FSM SUPREME COURT TRIAL DIVISION
CIVIL ACTION NO. 2005-007

CARLOS ETSCHEIT SOAP COMPANY,
Plaintiff,

vs.

ERINE McVEY and DO IT BEST HARDWARE,
a business organization, and BOARD OF TRUSTEES
OF THE POHNPEI STATE PUBLIC LANDS TRUST,
Defendants.
_______________________________________________

ORDER SUSTAINING DETERMINATION AND CONFIRMING AWARD

Larry Wentworth
Associate Justice

Decided:  January 3, 2019

APPEARANCES:

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

For the Defendants:	Marstella E. Jack, Esq.
P.O. Box 2210
Kolonia, Pohnpei FM 96941

For the Defendant (Board of Trustees):	Monaliza Abello-Pangelinan, Esq.
Assistant Attorney General
Pohnpei Department of Justice
P.O. Box 1555
Kolonia, Pohnpei FM 96941

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HEADNOTES

Civil Procedure - Parties - Substitution of
When a business defendant is now operating under a new banner, any party may move to substitute it as the original defendant’s successor in interest; otherwise the action will continue against the original defendant.  Carlos Etscheit Soap Co. v. McVey, 22 FSM R. 137, 139 n.1 (Pon. 2019).

Administrative Law - Judicial Review
The Pohnpei Code sets out a court’s scope of review of Pohnpei agency decisions.  Carlos Etscheit Soap Co. v. McVey, 22 FSM R. 137, 140 (Pon. 2019).

Administrative Law - Judicial Review; Property - Public Lands
A court will not overturn a Pohnpei Public Lands Trust Board decision for which there was a rational basis unless that decision was rendered unlawfully - in violation of one or more subsections of 8 Pon. C. § 3-104(2).  Carlos Etscheit Soap Co. v. McVey, 22 FSM R. 137, 143 (Pon. 2019).

Administrative Law - Judicial Review
The proper test is whether there is a rational basis for the administrative order and when a determination is made and the board has not acted in excess of its jurisdiction, in violation of lawful procedure, arbitrarily, or in abuse of its discretionary power the courts have no alternative but to confirm its determination.  Carlos Etscheit Soap Co. v. McVey, 22 FSM R. 137, 143 (Pon. 2019).

Administrative Law - Judicial Review; Evidence - Burden of Proof
Rationality is what is reviewed under both the substantial evidence rule and the arbitrary and capricious standard.  An action is arbitrary and capricious when it is taken without sound basis in reason or regard to the facts.  Carlos Etscheit Soap Co. v. McVey, 22 FSM R. 137, 143-44 (Pon. 2019).

Administrative Law - Judicial Review; Property - Public Lands
A Public Lands Trust Board decision had a sound basis in reason and with regard to the facts when it favored the expansion of an existing business that serves the general population over another’s proposed new business that would serve a narrow market segment because it was not unreasonable or irrational for the Board to favor assisting or encouraging an existing business with a proven track record rather than take a chance on the possible success of a proposed new development of uncertain utility or usefulness; because the Board had sufficient evidence upon which to make this determination; and because it followed procedures that should have assured a fair and rational decision-making process.  Carlos Etscheit Soap Co. v. McVey, 22 FSM R. 137, 144 (Pon. 2019).

Evidence - Burden of Proof
Substantial evidence need not be much evidence, and though "substantial" means more than a mere scintilla, or some evidence, it is less than is required to sustain a verdict being attacked as against the great weight and preponderance of the evidence.  Carlos Etscheit Soap Co. v. McVey, 22 FSM R. 137, 144 n.4 (Pon. 2019).

Administrative Law - Judicial Review
The substantial-evidence rule, codified at 8 Pon. C. § 2-104(2)(e), provides that the Public Lands Trust Board’s factual findings will not be overturned if there is substantial evidence to support those findings.  The substantial-evidence rule is a very deferential standard of review.  Carlos Etscheit Soap Co. v. McVey, 22 FSM R. 137, 144 n.4 (Pon. 2019).

Administrative Law - Judicial Review
Even when there is evidence upon which the Board might have reached a different result, the scope of judicial review is limited to a determination whether the board could reasonably reach its results upon the evidence before it, and a reviewing court is not privileged to substitute its findings for those of the board even though the court might have reached a different conclusion if it had made the original determination upon the same evidence the board considered.  Carlos Etscheit Soap Co. v. McVey, 22 FSM R. 137, 144 (Pon. 2019).

