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HEADNOTES

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COURT'S OPINION

MARTIN G. YINUG, Chief Justice:

This comes before the court on 1) Eauripik's Motion and Memorandum to Dismiss Verified Petition and Complaint for Exoneration and Limitation of Liability and Vacate Order and Notice of March 5, 2012, filed April 6, 2012; 2) Opposition to Plaintiffs' Motion to Dismiss Petition for Limitation of Liability, filed May 14, 2012; and 3) the plaintiffs' Reply to Opposition to Plaintiffs' Motion to Dismiss Petition for Termination of Liability, filed May 17, 2012. Also before the court are 4) the Plaintiffs' Motion to Lift Stay Imposed by Court's March 5, 2012 Order and for Leave to Amend Complaint, filed May 7, 2012 with supporting affidavit; 5) Limitation Petitioner Marin Marawa, Ltd., and Defendants Malayan Towage and Salvage Corporation, Yuh Yow Fishery Company, Ltd., F/V Teraka 168, M/Tug Trabajador-I's Opposition to Plaintiffs' Motion to Lift Stay and for Leave to Amend Complaint, filed May 16, 2012 along with unsworn declarations of David P. Ledger and Daniel Adrianne T. Sarmiento; and 6) Plaintiffs' Reply to Opposition to Plaintiffs' Motion to Amend Complaint, filed June 12, 2012. The two motions are granted in part. The reasons follow.

I. BACKGROUND

On August 28, 2011, the F/V Teraka No. 168 ran aground on the reef of Eauripik atoll. On September 8, 2011, the People of Eauripik ("Eauripik") filed this case against the F/V Teraka No. 168, in rem, and against Yuh Yow Fishery Co., Ltd., Marin Marawa, Ltd., and Captain Masanaga Shimazu, in personam for damage to the reef. On November 8, 2011, Eauripik, by stipulation, filed an amended complaint that added in rem defendants, the F/V Yuh Yow 606, F/V Fu Kuan 606, and M/Tug Trabajador-I,¹ and in personam defendants, Malayan Towage and Salvage Corporation and Hsin Horng

[18 FSM R. 311]

Fishery Company, Ltd., for alleged reef damage caused by those vessels' unsuccessful attempts from August 30, to September 16, 2011, to get the F/V Teraka No. 168 off the reef. On September 20, 2011, the FSS Palikir² arrived at Eauripik to arrest the F/V Teraka No. 168 and serve the court's arrest warrant and writ of attachment. It found the grounded vessel abandoned with 181 metric tons of fuel and 920 liters of lube oil still on board.

On January 13, 2012, the court granted the Federated States of Micronesia's unopposed motion to intervene as a party plaintiff.

On February 28, 2012, defendant Marin Marawa, Ltd. filed a Verified Petition and Complaint for Exoneration from and Limitation of Liability and a Verified Declaration of Value and of Freight Pending. On February 29, 2012, it filed a Letter of Undertaking for Exoneration from or Limitation of Liability in the amount of $575,000 and enforceable only in the "English High Court." On March 5, 2012, the court issued 1) an Order Approving Petitioner's Verified Declaration of Value, Directing the Issuance of Notice to Claimants, and Restraining Prosecution of Claims and 2) an Application for Monition and Injunction on All Claims Except as Made in Response to this Petition to Limit Liability. The clerk then entered a Notice of Petition for Exoneration from or Limitation of Liability.

On April 6, 2012, Eauripik responded by moving for dismissal of Marin Marawa, Ltd.'s February 28, 2012 verified petition and complaint and the vacation of the March 5, 2012 orders and notice of petition. On May 7, 2012, Eauripik moved to lift the stay imposed by the March 5, 2012 orders and to amend the complaint to add E.R. Peleaz, captain of the M/Tug Trabajador-I, and the F/V Yuh Yow 127 as defendants and to add new causes of action.

