BY GIFF JOHNSON
Marshall Islands Correspondent
MAJURO, Marshall Islands — Pacific International Inc.’s legal version of a Hail Mary is now “in the air” in the Federated States of Micronesia, a last-ditch appeal of a court judgment issued Aug. 30 that left company executives scratching their heads as options for recouping millions of dollars in losses fade.
It is a cautionary tale for outside contractors eyeing work in the FSM. The FSM has several hundred million dollars in unspent infrastructure money that it has attempted to fast-track with the end of the Compact of Free Association’s 20-year funding cycle in 2023.
In 2014, Pacific International Inc. filed suit against the FSM government for millions of dollars in construction work completed in Chuuk state but not paid for by the FSM..
Years later — after numerous delays, hurdles, hundreds of thousands of dollars in legal costs, and refusal by the FSM government to pay a mediation award to PII — a U.S. arbitration panel agreed to by both sides awarded PII $9.5 million in 2020. Last year, the FSM Supreme Court upheld the arbitration award, along with interest due PII for every day the award went unpaid by the FSM.
Although it had agreed to the arbitration, the FSM government appealed the arbitration award and the court’s endorsement of the award. On Aug. 30, a three-judge panel of the FSM Appellate Court slashed PII’s award by nearly 40% — from $9.5 million to $6 million, which was the level of the mediation award for PII that the FSM refused to pay — and said the court cannot attach interest to the award, which is a standard feature in court collection cases the world over.
PII in mid-September filed an appeal that likely has little chance of success, seeking a new appellate judge panel to review its appeal on the basis that the court “may have improperly ‘assisted and advocated’ in favor of one party by volunteering arguments and issues in favor of that party (the FSM) that had not been raised by that party, and making insupportable findings of fact and law that impose a significant compromise in that party’s favor.”
The appeal, filed by Guam-based PII attorney Thomas M. Tarpley Jr., seeks recusal of the three judges who issued the recent judgment for “an objective, impartial court.”
“Our attorney tells me the appellate court picked bits and pieces from the eight plus years of the court battle to find a way to accommodate the FSM,” said Joseph “Jerry” Kramer, CEO of PII. “I wonder if the recent sanctioning/removal of judges in Kiribati and Nauru were a consideration in the FSM judges’ deliberations.”
Kramer said, “There is no argument about the merits of our claim. We did the work at their instructions, and we weren’t paid.”
Pacific International staff worked on the Chuuk road and sewer lines project in 2011.
Journal file photo
He said the FSM government has simply spent the last eight years trying to find ways that would allow them to escape from paying a rightful debt. “Our claim and loss is actually around $14 million, and after nine years we are still paying a bank loan to cover it,” he said. Complicating the picture for getting FSM to pay any type of award is that without legislative action by the FSM Congress, no payment is possible.
Kramer said the underlying cause of the dispute can be traced to the Lyon bribery of FSM officials to gain construction contracts in the FSM. Jim Lyon, who ran an engineering firm in Honolulu that did work in FSM and Marshall Islands, was arrested, charged and pleaded guilty to bribing FSM officials to win contracts in 2019.
“Officials in the FSM government who were taking bribes would have had to take a position against Lyon who was the design engineer and contract management company (for the Chuuk Road and sewer project that PII was hired to construct),” he said. “They chose instead to deny claims from PII for the extra costly work required to correct work from the grossly flawed and incorrect drawings and specifications (by Lyon).”
At the time, the initially-awarded $25 million for the Chuuk road work was the largest U.S.-funded project under the Compact of Free Association.
Kramer faults the U.S. government for not helping to resolve the contractual problems faced by a contractor working on a project funded by Compact grant funding.
“When seeking a U.S. project, a contractor would note that there are physical procedures and requirements of U.S. grants that should provide contractors confidence that there would be ethical compliance and that the U.S. would respond to transgressions of grant recipients,” Kramer said. “The U.S. has turned a blind eye to this Chuuk issue. I appealed as high as the assistant secretary of Interior. No results.”
He said PII’s contractual woes in the FSM are a cautionary tale for .US. and other outside contractors, who appear to be taking notice. “No U.S. contractor is bidding FSM work,” he said. “The last three consultancy contracts (funded by the U.S. through the Compact) also went to non-U.S. companies. I’ve spoken to Guam contractors and get the same response: Not interested in the FSM.” mbj