Administrative Law - Judicial Review
If the court finds that a Pohnpei agency’s determination is supported by a rational basis, it must sustain the determination even if the court concludes that it would have reached a different result than the one reached by the agency.  Carlos Etscheit Soap Co. v. McVey, 22 FSM R. 137, 144 (Pon. 2019).
Property - Public Lands
Being the prior lessee of Pohnpei public land does not entitle that party to an automatic renewal of its lease upon request, especially when the lessee has not yet developed the lot.  Carlos Etscheit Soap Co. v. McVey, 22 FSM R. 137, 145 (Pon. 2019).

Administrative Law - Judicial Review; Property - Public Lands
When the Public Lands Trust Board, in reaching its decision, did not act in excess of its jurisdiction, or violate lawful procedure, or act arbitrarily and capriciously, or in abuse of its power, the court has no alternative but to confirm the Board’s determination that the lot should be leased to one of two bidders.  Carlos Etscheit Soap Co. v. McVey, 22 FSM R. 137, 145 (Pon. 2019).

Civil Procedure - Summary Judgment - For Nonmovant
When a party’s summary judgment motion has been denied as a matter of law and it appears that the nonmoving party is entitled to judgment as a matter of law, a court may grant summary judgment to the nonmoving party in the absence of a cross motion for summary judgment if the original movant has had an adequate opportunity to show that there is a genuine factual issue and that its opponent is not entitled to judgment as a matter of law.  Carlos Etscheit Soap Co. v. McVey, 22 FSM R. 137, 145 n.7 (Pon. 2019).

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COURT’S OPINION

LARRY WENTWORTH, Associate Justice:

On June 11, 2018, the plaintiff, the Carlos Etscheit Soap Company ("Soap Company"), filed its Motion for Summary Judgment (Pohnpei Board of Trustees).  On July 6, 2018, Erine McVey and Do It Best Hardware (collectively "McVey") filed their Opposition to Plaintiff’s Motion for Summary Judgment, and, on July 16, 2018, the Soap Company filed a Reply Supporting Motion for Summary Judgment (Pohnpei Board of Trustees).  During the August 28, 2018 hearing, the court allowed further filings.  Thus, on August 29, 2018, the Board of Trustees of the Pohnpei Public Lands Trust ("Board") filed the Defendant Board’s Opposition to Plaintiff’s Motion for Summary Judgment, and on September 12, 2018, the Soap Company filed its Reply Supporting Motion for Summary Judgment (Pohnpei Board of Trustees).

On October 22, 2018, the Board filed a Supplemental to Their Opposition to Plaintiff’s Motion for Summary Judgment and Motion for Leave of Court, in which it asked that its opposition to the Soap Company’s summary judgment motion also be considered as its own cross-motion for summary judgment.  No response was filed.  The court therefore considers all these filings to be before it and this matter to be submitted to it for its decision.

Based on these filings, counsel’s presentations, and Pohnpei statutory law, the court denies the Soap Company’s summary judgment motion, grants summary judgment in the defendants’ favor, and thus sustains the Board’s lease of Lot No. 014-A-08 to McVey (and Do It Best Hardware1).  The court’s reasons follow.
I.  Background

This case’s procedural background and history are, for the most part, adequately set forth in Carlos Etscheit Soap Co. v. McVey, 17 FSM R. 427, 430-33 (App. 2011) and Carlos Etscheit Soap Co. v. McVey, 21 FSM R. 525, 528-30 (App. 2018), and need not be repeated here.  What is of immediate interest is that the court, in its February 29, 2016 decision, considered the Board’s award of the Lot No. 014-A-08 lease to McVey, and ruled that:

The Board is correct that the court’s scope of review of the Board’s decisions is limited by Pohnpei Code, Title 8, Section 3-104(2) and that the court will not overrule Board decisions for which there was a rational basis except when that decision was rendered in violation of Section 3-104(2).  The court, however, is unable to glean from what is before it the basis of the Board’s award and is unsure on what basis the Board did make its decision.  The court does not want to speculate about the reasons for the Board’s award to McVey.

The Board’s decision is therefore vacated and the matter remanded to the Board so that that defect can be remedied.  Since the Board’s membership may have changed since 2013, the Board may hold a new hearing on the parties’ competing bids.  The Board will then decide which party should be awarded the Lot No. 014-A-08 leasehold.  Then, the Board will need to give some general outline of the reason or reasons why it choose one bid over the other.  That way, the court will have some understanding of what it is being asked to review under 8 Pon. C. § 3-104(2).  The court realizes that this presents some difficulties in a body where decisions are reached by majority vote and the members in the majority may have different reasons for voting the way they did.  Nevertheless, those casting their votes for the majority may put a brief statement on the record stating why, under the Board’s criteria, that the competing bid that they chose is preferable or superior to the other bid.  This can be done either singularly or jointly.  It may be written or could be made orally on the record during the public deliberations.

