Cite as FSM Dev. Bank v. Arthur,13 FSM Intrm. 1(Pon. 2004)

[13 FSM Intrm. 473]

CIVIL ACTION NO. 2005-011

Decided: October 18, 2005

APPEARANCES:

[13 FSM Intrm. 474]

HEADNOTES

Business Organizations – Corporations – Shareholders

Under the Pohnpei Business Corporation Act of 1994, courts in a shareholder's action when it is established that the acts of the directors or those in control are illegal, oppressive, or fraudulent; or when the corporate assets are being misapplied or wasted, have the power to issue an injunction, appoint a receiver, or receiver pendente lite, to preserve the corporate assets and carry on the corporation's business until a full hearing can be had. The appointed receiver may then, under the court's supervision, liquidate the corporation's assets and dissolve the corporation. McVey v. Etscheit, 13 FSM Intrm. 473, 475 (Pon. 2005).

Business Organizations – Corporations

Since the Pohnpei Legislature probably never intended that the Pohnpei Business Corporation Act's involuntary liquidation and dissolution provisions were to be used by a competitor to eliminate its competition, the court must tread warily in such a case. McVey v. Etscheit, 13 FSM Intrm. 473, 476 (Pon. 2005).

Business Organizations – Corporations

The Pohnpei Business Corporation Act of 1994 provides an avenue of relief for a dissenting minority shareholder in certain situations whereby the dissenting shareholders can demand that the corporation pay them the fair value of their shares, and that they shall then cease to have any interest in the corporation. McVey v. Etscheit, 13 FSM Intrm. 473, 476 (Pon. 2005).

Jurisdiction

Determination of whether the FSM Supreme Court has subject matter jurisdiction over a case is based on the plaintiff's statement of his cause of action, not on whatever defenses that are or that might be raised. McVey v. Etscheit, 13 FSM Intrm. 473, 476 (Pon. 2005).

Jurisdiction – Diversity

If in the complaint, a plaintiff asserts a contractual cause of action over which the FSM Supreme Court may exercise diversity jurisdiction, whether the defendants might ultimately prevail on one or more of their defenses does not deprive the FSM Supreme Court of subject matter jurisdiction. McVey v. Etscheit, 13 FSM Intrm. 473, 476 (Pon. 2005).

Civil Procedure – Dismissal; Federalism – Abstention and Certification

Motions to abstain cannot be brought before the defendants have pled by filing an answer. The only motions to dismiss that a defendant may file before answering the complaint are those based on 1) lack of subject matter jurisdiction, 2) lack of personal jurisdiction, 3) improper venue, 4) insufficiency of process, 5) insufficiency of service of process, 6) failure to state a claim upon which relief can be granted, or 7) failure to join a party under Rule 19. McVey v. Etscheit, 13 FSM Intrm. 473, 476-77 (Pon. 2005).

Civil Procedure – Dismissal

Defendants are allowed to file only one Rule 12(b) motion to dismiss and any ground not included

[13 FSM Intrm. 475]

in that one motion (with certain exceptions) is waived. McVey v. Etscheit, 13 FSM Intrm. 473, 477 (Pon. 2005).

COURT'S OPINION

ANDON L. AMARAICH, Chief Justice:

This comes before the court on

(1) the plaintiffs' Motion to Immediately Appoint a Receiver Pendente Lite; Motion to Appoint a Liquidating Receiver, filed June 22, 2005; Defendants' Opposition to Plaintiffs' Motion to Immediately Appoint a Receiver Pendente Lite or Preliminary Injunction, filed June 27, 2005; Request for a Hearing; Reply to Opposition to Motion to Appoint Receiver, filed July 15, 2005; Defendants' Second Opposition to Plaintiffs' Motion to Immediately Appoint a Receiver filed June 22, 2005, filed July 25, 2005; and Defendants' Opposition to Plaintiffs' July 15, 2005 Request for a Hearing; Response to Reply to Opposition to Appoint a Receiver, filed August 8, 2005 by defendants;

(2) Defendants' First Motion to Dismiss, filed June 22, 2005; Opposition to Defendants' First Motion to Dismiss, filed July 4, 2005; and Defendants' Reply Memorandum to Opposition to Defendants' First Motion to Dismiss, filed July 29, 2005; and

(3) Defendants' Second Motion to Dismiss, filed June 22, 2005; Opposition to Defendants' Second Motion to Dismiss, filed July 4, 2005; and Defendants' Reply to Opposition to Defendants' Second Motion to Dismiss, filed July 29, 2005.

The second and third motions listed above are denied. Ruling on the first motion is deferred and the request for a hearing is granted. The court's reasons follow.

I. MOTION TO APPOINT RECEIVER

Plaintiff Erine McVey asks the court to appoint a Receiver for Pohnpei True Value, Inc. to liquidate the business because she is a minority shareholder of that corporation and she alleges that the majority shareholder, defendant Agnes Etscheit, and the corporation have committed various illegal or fraudulent acts and acts of self-dealing that impair and lessen the corporation's value and thus the value of Erine McVey's interest in it. Erine McVey thus seeks the immediate appointment of a Receiver who will liquidate the Pohnpei True Value Inc.'s business and pay her the value of her share.

