"FSM government sues company to cancel contract"

July 10, 2008

By Bill Jaynes
Kaselehlie Press

POHNPEI, Federated States of Micronesia (Kaselehlie Press, July 10, 2008) - Oceania says it will wait to see how their smaller projects go before it invests US$80 million for a tuna cannery in Pohnpei

It has been nearly a year since Oceania, LLC, a corporation based in the United States, announced plans to construct a cannery in Pohnpei that according to their projections would employ approximately 2,000 people.

According to Dr. James Yaingeluo, the President of the corporation’s FSM affiliate, Oceania, Inc., those plans are still intact.

Fredrick Ramp, attorney for Oceania, characterized the progress of the corporation’s plans for the cannery. He said that his clients told him during a recent conference call that most of the investment capital required for the project has been raised and that project plans are nearing completion.

During a press conference held on May 23rd of this year, Pohnpei’s Governor Ehsa announced that one of the results of his recent trip to China was that China had agreed to provide a grant to build a fish processing facility (a cannery) in Pohnpei. He said the cannery might employ as many as 700 people.

When asked about the status of Oceania’s plans to open a cannery in Pohnpei he said that he thought that Oceania’s interests had waned.

Though he mentioned Oceania’s plans for a crab farm in Pohnpei, Governor Ehsa did not mention that Oceania had signed a contract with Pohnpei’s Economic Development Authority to manage all of Economic Development Authority’s (EDA) port functions including management of the cold storage facility. The draft contract was signed in June of last year.

This year, on June 20, the Attorney General’s Office of Pohnpei State filed a complaint against Oceania, Inc. at the Pohnpei Supreme Court. The complaint asked the Court to declare the contract to be invalid. The civil action has since been removed to the FSM Supreme Court.

The state additionally filed a motion for a temporary restraining order (TRO) and preliminary injunction on the management agreement between Oceania and EDA. That motion was heard in Palikir, Pohnpei on July 4. Chief Justice Andon Amaraich heard the arguments.

Bob Rosen, of Oceania LLS, said in a strongly worded email to The Kaselehlie Press that the company was waiting to see how their smaller projects turn out before they invest $80 million dollars in a cannery. He wrote, "Every single agreement we have ever signed has been violated by some division of their (Pohnpei’s) local government at one time or another."

Ramp said in his oral argument before the court that Oceania did not seek out an agreement with EDA. EDA asked Oceania to submit a proposal through its Former Executive Director, Yosuo M. Phillip. Luen Thai also submitted a proposal.

Oceania asserts that the proposal was accepted by the board.

Affidavits submitted by Dr. Yaingeluo of Oceania and Youser Anson a former board member of EDA said, "At that time EDA had no funds, was unable to meet its payroll obligations and was laying off employees. EDA needed an infusion of money and assistance with its operations."

The audit released by Pohnpei State’s Office of the Public Auditor covering the fiscal year ending September 30, 2007 seems to support those assertions.

The contract EDA and Oceania signed said that the shared partnership was designed to meet three objectives:

1) "To train and employ citizens of FSM in all phases of Economic Development including Management and Operations;"

2) "to manage all of the natural resources in any Economic Development (including the Oceans and waters in and up to all legal range of Pohnpei) so that they may continue to provide sustainable harvests for future years;"

3) "and so that a revenue sharing agreement be set up maintained, and substantiated by generally accepted accounting principals and standards Subject to Owner’s (EDA’s) direction and control, and based on Operator’s (Oceania, LLC) prior expertise, Operator will provide direct management, supervision, policies, and revenue collections, for all phases of EDA operations contained at the Port of Pohnpei."

The contract said, "Owner further engages Operator to seek out, invest, develop, discuss, and take on any and all new or additional economic opportunities that can be obtained that will conform and comply with the above Recitals. Operator will act through the Owner and or the appropriate agency of the Government of the State of Pohnpei to bring about further and additional economic opportunities; including but not limited to commercial ventures, non-profit educational and community building ventures, health and welfare ventures, and utilities and transportation ventures…"

Dr. Yaingeluo said that Former Governor Johnny P. David, signed a Memorandum of Agreement with Oceania, LLC well over a year ago to develop their plans for a cannery in Pohnpei. He said that the Governor was enthusiastically supportive of those plans. Dr. Yaingeluo said that the former Governor was not so supportive of the management agreement for EDA. He issued an Executive Directive removing the port functions of EDA and assigning them to the Department of Economic Affairs.

