Cite as Basu v. Amor, 22 FSM R. 557 (Pon. 2020)
CIVIL ACTION NO. 2019-029
Hearing: April 6, 2020
Submitted: April 17, 2020
Decided: May 26, 2020
APPEARANCES:
| For the Plaintiff: | Michael J. Sipos, Esq. |
| P.O. Box 2069 | |
| Kolonia, Pohnpei FM 96941 | |
| For the Defendant: | Robert B. LaManna, Esq. (briefs and argued) |
| Abigail J. Avoryie, Esq. (briefs only) | |
| Assistant Attorneys General | |
| FSM Department of Justice | |
| P.O. Box PS-105 | |
| Palikir, Pohnpei FM 96941 |
When neither side has expressed any interest in proceeding to arbitration and both sides reject the idea, any right to arbitration, that either party had, has been waived. Basu v. Amor, 22 FSM R. 557, 562-63 (Pon. 2020).
Although it is not an affirmative defense specifically listed in Civil Procedure Rule 8(c), the failure to exhaust administrative remedies is usually considered an affirmative defense. That is presumably because it constitutes other matter constituting an avoidance or affirmative defense. Basu v. Amor,
22 FSM R. 557, 563 (Pon. 2020).
The failure to exhaust administrative remedies is an affirmative defense that ordinarily must be pled in the answer or it is deemed waived. Basu v. Amor, 22 FSM R. 557, 563 (Pon. 2020).
When the court has not previously considered whether an affirmative defense omitted from the answer (especially an affirmative defense that is not specifically named in Rule 8(c)) may be raised after the answer has been filed without a motion to amend the answer having also been made and it involves 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 or applying the rule. Basu v. Amor, 22 FSM R. 557, 563 (Pon. 2020).
The waiver rule that has developed in the practice under Rule 8(c) is not applied automatically with regard to omitted affirmative defenses. The substance of many unpled Rule 8(c) affirmative defenses may be asserted by pretrial motions, particularly in the absence of any showing of prejudice to the opposing party and assuming it has had an opportunity to respond. Basu v. Amor, 22 FSM R. 557, 563 (Pon. 2020).
Since Rule 8(c)'s purpose is to give the opposing party notice of the affirmative defense and a chance to respond, the failure to raise an affirmative defense by responsive pleading does not always result in waiver. Basu v. Amor, 22 FSM R. 557, 563 (Pon. 2020).
An affirmative defense can frequently be raised by a pretrial motion to which the plaintiff will be able to respond. A defendant does not waive an affirmative defense if he raises the issue at a pragmatically sufficient time, and the plaintiff was not prejudiced in its ability to respond. Basu v. Amor, 22 FSM R. 557, 563-64 (Pon. 2020).
Under Rule 56, unless a court, viewing the facts and inferences in the light most favorable to the nonmoving party, finds that there is no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law, the court must deny a motion for summary judgment. Basu v. Amor, 22 FSM R. 557, 564 (Pon. 2020).
Wages and salaries do not include any wages and salaries received by an employee, who is not an FSM citizen, while employed by an international organization, foreign contractor, or other foreign entity performing services or otherwise conducting business in furtherance of a foreign aid agreement entered into by the FSM, the terms of which require that such wages and salaries will not be subject to taxation by the FSM government. Basu v. Amor, 22 FSM R. 557, 565 (Pon. 2020).
If the viability of a statutory provision is questioned because it was meant to be codified but was omitted from the statute books when the FSM laws were codified in 2014 and might thus have been repealed by implication, the court can still rely on the part of the public law that was not meant to be codified and which will thus remain a viable statute until expressly repealed. Basu v. Amor, 22 FSM R. 557, 565 n.9 (Pon. 2020).
When certain facts are missing and evidence about them, which the court would expect would be developed through a thorough administrative evidentiary hearing, would be helpful for an informed decision, summary judgment may be denied and administrative hearing ordered. Basu v. Amor, 22 FSM R. 557, 566-67 (Pon. 2020).
Generally, an employer is required to withhold the wages and salaries tax from its employees' pay, and the penalties and interest imposed for the failure to withhold the wages and salaries tax from an employee's pay are imposed upon the employer, not the taxpayer. Basu v. Amor, 22 FSM R. 557, 567 (Pon. 2020).
A wrong or incorrect decision by a government official or body is not automatically a civil rights violation entitling the aggrieved party to relief under 11 F.S.M.C. 701(3). Basu v. Amor, 22 FSM R. 557, 567 (Pon. 2020).
