FSM SUPREME COURT TRIAL DIVISION

CIVIL ACTION NO. 2012-1027

CHUUK HEALTH CARE PLAN,
Plaintiff,

vs.

DEPARTMENT OF EDUCATION, STATE OF CHUUK, and FSM NATIONAL GOVERNMENT,
Defendants,

------------------------------------------------

DEPARTMENT OF EDUCATION and STATE OF CHUUK,
Cross-Claimants,

vs.

FSM NATIONAL GOVERNMENT,
Cross-Defendants.
_____________________________________________

ORDER GRANTING PARTIAL SUMMARY JUDGMENT

Martin G. Yinug
Chief Justice

Decided: January 3, 2013

APPEARANCES:

For the Plaintiff: Johnny Meippen, Esq.
P.O. Box 705
Weno, Chuuk FM 96942

For the Defendants: Aaron L. Warren, Esq.
Assistant Attorney General
Office of the Chuuk Attorney General
P.O. Box 1050
Weno, Chuuk FM 96942

For the Defendant: Lorrie Johnson-Asher, 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 - Pleadings
Paragraphs in an answer that do not contain any factual allegations on which a claim for relief could be based but which, if carefully read in conjunction with the movants' cross-claim against the pleader, are an answer to the movants' own cross-claim and are not a new cross-claim by the pleader, and thus, a motion to dismiss the "cross-claim" in those paragraphs will be denied. Chuuk Health Care Plan v. Department of Educ., 18 FSM Intrm. 491, 494-95 (Chk. 2013).

Civil Procedure - Pleadings - Amendment
Since an answer is not a pleading for which a responsive pleading is required, a party filing an answer has only 20 days within which to amend its answer without seeking and obtaining either the leave of court or the written consent of the adverse party. The answering party cannot avoid Rule 15 by reserving the right to unilaterally amend its pleadings whenever it feels like it. Chuuk Health Care Plan v. Department of Educ., 18 FSM Intrm. 491, 495 (Chk. 2013).

Civil Procedure - Summary Judgment - Grounds
Under Rule 56, a court must deny a summary judgment motion unless it, viewing the facts and inferences in the light most favorable to the nonmovant, finds that there is no genuine issue of material fact and that the movant is entitled to judgment as a matter of law, and, in order to succeed on a summary judgment motion, a movant plaintiff must also overcome all affirmative defenses that the defendant has raised. Chuuk Health Care Plan v. Department of Educ., 18 FSM Intrm. 491, 495 (Chk. 2013).

Civil Procedure - Pleadings
The right to insert additional affirmative defenses in the indefinite future when additional information is revealed is not itself an affirmative defense. It is only an assertion that the party might want to plead an additional, currently unknown affirmative defense at some unknown later date. Chuuk Health Care Plan v. Department of Educ., 18 FSM Intrm. 491, 495 (Chk. 2013).

Civil Procedure - Pleadings
Rule 8(c) requires that affirmative defenses be raised in a responsive pleading (an answer) if not raised in a pre-answer motion. Chuuk Health Care Plan v. Department of Educ., 18 FSM Intrm. 491, 495-96 (Chk. 2013).

Civil Procedure - Pleadings
When a party has already filed an answer, that answer should contain all of the party's affirmative defenses. Chuuk Health Care Plan v. Department of Educ., 18 FSM Intrm. 491, 496 (Chk. 2013).

Civil Procedure - Pleadings - Amendment
If a party decides that it needs to assert an affirmative defense that was not pled in its answer, it may amend its answer as a matter of right only within 20 days of its answer. Otherwise, to amend its answer to add another affirmative defense, the party must seek and obtain either the leave of court or the adverse party's written consent. A party must adhere to Rule 15(a) if and when it wishes to assert an additional affirmative defense. Chuuk Health Care Plan v. Department of Educ., 18 FSM Intrm. 491, 496 (Chk. 2013).

