Pepper, Buttons And Lawsuits - All Part Of Doing Business In Pohnpei

Pacific Islands Development Program, East-West Center With Support From Center for Pacific Islands Studies, University of Hawai‘i

Special Report

By Ron Barrineau

HAGÅTÑA, GUAM (Marianas Business Journal, Jan. 15, 2009) – The moment Robert C. Arthur saw the lush green of Pohnpei through the window of a pontoon plane, he knew he had found the right place. It was love at first sight, he said. The only thing missing was a good hotel and Bob would soon remedy that.

Bob Arthur and his wife Patricia settled in Pohnpei in 1971 and five years later opened the Village Hotel, 15 thatched-roofed guest rooms to which eight more were added later. The Arthurs had proved what only a few people in Micronesia thought possible: that a first-class, aesthetically appealing hotel could be constructed out of local materials.

The Arthurs soon turned their attention to other local materials, this time to make products for export. "Because we had made some money in the Village Hotel, we decided to re-invest in the place we called home. It was important to us to keep the money on Pohnpei," Arthur said. They decided that black pepper and trochus shell buttons, both available on Pohnpei, would be ideal export products.

The pepper business in Pohnpei was nearly dead in 1985 when the Arthurs, along with Bethwel and Marihne Henry, formed the AHPW corporation to produce black pepper and buttons.

"After a lot of research," Arthur said, "it was decided that Pohnpei pepper (as we processed it) had a much higher quality than what was sold in 'gourmet' shops." Pohnpei pepper was marketed on a global scale and soon had a reputation as the best pepper in the world.

While the pepper business was getting off the ground, the Arthurs bought a factory of button machines and started making high quality trochus shell buttons that were purchased by high-end customers like Ralph Lauren.

The pepper business depended upon a steady supply of mature pepper berries from the local growers who were paid 90 cents per pound, a price, according to the Arthurs, that was competitive with, or higher than, world market prices. To maintain the high quality of the pepper, only the best berries were selected, a process that soon had the growers complaining to Pohnpei state officials, who responded by going into the pepper business itself and purchasing all the berries from the growers for $1 per pound without regard to the quality of the product or the world market price. With the Pohnpei state government competing with AHPW, the supply of berries soon dried up.

The button business made a profit in its first year of full production. AHPW required an annual supply of 60 metric tons of trochus shell to keep up with demand. Whether to have an annual trochus harvest or not is determined solely by the Pohnpei state government, which assured the AHPW that the supply of trochus would continue. It did not and AHPW went out of business in 1998.

In October 2003, AHPW filed a law suit against the government of the Federated States of Micronesia and the government of Pohnpei alleging that the government essentially put the corporation out of business. Civil Action 1999-053 states, "In buying pepper from Pohnpei's pepper farmers at a price greater than market price, Pohnpei prevented competition in the manufacture of a commodity, in this case processed pepper. ... As a result of Pohnpei's violation of the statute, AHPW was damaged in the amount $225,448."

The court then trebled the amount of the damages to $676,344.

The law suit also alleged that Pohnpei state failed to hold an annual trochus harvest even though AHPW was assured repeatedly that there would be one and that the 60 metric tons would be available. "The last trochus harvest was held in July 1994. Pohnpei did not declare a trochus harvest thereafter because of concerns that there would be too much trochus harvested, and that the state would not be able to buy it all," court documents state.

The court, however, did not award AHPW damages for its button business at this trial but did so later after Pohnpei appealed to the FSM Supreme Court to vacate the trebling of damages for the pepper business. Regarding trebling of damages, the court concluded that "Congress's intent was to impose a positive duty to treble damages, not a discretionary power to do so."

The court ruled that "Pohnpei's anticompetitive acts did not just harm AHPW's business, those acts put AHPW out of business. Thus, even if treble damages were discretionary, there would be no more appropriate a case to exercise the discretion to treble damages than this one where the anticompetitive acts put the plaintiff out of business."

Under the theory of detrimental reliance, the court, in a reversal of its earlier decision, awarded AHPW $37,422 for damages to its button business. This amount, according to court documents, "was based on ... evidence of the expenses that AHPW's shell business incurred for the approximately little over one year that AHPW shell business stayed open in the reliance on Pohnpei's affirmative April 1997 representation that there would be a trochus harvest and that AHPW would get the first 60 metric tons."

While AHPW had prevailed in its suit against Pohnpei state, other problems loomed. In August 1993, the Arthurs and the Henrys borrowed more than $400,000 from the Federated States of Micronesia Development Bank. The parties assumed that the loan was made to AHPW in its corporate status but this turned out to be not the case. The Arthurs and Henrys were held personally liable for the loan and when Pohnpei, as the court documents state, put AHPW out of business, they were unable to pay off the loan. The FSMDB filed suit against the Arthurs and the Henrys for default.

On December 8, 2008, the court issued an order finding the Arthurs in contempt for failure to repay the loan and ordered them to surrender their passports to the clerk of courts and warned that "non-compliance with the court's order ... may lead to further sanctions, including, but not limited to, house arrest."

According to AHPW's lawyer, Douglas Cushine, there is, after more than five years of litigation, yet another lawsuit in the works. The Arthurs still call Pohnpei home and still operate the Village Hotel.

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Thank you for this detailed report.

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