FSM SUPREME COURT
TRIAL DIVISION
Cite as Dorval Tankship Pty, Ltd. v. Department of Finance,
8 FSM Intrm. 111 (Chk. 1997)
DORVAL TANKSHIP, PTY, LTD. and DORVAL
KAIUN K.K.,
Plaintiffs,
vs.
DEPARTMENT OF FINANCE of the FEDERATED STATES)
OF MICRONESIA and JOHN EHSA, SECRETARY OF
FINANCE, FEDERATED STATES OF MICRONESIA,
Defendants.
CIVIL ACTION NO. 1996-1065
ORDER
Richard H. Benson
Associate Justice
Decided: July 1, 1997
APPEARANCES: For the
Plaintiffs: John Hollinrake, Esq.
Law Offices of R. Barrie Michelsen
P.O. Box 1450
Kolonia, Pohnpei FM 96941
For the Defendants: Angela Belgrove, Esq.
Office of the FSM Attorney General
P.O. Box PS-105
Palikir, Pohnpei FM 96941
* * * *
HEADNOTES
Civil Procedure ) Venue
When an alleged tax liability arose in a state and the government attempted to collect the tax in that state, venue is proper in that state under 6 F.S.M.C. 301(2), which allows an action, other than contract, to be brought where the cause of action arose. Dorval Tankship Pty, Ltd. v. Department of Finance, 8 FSM Intrm. 111, 114 (Chk. 1997).
Civil Procedure ) Venue
6 F.S.M.C. 304(3) allows part or all of a case to be heard in a state other than the one in which it was brought "if the interests of justice were served thereby." Dorval Tankship Pty, Ltd. v. Department of Finance, 8 FSM Intrm. 111, 114 (Chk. 1997).
Civil Procedure ) Dismissal
A court evaluates a motion to dismiss for failure to state a claim only on whether a plaintiff's case has been adequately stated in the complaint, and does not resolve the facts or merits of the case. A court deciding such a motion must assume that the facts alleged in the complaint are true and view them in a light most favorable to the plaintiff, and then dismiss the complaint only if it appears certain that no relief could be granted under any facts which could be proven in support of the complaint. Dorval Tankship Pty, Ltd. v. Department of Finance, 8 FSM Intrm. 111, 114 (Chk. 1997).
Administrative Law ) Judicial Review
It is not necessary to exhaust one's administrative remedies before filing suit when to do so would be futile. Dorval Tankship Pty, Ltd. v. Department of Finance, 8 FSM Intrm. 111, 115 (Chk. 1997).
Administrative Law ) Judicial Review; Civil Procedure ) Declaratory Relief; Taxation ) Constitutionality
A litigant may seek a declaratory judgment without first exhausting its administrative remedies where the jurisdiction of the taxing authorities is challenged on the ground that the statute is unconstitutional or that the statute by its own terms does not apply in a given case. Dorval Tankship Pty, Ltd. v. Department of Finance, 8 FSM Intrm. 111, 115 (Chk. 1997).
Civil Procedure ) Declaratory Relief; Constitutional Law ) Case or Dispute ) Ripeness
When the government is attempting to enforce against the plaintiffs tax statutes which the plaintiffs believe, by the statutes' own terms, do not properly apply to them, and the plaintiffs have been warned that they are potentially subject to criminal and civil penalties if they do not comply, it is a case or dispute sufficiently ripe for the plaintiffs to seek a declaratory judgment. Dorval Tankship Pty, Ltd. v. Department of Finance, 8 FSM Intrm. 111, 115 (Chk. 1997).
Sovereign Immunity
The government has no sovereign immunity from suits seeking to prevent the improper administration of FSM statutes and regulations. Dorval Tankship Pty, Ltd. v. Department of Finance, 8 FSM Intrm. 111, 115 (Chk. 1997).
Civil Procedure ) Declaratory Relief
The test whether the court has jurisdiction to hear a declaratory judgment against the national government is whether there is a case or dispute within the meaning of article XI, section 6(b). Dorval Tankship Pty, Ltd. v. Department of Finance, 8 FSM Intrm. 111, 115 (Chk. 1997).
Constitutional Law ) Case or Dispute ) Standing
While it is generally true that parties may not assert the rights of third parties or non-parties, where the plaintiff ship charterers would be subject to the obligations and liabilities of an employer, such as withholding taxes, and that failure to perform those obligations would expose the plaintiffs to civil and criminal penalties if the crew is subject to FSM wage and salary taxes, the plaintiffs are attempting to assert only their own rights and have standing. Dorval Tankship Pty, Ltd. v. Department of Finance, 8 FSM Intrm. 111, 115 (Chk. 1997).
Civil Procedure ) Service
Failure to effect service of the summons and complaint on the FSM Attorney General, as required by FSM Civil Rule 4(d)(4) and (5), as well as the national government agency and officer that are the defendants makes the case subject to dismissal under Rule 12(b)(5). Dorval Tankship Pty, Ltd. v. Department of Finance, 8 FSM Intrm. 111, 115 (Chk. 1997).