Federalism - National/State Power; Insurance
Under the FSM Constitution, the power to establish systems of social security and public welfare may be exercised concurrently by Congress and the states. The State of Chuuk therefore has the constitutional authority to establish a system of health insurance since it is a system created to promote and advance the public welfare of Chuuk. Chuuk Health Care Plan v. Department of Educ., 18 FSM Intrm. 491, 496 (Chk. 2013).

Insurance
Every Chuuk state employee is automatically an enrollee in the Chuuk Health Care Plan by operation of law since under the Chuuk Health Care Plan Act every Chuuk resident (except unemployed noncitizens who are not dependents of enrollees) is enrolled in and is eligible to receive benefits and "resident' means any citizen of Chuuk for whom Chuuk is his principal residence or any noncitizen who has established an ongoing physical presence in Chuuk and whose presence is sanctioned by law and is not merely transitory in nature. Chuuk is an employer as defined by the Act. Chuuk Health Care Plan v. Department of Educ., 18 FSM Intrm. 491, 496 (Chk. 2013).

Insurance
The FSM does not need each state employee to individually notify it that the employee is enrolled in the Chuuk Health Care Plan since the Act provides for universal coverage for Chuuk residents. Chuuk Health Care Plan v. Department of Educ., 18 FSM Intrm. 491, 496 (Chk. 2013).

Federalism - National/State Power; Insurance
Payment of Chuuk state employees' contributions and of the employer's contribution out of the Chuuk state funds held in the FSM Treasury is not be a tax or a levy on the national government or an illegal expenditure of FSM funds since the payment would be from Chuuk state funds and, because the obligation to withhold the Plan insurance premium contributions arises by operation of law, the Plan insurance premium contributions would be properly obligated and should be paid. Chuuk Health Care Plan v. Department of Educ., 18 FSM Intrm. 491, 496-97 (Chk. 2013).

Contracts - Third-Party Beneficiary; Sovereign Immunity
The FSM cannot raise a sovereign immunity defense when it has statutorily waived its sovereign immunity for damages arising out of the improper administration of FSM statutory laws and when a sound basis for the FSM's waiver of sovereign immunity may be the waiver for claims, whether liquidated or unliquidated, upon an express or implied contract with the FSM because the Memorandum of Understanding between Chuuk and the FSM provides that the FSM handles, processes, and pays the Chuuk Special Education Program payroll. Since that express contract obligates the FSM to make all properly obligated withholdings from the employees' pay, the Chuuk Health Care Plan is, by statute, an intended third-party beneficiary of the contract between the FSM and Chuuk so that the Plan's claim is therefore a claim based on Chuuk's contract with the FSM. Chuuk Health Care Plan v. Department of Educ., 18 FSM Intrm. 491, 497 (Chk. 2013).

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COURT'S OPINION

MARTIN G. YINUG, Chief Justice:

This comes before the court on 1) the plaintiff's Motion for Partial Summary Judgment, filed July 24, 2012; 2) the defendant-cross-claimants' Motion to Dismiss, filed September 24, 2012; 3) Defendant FSM's Motion in Opposition to Plaintiff's Motion for Partial Summary Judgment; Motion in Opposition to Defendant Chuuk State's Motion to Dismiss; FSM's Motion for Summary Judgment, filed October 20, 2012, with supporting exhibits and affidavits; and 4) Plaintiff's Reply to Defendant FSM National Government's Opposition to Plaintiff's Motion for Partial Summary Judgment, filed October 22, 2012. The plaintiff's motion for partial summary judgment is granted and the FSM's summary judgment motion is denied. The reasons follow.

I. The Relief Sought by the Motions

The plaintiff, Chuuk Health Care Plan ("the Plan"), seeks a summary judgment that the defendant State of Chuuk is an employer within the Chuuk Health Care Plan Act, Chk. S.L. No. 2-94-06. The Plan contends that since both the FSM national government and Chuuk assert that, although paid by the FSM national government with funds that originate from a U.S. Federal Special Education Grant, the Chuuk special education workers are Chuuk state employees and not FSM national government employees, the Plan is therefore entitled to summary judgment that the national government is liable to withhold the employees' health insurance contributions and pay them to the Plan.