Order Disposing of Motions and Remanding Matter at 2-3 (Feb. 29, 2016).  The Board put the Lot No. 014-A-08 leasehold out to bid in April 2016.  McVey and the Soap Company both submitted bids.  The Board held hearings on June 24, and August 1, 2016.

In September 2016, the Board met again and awarded the Lot No. 014-A-08 lease to McVey.  It then notified the parties.  The Soap Company appealed that award back to this court.  On January 26, 2017, McVey moved to compel the Board to give its reasons for the award.  On March 17, 2017, the court ruled that:

The Board has made its decision but has not given its reasons for its decision.

Now therefore it is hereby ordered that the motion to compel is granted and that the Board, since it did not make its reasons known orally when it made the award, shall put their reasoning in writing and serve their written reasoning on the parties and file it with this court . . . .

Order Addressing Motions at 2 (Mar. 17, 2017).

On April 17, 2017, the Board filed its written decision, including supporting exhibits and transcripts.  The Board stated that it used three criteria to evaluate the parties’ competing bids:  "1) Demand, 2) Impact, and 3) Investment."  Decision of the Board of Trustees of the Pohnpei State Public Lands Trust at 3 (Apr. 17, 2017).  It elaborated that:

The first criteria (Demand) relates to whether there is a higher percentage or need for this type of business locally.  The second criteria (Impact) relates to the impact of such business on the local communities in Pohnpei and the third (Investment) relates to whether such investment improves the livelihood of the people of Pohnpei.

Id.  The Board concluded that there was more demand for the expansion of McVey’s existing hardware business, including the sale of metal building materials unavailable elsewhere on Pohnpei, than there was for a new motor boat store and marina catering to Pohnpei residents who go fishing out to sea, and that it would have a more positive impact on Pohnpei and thus be a better investment for Pohnpei and its citizens.  Id. at 4.

II.  Summary Judgment Motion

The Soap Company now seeks summary judgment to overturn the Board’s decision and award.  The Soap Company contends that its due process rights were violated because the Board’s decision had insufficient factual support, did not satisfy this court’s remand orders, and was arbitrary and capricious.  In its view, the Board’s action was arbitrary and capricious because the Soap Company presented a detailed plan to develop Lot No. 014-A-08, in conjunction with Lots No. 014-A-05, 014-A-06, and 014-A-10, as a marina and marine hardware store, and the Board did not analyze that plan’s details.  The Soap Company currently holds leases on all these other lots, plus Lot No. 014-A-09, a lot that consists of a long jetty or dock, extending into the lagoon, with public access to it between Lot No. 014-A-08 and Lot No. 014-A-10, but contends that its possession of Lot No. 014-A-08 is an absolute necessity for it to pursue its marina development plan.2

The Soap Company further contends that the Board’s decision was based on erroneous factual findings.  The Soap Company argues that, although the Board tried to establish some basic criteria (demand, impact, and investment) for its decision, it did not use those criteria when it compared the two competing bids, and that it did not make reference to any specifics from either bid.  It further argues that the Board did not consider that, while the Soap Company was seeking to establish a new business, McVey was seeking to expand an existing business, which was already operating on another lot, and would continue to operate and provide those services that the Board mentioned in its decision, even if the Soap Company was awarded Lot No. 014-A-08.  The Soap Company also complains that Board did not discuss the effect of the Soap Company being Lot No. 014-A-08’s last lessee who was now seeking to renew that lease.  The Soap Company, pointing to the Board’s prior due process violations in this matter, suggests that the Board has a history of bias against it, which is now being repeated.

The Soap Company asserts that, if the Board had considered all these points3 in the manner it suggests, the Board would have made what, in the Soap Company’s view, was the only rational decision and awarded it the Lot No. 014-A-08 lease.  Since, as a part of procedural due process, government agencies must follow procedures calculated to assure a fair and rational decision-making process, the Soap Company asserts that the Board’s most recent award violates its constitutional due process rights.  The Soap Company argues that it should either be granted summary judgment or the matter should be set for trial on the issue of whether the Board provided due process to the Soap Company.

