Dismissal of Pohnpei investors’ suit vs Clinton, Salazar affirmed

The U.S. Court of Appeals for the Ninth Circuit has affirmed the federal court’s dismissal of a lawsuit filed by a group of investors against the State of Pohnpei, State Secretary Hillary Clinton, Interior Secretary Ken Salazar, and Federated States of Micronesia Development Bank, over the alleged collapse of their business in Pohnpei.

Ninth Circuit judges upheld former chief judge Alex R. Munson’s ruling that the court lacks jurisdiction on the matter pursuant to the Compact of Free Association or the Agreement Regarding the Investment Development Fund.

The Ninth Circuit judges said that Congress did not provide for a private right of action or a private remedy pursuant to the Compact or the Agreement, whether classified as a treaty or a statute.

AHPW Inc. and its shareholders—Robert C. Arthur, Patricia B. Arthur, Bethwell Henry, and Marihne Henry—filed the lawsuit in June 2009 in federal court.

AHPW Inc. was created by the Arthurs and Henrys to operate a pepper processing and button manufacturing business. Patricia Arthur and Marihne Henry were the stockholders. The Arthurs are U.S. citizens residing in Pohnpei, while the Henrys are FSM citizens residing in Pohnpei. FSM Development Bank is part of the FSM government.

The case arises out of an unpaid loan made to plaintiffs from the FSM Development Bank.

The plaintiffs allege that the State of Pohnpei engaged in anti-competitive conduct that ultimately destroyed their business and caused them to be unable to repay the loan with the FSM Development Bank.

Lawsuits were also filed in the FSM courts. The Arthurs and Henrys were ultimately found liable to the FSM Development Bank on the unpaid loan and the State of Pohnpei was found liable to AHPW for anti-competitive conduct.

AHPW, the Arthurs, and the Henrys then filed the suit in federal court.

On Nov. 30, 2009, Munson dismissed the plaintiff’s suit and denied their motion for sanctions. The plaintiffs appealed.

In affirming Munson’s ruling, the Ninth Circuit judges said the district court did not err when it dismissed the case for lack of subject matter jurisdiction under the Foreign Sovereign Immunities Act.

The Ninth Circuit said the commercial activity conducted by the appellants (exporting peppercorns and trochus buttons) occurred entirely in the Federated States of Micronesia and had no direct effect in the U.S.

“Therefore, the commercial activity exception did not apply, and no jurisdiction existed over the foreign state,” the judges said.