June 24, 2009

By Bill Jaynes
The Kaselehlie Press

Commonwealth of the Northern Mariana Islands (CNMI) - June 10, 2009 - The "big names" included as defendants in a complaint filed on June 10, 2009 in the US District Court in Saipan by Robert and Patti Arthur, US citizens residing in Pohnpei, and FSM citizens Bethwel and Marihne Henry have attracted headlines in newspapers in the Pacific.

The plaintiffs named as defendants: The State of Pohnpei; the Federated States of Micronesia Development Bank (FSMDB); US Secretary of State Hillary Clinton in her official capacity, and US Secretary of the Department of the Interior Ken Salazar, also in his official capacity.

In the 15 page complaint, the "big names" were mentioned in only one paragraph. The plaintiffs asked the US court to order the Secretary of State Hillary Clinton and the Secretary of the Interior Ken Salazar to stop releasing any funds "to Pohnpei or to the FSM for the benefit of Pohnpei, for any purpose whatsoever."

The plaintiffs, through counsel Douglas F. Cushnie, sued the defendants for breach of contract, breach of Compact, and unjust enrichment.

The dispute centers on a $620,000 loan given to AHPW, Incorporated that was administered by the FSM Development Bank in 1993 at the instruction of an FSM entity which no longer exists that was named the Federated Development Authority (FDA).

According to Robert Arthur the FDA consisted of the President of the Federated States of Micronesia and the four State Governors.

The money for the loan was provided by the United States Government in order to develop private sector investments in Pohnpei. The fund was intended, according to 30 FSM Code 301, to "contribute to the furtherance of close economic and commercial relations between the United States of America and the Federated States of Micronesia [and] encourage the productive presence of citizens and commercial enterprises of the United States in the Federated States of Micronesia…"

The AHPW, Incorporated loan was for the establishment of two entrepreneurial enterprises in Pohnpei, both of which operated successfully in Pohnpei for a few years employing many Pohnpeians. During that time AHPW, Inc. made on time loan payments.

The US Court in Saipan has made no rulings in the case. The basic issue of whether or not the court has jurisdiction in the matter has not yet been answered by the court. Since the Federated States of Micronesia is a sovereign nation, the issue of jurisdiction will be an important one for the court to decide

It may yet be some time before the US Court makes any rulings on the matter brought before it. The FSM Development Bank was served the complaint on June 19, 2009. At press time the State of Pohnpei had not yet acknowledged receipt of service.

In the FSM Supreme Court, Justice Marvin Yamase earlier ruled that the Arthurs and the Henrys are personally liable for the $620,000 loan taken by AHPW, Incorporated. The Arthurs disagree with that ruling.

Robert and Patti Arthur have lived and done business in Pohnpei for more than 40 years. They were placed under house arrest and their US passports confiscated after they were found to be guilty of contempt of court in the FSM Supreme Court after refusing to sell their shares in Apple Computer as the FSM Supreme Court had ordered them to do as a partial payment of the FSM court ordered judgment against them.

According to the Pohnpei State Attorney General's office, though Pohnpei State stands to benefit from any money received as payment on the judgment against the Arthurs and the Henrys it was not a party to the lawsuit filed for collection of the loan by the FSM Development Bank.

Robert Arthur says that paying the loan would be tantamount to paying Pohnpei State for the privilege of having been driven out of business by the State. He said that as far as he is concerned the issue that led to their house arrest, though it technically had to do with the forced sale of their shares in Apple Computer, really has to do with the fact that they do not feel that it is just or fair to have to pay the loan back to an arm of the government that acted to make it impossible for them to repay the loan.

AHPW, Incorporated won a judgment against Pohnpei State in the matter. (FSM Supreme Court CA number 1999-053) The FSM Supreme Court found that Pohnpei State had driven AHPW, Incorporated out of the Pohnpei Pepper business by operating in direct competition with the private enterprise. The state through its practices artificially inflated the purchase price for pepper.

The Court also ruled that the State, by neglecting to authorize a trochus shell harvest as it had promised to do had by its inaction for several years also destroyed AHPW's trochus button manufacturing business.

