FSM SUPREME COURT TRIAL DIVISION
Cite as Arthur v. Pohnpei,16 FSM Intrm. 581 (Pon. 2009)
ROBERT C. ARTHUR, PATRICIA B. ARTHUR,
BETHWEL HENRY, and MARIHNE HENRY,
Plaintiffs,
vs.
STATE OF POHNPEI, FSM DEVELOPMENT
BANK, INVESTMENT DEVELOPMENT FUND, and
FEDERATED DEVELOPMENT AUTHORITY,
Defendants.
CIVIL ACTION NO. 2008-041
ORDER GRANTING SUMMARY JUDGMENT
Dennis K. Yamase
Associate Justice
Hearing: March 26, 2009
Submitted: April 24, 2009
Decided: October 19, 2009
APPEARANCES:
For the
Plaintiff: Douglas F. Cushnie, Esq.
P.O. Box 949
Saipan, Northern Marianas MP 96950
For the Defendant: Scott Garvey, Esq. (motion)
(Pohnpei)
Attorney General
Ira J. Shiflett, Esq. (argued)
Assistant Attorney General
Pohnpei Department of Justice
P.O. Box 1555
Kolonia, Pohnpei FM 96941
For the Defendants: Nora E. Sigrah, Esq.
(FSM Dev. Bank)
Legal Counsel
P.O. Box M
Kolonia, Pohnpei FM 96941
For the Defendants: Lorrie Johnson-Asher, Esq.
(IDF & FDA)
Assistant Attorney General
FSM Department of Justice
P.O. Box PS-105
Palikir, Pohnpei FM 96941
* * * *
A court may take judicial notice of its own reported decisions and of papers and pleadings on file in other cases before it when portions of those cases have been introduced into evidence. Arthur v. Pohnpei, 16 FSM Intrm. 581, 588 n.3 (Pon. 2009).
Funds in the Investment Development Fund are owned and administered exclusively by the FSM government and are thus not "U.S. funds" but are FSM funds. Arthur v. Pohnpei, 16 FSM Intrm. 581, 589-90 (Pon. 2009).
The FSM Attorney General cannot be required to obtain permission from (or even consult) a foreign government official because her office was once a member of an (advisory) board that no longer exists and which had no power to express an opinion on the subject even when it did exist. Arthur v. Pohnpei, 16 FSM Intrm. 581, 590 (Pon. 2009).
The Investment Development Fund was created by an enactment of the FSM Congress, and thus was an instrumentality of the FSM national government. Arthur v. Pohnpei, 16 FSM Intrm. 581, 590 (Pon. 2009).
A grant of the power to "sue and be sued" is the usual legal formulation by which a government agency is granted the power to independently hire its own attorneys instead of being represented by the attorney general. Arthur v. Pohnpei, 16 FSM Intrm. 581, 590 (Pon. 2009).
When the FSM public laws that created a government agency did not confer upon that agency the power to sue and be sued in its own name, that agency cannot be represented in court by any counsel other than the FSM Attorney General. Arthur v. Pohnpei, 16 FSM Intrm. 581, 590 (Pon. 2009).
Since the Federated Development Authority was an instrumentality of the national government created by an FSM Congress enactment, the presence of (uncompensated) persons, who are not national government employees on the FDA Policy Board does not make the FDA something other than a national government instrumentality. Arthur v. Pohnpei, 16 FSM Intrm. 581, 590 (Pon. 2009).
A government agency's power to sue and be sued in its own name does not mean that the attorney general cannot ever represent that agency or that the attorney general needs express prior authorizations to represent that agency. The attorney general may represent such an agency without any affirmative authorization to do so as long as that agency does not object to the representation. Arthur v. Pohnpei, 16 FSM Intrm. 581, 590 (Pon. 2009).
A demand by opposing parties that they be provided with written authorization from both the two government agencies that permit the FSM Department of Justice to represent each of the agencies is meritless and must be rejected. Arthur v. Pohnpei, 16 FSM Intrm. 581, 591 (Pon. 2009).
When a party in support of or in opposition to a Rule 12(b)(6) motion to dismiss submits matters outside of the pleadings, a court has complete discretion to exclude those matters from consideration or to accept those matters and treat the motion as one for summary judgment. Arthur v. Pohnpei, 16 FSM Intrm. 581, 593 (Pon. 2009).
In evaluating a Rule 12(b)(6) motion, the court must accept the complaint's allegations as true and may grant the motion only if it appears to a certainty that no relief could be granted under any state of facts that could be proven in support of the claim, but when matters outside the pleadings are presented to and not excluded by the court, the motion must be treated as one for summary judgment. Arthur v. Pohnpei, 16 FSM Intrm. 581, 593 (Pon. 2009).
On a Rule 12(b)(6) motion to dismiss, only the well-pled or well-pleaded facts are to be accepted as true, and, no matter how artfully the allegations may be crafted, the court does not assume the truth of legal conclusions merely because they are cast in the form of factual allegations since conclusory allegations or legal allegations masquerading as factual conclusions will not suffice to prevent a motion to dismiss. Furthermore, the court need not accept as true allegations that contradict facts which may be judicially noticed; for example, the court may consider matters of public record including pleadings, orders and other papers filed with the court. And the court does not have to credit invective, bald assertions, unsupportable conclusions, periphrastic circumlocutions, and the like. Arthur v. Pohnpei, 16 FSM Intrm. 581, 593 (Pon. 2009).
Although the court must first look to FSM sources of law rather than start with a review of other courts' cases, when an FSM court has not previously construed an aspect of an FSM civil procedure rule which is identical or similar to a U.S. counterpart, the court may look to U.S. sources for guidance in interpreting the rule, such as when aspects of what constitutes well-pleaded allegations under Rule 12(b) have not been previously considered. Arthur v. Pohnpei, 16 FSM Intrm. 581, 593 n.8 (Pon. 2009).
Although the court may take judicial notice of documents filed in earlier related cases without converting the Rule 12(b)(6) motion to a summary judgment motion, the court, when it has given notice in open court that it would consider the motions as summary judgment motions, will follow that course. Arthur v. Pohnpei, 16 FSM Intrm. 581, 593 (Pon. 2009).
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 as to any 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 Intrm. 581, 593 (Pon. 2009).
When an independent action's only purpose is to obtain relief from the judgment in another case; when certain named defendants were not parties in that other case, are not judgment-creditors in that other case, and have neither the power nor the authority to enforce that judgment since none of them has a judgment against the judgment-debtors and none of them is a successor-in-interest to that judgment's judgment-creditor; and when that judgment has not been assigned to any of them and thus,
none of them can enforce the judgment, the independent action's complaint, as a matter of law, fails to state a claim against those certain named defendants upon which relief may be granted. Arthur v. Pohnpei, 16 FSM Intrm. 581, 594-95 (Pon. 2009).
Whether certain named defendants can be ordered to order a judgment-creditor to cease collection efforts is pointless and meaningless since the court can, if the right to such relief were shown, vacate the challenged judgment and directly order the judgment-creditor, the only entity with the authority to collect the judgment, to cease collection efforts. If a judgment in an independent action vacates a judgment-creditor's judgment it would grant all of the relief sought, the other named defendants are thus neither necessary nor indispensable parties without whom complete relief cannot be granted. Arthur v. Pohnpei, 16 FSM Intrm. 581, 595 (Pon. 2009).
Generally, claimants seeking equitable relief through an independent action must meet three requirements. They must 1) show that they have no other available or adequate remedy; 2) demonstrate that their own fault, neglect, or carelessness did not create the situation for which they seek equitable relief; and 3) establish a recognized ground–such as fraud, accident, or mistake–for equitable relief. Arthur v. Pohnpei, 16 FSM Intrm. 581, 596 (Pon. 2009).
Generally, relief from a judgment may be sought either by a Rule 60(b) motion for relief from judgment filed in the original case or by a separate, independent action (a new case), but it cannot be sought by both. Arthur v. Pohnpei, 16 FSM Intrm. 581, 596 (Pon. 2009).
