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HEADNOTES

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COURT'S OPINION

MARTIN G. YINUG, Chief Justice:

This appeal is from the trial division's June 5, 2008 decision that the State of Chuuk was liable to Actouka Executive Insurance Underwriters ("Actouka") for $187,000 in premiums for marine insurance coverage of Chuuk-operated field trip vessels during fiscal years 1996 and 1997. Actouka Executive Ins. Underwriters v. Simina, 15 FSM Intrm. 642 (Pon. 2008). We affirm that decision but reduce the judgment amount to $128,205. Our reasoning follows.

I. BACKGROUND

The Trust Territory Government, as it was being phased out of existence, transferred title to the Micro class ships to the FSM national government, and since the states wanted to operate their own field trip services, the FSM transferred operation of some of these ships to the states. The states agreed to be responsible for the cost of the vessels' operation, routine maintenance, fuel, salaries, dry docking, and insurance. The FSM Department of Transportation, Communication, and Infrastructure's practice was to act on behalf of the FSM and the states in soliciting the quotes for insurance coverage but the insurance itself was paid for by the entities that operated the respective vessels.

Starting in 1988, and continuing through 1997 and maybe to 2000, Actouka, acting as an insurance broker, obtained fleet insurance coverage from various insurers for the FSM-owned vessels. The FSM accepted Actouka's premium quotes submitted for those years. A fleet policy, versus separate policies on the individual vessels, achieved lower premiums and thus benefitted all ship operators. An individual operator's failure to pay for insurance for any individual vessel could raise the premiums for the other vessels. Insurance coverage was also important because the American Bureau of Shipping vessel classification was contingent upon the ship being insured.

On October 1, 1995, Actouka sent a memorandum to Director of the Chuuk Department of Transportation Captain Thomas Narruhn, advising him that the fleet insurance policy premiums for fiscal 1996 for the Chuuk-operated vessels would be $19,000 [the Meiran], $42,000 [the Micro Dawn], and $42,000 [the Micro Trader], (total $103,000), due October 30, 1995. The premium was not paid then.

[18 FSM R. 115]

On November 7, 1995, Narruhn sent a memo to the Chuuk Governor asking for a full allocation of funds to pay the $103,000 premium so as not to jeopardize the ships' insurance coverage. On November 24, 1995, Narruhn sent Actouka a letter stating that they were still awaiting the Chuuk Treasury's issuance of a check for full payment of the insurance premium which he hoped would be within a week, and added, "Please bear with us your usual patient [sic] and understanding," which referred to Chuuk's history of late payments for the prior years' premiums from about 1988 to 1995.

On December 1, 1995, Actouka wire-transferred $236,277.50, which was the premium's net amount excluding taxes, wire transfer fees, commissions, and other charges, to Associated Marine Insurance to cover the entire amount of the fleet insurance premium for fiscal 1996. Of this, $71,225 was for the Chuuk-operated ships. Actouka did not inform Chuuk that it had paid the premiums for Chuuk. The premium's gross amount, which was the sum charged to the insureds, was $307,000, of which Chuuk's share was $103,000. Actouka's payment of the premium resulted in coverage for a total of eight vessels and insured the three Chuuk-operated vessels, as well as those of the FSM and the other states, for October 31, 1995 through October 31, 1996. On January 3, 1996, Governor Sasao H. Gouland sent the Chuuk Director of Transportation a memo curtailing field trip services or any other movement of the ships.

Despite Actouka's continued contacts with Chuuk, payment was not forthcoming. To get Chuuk's attention and induce it to make the fiscal 1996 payment, Actouka, on June 1, 1996, sent a memo to FSM Secretary of the Department of Transportation, Communication and Infrastructure Lukner Weilbacher and to Captain Narruhn stating that the insurance on the Micro Dawn, Micro Trader, and Meiran was no longer in effect. In fact, the insurance was in effect and remained in effect throughout fiscal 1996. The memo did not achieve its desired effect, since Chuuk did not pay.