Civil Procedure ) Dismissal; Civil Procedure ) Service
Because dismissal under Rule 12(b)(5), unlike most Rule 12(b) dismissals, is without prejudice and with leave to renew, courts will often quash service instead of dismissing the action. That way only the service need be repeated. Dorval Tankship Pty, Ltd. v. Department of Finance, 8 FSM Intrm. 111, 115 (Chk. 1997).
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COURT'S OPINION
RICHARD H. BENSON, Associate Justice:
The plaintiffs filed their Complaint for Declaratory and Injunctive Relief on November 14, 1996. The Complaint and Summons were served on the two named defendants on November 25, 1996. They were not served on the office of the FSM Attorney General. On January 12, 1997, the FSM Attorney General, acting for the defendants, filed a Motion to Dismiss Complaint. A Motion to Dismiss for Improper Venue/Change of Venue was filed on January 13, 1997. Both motions had been served on the plaintiffs on December 23, 1996. The plaintiffs' opposition was served on January 17, 1997, and filed January 20, 1997. The defendants served and filed their reply on February 6, and 18, 1997, respectively. The defendants' motions to dismiss are denied. My reasons follow.
Background
The plaintiffs are time charterers of an ocean-going petroleum tanker, M.T. Golden Craig, that delivers petroleum products to Mobil Oil Micronesia, Inc.'s bulk plant in Chuuk and other FSM states. Dorval Kaiun K.K. also manages the vessel. Their complaint alleges that the defendants are attempting to assess and levy FSM gross revenue taxes upon them, and wage and salary taxes upon the vessel's crew. The Assistant Commissioner of Revenue for Chuuk sent letters and documents informing the defendants of their alleged liability for gross revenue and wage and salary taxes for the years 1979-95 and the penalties for failure to comply. The assistant commissioners of revenue in the other states sent similar letters.
Venue
The defendants contend that under 6 F.S.M.C. 301(1) (venue to be where defendant or largest number of defendants live or have usual place of business or employment) this action should have been brought on Pohnpei. The attorney general also states that a Pohnpei venue would be more convenient for all parties' attorneys because the attorneys' offices are all on Pohnpei.
Venue in Chuuk, however, is proper under 6 F.S.M.C. 301(2), which allows an action, other than contract, to be brought where the cause of action arose. In this case the cause of action arose in Chuuk because the alleged tax liability arose in Chuuk (and apparently in each of the other states as well). The Chuuk Assistant Commissioner of Revenue attempted to collect taxes from the plaintiffs for activity that took place in Chuuk. The plaintiffs therefore can bring suit in Chuuk. This is in harmony with 6 F.S.M.C. 301(3), which would allow the government to, if it so choose, bring suit in Chuuk against the plaintiffs to collect the taxes they alleged are owed. Venue for a suit concerning taxation is usually proper in the state in which the alleged tax liability arose. The motion to dismiss for improper venue is therefore denied. As to the attorneys' convenience argument, I note that 6 F.S.M.C. 304(3) would allow part or all of a case to be heard in a state other than the one in which it was brought "if the interests of justice were served thereby."
Dismissal of Complaint
The defendants also brought a motion to dismiss the complaint on the grounds that it fails to state a claim for which relief can be granted and that the court lacks subject matter jurisdiction. They contend that the plaintiffs' action is barred because the FSM has not waived its sovereign immunity for declaratory judgments, that the case is not ripe for adjudication as required by the Constitution because the plaintiffs have not exhausted their administrative remedies under Title 17, that the plaintiffs have failed to state a claim for injunctive relief because they have an adequate remedy at law and no irreparable injury is threatened, and that the plaintiffs lack standing to assert the rights to a declaratory action on behalf of the crew because they are not parties to the action. The defendants also give as a ground that the plaintiffs failed to comply with the rules regarding proper service.1
A court evaluates a motion to dismiss for failure to state a claim only on whether a plaintiff's case has been adequately stated in the complaint, and does not resolve the facts or merits of the case. A court deciding such a motion must assume that the facts alleged in the complaint are true and view them in a light most favorable to the plaintiff, and then dismiss the complaint only if it appears certain that no relief could be granted under any facts which could be proven in support of the complaint. Latte Motors, Inc. v. Hainrick, 7 FSM Intrm. 190, 192 (Pon. 1995).
The plaintiffs contend that this case is properly brought under the government's waiver of sovereign immunity found in 6 F.S.M.C. 702(2) which allows "[c]laims for damages, injunctions, or mandamus arising out of alleged improper administration of [FSM] statutory laws . . . ." The plaintiffs' allegations, which I must accept as true for the purpose of this motion, are that the government is improperly administering FSM statutes by attempting to apply the gross revenue and wage and salary tax laws to them. The plaintiffs contend that the statute authorizing declaratory judgments, 6 F.S.M.C. 1501, along with 6 F.S.M.C. 702(2) permit this action.
