FSM SUPREME COURT
TRIAL DIVISION (Pon.)
Cite as Michelsen v. FSM,
3 FSM Intrm. 416 (Pon. 1988)

[3 FSM Intrm. 416]

R. BARRIE MICHELSEN,
Plaintiff,

v.

FEDERATED STATES OF MICRONESIA,
Defendant.

CIV. NO. 1986-095

OPINION
 
Before Edward C. King
Chief Justice
July 11, 1988

APPEARANCES:
     For the Plaintiff:               Fredrick L. Ramp
                                               Attorney at Law
                                               Ramp & Michelsen
                                               Kolonia, Pohnpei 96941

     For the Defendant:          Jack Warndof
                                               Attorney General
                                               Office of the Attorney General
                                               Kolonia, Pohnpei 96941

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HEADNOTES
Constitutional Law - Case or Dispute;
Civil Procedure
     When a party has been specifically warned by the attorney general that he is required to obtain a foreign investment permit under national statute which imposes criminal sanctions for failure to comply, the question of whether a permit is required is sufficiently ripe to support a suit seeking declaratory judgment.  Michelsen v. FSM, 3 FSM Intrm. 416, 418 (Pon. 1988).

Courts
     Courts have an affirmative obligation to avoid erroneous rulings and may not be bound by incorrect legal premises upon which even all parties rely.  Michelsen v. FSM, 3 FSM Intrm. 416, 419 (Pon. 1988).

[3 FSM Intrm. 417]

Constitutional Law - Interpretation;
Statutes
     When dealing with statutes, before discussing constitutional issues a court must first address any threshold issues of statutory interpretation which may obviate the need for a constitutional ruling.  Michelsen v. FSM, 3 FSM Intrm. 416, 419 (Pon. 1988).

Administrative Law;
Statutes
     When there is no statement in an Act or implication in its regulative history that Congress intended court deference to administrative interpretations of the statute, courts make their own independent determination as to the meaning of the statute.  Michelsen v. FSM, 3 FSM Intrm. 416, 421 (Pon. 1988).

Statutes
     Where legislative history does not conclusively establish which meaning Congress intended, the statutory provision must be considered against the background of the entire Act to arrive at an interpretation consistent with other provisions and with the general design of the Act.  Michelsen v. FSM, 3 FSM Intrm. 416, 422 (Pon. 1988).

Foreign Investment Laws
     A cardinal principle of statutory construction is that, where possible, courts should avoid interpretations of a statute which may bring into doubt the constitutionality of that statute.  Michelsen v. FSM, 3 FSM Intrm. 416, 423 (Pon. 1988).

Foreign Investment Laws
     National government has neither constitutional authority nor law enforcement capacity to oversee, on a worldwide basis, every noncitizen acquisition of an interest in a business operating within the FSM.  Michelsen v. FSM, 3 FSM Intrm. 416, 423 (Pon. 1988).

Foreign Investment Laws
     The "applicant" referred to in the Foreign Investment Act is one interested in doing business, not just investing money, in the Federated States of Micronesia, and the considerations to be employed in determining whether to grant an application relate to business operations within the FSM, not to investment of funds.  Michelsen v. FSM, 3 FSM Intrm. 416, 525 (Pon. 1988).

Statutes
     Unreasonableness of the result produced by one among alternative possible interpretations of a statute is reason for rejecting that interpretation in favor of another which would produce a reasonable result.  Michelsen v. FSM, 3 FSM Intrm. 416, 426 (Pon. 1988).

[3 FSM Intrm. 418]

Foreign Investment Laws
     The Foreign Investment Act regulates the operation of noncitizen businesses within the Federated States of Micronesia, not individual investors. 32 F.S.M.C. 203(2) and 204 have no application to acquisitions of interests in a business operating in the Federated States of Micronesia with a national foreign-investment permit.  Michelsen v. FSM, 3 FSM Intrm. 416, 426 (Pon. 1988).

Constitutional Law - Judicial Powers;
Attorney, Trial Counselor and Client
     An attorney's professional activities are individually subject to regulation by the judiciary, not by the administrators of the Foreign Investment Act.  Michelsen v. FSM, 3 FSM Intrm. 416, 428 (Pon. 1988).