There is some authority that if a Rule 60(b) motion for relief from judgment is denied solely as untimely, that denial does not act as res judicata precluding an independent action since the denial was not on the merits. Otherwise the two Rule 60(b) remedies (motion or independent action) are alternative, not cumulative, remedies, and res judicata applies to successive Rule 60(b) motions and independent Rule 60(b) actions. Arthur v. Pohnpei, 16 FSM Intrm. 581, 596 (Pon. 2009).
When the denial of a Rule 60(b) motion for relief from judgment was not only on the ground that the motion was untimely, but also analyzed the merits of the grounds for relief and denied it on the merits of those grounds as well, summary judgment could be granted solely on the ground that the later independent action is precluded by the court's earlier denial on the merits of the motion. Arthur v. Pohnpei, 16 FSM Intrm. 581, 596-97 (Pon. 2009).
Because the elements of fraud are: 1) a knowing or deliberate misrepresentation by the defendant, 2) made to induce action by the plaintiff, 3) with justifiable reliance by the plaintiff upon the misrepresentations, 4) to the plaintiff's detriment, a plaintiff must show that the misrepresentations were done to induce action by him, and that he relied on them to his detriment. Arthur v. Pohnpei, 16 FSM Intrm. 581, 597 (Pon. 2009).
The plaintiffs in an independent action thus have the burden to allege such fraud as to support an independent action for relief from judgment. Without the existence of the requisite fraud, an independent action in equity may not be brought. Instead, res judicata prevails. Arthur v. Pohnpei, 16 FSM Intrm. 581, 597 (Pon. 2009).
Rule 9(b) requires that in all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity. The extent of the particularity is guided by Civil Rule 8(a) which requires a short and plain statement of the claim. When alleging fraud, a plaintiff must state with particularity the circumstances constituting fraud and must identify particular statements and actions and specify why they are fraudulent. Conclusory allegations do not satisfy Rule 9(b)'s requirements and subject the pleader to dismissal. Arthur v. Pohnpei, 16 FSM Intrm. 581, 597 (Pon. 2009).
When, taking the guarantors' factual allegations as true – that the bank misrepresented to plaintiffs that the documents were in accord with the loan, caused plaintiffs to rely upon said representations and knew plaintiffs would so rely – it is difficult to see how the guarantors were harmed thereby because, if the bank had prepared all the documents correctly, the documents would have shown that a corporation was the borrower and that the guarantors were guarantors with the result that the guarantors would be liable on their guaranty, and since this result is no different than that in the judgment rendered in the former litigation, any alleged reliance on the bank's representation could not have been to the guarantors' detriment since they were in no worse position than if the loan documents were accurately prepared. Arthur v. Pohnpei, 16 FSM Intrm. 581, 597-98 (Pon. 2009).
Since the court cannot ignore the facts that the guarantors agreed were true and stipulated to in the former litigation – that a corporation was the borrower, that the promissory note was incorrectly completed, and that they signed a guaranty – and instead pretend, for the sake of this independent action, that those facts are not true, and that the guarantors were the borrowers, the guarantors' current allegation that they were the borrowers cannot be taken as true because it is a conclusion of law masquerading as a factual conclusion that the court cannot accept or, alternatively, it is a conclusory factual allegation that is contradicted by facts which the court may judicially notice – the court filings, record, and reported decision in the former action and the appellate affirmance of that decision. Either way, the court cannot accept this allegation as true because it is not. Arthur v. Pohnpei, 16 FSM Intrm. 581, 598 (Pon. 2009).
When the guarantors steadfastly maintained, from the start and throughout the former litigation and subsequent appeal, their position that a corporation was the borrower and that they were only the guarantors, the guarantors cannot now pretend that, because the former judgment and appeal were unfavorable to them, they were instead the borrowers on the loan, something they had consistently denied throughout. If the guarantors were permitted to now assert that they were the borrowers, they would be relitigating the entire case from the beginning, and that they cannot do in an independent action, and, since the corporation was the borrower, the guarantors' allegations that can be taken as true fail to state a claim for fraud. Because the guarantors' allegation cannot make out a fraud claim, summary judgment could be granted in the bank's favor on this ground alone since, without the existence of the requisite fraud, res judicata prevails. Arthur v. Pohnpei, 16 FSM Intrm. 581, 598 (Pon. 2009).
When the issue of the bank's faulty preparation of some of the loan documents that showed the guarantors as borrowers and the effects of those scrivener's errors on the guarantors' liability was fully litigated in the former civil action and, on appeal, the guarantors' contentions were again fully considered and the trial court's decision was affirmed; when the defense of mistake in the document
preparation was fully litigated in the trial court and also considered by the appellate court; and when the guarantors did not raise a fraud defense at that time but they could have if they had chosen to since all the facts known to them now were also known to them then, there is no genuine issue of material fact about whether the guarantors were misled by the bank's errors on the loan documents to believe that they were the actual borrowers and not guarantors since they all believed that the corporation was the borrower, not they, and that they had signed a guaranty, and, in the former action, had stipulated to these facts as true and that these facts were undisputed. Arthur v. Pohnpei, 16 FSM Intrm. 581, 598-99 (Pon. 2009).
An independent action cannot be used to withdraw a party's stipulation to the facts (or to have the court ignore their prior stipulation to the facts) and to then relitigate those issues since an independent action is not a vehicle for the relitigation of issues. Arthur v. Pohnpei, 16 FSM Intrm. 581, 599 (Pon. 2009).
Generally, to avoid liability under an illegal contract, the party seeking to avoid liability must return the benefit received under the illegal contract. Thus, in the case of an illegal loan, a borrower seeking to avoid liability would have to return the loan principal. Arthur v. Pohnpei, 16 FSM Intrm. 581, 599 n.13 (Pon. 2009).
A litigant 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, 16 FSM Intrm. 581, 599 (Pon. 2009).
An independent action cannot be made a vehicle for relitigation of issues. A party is precluded by res judicata from relitigation in the independent equitable action issues that were open to litigation in the former action where he had a fair opportunity to make his claim or defense in that action. Arthur v. Pohnpei, 16 FSM Intrm. 581, 599-600 (Pon. 2009).
When it is clear that an "independent action" is only an attempt to relitigate issues already litigated and decided by a trial court and affirmed by the appellate court and when the "fraud" allegation is merely an attempt to cast the same facts and claims in a different light in order to try to sneak under the bar of res judicata, there are no material facts genuinely in dispute and, as a matter of law, the independent action is barred by res judicata. Arthur v. Pohnpei, 16 FSM Intrm. 581, 600 (Pon. 2009).
Rule 60(b) permits an independent action for relief from a judgment based upon fraud upon the court. Fraud upon the court is defined as the most egregious misconduct directed to the court itself, such as bribery of a judge or fabrication of evidence by counsel, which must be supported by clear, unequivocal and convincing evidence. Arthur v. Pohnpei, 16 FSM Intrm. 581, 600 n.14 (Pon. 2009).
* * * *
DENNIS K. YAMASE, Associate Justice:
This came before the court on March 26, 2009, for hearing on 1) Defendant FSM Development
Bank's Motion to Dismiss the Complaint, filed December 29, 2008; 2) defendant State of Pohnpei's Motion to Dismiss Or, in the Alternative, for More Definite Statement, filed December 29, 2008; 3) Motion to Dismiss, filed January 12, 2009 by the FSM Department of Justice on behalf of defendants Investment Development Fund ("IDF") and Federated Development Authority ("FDA"); 4) plaintiffs' Memorandum in Opposition to FSMDB Motion to Dismiss, filed January 29, 2009; 5) plaintiffs' Memorandum in Opposition to Pohnpei State Motion to Dismiss, filed January 29, 2009; 6) plaintiffs' Memorandum in Response to IDF and FDA Motion to Dismiss, filed February 9, 2009; 7) plaintiffs' Memo per Court Order of February 23, 2009, filed March 18, 2009; 8) Defendants' Supplemental Authority Pursuant to February 23, 2009, Court Order, filed March 24, 2009 by IDF and FDA; and 9) Defendant FSM Development Bank's Reply to Plaintiffs' Opposition to Motion to Dismiss, filed March 26, 2009.
