Pacific International, Inc v FSM [2018] FMSC 47; 21 FSM R. 662 (Pon. 2018) (13 June 2018)

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 RE STAY OF LITIGATION AND ENFORCEMENT OF ARBITRATION AGREEMENT

Beauleen Carl-Worswick
Associate Justice

Decided: June 13, 2018

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

Arbitration
Arbitration clauses imbedded in contracts are separately enforceable, regardless of whether there are other potentially void or voidable portions in the agreement. Thus, a mandatory arbitration clause in an unenforceable mediated agreement is separately enforceable from the remainder of the agreement, and further arbitration is legally required. Pacific Int’l, Inc. v. FSM, 21 FSM R. 662, 663 (Pon. 2018).

Arbitration
Mandatory arbitration clauses in contracts are specifically enforceable. Pacific Int’l, Inc. v. FSM, 21 FSM R. 662, 664 n.1 (Pon. 2018).

Civil Procedure; Constitutional Law Ä Judicial Guidance Clause
Although it must look first to FSM sources of law, when an FSM court has not previously construed an aspect of an FSM civil procedure rule that is identical or similar to a U.S. counterpart, it may look to U.S. sources for guidance in interpreting the rule. Pacific Int’l, Inc. v. FSM, 21 FSM R. 662, 664 n.3 (Pon. 2018).

Arbitration; Settlement
Since settlement through a more informal alternative dispute resolution than arbitration would be most consistent with Micronesian custom and practice and likely to lead to a lasting solution, the court will order that the parties attempt that before resorting to the mandatory arbitration. Pacific Int’l, Inc. v. FSM, 21 FSM R. 662, 664 (Pon. 2018).

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COURT’S OPINION

BEAULEEN CARL-WORSWICK, Associate Justice:

BACKGROUND

This matter has been pending since December 16, 2014 and comprises four court volumes, one of which is devoted to the complaint. The parties have engaged in discovery. Two summary judgment motions by plaintiff have been litigated and denied. On June 3, 2015, the parties came to a mediated agreement that obligated both sides inter alia to arbitrate the dispute between them. This never occurred. Accordingly, by motion filed October 20, 2017, plaintiff requested the matter be set for trial. However, on December 28, 2017, plaintiff filed its Motion for Stay of Litigation to Enforce Arbitration Agreement. On February 5, 2018, Defendant filed its Opposition to Plaintiff’s Motion for Stay of Litigation to Enforce Arbitration Agreement; Memorandum of Points and Authorities in Support Thereof. On February 16, 2018, Plaintiff filed its Reply re Arbitration.

There are factual issues that will require determination by the court unless the parties can conclude this matter via arbitration or other alternative dispute.

ACCORDINGLY, having considered the record and filing in this civil matter, the Court GRANTS Plaintiff’s Motion for Stay of Litigation to Enforce Arbitration Agreement. Its reasons follow:

ISSUE

The issue before the Court regards whether the Binding Arbitration clause in the June 3, 2015 Mediated Agreement is separately enforceable from the remainder of the Agreement.

DISCUSSION

The June 3, 2015 Mediated Agreement (Agreement) between the parties is problematic. Pursuant to provisions 1 and 2 of the Agreement, performance by the parties appears to be contingent on the FSM Government making an initial payment of $2,000,000 within a specified time period. However, the FSM government never funded the Agreement and enforcement of provisions requiring funding in the absence of FSM government approval were found unenforceable.

Plaintiff argues, persuasively that arbitration clauses imbedded in contracts, regardless whether there exist other potentially void or voidable portions of the agreement, are separately enforceable. ITT Educ. Servs., Inc. v. Arce, 533 F.3d 342, 344-45 (5th Cir. 2008) (citing Doctor’s Assocs., Inc. v. Distajo, [1995] USCA2 1014; 66 F.3d 438, 452 (2d Cir. 1995) (finding that, under Prima Paint, ‘arbitration clauses are separable’ from void or voidable provisions of a contract")).

Defendant argues that pursuant to this court’s denial of plaintiff’s summary judgment motions, the Agreement is fatally flawed in that by its terms it conflicts with 55 F.S.M.C. 221(2) (Government agents cannot bind the government to advance funds absent government approval). Defendant argues that further arbitration represents an unfunded mandate in violation of 55 F.S.M.C. 221(2).

CONCLUSION

The issue here is a matter of first impression in the FSM. The question is whether a mandatory arbitration clause in an unenforceable mediated agreement is separately enforceable from the remainder of the agreement.^[1] Plaintiff’s affirmative argument is based in U.S. case law.^[2] In the absence of FSM law, the Court has reviewed U.S. precedent.^[3] Based on U.S. Federal statute and case law, the Court believes that further arbitration in this matter is legally required as set forth in the Arbitration Code 9 U.S.C.A. § 2 (1947):

§ 2. Validity, irrevocability, and enforcement of agreements to arbitrate

A written provision in any maritime transaction or a contract evidencing a transaction involvinmerceettle by arbitratitration a controversy thereafter arising sing out of such contract or transaction, or the refusal to perform the whole or any part thereof, or an agreement in writing to submit to arbitration an existing controversy arising out of such a contract, transaction, or refusal, shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.^[4]

At the same time, the Court believes that settlement of this matter through more informal alternative dispute resolution would be most consistent with Micronesian custom and practice^[5] and likely to lead to a lasting solution to this long running dispute.