McVey retorts that the Soap Company questions the Board’s ability to intelligently decide what development is best for Pohnpei.  McVey scoffs at the notion that the Board is biased against the Soap Company, arguing that if the Board were biased, the Soap Company would not hold the many other Board-granted public land leases that it does.  McVey further notes that the 2016 Board membership differed greatly from those earlier Boards that made the prior awards.  McVey asserts that she presented the Board with enough evidence to justify the Board’s decision, which should thus be permitted to stand.

McVey questions the Soap Company’s sincerity in proposing to develop a motor boat store and marina as the Soap Company is now erecting an auto parts store on its adjoining leased lots, which the Soap Company had asserted were all integral parts of its proposed marina, and for which the Soap Company claimed that Lot No. 014-A-08 was an absolute necessity.  McVey implies that the Soap Company’s true motive in pursuing the Lot No. 014-A-08 lease is to put obstacles in a business competitor’s way as both are in the hardware business.

The Board contends that the Soap Company’s appeal is without merit.  The Board asserts that its decision complies with the court’s February 29, 2016 and March 17, 2017 orders, because the Board analyzed the competing bids for the Lot No. 014-A-08 lease using objective criteria.  It also asserts that, since its decision had a rational basis, it was thus neither arbitrary nor capricious, and should not be set aside.

III.  Analysis

A.  Scope of Judicial Review of Board’s Decision

The Pohnpei Code sets out the court’s scope of review of the Board’s decisions.  The relevant statute provides that:

To the extent necessary to render a decision and when presented, the court shall decide all relevant questions of law, interpret constitutional and statutory provisions, and determine the meaning or applicability of the terms of any agency action.  The court shall:

(1) Compel agency action unlawfully withheld or unreasonably delayed; and

(2) Hold unlawful and set aside agency action, findings and conclusions found to be:

(a) Arbitrary, capricious, an abuse of discretion or otherwise not in accordance with law;

(b) Contrary to constitutional right, power, privilege or immunity;

(c) In excess of statutory jurisdiction, authority or limitations, or short of statutory right;

(d) Without observance of procedure required by law;

(e) Unsupported by substantial evidence in a case reviewed on the record of any agency hearing provided by statute; or

(f) Unwarranted by the facts to the extent that the facts are subject to a trial de novo by the court.

(3) In making the foregoing determinations, the court shall review the whole record or those parts of it cited by a party, and due account shall be taken of the rule of prejudicial error.

8 Pon. C. § 3-104.  The court thus will not overturn Board decisions for which there was a rational basis unless that decision was rendered unlawfully - rendered in violation of one or more subsections of Section 3-104(2).  Thus,

the proper test is whether there is a rational basis for the administrative orders . . . and where a determination is made and the [board] has not acted in excess of [its] jurisdiction, in violation of lawful procedure, arbitrarily, or in abuse of [its] discretionary power . . . the courts have no alternative but to confirm [its] determination.

Pell v. Board of Educ., 313 N.E.2d 321, 325 (N.Y. 1974); see also International Bridge Corp. v. Yap, 9 FSM R. 390, 396 (Yap 2000) (reviewing court may not overturn a state agency’s decision unless the challenger meets the heavy burden of showing that the decision had no rational basis or involved a clear and prejudicial violation of applicable statutes or regulations).

B.  Was Board Decision Arbitrary and Capricious or Otherwise Unsound?

The Soap Company argues that its due process rights were violated because the Board’s decision had insufficient factual support, did not satisfy this court’s remand orders, and was arbitrary and capricious.  The Soap Company thus contends that the Board violated § 3-104(2)(e) (insufficient factual support); § 3-104(2)(d) (failure to follow or satisfy the court’s remand instructions); § 3-104(2)(b) (due process violation); and § 3-104(2)(a) (arbitrary and capricious decision).

The Board would fail to satisfy the court’s remand instructions and would thus violate the Soap Company’s procedural due process rights, if the Board did not hold a new hearing on the parties’ competing bids, or if it did not then decide which party should be awarded the Lot No. 014-A-08 leasehold, or if it did not give some general outline of the reason or reasons why it chose one bid over the other - why, under its criteria, that bid was preferable or superior to the other bid.  The Board did all of these things (although it did need some prodding by the court before it gave its reasons why it chose the McVey bid).

The Board would also violate the Soap Company’s procedural due process rights, if the Board’s decision had insufficient factual support or was otherwise arbitrary and capricious.  "Rationality is what is reviewed under both the substantial evidence rule and the arbitrary and capricious standard."  Pell, 313 N.E.2d at 325.  "An action is arbitrary and capricious when it is taken without sound basis in reason or regard to the facts."  Peckham v. Calogero, 911 N.E.2d 813, 816 (N.Y. 2009).