As fiscal 1996 neared its end, the question of insurance for fiscal 1997 arose. On September 30, 1996, Actouka sent a memo to FSM Secretary Weilbacher advising him of the premium amounts for each vessel for the next fiscal year. At the FSM's request, the Meiran was not included in the fiscal 1997 fleet policy.¹ Also, by a memo dated September 30, 1996, Actouka advised Chuuk Department of Transportation Deputy Director Leo Lokopwe that the premium of $42,000 each for the Micro Dawn and the Micro Trader ($84,000 total) was due October 30, 1996. In response, Deputy Director Lokopwe wrote that they acknowledged the $42,000 premium due for each vessel and informed Actouka that on October 14, 1996, they had submitted a requisition for $84,000 to Chuuk Finance office and were making daily follow up on the payment which they would remit as soon a check was made from the Chuuk Treasury.

By December 28, 1996, Actouka had not received Chuuk's payment for the fiscal 1997 policy, and, as it had done the year before, it wire-transferred the fleet premium to Associated Marine Insurance to cover the entire fleet from October 31, 1996 to October 31, 1997. The wire-transferred amount was, as before, the premium's net amount, excluding fees and other charges, so that the actual sum transferred was $221,647.50 [$56,980 for the Chuuk-operated ships]. The premium's gross amount was $288,000, of which $84,000 was to cover the Micro Dawn and the Micro Trader for fiscal 1997. Again, Actouka did not inform Chuuk that it had paid the premium on Chuuk's behalf. On January 10, 1997, Toyo Mori, a Chuuk administrative officer, sent a memo to the Chuuk Treasury which stated that "we would like to solicit your assistance for the issuance of check [sic] in the amount of Eighty Four Thousand Dollars ($84,000.00) payable to . . . Actouka Executive Insurance Underwriter." The memo also stated that Actouka was requesting payment before January 14, 1997. However, no payment was made by then or at any time thereafter.

[18 FSM R. 116]

On May 9, 2000, Actouka sued Chuuk, its Governor, and the FSM on a breach of contract claim against Chuuk and the FSM for the unpaid fiscal 1996 premiums; a breach of contract claim against Chuuk and the FSM for the unpaid fiscal 1997 premiums; and a quantum meruit claim against Chuuk and the FSM for the premiums for both years. Associated Marine Insurers confirmed that insurance was in effect for the Micro Dawn, Micro Trader, and Meiran for October 1, 1995, to September 30, 1996, and for the Micro Dawn and the Micro Trader for October 1, 1996 to September 30, 1997. Trial was December 5, 2007, followed by further briefing.

On June 5, 2008, the trial court held that, based on an implied-in-law or quasi contract between Chuuk and Actouka, Chuuk was liable for $103,000, the premium to insure the Meiran, the Micro Dawn, and the Micro Trader for October 31, 1995 through October 31, 1996, and for $84,000 for the premium to secure insurance for October 31, 1995, through October 31, 1996, for the Micro Dawn and the Micro Trader (total $187,000). Actouka Executive Ins. Underwriters v. Simina, 15 FSM Intrm. 642, 650 (Pon. 2008). Since the evidence substantiating the two agreements was silent on whether Actouka could advance the premiums in question after Chuuk, despite Actouka's numerous communications requesting payment, failed to make the required payments, the trial court concluded that there was no contract covering this point. Id. at 651-52. Actouka was awarded recovery on a quantum meruit, or unjust enrichment, basis. Id. at 654. Since the lawsuit only sought collection of the unpaid insurance premiums from the Chuuk and the FSM, the court dismissed with prejudice the complaint against the Governor of Chuuk (who, in his official capacity, had been named as a defendant). Id. at 656. It also dismissed the complaint against the FSM. Id. at 650.

The court granted Actouka judgment for $187,000 against only Chuuk. Chuuk then timely appealed.