II. MOTION TO DISMISS OR TO VACATE

A. Contentions

Eauripik contends that Marin Marawa's February 28, 2012 Verified Petition and Complaint must be dismissed because Marin Marawa does not have standing to seek limitation or to file it in a pending litigation instead of a separate action. Eauripik further contends that the March 5, 2012 orders should not have been issued because it was not permitted the opportunity to respond to the February 28 and 29, 2012 filings that is provided for by the rules and because Marin Marawa failed to comply with Supplemental Admiralty and Maritime Rule F. Eauripik asserts that, instead of a proper appraisal, the March 5, 2012 order capped the liability of the F/V Teraka No. 168's owner at the "whimsical" figure of $575,000 as the vessel's value, that did not include post-grounding interest or the value of the items taken from the vessel after the grounding, and stayed the pending civil action indefinitely even though the Letter of Undertaking, enforceable only in the London, England High Court, is unacceptable security. Eauripik also asserts that its claims are exempt from the statutory limitation of liability.

Marin Marawa contends that Eauripik's motion must be denied because, not only did Marin Marawa have standing to obtain the challenged orders since it is the vessel's owner, but that the March 5, 2012 orders can only be challenged by a Rule 60(b) motion and Eauripik has not asserted any of the Rule 60(b) grounds for relief. Marin Marawa further asserts that a Rule F limitation can be raised in the context of a pending action, as it was here, and that the March 5, 2012 orders did not violate due process because, as claimants, Eauripik will be able to file their claims against the shipowner in the limitation proceeding since the notice of the limitation proceeding has already been published, as

[18 FSM R. 312]

required, in the Pacific Daily News. Marin Marawa also contends that none of Eauripik's claims are exempt from the statutory limitation of liability. Lastly, Marin Marawa claims that Eauripik cannot assert a right under Rule F(7) to a "due appraisement" of Marin Marawa's ownership interest until Eauripik has proceeded in the limitation action by filing an answer to Marin Marawa's February 28, 2012 petition and complaint.

B. Analysis

Marin Marawa's assertion that Eauripik can only challenge the March 5, 2012 orders through a Rule 60(b) motion is meritless. When there is no final judgment in a case but only an interlocutory order, a motion for relief from the interlocutory order will properly be characterized, not as one for relief from judgment under Rule 60(b), but as one to reconsider an interlocutory order under Rule 54(b). Smith v. Nimea, 16 FSM Intrm. 346, 348-49 (App. 2009); Smith v. Nimea, 17 FSM Intrm. 125, 128-29 (Pon. 2010); Richmond Wholesale Meat Co. v. George, 11 FSM Intrm. 86, 88 (Kos. 2002); Stephen v. Chuuk, 11 FSM Intrm. 36, 43 (Chk. S. Ct. Tr. 2002) (party cannot seek relief from a judgment that does not exist); see also Berman v. College of Micronesia-FSM, 15 FSM Intrm. 582, 588 (App. 2008) (a motion to reconsider filed before entry of judgment is a Rule 54(b) motion and motion to reconsider filed after final judgment can only be a Rule 60(b) motion for relief from judgment); Kitti Mun. Gov't v. Pohnpei, 11 FSM Intrm. 622, 628 (App. 2003).

A vessel owner's right to seek a limitation of its liability is created by an FSM statute. 19 F.S.M.C. §§ 1101-1108 (enacted as FSM Pub. L. No. 10-76, §§ 209-216). As the F/V Teraka No. 168's owner at the time of its grounding and thus the potentially liable party, Marin Marawa has standing to raise this statute as a defense to limit its liability for the grounding, 19 F.S.M.C. 1107, regardless of any arguments that the FSM Secretary of Transportation and Communications, as the receiver of wrecked and abandoned vessels, may have current ownership rights over the vessel, an issue the court does not decide. The U.S. and many other maritime countries have similar limitation statutes.³ 2 THOMAS J. SCHOENBAUM, ADMIRALTY AND MARITIME LAW § 15-1 (2d ed. 1994). Under the U.S. statute, a vessel owner's liability can be limited to, and the amount of the limitation fund deposited with the court set at, the vessel's value plus pending freight. 46 U.S.C. § 185. Supplemental Admiralty and Maritime Rule F(1) also sets the limitation fund amount at "a sum equal to the amount or value of the owner's interest in the vessel and pending freight." However, the FSM statute sets the amount as "the sum of such amounts set out in regulations as are applicable to claims for which that person may be liable, together with interest thereon from the date of the occurrence giving rise to the liability until the date of the constitution of the fund." 19 F.S.M.C. 1108(2). The regulations referred to are those promulgated by the Secretary of the Department of Transportation and Communications implementing Title 19, chapter 11 and "taking into account the provisions of the [1976 London] Limitation of Liability Convention and the [1969] Tonnage Convention." 19 F.S.M.C. 1101. Those conventions (and thus any regulations taking them into account) calculate the limitation amount by certain tonnage calculations.⁴ "This [1976 London Limitation of Liability] convention is a praiseworthy effort to correct

