CHUUK STATE SUPREME COURT
TRIAL DIVISION

Cite as Hauk v. Board of Dirs.
11 FSM Intrm. 236 (Chk. S. Ct. Tr. 2002)

[11 FSM Intrm. 236]

GEORGE HAUK,
Plaintiff,

vs.

BOARD OF DIRECTORS; and
CHUUK COCONUT AUTHORITY,
Defendants.

CSSC-CA-NO. 188-1999

MEMORANDUM OF DECISION

Soukichi Fritz
Chief Justice

Trial:  May 20, 2002
Decided:  November 14, 2002

APPEARANCES:

For the Plaintiff:	Frank Casiano
Micronesian Legal Services Corporation
P.O. Box D
Weno, Chuuk FM 96942

For the Defendants:	Richard Anobad
Chuuk Coconut Authority
Weno, Chuuk FM 96942

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HEADNOTES

Attorney, Trial Counselor and Client
Normally, a quasi-governmental agency would be represented by private counsel not associated 

[11 FSM Intrm. 237]

with the agency.  Hauk v. Board of Dirs., 11 FSM Intrm. 236, 239 n.2 (Chk. S. Ct. Tr. 2002).

Evidence - Judicial Notice
Judicial notice may be taken of a statutory provision.  Hauk v. Board of Dirs., 11 FSM Intrm. 236, 240 (Chk. S. Ct. Tr. 2002).

Constitutional Law - Due Process
A plaintiff’s claims for damages resulting from violation of his due process rights depend upon whether the defendant’s actions were "state action."  Hauk v. Board of Dirs., 11 FSM Intrm. 236, 240 (Chk. S. Ct. Tr. 2002).

Constitutional Law - Due Process
If the court is unable to declare that the defendant authority is a quasi-governmental authority subject to the provisions of the due process clause of the Chuuk and FSM Constitutions, then the plaintiff’s due process claims must fail.  The plaintiff has the burden of proving that the defendant is a state actor.  Hauk v. Board of Dirs., 11 FSM Intrm. 236, 240 (Chk. S. Ct. Tr. 2002).

Constitutional Law - Due Process
An Authority that has its own Board of Directors, is solely empowered to select its own officers, may sue and be sued in its own name and is responsible for its own debts, and owns its own assets is an autonomous agency that cannot be declared to be subject to the due process provisions of the FSM and state constitutions, and must be declared a private entity and not a "state actor" for due process purposes.  Hauk v. Board of Dirs., 11 FSM Intrm. 236, 240-41 (Chk. S. Ct. Tr. 2002).

Torts - Infliction of Emotional Distress
One of the elements of an intentional infliction of emotional distress claim is that the plaintiff must have suffered some physical manifestation of the alleged infliction of emotional distress.  When the plaintiff neither alleged, nor proved at trial, any physical ailments or manifestations resulting from his termination from employment his claim must fail for lack of proof.  Hauk v. Board of Dirs., 11 FSM Intrm. 236, 241 (Chk. S. Ct. Tr. 2002).

Contracts - Interpretation
Ambiguities in a contract must be construed against the drafter.  Hauk v. Board of Dirs., 11 FSM Intrm. 236, 241 (Chk. S. Ct. Tr. 2002).

Contracts - Interpretation
In interpreting a contract, the words thereof are to be given their plain and ordinary meaning.  Hauk v. Board of Dirs., 11 FSM Intrm. 236, 241 (Chk. S. Ct. Tr. 2002).

Employer - Employee
When the employer is empowered to create bylaws in which the rights and obligations of employees with regard to termination might be spelled out, but none have been introduced into evidence in this case, only the terms of the contract itself may control the question of whether the plaintiff’s termination was in material breach of his employment agreement.  Hauk v. Board of Dirs., 11 FSM Intrm. 236, 241 (Chk. S. Ct. Tr. 2002).

Employer - Employee
An employee’s diversion of funds can be construed to violate employment contract provision that bars unethical conduct, but when the contract provides the employer with the right to terminate the employee if he does not discharge his duties and responsibilities to his "employer’s satisfaction," the employer could discharge the employee upon sixty days written notice if the employer was dissatisfied 

[11 FSM Intrm. 238]

in any manner with his job performance, even without the apparent ethical lapse which occurred.  Hauk v. Board of Dirs., 11 FSM Intrm. 236, 241-42 (Chk. S. Ct. Tr. 2002).