Accordingly, the Court will order one more attempt at informal resolution before submitting this matter to arbitration.

THEREFORE, the plaintiff’s Motion for Stay of Litigation to Enforce Arbitration Agreement is HEREBY GRANTED and further alternative dispute resolution, to include arbitration if necessary, shall proceed as set forth below.

IT IS ORDERED THAT

1. 1. On or before Friday, July 13, 2018, the parties or their representatives who have the authority to settle the matter and their counsel shall meet to discuss and explore settlement or the likelihood of settlement through further meetings, mediation or other informal alternative dispute resolution processes or formal arbitration;
   
2. 2. No later than Monday, August 27, 2018, the parties shall submit to the Court one of three documents: a Settlement Agreement, a Joint Motion for an Enlargement of Time, or a Report that Impasse has been reached as set forth below:
   
   1. a. A Settlement Agreement shall consist of the following:
      

A legally enforceable Contract signed by the parties or their representatives who have the authority to settle the matter that resolves all issues raised in the Complaint and any other pleadings, motions and papers filed in this case;^[6]

2. b. A Joint Motion for an Enlargement of Time would be appropriate if the parties mutually agree that further meetings or informal alternative dispute resolution processes, that do not involve a decision by a third party, would be productive in resolving this matter, and a deadline by which this process will be accomplished;
   

100. c. Impasse is the failure to reach either a Settlement Agreement as set forth above or a mutual agreement that continued meetings or informal alternative dispute resolution will resolve the dispute;
     

4. d. If Impasse is reached, the matter shall proceed directly to arbitration without further Court order. The parties shall jointly if possible; otherwise separately, file a report to the Court that impasse has been reached. [The specific details of any offers or counteroffers shall be omitted from any communications to the Court];
   

3. 3. Should arbitration be necessary, no later than Friday, October 12, 2018, the parties or their representatives who have the authority to settle the matter and their counsel shall meet and confer regarding a final decision on a mutually acceptable arbitrator to resolve this matter. This agreement shall be reduced to writing signed by the parties or their representatives who have the authority to settle the matter and their counsel.^[7]

4. 4. Arbitration shall be set on the earliest practicable date according to the availability of the parties, counsel and the arbitrator;
   
5. 5. The parties or their representatives who have the authority to settle the matter and their counsel shall attend each session of the arbitration, as directed by the Arbitrator.
   
6. 6. No later than Monday, November 26, 2018, a Report shall be filed with the Court regarding the progress of the arbitration (but omitting the specific details of any offers or counteroffers). The Court designates the plaintiff as the reporting party to the court. Plaintiff shall serve the defendant with a copy of the report;
   
7. 7. The plaintiff shall file a report to the Court each successive forty five (45) days on the progress of the arbitration (but omitting the specific details of any offers or counteroffers) until the Arbitrator’s Award is lodged with the Court. Plaintiff shall serve the defendant with a copy of each report.
   
8. 8. The plaintiff shall ensure that the Arbitrator’s Award is lodged with the Court upon issuance.
   
9. 9. This matter shall be set for a Resolve/Reset hearing on Thursday, February 21, 2019 at 10:00 a.m. at the FSM Supreme Court in Palikir, Pohnpei. The parties may appear telephonically. Any party intending to appear telephonically shall notice the court and opposing counsel one week in advance of the hearing/
   

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^[1] This court has previously held that mandatory arbitration clauses in contracts are specifically enforceable. Luen Thai Fishing Venture, Ltd. v. Pohnpei, 18 FSM R. 653, 657 (Pon. 2013) ("The FSM Supreme Court generally encourages parties to voluntarily agree to resolve their disputes through alternative means such as arbitration and will ‘specifically enforce the parties’ contract to arbitrate.’ E.M. Chen & Assoc. (FSM), Inc. v. Pohnpei Port Auth., 10 FSM R. 400, 409 (Pon. 2001)").

^[2] ITT Educ. Servs., Inc., 533 F.3d at 344-45.

^[3] Although it must look first to FSM sources of law, FSM Const. art. XI, § 11, when an FSMt has not prot previously construed an aspect of an FSM civil procedure rule that is identical or similar to a U.S. counterpart, it may look to U.S. sources for guidance in interpreting the rule. See, e.g., Arthur v. FSM Dev. Bank, 14 FSM R. 390, 394 n.1 (App. 2006).

^[4] Here, the mediated agreement between the parties does not appear to be revocable; although, it may be unenforceable. Accordingly, the Arbitration Code 9 U.S.C.A. § 2 would be apble.

^[5] E.M. Chen & Assoc., 10 FSM R. at 408-09.

^[6] The Court’s preference is that the parties stipulate to dismiss this case with prejudice, or without prejudice at the discretion of the parties. To facilitate settlement, the Court will retain jurisdiction over the Contract or, if the parties prefer, the parties may enter into a Stipulation and Order to be executed by the Court.

^[7] Counsel shall have communicated prior to the final meeting regarding a mutually acceptable arbitrator. If there is no agreement prior to the final meeting as to an appropriate person, plaintiff shall put forward the names of three qualified persons, as determined by the criteria set forth by the American Arbitration Association and the defending party or its representatives who have the authority to settle the matter shall select one on or before the final meeting. Regardless when the arbitrator is selected, the agreement shall be in writing signed by the parties or their representatives who have the authority to settle the matter and their counsel.