By Alexie Villegas Zotomayor
Variety News Staff
DESPITE what he thought as the debtor’s counsel’s cogent legal arguments and a retiree’s compelling practical arguments, the bankruptcy judge maintained his inclination to dismiss the Retirement Fund’s bankruptcy petition June 1.
U.S. Bankruptcy Judge Robert J. Faris said, “I think this case should be dismissed.”
But Faris clearly pointed out that it was not a victory for anyone but a disaster.
He denounced the treatment of the pension fund and the retirees as “shameful.”
Citing references made in court filings on employees being allowed to withdraw their contributions, Faris said, “I think that is a shameful proposal.”
He reasoned that this affords the active employees a better position over the retirees.
But arriving at his decision to dismiss the case was not something without “reluctance” and “sadness.”
For Faris, the U.S. Congress set what entities could be eligible to file for bankruptcy; however, he finds that the Fund isn’t one of those entities.
He sees the Fund as “an instrumentality” of the CNMI government because the government outsources its obligation of paying benefits to the Fund which for Faris “is a governmental function.”
He also differentiates municipality from instrumentality for purposes of determining eligibility.
For Faris, there could be a more peaceful way of solving the problems.
In granting the motion to dismiss I do think this could be a more peaceful way of solving the problems.
In granting the motion to dismiss today, Faris also stated he reserved jurisdiction over the compensation and retention of professionals which he said something that should be handled by the court.
As he needs to discuss with his clients their next steps, Fund bankruptcy counsel Jeremy Coffey sought for the court to stay the order or to delay entry of an order to allow us them to talk to their clients on what steps to take.
Faris explained there wouldn’t be a dismissal until a written order is entered.
He also said there will be 14 days stay commencing on the day the written order is entered.
Coffey hinted the debtor may file an appeal.
Faris also allowed the debtor’s bankruptcy counsel to file a motion for the automatic stay and allow other parties to respond.
Margery S. Bronster, counsel for Jane Roe and John Doe, stated clearly favoring Faris’ decision.
She said there is no mechanism for holding the commonwealth accountable other than in the district court.
She asked Faris to clarify his statement in his tentative ruling that the legislature is the only place to go to seek claims.
Faris said he did not mean to preclude any party from seeking “judicial relief” in any place they want to.
She said the Roe-Doe claimants have a pending case in the federal court and she asked Faris to clarify his statement so people won’t misconstrue it to reflect his findings of their ability to seek relief in federal court.
Faris said, “That is not my intention.”
For Bronster, their case has a mechanism for retirees to pursue their claims.
Bronster asked Faris to clarify that the Fund and the beneficiaries still have all their rights to pursue claims and they will continue to do so.
Retention of professionals
Debtor asked permission from Faris to retain Brown Rudnick LLC, Braddock Huesman’s firm, and Buck Consultants LLC.
This met no objection from the opposing parties except for what creditors committee counsel’s Don Jeffrey Gelber’s slight objection to Huesman’s firm’s reconciling the amount of pre-petition services against the funds they are holding and pay themselves.
Gelber said, “Those are state funds.”
He said a court order is necessary before state funds could be tapped.
Faris agreed to grant the applications.
In making his decision, Faris commended Coffey for making probably “the best legal arguments” that could be made in support of the debtor’s petition and called Ruth Tighe’s practical arguments “compelling.”
Tighe earlier spoke in support of the bankruptcy petition which she said may not be the best solution but it will help the Fund reorganize itself to continue providing for the retirees and other beneficiaries.
She acknowledged the ramifications of the courts’ decision on the case to the retirees, the CNMI and the other pension funds and their members on the mainland and the U.S. economy.
She asked the court to decide for the “common good.”
Reacting to Faris’ decision, Commonwealth Ports Authority counsel Robert T. Torres told Variety, "CPA's view remains the same that the bankruptcy petition was ill-advised and detracts from the ultimate remedy of working rehabilitating and replenishing the Funds pension funds.”
Torres alsos aid that upon dismissal this matter should return to the Superior Court where the Court was expecting the parties to confer on payment of the judgment.
“For its part CPA continues to pay its employer obligations and employee contributions at 30% as directed by the Court," he said,” he said.
Variety asked Torres to clarify some agreements arrived at today by the court and the debtor, he explained to Variety, “Coffey was asking Faris to stay the case so he could pursue an appeal.”
