )
)
Plaintiff, )
)
vs. )
)
THE NATIONAL GOVERNMENT OF THE )
FEDERATED STATES OF MICRONESIA, by )
and through its Agency, the FSM PROGRAM )
MANAGEMENT UNIT (PMU), )
)
Defendant. )
__________________________________________ )

ORDER DENYING PLAINTIFF’S SECOND MOTION FOR SUMMARY JUDGMENT

Beauleen Carl-Worswick
Associate Justice

Hearing: April 19, 2017
Decided: June 9, 2017

APPEARANCES:

For the Plaintiff: Thomas McKee Tarpley, Esq.
414 West Soledad Avenue, Suite 904
Hagatna, Guam 96910

For the Defendant: Craig D. Reffner, Esq.
Assistant Attorney General
FSM Department of Justice
P.O. Box PS-105
Palikir, Pohnpei FM 96941

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HEADNOTES

Civil Procedure Summary Judgment
In considering a summary judgment motion, the court must view the facts and inferences in a light most favorable to the party opposing the motion. Pacific Int’l, Inc. v. FSM, 21 FSM R. 283, 286 (Pon. 2017).

Civil Procedure Summary Judgment Grounds
A moving party is entitled to summary judgment when it has demonstrated that there are no genuine issues of material fact remaining and that it is entitled to judgment as a matter of law. Pacific Int’l, Inc. v. FSM, 21 FSM R. 283, 286 (Pon. 2017).

Civil Procedure Summary Judgment Procedure
Once the movant presents a prima facie case of entitlement to summary judgment, the burden shifts to the non-moving party to produce some competent evidence that depicts a genuine issue of material fact remains to be resolved. Pacific Int’l, Inc. v. FSM, 21 FSM R. 283, 286 (Pon. 2017).

Civil Procedure Summary Judgment Grounds
When the facts lead to differing reasonable inferences, thus establishing a genuine issue of fact, summary judgment is not available. Pacific Int’l, Inc. v. FSM, 21 FSM R. 283, 286 (Pon. 2017).

Civil Procedure Summary Judgment Grounds
On motion for summary judgment, facts and inferences therefrom should be viewed in a light most favorable to the opposing party and when facts lead to differing reasonable inferences, summary judgment is not appropriate. Pacific Int’l, Inc. v. FSM, 21 FSM R. 283, 288 (Pon. 2017).

Civil Procedure Summary Judgment Grounds
A court, viewing the facts presented and inferences made in the light most favorable to the nonmoving party, must deny a summary judgment motion unless it finds there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. It is the moving party’s burden to show the lack of triable issues of fact. Pacific Int’l, Inc. v. FSM, 21 FSM R. 283, 288-89 (Pon. 2017).

Civil Procedure Summary Judgment; Public Contracts
When an FSM court has not previously construed an FSM civil procedure rule that is similar to a U.S. rule, it may look to U.S. sources for guidance in interpreting the FSM rule, such as when it has not previously considered the application of FSM Civil Rule 56 to litigation involving the termination of a government construction contract. Pacific Int’l, Inc. v. FSM, 21 FSM R. 283, 289 (Pon. 2017).

Public Contracts

A contractor asserting claims of bad faith must overcome the strong presumption, that in the absence of clear, contrary evidence, public officials act conscientiously in the discharge of their duties. Thus, unless bad faith is demonstrated, the government is prevented only from engaging in actions motivated by a specific intent to harm the plaintiff. For a contractor attempting to show that a government act was undertaken in bad faith requires well-nigh irrefragable proof to induce the court to abandon the presumption of good faith dealing. The necessary irrefragable proof is equated with evidence of some specific intent to injure the plaintiff, motivated solely by malice or actuated by animus toward same. Pacific Int’l, Inc. v. FSM, 21 FSM R. 283, 289 (Pon. 2017).

Public Contracts
Unsubstantiated suspicions and allegations of bad faith actions are not enough to demonstrate bad faith. A contractor must identify specific instances of the government’s ill will directed toward it the contracting officer’s state of mind is critical. No less than the contracting officer’s knowing and intentional conduct can support a finding of bad faith. Thus, claims of bad faith have been rejected when the contractor can only prove that the convenience termination was an outgrowth of the contracting officer’s negligent conduct, or the government’s mere error, even if would constitute sufficient ground for contractual breach. Pacific Int’l, Inc. v. FSM, 21 FSM R. 283, 289 (Pon. 2017).