Dr. Yaingeluo said that the Pohnpei State Legislature took exception to the Executive Directive and asked the Governor to rescind it. He never did and the directive stood until Governor John Ehsa took office.

In October of 2007, Bob Rosen of Oceania LLC told us during an interview that Governor David’s directive, in his view was a tortious interference with their contract with EDA. He said that he hoped that they could iron out their differences so that Oceania would not have to sue the state but he did not rule out that possibility.

Apparently they were able to come to some type of an agreement. On November 16, 2007 a public announcement was issued by EDA announcing that the Authority had entered into a contract with Oceania, Inc. to manage and operate on behalf of EDA the transshipment plant facility, Ship Agency (provisioning services), Bunkering services, and transshipment privilege fee collection.

Even after that announcement, because of the Executive Directive, Oceania was limited to providing (bunkering) drinking water to ships. Oceania, Inc. still was required to meet the expenses of salary, taxes, and other overhead expenses of EDA that they had agreed to pay under their contract.

Governor Ehsa when he took office gave back to EDA the responsibility of handling the port duties that had been stripped from the authority by the previous Governor.

Before that time the Department of Economic Affairs signed a lease with Luen Thai granting them space in the Cold Storage plant.

That lease expired in June and EDA signed a new lease for the facility with Oceania, Inc. On June 10, EDA Acting Director Hernet Ringlen, EDA Board Chairman Albert Augustine, and Dr. James Yaingeluo signed a letter addressed to Luen Thai. The letter informed Luen Thai that they should pay Oceania, Inc. and that the company should not make payment to any other party "either Government or private".

The letter informed Luen Thai that if they did not make the payment by June 14, EDA would shut down the three freezers that Luen Thai leased. The shut down would occur on June 16. Luen Thai did not pay and Oceania, the manager by contract, changed the locks on the freezers locking Luen Thai out.

An affidavit sworn out by Acting EDA Manager Hernet Ringlen and attached to the state’s complaint says that "Demand has been made to Oceania, Inc. and to Oceania, LLC and their agents to reopen the (cold storage) plant. But the ice plant has been kept closed up to this date." The affidavit was signed by Ringlen on the 20th of June, 10 days after his signature appeared on the letter that informed Luen Thai that a lockout would occur if payment was not made.

On June 24 Luen Thai paid Oceania $80,000 for their lease. Ramp said that within a few minutes of Oceania’s receipt of the payment the freezers were unlocked. He said that since that time there have been no further problems. In the hearing on the 4th of July Ramp said the issue no longer exists and is no longer a cause for action by the court. The money paid to Oceania was placed in a trust fund awaiting a court ruling on the disposition of that money.

The state’s case said that the management agreement between EDA and Oceania was invalid because it had never been approved. He provided an affidavit from Acting EDA Manager Hernet Ringlen that said that he could find no records in EDA files that the Board had ever approved the agreement.

Ramp provided two affidavits that listed the people that were at the meeting of the board when the agreement was first approved. He said that Ringlen’s affidavit didn’t say that EDA didn’t approve the agreement but that he couldn’t find the piece of paper that said so.

Ramp said that the fact that the signatures of then EDA Manager Yosuo Phillip and the Chairman of the EDA Board Albert Augustine was the first proof that the agreement had been approved. He said that the Attorney General’s office had the agreement under review for two months after which time the EDA board met again and approved it again.

Assistant Attorney General L.M. Bacalando said that the AG’s office never recommended the agreement.

Ramp said that the announcement of November 16 was further proof that the EDA board had approved the agreement.

The AG’s case said that at the time the agreement was signed, Oceania, LLC did not have a Foreign Investment Permit as they were required to do and that their violation of that law invalidates the agreement.

Ramp called that argument a "red herring". He said adamantly, "Oceania, LLC does not do business in the FSM." He said that after the agreement was signed, Oceania, LLC formed a new corporation in the FSM named Oceania, Inc. that has a Foreign Investment Permit (FIP). Despite the state’s claims to the contrary, he said that the types of businesses that they can operate according to that permit are broad enough in scope to cover their management agreement with EDA and that the agreement itself allows for the assignment of the contract to Oceania, Inc.