*        *        *        *

COURT'S OPINION
EDWARD C. KING, Chief Justice:
     Plaintiff R. Barrie Michelsen, a citizen of the United States and an attorney practicing in Pohnpei, seeks a declaratory judgment that he is not required to obtain a national foreign-investment permit pursuant to the FSM Foreign Investment Act, 32 F.S.M.C. 201-232, in order to acquire a partnership interest in a law firm which already has a national foreign-investment permit.  He also seeks an injunction prohibiting officials of the national government from attempting to require him to obtain a permit for that purpose.  The case is now before the Court on Mr. Michelsen's motion for summary judgment.

     Mr. Michelsen holds a foreign investment permit issued by the state of Pohnpei. The law firm in which he is now a partner, Ramp & Michelsen, holds foreign investment permits issued by the national government and by Pohnpei.

     No claim is made that Mr. Michelsen is engaging in business within the Federated States of Micronesia other than through his activities as a member of the law firm.  Nor does the government assert that changes in membership require the law firm itself to obtain a new permit.  The government relies exclusively upon 32 F.S.M.C. 203(2) as requiring the permit because of Mr. Michelsen's acquisition of an interest in the law firm.

I
     The case falls within the jurisdiction of this Court under article XI, section 6(a) of the Constitution because the national government is a party.  The dispute is sufficiently ripe for declaratory judgment because plaintiff faces the possibility of criminal sanctions, depending upon the resolution of the questions he presents here. Ponape Chamber of Commerce v. Nett Municipal Gov't, 1 FSM Intrm. 389, 398-402 (Pon. 1984).  Mr. Michelsen has been specifically warned by FSM national government officials, including the office

[3 FSM Intrm. 419]

of the attorney general, that he is required to obtain a foreign-investment permit because he has become a "noncitizen owner of a substantial interest" in a law firm operating in the Federated States of Micronesia.  Unlawful failure to comply with the Act may expose a violator to criminal penalties.  32 F.S.M.C. 229.1

A
     The plaintiff does not directly challenge the government'sinterpretation of the Foreign Investment Act.  Instead, apparently assuming the validity of the government's statutory interpretation, he asks the Court to declare the Act unconstitutional.  He argues that the Act is an abuse of powers given the national government under the Constitution, infringes upon judiciary powers to regulate attorneys, impedes the right of citizens to obtain legal services under article XIII, section 1 of the Constitution, and violates the plaintiff's rights of due process and equal protection.

     This Court has said many times that unnecessary constitutional decisions should be avoided.  It is clear from the record that the government's position is based upon its interpretation of 32 F.S.M.C. 203(2).  Falanruw affidavit, exhibit B to government memo in opposition to summary judgment.  The underlying premise of the constitutional arguments presented by both parties is that section 203 has the meaning imputed to it by the government.

     Courts have an affirmative obligation to avoid making erroneous rulings and may not be bound by incorrect legal premises upon which even all parties rely.  A court may, indeed must, independently consider every legal issue bearing upon the dispute before it.

     Thus, although the memoranda concerning the motion for summary judgment raise and discuss many constitutional issues, the threshold issue of statutory interpretation must be addressed first.  See FSM v. Edward, 3 FSM Intrm. 224, 230 (Pon. 1987).  As will be apparent, resolution of the statutory interpretation issue obviates the need for addressing the constitutional issues presented by the motion.

B
     The government's position, that Mr. Michelsen and the law firm of which he is a member must both obtain national foreign investment permits, is based upon 32 F.S.M.C. 203.  That section provides as follows:

[3 FSM Intrm. 420]

203.  Business activities and interests for which permits required.

   (1)  A noncitizen may not engage in any business in the Federated States of Micronesia without first obtaining a foreign investment permit.

   (2)  A noncitizen may not acquire an interest, other than a security interest in real or personal property for the purpose of securing a loan, in any business operating in the Federated States of Micronesia without first obtaining a foreign-investment permit.

   (3)  A noncitizen engaged in business in the Federated States of Micronesia on the effective date of this chapter under a permit issued under the Trust Territory Foreign Investor's Business Permit Act or under an agreement with the Trust Territory Government shall not continue to engage in business in the Federated States of Micronesia after the expiration of that permit or agreement without first obtaining a foreign-investment permit.