A government official's decision or a government agency's decision, that an aggrieved party considers to be "wrong" or "incorrect," on the law or the facts does not automatically entitle that party to skip or avoid administrative proceedings and head straight to court alleging a civil rights violation so that the court will apparently have jurisdiction and the administrative agency will not. Thus, an additional pleading of a civil rights cause of action will not automatically preclude a remand (and a stay) to exhaust administrative proceedings. Basu v. Amor, 22 FSM R. 557, 567-68 (Pon. 2020).
An administrative hearing would not be futile when, at a minimum, it would require further evidence to address the unanswered questions the court has set out, and those answers may change the current result. Basu v. Amor, 22 FSM R. 557, 568 (Pon. 2020).
LARRY WENTWORTH, Associate Justice:
On April 6, 2020, the court telephonically heard (1) the Defendants' Motion to Compel an Administrative Hearing, filed February 14, 2020; (2) Amendment to Defendants' Motion to Compel an Administrative Hearing, filed February 24, 2020; (3) the plaintiff's Opposition to Motion to Compel Administrative Hearing and Counter Motion for Summary Judgment, filed March 9, 2020; (4) Supplement to Motion for Summary Judgment, filed March 19, 2020; and (5) the defendants' Opposition to Plaintiff's Motion for Summary Judgment; Reply to Plaintiff's Opposition to Motion to Compel Administrative Hearing, filed March 30, 2020.
During the hearing, the court raised the issue of the arbitration clause in each of the plaintiff's first three contracts with the FSM national government, and asked about that clause's applicability to this dispute over whether Sanajatamitra Basu is liable to the FSM for taxes on the amounts he was paid under those contracts and on whether this dispute should, or must, be resolved through arbitration. The court asked the parties to brief those issue(s). Basu, the petitioner and plaintiff, filed his brief on April 15, 2020. The two respondents-defendants filed their brief on April 17, 2020. Neither side filed a response to the other side's brief although the court had allowed them further time to do so if they
wished.
The FSM Omnibus Infrastructure Development Project ("OIDP"), and the Asian Development Bank ("ADB") loans to finance it, were authorized by statute. FSM Pub. L. No. 14-46, §§ 1-3, 14th Cong., 2d Reg. Sess. (2005). The statute provided that "[l]oan proceeds may be used only as set forth in the Loan agreements between the Federated States of Micronesia ("FSM") and the Bank." Id. § 4. The statute created "an External Debt Management Fund, separate from the General Fund of the FSM and all other funds." Id. § 8 (to have been codified at 55 F.S.M.C. 1601 1 ). The fund's function was to receive and disburse the OIDP ADB loan funds. Id. § 9 (to have been codified at 55 F.S.M.C. 1602). 2 The loan agreement provided that "[n]o withdrawals from the Loan Account shall be made in respect of any local taxes." ADB Loan No. 2099-FSM, sch. 3, para. 2 (June 28, 2005). The Asian Development Bank recommended or required that a senior project manager be engaged for the management and administration of the OIDP.
A. Basu's Contracts
The FSM Department of Transportation, Communications and Infrastructure ("TC&I") contracted with Sanajatamitra Basu, a citizen of India, to be the consultant and senior project manager for the OIDP. Under the contract, Basu reported to the TC&I Assistant Secretary, assisted TC&I in planning and implementing infrastructure projects effectively and efficiently, and provided TC&I with management support for the OIDP and other projects. The contract stated that "[n]othing in this Contract shall be construed as establishing any relationship other than that of independent contractor between the EA 3 and the Consultant, or the Firm if the Consultant is engaged through a firm." Contract para. G-14 (footnote added). Basu was not engaged through a firm, and his contract was funded entirely from the OIDP loan.
Basu's contractual duties as senior project manager were to advise the FSM government on its project financing obligations; to prepare specifications for purchase of project equipment, materials, and services; to prepare bidding documents for project contracts; to ensure various project-specific safeguards; to manage and oversee procurement in accordance with the FSM Financial Management
Act and relevant donor requirements and to use standard bidding documents; to advise TC&I and other national and state agencies about compliance with donor guidelines, procedures, and requirements; to administer contracts to ensure on-time and on-budget delivery of goods and services; to provide impartial and technical advice to remedy contract issues; to participate in meetings with consultants and contractors; to prepare and coordinate monthly and quarterly compliance reports; to oversee contractors and consultants to ensure their compliance with contractual provisions, FSM laws, and donor agency policies; and to provide other services needed for the effective delivery of projects. The contract started January 13, 2014, and ran until July 12, 2015.
