FSM SUPREME COURT TRIAL DIVISION
CIVIL ACTION NO. 2000-029

ACTOUKA EXECUTIVE INSURANCE UNDERWRITERS,
Plaintiff,

vs.

WESLEY SIMINA, in his capacity as Governor of the State of Chuuk, STATE OF CHUUK, and	THE FEDERATED STATES OF MICRONESIA,
Defendants.
_______________________________________________

FINDINGS OF FACT AND CONCLUSIONS OF LAW

Andon L. Amaraich
Chief Justice

Trial: December 5, 2007
Submitted: February 15, 2008
Decided: June 5, 2008

APPEARANCES:

For the Plaintiff: Stephen V. Finnen, Esq.
P.O. 1450
Kolonia, Pohnpei FM 96941

For the Defendants: Joses Gallen, Esq. (Simina & Chuuk)	
Attorney General
Office of the Chuuk Attorney General
P.O. Box 1050
Weno, Chuuk FM 96942

For the Defendant: Lori Williams, Esq. (FSM)
Assistant Attorney General
FSM Department of Justice
P.O. Box PS-105
Palikir, Pohnpei FM 96941

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HEADNOTES

Civil Procedure  Parties

Since FSM Civil Rule 25(d)(1) provides that if a public officer is a party to a proceeding, and he ceases to hold office, the name of his successor is automatically substituted as a party, when the filed complaint named a state governor as a party and the current governor is a different person, the caption will be changed to reflect the substitution. Actouka Executive Ins. Underwriters v. Simina, 15 FSM Intrm. 642, 646 (Pon. 2008).

Insurance

An insurance broker is an independent middleman between the insured and the insurance company who does not represent any particular insurance company. Actouka Executive Ins. Underwriters v. Simina, 15 FSM Intrm. 642, 651 (Pon. 2008).

Insurance

An agreement to perform the service of obtaining insurance is different from the contract of insurance itself. Actouka Executive Ins. Underwriters v. Simina, 15 FSM Intrm. 642, 651 (Pon. 2008).

Evidence; Insurance

Various writings, admitted into evidence, which were signed on the behalf of Chuuk, the party to be charged, can establish by a preponderance of the evidence that the plaintiff and Chuuk entered into an agreement whereby the plaintiff would obtain insurance on Chuuk's vessels for the two periods in question, and that Chuuk would pay for the premiums for the insurance obtained. Actouka Executive Ins. Underwriters v. Simina, 15 FSM Intrm. 642, 651 (Pon. 2008).

Remedies  Quantum Meruit

Quantum meruit, or unjust enrichment, is the equitable doctrine that in the absence of an enforceable contract, someone who receives something from another at the expense of the one conferring the benefit should either pay for it or return it. Actouka Executive Ins. Underwriters v. Simina, 15 FSM Intrm. 642, 651 (Pon. 2008).

Contracts  Implied Contracts; Remedies  Quantum Meruit

Unjust enrichment relates to the doctrine of implied contracts, which is to say that the court will, in the absence of a legally enforceable contract, imply a contract in law in the absence of a contract in fact in order to avoid unjust enrichment. Neither the concept of unjust enrichment or the closely associated idea of an implied contract apply where there is an enforceable written contract, since an express contract and implied contract for the same thing cannot govern a legal relationship at the same time. Actouka Executive Ins. Underwriters v. Simina, 15 FSM Intrm. 642, 651-52 (Pon. 2008).

Contracts  Implied Contracts

Although an express contract and implied contract for the same thing cannot govern a legal relationship at the same time, this principle is subject to two exceptions. The first exception is that a party can recover when the implied-in-law contract, also known as a quasi contract, relates to matters outside the express contract or to issues arising after the express contract. The second exception is that a party may prevail in the appropriate case on a quasi-contract when a party has no rights under an enforceable contract. Examples of the second exception are where a contract has failed or was rescinded. Actouka Executive Ins. Underwriters v. Simina, 15 FSM Intrm. 642, 652 (Pon. 2008).

Contracts  Implied Contracts

An exception to the principle that an express contract and implied contract for the same thing cannot govern a legal relationship at the same time is when the implied-in-law contract relates to matters outside the express contract. It will apply when the broker's advancing the premiums fell outside the parties' binding contracts that the broker would obtain insurance coverage for the Chuuk-operated vessels and that Chuuk would pay for that coverage since the documents do not address whether the broker could, or would, advance the premiums and the broker advanced the premiums after the agreements were reached, and after Chuuk had failed to remit the premiums that it was obligated to pay under the contract. Actouka Executive Ins. Underwriters v. Simina, 15 FSM Intrm. 642, 652 (Pon. 2008).

Common Law

Where there is no specific precedent in FSM case law, the court may consider cases from other jurisdictions in the common law tradition. Actouka Executive Ins. Underwriters v. Simina, 15 FSM Intrm. 642, 652 (Pon. 2008).

Contracts  Implied Contracts; Insurance

A marine insurance broker who advances fleet insurance premiums may obtain reimbursement from the insured on whose behalf it advanced those premiums under an implied-in-law contractual right to reimbursement of the premiums it advanced on another's behalf when the implied-in-law contractual right is integrally related both to the contract whereby the broker was to procure insurance and to the insurance contracts that resulted from that agreement. Actouka Executive Ins. Underwriters v. Simina, 15 FSM Intrm. 642, 652 (Pon. 2008).