[18 FSM R. 313]

archaic legal concepts and to dramatically raise the limitation fund available to pay claims." 2 SCHOENBAUM, supra, § 15-1, at 300. It is a departure from accepted U.S. practice, id. at 299-300, which also relies on tonnage, 48 U.S.C. § 183. The $575,000 amount in Marin Marawa's letter of undertaking, ostensibly the vessel's value, is therefore improperly calculated and may be too low and certainly fails to include the interest that it should.

A vessel owner's right to limitation may be asserted in either one of two ways – the owner can file a complaint for limitation as a new and independent action or the owner may raise and assert it as an affirmative defense in a suit against the owner or the vessel. See, e.g., Signal Oil & Gas Co. v. Barge W-701, 654 F.2d 1164, 1173 (5th Cir. 1981); Cincinnati Gas & Elec. Co. v. Abel, 533 F.2d 1001, 1003, 45 A.L.R. Fed. 882, 887 (6th Cir. 1976); Deep Sea Tankers, Ltd. v. The Long Branch, 258 F.2d 757, 772 (2d Cir. 1958); The Chickie, 141 F.2d 80, 85 (3d Cir. 1944); Sana ex rel. Sana v. Hawaiian Cruises, Ltd., 236, 238-39 (D. Haw. 1997), aff'd on this point, 181 F.3d 1041, 1047 (9th Cir. 1999); see also 2 SCHOENBAUM, supra, § 15-5, at 306.⁵ Marin Marawa chose to assert its limitation rights by a filing in a pending case. Because a thing is what it is regardless of what someone chooses to call it, the court, regardless of what Marin Marawa labeled its filing, should have considered it as Marin Marawa's motion for leave to amend its answer so as to assert the affirmative defense of statutory limitation of liability. See Mori v. Hasiguchi, 18 FSM Intrm. 83, 84 (App. 2011); Berman v. Pohnpei Legislature, 17 FSM Intrm. 339, 352 n.5 (App. 2011) (form must not be elevated over substance); McIlrath v. Amaraich, 11 FSM Intrm. 502, 505 (App. 2003). Any application to the court for an order (Marin Marawa's February 28, 2012 filing was an application to the court for the March 5, 2012 orders) is a motion. See FSM Civ. R. 7(b)(1). Unless lengthened or shortened by court order or rule, a party has ten days to respond to another party's motion. FSM Civ. R. 6(d). The plaintiffs were not allowed the ten days to respond to Marin Marawa's motion – they were not given the procedural due process afforded them by the civil procedure rules. The court granted the motion and issued the orders after only five or six days (depending on whether you count from the February 28, 2012 filing or the February 29, 2012 supporting letter of undertaking). For that reason alone, the March 5, 2012 orders and notice should be considered voidable and vacated, but there are further defects.

The security is unacceptable. Under the statute, a limitation of liability defense can only be pled if a Limitation of Liability Fund is "constituted." 19 F.S.M.C. 1107(1)(b). A Limitation of Liability Fund must be constituted "either by depositing the sum with the Supreme Court, or by lodging with the court an irrevocable letter of credit or other form of security acceptable to the court." 19 F.S.M.C. 1108(4). The fund must include "interest thereon from the date of the occurrence giving rise to the liability until the date of the constitution of the fund." 19 F.S.M.C. 1108(2). The court must be "satisfied that the fund is properly constituted [and] freely transferrable." 19 F.S.M.C. 1108(7). Marin Marawa's letter of undertaking does not satisfy these requirements. It is neither a sum deposited with the court nor an irrevocable letter of credit, nor a form of security freely transferable. It also does not even purport to include the required interest from August 28, 2011, the date of the grounding, until the letter was

[18 FSM R. 314]

tendered. It is not a form of security under the FSM Supreme Court's control since it, by its terms, can only be enforced in a foreign court half a world away. No successful claimant in the FSM Supreme Court should be required to pursue further legal action in and await a decision of a foreign forum before a limitation of liability fund can be disbursed. The fund must be "freely transferrable" and a letter of undertaking that requires further action in another court is not.