Basu worked for TC&I on a full time basis and was paid $10,000 a month. Each month, Basu would submit an invoice for that amount to the TC&I Assistant Secretary. TC&I would then approve it and execute a payment voucher for that amount which was sent to FSM Finance for payment. Finance did not deduct or withhold any taxes or sums from the monthly $10,000 payments. These payments were made entirely from the ADB OIDP loan money.
After this contract ended on July 12, 2015, it was followed by a second contract, with identical provisions, that ran from August 1, 2015, to July 31, 2016. This was followed by a third, identical contract that ran from September 1, 2016, to August 31, 2017. Throughout these three contracts, Basu continued to be paid $10,000 monthly and no wages and salaries taxes were withheld or deductions made. 4 Nor did Basu himself pay any taxes to the FSM on this income.
After Basu's third consultant and senior project manager contract ended, Basu had a three-month contract at the year's end and then had another employment contract with the FSM, the last of which ended on September 30, 2019. It included a term that obligated the FSM to pay for Basu's costs of return after the contract term ended. The usual payroll taxes were withheld from Basu's income under these contracts.
B. FSM's Tax Assessment
On January 9, 2019, the FSM Assistant Secretary of Finance and Administration, the head of that department's Division of Customs and Tax Administration, sent Basu a letter assessing Basu's tax liability for his first three contracts at $33,805, plus $16,828.80 in penalties and $6,830.10 in interest, for a total of $57,463.90. Basu denied liability. In a March 25, 2019 follow-up letter rejecting Basu's response, the Assistant Secretary acknowledged that Basu had a contract with TC&I, stated that the ADB loan agreement was irrelevant, emphasized that recipients of wages and salaries are, under 54 F.S.M.C. 124, subject to a tax on that income, and informed Basu that given his unwillingness to pay, the Assistant Secretary would ask the Finance Division to withhold 50% from Basu's paychecks until the tax debt was paid in full. In a second follow-up letter on April 10, 2019, the Assistant Secretary rejected another Basu response and noted that Basu's contract was with TC&I and not ADB, thus making his income subject to FSM tax.
In response to the Assistant Secretary's request, the Finance Division deducted $12,731.93 from Basu's 2019 paychecks for pay periods #15 through 19. It also deducted (withheld) Basu's entire paycheck for pay period #20, which Basu believes amounted to an additional $4,959.32 "credit" towards his alleged tax debt, for a presumed total of $17,691.25. Finance also did not pay Basu's repatriation costs under his contract ending on September 30, 2019. Throughout this time, TC&I officials supported Basu's position that the income he derived from his three "independent contractor" contracts with TC&I was exempt from FSM tax. The FSM Department of Justice, in a September 23,
2019 letter, sided with the Assistant Secretary.
C. Basu's Litigation Efforts
On December 23, 2019, Basu filed this lawsuit as a petition for judicial review of a tax assessment and as a complaint for violation of civil rights and for declaratory relief. Basu alleges that the tax assessment on his "independent contractor" earnings was unlawful, that that income was tax exempt, and that the tax deductions based on that tax assessment were thus unlawful and therefore his civil rights were violated. He seeks a declaration that the challenged tax assessment was unlawful, that no penalties and interest could apply, that the deductions from his 2019 earnings to pay that tax assessment was therefore wrong and that the FSM may not take any further action against him based on that assessment. He also seeks an order that the FSM reimburse him for those deductions, pay him pre-judgment interest on those deductions, pay his attorney's fees and costs; and pay him all the further compensation that he was entitled to under his just-expired contract.
On January 28, 2020, the defendants filed an answer denying Basu's grounds for relief and his prayer for relief. On February 14, 2020, the defendants filed a motion to compel an administrative hearing and asked the court to stay this case until that administrative process is completed. In his March 9, 2020 filing, Basu opposed holding an administrative hearing, which he regards as futile, and moved for summary judgment on his claims, which the defendants oppose on the ground that "independent contractors" are not tax exempt and the ADB loan terms do not change that result.
A. Should the Arbitration Clause Should Be Enforced?
All three of Basu's "independent contractor" contracts contained an arbitration clause. That clause reads:
Any dispute or difference arising out of this Contract or in connection with it which cannot be amicably settled between the parties under (a) 5 shall be finally settled under the Rules of Arbitration of the International Chamber of Commerce by one or more arbitrators appointed under said Rules. The arbitration shall take place in [country of EA 6 ]. The resulting award shall be final and binding on the parties and shall replace other remedies. The language of arbitration shall be English and each party shall bear its own costs.