Civil Procedure  Summary Judgment

Denial of a summary judgment motion in a contract case means that there are genuine issues of material fact that preclude judgment as a matter of law in the movant's favor. It does not lead to the conclusion that there was no contract, but rather that there were issues of fact precluding judgment as a matter of law on the point. Actouka Executive Ins. Underwriters v. Simina, 15 FSM Intrm. 642, 652 (Pon. 2008).

Contracts  Implied Contracts; Insurance

When, although Chuuk did not pay the premiums, they were paid by the broker on Chuuk's behalf and the policies were in full force and effect for the vessels operated by Chuuk, Chuuk is responsible for these premiums because the broker established by a preponderance of the evidence at trial that the broker and Chuuk had entered into an agreement whereby the broker would procure insurance for the Chuuk-operated vessels and that Chuuk would pay for that insurance. This express contract serves as the basis for an implied-in-law contract that Chuuk is liable for reimbursement to the broker. Actouka Executive Ins. Underwriters v. Simina, 15 FSM Intrm. 642, 653 (Pon. 2008).

Evidence

Counsel's argument about a memo's effect is not a substitute for evidence. Actouka Executive Ins. Underwriters v. Simina, 15 FSM Intrm. 642, 653 (Pon. 2008).

Insurance; Remedies  Quantum Meruit

The elements of a cause of action for quantum meruit are that 1) valuable goods or services are provided 2) to someone against whom recovery is sought 3) when the goods or services are enjoyed or used by the one against whom recovery is sought 4) under such circumstances that notified the person that the one performing the services or providing the goods expected payment. The fact that Chuuk did not know that its insurance broker had paid the premiums relates to the quantum meruit claim's fourth element, which is whether the benefit conferred by the in-force policies was enjoyed by Chuuk under circumstances such that Chuuk knew that the insurance broker expected payment. Since it is beyond question that Chuuk knew that the broker expected payment because Chuuk acknowledged in writing that the premiums were owed, the notice requirement to Chuuk is met by Chuuk's express acknowledgment that it owed the premiums pursuant to its enforceable contract with the broker. Accordingly, Chuuk's contention that it is not liable because it did not know that the broker had advanced the premiums on its behalf is without merit. Actouka Executive Ins. Underwriters v. Simina, 15 FSM Intrm. 642, 654 (Pon. 2008).

Insurance; Public Contracts

An insurance broker did not violate the Chuuk Financial Management Act by advancing the premium on Chuuk's behalf when it was not a state officer, employee, or allottee within the meaning of the statute and it thus did not create an obligation within the statute's meaning because no evidence suggests that the broker was anything other than one of Chuuk's many vendors with whom Chuuk entered into a binding contract. Actouka Executive Ins. Underwriters v. Simina, 15 FSM Intrm. 642, 654 (Pon. 2008).

Insurance

When the evidence did not suggest that it was ever the understanding of those concerned that if one of the state operators failed to pay for insurance covering its vessels, the FSM would become liable for the insurance premiums because it owned the vessels, no contract to which the FSM was a party imposed such liability on the FSM. Actouka Executive Ins. Underwriters v. Simina, 15 FSM Intrm. 642, 655 (Pon. 2008).

Insurance; Remedies  Quantum Meruit

As the vessels' owner, and as a named insured under the policies along with the four states, the FSM received a benefit as a result of the fleet insurance coverage, but in order to establish a claim for quantum meruit, the insurance broker must demonstrate that the FSM was unjustly enriched by the benefit of the broker paying the premium for Chuuk. But the agreement between Chuuk and the FSM was that FSM would permit Chuuk to use vessels that the FSM owned and Chuuk, in return, would pay for insurance coverage for those vessels; so by advancing the insurance premium, the broker met Chuuk's obligation to the FSM in this regard. The primary benefit conferred by the insurance premium payments went to Chuuk, and not to the FSM, since Chuuk was also an insured along with the FSM under the policies and it was Chuuk's, not the FSM's, obligation to provide coverage for the vessels. To suggest that when Chuuk failed to meet its obligation to the FSM to insure the vessels, the FSM became liable for the premiums on the vessels is to lose sight of the fact that the vessels were being operated by Chuuk and for Chuuk's benefit on the condition that Chuuk provide the insurance. The broker's remedy for the premium nonpayment is against Chuuk, who breached its agreement with the FSM by failing to pay for the premiums. The broker's remedy does not extend to the FSM. Actouka Executive Ins. Underwriters v. Simina, 15 FSM Intrm. 642, 655 (Pon. 2008).

Public Contracts

All contracts for the purchase of personal property involving $50,000 or more made on behalf of any national government agency must be let by free and open competitive bidding. Actouka Executive Ins. Underwriters v. Simina, 15 FSM Intrm. 642, 655 (Pon. 2008).

Public Contracts

When the FSM assumed the responsibility for arranging for insurance coverage for the vessels owned by the FSM including those operated by the four states, and the broker, Chuuk, and the FSM knew that the vessels' operators would be responsible for paying for the insurance for their respective vessels, the public bidding statute, as a matter of law, does not create liability on the FSM's part to the broker for Chuuk's premiums. Actouka Executive Ins. Underwriters v. Simina, 15 FSM Intrm. 642, 655 (Pon. 2008).