Contracts - Interpretation; Employer - Employee
When a contract provision for written notice of termination was inserted in the contract to assure that the employee had actual notice of the adverse action and when there is no dispute that the employee received actual notice of his termination, the employer’s failure to provide written notice is not actionable breach of contract.  Hauk v. Board of Dirs., 11 FSM Intrm. 236, 242 (Chk. S. Ct. Tr. 2002).

Contracts - Interpretation; Employer - Employee
When an employment contract has no provision for immediate termination under any circumstances, even where it is undisputed that the employer’s property was misappropriated by an employee under contract, the court, construing the contract against the drafter, must conclude that the employer was required to provide the employee with sixty days written notice of his termination, which must run from the date of actual notice of impending termination.  Hauk v. Board of Dirs., 11 FSM Intrm. 236, 242 (Chk. S. Ct. Tr. 2002).

Contracts - Damages
When a terminated employee was contractually entitled to sixty days notice of termination and he would have received $3,575 in gross salary during that period and when this sum must be reduced by the $2,000 the employee diverted, the employee is entitled to $1,575 damages from his employer arising from its breach of his employment contract.  Hauk v. Board of Dirs., 11 FSM Intrm. 236, 242 (Chk. S. Ct. Tr. 2002).

Torts - Damages
Absent any evidence of the cost of repair of a bushcutter, damages for its repair cannot be awarded.  Hauk v. Board of Dirs., 11 FSM Intrm. 236, 242 (Chk. S. Ct. Tr. 2002).

*    *    *    *

COURT’S OPINION

SOUKICHI FRITZ, Chief Justice:

I.  Statement of Facts and Procedural History

This action arises out of Plaintiff’s termination, in September, 1998, from his position as Executive Director of Defendant Chuuk Coconut Authority. In his complaint against the Authority and its Board of Directors, Plaintiff alleged five causes of action, including breach of written contract, violation of due process, loss of property (contending his employment was a property right, a due process claim), violation of the civil rights afforded FSM citizens by 11 F.S.M.C. 701, and infliction of emotional distress. Plaintiff sought monetary damages, including punitive damages, restoration of his position and back pay, or in the alternative compensation for the remainder of his written contract, and a declaration that the Authority is a "quasi-governmental authority . . . subject to the provision [sic] of the due process clause of the Chuuk State and FSM Constitutions."

[11 FSM Intrm. 239]

In its answer, the Authority admitted terminating the Plaintiff, but denied all of the material allegations of the complaint insofar as they alleged wrongful conduct of the Authority.  By way of counterclaim, the Authority alleged that the Plaintiff had been terminated for cause, in that he had wrongfully converted $2,000.00 in Authority funds and 100 gallons of Authority gasoline, valued at approximately $175.00.  The Authority sought restoration of the allegedly misappropriated funds and payment for the fuel, and costs including attorneys fees.  It raised no affirmative defenses in its answer.

Trial was held on May 20, 2002.  Plaintiff appeared personally and was represented by Counselor Frank Casiano of Micronesian Legal Services, Inc.  The Authority was represented by Counselor Richard Anobad, who is also the Chairman of the Board of Directors of the Authority, and thus a Defendant.  The Authority admitted terminating Plaintiff, and the parties stipulated that the Plaintiff had kept and failed to pay over to the Authority the sum of $2,000.00 left over from the funds used to purchase a used vehicle for the Authority.

The written employment contract was received in evidence. Additional evidence adduced at trial established that: (1) Plaintiff had been placed on administrative leave with pay for 30 days; (2) the Authority had met with the Plaintiff in the Governor’s Conference Room and advised him that he was terminated; (3) Plaintiff was not given any opportunity to be heard on his own behalf or present a defense to the accusations which resulted in his discharge; and (4) he was terminated without the sixty (60) days notice provided for in his written employment contract.  After closing argument – dedicated primarily to the question of Plaintiff’s due process rights to notice and an opportunity to be heard prior to his discharge – the matter was submitted for decision.