The state alleged in its complaint that the agreement is "Usurpation of Government Power; Illegal Exercise by Private Persons of Governmental Regulatory Powers." It says that the agreement assigns governmental functions to Oceania, Inc to manage. "This wholesale relinquishment of governmental authority to Oceania is irreconcilably at war with State laws…"

Oceania did not respond to that allegation in the hearing on the 4th of July and has not yet filed a response to the amended complaint filed by the state.

The state says that EDA is required by law to deposit any money that it receives into a development fund and that the agreement with Oceania is a misuse of public funds.

Oceania says that there is no violation of the law. The money is not received by EDA but by Oceania. The money that Oceania receives is split with EDA. EDA then puts the money in the proper place under the law.

The letter that was sent to Luen Thai informing them of the new payment procedure for the freezers at the Cold Storage Plant had three signatures, two from EDA and one from Oceania. The letter head contained Oceania’s Logo, the EDA logo and the Pohnpei State Seal. The fourth cause of action filed by the state charges that the inclusion of the State Seal was illegal.

Bacalando did not mention that allegation at the hearing on the 4th. Ramp said that EDA regularly uses the State Seal and that its inclusion on the letter head was not improper.

The state filing says that when Oceania locked Luen Thai out of the cold storage facility it was tortious interference of contract. The state says that it has a contract with Luen Thai that they could not fulfill during the period of time that Luen Thai was locked out of the cold storage facility.

Ramp said that the lockout was a business means of compelling Luen Thai to pay their rent and that once they did Oceania immediately removed the locks.

The state essentially said in its complaint that because the contract executed with Oceania was invalid when they destroyed and replaced the padlocks at the cold storage facility it was an act of trespassing and destruction of public property. Bacalando said that they have a video of the locks being destroyed.

During the hearing on the 4th of July, Ramp said that the subject at hand was three padlocks that were removed either with a key or by cutting them so that Oceania could exercise their right as managers of the plant.

The complaint says that since the agreement with Oceania grants the company exclusive control of ship bunkering and provisioning it is an antitrust arrangement that restricts trade or commerce. The eighth cause of action in their complaint is entitled "Antitrust, Illegal Combination; Unfair Business Practices."

Oceania did not respond to that allegation in the hearing.

Oceania argued both in their written response to the state’s request for a Temporary Restraining Order and through Ramp’s oral arguments on the 4th that the Governor does not have standing to file the complaint.

He pointed out that EDA is a separate entity not under the Governor’s control. He said that they have the power to sue and be sued and to enter agreements in their own name. He said that EDA is not arguing that the management agreement is invalid and that the Governor doesn’t have the standing to act on their behalf.

The state argued that the contract is overbroad and delegates powers such as coordination of law enforcement responses in the port that they obviously cannot perform.

Ramp said that the contract did not appear to have been written by a lawyer and that there are flaws in it. He said that just like many other contracts, the agreement specifically says that if any provision of the agreement is ruled to be invalid all of the other terms of the agreement would still be in force.

Further, he said that he had called the AG’s office several times during the past year so that they could talk about and negotiate terms of the contract that the AG might feel were overbroad. He said that they never contacted him to point to any specific provisions during the year.

The ninth and final cause of action is for "Declaratory Judgment; Injunctive Relief". The state has asked the court to declare the management agreement to be void. It is also asking that the court "enjoin" (order the parties to stop) the defendants from performing acts to implement any provision of the management agreement."

The two sides had differing views on what the result would be if Judge Amaraich ruled to issue a temporary restraining order enjoining Oceania to stop providing management service for EDA.

Bacalando said that things would simply go back to normal with EDA directly managing transshipment again.

Ramp said that enjoining Oceania from providing services would essentially close down transshipment services because the agreement and the lease would still be in force. He argued that under such an order Oceania would not be able to provide the service and neither would EDA because of the agreements that would still be in force.

He argued before the judge that what the state was asking was for the court to make a ruling on the validity of the agreement rather than a simple issuance of a TRO. He said that ruling could not be made until after a trial on the matter.

Chief Justice Amaraich had several questions for both sides during the hearing to help him to clarify matters. He wanted answers to those questions which he didn’t always get. Before adjourning to consider the matter he asked one final question and told the two parties that he didn’t want an answer to his final question. He asked why it was that a year went by before he heard anything about the matter. He wondered why through two administrations the matter had not arisen before. Then he adjourned.

At press time a ruling had not been issued on the states’ request for a temporary restraining order.