Contract para. G-24(b) (footnotes added). The court therefore sought the parties' views on whether this clause was applicable to this case and should be enforced.
Both sides take similar positions. They contend that the arbitration clause cannot apply because Basu and FSM TC&I were the contracting parties and this case is between Basu and the FSM itself and its Secretary of Finance. This argument is not wholly convincing because Basu's ultimate counterparty, in both instances, is the FSM national government and neither department, Finance or TC&I, has a capacity or personality separate from the FSM national government itself. Also, this is a dispute "in connection with" the contract(s) – whether the contract payments are taxable.
Nevertheless, this is an issue the court need no longer consider. Neither side has expressed any interest in proceeding to arbitration and both sides reject the idea. The court therefore concludes that any right to arbitration has been waived. Cf. Harden v. Inek, 18 FSM R. 551, 553 (Pon. 2013) (when a party fails to demand arbitration during pretrial proceedings, and, in the meantime, engages in pretrial activity inconsistent with an intent to arbitrate, that party has waived right to arbitrate). The court will therefore not linger any longer on this point.
B. May the Court Consider the Merits of the Motion to Compel an Administrative Hearing?
The defendants move for an order compelling Basu to first seek his remedy through the administrative procedures for challenging the assessment and imposition of a national tax and to exhaust those remedies before proceeding further in court. The defendants did not plead Basu's failure to exhaust his administrative remedies as an affirmative defense in their January 28, 2020 Answer. Nor have they since moved to amend their answer to include that affirmative defense.
Although it is not an affirmative defense specifically listed in Civil Procedure Rule 8(c), the failure to exhaust administrative remedies is usually considered an affirmative defense. Pohnpei v. Ponape Constr. Co., 7 FSM R. 613, 619 (App. 1996). That is presumably because it constitutes "other matter constituting an avoidance or affirmative defense." FSM Civ. R. 8(c). Thus, the failure to exhaust administrative remedies is an affirmative defense that ordinarily must be pled in the answer or it is deemed waived. Kosrae v. Edwin, 18 FSM R. 507, 513 (App. 2013); Luen Thai Fishing Venture, Ltd. v. Pohnpei, 18 FSM R. 653, 656 (Pon. 2013); Aunu v. Chuuk, 18 FSM R. 48, 50 (Chk. 2011) (defendant should plead and prove any affirmative defense); Mobil Oil Micronesia, Inc. v. Pohnpei Port Auth., 13 FSM R. 223, 228 (Pon. 2005) (burden to plead and prove affirmative defense falls upon the defendant).
The court has not previously considered whether an affirmative defense omitted from the answer (especially an affirmative defense that is not specifically named in Rule 8(c)) may be raised after the answer has been filed without a motion to amend the answer having also been made. 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 or applying the rule. See, e.g., Estate of Gallen v. Governor, 21 FSM R. 477, 483 n.3 (Pon. 2018); Neth v. Peterson, 21 FSM R. 269, 271 n.1 (Pon. 2017); FSM Dev. Bank v. Arthur, 15 FSM R. 625, 632 n.2 (Pon. 2008); Amayo v. MJ Co., 14 FSM R. 355, 362 n.2 (Pon. 2006). Turning to those sources, the court notes that
the waiver rule that has developed in the practice under Rule 8(c) is not applied automatically with regard to omitted affirmative defenses . . . . [T]he substance of many unpleaded Rule 8(c) affirmative defenses may be asserted by pretrial motions, particularly in the absence of any showing of prejudice to the opposing party and assuming it has had an opportunity to respond.
5 CHARLES A. WRIGHT & ARTHUR R. MILLER, FEDERAL PRACTICE AND PROCEDURE § 1278, at 666-73 (3d ed. 2004). Since "[t]he purpose of Rule 8(c) . . . is to give the opposing party notice of the affirmative defense and a chance to respond," Smith v. Sushka, 117 F.3d 965, 969 (6th Cir. 1997), the "[f]ailure to raise an affirmative defense by responsive pleading does not always result in waiver," id. (citing Moore, Owen, Thomas & Co. v. Coffey, 992 F.2d 1439, 1445 (6th Cir. 1993)). An affirmative defense
can frequently be raised by a pretrial motion to which the plaintiff will be able to respond. 7 A "defendant does not waive an affirmative defense if '[h]e raised the issue at a pragmatically sufficient time, and [the plaintiff] was not prejudiced in its ability to respond.'" Lucas v. United States, 807 F.2d 414, 418 (5th Cir. 1986) (quoting Allied Chemical Corp. v. Mackay, 695 F.2d 854, 856 (5th Cir. 1983)).