Since the Department's authority to represent IDF and FDA was questioned, the court ordered further briefing on that point. On April 15, 2009, the Department filed its Brief: Locus Standi of FSM Department of Justice to Argue on Behalf of Defendants IDF and FDA. On April 24, 2009, the plaintiffs filed their Memorandum Re: FSM Attorney General Representing FDA and IDF. The matters before the court were then considered submitted for its decision.
The defendants' collective motions to dismiss are treated as summary judgment motions and are granted. The court's reasons follow.
The plaintiffs filed this lawsuit as an independent action to relieve them from the October 5, 2004 judgment in Civil Action No. 2001-007. In that case, the plaintiff FSM Development Bank and the defendants, Robert C. Arthur, Patricia B. Arthur, Bethwel Henry, and Marihne Henry, all agreed and stipulated as true that a corporation known as AHPW, Incorporated was the borrower on a loan; 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 signed a guaranty of the AHPW loan. FSM Dev. Bank v. Arthur, 13 FSM Intrm. 1, 6-7 (Pon. 2004). The court reformed the promissory note to accurately reflect the agreement made when the IDF 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. Robert C. Arthur, Patricia B. Arthur, Bethwel Henry, and Marihne Henry. 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, and judgment was entered accordingly.
The appellate division affirmed the judgment on September 14, 2006. Arthur v. FSM Dev. Bank, 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, 15 FSM Intrm. 625 (Pon. 2008), appeal docketed, App. No. P1-2008. They then filed, on December 5, 2008, this case as an independent action for relief from the Civil Action No. 2001-007 judgment.
The 1993 FSM Development Bank loan to AHPW, Inc. was from money in the Investment Development Fund ("IDF"). Robert C. Arthur, Patricia B. Arthur, Bethwel Henry and Marihne Henry each personally and unconditionally guaranteed that loan when they each signed a guaranty to that effect. Arthur, 13 FSM Intrm. at 11-12.
The IDF was created with money appropriated by the United States, 30 F.S.M.C. 201, and is
restricted to financing development projects, FSM Pub. L. No. 5-122, § 5, 5th Cong., 4th Spec. Sess. (1988). The United States appropriated this money as compensation to the Federated States of Micronesia for the United States's inability to fulfill its end of the Compact of Free Association trade and tax provisions as originally negotiated. See Agreement Between the Government of the United States and the Government of the Federated States of Micronesia Regarding the Investment Development Fund of the Federated States of Micronesia Concluded Pursuant to Section 111(c) of United States Public Law 99-239, art. II, & 6 (July 11, 1986) (hereinafter "Agreement"); FSM Pub. L. No. 5-122, § 5(1)(a)(v), 5th Cong., 4th Spec. Sess. (1988). The Federated Development Authority administers the IDF, FSM Pub. L. No. 5-122, § 4, 5th Cong., 4th Spec. Sess. (1988), and the FSM Development Bank, pursuant to the FDA's direction, is responsible for administering all IDF loans and for any legal action to enforce payment obligations for IDF loans, id. § 4(5), including the AHPW, Inc. loan.
The loan's purpose was for AHPW, Inc. to develop or expand a gourmet pepper export business and a trochus shell export business. See AHPW, Inc. v. FSM, 12 FSM Intrm. 544, 548-50 (Pon. 2004). AHPW, Inc. was damaged and effectively put out of business by the State of Pohnpei's anti-competitive acts (a violation of 32 F.S.M.C. 302(2)) in relation to the pepper business. In Civil Action No. 1999-053, AHPW, Inc. sued Pohnpei and the national government1 on this basis and was awarded a $225,448 judgment for AHPW, Inc.'s lost pepper business profits (trebled under 32 F.S.M.C. 306(2) to $676,374) against Pohnpei, AHPW, Inc. v. FSM, 12 FSM Intrm. 544, 550, 557 (Pon. 2004), plus $28,338.76 in attorneys' fees, AHPW, Inc. v. FSM, 13 FSM Intrm. 36, 43 (Pon. 2004).
That 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., 14 FSM Intrm. 1, 26 (App. 2006). On remand, the trial court reinstated the trebling of the lost-pepper-profits damages 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, 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, 15 FSM Intrm. 520, 528 (Pon. 2008).
Had AHPW, Inc. remained in business, AHPW, Inc. would have repaid the Development Bank loan out of AHPW, Inc.'s (lost) pepper profits. AHPW, Inc., 14 FSM Intrm. at 22; AHPW, Inc., 12 FSM Intrm. at 556.
The current state of affairs3 is that AHPW, Inc. has a $742,104.76 ($713,766 plus $28,338.76 in fees and costs) judgment (plus 9% interest on $676,344 from July 8, 2004 and 9% interest on
$37,422 from April 14, 2006) against the State of Pohnpei, of which Pohnpei has paid $335,000 to AHPW, Inc.4 The FSM Development Bank has a $504,960.15 judgment (plus 9% interest from October 5, 2004) against the guarantors of AHPW, Inc. loan, of which only $10,000 has been paid. 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 (plus the 9% interest on $676,344 from July 8, 2004 to October 5, 2004) due and payable to AHPW, Inc. (Instead, AHPW, Inc. has already been paid $335,000.) The FSM Development Bank made the judgment-debtor 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 loan guarantors rejected this approach.
The guarantors chose not to oppose on its merits the FSM Department of Justice's motion to dismiss on behalf of IDF and FDA. They instead chose to challenge the FSM Department of Justice's authority to represent the IDF and the FDA5 and to file the motion on their behalf. Their response to the Department of Justice's motion to dismiss on behalf of IDF and FDA was to pose a series of questions to the Department of Justice and demand that they be answered. These included whether the Department of Justice had received permission from the United States Ambassador or the President of the Federated States of Micronesia and the governors of all four states to file a motion to dismiss or to oppose vacating the judgment against the guarantors and other, more pointed and strongly-worded, questions in a similar vein.
The guarantors also demanded to know whether the Department of Justice had spoken to the President and when the FSM Assistant Attorney General present at the hearing responded that she had, the guarantors wanted to see that put in writing. In their post-hearing memorandum, the guarantors "demand that the FSM Attorney General produce the written authority and permission under which it acts representing these two entities [IDF and FDA]." Pls.' Memo. Re FSM Attorney General Representing FDA & IDF at 4 (Apr. 24, 2009). The guarantors contend that since both FDA and IDF are created by statute as independent agencies not under the FSM President's direct control (although the President does chair the FDA board which also includes the four state governors), the Department of Justice must produce written authority from both agencies, and also from each of the four state governors and from the United States Ambassador, before the Department can defend this lawsuit. They further contend that since the FDA and IDF contain persons who are not national government personnel, the FSM Department of Justice cannot represent either the FDA or the IDF without express written authorization, especially since, in their view, the AHPW, Inc. loan was made from "U.S. funds." The guarantors seem to contend that, since the U.S. Ambassador was an ex officio member of the IDF Advisory Board, she must first be consulted (and presumably approve) before the FSM Department of Justice can represent the IDF or can defend this action.
The guarantors' position is based upon several falsehoods. First, they labor under the misimpression that the AHPW, Inc. loan was from "U.S. funds." This is not true. The bi-national agreement that created the IDF explicitly provides that "[t]he [IDF] shall be owned and administered exclusively by the Government of the Federated States of Micronesia . . . ." Agreement art. II, ¶ 4
(emphasis added). IDF funds are thus not "U.S. funds." IDF funds are owned exclusively by the FSM government and are thus FSM funds.
