Cite as Geoffrey Hughes (Export) Pty, Ltd. v. America Ducksan Co.,12 FSM Intrm. 413 (Chk. 2004)

[12 FSM Intrm. 413]

CIVIL ACTION NO. 2004-1002

Decided: April 2, 2004

APPEARANCES:

HEADNOTES

Civil Procedure – Dismissal

Whenever it appears by the parties' suggestion or otherwise that the court lacks subject matter jurisdiction, the court must dismiss the action. Geoffrey Hughes (Export) Pty, Ltd. v. America Ducksan Co., 12 FSM Intrm. 413, 414 (Chk. 2004).

Jurisdiction – Diversity

It has been a principle of long standing that, for purposes of diversity jurisdiction under the Constitution's article XI, section 6(b), a corporation or a joint venture is considered a foreign citizen when any of its shareholders are not FSM citizens. Its place of incorporation is irrelevant. Geoffrey Hughes (Export) Pty, Ltd. v. America Ducksan Co., 12 FSM Intrm. 413, 414 (Chk. 2004).

Foreign Investment Laws

A noncitizen cannot engage in business in the FSM unless that noncitizen holds a valid foreign investment permit. A "noncitizen" is any business entity in which any ownership interest is held by a person who is not a citizen of the FSM. Geoffrey Hughes (Export) Pty, Ltd. v. America Ducksan Co., 12 FSM Intrm. 413, 414-15 (Chk. 2004).

Jurisdiction – Diversity

When all parties to an action are foreign citizens, even if they are citizens of different foreign countries, the FSM Supreme Court does not have diversity jurisdiction. Geoffrey Hughes (Export) Pty,

<[12 FSM Intrm. 414]

Ltd. v. America Ducksan Co., 12 FSM Intrm. 413, 415 (Chk. 2004).

Civil Procedure – Dismissal

When all parties to an action are foreign citizens, diversity jurisdiction is not present, and if no other basis for FSM Supreme Court jurisdiction is apparent, the case will be dismissed without prejudice. Geoffrey Hughes (Export) Pty, Ltd. v. America Ducksan Co., 12 FSM Intrm. 413, 415 (Chk. 2004).

COURT'S OPINION

DENNIS K. YAMASE, Associate Justice:

This case was filed on February 11, 2004. The plaintiff's asserted causes of action are breach of contract and account stated. The plaintiff corporation is asserted to be an Australian citizen. The Complaint asserts that defendant World Park is a Korean citizen,¹ defendant WP Trading Co. is an unincorporated business owned by World Park, and defendant America Ducksan Co., Ltd. is "a corporation organized under the laws of the Federated States of Micronesia having its principal place of business in Weno, Chuuk." Complaint at 1-2. Pleading subject matter jurisdiction, the Complaint states that: "Jurisdiction is vested in this Court by virtue of Article XI, section 6(b) of the Constitution of the FSM." Id. at 2.

It was unclear from the Complaint on what basis section 6(b) jurisdiction rested, unless it was diversity of citizenship and it appeared that all parties were foreign citizens, although the citizenship of defendant America Ducksan Co., Ltd. was not specifically pled. Since Civil Procedure Rule 12(h)(3) provides that "[w]henever it appears by suggestion of the parties or otherwise that the court lacks jurisdiction of the subject matter, the court shall dismiss the action," the court therefore raised on its own motion, the issue of whether it has subject matter jurisdiction over this case, and on February 23, 2004, issued a Rule 12(h)(3) notice and order asking the plaintiff to submit a memorandum in support of the court's subject matter jurisdiction.

On March 4, 2004, the plaintiff filed its memorandum. It asserts that the basis for this court's jurisdiction is diversity of citizenship and that defendant America Ducksan Co., Ltd. has FSM citizenship because it "is a corporation organized under the laws of the Federated States of Micronesia." Reply to Rule 12(h)(3) Notice and Order at 1-2 (Mar. 4, 2004). In support of this contention, the memorandum has attached a list from the FSM Department of Economic Affairs of organizations incorporated in the FSM. It shows that America Ducksan Co., Ltd. is incorporated in the FSM and holds a foreign investment permit.

It has been a principle of long standing that, for purposes of diversity jurisdiction under article XI, section 6(b) of the Constitution, a corporation or a joint venture is considered a foreign citizen when any of its shareholders are not citizens of the Federated States of Micronesia. See, e.g., Luzama v. Ponape Enterprises Co., 7 FSM Intrm. 40, 44 (App. 1995); Marcus v. Truk Trading Corp., 11 FSM Intrm. 152, 155 (Chk. 2002); Ambros & Co. v. Board of Trustees, 11 FSM Intrm. 17, 24 (Pon. 2002); Island Dev. Co. v. Yap, 9 FSM Intrm. 220, 223 (Yap 1999); Ladore v. U Corp., 7 FSM Intrm. 296, 298 (Pon. 1995); Federated Shipping Co. v. Ponape Transfer & Storage (III), 3 FSM Intrm. 256, 260 (Pon. 1987). Its place of incorporation is irrelevant. A noncitizen cannot engage in business in the FSM

[12 FSM Inrtm. 415]

unless that noncitizen holds a valid foreign investment permit. 32 F.S.M.C. 204. The FSM Foreign Investment Act defines "noncitizen" as "any business entity in which any ownership interest is held by a person who is not a citizen of the FSM." 32 F.S.M.C. 203(11). Thus, an entity incorporated in the Federated States of Micronesia must hold a foreign investment permit if any of its shareholders are foreign citizens. Since America Ducksan Co., Ltd. has an FSM foreign investment permit, it must have shareholder(s) who are not FSM citizens. Therefore, for purposes of diversity jurisdiction, America Ducksan Co., Ltd. is a foreign citizen. All other parties to this action are also foreign citizens.

When all parties to an action are foreign citizens, even if they are citizens of different foreign countries, the FSM Supreme Court does not have diversity jurisdiction. FSM Const. art. XI, § 6(b); Kelly v. Lee, 11 FSM Intrm. 116, 117 (Chk. 2002); Trance v. Penta Ocean Constr. Co., 7 FSM Intrm. 147, 148 (Chk. 1995); International Trading Co. v. Hitec Corp., 4 FSM Intrm. 1, 2 (Truk 1989). Since all parties to this action are foreign citizens, diversity jurisdiction is not present, and since no other basis for FSM Supreme Court jurisdiction is apparent, this case is dismissed without prejudice.

¹ In other court documents, World Park's citizenship is American.