There is precedent for that view in this jurisdiction. In Michelsen v. FSM, 3 FSM Intrm. 416 (Pon. 1988) the plaintiff sought a declaratory judgment that he was not required to obtain a national foreign investment permit under the FSM Foreign Investment Act and an injunction to prevent national government officials from requiring him to get one. He had been specifically warned by officials that he had to get one, and that failure to do so exposed him to criminal penalties. Id. at 418-19. There was thus a case sufficiently ripe for a declaratory judgment. Id. at 418 (citing Ponape Chamber of Commerce v. Nett, 1 FSM Intrm. 389, 398-402 (Pon. 1984)).
The issue the plaintiffs want resolved is whether they are subject to the FSM gross revenue and wage and salary taxes. The defendants have already concluded that they are. It is not necessary to exhaust one's administrative remedies before filing suit when to do so would be futile. Chuuk v. Secretary of Finance, 7 FSM Intrm. 563, 566 n.4 (Pon. 1996). Furthermore, I think it proper that a litigant may seek a declaratory judgment without first exhausting its administrative remedies "where the jurisdiction of the taxing authorities is challenged on the ground that the statute is unconstitutional or that the statute by its own terms does not apply in a given case." Richfield Oil Corp. v. City of Syracuse, 39 N.E.2d 219, 221 (N.Y. 1942).
The posture in this case is similar
to the Michelsen case. The government is attempting to enforce
against the plaintiffs tax statutes which the plaintiffs believe, by the
statutes' own terms, do not properly apply to them. They have been
warned that they are potentially subject to criminal and civil penalties
if they do not comply. I therefore conclude that the government has
no sovereign immunity from suits seeking to prevent the improper
administration of FSM statutes and regulations, and that this is a case or
dispute sufficiently ripe for the plaintiffs to seek a declaratory
judgment. The test whether the court has jurisdiction to hear a
declaratory judgment against the national government is whether there is a
case or dispute within the meaning of article XI, section 6(b).
Ponape Chamber of Commerce, 1 FSM Intrm. at 400. The foregoing
shows that that test has been met.
The defendants contend that the plaintiffs have failed to state a claim for injunctive relief because they have an adequate remedy at law ) the administrative process for assessing the amount of tax due and for levying on that assessment ) and they have not shown irreparable injury. But I must take the facts alleged in the complaint as true and not determine the case on its merits. When viewed in that light, the plaintiffs have shown facts that their remedy is inadequate and that they would be irreparably harmed.
The defendants also contend that they are entitled to dismissal of certain claims because the complaint attempts to assert the rights of persons, the vessel's crew, who are not parties. While it may generally be true that parties may not assert the rights of third parties or non-parties, taking the allegations in the complaint as true, the plaintiffs are attempting to assert only their own rights. They allege that if the crew is subject to FSM wage and salary taxes, the plaintiffs would be subject to the obligations and liabilities of an employer, such as withholding taxes, and that failure to perform those obligations would expose the plaintiffs to civil and criminal penalties. Dismissal of the claims relating to the crew's wage and salary tax liability is therefore denied.
Finally, the defendants offer as a further, but not as a separate or independent, ground for dismissal the plaintiffs' failure to effect service of the summons and complaint on the FSM Attorney General, as required by FSM Civil Rule 4(d)(4) and (5), as well as the national government agency and officer that are the defendants. Failure to satisfy this service requirement makes the case subject to dismissal under Rule 12(b)(5). Because such a dismissal, unlike most Rule 12(b) dismissals, is without prejudice and with leave to renew, courts will often quash service instead of dismissing the action. That way only the service need be repeated. 5A Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 1354 (1990). Because of this and because the defendants did not raise it
as a separate and independent ground for dismissal, this action will not be dismissed on this ground if the plaintiffs effect service of the complaint and summons upon the FSM Attorney General and re-serve each of the defendants within ten days of the entry of this order.
Conclusion
For the foregoing reasons defendants'
motions to dismiss are denied. The plaintiffs are directed to
re-serve the complaint and summons on the two named defendants and to
effect service of the complaint and summons on the FSM Attorney General
within ten days of entry of this order. The defendants shall file
their answer within ten days of the plaintiffs' service. FSM Civ. R.
12(a).
Footnote:
1.
The defendants also contend that the plaintiffs' opposition to their
motions should be stricken as untimely and therefore deemed a consent to
the defendants' motions. FSM Civ. R. 6(d). Even when failure
to file an opposition is deemed a consent to a motion, I must still have
proper grounds for granting the motion before I may do so. Senda v.
Mid-Pacific Constr. Co., 6 FSM Intrm. 440, 442 (App. 1994).
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