The bi-national agreement also created an IDF Advisory Board of eight persons, five FSM citizens and three U.S. citizens, one of whom was the U.S. Ambassador. Id. art. III, ¶¶ 1-2. This is the apparent basis for the guarantors' demand to know if the U.S. Ambassador had been consulted and given her approval. But FSM citizens, not U.S. citizens, were a majority on the board. Also, the IDF Advisory Board's powers were solely advisory and limited to review and comment on investment guidelines and on the IDF annual reports; to provide evaluation of, and recommendation of, proposals for distribution from the fund; and to assist the FSM government in designing and implementing programs to attract U.S. investment in the FSM. Agreement art. III, ¶ 10. The Board had no powers, not even advisory, in regard to litigation or loan collection. Furthermore, the Advisory Board no longer exists. By the Agreement's express terms, the Agreement, and thus the Advisory Board created by it, expired, if not terminated earlier, after fifteen years, Agreement art. V, ¶ 3, that is, by late 2001.
The FSM Attorney General therefore cannot be required to obtain permission from (or even consult) a foreign government official (the U.S. Ambassador) because her office was once a member of an (advisory) board that no longer exists and which had no power to express an opinion on the subject even when it did exist. The IDF, as authorized by a bi-national agreement, was created by an enactment of the FSM Congress, and thus was an instrumentality of the FSM national government.
A grant of the power to "sue and be sued" is the usual legal formulation by which a government agency is granted the power to independently hire its own attorneys instead of being represented by the attorney general's office. See 7 AM. JUR. 2D Attorney General § 12, at 13 (1980). Since the public laws that created the IDF did not confer upon the IDF the power to sue and be sued in its own name,6 the IDF cannot be represented in court by any counsel other than the FSM Attorney General. Cf. Truk v. Robi, 3 FSM Intrm. 556, 561-63 (Truk S. Ct. App. 1988) (in absence of explicit legislative or constitutional expression to the contrary, Truk attorney general represents the Truk government in all legal actions and can conduct and control the proceedings on its behalf). The guarantors' objection to the FSM Attorney General representing the IDF is thus completely devoid of any merit.
The FDA was also an instrumentality of the national government created by an FSM Congress enactment. 55 F.S.M.C. 321. The presence of (uncompensated) persons, who are not national government employees – each state governor or his designee – on the FDA Policy Board, 55 F.S.M.C. 326, does not make the FDA something other than a national government instrumentality. The Board members are even defined as national government public officials for the purpose of their Board membership. 55 F.S.M.C. 327(3); 11 F.S.M.C. 1301.
The FDA does, or did, however, have the power "to sue and be sued in its own name." 55 F.S.M.C. 324(2). But a government agency's power to sue and be sued in its own name does not mean that the attorney general cannot ever represent that agency or that the attorney general needs express prior authorization to represent that agency. The attorney general may represent such an agency without any affirmative authorization to do so as long as that agency does not object to the representation. See, e.g., People ex rel. Hartigan v. E & E Hauling, Inc., 607 N.E.2d 165, 170-71 (Ill. 1992) (an attorney general has the common law power to represent an independent government agency even without affirmative authorization from that agency); Illinois v. Brunswick Corp., 32 F.R.D. 453,
456-60 (N.D. Ill. 1963) (attorney general has authority to represent government institutions with powers to sue and be sued, especially when those institutions fail to exercise those powers). Since no other attorney has sought to appear to represent the FDA and since the FDA has not objected to the Department of Justice's representation of it, the Department of Justice may represent the FDA without any affirmative authorization from the FDA for it to do so.
Thus the guarantors' demand that they be provided with written authorization from both the FDA and the IDF permitting the FSM Department of Justice to represent each of them is meritless and must be rejected. Furthermore, the pointed questions that the guarantors demand be answered involve communications between the FSM Department of Justice and IDF and FDA officials – communications that would appear to raise the question of attorney-client privilege. Just as the defendants generally do not have the right to inquire into the relationship or communications between the guarantors and their attorney, the guarantors cannot demand the disclosure of communications between the Attorney General and IDF or FDA officials.
The court now turns to the defendants' pending motions.
A. Pohnpei
Pohnpei moves to dismiss on the ground that, in its view, the guarantors do not state a claim upon which relief can be granted since the guarantors either did or could have raised in Civil Action No. 2001-007 the claims they now raise in this case and thus this case is barred by the principle of the finality of judgments and res judicata or collateral estoppel would apply. Pohnpei further contends that, since the guarantors also raised these claims in a Rule 60(b) motion in Civil Action No. 2001-007, they cannot raise them again in an independent action. Pohnpei further notes that the guarantors' factual allegations in their complaint allege actions by the Bank, but not by Pohnpei, and thus do not give rise to any claims against Pohnpei. Nor, in Pohnpei's view, do the guarantors allege that Pohnpei committed any acts constituting fraud, so that if Pohnpei's motion to dismiss is denied, the guarantors should be required to plead the fraud allegation with the particularity that Civil Procedure Rule 9(b) requires.
The guarantors contend that this independent action against Pohnpei does not raise the same issues that were decided in Civil Action No. 2001-007 and affirmed on appeal. They contend that since this is an independent action in equity, it, in their view, raises issues that they assert the court did not consider in Civil Action No. 2001-007 when they moved for relief from judgment in that action. The guarantors assert that since Pohnpei destroyed the AHPW, Inc. business that they7 created, and since, in their view, the Development Bank was merely Pohnpei's agent in loaning the money to AHPW, Inc. and in collecting on the loan by filing a lawsuit, Pohnpei is thus responsible for the Bank's actions, and presumably, is thus a proper party to this lawsuit.
B. IDF and FDA
The IDF and the FDA move to dismiss on the ground that the guarantors fail to state a claim upon which relief may be granted since all acts that the guarantors allege that either the IDF or the FDA committed occurred over fifteen years ago and thus any claim based upon those acts is barred by the applicable statute of limitations. The IDF and the FDA also assert that the guarantors do not state a claim since, in their view, res judicata – the finality of judgments – bars the guarantors from raising any
claims now that they could have or should have raised in the earlier action.
The guarantors' only response or opposition to this motion to dismiss was, as discussed above, a demand that the FSM Department of Justice produce written authorizations from various officials, consenting to the Department of Justice's representation of the IDF and the FDA. The court has rejected that demand as wholly without merit. The guarantors have not otherwise contested the merits of this motion to dismiss.
C. FSM Development Bank
The FSM Development Bank moves to dismiss on the ground that the guarantors' complaint fails, on a number of grounds, to state a claim upon which relief may be granted. The Bank contends that the guarantors' complaint is fatally defective since it is devoid of any reference to the dates and times any of the alleged acts complained of occurred, and, although the complaint makes reference to fraud and mistake, it fails to state with particularity, as required by Civil Procedure Rule 9(b), the circumstances the guarantors think constitute fraud or mistake. The Bank also asserts that, as is evident in the facts the guarantors stipulated to in Civil Action No. 2001-007, the guarantors' claims are barred by the applicable statute of limitations, although, in the Bank's view, the guarantors' complaint purposefully and evasively omitted the dates of all events. The Bank also contends that the principle of res judicata bars the guarantors' claims and that the guarantors' complaint fails to allege or establish all of the elements necessary for an equitable claim for an independent action for relief from judgment. The Bank also asserts that this independent action for relief is barred by Civil Procedure Rule 60(b) because that rule requires that a party seeking relief from a judgment either file a motion for relief from judgment in the original case or file a separate, independent action for relief, but prohibits them from doing both, and the guarantors already filed a motion for relief in the original case and were denied.
The Bank also moves for dismissal on the grounds that the service of process on the Bank was insufficient since the summons served upon it was addressed to the State of Pohnpei and not to the Bank and because the summons and complaint were served on it by the guarantors' "local counsel" and the applicable rule does not permit a plaintiff or a plaintiff's counsel to serve the complaint and summons.
The guarantors respond that they are not required to include the dates and times of events in their pleadings. They further contend that the date and time of their fraud and misrepresentation claims is well-known to the Bank because it was when the Bank prepared the loan documents [in 1993]. The guarantors contend that the statutes of limitation do not apply to independent actions for relief from judgment and that their claims are not barred by res judicata. They also contend that they are not required to plead with factual particularity the fraud or mistake they allege. The guarantors assert that since they were barred from obtaining relief in Civil Action No. 2001-007, they must be permitted to obtain it in this action, since, in their view, their arguments were not properly considered in Civil Action No. 2001-007. The guarantors add that if the Bank is correct about its service on it, the service may be quashed and, if so, they will then correct the service.