Under the Pohnpei Business Corporation Act of 1994 courts "in an action by a shareholder when it is established" that "the acts of the directors or those in control are illegal, oppressive, or fraudulent;" or when "the corporate assets are being misapplied or wasted," Pon. S.L. No. 3L-92-95, §§ 96(1)(a)(ii) and (iv),¹ have the power to issue an injunction, appoint a receiver, or receiver pendente lite, "to preserve the corporate assets . . . and carry on the business of the corporation until a full hearing can be had," id. § 97(1). The appointed receiver may then, under the court's supervision, liquidate the corporation's assets and dissolve the corporation. Id. §§ 96-104.

[13 FSM Intrm. 476]

Erine McVey is the owner, or part-owner, of a business, Do it Best Hardware, which is in direct competition with Pohnpei True Value, Inc. Liquidating Pohnpei True Value Inc.'s assets and dissolving it would put the movants' business competition out of business.

Since the Pohnpei Legislature probably never intended that the Pohnpei Business Corporation Act's involuntary liquidation and dissolution provisions were to be used by a competitor to eliminate its competition, the court must tread warily here. The Pohnpei Business Corporation Act of 1994 does provide an alternative avenue of relief for a dissenting minority shareholder in certain situations. It provides a method whereby dissenting shareholders can demand that the corporation pay them the "fair value" of their shares, and that they shall then cease to have any interest in the corporation. Pon. S.L. No. 3L-92-95, §§ 79, 80. The court is unsure whether any of the situations listed in Section 79(1) could be applicable to this case. Accordingly, the request for a hearing on the receivership motion is granted and the hearing is hereby set for December 20, 2005, at 2:00 p.m.

II. DEFENDANTS' FIRST MOTION TO DISMISS

The defendants move to dismiss this action under Rule 12(b)(1) and (6) on the ground that the FSM Supreme Court lacks subject matter jurisdiction. They assert that no diversity jurisdiction exists and that only issues of state law are involved. The defendants assert that no diversity jurisdiction exists even though plaintiff Tim McVey is an American citizen and all of the other parties are Pohnpeian citizens. The basis for this assertion is the defendants' assertion that Tim McVey does not have a cause of action that would survive the various defenses to it that they raise in their motion to dismiss.

Determination of whether the FSM Supreme Court has subject matter jurisdiction over a case is based on the plaintiff's statement of his cause of action, not on whatever defenses that are or that might be raised. Enlet v. Bruton, 10 FSM Intrm. 36, 40 (Chk. 2001); David v. San Nicolas, 8 FSM Intrm. 597, 598 (Pon. 1998). In the complaint, Tim McVey asserts a contractual cause of action over which the FSM Supreme Court may exercise diversity jurisdiction. Whether the defendants might ultimately prevail on one or more of their defenses does not deprive the FSM Supreme Court of subject matter jurisdiction. The Defendants' First Motion to Dismiss is therefore denied. The defendants may raise their defenses in their answer.

III. DEFENDANTS' SECOND MOTION TO DISMISS

The defendants' second motion to dismiss brought under Rule 12(b)(1) and (6) asks the court not to retain jurisdiction over the case because Erine McVey's causes of action are state law claims better heard in the state court and because Tim McVey has waived or should be estopped from raising his claims.

As noted above, whether the defendants would prevail on their defenses to Tim McVey's cause of action is not a ground to dismiss a claim for lack of subject matter jurisdiction.

The second motion to dismiss is essentially a motion to abstain from the case and let the state court handle the matter. It is denied as premature. Motions to abstain cannot be brought before the defendants have pled by filing an answer. Island Dev. Co. v. Yap, 9 FSM Intrm. 279, 283-84 (Yap 1999) (abstention is not a defense to a lawsuit in the sense used in Rule 12(b); an abstention motion before the FSM Supreme Court should proceed as a post-answer motion, and not a motion in lieu of answer under Civil Procedure Rule 12(b)). The only motions to dismiss that a defendant may file before answering the complaint are those based on "(1) lack of jurisdiction over the subject matter, (2) lack of jurisdiction over the person, (3) improper venue, (4) insufficiency of process, (5) insufficiency of service of process, (6) failure to state a claim upon which relief can be granted, [or] (7) failure to join

[13 FSM Intrm. 477]

a party under Rule 19." FSM Civ. R. 12(b). Abstention is not one of those included.

Furthermore, if abstention were a possible Rule 12(b) motion to dismiss, it would have to be considered waived. Defendants are allowed to file only one Rule 12(b) motion to dismiss, FSM Civ. R. 12(g), and any ground not included in that one motion (with certain exceptions not relevant here) is waived, FSM Civ. R. 12(h). Thus if abstention were a possible Rule 12(b)(6) motion it had to have been raised in the first motion to dismiss and not as a separate motion.

A motion to abstain from all or part of the case may still be brought at some later, more appropriate time (sometime after an answer has been filed), but must be denied at this time. Island Dev. Co., 9 FSM Intrm. at 283. Accordingly, the Defendants' Second Motion to Dismiss is denied.

IV. CONCLUSION

The defendants' motions to dismiss are denied. The plaintiffs' request for a hearing on its motion to appoint a receiver is granted.

¹ Subsections (i) and (iii) involve deadlocks among the board members or shareholders and do not apply to these allegations where the plaintiffs are minority shareholders or board members and are consistently outvoted by the other board members or shareholders.