SABLAN CONST. v. GOV'T OF TRUST TERRITORY, ETC.

• Decision Date: 04 November 1981
• Docket Number: No. DCA 80-9025.,DCA 80-9025.
• Parties: SABLAN CONSTRUCTION COMPANY, Plaintiff-Appellee, v. GOVERNMENT OF the TRUST TERRITORY OF the PACIFIC ISLANDS, Defendant-Appellant.
• Court: U.S. District Court — Northern Mariana Islands

526 F. Supp. 135

SABLAN CONSTRUCTION COMPANY, Plaintiff-Appellee, v. GOVERNMENT OF the TRUST TERRITORY OF the PACIFIC ISLANDS, Defendant-Appellant.

No. DCA 80-9025.

United States District Court, N. Mariana Islands, Appellate Division.

November 4, 1981.

Ramon Villagomez, Saipan, Mariana Islands, for plaintiff-appellee.

Andrew Wilson, Atty. Gen. Office, Saipan, Mariana Islands, for defendant-appellant.

Before DUENAS and CONTI, District Judges, and SOLL, Designated Judge.^*

OPINION

SOLL, Designated Judge:

The Trust Territory appeals the trial court's decision ordering it to refund import taxes paid by the Sablan Construction Company. There are two issues presented. One is whether the trial court had subject matter jurisdiction. The other is whether, in an action under 6 T.T.C. § 251(1)(a), Sablan may recover wrongfully assessed taxes which it paid without protest. Because our answer to both questions is yes, we affirm.

FACTS

From January 1974 until December 1977 Sablan paid $40,779.74 in taxes to the Trust Territory on materials imported for use in construction projects. Sablan paid the taxes without protest under the erroneous belief that 77 T.T.C. § 53 required remittance. That statute imposed import taxes on goods brought into the Trust Territory for resale.¹

On November 5, 1975, the Trust Territory Attorney General issued an opinion stating that import taxes do not apply to materials used in construction projects and not resold. The company did not request a refund until December 1979. The Trust Territory denied the request.

Lacking an administrative remedy, Sablan filed a refund action under 6 T.T.C. § 251(1)(a)² on December 18, 1979. The Trust Territory moved to dismiss for lack of jurisdiction. It argued that under the Foreign Sovereign Immunities Act it is a foreign state or government immune from federal court jurisdiction. The trial court, U.S. District Judge Alfred Laureta presiding, ruled that it had jurisdiction under 48 U.S.C. § 1694a(b) and denied the motion.

On October 20, 1980, the trial court, U.S. District Judge Paul Hatfield presiding, held that the import taxes were illegally assessed and collected. It entered judgment for Sablan and this appeal followed.

I. JURISDICTION

The threshold issue is whether the trial court had subject-matter jurisdiction. The Trust Territory advances two arguments against jurisdiction: (1) the Trust Territory is a foreign government immune from federal court jurisdiction under the Foreign Sovereign Immunities Act;³ (2) the Trust Territory High Court's jurisdiction over tax refund actions under 6 T.T.C. § 251(1)(a) is exclusive and remains unaffected by the United States Congress' approval of § 402(b) of the Covenant and enactment of 48 U.S.C. § 1694a(b).⁴ We reject these contentions.

A. Foreign Sovereign Immunity

The Trust Territory's claim of foreign sovereign immunity ignores controlling contrary precedent on the issue. People of Saipan v. U. S. Department of Interior, 356 F.Supp. 645 (D.Haw. 1973), aff'd as modified on other grounds 502 F.2d 90 (9th Cir. 1974), cert. denied 420 U.S. 1003, 95 S.Ct. 1445, 43 L.Ed.2d 761, (1975), established that the Trust Territory is not a jurisdictionally immune foreign government. After documenting the United States' significant control over the Trust Territory, the district court ruled that the Territory is not a foreign country immune from suits in United States courts. 356 F.Supp. at 655-656. The Ninth Circuit affirmed this conclusion. 502 F.2d at 94-95.

The passage of the Foreign Sovereign Immunities Act in 1976 did not alter the rule enunciated in People of Saipan.⁵ Section 1603(c) distinguishes the "United States" from an immune "foreign state" by defining the "United States" to include "all territory and waters, continental or insular, subject to the jurisdiction of the United States." Under Article 3 of the Trusteeship Agreement the Trust Territory is subject to the jurisdiction of the United States.⁶ For purposes of the Act, the Trust Territory is part of the United States rather than a foreign state. The Act thus underscores and supports the holding in People of Saipan that the Trust Territory is not a foreign country immune from federal court jurisdiction.