The Bank, in its reply, argues that, since FSM Civil Procedure Rule 60(b) is drawn from U.S. Civil Procedure Rule 60(b) and under the U.S. rule the time limits for an independent action for relief from judgment are those of laches or statutes of limitation, the FSM statutes of limitation can be used to bar this action. The Bank also argues that there is authority for an independent action based on a fraud allegation to be precluded by the earlier litigation when the issue had been raised or should have been raised in the earlier litigation from which relief is sought.
D. Treated as Summary Judgment Motions
The reported decisions in Civil Actions No. 2001-007 and 1999-041, and their appellate affirmances, were attached to some of the defendants' moving papers or were referred to orally at the hearing with the expectation that the court would consider those opinions when ruling on the pending motions to dismiss for failure to state a claim. The court inquired from the bench whether the motions ought to be considered summary judgment motions because of the presence of matters outside the pleadings. The guarantors did not object to references to the other cases' reported opinions, but indicated that they would object if factual matters outside the pleadings were considered.
When a party in support of or in opposition to a Rule 12(b)(6) motion to dismiss submits matters outside of the pleadings, a court has complete discretion to exclude those matters from consideration or to accept those matters and treat the motion as one for summary judgment. Latte Motors, Inc. v. Hainrick, 7 FSM Intrm. 190, 192 (Pon. 1995). In evaluating a Rule 12(b)(6) motion, the court must accept the complaint's allegations as true and may grant the motion only if it appears to a certainty that no relief could be granted under any state of facts that could be proven in support of the claim, but when matters outside the pleadings are presented to and not excluded by the court, the motion must be treated as one for summary judgment. Ehsa v. Pohnpei Port Auth., 14 FSM Intrm. 481, 484 (Pon. 2006). But, on a Rule 12(b)(6) motion, only the well-pled or well-pleaded facts are to be accepted as true. See FSM v. Koshin 31, 16 FSM Intrm. 15, 18 (Pon. 2008); Rudolph v. Louis Family, Inc., 13 FSM Intrm. 118, 129 (Chk. 2005); cf. In re Kuang Hsing 182, 7 FSM Intrm. 465, 467 (Yap 1996) (Rule 12(c)). However, no matter how artfully the allegations may be crafted, the court does not "assume the truth of legal conclusions merely because they are cast in the form of factual allegations." Western Mining Council v. Watt, 643 F.2d 618, 624 (9th Cir.), cert. denied, 454 U.S. 1031 (1981).8 "[C]onclusory allegations or legal allegations masquerading as factual conclusions will not suffice to prevent a motion to dismiss." Fernandez-Montes v. Allied Pilots Ass'n, 987 F.2d 278, 284 (5th Cir. 1993). Furthermore, "the court need not accept as true allegations that contradict facts which may be judicially noticed. For example, the court may consider matters of public record including pleadings, orders and other papers filed with the court." Westlands Water Dist. v. United States, 850 F. Supp. 1388, 1399 (E.D. Cal. 1994). And, the court also does not have to credit "invective, . . . bald assertions, unsupportable conclusions, periphrastic circumlocutions, and the like." Aulson v. Blanchard, 83 F.3d 1, 3 (1st Cir. 1996).
The court will not exclude from its consideration, the reported opinions or the public laws referred to by the parties. Although the court could take judicial notice of documents filed in earlier related cases without converting the Rule 12(b)(6) motion to a summary judgment motion, Henson v. CSC Credit Servs., 29 F.3d 280, 284 (7th Cir. 1994), the court, having given notice in open court that it would consider the motions as summary judgment motions, believes it best to follow that course. 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 as to any 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. Nanpei v. Kihara, 7 FSM Intrm. 319, 323 (App. 1995).
In deciding the pending motions, the only matters outside of the pleadings considered by the court are the reported decisions in the related cases and the public laws. The court therefore decides these motions as summary judgment motions.
A. Pohnpei, IDF, and FDA
The guarantors filed this case as an independent action for relief from the judgment in Civil Action No. 2001-007. The State of Pohnpei, the Investment Development Fund, and the Federated Development Authority were not parties in that case or to the judgment from which relief is sought but are named as parties-defendant in this action. Therefore, on February 23, 2009, the court asked the parties to submit any supplemental authority they wished on whether an independent action for relief from a judgment can name as parties-defendant entities that were not parties to the judgment from which relief is sought or whether this action against those entities is of some other nature. The guarantors and IDF and FDA submitted responses.
The guarantors rely on West Virginia Oil & Gas Co. v. George E. Breece Lumber Co., 213 F.2d 702, 707 (5th Cir. 1954); Butler v. Ungerleider, 187 F.2d 238, 239 (2d Cir. 1951) to support their contention that additional parties may be added in an independent action for relief from judgment when those parties are in privity with an original party. The guarantors contend that Pohnpei, the IDF, and the FDA are all in privity with the FSM Development Bank because "the fund from which the loan was made was held by IDF in its Pohnpei subaccount" and because "[t]he FDA was the entity that granted the loan to AHPW from those funds." Pls.' Memo per Court Order of February 23, 2009, at 2 (Mar. 18, 2009). The guarantors further assert that Pohnpei, the IDF, and the FDA, "as the originators of the fund and the loan authority," are necessary parties, without which full relief may not be granted. Id. (citing FSM Civ. R. 19).
The guarantors' reasoning is faulty. The two cases they rely on offer no support for adding Pohnpei, the IDF, and the FDA as parties in this action. In Butler, the only defendant in that independent action was the assignee of the original judgment-creditor, and thus a privy (and the successor-in-interest) to the assignor party who had obtained the original judgment. Butler, 187 F.2d at 239. The original judgment-creditor was not a party. In West Virginia Oil and Gas, an independent action concerning the description, in an earlier judgment, of real estate in which some property interests had since been assigned to others, the court held that the subsequent owners may be made parties to the independent action. West Virginia Oil & Gas, 213 F.2d at 706-07. In both cases, the proper defendants were parties who were the successors-in-interest to the original judgment holder and who thus had the right to enforce the judgments from which the independent actions sought relief. The court's own research turned up a number of other cases where someone not a party to the original judgment was a party in a later independent action for the relief of that judgment. In all such instances, the new party was a successor-in-interest to a party to the judgment from which relief was sought. Other entities who might have been said to have been in privity with the original judgment, as the guarantors claim Pohnpei, the IDF, and the FDA are, were not parties to a later independent action for relief from judgment. Cf. Butler, 187 F.2d at 239 n.2 ("one who financed the defense of a law-suit, bound by the judgment therein for purposes of res judicata purposes, was not a >privy' in the sense" involved in an independent action for relief from judgment).
Taking the guarantors at their word, this action's only purpose is to obtain relief from the Civil Action No. 2001-007 judgment. Pohnpei, the IDF, and the FDA were not parties in that case; are not judgment-creditors in that case; and have neither the power nor the authority to enforce the Civil Action No. 2001-007 judgment. Neither Pohnpei, nor the IDF, nor the FDA have a judgment against the
guarantors. None of them is a successor-in-interest to the Civil Action No. 2001-007 judgment-creditor (the Bank). Nor has the Civil Action No. 2001-007 judgment been assigned to any of them. Thus, neither Pohnpei, nor the IDF, nor the FDA can enforce the Civil Action No. 2001-007 against the guarantors. The guarantors' complaint in this independent action therefore, as a matter of law, fails to state a claim against Pohnpei, the IDF, and the FDA upon which relief may be granted.