The FSM moves for summary judgment on the claims and cross-claims against it because, in its view, it is not obligated to deduct health insurance premium contributions from any special education workers' pay unless that worker indicates that he or she wishes to participate in that plan because enrollment in the Plan is an option that the employee must first exercise. The FSM avers that it has never received any listing indicating that certain Chuuk State Special Education Program employees have enrolled in the Chuuk Health Care Plan, and because it has not, the Plan does not have and cannot show a factual basis for its partial summary judgment motion. The FSM asserts that it is under no legal obligation to pay the Plan's insurance premiums and is therefore entitled to summary judgment as a matter of law.

The defendant-cross-claimant State of Chuuk and the Department of Education (collectively "Chuuk") move to dismiss the FSM's cross-claim against them because the FSM's "cross-claims" are merely legal conclusions that do not set forth any factual allegations on which a claim for relief may be based.

II. The Motions

A. Chuuk's Motion to Dismiss

Chuuk moves to dismiss the FSM cross-claims, paragraphs 9-12 of the FSM's June 22, 2012 Answer, which state in full:

9. Impossibility of Chuuk State Government, to use an unconstitutional provision, to tax FSM National Government;

10. Impossibility of Chuuk State Government, to use an unconstitutional provision, to require the FSM National Government to pay for a premium of a health plan;

11. The Special Education Program in question under the Chuuk State Department of Education. All hiring and firing of employees and administration of the program are governed under Chuuk State Laws and Regulation.

12. Defendants hereby reserve the right to insert additional cross-claims in the future when additional information is revealed.

Def.'s Answer at [unnumbered] 3-4 (June 22, 2012). Chuuk contends that since these paragraphs do not contain any factual allegations which could state a claim on which relief could be granted, these paragraphs do not and cannot constitute a cross-claim. Chuuk is correct that those paragraphs do not contain any factual allegations on which a claim for relief could be based, but paragraphs 9-11, if carefully read in conjunction with Chuuk's own cross-claim against the FSM in Chuuk's April 20, 2012 Answer and Cross-Claim, are an answer to Chuuk's own cross-claim and are not a new cross-claim by the FSM. Accordingly, the motion to dismiss the "cross-claim" in Paragraphs 9-11 is denied.

Chuuk's motion to dismiss is, however, granted as to Paragraph 12. Paragraph 12 purports to reserve to the FSM a right to amend its pleading at some indefinite future date. Since the FSM's answer is not a pleading for which a responsive pleading is required, the FSM had only 20 days within which to amend its answer without seeking and obtaining either the leave of court or the "written consent of the adverse party." FSM Civ. R. 15(a). The FSM cannot avoid Rule 15 by reserving the right to unilaterally amend its pleadings whenever it feels like it. Paragraph 12, to the extent that it was meant to assert a cross-claim, is therefore dismissed.

B. Summary Judgment Motions

The Plan and the FSM have filed cross motions for summary judgment on the issue of whether the FSM is liable to pay to the Plan the health insurance premium contributions for the Chuuk Special Education Program employees. Under Rule 56, the court must deny a summary judgment motion unless it, viewing the facts and inferences in the light most favorable to the nonmovant, finds that there is no genuine issue of material fact and that the movant is entitled to judgment as a matter of law. Rosario v. College of Micronesia-FSM, 11 FSM Intrm. 355, 358 (App. 2003); Iriarte v. Etscheit, 8 FSM Intrm. 231, 236 (App. 1998). In order to succeed on a summary judgment motion, a movant plaintiff (in this case, the Plan) must also overcome all affirmative defenses that the defendant has raised. Saimon v. Wainit, 16 FSM Intrm. 143, 146 (Chk. 2008); Zion v. Nakayama, 13 FSM Intrm. 310, 312 (Chk. 2005).