     There is no dispute about the meaning of section 203(1), which unequivocally prevents noncitizens from engaging in any business within the Federated States of Micronesia without first obtaining a foreign investment permit.  The words "business"2 and "noncitizen"3 are defined broadly, so that the section reaches any form of business organization here, owned in any part by a noncitizens

     The government reads 32 F.S.M.C. 203(2) as establishing that any noncitizen wishing to acquire any interest in any business operating within the Federated States of Micronesia, must himself or herself obtain a foreign investment permit without regard to whether the business itself has a permit.  Under that reading, Mr. Michelsen obviously would be required to obtain a permit in Ramp & Michelsen, despite the fact that the firm itself has a permit.

     There is a possible alternative to the government's interpretation.  The subsections which follow 32 F.S.M.C. 203(1) could be seen as corollaries,

[3 FSM Intrm. 421]

designed to close loopholes which might otherwise permit evasion of the section 203(1) prohibition.  Under this alternative reading, section 203(2) flatly prevents noncitizens from acquiring an interest in any business already operating in the Federated States of Micronesia without a foreign investment permit.  Section 203(3) confirms that businesses currently operating under Trust Territory authorization must obtain permits under the FSM statute when their Trust Territory authorizations expire.

C
     The meaning of section 203(2) is a pivotal question, the resolution of which will determine the basic direction of enforcement efforts under the Act.

     This is not the kind of question upon which courts commonly defer to the statutory interpretation of the administrative agency.  Olter v. National Election Comm'r, 3 FSM Intrm. 123, 133 (App. 1987).  There is no direct statement in the Act or its legislative history that Congress intended the Court to defer to interpretations of the administration.  Applying the standards set forth in Olter, the Court finds no grounds for deferring to the administrative interpretation of the statute.  Instead the Court must make its own independent determination as to whether the Board's announced position is in accordance with law.  See 17 F.S.M.C. 111(3), 111(3)(b)(i), and 111(3)(b)(iii).

II
     Section 203(2) is amenable to more than one plausible interpretation.  The legislative history does not conclusively establish which meaning the Congress intended.4  The provision therefore must be considered against the background of the entire Act in an effort to arrive at a reasonable

[3 FSM Intrm. 422]

interpretation consistent with other specific provisions and the general design of the Act.  In so doing, the Court may also rely upon, and employ, standard principles of statutory construction.

A
     Various provisions within the Act furnish some support for the government's interpretation.  For example, the concluding words in section 203(2), "without first obtaining a foreign-investment permit," also appear at the end of section 203(1), and in that section indisputably modify the opening prohibitory clause, "a noncitizen may not engage in any business."  A sense offormal symmetry might suggest that section 203(2) employed the same structure.5

     Moreover, 32 F.S.M.C. 204(1)6 says that a noncitizen intending to acquire a business interest shall apply for a permit.  This offers at least some credence to the government's view that the Act applies in parallel fashion, and duplicatively, to individual noncitizen investors as well to all businesses operating within the Federated States of Micronesia.

     Finally the names, Foreign Investment Act and foreign-investment permit, provide support to the view that the Act is intended to regulate noncitizen investment, as well as operation of businesses.

B
     Yet, far more powerful considerations mandate rejection of the government's position.

1.   Grammar and Composition:
Statutes must be construed like every other piece of English composition.  This does not mean merely that the words in a statute are to be read according to their ordinary meaning and grammatical sense; it means that a statute must be construed according to the ordinary rules of construction applied to any English composition.

[3 FSM Intrm. 423]

E. Driedger, A New Approach to Statutory Interpretation, 29 Canadian Bar Rev. 838 (1951), reprinted in part in 4 C. Sands Sutherland Statutory Construction 25 (4th ed. 1975).

     The government's interpretation does not fit neatly with standard rules of punctuation and English usage.  The interpretation assumes that the dependent adverbial clause, "without first obtaining a foreign-investment permit," does not refer to the immediately preceding noun clause, "any business operating in the Federated States of Micronesia," but instead qualifies the very first clause in the sentence, "a noncitizen may not acquire an interest."  This reading is at odds with the general rule that modifiers are presumed to relate to clauses which they immediately follow or precede in a sentence.  R. Wydick, Plain English for Lawyers, 66 Calif. L. Rev. 727, 749 (1978) ("Modifying words tend to do their work on whatever you put them near.").