Civil Procedure  Dismissal

When the defendant did not move for dismissal at the conclusion of the plaintiff's case, but instead incorporated its motion to dismiss under FSM Civil Rule 41(b) in its written closing argument that it submitted post trial, the motion will be denied because that rule provides that a defendant may move for dismissal of an action after the plaintiff has concluded its case without prejudice to the defendant's right to present evidence in the event the motion is denied. Actouka Executive Ins. Underwriters v. Simina, 15 FSM Intrm. 642, 656 (Pon. 2008).

Civil Procedure  Dismissal

When the complaint names Chuuk's Governor, acting in his official capacity, as a defendant and alleges that he had a duty to pay for the insurance in question, but the evidence presented supported a claim against the State of Chuuk itself and not against the Governor in his official capacity, the complaint will be dismissed with prejudice as to the Governor of Chuuk in his official capacity. Actouka Executive Ins. Underwriters v. Simina, 15 FSM Intrm. 642, 656 (Pon. 2008).

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COURT'S OPINION

ANDON L. AMARAICH, Chief Justice:

Trial in this case took place on December 5, 2007. Post trial briefing was complete by February 15, 2008.

As a preliminary matter, the caption of this case as originally filed named Ansito Walter as the Governor of the State of Chuuk. The current Governor of Chuuk is Wesley Simina. FSM Civil Rule 25(d)(1) provides that where a public officer is a party to a proceeding, and he ceases to hold office, the name of his successor is automatically substituted as a party. The above caption reflects the substitution of Wesley Simina for that of Ansito Walter.

As a further preliminary matter, the parties stipulated to the admission of plaintiff Actouka Executive Insurance Underwriters' Exhibits A through PP. Those exhibits were admitted into evidence. The FSM moved for admission of its Exhibits 2 and 3. The FSM did not submit for admission its Exhibit 1 on the basis that it was the affidavit of Mr. Lukner Weilbacher, who testified, and that his affidavit was unnecessary by virtue of his testimony. In fact, it is Exhibit 2 which is Mr. Weilbacher's affidavit. The FSM's Exhibits 1 and 3 are therefore admitted. Chuuk relied on the plaintiff's exhibits and offered no documentary evidence.

The plaintiff in this action, Actouka Executive Insurance Underwriters ("Actouka"), seeks to recover amounts that it advanced on Chuuk's behalf for the periods roughly coinciding with fiscal years 1996 and 1997 to cover insurance premiums for certain vessels operated by Chuuk. The fiscal years extended from October of 1995 through September of 1996, and from October of 1996 through September of 1997, whereas the two insurance policies in question covered the periods October 31, 1995, to October 31, 1996, and from October 31, 1996, to October 31, 1997. For purposes herein, "fiscal year" is used interchangeably with the period covered by the insurance. The amount claimed for fiscal 1996 is $103,000.00, while the amount claimed for fiscal 1997 is $84,000.00, for a total of $187,000.00 for both years.

The complaint contains three causes of action. The first is a breach of contract claim against Chuuk and the FSM for the fiscal 1996 premiums. The second is a breach of contract claim against Chuuk and the FSM for premiums for fiscal 1997. The third is a quantum meruit claim against Chuuk and the FSM for the premiums for both years.

Pursuant to FSM Civil Rule 52(a), the court makes the following findings of fact and conclusions of law.

I. Findings of Fact

As part of the phasing out of the Trust Territory Government, the FSM Government and the fours state entered into discussions and ultimately agreed as to which entities would provide specific public services. Shipping was one of the functions that was subject to these discussions and the subsequent agreement. As part of this agreement, the Micro class ships were transferred to the FSM Government from the Trust Territory Government. However, the states of Pohnpei, Chuuk, and Yap wanted to use some of these vessels to operate their own field trip services. To this end the operation of certain ships was transferred to the states. The states became responsible for the operation and routine maintenance of the vessels, fuel, salaries, dry docking, and insurance.

Beginning in 1988, and continuing through at least 1997, Actouka, acting as an insurance broker, obtained fleet insurance coverage from various insurers for the vessels owned by the FSM. Actouka had submitted premium quotes for these years, and these quotes had been accepted by the FSM. The FSM Department of Transportation, Communication, and Infrastructure's practice was to act on behalf of the FSM and the states in soliciting the quotes. The insurance itself was paid for by the entities that operated the respective vessels. Chuuk operated the Micro Dawn, the Micro Trader, and the Meiran. A benefit to all concerned was that a lower premium was achieved by a fleet policy, versus policies on the individual vessels. Failure to pay for the insurance for any individual vessel by any individual operator had the potential to raise the premiums for the other vessels. Insurance coverage was also an important concern to both the FSM and Chuuk because a vessel's classification as determined by the American Bureau of Shipping was contingent upon its being insured. Although the record is not entirely clear, in addition to the period from 1988 through 1997, Actouka probably provided insurance through January of 2000 as well, when the FSM received a lower quote for fleet insurance from another insurance broker.