II. ISSUES PRESENTED

Chuuk contends that the trial court erred by concluding as a matter of law that, based on an implied contract or quasi-contract theory, 1) that Chuuk was liable to Actouka for $103,000 for the insurance premium it advanced to Associated Marine Insurance to cover the Chuuk-operated ships Meiran, Micro Dawn, and Micro Trader from October 31, 1995 through October 31, 1996; and 2) that Chuuk was liable to Actouka for $84,000 for the insurance premium it advanced to Associated Marine Insurance to cover the Chuuk-operated vessels Micro Dawn and Micro Trader from October 31, 1996 through October 31, 1997. Chuuk also contends that the trial court erred by denying its written Rule 41(b) motion to dismiss.

III. ANALYSIS

A. Rule 41(b) Motion to Dismiss

The trial court denied Chuuk's Rule 41(b) motion which Chuuk had included in its written closing arguments because "Chuuk did not move for dismissal at the conclusion of Actouka's case, but instead incorporated its motion in its written closing argument that it submitted post trial." Actouka, 15 FSM Intrm. at 656. Chuuk contends that the rule does not require that all Rule 41(b) motions be oral and it further contends that a written Rule 41(b) motion can be incorporated in written closing arguments and that the trial court should have decided the motion on its merits instead of denying it on procedural grounds.

The pertinent part of Rule 41(b) reads:

After the plaintiff has completed the presentation of plaintiff's evidence, the defendant,

[18 FSM R. 117]

without waiving defendant's right to offer evidence in the event the motion is not granted, may move for a dismissal on the ground that upon the facts and the law the plaintiff has shown no right to relief. The court as trier of the facts may then determine them and render judgment against the plaintiff or may decline to render any judgment until the close of all the evidence.

A Rule 41(b) motion can thus be written or oral because motions "unless made during a hearing or trial, shall be made in writing." FSM Civ. R. 7(b)(1). The problem was not that the motion was written. The problem was that it was made after all the parties had presented all their evidence.

Chuuk asserts that because of the unusual manner in which the trial was conducted that its Rule 41(b) motion to dismiss was made after Actouka had completed its evidence. Chuuk bases this assertion on the procedure the parties agreed to and used at trial – Actouka would call the witnesses but each party would be able to treat each witness as if the witness were its own, that is, each defendant could ask each witness any relevant question regardless of whether that question was within the scope of Actouka's direct examination.² In effect, each party put on its case-in-chief simultaneously with the others. Thus, Actouka completed presenting its evidence only when all the testimony had been given – when the defense had also completed presentation of its evidence. Chuuk concludes that its Rule 41(b) motion to dismiss was timely because it came after the completion of the plaintiff's evidence.

Chuuk misses the point. Mere form cannot be elevated over actual function. In People of Gilman ex rel. Tamagken v. Woodman Easternline Sdn. Bhd., 17 FSM Intrm. 247, 250 (Yap 2010), the trial court ruled that since Rule 41(b) permits a motion to dismiss – a motion for a judgment that upon the facts and the law the plaintiff has shown no right to relief – to be made after the close of the plaintiff's evidence and before the defendant's evidence, a similar "Rule 41(b)" motion cannot be made after trial because, as a Rule 41(b) motion,³ it comes too late. This makes sense. Rule 41(b)'s purpose is to allow a trial court, once the plaintiff has presented its evidence, to find for the defendant and render a judgment in the defendant's favor thereby relieving the defendant of the burden of putting on a defense or presenting any evidence since, based on the evidence already presented, the defendant will prevail anyway.