     The government's supposition that the dependent adverbial clause modifies something other than the clause preceding it is especially unlikely since the entire segment, "in any business operating in the Federated States of Micronesia without first obtaining a foreign investment permit," reads as one, unbroken by commas.

2.   Enforceability and Constitutionality
     A cardinal principle of statutory construction is that, where possible, courts should avoid interpretations of a statute which may bring into doubt the constitutionality of that statute.  In re Otokichy, 1 FSM Intrm. 183, 190 (App. 1982).

     The government's interpretation would create enormous enforceability problems and raise serious question about the constitutionality of the Act.  This is so in great part because the interpretation would greatly extend the geographical reach of the Act.  The Act's prohibitions against doing business without a permit relate only to operations within the FSM.  There is no similar limitation concerning acquisitions of interests.  Thus, if the permit requirement does apply to acquisitions, an FSM foreign-investment permit, apparently would be required for any noncitizen acquisition of any interest in a business operating in the FSM, regardless of where the transaction takes place.  This would be so even though few, if any, of those transfers would have any effect upon business operations in this nation.
 
     That in turn could draw the FSM into some rather ambitious enforcement activities.  Assume that a major corporation is granted a national foreign-investment permit and begins operating within the Federated States of Micronesia.  Under the government's section 203(2) interpretation, every non-FSM citizen throughout the world would be prohibited from buying shares of that corporation's stock until the particular noncitizen investor obtains an FSM foreign investment permit.  There is no reason to believe the national government has either constitutional authority or law enforcement capability

[3 FSM Intrm. 424]

to oversee, on a worldwide basis, every noncitizen acquisition of an interest in a business operating within the FSM.

     To avoid such implications, it might be possible to read "noncitizen" as meaning only noncitizens residing within the Federated States of Micronesia, or to interpret the Act as prohibiting only investments that actually take place within the Federated States of Micronesia.  However, this narrow interpretation of noncitizen is not supported by the section 202(4) definition.  Moreover, such an adjustment would itself give rise to constitutional problems of equal protection, by placing far greater investment restrictions on noncitizens who are present within the Federated States of Micronesia when they acquire their interests than upon noncitizen investors who are elsewhere when they consummate their purchases of interests in businesses operating here.

     Similarly, considerations of constitutional due process would require some showing as to why the Federated States of Micronesia would have any interest whatever in preventing noncitizens from buying shares within the FSM when shares in the same corporation may be acquired by noncitizens throughout the rest of the world.

     These enforcement and constitutional problems could be alleviated or eliminated by the alternative interpretation, construing the Act as regulating only the operation of noncitizen businesses within the Federated States of Micronesia.

3.     Internal Consistency
     The government's interpretation of section 203(2) would radically realign the focus of administrative activity under the statute, but in a way that is inconsistent with the general administrative scheme established by other provisions in the Act.

     Obviously, there will frequently be numerous investors for only one business. Moreover, since an existing investor would be acquiring an interest any time she increases her holdings in a particular business, some investors in a particular business would have to obtain several permits.  Thus, under the government's interpretation, the great majority of applications, and most governmental processing efforts, will relate to proposed acquisitions of business interests, rather than to proposals to engage in business activities within the Federated States of Micronesia.

     When considered against the background of the Act's general design, any such emphasis of administrative activity upon investors rather than upon businesses would be strange, even bizarre.  The Act's provisions pertain almost exclusively to businesses and their activities, not to noncitizen investors.

     For example, under 32 F.S.M.C. 205, the application "shall contain" information concerning the purpose, scope and objective of the business

[3 FSM Intrm. 425]

activities, the amount of ownership in the business to be held by noncitizens, and the extent to which the business would involve foreign or interstate commerce.  No information is called for about the individual investor, such as whether she has a criminal record, has ever gone through bankruptcy proceedings, or has holdings in other businesses within the Federated States of Micronesia.