With regard to fiscal 1996, Actouka sent a memorandum on October 1, 1995, to Captain Thomas Narruhn, who was Director of the Chuuk State Department of Transportation, concerning the annual renewal of the fleet insurance policy. The memorandum advised Captain Narruhn that the premiums for the vessels operated by Chuuk, which were the Meiran, the Micro Dawn, and the Micro Trader, would be $19,000.00, $42,000.00, and $42,000.00 respectively, for a total of $103,000. The October 1, 1995, memo also stated that the premium would be due by October 30, 1995. The premium was not paid by that time. On November 7, 1995, Captain Narruhn sent a memo to the Governor of Chuuk, which states in part as follows:

This is to request full allocation of funds under Contractual Services (Acct No. 1351, Orgs. No. 8405) to be upfronted in the First Quarter, FY'96 so that [sic] insurance premium in the amount of USD 103,000 for the MS MICRO TRADER, MS MICRO DAWN, and MEIRAN, which has been overdue since October 30, 1995 can be made to the underwriter.

. . .

With your approval and by copy of this memorandum, I am requesting the Director, Department of Treasury to effectuate payment so as not to jeopardize our ships' insurance coverage.

In further reference to the premium due on October 30, 2005, Captain Narruhn sent a letter on November 24, 1995, to Actouka stating as follows:

Dear Mrs. Actouka:

We are still awaiting issuance of full payment on our insurance premium from Chuuk Department of Treasury.

As soon as the check is released, we will remit full payment to the account so indicated in your Nove [sic] 20, 1995, fax. Hopefully, we can make payment by next week.

Please bear with us your usual patient [sic] and understanding.

Thank you,

/s/ Thomas R. Narruhn

The statement, "Please bear with us your usual patient [sic] and understanding," refers to Chuuk's history of late payment of the premiums for the prior years from about 1988 to 1995.

By December 1, 1995, Actouka still had not received the payment. On that date it wire transferred the sum of $236,277.50 to Associated Marine Insurance to cover the entire amount of the fleet premium for fiscal 1996. The $236,277.50 was the net amount of the premium exclusive of taxes, wire transfer fees, commissions, and other charges. The gross amount of the premium, which was the amount charged to the insureds, was $307,000.00. Chuuk's share of the gross amount was $103,000.00. Actouka's payment of the premium resulted in coverage under policy number AMI500001CHP-05, for the vessels that Chuuk operated. The policy covered a total of eight vessels, and insured Chuuk, the FSM, the other three states, and the FSM Department of Transportation for the period October 31, 1995 through October 31, 1996. Actouka did not inform Chuuk that it had paid the premiums for Chuuk.

On January 3, 1996, the then-Governor of Chuuk, Sasao H. Gouland, sent a memo to the Chuuk Director of Transportation, the subject of which was "Curtailed Vessels Movement," and which provided as follows:

I have yet received [sic] the budget amendment from the legislature to date. I think it is improper for this administration to perform its duty which has relevency [sic] on the budget amendment is received [sic] and sign [sic] into law to legalize our performance.

The Government vessels must therefore be detained at port at all time. No field trip services or any other movement of vessels is allowed until we are legally satisfied.

/s/ Sasao H. Gouland

No evidence was presented at trial that the activities of any of the vessels were actually curtailed as a result of the memo.

Actouka made further contacts with Chuuk in February of 1996 in an effort to obtain payment, but by June of 1996, payment had still not been received. In order to get Chuuk's attention and induce Chuuk to make the payment for fiscal 1996, Actouka on June 1, 1996, sent a memo to FSM Secretary of the Department of Transportation, Communication and Infrastructure, Lukner Weilbacher, and to Captain Narruhn to the effect that the insurance on the Micro Dawn, Micro Trader, and Meiran was no longer in effect. In fact, the insurance was in effect and remained in effect throughout fiscal 1996. The memo did not achieve its desired effect, since no payment from Chuuk resulted.

As the end of fiscal 1996 approached, the issue of renewal of the policy for fiscal 1997 arose. On September 30, 1996, Actouka sent a memo to Secretary Weilbacher advising him of the amount of the premiums for each of the vessels for the upcoming fiscal year. According to the memo, for fiscal 1997 the Meiran, at the FSM's request, was not to be covered under the fleet policy. Also by a memo dated September 30, 1996, Actouka advised Deputy Director of the Chuuk Department of Transportation Leo Lokopwe that the premium of $42,000.00 each for the Micro Dawn and the Micro Trader ($84,000.00 total) was due by October 30, 1996. In response to Actouka's September 30, 1996, memo, Deputy Director Lokopwe responded by a fax message dated October 17, 1996, as follows:

Thank you for letter dated September 30, 1996 relevant to the insurance renewal of our ships (MS MICRO DAWN and MICRO TRADER); we herewith acknowledged [sic] the due premium of $42,000.00 for each vessel.

Please be informed we submitted requisition for the total amount of $84,000.00 to our Finance office on October 14, 1996 and we are making daily follow up on the payment. We will remit payment as soon as check is made from the Department of Treasury.

Thank you for your continued assistance on our ships [sic] insurance coverage.

/s/ Leo Lokopwe

By December 28, 1996, Actouka, had not received payment for the policy for fiscal 1997, and as it had done the year before, on that date wire transferred the net amount of the fleet premium to Associated Marine Insurance to cover the entire fleet from October 31, 1996 to October 31, 1997. Insurance policy AMI500001CHP-04 was in effect during that time. The amount wire transferred on December 28, 1996, was, like the prior year, the net amount of the premium exclusive of fees and other charges, so that the actual amount transferred was $221,647.50. The gross amount of the premium was $288,000.00, of which $84,000.00 was the required premium to cover the Micro Dawn and the Micro Trader for the period October 31, 1996, through the period October 31, 1997. Unlike the prior year, the Meiran was not covered. Actouka did not inform Chuuk that it paid the premium on Chuuk's behalf.