The material facts are not in dispute. The Chuuk Special Education Program employees are state government employees, not national government employees. No health insurance premium contributions have been paid to the Plan for their coverage. The FSM handles and processes the funds from which the Chuuk Special Education Program employees are paid. No health insurance premium contributions have been paid to the Plan from those funds.

1. Affirmative Defenses Raised by Chuuk and the FSM

Chuuk's pleadings raise three affirmative defenses - the failure to state a claim on which relief can be granted; the impossibility for Chuuk to deduct the Plan's health case insurance premiums since the national government processes and issues the paychecks for the Chuuk Special Education Program employees, not Chuuk; and the doctrine of sovereign immunity. The Plan is seeking partial summary judgment only against the FSM and only on the issue of whether the FSM is liable to the Plan for the health insurance premium contributions. The Plan therefore does not have to overcome Chuuk's affirmative defenses, one of which - that the FSM is liable for premium contributions, not Chuuk - is nevertheless consistent with the Plan's position.

The FSM raises affirmative defenses of illegality; the failure to state a claim on which relief can be granted; the unconstitutionality of the Plan's claims; estoppel; federalism; sovereign immunity; and "the right to insert additional affirmative defenses in the future when additional information is revealed." Def.'s Answer at [unnumbered] 2-3 (June 22, 2012). The right to insert additional affirmative defenses in the indefinite future when additional information is revealed is not itself an affirmative defense. It is only an assertion that the FSM might want to plead an additional, currently unknown affirmative defense at some unknown later date. "In pleading to a preceding pleading, a party shall set forth affirmatively . . . any . . . matter constituting an avoidance or affirmative defense." FSM Civ. R. 8(c). Rule 8(c) thus requires that affirmative defenses be raised in a responsive pleading (an answer), Tractor & Equip. Corp. v. Chain Belt Co., 50 F. Supp. 1001, 1006 (S.D.N.Y. 1942), if not raised in a pre-answer motion, Smith-Haynie v. District of Columbia, 155 F.3d 575, 578 (D.C. Cir. 1998). Since the FSM has already filed an answer, that answer should contain all of the FSM's affirmative defenses. If the FSM decides that it needs to assert an affirmative defense that was not pled in its answer, it may amend its answer as a matter of right only within 20 days of its answer. FSM Civ. R. 15(a). Otherwise, to amend its answer to add another affirmative defense, the FSM must seek and obtain either the leave of court or the "written consent of the adverse party." Id. The court will therefore disregard the FSM's "reservation" of its right to plead additional affirmative defenses. The FSM must adhere to Rule 15(a) if and when it wishes to assert an additional affirmative defense.

The FSM's cross-motion for summary judgment is based on and intertwined with its affirmative defenses. The FSM contends that it must strictly adhere to the Memorandum of Understanding ("MOU") between the FSM and Chuuk under which the FSM holds the U.S. grant money in the FSM Treasury until disbursed in accordance with the MOU, FSM law, and the U.S. grant's terms. The FSM asserts and Chuuk and the Plan agree, that the Chuuk Special Education Program employees are state employees and not national government employees. The FSM asserts, as an affirmative defense, that, since it has not received any documentation that the Special Education Program employees have voluntarily enrolled in the Plan, that the Plan's attempt to collect health insurance premiums from it amounts to an attempt by the Plan, a state agency, to unconstitutionally impose state taxes on the national government or to illegally obtain premiums from employees who are not enrolled in the Plan.

2. The Plan's Right to Contributions

Under the FSM Constitution, the power "to establish systems of social security and public welfare" may be exercised concurrently by Congress and the states. FSM Const. art. IX, § 3(c). The State of Chuuk therefore has the constitutional authority to establish a system of health insurance since it is a system created to promote and advance the public welfare of Chuuk.