     The pattern holds throughout the Act.  The first action required of administrators upon receipt of an application is to determine the interstate or international character of the business.  32 F.S.M.C. 206.  Administrators must consider: whether "the applicant" will engage in business in more than one State, section 206(1); the proportion of the applicant's business revenues which will be realized through exports from the FSM, section 206(2); and whether the applicant will import materials, or engage in international communications or in other international or interstate activities.   206(3) and (4).  The "applicant" plainly is expected to be engaged directly in business activities, not to be just an investor.

     Similarly, the standards to be employed by the board in determining whether to grant a particular foreign investment permit are suitable only for consideration of the business activity itself.  The board is instructed to consider the economic, social or environmental need for the business activity to be performed, 32 F.S.M.C. 210(1); the degree to which the business activities will effect change in exports or imports, 210(2); the environmental impact of the proposed business activities, 210(3); ownership participation in the business by FSM citizens, 210(4); business plans totrain and employ FSM citizens, 210(5) and (6); and the overall effect of thebusiness operation upon the economic well-being of the nation.  32 F.S.M.C. 210(7).  Nothing is said about the organization's need for funds, or the arrangements pertaining to the investment itself.

     It is apparent, then, that the "applicant" referred to in the Act is expected to be interested in doing business, not just investing money, and that the considerations to be employed in deciding whether to grant an application relate to business operations within the FSM, not to investments of funds.

     The same analysis applied to other parts of the Act yields the same result.  A noncitizen who has a foreign-investment permit is a "licensee".  32 F.S.M.C. 202(3). The Act's references to licensees confirms that they are expected to be continuing and active businesses, not merely one-time individual investors.  32 F.S.M.C. 219, 220, 222 to 226.

     In addition, the idea of modifying or revoking a permit, 32 F.S.M.C. 224-226, would have no likely application to a permit authorizing a noncitizen to make one specific acquisition of an identified business interest.  Once acquisition of the interest has occurred, the investor would apparently have no further need for the permit.  The Act does not say that revocation of the permit could affect the investor's ownership rights already established.

     Two other factors about the application process confirm that the

[3 FSM Intrm. 426]

Congress did not expect individual investors to be involved.  First, unless the investor is a major one indeed, he quite often could not obtain or provide the information called for concerning the business itself.  Secondly, by the time investors would apply, the administrators would already have obtained from the business itself the same information required of the investors.7  We should not lightly assume that the statute mandates an application procedure whereby a large number of applicants could be required to submit precisely the same information about precisely the same business to administrators who have already received that information from the business itself.  "It has been called a golden rule of statutory interpretation that unreasonableness of the result produced by one among alternative possible interpretations of a statute is reason for rejecting that interpretation in favor of another which would produce a reasonable result."  2A N. Singer, Sutherland Statutory Construction 45.12 (4th ed. 1984).

III
     For all of these reasons the Court concludes that the government's interpretation of 32 F.S.M.C. 203(2) must be rejected and that the alternative interpretation is correct.

     This in turn leads to the conclusion that the Foreign Investment Act regulates the operation of noncitizen businesses within the Federated States of Micronesia, not individual noncitizen investors.  The Court holds that 32 F.S.M.C. 203(2) and 204 have no application to acquisitions of interests in a business operating in the Federated States of Micronesia with a national foreign-investment permit. Section 203(2) prohibits noncitizens from investing in any business operating in the Federated States of Micronesia without a foreign-investment permit.8

[3 FSM Intrm. 427]

     The law firm of Ramp & Michelsen has not been operating in the Federated States of Micronesia without first obtaining a foreign-investment permit. Accordingly, Mr. Michelsen's acquisition of an interest in the firm is not a violation of section 203(2).

     There is no indication, and the government does not contend, that Mr. Michelsen in any way engages in business within the Federated States of Micronesia other than through the law firm of Ramp & Michelsen.  The foreign-investment permit issued to Ramp & Michelsen makes Mr. Michelsen a licensee under 32 F.S.M.C. 202(3), authorizing any business activities he conducts through that firm.

     Regardless of the existence or nonexistence of the firm's foreign-investment permit, Mr. Michelsen's professional activities as an attorney are individually subject to regulation, but by the judiciary, not by the administrators of the Foreign Investment Act.