In this case when Chuuk made its Rule 41(b) motion, it and the FSM had already presented all their evidence in defense. Once the parties have finished presenting all their evidence, the trial court's duty is to weigh the evidence and make its findings of fact and conclusions of law and to render judgment on whether the plaintiff has shown a right to relief. See FSM Civ. R. 52(a). Thus, a Rule 41(b) motion to dismiss during closing arguments is pointless. Chuuk's "Rule 41(b)" motion was thus superfluous since at the point it was made, the trial court's responsibility was to rule on the merits. A Rule 41(b) motion to dismiss, either oral or written, must be made, as implied by the rule, only after the end of the plaintiff's case-in-chief and before the defendant has started to present his evidence. Thus, as a matter of law, the trial court did not err by denying Chuuk's Rule 41(b) motion on procedural grounds.

[18 FSM R. 118]

B. Marine Insurance Premiums for Fiscal Years 1996 and 1997

1. Chuuk's Preliminary Objections

Chuuk contends that because it did not pay the premium, the insurance policy never came into effect for its vessels. However, as the trial court noted, the policy was in effect for the Chuuk-operated vessels because Actouka had paid the insurance premium in full. Actouka, 15 FSM Intrm. at 651. This contention also ignores the fact that it was a fleet insurance policy – the premiums had to be paid for all the ships in the fleet before any had coverage.

At oral argument, Chuuk emphasized its view that Actouka never acted as an insurance broker for Chuuk and that that was not the nature of the contract between Chuuk and Actouka. Chuuk contended that the trial court "made a mistake of fact" because, in its view, Chuuk did not contract with Actouka for Actouka to go out and look for insurance but that it was already a "done deal" – that Actouka presented Chuuk with an insurance contract – and that to go out and look for insurance was Actouka's arrangement with the national government. Chuuk even goes further to suggest that Actouka was a designated agent for Associated Marine Insurance, or, apparently in the alternative, that Actouka was Chuuk's insurer (and not a broker for Associated Marine).

Chuuk misunderstands the legal significance of events. The trial court found as fact that Actouka was acting as an insurance broker. We see nothing in the record to contradict that. What Chuuk overlooks is that the FSM national government acted as an agent for Chuuk (and the other states) in dealing with the insurance broker Actouka until it came time for the ship operators to pay their respective shares of the agreed premiums due. The trial court's finding that Actouka and Chuuk entered into two separate agreements for Actouka to seek and obtain insurance and that various writings to that effect were signed on the behalf of Chuuk, the party to be charged, and were admitted into evidence, Actouka, 15 FSM Intrm. at 651, was thus not clearly erroneous.

Chuuk contends that it is not liable for the 1996 or 1997 insurance premiums because neither Director Captain Narruhn, nor administrative officer Mori, nor Deputy Director Lokopwe had the authority to obligate the Chuuk state government in the absence of an appropriation by the Chuuk Legislature and because the allottee for funds appropriated for the executive branch is the Governor. Chuuk asserts that, since there was no evidence that any funds were appropriated to pay the premiums, Actouka's claims fail to meet the requirements of the Truk Financial Management Act for a government obligation and are thus unenforceable. Chuuk contends that Actouka's business judgment was deficient because it only dealt with the Chuuk Director of Transportation or his staff and did not inquire about whether there had been an appropriation. Chuuk relies, in part, on Truk v. Maeda Constr. Co. (III), 3 FSM Intrm. 489 (Truk 1988) to support its position.

In Truk v. Maeda Constr. Co. (III), 3 FSM Intrm. 489, 493-94 (Truk 1988), the court concluded that, even though the work performed was satisfactory, the charges were reasonable, and the work benefitted the state, the state was not liable to a private contractor completing projects when the contracts were done at the governor's instance but he had no authority to obligate the state's funds; when the contracts in which the governor promised to use his best efforts to find funds to pay for work performed, did not purport to obligate state funds; when the contractor accepted the risk that the governor might not be able to find funds; and when the governor promised payment when and if funds were available.

