Northern Marianas' pension fund bankruptcy case dismissed
Faris dismisses bankruptcy case; he
calls treatment of Fund, retirees ‘shameful!’
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.”
Reactions
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.
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