On January 10, 1997, Toyo Mori, who was an administrative officer for the State of Chuuk, sent a memo to the Chuuk Treasury which stated that "we would like to solicit your assistance for the issuance of check [sic] in the amount of Eighty Four Thousand Dollars ($84,000.00) payable to . . . Actouka Executive Insurance Underwriter." The memo went on to state that Actouka was requesting payment before Tuesday, January 14, 1997. However, no payment was made by that time, or at any time thereafter. Actouka subsequently filed the instant lawsuit to recover the amount of the premiums it had advanced to pay for the policies covering fiscal years 1996 and 1997.

II. Conclusions of Law

1.	The state of Chuuk is liable in the amount of $103,000.00 to Actouka for the amount of the premium that Actouka advanced on Chuuk's behalf to Associated Marine Insurance in order to insure the three vessels operated by Chuuk (the Meiran, the Micro Dawn, and the Micro Trader) for the period October 31, 1995 through October 31, 1996. As discussed infra, Chuuk's liability is based on an implied-in-law, or quasi contract, between Chuuk and Actouka.

2.	The state of Chuuk is liable in the amount of $84,000.00 to Actouka for the amount of the premium that Actouka advanced on Chuuk's behalf to Associated Marine Insurance in order to secure insurance for the period October 31, 1995, through October 31, 1996, for the vessels Micro Dawn and Micro Trader. Chuuk's liability is based on an implied-in-law contract, or quasi contract, between Chuuk and Actouka. Thus the total amount awarded against Chuuk is $187,000.00 ($103,000.00 + $84,000.00).

3.	The Federated States of Micronesia is not liable to Actouka for the $103,000.00 that Actouka advanced on Chuuk's behalf for insurance for the period October 31, 1995, through October 31, 1996, on either a contract or unjust enrichment basis. Nor is the FSM liable to Actouka for the $84,000.00 that Actouka advanced on Chuuk's behalf to secure insurance for the period October 31, 1996, through October 31, 1997, on either a contract or unjust enrichment basis. The complaint is dismissed as to the FSM.

III. Discussion

A. Actouka's claims against Chuuk

An insurance broker is an independent middleman between the insured and the insurance company who does not represent any particular insurance company. Black's Law Dictionary 193 (6th ed. 1990). Actouka acted as broker by serving as a middleman between Associated Marine Insurance and the state of Chuuk in order to obtain insurance for Chuuk. An agreement to perform the service of obtaining insurance is different from the contract of insurance itself. See FSM Dev. Bank v. Bruton, 7 FSM Intrm. 246, 249-50 (Chk. 1995). The former type of agreement is at issue here.

Actouka and Chuuk entered into two separate such agreements. One was for the period October 31, 1995, to October 31, 1996, while the other was for the period October 31, 1996, to October 31, 1997. The various writings signed on the behalf of Chuuk, which is the party to be charged, cf. Jayko Int'l, Inc. v. VCS Constr. & Supplies, 10 FSM Intrm. 475, 477 (Pon. 2001), and which were admitted into evidence substantiate these agreements.

With regard to the fiscal 1996 agreement, and referring to the premium due on October 30, 1995, Captain Narruhn, Chuuk's Director of the Department of Transportation, wrote to Actouka that "[w]e are still awaiting issuance of full payment on our insurance premium from Chuuk Department of Treasury. As soon as the check is released, we will remit full payment . . . . Hopefully, we can make payment by next week. Please bear with us your usual patient [sic] and understanding. Thank you, [/s/] Thomas R. Narruhn." With respect to the fiscal 1997 agreement, Leo Lokopwe, the Deputy Director of the Chuuk Department of Transportation, in his October 30, 1996, fax message to Actouka stated as follows:

Thank you for letter dated September 30, 1996 relevant to the insurance renewal of our ships (MS MICRO DAWN and MICRO TRADER); we herewith acknowledged [sic] the due premium of $42,000.00 for each vessel.

Please be informed we submitted requisition for the total amount of $84,000.00 to our Finance office on October 14, 1996 and we are making daily follow up on the payment. We will remit payment as soon as check is made from the Department of Treasury.

Thank you for your continued assistance on our ships [sic] insurance coverage.

/s/ Leo Lokopwe

These two documents, together with the rest of the evidence admitted at trial, establish by a preponderance of the evidence that Actouka and Chuuk entered into an agreement whereby Actouka would obtain insurance on Chuuk's vessels for the two periods in question, and that Chuuk would pay for the premiums for the insurance that Actouka obtained.