Judicial notice, Chk. Evid. R. 201, was taken of the statutory provision for Authority bylaws, Truk S.L. No. 1-1-12 § 1(6), on the grounds that the bylaws might affect the legal rights of the Plaintiff, especially his claimed right to notice and an opportunity to be heard prior to termination.  In order to complete the record, the Court ordered the Authority to provide a copy of the Authority bylaws to the Court.  In response, the Authority notified the Court that as far as it could determine no bylaws had been adopted.

The record being closed, the Court took the matter under advisement.  This memorandum sets forth the Court’s reasoning and its decision.

[11 FSM Intrm. 240]

II.  Analysis

A.  The Constitutional Claims

As Plaintiff anticipated, the claims for damages resulting from violation of his due process rights depend upon whether the actions of the Authority were "state action."  Livaie v. Micronesia Petroleum Co., 10 FSM Intrm. 659, 666 (Kos. S. Ct. Tr. 2002).  It is clear that if the Authority is other than a governmental entity — if the Court is unable to declare, as Plaintiff requests, that the Authority is a "quasi-governmental authority . . . subject to the provision [sic] of the due process clause of the Chuuk State and FSM Constitutions" — then Plaintiff’s due process claims must fail.  Semwen v. Seaward Holdings, Micronesia, 7 FSM Intrm. 111, 113 (Chk. 1995); Alik v. Kosrae Hotel Corp., 5 FSM Intrm. 294, 298 (Kos. 1992). The Plaintiff has the burden of proving that the defendant is a state actor.  Livaie, 10 FSM Intrm. at 667.

The language of the statute creating the Authority is clear and unambiguous.  Regarding the powers of the Authority, the statute provides that among others, the Authority has the power

(7) to sue and be sued in its own name; provided, that neither the [Chuuk] State Legislature, [Chuuk] State Government . . . shall be liable for any debts of the Authority, nor shall any action be brought in any court against the [Chuuk] State Legislature or [Chuuk] State Government . . . or any political subdivision thereof . . . because of any activities, actions, or omissions of the Authority, its officers, employees or agents.

Truk S.L. No. 1-1-12, § 1(4)(7) (modified).

The statute further provides, with regard to the debts of the Authority: "The debts and obligations of the Authority shall not be debts or obligations of the . . . [Chuuk] State Legislature or [Chuuk] State Government . . . and neither the . . . [Chuuk] State Legislature or [Chuuk] State Government . . . shall be responsible for the same."  Truk S.L. No. 1-1-12, § 1(9) (modified).

Similar circumstances were presented to the Kosrae Supreme Court, which held, in Livaie v. Micronesia Petroleum Co., 10 FSM Intrm. 659, 666-67 (Kos. S. Ct. Tr. 2002), that a state owned corporation was not a state actor:  When statutory provisions intend and ensure that an entity is run as a corporation with its own management and employees, and not as a state government agency, and when, although the state government remains its sole shareholder, the state government does not assume its debts, does not own its assets, and has no control over its day to day operations, it is not a "state actor" and its termination of an employee is therefore not a "state action."

As created, the Authority cannot be considered an agency of the State of Chuuk.  It has its own Board of Directors, Truk S.L. No.1-1-12, § 1(5), is solely empowered to select its own officers, id. § 1(5)(5), may sue and be sued in its own name and is responsible for its own debts, id. § 1(4)(7), and owns its own assets, id. § 1(4)(2), (3).

As an autonomous agency, the Authority cannot be declared to be subject to the due process 

[11 FSM Intrm. 241]

provisions of the FSM and State constitutions, and must be declared a private entity, and not a "state actor" for due process purposes.  Therefore, judgment must be entered in favor of the Authority on Plaintiff’s Second, Third and Fourth Causes of Action.