The defendants' motion to compel was raised at a pragmatically sufficient time ? at an early stage of the litigation. It was not an unfair surprise. Nor does it prejudice Basu. Accordingly, the court will consider the motion to compel on its merits.
Basu contends that there are no genuine issues of material fact and that he is entitled to a judgment as a matter of law. The respondents contend that there are issues of material fact and that those issues should first be addressed and resolved, if possible, in an administrative proceeding. Basu responds that, even if there are factual issues, it would still be futile to pursue administrative proceedings, and therefore this court proceeding should go forward. The court feels that a workable approach would be to first consider Basu's summary judgment motion, and, if the court determines that there are genuine factual issues, then consider the respondents' motion to compel.
Under Rule 56, unless a court, viewing the facts and inferences in the light most favorable to the nonmoving party, finds that there is no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law, the court must deny a motion for summary judgment. Mailo v. Chuuk Health Care Plan, 20 FSM R. 18, 22 (App. 2015); Helgenberger v. Bank of Hawaii, 19 FSM R. 139, 143 (App. 2013); Rosario v. College of Micronesia-FSM, 11 FSM R. 355, 358 (App. 2003); Luzama v. Ponape Enterprises Co., 7 FSM R. 40, 48 (App. 1995).
A. Basu's Summary Judgment Motion
Basu contends that he should be granted summary judgment because the law is clear, there are no material facts in dispute, and he is thus entitled to judgment as a matter of law. Basu contends that assessing wage and salaries taxes on his "independent contractor" earnings is contrary to the ADB loan agreement and to FSM law.
1. Basu's Compensation
If the Asian Development Bank had hired Basu as the senior project manager for its OIDP loan and then seconded (loaned) him to TC&I, Basu's income from the OIDP funds would have been statutorily exempt from the FSM Wages and Salaries Tax. 54 F.S.M.C. 112(13)(k). This is because under FSM statute law,
Wages and salaries shall not include . . .
(k) any wages and salaries received by an employee, who is not a citizen of the Federated States of Micronesia, while employed by an international organization, foreign contractor, or other foreign entity performing services or otherwise conducting business in furtherance of a foreign aid agreement entered into by the Federated States of Micronesia, the terms of which require that such wages and salaries shall not be subject to taxation by the Government of the Federated States of Micronesia;
54 F.S.M.C. 112(13). But Basu, although a foreign citizen performing services in furtherance of an FSM foreign aid agreement, was not employed by an international organization, foreign contractor, or other foreign entity. His employment contract was with the FSM national government, 8 not the ADB. Section 112(13)(k) of Title 54 therefore does not apply to Basu.
Basu also directs the court's attention to the Public Law No. 14-46 provision that the fund established to receive the ADB loan proceeds "shall be administered by the Secretary of the Department of Finance and Administration, who shall administer the fund in accordance with the applicable loan agreements . . . ." FSM Pub. L. No. 14-46, § 13, 14th Cong., 2d Reg. Sess. (2005) (to have been codified at 55 F.S.M.C. 1606). 9 Basu contends that the applicable loan agreement's provision that "[n]o withdrawals from the Loan Account shall be made in respect of any local taxes," ADB Loan No. 2099-FSM, sch. 3, para. 2 (June 28, 2005), makes, under Public Law No. 14-46, any compensation paid to him by withdrawals from the External Debt Management Fund exempt from the FSM wages and salaries tax. Basu notes that all of his compensation under his first three contracts came from the External Debt Management Fund (the ADB OIDP loans), and argues that it should thus all have been tax exempt under both the ADB loans' terms and the public law authorizing and implementing those loans.
The court notes that neither the ADP OIDP loan agreements nor Basu's consultant and senior project manager contracts explicitly state that the compensation paid to consultants and senior project managers on OIDP projects is exempt from FSM (or country of EA) income taxes.