The Trust Territory's immunity claim stems from misplaced reliance upon judicial construction of the term "foreign country" as used in a statute that has no relation to the question of foreign sovereign immunity. Callas v. U. S., 253 F.2d 838, 840 (2d Cir. 1958), cert. denied 357 U.S. 936, 78 S.Ct. 1384, 2 L.Ed.2d 1550 (1958), decided that Kwajalein is a "foreign country" within the Federal Tort Claim Act's exclusion of causes arising in foreign countries.⁷ Brunell v. U. S., 77 F.Supp. 68, 72 (S.D.N.Y. 1948) held similarly as to Saipan.⁸ Both courts in People of Saipan pointed out, and we agree, that Callas and Brunell were limited to the scope of the Federal Tort Claims Act. 502 F.2d at 95, 356 F.Supp. at 656. As the United States Supreme Court has cautioned, the words "foreign country" have no definitive meaning outside the statutory context within which they are construed:

The term "foreign country" is not a technical or artificial one, and the sense in which it is used in a statute must be determined by reference to the purpose of the legislation.

Burnet v. Chicago Portrait Co., 285 U.S. 1, 5-6, 52 S.Ct. 275, 277, 76 L.Ed. 587, (1932).

Accord, Mt. Washington Tanker Co. v. U. S., 505 F.Supp. 209, 213-215 (C.I.T. 1980).

Mariana Islands Airport Authority v. Trust Territory, Civil No. 78-002 (D.N.M.I., October 5, 1978) is a memorandum decision which neither party cites but which must be discussed to properly adjudicate this appeal and to avoid future confusion. At pages two and three of that decision the District Court indicated that one of the bases of its jurisdiction over the Trust Territory was 28 U.S.C. § 1605(a)(2). That statute is the Foreign Sovereign Immunities Act's exception for foreign state commercial activities. Although the court correctly ruled that it had jurisdiction, the rationale behind its holding was erroneous. The court had jurisdiction because, as People of Saipan decided, the Trust Territory is not a jurisdictionally immune foreign state. Since the Trust Territory is not jurisdictionally immune as a general rule, it was unnecessary to ground jurisdiction upon an exception to foreign sovereign immunity. Mariana Islands Airport Authority is overruled to the extent that it suggests that it is necessary to predicate jurisdiction over the Trust Territory upon an exception to foreign sovereign immunity. The other rulings in the case remain unaffected.

B. Effect of Covenant § 402(b) and 48 U.S.C. § 1694a(b)

In 1970 the now-defunct Congress of Micronesia passed 6 T.T.C. § 251(1)(a). That statute grants the Trial Division of the High Court exclusive jurisdiction over tax refund actions. The United States Congress subsequently approved Covenant § 402(b) and enacted 48 U.S.C. § 1694a(b). Those statutes give jurisdiction to the United States District Court for the Northern Mariana Islands over all causes: (1) which arise in the Northern Mariana Islands; (2) which do not arise under the Constitution, treaties, or laws of the United States; and (3) which Northern Marianas law does not commit to Northern Marianas courts (local law actions).⁹ The issue is whether this Court has jurisdiction over a § 251(1)(a) refund suit as a local law action under § 402(b) and § 1694a(b). We decide that it has.

Under 48 U.S.C. § 1681(a), the United States Congress has ultimate authority over Trust Territory governance. Congressional approval of § 402(b) and § 1694a(b) was an exercise of that authority which put an end to the High Court's exclusive jurisdiction within the Northern Marianas over tax refund suits and other local law actions.

Title 48 U.S.C. § 1681(a) states:

Until Congress shall further provide for the government of the Trust Territory of the Pacific Islands, all executive, legislative, and judicial authority necessary for the civil administration of the Trust Territory shall continue to be vested in such person or persons and shall be exercised in such manner and through such agency or agencies as the President of the United States may direct or authorize. (emphasis added)

This language clearly enjoins that Congress has the final word on the government of the Trust Territory. It means that Congress may, either expressly or impliedly, modify or eliminate any Trust Territory governmental agency or power created by the President or by officials acting under presidential delegation. This plenary congressional authority flows from Articles 3 and 12 of the Trusteeship Agreement. Under Article 3 the United States possesses full legislative power over the Trust Territory.¹⁰ Article 12 empowers the United States to implement the agreement. People of Saipan, 502 F.2d at 98 n. 10.

The Congress of Micronesia enacted § 251(1)(a) pursuant to legislative authority conferred by the Secretary of Interior.¹¹ The Secretary of Interior acted under delegation from the President.¹² As a creation of delegated power emanating from the United States Congress, the High Court's jurisdiction was exclusive in the Northern Marianas only until Congress provided otherwise. Congress did exactly that when it approved Covenant § 402(b) and 48 U.S.C. § 1694a(b).

The operation of Covenant § 1003(b) supports this conclusion. Pursuant to § 1003(b), federal court jurisdiction under § 402(b), as well as other provisions of the Covenant, became effective well before termination of the Trusteeship.¹³ That fact reflects the importance attached by both Congress and the people of the Northern Marianas to the immediate reconstitution of judicial authority. If Congress had intended to leave the High Court's jurisdiction undisturbed, it logically would have delayed the inception of federal court jurisdiction until after the Trusteeship ended.

Executive branch...