B.  The Emotional Distress Claim

Plaintiff’s Fifth Cause of Action appears to assert a claim for intentional infliction of emotional distress.  One of the elements of such a claim is that the Plaintiff must have suffered some physical manifestation of the alleged infliction of emotional distress. Eram v. Masaichy, 7 FSM Intrm. 223, 227 (Chk. S. Ct. Tr. 1995); Pau v. Kansou, 8 FSM Intrm. 524, 526 (Chk. 1998).  Plaintiff neither alleged, nor proved at trial, any physical ailments or manifestations resulting from his termination from employment.  Therefore, Plaintiff’s Fifth Cause of Action must fail for lack of proof, and judgment must be entered for the Authority on this cause of action as well.

C.  Breach of Contract

As his first cause of action, Plaintiff alleges that the Authority, by terminating him, breached the terms of his written contract assuring him of employment for a period of four years (until December, 2001).  In determining whether a breach of the contract occurred, certain rules of interpretation must be followed.

First, ambiguities in a contract must be construed against the drafter, in this case the Authority.  FSM Dev. Bank v. Ifraim, 10 FSM Intrm. 107, 111 (Chk. 2001); Bank of FSM v. Bartolome, 4 FSM Intrm. 182, 185 (Pon. 1990).  Second, in interpreting a contract, the words thereof are to be given their plain and ordinary meaning.  Dai Wang Sheng v. Japan Far Seas Purse Seine Fishing Ass’n, 10 FSM Intrm. 112, 115 (Kos. 2001).

Here, there is no dispute that an employment contract existed between Plaintiff and the Authority.  Although the Authority is empowered to create bylaws in which the rights and obligations of employees with regard to termination might be spelled out, none have been introduced into evidence in this case.  See note 3, supra.  Therefore, only the terms of the contract itself may control the question of whether the termination of the Plaintiff was in material breach of his employment agreement.

The only provision of the contract which refers in any manner to termination is paragraph 3, which provides:

3.  Employee agrees to perform his duties fully and faithfully, and in an ethical manner, and to discharge his responsibilities to employer’s satisfaction, within the staffing and budget limits established by employer.  Except as provided in paragraph 4 [not relevant to this dispute] of this agreement, employee’s failure to meet the minimum reasonable standards of performance, conduct, health or any other professional qualification standards shall be sufficient grounds for the termination of this agreement upon sixty days written notice . . . .

(emphasis added)

The Authority alleged, and the Plaintiff stipulated, that the Plaintiff had diverted to his own use the sum of $2,000.00 left over after the purchase of a motor vehicle for the Authority.  The Court finds that this diversion of public funds could be construed by the Authority to violate paragraph 3 in that it could be considered to be unethical conduct.  Furthermore, paragraph 3 appears on its face to provide 

[11 FSM Intrm. 242]

the employer with the right to terminate if the employee does not discharge his duties and responsibilities to his "employer’s satisfaction."  Thus, it appears that even without the apparent ethical lapse which occurred in this case, if the Authority was dissatisfied in any manner with the Plaintiff’s job performance, it could discharge the Plaintiff "upon sixty days written notice."

There was no evidence that there was any written notice given to Plaintiff of his termination.  The testimony adduced at trial established that Plaintiff had been placed on suspension with pay for 30 days, and that he was subsequently verbally notified that he was terminated.  However, the Court concludes that the provision for written notice was inserted in the contract to assure that the employee had actual notice of the adverse action.  Since there is no dispute that Plaintiff received actual notice of his termination, the Court finds that the failure of the Authority to provide written notice is not actionable breach of contract.  See Setik v. Sana, 6 FSM Intrm. 549, 553, 1 CSR 24, 28 (Chk. S. Ct. App. 1994).

However, it does appear that the Authority did fail to provide the Plaintiff with the sixty days notice of his termination, as is required by paragraph 3 of the contract.  The contract has no provision for immediate termination under any circumstances, even where it is undisputed that property of the Authority is misappropriated by an employee under contract.  Thus, construing the contract against the drafter, the Court must conclude that the Authority was required to provide Plaintiff with sixty days written notice of his termination.  The Court does not view the 30 days administrative leave with pay to be included in this sixty day period, which must run from the date of actual notice of impending termination.

Having determined that the Authority breached the Plaintiff’s written contract, the Court must determine the damages suffered by the Plaintiff.  In doing so, the Court must consider the fact that the Plaintiff has stipulated to diverting to his own uses public monies in the sum of $2,000.00.