     In light of the Court's ruling concerning the meaning of 32 F.S.M.C. 203(2), it is unnecessary to address the other arguments put forward by the plaintiff against the government's position.

Conclusion
     Mr. Michelsen's acquisition of an interest in the law firm of Ramp Michelsen does not require him to obtain a foreign investment permit.  A declaratory judgment to this effect will issue.  The Court declines to issue the injunction requested by the plaintiff on grounds that such an injunction will not be necessary.

*        *        *        *

Footnotes:

1. Subsequent to initiation of the litigation, three sections of the Act, 32 F.S.M.C. 206, 207 and 208, were repealed.  Pub. L. No. 5-21, 14 (5th Cong., 2d Reg. Sess. 1987).  This legislation, which abolished the Foreign Investment Board, also provides that former sections 209 through 232 are renumbered as sections 206 through 229, respectively.  Thus, the section cited above appears in the current edition of the Code as 32 F.S.M.C. 232.  The updated section numbers are used throughout this opinion.

2. "`Business' means any sole proprietorship, partnership, corporation or any other association engaged in commerce."  32 F.S.M.C. 202(1).

3. "`Noncitizen'" means:  "(b) ... any person who is not a citizen of the Federated States of Micronesia, and any business in which any interest is owned by a person who is not a citizen of the Federated States of Micronesia."  32 F.S.M.C. 202(4)(b).

4. The FSM Foreign Investment Act is traceable, and similar, to the previous Trust Territory Foreign Investment Act.  See 33 TTC 1 et seq. (1980).
 
     However, when constitutional government was initiated, one of the early actions by the new Congress was to enact foreign investment legislation for this nation. Pub. L. No. 1-137 (1st Cong., 4th Reg. Sess. 1980).  The committee report and the floor debate do not touch upon the meaning of the provision which is now 32 F.S.M.C. 203(2).  SCREP No. 1-301, J. of 1st Cong., 4th Reg. Sess. (1980) at 304; also see 167-69, 213-15.  On February 6, 1981, the High Commissioner suspended Public Law No.1-137 on the basis that the definition of "non-citizen" violated the Trust Territory bill of rights.

     The next Congress re-enacted essentially the same legislation, but with a modified definition of noncitizens.  Pub. L. No. 2-5 (2d Cong., 1st Reg. Sess. 1981). The second Congress relied principally upon the legislative history relating to former Public Law No. 1-137 and also did not discuss the meaning of 32 F.S.M.C. 203(2). SCREP No. 2-3, J. of 2d Cong., 1st Reg. Sess. (1981) at 174; also see 69-73, 101-06, 141-44.

5. On the other hand, there is symmetry in substance, if not form, in the alternative interpretation, which would have all three subsections of section 203 bent toward the same goal, preventing noncitizen businesses from operating without FSM foreign-investment permits.

6. "A noncitizen intending to engage in business in the Federated States of Micronesia, or intending to acquire an interest in a business in the Federated States of Micronesia, shall apply to the Secretary for a foreign-investment permit."  32 F.S.M.C. 204(1).

7. This presumes, of course, that no noncitizen investor could be granted a permit to acquire an interest in a business operating within the FSM without a permit.  The presumption is apt.  Any noncitizen ownership makes the business itself a noncitizens, 32 F.S.M.C. 202(4)(b), and prevents the businessfrom engaging in business activities here.  32 F.S.M.C. 232(1).  Thus, although the government apparently reads 32 F.S.M.C. 203(2) and 204 as allowing a noncitizen to apply for a permit to acquire an interest in a business operating here, this would be a futile act if the business itself has no permit.  This is yet another strong indication that the government's interpretation is unsound, and that section 203(2) is intended simply as a flat prohibition against noncitizen acquisition of any interest in a business operating in the FSM without a foreign-investment permit.

8. A noncitizen desiring to acquire an interest in a wholly FSM-owned business operating without a foreign-investment permit may apply under 32 F.S.M.C. 204. This application is not for permission to acquire an interest in the business but so that the investor may obtain a ruling in advance of the proposed acquisition on whether the business activity could be continued within the Federated States of Micronesia as a noncitizen business.