Basu argues that there are no material facts in dispute and that this case is therefore ripe for summary judgment. The court is not so sure. Certain facts are missing and evidence about them, which the court would expect would be developed through a thorough administrative evidentiary hearing, would be helpful for an informed decision. These include:
1) whether the position for which Basu was hired was advertised as having a tax-exempt status (the court notes that the record shows that there were eleven candidates for the position and that TC&I thought Basu was the best, so the court presumes that the position was advertised or somehow made known to potential candidates);
2) who drafted the "independent contractor" agreement that Basu signed (if the court had to guess, it would presume, from phrases such as "country of EA" that this was a contract form provided by the ADB for use by the project managers and consultants that the ADB required or recommended its loan recipients to hire for the effective use of the funds it loaned);
3) what view or position the ADB took, when Basu's "independent contractor" agreements were first executed, on whether "independent contractor" compensation from its OIDP loan was exempt from FSM taxation (during the telephonic hearing, the court posed the hypothetical of a cleaning crew hired to clean offices rented for the ADB loan use and asked if the payments to the cleaning crew would be tax exempt; the parties seemed to agree that any tax exemption would not extend that far);
4) what view or position the FSM Department of Foreign Affairs took or had, when the ADB OIDP loan was negotiated, about whether the project consultants' compensation under the loan would be subject to FSM income tax (the court presumes that Foreign Affairs had some part in negotiating this foreign aid agreement and will have some part in negotiating similar foreign aid agreements in the future and should therefore be aware of whether the conclusion of a foreign aid agreement would be hampered by FSM taxation of consultants and senior project managers);
5) whether tax exemptions have been the usual or even expected practice for other persons in Basu's position in the FSM over the years (this may have some effect on future recruitment for similar positions, particularly if this has been the standard practice); 10 and, most importantly,
6) what are the exact sums in dispute (Finance withheld Basu's entire last paycheck; the amount of that check Finance put toward Basu's "tax debt" and the sums that would have been paid to Basu at the end of his last contract, such repatriation expenses and unused annual leave, are all either due and payable to Basu if he prevails, or must be credited against his tax debt if he does not).
The court expects that all these questions should have answers, or at least enough evidence from which answers may be inferred, before any effective administrative hearing is held. The court is not saying that any one or more of these unanswered questions will be determinative of Basu's claims, but the facts are material. The court will say that they have some bearing on the outcome, and that, until the answers are known, the court will not hazard a guess about the extent of that effect.
2. Penalties and Interest
Basu contends that based on the applicable statute, even if he were liable for a wage and salaries tax on his "independent contractor" earnings, he cannot possibly be liable for penalties and interest. The defendants do not take a particular position on this issue, but during the telephonic hearing merely stated that if that were true then Basu would be given credit for those sums.
If Basu was subject to the wages and salaries tax, then the FSM would likely have been considered his employer since he worked for TC&I on a full time basis. Generally, an employer is required to withhold the wages and salaries tax from its employees' pay. 54 F.S.M.C. 131. The penalties and interest imposed for the failure to withhold the wages and salaries tax from an employee's pay are imposed upon the employer, not the taxpayer. See 54 F.S.M.C. 131(3) ("Any employer who violates any of the provisions of this section shall be subject to the penalties prescribed in this chapter."). 11
Basu's position is that it is inequitable to impose any penalties and interest on him when, if he had been liable for wages and salaries tax, it should have been withheld by the FSM and therefore the FSM should now be estopped from imposing those sanctions on him even if he were liable, which he does not concede, for the wages and salaries tax. This is a sensible argument unless Basu is in the same position as the plaintiff in Heston v. FSM, 2 FSM R. 61, 65-66 (Pon. 1985), where the plaintiff, although he claimed his contract made him an "independent contractor," was liable for the wages and salaries tax because he actually worked as if he was a government employee, as distinguished from an outside consultant.
3. Civil Rights Cause of Action
Basu also contends that this matter cannot be sent to an administrative agency hearing because administrative agencies do not have jurisdiction over civil rights claims, and Basu has pled a civil rights takings claim - that Finance, by improper administration, has wrongfully decided to assess taxes on his first three TC&I contracts and wrongly withheld or taken money due him. This, Basu asserts, is a civil rights claim over which an administrative proceeding would not have jurisdiction.
But a wrong or incorrect decision by a government official or body is not automatically a civil rights violation. 12 The court is not convinced that every, or any, wrong decision by a government
official or agency automatically becomes a civil rights violation entitling the aggrieved party to relief under 11 F.S.M.C. 701(3). The court is of the opinion that a government official's decision or a government agency's decision, that an aggrieved party considers to be "wrong" or "incorrect," on the law or the facts does not automatically entitle that party to skip or avoid administrative proceedings and head straight to court alleging a civil rights violation so that the court will apparently have jurisdiction and the administrative agency will not.