The evidence substantiating these two agreements is silent, however, on whether or not Actouka could pursue the course that Actouka did, which was to advance the premiums in question after Chuuk, despite numerous communications from Actouka requesting payment, failed to make the required payments. In the absence of a contract covering this point, Actouka seeks recovery on a quantum meruit, or unjust enrichment, basis, which is the equitable doctrine that in the absence of an enforceable contract, someone who receives something from another at the expense of the one conferring the benefit should either pay for it or return it. Ponape Island Transp. Co. v. Fonoton Municipality, 13 FSM Intrm. 510, 515 (App. 2005). Unjust enrichment relates to the doctrine of implied contracts, id., which is to say that the court will, in the absence of a legally enforceable contract, imply a contract in law in the absence of a contract in fact in order to avoid unjust enrichment. Neither the concept of unjust enrichment or the closely associated idea of an implied contract apply where there is an enforceable written contract, Esau v. Malem Mun. Gov't, 12 FSM Intrm. 433, 436 (Kos. S. Ct. Tr. 2004), since an express contract and implied contract for the same thing cannot govern a legal relationship at the same time. E.M. Chen & Assocs. (FSM), Inc. v. Pohnpei Port Auth., 9 FSM Intrm. 551, 558 (Pon. 2000). However, this principle is subject to two exceptions. Interbank Invs., LLC v. Eagle River Water & Sanitation Dist., 77 P.3d 814, 816 (Colo. Ct. App. 2003). The first exception is that a party can recover when the implied-in-law contract, also known as a quasi contract, relates to matters outside the express contract or to issues arising after the express contract. Id. The second exception is that a party may prevail in the appropriate case on a quasi-contract when a party has no rights under an enforceable contract. Id. Examples of the second exception are where a contract has failed or was rescinded. Id.

The first exception, which is when the implied-in-law contract relates to matters outside the express contract, applies here. Actouka's advancing the premiums fell outside the parties' binding contracts, expressed through the documents admitted at trial, that Actouka would obtain insurance coverage for the vessels operated by Chuuk for fiscal 1996 and fiscal 1997, and that Chuuk would pay for that coverage. The documents do not address whether Actouka could, or would, advance the premiums. Moreover, Actouka advanced the premiums after the agreements were reached, and after Chuuk had failed to remit the premiums that it was obligated to pay under the contract.

FSM courts have not considered the precise question whether a marine insurance broker who advances fleet insurance premiums may obtain reimbursement from the insured on whose behalf it advanced those premiums. Where there is no specific precedent in FSM case law, the court may consider cases from other jurisdictions in the common law tradition. FSM v. Rauzi, 2 FSM Intrm. 8, 14-15 (Pon. 1985). In Stanley T. Scott & Co. v. Makah Development Corp., 496 F.2d 525, 525 (9th Cir. 1974), a marine insurance broker had obtained fleet coverage at the request of the insured and advanced the required premiums to obtain the coverage. When the insured failed to reimburse the broker for the advanced premium, the broker Scott sued to recover it. Id. On appeal the issue was whether Scott's claim to recover the advance premiums fell within the court's maritime jurisdiction. Id. at 526. In holding that the claim in fact was within the court's maritime jurisdiction, the court stated that "Scott's implied-in-law contractual right to reimbursement for the premiums is integrally related to the marine insurance policy that emerged from appellant's bargain with Scott [to obtain insurance]." Just as in Scott, where the marine broker had an implied-in-law contractual right to obtain reimbursement for the premiums it advanced, so here Actouka has an implied-in-law contractual right to obtain reimbursement for the premiums it advanced on Chuuk's behalf during fiscal 1996 and 1997. Actouka's implied-in-law contractual right is integrally related both to the contract that Actouka had with Chuuk whereby Actouka, acting as a broker, would procure insurance for Chuuk, and the contracts of insurance themselves that resulted from that agreement.

Chuuk urges that because the court previously denied Actouka's motion for summary judgment relative to its contract claim against Chuuk, the court had necessarily determined there was no contract between Chuuk state and Actouka. Denial of a summary judgment motion means that there are genuine issues of material fact that preclude judgment as a matter of law in the movant's favor. FSM Civ. R. 56. Denial of the motion does not lead to the conclusion that there was no contract, but rather that there were issues of fact precluding judgment as a matter of law on the point. But apart from this concern, Chuuk's contention that there was no contract between the parties leaves unanswered the question of Actouka's entitlement to relief on a quantum meruit basis. Thus Chuuk's contention that the court previously determined that no contract existed between Chuuk and Actouka is not persuasive either with regard to the denial of the summary judgment motion, nor with respect to Actouka's quantum meruit claims.

Chuuk relies on language from the insurance policies that provides that the policies will not come into effect until the insurance premiums are paid to the underwriters. Chuuk claims that Chuuk never paid the premiums, and that the insurance policies never came into effect. This misses the point that although Chuuk did not pay the premiums, they were paid by Actouka on Chuuk's behalf. The policies were in full force and effect for the vessels operated by Chuuk during the periods in question. As discussed supra, Chuuk is responsible for these premiums because Actouka has established by a preponderance of the evidence at trial that Actouka and Chuuk entered into an agreement whereby Actouka would procure insurance for the vessels operated by Chuuk, and that Chuuk would pay for that insurance. This express contract serves as the basis for an implied-in-law contract that Chuuk is liable for reimbursement to Actouka.