Pohnpei State has paid a portion of the judgment ordered by the court but two bills submitted by Governor John Ehsa to the Pohnpei State Legislature late last year did not pass. The bills the Governor submitted would have appropriated the remaining amount of money due to AHPW, Incorporated under the judgment. The remaining amount of that court ordered money judgment is still outstanding and interest is accruing on a daily basis.

The question of whether or not the Arthur's and the Henry's were personally liable for the FSM Development Bank loan was handled at FSM Supreme Court as a separate issue. The Arthurs have long contended that the two matters should have been handled together since each matter has a bearing on the other. They made the same argument in their complaint at the US District Court.

The matters were not handled that way and Justice Yamase ruled that they were personally liable as guarantors of the loan.

FSMDB sued the Arthurs and the Henrys but did not sue AHPW, Incorporated which is an issue that was included as a foundation in the complaint filed at the US District Court in Saipan.

The complaint filed in the US District Court tests the theory that since the money was given as a grant to the Federated States of Micronesia by the US Government, a US Federal Court has jurisdiction in the matter.

FSM Development Bank was the agent assigned to handle loan paper work, a job that the Arthurs and the Henrys say was botched.

AHPW Attorney Cushnie said in the complaint that FSMDB had been told repeatedly that the Arthurs and the Henrys were not granted the loan and that they personally had no right to receive IDF loan funds. He said in the complaint that qualified recipients of IDF money are in part, "corporations with a minimum of 20 percent citizen ownership interest." Cushnie claims that FSMDB insisted that the Arthurs and the Henrys were the borrowers but on the day of trial FSMDB changed its position and asserted that AHPW was the borrower although the corporation was never sued.

The trial court determined that AHPW was the primary obligor by changing the loan documents and amending the pleadings in that trial. That decision was upheld on appeal.

The complaint in the US court said that as a result of the change in the loan documents at the beginning of the trial on the matter, AHPW, Incorporated was prevented from asserting defenses it had at trial regarding alleged unlawful conduct of FSMDB in administering the FDA loan.

It said that during the period of time that AHPW conducted its business operations it requested FSMDB's assistance in preventing the State of Pohnpei from destroying its business. The complaint said that FSMDB failed and refused to take any action to prevent the destruction of the business.

The filing alleges that FSMDB failed to comply with the statutory provisions and as a result breached its obligations to the United States under the statutes that created the FDA, the newly created FSM agency under which US Compact funds such as the IDF were made available for investment. The FSMDB was responsible to the FDA to administer all loans, guarantees and legal actions to enforce payment obligation.

The Arthurs and the Henrys allege through their filing that the FSMDB did not prepare the loan documents according to the FDA's instructions but instead prepared documents that made the Athurs and the Henrys the borrowers and the guarantors. It alleges that the Arthurs and the Henrys never applied for the loan and if they had, they would not have been eligible for the loan in the first place according to the law that made the loan funds available.

The US filing alleges that the destruction of AHPW's business by Pohnpei State meant that AHPW nor the Arthurs nor the Henrys could repay the IDF money. It says that the US Compact of Free Association as amended in 2003 says that if a grant recipient has previously handled US grants in an unsatisfactory manner they will be barred from receiving future grants. It alleges that Pohnpei State handled the IDF grant in an unsatisfactory manner and that Pohnpei State should therefore be barred from receiving future grant assistance from the United States.

The Arthurs and the Henrys have asked for the US Court to award damages to be paid by FSMDB and Pohnpei State equivalent to all principal and interest payments made by AHPW during the loan period and accrued thereafter. They have asked as well for the return of prejudgment interest

They have asked the court to bar the State of Pohnpei from receiving any further grant assistance from the United States.

The court has been asked to enter a judgment in the US against Pohnpei State based upon the ruling of the FSM Supreme Court that found for AHPW, Incorporated after the State acted to drive them out of business. As enforcement of the asked judgment they ask for the court to issue a writ of execution or garnishment against all Pohnpei State assets held in the United States.

They have asked for the court to issue a restraining order and permanent injunction that would keep FSMDB from seizing any shares of AHPW or from receiving any of the funds from AHPW's judgment against Pohnpei State.