[18 FSM R. 119]

In this case, Actouka did not accept the risk that Chuuk might not be able to find funds and was not promised payment only when and if funds were available. Since Actouka was told on November 24, 1995, that Chuuk was still awaiting the Chuuk Department of Treasury's issuance of a check for full payment of the insurance premium which Chuuk hoped would be within a week, and was asked to "Please bear with us your usual patient [sic] and understanding," Actouka would have had every reason to believe that the funds had been appropriated and, apparently like in previous years, Chuuk was waiting for them to become available and the paperwork done to cut the check. The same should be true for fiscal 1997, when Chuuk informed Actouka that it had submitted a requisition to Chuuk Finance for $84,000 and was making daily follow-up.

Chuuk did not cite, and we could not find, any authority that a party to a government contract has a duty to inquire and determine for itself whether the funds to pay for the contract have been properly appropriated and are certified as available, although there is plenty of authority that the government cannot create an obligation to pay unless there has been an appropriation and certification. If Actouka's judgment had been on a breach of contract theory this contention would be much stronger since governments are generally not liable on contracts unless there has been an appropriation and a certification of availability of funds, see 64 AM. JUR. 2D Public Works and Contracts § 19 (2001), and Chuuk, by its own Financial Management Act, Truk S.L. No. 5-44, has similar statutory requirements. The trial court, however, found liability based on an equitable doctrine of quasi-contract or implied-in-law contract, and not on a breach of contract claim.

2. Chuuk's Contract Law Objections

Chuuk acknowledges that there was one agreement for insurance coverage from October 31, 1995, to October 31, 1996, and another for coverage from October 31, 1996, to October 31, 1997. Chuuk challenges whether those agreements are enforceable and whether any of its own actions made it liable to Actouka. Chuuk also asserts that Actouka acted in bad faith when, in June 1996, it told the FSM that the policy was not in force because Chuuk had not paid the premium when the policy was actually in force. Chuuk, unaware that the policy was in force, was thus proceeding at its own risk in operating the ships if it indeed did operate them then. Chuuk asserts that there could not have been an implied-in-fact contract because it was unaware that it received a benefit since it did not know that the policy was in force. Chuuk also asserted at oral argument that there was no "meeting of the minds" between it and Actouka for there to be a contract. This last contention is irrelevant since Chuuk was not found liable for breach of contract.

The trial court applied the doctrine of impled contract or quasi-contract since the actual contract was silent about whether Actouka could advance premium payments to keep the insurance in force. The equitable doctrine of unjust enrichment, a theory applicable to implied contracts, operates in the absence of an enforceable contract and this principle requires that the party receiving something of value either pay for it or return it, and is based on the notion that one party should not be allowed to enrich himself at another's expense. Ponape Island Transp. Co. v. Fonoton Municipality, 13 FSM Intrm. 510, 515 (App. 2005).

Chuuk asserts that there was no implied-in-law contract or quasi-contract because it never knew it had received a benefit from Actouka. For this proposition, Chuuk relies on a legal treatise that states that there is "[a] promise to pay the reasonable value of the service is implied where one performs for another, with the other's knowledge, a useful service of a character that is usually charged for, and the latter expresses no dissent or avails himself of the service." 17A AM. JUR. 2D Contracts § 14, at 40 (rev. ed. 1991). The trial court held that "[t]he notice requirement to Chuuk is met by Chuuk's express

[18 FSM R. 120]

acknowledgment that it owed the premiums pursuant to its enforceable contract with Actouka. Accordingly, Chuuk's contention that it is not liable because it did not know that Actouka had advanced the premiums on its behalf is without merit." Actouka, 15 FSM Intrm. at 654.

Although this ground does not seem as solid as the trial court implies, it is buttressed by the fact that Chuuk knew or should have known from its tardy payments in previous years that somehow Actouka had managed to keep the policy in force for all the ship operators despite Chuuk's late payments and that the only way that that could have been done would have been for the insurer to have been paid the premiums due.