The Board’s decision had a sound basis in reason and with regard to the facts.  The Board, in its decision, favored the expansion of McVey’s existing business that serves the general population over the Soap Company’s proposed new business that would serve a narrow market segment - boat buyers and users.  It is not unreasonable or irrational for the Board to favor assisting or encouraging an existing business with a proven track record rather than take a chance on the possible success of a proposed new development of uncertain utility or usefulness.  A review of the record discloses that the Board had sufficient evidence upon which to make this determination.  That review further discloses that the Board followed procedures that should have assured a fair and rational decision-making process.

Admittedly, any evidence about an enterprise’s future business prospects is, by its nature, somewhat speculative.  Nevertheless, the Board had substantial evidence4 before it from which it could infer that an expansion of McVey’s hardware business would be useful to a much broader segment of Pohnpei than the Soap Company’s proposed marina might be.  The court is mindful that:

Even though there is evidence upon which the Board . . . might have reached a different result, the scope of judicial review is limited to a determination whether the board could reasonably reach its results upon the evidence before it and a reviewing court is not privileged to substitute its findings for those of the board even though the court might reach a different conclusion if it had made the original determination upon the same evidence considered by the board.

Harris v. Daniels, 567 S.W.2d 954, 957 (Ark. 1978).  Thus, "[i]f the court finds that the [Board’s] determination is supported by a rational basis, it must sustain the determination even if the court concludes that it would have reached a different result than the one reached by the agency."  Peckham, 911 N.E.2d at 816.

The court therefore sustains the Board’s determination.  The court doubts that it would have reached a different result even if it had tried the facts de novo.  The court, in its factual findings made after the August 20-21, 2014 damages trial,5 noted that between the Soap Company’s other lots and Lot No. 014-A-08 lay a long jetty [Lot No. 014-A-09] over which the Soap Company also has a leasehold, and which extends into the lagoon.  Findings of Fact & Conclusions of Law at 3 (Nov. 10, 2014).6  The court was thus not convinced that the Soap Company’s marina project was as dependent on Lot No. 014-A-08 as it insisted.  Id.  The court further notes that McVey’s business is hemmed in by Lot No. 014-A-08 and does not appear to have any room to expand other than that lot.

The court has previously held that, as a matter of law, being the prior lessee did not entitle the Soap Company to an automatic renewal of its lease upon request, especially when, as here, the lessee has not yet developed the lot.  Carlos Etscheit Soap Co. v. McVey, 17 FSM R. 102, 111 (Pon. 2010).  The appellate court affirmed the trial court ruling that the Soap Company lease agreement did not contain a provision entitling the lessee to an automatic right of renewal.  Carlos Etscheit Soap Co. v. McVey, 17 FSM R. 427, 438 (App. 2011).  The trial court, after remand and trial, then declined to order lease renewal as relief, Findings of Fact & Conclusions of Law at 3-5 (Nov. 10, 2014), which was affirmed by the appellate court, Carlos Etscheit Soap Co. v. McVey, 21 FSM R. 525, 536 (App. 2018).  The court has held that "[t]he Board in the past has occasionally revoked a lease for failure to develop a lot but has not refused to renew a lease when there was some development.  Nevertheless, there is always a first time."  Findings of Fact & Conclusions of Law at 4 (Nov. 10, 2014), aff’d, 21 FSM R. at 535-36 (App. 2018).  The Board was thus not required to award the lease to the Soap Company for no reason other than the Soap Company was the prior lessee.

Since the Board, in reaching its September 2016 decision, did not act in excess of its jurisdiction, or violate lawful procedure, or act arbitrarily and capriciously, or in abuse of its power, the court has no alternative but to confirm the Board’s determination that Lot No. 014-A-08 should be leased to McVey.  The court must therefore, as a matter of law, deny the Soap Company’s summary judgment motion and grant summary judgment to the defendants.7

IV.  Conclusion

Accordingly, the Soap Company’s summary judgment motion is denied, summary judgment is granted in the Board’s (and McVey’s) favor, and therefore the Board’s determination is sustained and its award to McVey of the Lot No. 014-A-08 leasehold is confirmed.  It is further ordered that the preliminary injunction in this matter shall be dissolved forty-five days from the entry of this order, after which the posted bond will be returned to the Soap Company.

The clerk shall issue a judgment in conformity with this decision.  The prior justice’s decision, affirmed on appeal, that the Board is liable to the Soap Company for $212.70, shall be included in the judgment.

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