A federal judge has declared the federal court in the District of Hawai’i has “exclusive jurisdiction” over the federal lawsuit by Honolulu-based Marisco Ltd., against the American Samoa Government, who waived all rights in this case under a federal Arbitration Agreement.

U.S. District Court Judge Leslie E. Kobayashi made the declaration in a footnote cited in her 16-page decision last Thursday, which orders the Bank of Hawai’i to release to Marisco more than $800,000 the bank has frozen in an American Samoa Government account, in its American Samoa branch, to fully satisfy a federal arbitration and court ruling this year.

The footnote in the decision says, the federal court is aware that BoH has received an order from the High Court of American Samoa requiring it to release funds frozen pursuant to the federal court’s Writ of Execution “and, although the [federal] court has the utmost respect for and goodwill towards the High Court, the Arbitration Agreement plainly sets forth the parties’ intent to vest exclusive jurisdiction in this matter, including over any award, in the United States District Court for the District of Hawai’i.”

Assistant Attorney General for Civil division Michael Iosua said last Friday the local government has received the federal court's decision and “we don’t agree” with it, but declined  to comment further as the matter is being reviewed by the government.

Iosua is representing the government in its civil action suit against BoH in the High Court, which has already ordered BoH to restore the frozen funds to ASG. However, the bank has filed a motion, with a hearing set for next month, to stay execution of the order, to await a decision from the federal court.

Asked for comment on the federal court ruling and when BoH will disburse the money to Marisco, the bank’s district manager for America Samoa, Hobbs Lowson said last Friday afternoon, “I am not able to comment at this time.”

Stuck in the middle of a legal battle that involves the federal court and the High Court, BoH asked the federal court for instructions so it is not held in contempt by one court for abiding with the other court’s orders.

According to the ruling of the American Samoa High Court, the affect of the money being frozen on ASG operations is detrimental, and was one of the reasons cited in its favorable ruling to ASG, which ordered BOH to restore the frozen funds to the government.

Samoa News understands that today’s ASG payday was covered last Thursday with necessary funds, which includes those employees paid via direct deposit to their bank accounts over the weekend; and notes the ASG fiscal year 2013 budget proposal, currently before the Fono for review and passage, includes a request of $1 million under the Special Program budget category to pay the Marisco settlement.

LEGAL DISCUSSION

Kobayashi says that during the course of this case, ASG, though attorney general Fepuleai Arthur Ripley Jr., entered into the Arbitration Agreement and that ASG did not contest Marisco’s “Motion to Confirm Arbitration Award, nor did ASG appeal the final judgment entered after the court confirmed the Arbitration Award.”

Thus, ASG has not presented any valid argument to dispute Marisco’s right to collect the amount ordered in the Arbitration Award, she said.

The only issue before her is whether Marisco can collect that amount by serving the Writ of Execution on BoH through its main legal department in Honolulu.

ASG argued that sections of the Hawai’i Uniform Commercial Code suggest that Hawai’i courts would treat bank branches as separate entities.

Although the  Hawai’i Supreme Court has never addressed whether to adopt the separate entity rule, Kobayashi said the federal court’s task  is to predict how the supreme court would decide the issue.

“This Court predicts that, if the Hawai’i Supreme Court were to rule upon the issue, the supreme court would consider case law criticizing the separate entity rule as being: ‘a somewhat dated and seldom-cited legal doctrine’,” said Kobayashi citing a mainland court case decision.

She said the federal court also predicts that the Hawai’i supreme court would consider testimony by Hobbs Lowson, the BoH’s vice president and district manager for American Samoa, during a hearing at the High Court case, where the bank official testified that the local branch “is a branch of our bank-holding corporation, which is headquartered in Hawaii.”

Lowson also testified that ASG authorized users can withdraw funds both in American Samoa and in Hawai’i, although the ASG account was opened in American Samoa, according to Kobayashi’s ruling.

“In light of the factual background in this case and the persuasive authority from other jurisdictions, this court predicts that the Hawai’i Supreme Court would decline to adopt the separate entity rule in this case,” said Kobayashi, who ruled that Marisco’s service of the Writ of Execution on BoH “was  sufficient to garnish ASG’s funds in the account ASG opened at the BoH branch in American Samoa.”

Kobayashi ordered that BoH “tender and disburse” the $824,017.15  to Marisco. As to BoH’s request for legal  fees, costs, and any other appropriate relief, the court denied this request without prejudice to be refiled in a separate motion, supported by relevant authority seeking such compensation.

LEGAL BATTLEGROUND

The federal court decision lays out the pertinent points of the legal battleground between ASG and Marisco.

It states that in 2010, Marisco sued ASG for alleged failure to pay outstanding debts after the Honolulu shipyard performed numerous repair services to a tugboat and two barges.

Then last year both sides agreed to federal arbitration, which last December awarded Marisco $811,631, plus interest of 0.43% per year (not compounded) from September 1, 2009 to the date the award is paid.

ASG didn’t appeal the arbitration and the court issued a final judgment on May 1. Thereafter,  Marisco sought — and the federal court approved on June 13 — a writ of execution, which resulted in a garnishment order issued to BoH to garnish funds in ASG’s bank account.

In response, ASG later filed its opposition, arguing among other things, that Marisco had not complied with American Samoa’s statutes governing the garnishment of ASG’s funds;  Marisco had not addressed the conflict of law issue; and Marisco had not established the federal court has jurisdiction over ASG’s BOH account domiciled in American Samoa.

Marisco disagreed, and pointed out that in the federal Arbitration Agreement, ASG “waived any immunity to, or restrictions concerning, the enforcement of this judgment,” and ASG clearly availed itself of both the jurisdiction of the federal court and the binding arbitration proceeding, and agreed that any award or judgment resulting therefrom would be fully binding in American Samoa or Hawai’i, according to Kobayashi’s decision.

In its supplemental brief regarding jurisdiction, ASG urged the court to follow the “separate entity rule” — the rule that foreign branches of a bank are not subject to execution through process on an in-state office or branch of the bank, the decision states.

ASG also noted that pursuant to federal rules of civil cases, state law governs the garnishment of property to satisfy a judgment. ASG argued although there is no case law directly on point, Hawaii’s Uniform Commercial Code suggests the State of Hawai’i treats bank branches as separate entities.

Marisco responded that the separate entity rule has been widely criticized and is inapplicable in post-judgment proceedings. Marisco also argued the federal court has personal jurisdiction over ASG, which waived its sovereign immunity and agreed to sue and be sued in this district court.

Marisco contended the Honolulu federal court has personal jurisdiction over BoH and can therefore order BoH to freeze property that BoH controls.