A trial court has wide discretion in determining the amount of damages in contract and quasi-contract cases involving equitable doctrines, such as promissory estoppel and restitution and the plaintiff may be compensated for the injuries by awarding compensation for the expenditures made in reliance on the promise. Kilafwakun v. Kilafwakun, 10 FSM Intrm. 189, 196 (Kos. S. Ct. Tr. 2001). Because of the equities involved – Actouka falsely informed Chuuk that the marine insurance policy was not in effect when, in fact, it was in effect because the net premium had been paid to the insurer (Associated Marine Insurance) – promissory estoppel may instead be a better measure of the damages in this case.

The other theory on which Actouka could recover damages for its advancing insurance premiums on Chuuk's behalf is promissory estoppel or detrimental reliance. A party seeking to invoke the equitable estoppel doctrine must prove that 1) a defendant made representations or statements; 2) the plaintiff reasonably relied upon the representations; and 3) the plaintiff will be harmed if estoppel is not allowed, and to claim promissory estoppel a party must prove that 1) a promise was made; 2) the promisor should reasonably have expected the promise to induce actions of a definite and substantial character; 3) the promise did in fact induce such action; and 4) the circumstances require the enforcement of the promise to avoid injustice. AHPW, Inc. v. Pohnpei, 14 FSM Intrm. 188, 191-92 (Pon. 2006). But a party asserting equitable estoppel against a government must prove more than is required when it is asserted against a private entity because the government may not be estopped on the same terms as any other litigant since another element must be established when a party asserts estoppel against the government – affirmative misconduct on the government's part. Id. at 192.

In this case, Actouka relied on Chuuk's promises that the premium payments would be forthcoming and advanced the premium to keep the policy in force. It was reasonable for Actouka to rely on Chuuk's promise (especially in 1996) because Chuuk had always paid late in previous years (1988-95) and Chuuk should have expected that Actouka would keep the policy in force based on past performance and course of dealing. Enforcement of the promise would avoid the injustice that Actouka had to advance payment to keep the policy in force for the other governments operating FSM-owned ships. Chuuk's affirmative misconduct was its misleading communications to Actouka that the premium money was available and that Actouka would be paid soon.

Under detrimental reliance, "[d]amages are the actual expenses incurred in reliance on the representation." AHPW, Inc., 14 FSM Intrm. at 192. That would lead to a lower damage award in this case since Actouka's actual expenses in reliance on Chuuk's promises to pay were $71,225 for fiscal 1996 and $56,980 for fiscal 1997 [the net premium amounts Actouka paid to Associated Marine Insurance to cover the Chuuk-operated ships in fiscal 1996 and 1997 respectively, not the gross premium amounts billed Chuuk]. Actouka would thus recover the amount it paid out in reliance on Chuuk's promises but would not recover the profit it would have earned on Chuuk's portion of the insurance premium payment if Chuuk had actually paid. The damage award would thus be modified

[18 FSM R. 121]

and reduced from $187,000 to $128,205. In this unusual case, this better reflects the equities involved (because Chuuk misled Actouka about payment and Actouka, in a ploy to induce payment, misled Chuuk about whether the policy was in force).

If the ground on which we affirm a damage award to Actouka is considered a different ground than that which the trial court used, it is within our power of appellate review. An appellate court may affirm the trial court's decision on a different theory or on different grounds when the record contains adequate and independent support for that basis. FSM Dev. Bank v. Adams, 14 FSM Intrm. 234, 249 (App. 2006). The record, as we have noted, contains adequate and independent support for our modification of the damage award.

Footnotes:

¹ It is unclear, but the FSM may not have owned the Meiran.

² FSM Evidence Rule 611(b) allows the court to permit this procedure.

³ If Chuuk's Rule 41(b) motion were considered a Rule 52(b) motion (a motion that asks the court to amend the Rule 52(a) findings of fact that it has already made), or even a Rule 59(e) motion (to alter or amend judgment), the motion was too soon since the court had not yet made any findings and the court's findings, when issued, might have been favorable to Chuuk and no motion would have been needed. Woodman Easternline Sdn. Bhd., 17 FSM Intrm. at 250.