Plaintiff’s contract provided for compensation at the rate of $21,450.00 per year, or 1,787.50 per month.  Had Plaintiff been given the sixty days notice of termination required by the contract, he would have received an additional $3,575.00 in gross salary during that period.  This sum must be reduced by the $2,000.00 kept by Plaintiff from the vehicle purchase.  Plaintiff is therefor entitled to damages against the Authority, arising from its breach of his employment contract, in the total sum of $1,575.00.  Plaintiff shall be solely responsible for all income taxes and social security payments on the entire amount of additional compensation, $3,575.00.

D.  The Authority’s Counterclaims

The Authority, by counterclaim, sought the return of the $2,000.00 diverted from the purchase money for the vehicle, $175.00 for misappropriated fuel, and additional sums for repair of a "bushcutter" allegedly kept by the Plaintiff for a period of time following his termination.  The Court has already deducted the $2,000.00 from the damages available to the Plaintiff for the breach of his contract.  The Court finds that the evidence of misappropriation of fuel was not sufficient to support this claim, and absent any evidence of the cost of repair of the "bushcutter," damages for this item cannot be awarded.  Therefore, except as specifically provided herein, the Authority’s counterclaim must fail for lack of proof.

[11 FSM Intrm. 243]

III.  Conclusion

In the opinion of the Court, this case has no winners.  Plaintiff, by his actions, provided just cause to the Authority for his termination.  The Authority, by failing to carry out its mandate to create bylaws governing the rights and duties of its employees and officers, created a situation in which it is obligated to pay additional compensation to an employee that the Board felt had violated his employment agreement.  The Authority, rather than seek legal counsel outside the membership of its Board, created a conflict of interest which may have contributed to the problems which this case demonstrates.  And Mr. Anobad, by acting as Chairman of the Board as well as counsel to the Board, may have violated both his fiduciary duty to the Authority and his obligations to this Court.

This Court, however, is not charged with the oversight of the Chuuk Coconut Authority.  That is the duty of the Chuuk State Legislature.  This Court can only hope that the Legislature will endeavor to provide greater supervision and oversight to the entities it creates, in the hope that disputes such as this no longer need to be brought before the Court for resolution.

Now therefore, good cause appearing,

it is hereby ordered that Plaintiff have judgment against Defendant Chuuk Coconut Authority in the net sum of $1,575.00.  Each party to bear their own fees and costs.

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Footnotes:

1. For simplicity and brevity, the Authority itself and the Defendants collectively will interchangeably be referred to as "the Authority."

2. Normally, a quasi-governmental agency such as the Chuuk Coconut Authority would be represented by private counsel not associated with the agency.  It most probably is a conflict of interest and a violation of the Rules of Professional Conduct for a Trial Counselor to represent an agency in which he has a direct management interest, especially in the most responsible position.  No objection was made, and the conflict in no way influenced the Court in this decision. However, in the future, it will be expected that Mr. Anobad will refrain from providing legal counsel to the agency he heads.

3. The statute creating the Chuuk Coconut Authority, Truk S.L. No. 1-1-12, provides in section 1(6) that the Authority "may adopt . . . such bylaws for the Authority as are not inconsistent with this Chapter . . . ."  They are not mandated, and there is no time frame for their adoption.  The fact that the Authority has not adopted bylaws may be of interest to the Legislature, but their absence is not, due to the discretion in their adoption afforded to the Authority, and except as specifically referred to infra, material to the issues presented in this case.  See Livaie v. Micronesian Petroleum Co., 10 FSM Intrm. 659, 667 (Kos. S. Ct. Tr. 2002).

4. One attribute of the Authority is of some concern to the Court.  The revenues of the Authority are to be deposited into the General Fund of the State of Chuuk.  Truk S.L. No. 5-74, § 4.  However, the statute requiring deposit of the revenues in the state general fund also provides that the revenues are to "be available for appropriation for the operation of the plant."  As such, it appears that the state retains no benefit from the deposits, and merely acts as a depository.  As such, this provision does not affect the reasoning of the Court.

5. This problem could have been avoided had the Authority adopted bylaws as provided by statute.  See supra note 3