Therefore, Basu's additional pleading of a civil rights cause of action will not automatically preclude a remand (and a stay) to exhaust administrative proceedings. See Eperiam v. FSM, 20 FSM R. 351, 355 (Pon. 2016); Ramirez v. College of Micronesia, 20 FSM R. 254, 261 (Pon. 2015); Aunu v. Chuuk, 18 FSM R. 48, 50 (Chk. 2011) ("the court may, in its discretion, stay the matter to allow the plaintiff to first pursue his administrative remedies and if he remains aggrieved, the court can then lift the stay and allow the litigation to proceed").
B. Motion to Compel an Administrative Hearing
Basu objects to the respondents' affirmative defense of failure to exhaust his administrative remedies. Basu contends that this matter has already gone through administrative processes because he has explained his position through exhaustive written submissions. He contends that a further administrative hearing would be futile because he would introduce the same evidence there that he has put before the court and, presumably, obtain the same result because, in his view, the FSM is not proceeding in good faith.
The court, however, expects that an administrative hearing before the Secretary would not be futile because, at a minimum, it would require further evidence to address the unanswered questions the court has set out above. See supra pt. III.A.1. And those answers may change the current result.
Although the Secretary [Eugene Amor] is named as the lead defendant in this proceeding, he has not made any decisions adverse to Basu. He has made no decisions at all. All of the decisions which aggrieve Basu were made by the Assistant Secretary of Finance and Administration that heads that department's Division of Customs and Tax Administration. Basu has not yet had a hearing before the Secretary. He should have one.
If Basu is still aggrieved after the Secretary has made his findings and come to a decision, he may then, as provided for in 54 F.S.M.C. 156(1), seek judicial review. Since the defendants seek only a stay of this action, the court will not dismiss this matter without prejudice to a later request for judicial review, but will instead hold this matter in abeyance until the administrative proceedings are completed, and then proceed as needed.
Accordingly, for all the foregoing reasons, the court hereby grants the defendants' motion to compel an administrative hearing and denies, without prejudice, Basu's summary judgment motion. This matter is stayed until the administrative proceedings are finished.
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1 The court cites these sections of Public Law No. 14-46 as "to have been codified at 55 F.S.M.C." because, while that public law "enact[ed] a new subchapter XVI of chapter 6 [of Title 55] entitled 'External Debt Management Fund,'" FSM Pub. L. No. 14-46, § 7, 14th Cong., 2d Reg. Sess. (2005), that subchapter, id. §§ 8-14 (to have been codified at 55 F.S.M.C. 1601-1607), was omitted (inadvertently?) from the most recent compilation of FSM statutes, the 2014 FSM Code. Subchapter XVI, Title 55 was never explicitly repealed. But in 2014, Congress enacted Public Law No. 18-100, which created the Pohnpei State Commission on Improvement Projects and which was to be codified as chapter 16 of Title 55. FSM Pub. L. No. 18-100, §§ 1-5, 18th Cong., 5th Reg. Sess. (2014) (sections 2-4 were to be codified at 55 F.S.M.C. 1601-1603). Later, Congress, stating that those section numbers were already in use, renumbered the Pohnpei State Commission statute as 55 F.S.M.C. 1701-1703 and retitled chapter 16 as "Reserved" in order to correct what it called a "technical error." FSM Pub. L. No. 20-168, 20th Cong., 7th Spec. Sess. (2019).
2 A separate fund had also been created by statute for a different, earlier (1992) ADB loan. See 55 F.S.M.C. 640-645.
3 "EA" refers to the "Executing Agency," which "is the organization or government agency of the Government with which the Consultant signs the Contract." Contract para. D-7.
4 Nor, apparently, were Social Security taxes withheld.
5 Paragraph G-24(a) contains a mandatory mediation procedure to which the contracting parties should first resort to resolve any disputes before proceeding to arbitration, as a last resort.