Evidence Burden of Proof; Public Contracts
A contractor may attack a contracting officer’s decision to terminate on the grounds that such decision was an abuse of discretion or arbitrary and capricious, but the contractor has the burden of proving arbitrary and capricious conduct. Pacific Int’l, Inc. v. FSM, 21 FSM R. 283, 289 (Pon. 2017).

Civil Procedure Summary Judgment Grounds
In order to succeed on a summary judgment motion, a plaintiff must also overcome all affirmative defenses that have been raised. Pacific Int’l, Inc. v. FSM, 21 FSM R. 283, 290 (Pon. 2017).

Civil Procedure Summary Judgment Grounds Particular Cases; Public Contracts
Summary judgment will be denied when a genuine issue of fact exists about whether the contractor had met all material terms of the contract or that the delay was excusable and when the contract provides that if, after termination of the contractor’s right to proceed, it is determined that the contractor was not in default or that the delay was excusable, the parties’ rights and obligations will be the same as if the termination had been issued for the government’s convenience. Pacific Int’l, Inc. v. FSM, 21 FSM R. 283, 290 (Pon. 2017).

Civil Procedure Summary Judgment Grounds
Summary judgment motions are only granted if there are no disputed issues of material fact pertinent to the given cause of action or affirmative defense addressed by the motion. If any material facts are in dispute, the parties are entitled to a trial on the merits of their causes of action or affirmative defenses. Pacific Int’l, Inc. v. FSM, 21 FSM R. 283, 290 (Pon. 2017).

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COURT’S OPINION

BEAULEEN CARL-WORSWICK, Associate Justice:

On January 27, 2017, Pacific International Inc. ("PII") filed Plaintiff’s Second Motion for Summary Judgment. An Opposition was filed by the FSM National Government (FSM) on April 3, 2017, which precipitated PII’s Reply on April 14, 2017. On April 19, 2017, a hearing was convened to address the subject motion. Assistant Attorney General Craig D. Reffner appeared on behalf of the defendant. Attorney Thomas M. Tarpley appeared on behalf of PII. Both sides presented argument at the April 19, 2017, and the matter was taken under advisement.

Having fervently pored over the parties’ submissions, along with the file in this matter and having considered the respective oral presentations, the Court finds that a genuine issue of material fact does exist and DENIES Plaintiff’s Second Motion for Summary Judgment for the following reasons:

STANDARD FOR SUMMARY JUDGMENT

In considering a summary judgment motion, the Court must view the facts and inferences in a light most favorable to the party opposing the motion. Carlos Etscheit Soap Co. v. McVey, 17 FSM R. 427, 434-35 (App. 2011). A moving party is entitled to summary judgment when it has demonstrated that there are no genuine issues of material fact remaining and that it is entitled to Judgment as a matter of law. Peniknos v. Nakasone, 18 FSM R. 470, 478 (Pon. 2011). Once the movant presents a prima facie case of entitlement to summary judgment, the burden shifts to the non-moving party to produce some competent evidence that depicts a genuine issue of material fact remains to be resolved. FSM v. GMP Hawaii, Inc., 17 FSM R. 555, 570 (Pon. 2011). "When the facts lead to differing reasonable inferences, thus establishing a genuine issue of fact, summary judgment is not available." Amayo v. MJ Co., 14 FSM R. 487, 488 (Pon. 2006).

BACKGROUND

In February of 2009, PII was awarded a construction contract by the FSM to undertake remedial infrastructure upgrades on a stretch of road (4.11 miles in length) located in Weno, Chuuk (hereinafter referred to as the "project"). The original contract called for a completion date in early 2012 (i.e. 1096 days in duration). For a myriad of reasons, numerous change orders were necessary, which extended that initial term for completion of the project by approximately 611 days. Of particular importance, was an agreed upon extension of this contract (as per Change Order No. 29; executed in February of 2013), that required the project be finished by November 25, 2013 (i.e. the breadth of which was amended to 1707 days).On November 7, 2013, the contracting officer for the FSM’s Project Management Unit (PMU) tendered upon PII written notice of termination for "default" (citing inter alia, an inability to meet the November 25, 2013 completion date) and directed the contractor to halt all further work on the project.