Chuuk also relies on the June 1, 1996, letter that Actouka sent to Chuuk stating that insurance for the Micro Dawn, Micro Trader, and Meiran was not in effect. Chuuk claims that the letter was "tantamount to bad faith and deliberate and intentional misstatement of the truth and fact." Mot. to Dismiss and Closing Argument at 7. This letter was sent to get Chuuk's attention and to get Chuuk to address the nonpayment issue. Ex. MM ¶ 26. Chuuk had not paid the premiums, despite Chuuk's prior assurances that the premiums would be paid. In fact, the insurance coverage was in place. Chuuk had contractually committed itself to pay the premiums. The letter coming six months after the premiums were due in an effort to prompt payment does not alter Chuuk's liability for the premiums pursuant to its agreement with Actouka. It does not alter Chuuk's obligation to pay for what it received.

Chuuk claims that it received no benefit from Actouka's payment of the premium, and that it was only Actouka who benefitted from the commission that it earned on the premiums. It asserts that the vessels at relevant times were operating at their own risk. This contention is contrary to the evidence at trial, that the vessels were at relevant times insured as a result of Actouka's payment of the required premiums on Chuuk's behalf. The benefit that Chuuk received was insurance coverage under the policies.

Chuuk contends "[i]t is clear from that evidence . . . that the vessels stopped operating" as a result of Chuuk's failure to make the premium payments. Mot. to Dismiss and Closing Argument at 8. Chuuk relies on the January 3, 1996, memo from the then-Governor to the Director of the Chuuk Department of Transportation, admitted into evidence as plaintiff's Exhibit K, which stated that "the vessels must therefore be detained at port at all time. No field trip services or any other movement of vessels is allowed until we are legally satisfied." Chuuk presented no evidence that this memo was ever given effect. Counsel's argument in this regard is not a substitute for evidence. It is significant that the January 3, 1996, memo came five months before the June 1, 1996, communication that stated that the insurance was not in effect. What is certain is that Chuuk entered into legally binding agreements with Actouka to pay for the premiums for fiscal 1996 and 1997, and that it received the insurance coverage that those premiums secured.

Chuuk argues that once Actouka had advanced the premium payments Actouka "intentionally did not inform the defendant about the insurance coverage to deny the defendant the benefit of such coverage." Mot. to Dismiss and Closing Argument at 9. The record is devoid of any evidence to support this contention. A logical inference from the fact that Actouka did not inform Chuuk of the coverage is that if Chuuk had known that coverage was in effect, it would have lessened Chuuk's motivation to pay the premiums which Chuuk had acknowledged that it owed.

Chuuk asserts that its lack of knowledge that the premiums were paid on its behalf is a defense to Actouka's quantum meruit claim. Citing E.M. Chen, 9 FSM Intrm. at 558, Chuuk notes that the elements of a cause of action for quantum meruit are that (1) valuable goods or services are provided (2) to someone against whom recovery is sought (3) when the goods or services are enjoyed or used by the one against whom recovery is sought (4) under such circumstances that notified the person that the one performing the services or providing the goods expected payment. Id. The fact that Chuuk did not know that Actouka had paid the premiums relates to the fourth element of a claim for quantum meruit, which is whether the benefit conferred by the in-force policies was enjoyed by Chuuk under circumstances such that Chuuk knew that Actouka expected payment. That Chuuk knew that Actouka expected payment is beyond question. Chuuk acknowledged in writing that the premiums were owed for both years. With regard to the fiscal 1996 premium, the Director of the Chuuk Department of Transportation, Captain Thomas Narruhn, sent his November 24, 1995, letter to Actouka stating that "[w]e are still awaiting issuance of full payment on our insurance premium from Chuuk Department of Treasury. As soon as the check is released, we will remit full payment." With regard to the fiscal 1997 premium, Deputy Director Lokopwe responded to Actouka's September 30, 1996, memo, by a fax message dated October 17, 1996, which stated in part that

we herewith acknowledged [sic] the due premium of $42,000.00 for each vessel. Please be informed we submitted requisition for the total amount of $84,000.00 to our Finance office on October 14, 1996 and we are making daily follow up on the payment. We will remit payment as soon as check is made from the Department of Treasury.

The notice requirement to Chuuk is met by Chuuk's express acknowledgment that it owed the premiums pursuant to its enforceable contract with Actouka. Accordingly, Chuuk's contention that it is not liable because it did not know that Actouka had advanced the premiums on its behalf is without merit.

Chuuk made passing reference to the Chuuk Financial Management Act in its opening statement at trial, and claimed that by advancing the premium, Actouka created an obligation on Chuuk's behalf that was contrary to the Act. Chuuk did not pursue this point in its written closing argument. Toyo Mori, the Chuuk Administrative Officer, testified at trial that for some years insurance was budgeted but not funded, and that there was always some money appropriated for operation of the field trip ships. But be that as it may, the relevant portion of the Chuuk Financial Management Act, which is Truk State Law 5-44, § 8, provides that "[n]o officer or employee of the State, or allottee of a State appropriation, shall obligate or authorize or order anyone to obligate funds of the General Fund." Id. (emphasis added). No evidence suggests that Actouka was anything other than one of Chuuk's many vendors with whom Chuuk entered into a binding contract. Actouka was not an officer, employee, or allottee within the meaning of the statute. Thus Actouka did not create an obligation within the meaning of Truk State Law 5-44, § 8 when it advanced the premium on Chuuk's behalf.

Accordingly, Chuuk is liable to Actouka for the fiscal 1996 and 1997 premiums.

B. Actouka's claims against the FSM

Actouka also seeks to recover for the unpaid premiums from the FSM on both a contract and, alternatively, a quantum meruit basis.