6 The "country of EA" is the FSM. See supra note 3 for the meaning of "EA."
7 See, e.g., Owens v. Kaiser Found. Health Plan, Inc., 244 F.3d 708, 713 (9th Cir. 2001) (defendant may raise res judicata affirmative defense for first time in motion for judgment on the pleadings); Brinkley v. Harbour Recreation Club, 180 F.3d 598, 612 (4th Cir. 1999) ("absent unfair surprise or prejudice to the plaintiff, a defendant's affirmative defense is not waived when it is first raised in a pre-trial dispositive motion"); McConathy v. Dr. Pepper/Seven Up Corp., 131 F.3d 558, 562 (5th Cir. 1997) (since defendant's raising judicial estoppel affirmative defense in summary judgment motion "d[id] not result in unfair surprise, technical failure to comply precisely with Rule 8(c) [wa]s not fatal"); Ledo Fin. Corp. v. Summers, 122 F.3d 825, 827 (9th Cir. 1997) ("Although Rule 8 requires affirmative defenses to be included in responsive pleadings, absent prejudice to the plaintiff an affirmative defense may be plead [sic] for the first time in a motion for summary judgment."); Smith v. Sushka, 117 F.3d 965, 969 (6th Cir. 1997) (not fatal that affirmative defenses not raised until second summary judgment motion); Magana v. Northern Marianas Islands, 107 F.3d 1436, 1446 (9th Cir. 1997) ("defendants may raise an affirmative defense for the first time in a motion for summary judgment only if the delay does not prejudice the plaintiff"); Kleinknecht v. Gettysburg College, 989 F.2d 1360, 1374 (3d Cir. 1993) (although "not the most appropriate way to raise a previously unpled defense" raising an immunity affirmative defense in a summary judgment motion's ninth paragraph with no objection by the plaintiff was permissible); Grant v. Preferred Research, Inc., 885 F.2d 795, 797 (11th Cir. 1989) ("if a plaintiff receives notice of an affirmative defense by some means other than the pleadings, 'the failure to comply with Rule 8(c) does not cause the plaintiff any prejudice'"); Lucas v. United States, 807 F.2d 414, 417 (5th Cir. 1986) ("Where the matter is raised in the trial court in a manner that does not result in unfair surprise . . . technical failure to comply precisely with Rule 8(c) is not fatal."); Management Investors v. United Mine Workers of Am., 610 F.2d 384, 390 n.17 (6th Cir. 1979) (bankruptcy affirmative defense first raised in jointly drafted pretrial order); but see Venters v. City of Delphi, 123 F.3d 956, 967-68 (7th Cir. 1997) ("defendant remains obligated to act in a timely fashion" so waiting a year to raise statute of limitations affirmative defense in summary judgment motion without seeking leave to amend answer waived defense).
8 With TC&I as the "executing agency." See supra note 3 and related text.
9 If the viability of this statutory provision is questioned because it was meant to be codified but was omitted from the statute books when the FSM laws were codified in 2014, see supra note 1, and might thus have been repealed by implication, the court (and the parties) can still rely on the part of Public Law No. 14-46 that was not meant to be codified (§§ 1-6) and which will remain a viable statute until expressly repealed. Thus Section 4: "Loan proceeds may be used only as set forth in the Loan agreements between the Federated States of Micronesia ("FSM") and the Bank," FSM Pub. L. No. 14-46, § 4, 14th Cong., 2d Reg. Sess. (2005), is still good law.
10 TC&I's views and past practice (and its current view) are the same as Basu's.
11 If, on the other hand, a person is employed as an "independent contractor," but is subject to payroll taxes because he or she is actually performing personal services as an employee, see Heston v. FSM, 2 FSM R. 61, 64-65 (Pon. 1985), the "independent contractor" may be in a worse position taxwise, because not only would that person be liable for the wages and salaries tax, id. at 66, but the "independent contractor" might also be liable for not only the employee's social security contribution but also for the employer's social security contribution, see 53 F.S.M.C. 903.
12 See, e.g., Bishop v. Wood, 426 U.S. 341, 350, 96 S. Ct. 2074, 2080, 48 L. Ed. 2d 684, 693 (1976) (due process clause "is not a guarantee against incorrect or ill-advised personnel decisions"); Vineyard Invs., L.L.C. v. City of Madison, 440 Fed. App'x 310, 313 (5th Cir. 2011) (a legally incorrect decision "does not automatically characterize the City's action as arbitrary and capricious"); Lowrance v. Achtyl, 20 F.3d 529, 537 (2d Cir. 1994) ("Substantive due process protects individuals against government action that is arbitrary, conscience-shocking, or oppressive in a constitutional sense, but not against government action that is 'incorrect or ill-advised'"); Staheli v. University of Miss., 854 F.2d 121, 124 n.2 (5th Cir. 1998) (government official's incorrect decision may rise to substantive due process if literally irrational and protected liberty or property interest is lost); Bello v. Walker, 840 F.2d 1124, 1128 (3d Cir. 1988) (procedural due process not violated by wrong decision); United States v. Gallagher, 183 F.2d 342, 345 (3d Cir. 1950) ("a wrong decision on the merits does not constitute a denial of due process of law if the opportunity for a full hearing is afforded"); cf. PFZ Properties, Inc. v. Rodriguez, 928 F.2d 28, 31 (1st Cir. 1991) (violation of state law ordinarily will not rise to level of constitutional deprivation).