Torres said, “The stay is discretionary and not mandatory.”
He told Variety that Faris asked Coffey to file a motion to stay so the other parties could respond and the June 15 deadline set by Superior Court Associate Judge Kenneth L. Govendo could only come to play once the stay is denied.
During the pendency of the bankruptcy petition, the case Fund vs. CNMI government was removed to the district court.
Attorney Michael Dotts shared the same opinion that “the decision to dismiss the bankruptcy was also expected because it is pretty clear the Fund is a ‘governmental unit.’”
“The Fund's counsels did their best to argue otherwise but the facts are the facts. The dismissal was proper,” he said.
Stating further his opinion on Coffey’s appealing for a stay on the ruling, he said, “The reason that Mr. Coffey asked Judge Faris to sit on his ruling was so that the Fund can prepare an appeal of the decision dismissing the bankruptcy. There is talk going around that the CNMI might be about to dissolve the Fund Board by Executive Order and move its functions under the Department of Finance and the Office of Personnel. If the order dismissing the bankruptcy came out today and if today the Board was also dissolved by Executive Order then there would be no Board to authorize Coffey to file an appeal.”
Retired Superior Court judge Juan T. Lizama, representing his client Steven King, said, “I believe should not have been filed in the first place. I agree with the decision.”
For Assistant Attorney General Gilbert Birnbrich, “We are not surprised obviously by the tentative ruling.”
Agreeing with Faris’ reluctance and sadness in arriving at a decision to dismiss, he said, “The Commonwealth does share the concerns of the judge. “
He said the CNMI government has a plan and is also concerned with the retirees and all people in the system.
With the petition dismissed, Birnbirch said it allows the commonwealth to come out with a solution and “now we have the opportunity to do that.”
CNMI-based counsel for Roe-Doe claimants Stephen Woodruff said, “It was a ruling I expected.”
For Woodruff, it has always been his position that the Fund isn’t eligible for Chapter 11, “my immediate thought is they can’t; they are a governmental unit.”
He added, “They tried it, but it didn’t succeed. They did argue as well as they could have possibly argued but the law is pretty clear.”
Woodruff also said it is important that actions continue to go forward to deal with the situation of the Fund. “That is where the Roe-Doe litigation comes in.”
He said that is the only way the powers of the federal court can be used to address the situation.
“Bankrupty is the wrong form but it does not mean the federal court is the wrong form,” he said.
For Woodruff, the federal court has all the powers to address all of concerns that Coffey raised. He also said this would also address Tighe’s concerns.
Creditors Committee member Roman Tudela reiterated his understanding that Faris stuck to his tentative ruling and that decision will only take effect once the written order is entered.
Another creditors committee member and Commonwealth Retirement Association director Sapuro Rayphand said, “I think that his ruling is good because it is based on the applicable rule of law.”
He, however, disagrees with Faris that "there are no real winners and losers".
For Rayphand, “I believe the real losers are the CNMI Government, the Retirement Fund Administration and most especially the retirees, their loved ones and economy of the CNMI as long as the effects of the outrageous expensive legal battle continues. The biggest winners are the lawyers whose excessive fees, with or without court's approval, will wreak havoc on every one of us after the legal battles are over. And so, there are MORE losers in this nasty game than winners.”
Active government employee Paul Joyce also welcomed the decision. “I think the decision is everything we expected.”
He said it all came down to whether the Fund is a governmental unit.
“Now we are a in a position where we have all our eggs in one basket. It is now the governor and the Legislature that will solve the problem,” he said.
He told Variety today, “I think Brown Rudnick will file an appeal which will cost us more money.”
And for Joyce, this money paid to the attorneys is coming right out of the Fund.
“That is our money,” he said.
In the aftermath of the dismissal, Joyce said they will continue to discuss their options.
He said a meeting with the lieutenant governor is in the offing.
For Joyce, the ball is in the Legislature’s court now.
He disclosed that the with the Fund’s bankruptcy petition dismissed, it could open the floodgates for lawsuits.
“I think there are some members who would like to file suits,” he said.
Fund counsel Braddock Huesman was asked on what’s the next step for the Fund with the government’s state of emergency declaration in the offing, and clarify that even with the declaration, it won’t take effect in the next two weeks. Huesman said that he could only clarify in so far as once the judge issues a dismissal order, “it stays in place.”
He, however, declined to comment further.