Section 1.56(c) of the subject contract provides: "If, after termination of the Contractor’s right to proceed, it is determined that the Contractor was not in default or that the delay was excusable, the rights and obligations of the parties will be the same as if the termination has been issued for the convenience of the Government." Consonant with this provision’s recognition of excusable delay, PII references numerous such delays that arose from causes beyond the control and without the fault or negligence of the contractor. These intervening factors included numerous design defects on the project (attributable to the FSM’s engineer: Lyons Associates Inc.), which changed the complexion of the project; inordinate length(s) of time for PII to obtain formal approval from PMU, with respect to change orders governing the work schedule; a "Stop Work Order" the contractor had to endure, given "redesign inaccuracies" (attributable to the FSM’s engineer: Lyons Associates Inc.), which in turn, necessitated, not only removing portions of PII’s completed work, but undertaking this same work anew and finally, inclement weather, rendering construction impractical during such episodes.

As noted above, PII cites to multiple remedial design changes necessitated by the

deficient unsuitable project design drawings prepared by FSM’s engineer, Lyon Associates Inc. [an engineering firm retained by the FSM to create the project design, including specifications and drawings]. The construction contract [pursuant to Section 1.50] provided that the FSM[,] through its Program Management Unit (PMU)[,] could order changes in the contract work and while PII was on the project[,] 50 change orders were approved by PMU’s Construction Manager to address the problems encountered due to the faulty design and other problems, which changed the contract sum and time for performance.^[1]

The above-referenced "Construction Manager" for PMU, was the engineering firm of Stanley Setiadi Joint Venture (SSJV), which operated as the FSM’s expert on-site construction management firm and reported directly to PMU.

PII maintains, that a dispute arose between the parties in the wake of an August 23, 2013 certified claim for $2.9 million it had filed with the FSM, regarding compensation for the contractor’s daily fixed costs (referred to as "General Requirements") associated with the extended duration of the project’s work schedule. Expounding on this evolving discord, PII notes:

[s]hortly thereafter[,] the FSM’s Contracting Officer, Bruce Howell, began sending PII notices that it was behind in its work which could result in PII’s contract being terminated for default if it could not complete the project by the November 25, 2013 completion date. This was a big problem because after Change Order No. 29 set this completion date, SSJV had ordered or approved 21 more changes in the project but had not yet issued all the actual change orders addressing cost and time increases.^[2]

PII then claims, that it was approached on two separate occasions by the FSM’s Contracting Officer Bruce Howell, whereby the FSM proposed, if PII would drop the aforementioned certified claim, an additional 251 day extension would be provided to complete the remainder of the project. PII did not capitulate, in terms of withdrawing its outstanding certified claim and further submits, that unbeknownst to PII "SSJV had already approved the last 10 of the pending change orders prior to termination,"^[3] [which countenanced an extension of 251 days, thereby setting August 3, 2014 as the revised completion date for the project].

PII additionally points out, that approximately one week prior to the November 7, 2013 notice of termination, Lyon Associates Inc. had provided notice to the FSM, that there was a need for, yet more corrective design changes, which would require an additional 88 days (on top of the aforementioned 251 day enlargement) for this engineering firm to complete. PII also references the fact, that its performance bond surety (Century Insurance Company Ltd.) denied the claim brought by the FSM, since it concluded PMU had breached the contract. Finally, PII notes the FSM’s pending $4.6 million claim lodged against Lyon Associates Inc. for its errors and omissions in preparing faulty designs for the project.

In short, PII contends the FSM’s termination for default was wrongful, since it was nothing more than a pretext and reflected an abuse of discretion on the part of its FSM’s Contracting Officer Bruce Howell, because inter alia, prior to submission of PII’s August 23, 2013 certified claim, PMU had acceded to all of SSJV’s recommendations and under the terms of the contract, PII was entitled to reasonable time extensions. PII characterizes the termination as, not only an abuse of discretion, but arbitrary and capricious. Accordingly, PII concludes such wrongful termination for default should be converted into a termination for convenience of the Government and coupled with the bad faith exhibited by same, entitles PII to recover specified damages.

In contradistinction, the FSM maintains it is irrefutable, that PII was incapable of meeting the completion date of November 25, 2013 (as set forth in Change Order No. 29) and therefore, termination for default was justified. At the hearing on the instant motion, the FSM made reference to the fact, that numerous other reasons were instrumental to its decision to find the contractor in default, as denoted within the November 7, 2013 notice of termination.

Furthermore, any recommendation by SSJV, whether it countenanced a change order per se, including inter alia, an additional time allotment, is subject to the formal approval of the FSM. Thus, it is simply irrelevant what SSJV may have endorsed, with respect to outstanding change orders (e. g. providing PII an additional 251 days to complete the project) circa the time PII had been presented with a written notice of termination (i.e. November 7, 2013), since the FSM was the final arbiter.