The guarantors' second request in their prayer for relief does ask "[t]hat the FDA and the IDF advisory board be ordered by this court to order FSMDB to terminate any further collection proceedings." Complaint at 7 (Dec. 5, 2008). The IDF advisory board does not exist, and, even if it did, it merely gives advice. The IDF does not exist. The FDA may not exist.9 And the guarantors' first request in their prayer asks that the Bank's judgment against them in Civil Action No. 2001-007 be vacated and further alleges that the Bank obtained that judgment as the agent for the State of Pohnpei. That the Bank acted as Pohnpei's agent in obtaining that judgment is neither apparent nor conceded. Regardless, only the Bank has the authority to institute legal action to enforce the AHPW, Inc. payment obligations. FSM Pub. L. No. 5-122, § 4(5), 5th Cong., 4th Spec. Sess. (1988).
Thus, whether Pohnpei, the FDA, or the IDF can be "ordered to order" the Bank to cease collection efforts is pointless and meaningless since the court can, if the right to such relief were shown, vacate the Civil Action No. 2001-007 judgment and directly order the Development Bank, the only entity with the authority to collect the Civil Action No. 2001-007 judgment, to cease collection efforts. A judgment for the guarantors in this action vacating the Bank's judgment and an order to the Bank would grant the guarantors all of the relief they claim to be seeking. Pohnpei, the IDF, and the FDA are thus neither necessary nor indispensable parties10 without whom complete relief cannot be granted. The guarantors can certainly and definitely be granted complete relief without the presence of Pohnpei, the IDF, and the FDA.
Accordingly, Pohnpei, the IDF, and the FDA cannot be named parties-defendant in this independent action for relief from the Civil Action No. 2001-007 judgment. There being no material facts genuinely in dispute, the State of Pohnpei, the IDF, and the FDA have shown their right to summary judgment in their favor as a matter of law.
If, on the other hand, the guarantors are actually trying to obtain some other, unstated relief from Pohnpei, the IDF, and the FDA on some as yet unarticulated cause of action that they intend to raise and develop later, that relief would be barred by the two-year and six-year statutes of limitation, 6 F.S.M.C. §§ 803, 805, since all acts the guarantors allege that Pohnpei, the IDF, or the FDA committed
occurred in the 1990's.
B. FSM Development Bank
Generally, claimants seeking equitable relief through an independent action must meet three requirements. Campaniello Imports, Ltd. v. Saporiti Italia S.p.A., 117 F.3d 655, 662 (2d Cir. 1997).11 They "must (1) show that they have no other available or adequate remedy; (2) demonstrate that [their] own fault, neglect, or carelessness did not create the situation for which they seek equitable relief; and (3) establish a recognized ground–such as fraud, accident, or mistake–for equitable relief." Id. The Bank contends that the guarantors' allegations do not meet those requirements and that their claims are barred by res judicata. The guarantors contend that since they were barred from obtaining relief in Civil Action No. 2001-007, they must be permitted to obtain it in this action, because, in their view, their arguments were ignored in Civil Action No. 2001-007. The Bank contends that since the guarantors filed a motion for relief from judgment in the original case and were denied that relief, the guarantors are now barred from filing this independent action.
The Bank asserts that the guarantors' claims are barred by res judicata. The doctrine of res judicata bars the relitigation by parties or their privies of all matters that were or could have been raised in a prior action that was concluded by a final judgment on the merits, which has been affirmed on appeal or for which time for appeal has expired. Iriarte v. Etscheit, 8 FSM Intrm. 231, 236-37 (App. 1998).
1. Previous Rule 60(b) Motion as Res Judicata
Generally, relief from a judgment may be sought either by a Rule 60(b) motion for relief from judgment filed in the original case or by a separate, independent action (a new case), but it cannot be sought by both. Goodyear Tire & Rubber Co. v. H.K. Porter Co., 521 F.2d 699, 700 (6th Cir. 1975) (having chosen to raise the issue by motion, a litigant does not have available to it the right to proceed for the same relief by independent action). The guarantors contend that they should be heard now because their Civil Action No. 2001-007 motion for relief from judgment was denied on the ground that their motion was filed too late.
There is some authority that if a Rule 60(b) motion for relief from judgment is denied solely as untimely, that denial does not act as res judicata precluding an independent action since the denial was not on the merits. Caputo v. Globe Indem. Co., 41 F.R.D. 239, 240-41 (E.D. Pa. 1966). Otherwise the two Rule 60(b) remedies (motion or independent action) are alternative, not cumulative, remedies, Locklin v. Switzer Bros., Inc., 335 F.2d 331, 334 (7th Cir. 1964), cert. denied, 379 U.S. 962 (1965); see also Morgan Consultants v. American Tel. & Tel. Co., 546 F. Supp. 844, 847 n.4 (S.D.N.Y. 1982), and "[r]es judicata applies to successive Rule 60(b) motions and independent Rule 60(b) actions," Hughes v. McMenamon, 379 F. Supp. 2d 75, 79 (D. Mass. 2005).
A review of the Civil Action No. 2001-007 denial of relief indicates that that decision not only denied relief on the ground that the motion was untimely, Arthur, 15 FSM Intrm. 625, 632-33, but also analyzed the merits of the guarantors' grounds for relief and denied it on the merits of those grounds as well, id. at 634-35. It did so "in an abundance of caution." Id. at 633.
Summary judgment could therefore be granted solely on the ground that this independent action
is precluded by the court's earlier denial on the merits of the guarantors' motion in Civil Action No. 2001-007 for relief from judgment. However, the court, in an abundance of caution, will also consider whether the other grounds raised by the Bank bar this independent action.
2. The Guarantors' Pleading of Fraud
The Bank asserts that the guarantors' complaint should be dismissed because it failed to make averments of fraud or mistake with particularity and does not include the date, time, and place of such acts. The guarantors respond that averments of time and place do not need to be pled specifically and assert that they have pled fraud with sufficient particularity because "[t]he false representations made, the identity of those making the representations, how the representations misled the plaintiffs and what FSMDB and the state obtained are fully pled in paragraphs 26 and 27 of the complaint." Memo. in Opp'n to FSMDB Mot. to Dismiss at 2 (Jan. 29, 2009). Those paragraphs refer only to the Bank's faulty preparation of loan documents showing the guarantors as the borrowers and include an assertion that the guarantors could not have legally borrowed from the IDF.
Because the elements of fraud are: 1) a knowing or deliberate misrepresentation by the defendant, 2) made to induce action by the plaintiff, 3) with justifiable reliance by the plaintiff upon the misrepresentations, 4) to the plaintiff's detriment, a plaintiff must show that the misrepresentations were done to induce action by him, and that he relied on them to his detriment. Mid-Pacific Constr. Co. v. Semes, 7 FSM Intrm. 522, 526 (Pon. 1996). The guarantors thus have "the burden to allege such fraud as to support an independent action for relief from judgment. Without the existence of the requisite fraud, an independent action in equity may not be brought. Instead, res judicata prevails." McDonald v. Barlow, 705 P.2d 1056, 1060 (Idaho Ct. App. 1985) (citation omitted).
Civil Rule 9(b) provides that "[i]n all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity." The extent of the particularity is guided by Civil Rule 8(a) which requires a short and plain statement of the claim. Pohnpei v. Kailis, 6 FSM Intrm. 460, 462 (Pon. 1994). When alleging fraud, a plaintiff must state with particularity the circumstances constituting fraud and "must identify particular statements and actions and specify why they are fraudulent. Conclusory allegations do not satisfy the requirements of Rule 9(b) and subject the pleader to dismissal." Veal v. First Am. Sav. Bank, 914 F.2d 909, 913 (7th Cir. 1990) (citation omitted).
The guarantors allege that the Bank "breached [its] duty of good faith and fair dealing by failing to draft documents establishing plaintiffs as guarantors and AHPW as the borrower." Complaint & 24 (Dec. 5, 2008). The guarantors' allegations of fraud are, as identified in their opposition to the Bank's motion, paragraphs 26 and 27 of their complaint. The guarantors allege that they had "good defenses" to Civil Action No. 2001-007 "which [the Bank] by its conduct in failing to prepare proper documents and misleading plaintiffs throughout the course of the litigation were not presented." Id. & 26. And they further allege that the Bank
in preparing loan documents with plaintiffs as borrowers did so with full knowledge that plaintiffs could not legally borrow the funds from IDF, deliberately misrepresented to plaintiffs that the documents were in accord with the IDF loan, caused plaintiffs to rely upon said representations and knew plaintiffs would so rely, and plaintiffs have suffered harm thereby.