The Chuuk Health Care Act provides that "[e]very resident of Chuuk shall be enrolled in and shall be eligible to receive benefits as provided under this Act, except that unemployed noncitizen [sic] residing in the State who are not dependents of enrollees are not eligible, except as provided in Section 3-2 of the Act." Chk. S.L. No. 2-94-06, § 3-1. Under the Act, "'Resident' means any citizen of Chuuk for whom Chuuk is his principal residence, or any noncitizen who has established an ongoing physical presence in Chuuk and whose presence is sanctioned by law and is not merely transitory in nature." Id.§ 1-4(15). Thus every Chuuk state employee, and it is undisputed that the Chuuk Special Education Program employees are state employees and not national government employees, is automatically an enrollee in the Plan by operation of law. Chuuk is an employer as defined by the Act. Id.§§ 1-4(4), 1-4(10). And "'Enrollee' means any individual eligible to receive benefits under this Act . . . ." Id.§ 1-4(6).

The FSM does not need each state employee to individually notify it that the employee is enrolled in the Plan. The statute does that. It provides for universal coverage for Chuuk residents. Id.§ 4-7. As a result of the U.S. grant's terms, the U.S. grant money becomes Chuuk state funds earmarked to pay for a Chuuk state program and that program's employees even though, as per the MOU, the FSM national government keeps custody of the Chuuk funds in its treasury until those funds are properly obligated and then the FSM disburses the properly obligated funds. Payment of the employees' contributions for the Chuuk Special Education Program employees and of the employer's contribution out of the Chuuk state funds held in the FSM Treasury would thus not be a tax or a levy on the national government or an illegal expenditure of FSM funds since the payment would be from Chuuk state funds. Furthermore, since the obligation to withhold the Plan insurance premium contributions arises by operation of law, just like the obligation to withhold FSM social security contributions arises by operation of law, the Plan insurance premium contributions would be properly obligated and should be paid.

The FSM also pled the affirmative defense of sovereign immunity. The Plan contends that the FSM cannot raise that defense because it has statutorily waived its sovereign immunity for damages arising out of the improper administration of FSM statutory laws, 6 F.S.M.C. 702(2). This seems correct. But a sounder basis for the FSM's waiver of sovereign immunity may be the waiver for "[c]laims, whether liquidated or unliquidated, upon an express or implied contract with the Federated States of Micronesia." 6 F.S.M.C. 702(3). The MOU between Chuuk and the FSM provides that the FSM handles, processes, and pays the Chuuk Special Education Program payroll. That express contract (the MOU) obligates the FSM to make all properly obligated withholdings from the employees' pay. The Plan, like the FSM Social Security Administration, is not named in the MOU, but it is, also like Social Security, by statute, an intended third-party beneficiary of the contract between the FSM and Chuuk. The Plan's claim is therefore a claim based on Chuuk's contract with the FSM.

Furthermore, the FSM does not argue the sovereign immunity defense in its opposition to the Plan's summary judgment motion or assert it as a ground to grant its own summary judgment motion. The same goes for the unexplained assertion of estoppel as an affirmative defense. The court cannot conceive a situation in which estoppel would be a valid defense to a statutory liability to pay insurance premiums. The FSM's affirmative defenses do not prevent summary judgment in the Plan's favor on the issue of liability.

Having overcome the FSM's affirmative defenses and Chuuk's affirmative defenses not being applicable to the Plan's motion, the Plan is entitled to summary judgment that the FSM national government should be, and should have, withheld the employee contribution from the Chuuk Special Education Program employees's pay as well as pay the employer's (Chuuk's) contribution out of the Chuuk Special Education Program funds. The other state employees pay contributions into the Plan. So should the special education program employees. The FSM's cross-motion for summary judgment that it was not liable for any Plan insurance premium contributions must therefore be denied.

III. Conclusion

Accordingly, the Chuuk Health Care Plan is granted summary judgment that the FSM national government is liable to pay, out of the Chuuk Special Education Program funds it holds for Chuuk's benefit, both the employee and employer health insurance contributions for the Chuuk Special Education Program employees. The FSM's cross-motion for summary judgment is denied. This order does not establish the dollar amount that is due. The parties shall submit, no later than February 1, 2012, their proposals for further proceedings in this matter.

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