The FSM characterizes PII’s motion for summary judgment, as predicated upon inadmissible documentary evidence, which is purely speculative, as well as extraneous. In that, the relevant approved change orders were dispositive, as far as dictating the work schedule and therefore, any other contributing circumstances cited by PII, in an effort to depict excusable delay, are clearly immaterial. In sum, the FSM submits: "PII has not presented any credible evidence to support its speculation of a ‘nefarious’ plan by the FSM to terminate the contract at issue here."^[4] As a result, the FSM maintains, that PII’s instant motion falls short of demonstrating the absence of any genuine issues of material fact, to warrant summary judgment in the movant’s favor.

DISCUSSION

The present motion for summary judgment boils down to whether there exists a genuine issue of material fact, concerning an allegation that the FSM breached the subject contract, since the termination of PII was not for cause, thereby converting this termination into one for the convenience of the Government; reflecting an abuse of discretion. In addition, PII contends that there was bad faith displayed by the FSM, since it should have been afforded a reasonable extension of time within which to complete the project.

In the alternative, was the FSM’s termination predicated upon default, in terms of PII’s failure to meet a specific deadline for completion of the underlying project? The FSM counters, that the termination for default was proper because PII had failed to complete the project by the agreed upon (as well as extended) deadline of November 25, 2013, by virtue of Change Order No. 29; adding there exists no dispute with respect to this untimeliness.

On motion for summary judgment, facts and inferences therefrom should be viewed in a light most favorable to the opposing party and when facts lead to differing reasonable inferences, summary judgment is not appropriate. Suldan v. Mobil Oil Micronesia, Inc., 10 FSM R. 574, 578 (Pon. 2002). As previously noted, there is no disagreement over PII’s inability to meet the November 25, 2013 completion date for the project. It is also noteworthy, that at the April 19th hearing on the instant motion, the FSM maintained additional reasons were set forth in the November 7, 2013 notice of termination served upon PII, which further substantiated a default on the part of this contractor.

A court, viewing the facts presented and inferences made in the light most favorable to the nonmoving party, must deny a summary judgment motion unless it finds there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law and it is the moving party’s burden to show the lack of triable issues of fact.

Arthur v. Pohnpei, 16 FSM R. 581, 593 (Pon. 2009) (citing Nanpei v. Kihara, 7 FSM R. 319, 323 (App. 1995)).

With respect to PII’s assertion, that the subject termination reflected an abuse of discretion, as well as bad faith on the part of the FSM, the American Bar Association’s Model Jury Instructions: Construction Litigation 2nd Edition, including the commentary and cases cited therein, are instructive. Of particular relevance is Chapter 11, entitled – Termination. When an FSM Court has not previously construed an FSM civil procedure rule that is similar to a U.S. rule, the Court may look to U.S. sources for guidance in interpreting the FSM rule. Nakamura v. FSM Telecomm. Corp., 17 FSM R. 41, 46 n.4 (Chk. 2010); Arthur v. Pohnpei, 16 FSM R. 581, 593 n.8 (Pon. 2009). Application of FSM Civil Rule 56 to litigation involving the termination of a government construction contract has not been previously considered.

A contractor

asserting claims of bad faith must overcome the strong presumption, that in the absence of clear, contrary evidence, public officials act conscientiously in the discharge of their duties. . .&# Sinod fait faith is pris presumed, unless bad faith is demonstrated, the government is prevented only from engaging in actionsvated specific intent to harm the plaintiff.

Continental Collection &amn & Dip; Disposal Inc. v. United States, 29 Fed. Cl. 644, 652 (Fed. Cl. 1993).

The difficult burden for a contractor attempting to show that a Government act was undertaken in bad faith has been described as follows: "it requires ‘well-nigh irrefragable proof’ to induce the court to abandon the presumption of good faith dealing." Kalvar Corp. v. United States, 543 F.2d 1298, 1301-02 (Ct. Cl. 1976). In the cases where the Court has considered allegations of bad faith, the necessary irrefragable proof has been equated with evidence of some specific intent to injure the Plaintiff, motivated solely by malice or actuated by animus toward same. Id. at 1302.