Id. ¶ 27. Taking the guarantors' factual allegations as true – that the Bank "misrepresented to plaintiffs that the documents were in accord with the IDF loan, caused plaintiffs to rely upon said representations and knew plaintiffs would so rely" – it is difficult to see how the guarantors were harmed thereby
because, if the Bank had prepared all the documents correctly, the documents would have shown AHPW, Inc. as the borrower and that the guarantors were guarantors, with the result that the guarantors would be liable on their guaranty. This result is no different than that in the judgment rendered in Civil Action No. 2001-007. In other words, any alleged reliance on the Bank's representation could not have been to the guarantors' detriment since they were in no worse position than if the loan documents were accurately prepared.
The guarantors now allege that they were the borrowers. That is not true. The court cannot ignore the facts that the guarantors agreed were true and stipulated to in Civil Action No. 2001-007 – that AHPW, Inc. was the borrower, that the promissory note was incorrectly completed, and that they signed a guaranty – and instead pretend, for the sake of this independent action, that those facts are not true, and that the guarantors were the borrowers. The guarantors' current allegation that they were the borrowers cannot be taken as true. It is a conclusion of law masquerading as a factual conclusion that the court cannot accept. Western Mining Council, 643 F.2d at 624. Alternatively, it is a conclusory factual allegation that is contradicted by facts which the court may judicially notice – the court filings, record, and reported decision in Civil Action No. 2001-007 and the reported appellate affirmance of that decision. Westlands Water Dist., 850 F. Supp. at 1399. Either way, the court cannot accept this allegation as true. Aulson, 83 F.3d at 3; Fernandez-Montes, 987 F.2d at 284; Western Mining Council, 643 F.2d at 624; Westlands Water Dist., 850 F. Supp. at 1399. It is not. AHPW, Inc. was the borrower. The IDF loan was made to it. Robert C. and Patricia B. Arthur and Bethwel and Marihne Henry guaranteed that loan. They were guarantors not borrowers.
Thus, any "knowledge" by the Bank that a loan to Robert C. and Patricia B. Arthur and Bethwel and Marihne Henry would not be legal cannot support any fraud claim since the loan was to AHPW, Inc. and not to Robert and Patricia B. Arthur and Bethwel and Marihne Henry and since all parties, the Bank, AHPW, Inc., and the guarantors, believed at the time that the loan was to AHPW, Inc. (the borrower) and that Robert C. Arthur, Patricia B. Arthur, Bethwel Henry, and Marihne Henry were guarantors.
The guarantors steadfastly maintained, from the start and throughout the Civil Action No. 2001-007 litigation and subsequent appeal, their position that AHPW, Inc. was the borrower. See FSM Dev. Bank v. Arthur, 10 FSM Intrm. 479, 480 (Pon. 2001). They were only the guarantors. The guarantors cannot now pretend that, because the Civil Action No. 2001-007 judgment and appeal were unfavorable to them, they were instead the borrowers on the IDF loan, something they consistently denied throughout the Civil Action No. 2001-007 litigation and subsequent appeal. If the guarantors were permitted to now assert that they were the borrowers, they would be relitigating the entire case from the beginning. That, as seen below, they cannot do in an independent action.
Accordingly, since AHPW, Inc. was the borrower, the guarantors' allegations that can be taken as true fail to state a claim for fraud. Since the guarantors' allegation cannot make out a fraud claim, summary judgment could be granted in the Bank's favor on this ground alone, and, without the existence of the requisite fraud, res judicata prevails.
3. Previous Litigation as Res Judicata
The issue of the Bank's faulty preparation of some of the loan documents that showed the guarantors as borrowers and the effects of those [scrivener's] errors on the guarantors' liability was fully litigated in Civil Action No. 2001-007, Arthur, 13 FSM Intrm. at 8-10, and, on appeal, the guarantors' contentions were again fully considered and the trial court's decision was affirmed, Arthur,
14 FSM Intrm. at 395-96.12 The defense of mistake in the document preparation was fully litigated in the Civil Action No. 2001-007 trial court, Arthur, 13 FSM Intrm. at 9-10, and also considered by the appellate court, Arthur, 14 FSM Intrm. at 396. The guarantors did not raise a fraud defense at that time, Arthur, 13 FSM Intrm. at 9, but they could have if they had chosen to since all the facts known to them now were also known to them then.
There is no genuine issue of material fact about whether the guarantors were misled by the Bank's errors on the loan documents to believe that they were the actual borrowers (instead of AHPW, Inc.) and not guarantors. They were not misled. Robert C. Arthur, Patricia B. Arthur, Bethwel Henry, and Marihne Henry all believed that AHPW, Inc. was the borrower, not they, and that they had signed a guaranty, and, in Civil Action No. 2001-007, they stipulated to these facts as true and that these facts were undisputed. Arthur, 13 FSM Intrm. at 6-7.
The guarantors cannot use this independent action to withdraw their stipulation to the facts (or to have the court ignore their prior stipulation to the facts) and to then relitigate those issues. "An independent action is not a vehicle for the relitigation of issues." Griffin v. Federal Deposit Ins. Corp., 831 F.2d 799, 803 (8th Cir. 1987) (citing Bankers Mortgage Co. v. United States, 423 F.2d 73, 79 (5th Cir. 1970)); Travelers Indem. Co. v. Gore, 761 F.2d 1549, 1552 (11th Cir. 1985) (same); see also 11 CHARLES ALAN WRIGHT, ARTHUR R. MILLER & MARY KAY KANE, FEDERAL PRACTICE AND PROCEDURE § 2868, at 398 (2d ed. 1995) ("It is not the function of an independent action to relitigate issues finally determined in another action between the parties.").
It appears that the guarantors may not have specifically articulated as an issue in Civil Action No. 2001-007 their current allegation that it would have been illegal for them to have borrowed IDF money.13 Although, since AHPW, Inc. was the borrower and they were not, it is unclear what difference they think this could have made. Nevertheless, they could have raised, but did not, that point in Civil Action No. 2001-007. Indeed, the appellate court also ruled that, although it was unclear how Pohnpei's tort liability to AHPW could be a defense to the Bank's contract claim against the guarantors, the guarantors had not been prevented from introducing in Civil Action No. 2001-007 any relevant evidence relating to the AHPW case. Arthur, 14 FSM Intrm. at 395-96. Similarly, the guarantors were not prevented from raising their alleged legal inability to receive an IDF loan.
"A litigant may not sit idly by during the course of litigation and then seek to present additional defenses in the event of an adverse outcome." Griffin, 831 F.2d at 803. "The independent action can not be made a vehicle for relitigation of issues." Bankers Mortgage Co. v. United States, 423 F.2d 73, 79 (5th Cir.), cert. denied, 399 U.S. 927 (1970). "Courts have consistently held that a party is precluded by res judicata from relitigation in the independent equitable action issues that were open to
litigation in the former action where he had a fair opportunity to make his claim or defense in that action." Id.
The guarantors contend that they had "good defenses" to the Bank's suit, which the Bank "by its conduct in failing to prepare proper documents and misleading plaintiffs throughout the course of the litigation were not presented." Complaint & 26 (Dec. 5, 2008). The guarantors contended throughout Civil Action No. 2001-007 that the Bank failed to prepare the loan documents accurately. The "misleading" that the guarantors refer to is apparently the Bank's faulty preparation of the loan documents and its original attempt to hold the guarantors liable as borrowers before it moved, before the start of trial, to amend its pleadings to reflect the true situation. Both the trial court, Arthur, 13 FSM Intrm. at 8, and the appellate court, Arthur, 14 FSM Intrm. at 396, noted that the guarantors had eight months after the amendment in which to cure any prejudice to them and to raise any further defenses before they and the Bank submitted their stipulation of facts to the court so the court could then decide the case. The trial court even noted that the guarantors had hinted that they had other defenses but had not raised them. Arthur, 13 FSM Intrm. at 8. These defenses or issues were therefore open to litigation in Civil Action No. 2001-007 and the guarantors had a fair opportunity then to make the defenses they are trying to assert now. The guarantors neglected to take that opportunity to present any "good defenses" they may have had.