One further note, the rules require that the notice to claimants "shall be published in a local newspaper of general circulation, the Pacific Daily News, and in such other publications as the court may direct, for four weeks prior to the date fixed for the filing of claims." FSM Mar. R. F(4). Marin Marawa did publish the notice for four consecutive weeks in the Pacific Daily News. The court is inclined to also order publication in a more local newspaper. Although no newspaper is currently published exclusively in Yap, the Kaselehlie Press, published biweekly on Pohnpei, circulates in all four FSM states. In the future, the court will require publication there as well (probably only for two consecutive issues since the newspaper comes out only once every two weeks).

Accordingly, the court's March 5, 2012 orders and the clerk's March 5, 2012 notice are all vacated. Marin Marawa's "Verified Petition and Complaint" are not "dismissed," but are disregarded as anything other than a motion for leave to amend Marin Marawa's answer. Since the court is also granting Eauripik's motion for leave to amend its complaint, see below, the court hereby grants leave, if leave is needed, for Marin Marawa to plead the FSM limitations statute as an affirmative defense in its answer to Eauripik's second amended complaint. The parties, and the court, will then proceed from there.

III. MOTION TO AMEND COMPLAINT

A. Contentions

Eauripik seeks leave to file a second amended complaint, which would add the F/V Yuh Yow 127 as an in rem defendant and E.R. Peleaz, captain of the M/Tug Trabajador-I, as an in personam defendant because these necessary parties had only recently been identified through the discovery process. It would also add causes of action for "negligent entrustment" and negligence as a charter by Yuh Yow Fishery. Eauripik further asserts that the filing of a second amended complaint would allow it to correct the technical defect of failing to verify the first amended (or the original) complaint. Eauripik also asks the court to lift the stay imposed by the March 5, 2012 orders so that it may file the second amended complaint.

The defendants contend (at least those that had appeared by May 14, 2012) that the motion must be denied because the amendments would be futile and argue that any relief Eauripik seeks must be through an answer to Marin Marawa's February 28, 2012 complaint to limit liability. The defendants further contend that the amendments would be futile because they would not survive a motion to dismiss and that the oil pollution allegations would also be futile because the defendants have since removed all of the petroleum products from the F/V Teraka No. 168. They also contend that the amendment should be denied because of the nine-month delay between the original complaint and the motion to file a second amended complaint. Yuh Yow Fishery contends that the new allegations are prejudicial to it because they involve inconsistent allegations. The defendants also contend that addition of Captain Peleaz as a defendant is an act of bad faith because it is only done to harass his employer – defendant Malayan Towage and Salvage Corporation.

B. Analysis

Eauripik's request to lift the March 5, 2012 stay so it can file a second amended complaint is

[18 FSM R. 315]

moot because the court, by this order, has vacated the orders creating the stay. And the court, by an earlier order, has already acknowledged that Eauripik may correct its omission and verify its pleadings. People of Eauripik ex rel. Sarongelfeg v. F/V Teraka No. 168, 18 FSM Intrm. 284, 288-89 (Yap 2012).

An amended pleading is designed to include matters occurring before the filing of the complaint but either overlooked or not known at the time the original pleading was filed, while a supplemental pleading is designed to cover matters subsequently occurring but pertaining to the original cause. Herman v. Municipality of Patta, 16 FSM Intrm. 167, 170 (Chk. 2008). The amendment of pleadings is governed by Civil Procedure Rule 15(a) (and in some instances, 15(b)), while Rule 15(d) governs supplemental pleadings. Leave to permit supplemental pleading is favored although it cannot be used to introduce a separate, distinct and new cause of action. Herman, 16 FSM Intrm. at 171. A supplemental pleading is designed to obtain relief along the same lines, pertaining to the same cause, and based on the same subject matter or claim for relief, as set out in the original pleading. Id. The first amended complaint, filed by stipulation, was both an amended and a supplemental pleading since some of the additional material concerned the salvage attempts that occurred after the original complaint's September 8, 2011 filing date (although those continuing attempts were mentioned in the original complaint), that is, until the attempts to get the F/V Teraka No. 168 off the reef ended on September 16, 2011. The proposed second amended complaint therefore seeks only amendment of the first amended complaint and not to supplement it.