Unsubstantiated suspicions and allegations of bad faith actions are not enough. To demonstrate bad faith, the contractor must identify specific instances of the government’s ill will directed toward it. Id. The state of mind of the contracting officer is critical to determining whether a termination was made in bad faith. No less than knowing and intentional conduct on the part of the contracting officer can support a finding of bad faith. Thus, claims of bad faith have been rejected when the contractor can only prove that the convenience termination was an outgrowth of negligent conduct by the contracting officer. Salsbury Indus. v. United States, [1990] USCAFED 421; 905 F.2d 1518, 1521 (Fed. Cir. 1990). Moreover, mere error on the part of the Government, even if would constitute sufficient ground for contractual breach, is insufficient to demonstrate bad faith. Id.

Although the following cases arise within the context of contracts that contain a termination for convenience clause (i.e. giving the Government the unilateral right to terminate the contract if it deems the termination to be in its best interest), the reasoning set forth therein is still applicable. A contractor may also attack a contracting officer’s decision to terminate on the grounds that such decision was an abuse of discretion or arbitrary and capricious. Darwin Constr. Co. v. United States, [1987] USCAFED 99; 811 F.2d 593, 598 (Fed. Cir. 1987). Nevertheless, the contractor "has the burden of proving arbitrary and capricious conduct." Embrey v. United States, 17 Cl. Ct. 617, 625-26 (1989).

Under the facts of the present case, the allegations of PII relative to the actions undertaken by FSM’s Contracting Officer Bruce Howell, with regard to allowing PII an extension of time to complete the remaining 10% of the project, are portrayed as an insidious attempt to exact leverage concerning an outstanding certified claim (in the amount of $2.9 million). Accordingly, PII concludes such behavior constitute an abuse of discretion and violated a duty to act in good faith.^[5]

On the other hand, the FSM categorizes PII’s affirmation in this regard as rank conjecture; additionally noting evidentiary concerns. Starting, circa late August of 2013, notices were dispatched from the FSM’s Contracting Office, advising PII it was behind in its work and such inadequate performance was considered to be serious enough to trigger the contract being terminated for default should the November 25, 2013 completion date not be met. The FSM concludes, that a genuine issue of material fact is present, given PII’s material breach of contract, notice of the breach was provided and the contractor could not cure the breach (i.e. complete the project by the November 25, 2013 due date).

Furthermore, an affirmative defense is asserted by the FSM, predicated upon "breach of contract,"^[6] ostensibly relating to PII’s failure to meet the completion deadline in a timely manner, along with PII’s other alleged shortcomings, as articulated in the November 7, 2013 notice of termination. "In order to succeed on a summary judgment motion, a plaintiff must also overcome all affirmative defenses that have been raised." Dereas v. Eas, 14 FSM R. 446, 453 (Chk S. Ct. Tr. 2006); see also Zion v. Nakayama, 13 FSM R. 310, 312 (Chk. 2005).

As such, a genuine issue of fact exists, with respect to whether PII had met all material terms of the contract "or that that the delay was excusable." Conversely, under Section 1.56(c) of the contract, "If, after termination of the Contractor’s right to proceed, it is determined that the Contractor was not in default or that the delay was excusable, the rights and obligations of the parties will be the same as if the termination had been issued for the convenience of the Government."

Summary judgment motions are only granted if there are no disputed issues of material fact pertinent to the given cause of action or affirmative defense addressed by the motion. If any material facts are in dispute, the parties are entitled to a trial on the merits of their causes of action or affirmative defenses. O’Sullivan v. Panuelo, 9 FSM R. 589, 597 (Pon. 2000).

CONCLUSION

In light of the divergent positions of the parties, this Court finds the presence of a genuine issue of material fact, to wit: whether the termination for default was justified (based on PII’s alleged breach of contract) or a conversion into a termination for the convenience of the Government (in view of the purported excusable delay) was present. In light of the different inferences that can be drawn by the facts, as they have been presented in both the parties’ filings, as well as arguments marshaled at the respective hearing, the above-mentioned genuine issue of material fact remains. As such, summary judgment is not appropriate.^[7] It is therefore this Court’s determination, that this factual issue may only be resolved through trial.

Accordingly, the Court hereby DENIES Plaintiff’s Second Motion for Summary Judgment.

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^[1] Pl.’s Second Mot. for Summ. J. at 2.

^[2] Pl.’s Second Mot. for Summ. J. at 2.

^[3] Id.

^[4] The FSM’s Opp’n to Pl.’s Second Mot. for Summ. J. at 11.

^[5] Pl.’s Second Mot. for Summ. J. at 16-17.

^[6] The FSM’s Fifth Affirmative Defense.

^[7] Berman v. Pohnpei Legislature, 16 FSM R. 492, 496 (Pon. 2009).