It is clear that in this "independent action" the guarantors are only trying to relitigate issues – whether the guarantors were borrowers or just guarantors and, if AHPW, Inc. was the borrower, whether they could be held liable on the guaranty they signed – already litigated and decided by the trial court and affirmed by the appellate court. This they cannot do. Their "fraud" allegation14 is merely an attempt to cast the same facts and claims in a different light in order to try to sneak under the bar of res judicata.
Accordingly, there being no material facts genuinely in dispute, the Bank is entitled to summary judgment against the guarantors as a matter of law on the ground that this independent action is barred by res judicata. Having concluded that three separate grounds each require that the Bank be granted summary judgment, it is unnecessary for the court to consider the other grounds asserted by the Bank.
The guarantors have no right to demand that the FSM Department of Justice produce written authorizations from the Investment Development Fund and the Federated Development Authority before the FSM Department of Justice can represent those parties and file motions on their behalf.
The Investment Development Fund, the Federated Development Authority, and the State of Pohnpei are not proper parties-defendant to an independent action for relief from a judgment to which they were not parties and when they are not successors-in-interest to parties to that judgment. Summary judgment is therefore rendered in the favor of the Investment Development Fund, the Federated Development Authority, and the State of Pohnpei, on the claims made against them by Robert C. Arthur, Patricia B. Arthur, Bethwel Henry, and Marihne Henry.
Robert C. Arthur, Patricia B. Arthur, Bethwel Henry, and Marihne Henry, having previously sought relief from the Civil Action No. 2001-007 judgment by motion in that case and having made allegations that seek only to relitigate issues already litigated or to raise issues they had already had a full opportunity to raise and litigate, are barred by res judicata from prosecuting this independent action from relief from judgment. And further, having made factual allegations that, under the circumstances, cannot state a claim of fraud, they have not made out a claim for equitable relief and thus cannot prevail on their claims. Summary judgment is therefore rendered in favor of the Federated States of Micronesia Development Bank against Robert C. Arthur, Patricia B. Arthur, Bethwel Henry, and Marihne Henry.
And, if the court had analyzed the defendants' motions solely under Rule 12(b)(6), the motions would have been granted and this action dismissed.
The clerk shall enter judgment accordingly. The defendants may tax their costs. FSM Civ. R. 54(d).
_______________________________Footnotes:
1 AHPW's claims against the national government were dismissed in 2003. AHPW, Inc. v. FSM, 12 FSM Intrm. 164, 166-68 (Pon. 2003); AHPW, Inc. v. FSM, 12 FSM Intrm. 114, 118-19 (Pon. 2003). Those dismissals were upheld on appeal. Pohnpei v. AHPW, Inc., 14 FSM Intrm. 1, 23-24 (App. 2006).
2 This trial court decision was not appealed.
3 A court may take judicial notice of its own reported decisions, Berman v. FSM Supreme Court (I), 7 FSM Intrm. 8, 11 n.2 (App. 1995), and of papers and pleadings on file in other cases before it when portions of those cases have been introduced into evidence, see Rudolph v. Louis Family, Inc., 13 FSM Intrm. 118, 125 n.2 (Chk. 2005). Matters in both Civil Action No. 1999-053 and No. 2001-007 have been introduced in this case, many of the reported decisions are attached to the defendants' moving papers, and every party relies on these cases to support that party's position in this independent action.
4 The payment was made June 10, 2008.
5 Ironically, the guarantors, when effecting service of process on IDF and FDA, served their complaint and the summonses for IDF and FDA on only the FSM Department of Justice. Return of Service (Dec. 8, 2008). They did not serve their papers on any of the persons or entities whose consent they now contend is necessary before the FSM Department of Justice can represent IDF and FDA.
6 Because of the decision below to dismiss the claims against IDF and FDA, the court does not reach the question of whether the IDF, instead of the FSM national government, can be named as a defendant if it does not have the power to be sued.
7 Of the four guarantors only two, Patricia B. Arthur and Marihne Henry, owned stock in AHPW, Inc.
8 Although the court must first look to sources of law in the FSM rather than start with a review of other courts' cases, FSM Const. art. XI, § 11, when an FSM court has not previously construed an aspect of an FSM civil procedure rule which is identical or similar to a U.S. counterpart, the court may look to U.S. sources for guidance in interpreting the rule, see, e.g., Berman v. College of Micronesia-FSM, 15 FSM Intrm. 582, 589 n.1 (App. 2008); Senda v. Mid-Pacific Constr. Co., 6 FSM Intrm. 440, 444 (App. 1994). Aspects of what constitutes well-pleaded allegations under Rule 12(b) have not been previously considered.
9 The Department of Justice contends that the FDA does not exist since the statute that created it only authorized its existence for five years after the (original) Compact of Free Association took effect unless extended by mutual agreement, 55 F.S.M.C. 337, and that there is no evidence of any later "mutual agreement." Brief: Locus Standi of FSM Dep't of Justice to Argue on Behalf of Defs. IDF & FDA at 2-3 (Apr. 15, 2009). Since the court concludes that the FDA is not a proper party to this independent action for relief from the Civil Action No. 2001-007 judgment, resolving the question of the FDA's continued existence would not change the outcome.
10 Furthermore, all of the facts and grounds which the guarantors now use to seek relief were known to them when Civil Action No. 2001-007 was filed against them. If the guarantors had really considered Pohnpei, the IDF, or the FDA to be either necessary or indispensable parties to the Bank's action against them in Civil Action No. 2001-007, they could easily, and without leave of court, have joined Pohnpei (or the IDF, or the FDA) in that case by means of a third-party complaint filed with their answer to the Bank's complaint, FSM Civ. R. 14(a), or joined one or more of them as a party to a counterclaim, FSM Civ. R. 13(h). They neglected to do so.
11 Certain aspects of independent actions under Rule 60(b) have not been previously considered by FSM courts. The court may therefore consult U.S. sources for guidance. See supra note 8.
12 The guarantors seek relief from a judgment affirmed on appeal. Some courts have held that, when a judgment has been affirmed on appeal, leave of the appellate court is needed before a litigant can pursue an independent action for relief from judgment in the trial court. See Griffin v. Federal Deposit Ins. Corp., 831 F.2d 799, 802 (8th Cir. 1987); Geuder, Paeschke & Frey Co. v. Clark, 288 F.2d 1, 4 (7th Cir.), cert. denied, 368 U.S. 826 (1961); Dankese Eng'g, Inc. v. Ionics, Inc., 89 F.R.D. 154, 157 (D. Mass. 1981). Since no party has raised this point and the court has not asked the parties to brief it, the court will not consider it. In light of the court's ruling on other issues, the result would not change.
13 Generally, to avoid liability under an illegal contract, the party seeking to avoid liability must return the benefit received under the illegal contract. See, e.g., Nanpei v. Kihara, 7 FSM Intrm. 319, 325 (App. 1995). Thus, in the case of an "illegal" loan, a borrower seeking to avoid liability would have to return the loan principal.
14 Rule 60(b) also permits an independent action for relief from a judgment based upon fraud upon the court. Fraud upon the court is defined as the most egregious misconduct directed to the court itself, such as bribery of a judge or fabrication of evidence by counsel, which must be supported by clear, unequivocal and convincing evidence. Ramp v. Ramp, 11 FSM Intrm. 630, 636 (Pon. 2003). The guarantors have not alleged any facts that would support a fraud-upon-the-court claim and have not made such a claim.
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