The FSM's involvement in the transactions leading to the instant dispute was substantially less than Chuuk's. The FSM requested quotes for fleet insurance for the vessels that it owned. Some of the vessels were operated by the FSM, but others were operated by the states. Secretary Weilbacher testified that the insurance was to be purchased by each operator to cover its respective vessels. The evidence did not suggest that it was ever the understanding of those concerned that in the event that one of the operators failed to pay for insurance covering its vessels, the FSM would become liable for the insurance premiums by virtue of its ownership of the vessels. Certainly, no contract to which the FSM was a party imposed such liability on the FSM. Thus the question is whether the FSM is liable to Actouka on quantum meruit basis.

As the owner of the vessels in question, and as a named insured under the policies along with the four states, the FSM received a benefit as a result of the insurance coverage. However, in order to establish a claim for quantum meruit, Actouka must demonstrate that the FSM was unjustly enriched by the benefit. E.M. Chen, 9 FSM Intrm. at 558. Given all the facts and circumstances, the FSM was not unjustly enriched in this case.

The agreement between Chuuk and the FSM was that FSM would permit Chuuk to use the vessels that the FSM owned. In return, Chuuk would pay for insurance coverage for those vessels. Thus the FSM gave something of value to Chuuk – the right to the use of its vessels – with the understanding that Chuuk would maintain insurance on the vessels. By advancing the premium, Actouka met Chuuk's obligation to the FSM in this regard. The primary benefit conferred by Actouka's payment of the insurance premiums went to Chuuk, and not to the FSM, since Chuuk was also an insured along with the FSM under the policies for both years, and it was Chuuk's, not the FSM's, obligation to provide coverage for the vessels. The FSM received a substantial advantage by having its property insured. But this benefit was what the FSM had expected to receive in the first place as a result of its agreement with Chuuk concerning the use of the vessels. To suggest that when Chuuk failed to meet its obligation to the FSM to insure the vessels, the FSM became liable for the premiums on the vessels is to lose sight of the fact that the vessels were being operated by Chuuk and for Chuuk's benefit on the condition that Chuuk provide the insurance. Actouka's remedy is against Chuuk for the nonpayment of the premium, who breached its agreement with the FSM by failing to pay for the premiums. Actouka's remedy does not extend to the FSM.

Actouka expends considerable effort in urging in its written closing argument that by virtue of the fact that the FSM requested quotes for the fleet insurance in question, it became a joint debtor with Chuuk for the premiums operated by Chuuk. Actouka relies on the FSM competitive bidding statute, and specifically 55 F.S.M.C. 403, 413, and 416. Closing Argument at 17-22. Section 403 provides in part that all contracts "for the purchase of personal property involving $50,000.00 or more made on behalf of any National Government agency shall be let by free and open competitive bidding." The premiums for the vessels operated by the FSM for the two years in question (the Caroline Islands and Constitution) was $78,000.00, and thus exceeded $50,000.00. On that basis the fleet insurance fell within the statutory competitive bidding requirement. Beyond that, however, there is no basis to conclude that the FSM became liable as a matter of law for the premiums for all of the vessels solely by virtue of the fact that it solicited the quotes. The FSM assumed the responsibility for arranging for coverage for the vessels owned by the FSM, but Actouka, Chuuk, and the FSM knew that the operators of the vessels would be responsible for paying for the insurance for their respective vessels. Thus the public bidding statute as a matter of law does not create liability on the part of the FSM for the premiums at issue.

Accordingly, the FSM is not liable for the premiums at issue.

III. Conclusion

Based on the foregoing, Chuuk is liable to Actouka in the amount of $187,000.00 on Actouka's quantum meruit, or unjust enrichment, claims against Chuuk alleged in the third cause of action of its complaint. With respect to Actouka's contract claims against Chuuk alleged in the first and second causes of action of the complaint, neither the contract between Actouka and Chuuk nor the insurance policy itself specifically covers Actouka's right to reimbursement for the premiums it advanced on Chuuk's behalf. The first and second causes of action of the complaint, which are based on contract, are dismissed with prejudice as to Chuuk.

The FSM is not liable to Actouka on either Actouka's contract or quantum meruit claims. The complaint is dismissed as to the FSM.

Chuuk's motion to dismiss brought pursuant to FSM Civil Rule 41(b) incorporated in its written closing argument is denied. That rule provides that a defendant may move for dismissal for an action after the plaintiff has concluded its case without prejudice to the defendant's right to present evidence in the event the motion is denied. Chuuk did not move for dismissal at the conclusion of Actouka's case, but instead incorporated its motion in its written closing argument that it submitted post trial. For the reasons stated herein, the motion is denied.

The complaint names Chuuk's Governor, acting in his official capacity, as a defendant. The complaint alleges that he had a duty to pay for the insurance in question. However, the evidence presented in this case supported a claim against the State of Chuuk itself and not against the Governor in his official capacity. In this regard the evidence is consistent with Actouka's motion for summary judgment filed on October 7, 2004, at 2 that recites that "[t]his lawsuit seeks collection from the State of Chuuk, and/or the Federated States of Micronesia." Thus the complaint is dismissed with prejudice as to the Governor of Chuuk in his official capacity.

The clerk shall enter judgment consistent with these findings of fact and conclusions of law.

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