Generally, leave to amend a complaint ought to be freely given. Primo v. Pohnpei Transp. Auth., 9 FSM Intrm. 407, 413 (App. 2000). The purpose of the rule is to provide maximum opportunity for each claim to be decided on the merits rather than on procedural technicalities. Arthur v. FSM Dev. Bank, 14 FSM Intrm. 390, 394 (App. 2006). Although a court should exercise its discretion liberally to allow amended pleadings, it must deny a motion to amend a complaint if it is futile. Tom v. Pohnpei Utilities Corp., 9 FSM Intrm. 82, 87 (App. 1999). Whether an amendment to a complaint would be futile is determined by whether the proposed amendment states a claim on which the FSM Supreme Court could grant relief. See Primo, 9 FSM Intrm. at 413. The court cannot say that, on their face, the proposed amendments fail to state a claim on which the court could grant relief.

While undue delay or bad faith on the movant's part are grounds on which to deny amendment of a complaint, Primo, 9 FSM Intrm. at 413, delay alone in seeking to amend a complaint is not sufficient to show bad faith. Arthur, 14 FSM Intrm. at 395. The delay must have caused prejudice to the adverse party, id.; see generally 6 CHARLES ALAN WRIGHT, ARTHUR R. MILLER & MARY KAY KANE, FEDERAL PRACTICE AND PROCEDURE § 1488, at 659-62 (2d ed. 1990), and no such prejudice is apparent here. The delay was not undue considering this case's complexity.

Yuh Yow Fishery's argument that Eauripik's suggested new pleadings are inconsistent and therefore should be barred because the inconsistencies are prejudicial to it is groundless. "A party may also state as many separate claims or defenses as the party has regardless of consistency and whether based on legal, equitable, or maritime grounds." FSM Civ. R. 8(e)(2). Inconsistent pleadings are not a ground to deny amendment. A party may plead in the alternative.

The court therefore grants Eauripik's motion to file a second amended complaint. The court notes, however, that, since Eauripik filed its motion to amend, one defendant, the M/Tug Trabajador-I, has already been dismissed. Eauripik should take this into account when filing its second amended complaint because it would appear to be futile to file a second amended complaint against that defendant.

[18 FSM R. 316]

IV. CONCLUSION

Accordingly, the March 5, 2012 orders and notice are vacated and the certified class plaintiffs (People of Eauripik) are granted leave to file a second amended (and verified) complaint subject to the court's prior dismissal of the M/Tug Trabajador-I. Defendant Marin Marawa, Ltd. may raise its statutory limitation defense when answering the second amended complaint.

Footnotes:

¹ On June 11, 2012, the court dismissed the M/Tug Trabajador-I since the court lacked in rem jurisdiction over it. People of Eauripik ex rel. Sarongelfeg v. F/V Teraka No. 168, 18 FSM Intrm. 284, 288 (Yap 2012).

² The FSS Micronesia had visited the Eauripik incident site on August 31, 2011 and again on September 4, 2011.

³ One purpose of the limitation procedure is to avoid a multiplicity of law suits and have all claims against the vessel determined in a single proceeding. To a large extent, the plaintiffs have already accomplished this by bringing this case as a class action and having the plaintiff class certified. Marin Marawa is presented with only two potential claimants – the certified class and the FSM national government.

⁴ Rule F(1) may need revision to mention that the vessel's "value" should be computed by reference to the applicable statute and regulation. If there is any conflict between Rule F(1) and the limitation statute, a point which the court does not decide, then the statute must prevail since the Constitution permits the Chief Justice to promulgate procedural rules, which Congress may amend by statute. Since Congress has the authority to amend or create procedural rules by statute (and when Congress enacts a procedural rule, it is valid) and the{page 313} Chief Justice does not have the authority to amend Congressionally-enacted statutes, if the statute applies and the statute and the rule conflict, the statute must prevail. FSM v. Kana Maru No. 1, 14 FSM Intrm. 365, 367 n.1 (Chk. 2006).

⁵ When an FSM court has not previously construed an FSM supplemental and maritime 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.,People of Tomil ex rel. Mar v. M/C Jumbo Rock Carrier III, 16 FSM Intrm. 633, 635 n.1 (Yap 2009).