Judge inclined to junk Fund case

The judge handling the NMI Retirement Fund’s bankruptcy petition has issued a tentative ruling, saying he is inclined to dismiss the case on the ground that the Fund is a “governmental unit” and is not eligible for relief under Chapter 11 of the Bankruptcy Code.

Judge Robert J. Faris of the U.S. District Court for the NMI Bankruptcy Division noted, however, that his tentative ruling is subject to further reflection and oral argument on Friday.

Faris said that Congress did not intend the Bankruptcy Code to solve all problems, least of all the financial problems of governmental units.

“The dismissal of this case will leave the Fund and its beneficiaries at the mercy of the Commonwealth government, but Congress intended that the elected branches of the local government, rather than a federal court, should address such problems,” said Faris in the order issued Tuesday.

At the same time, Faris said that the Fund’s board of trustees should be praised, not criticized, for commencing the bankruptcy case.

“The trustees find themselves in an intolerable position. The Fund, for which they are responsible, is caught between an irresistible force—obligations to retirees which it cannot pay—and an immovable object—the government, which has persistently failed to pay its debt to the Fund,” Faris said. “The trustees’ attempt to find a solution to this dilemma is creative and praiseworthy, even though I am inclined to rule that it cannot succeed.”

Attorney Bruce Jorgensen’s group, counsel for two unnamed retirees, first brought up the motion to dismiss on the ground that the Fund’s structure and statutory existence makes it a “governmental unit” of the CNMI and therefore ineligible to file for Chapter 11 protection.

This was followed by motions to dismiss on the same ground filed by the U.S. Trustee, two retirees, former Tinian senator Esteven M. King, the CNMI government, and the Commonwealth Ports Authority. The motions to dismiss are among several motions that will be heard in court on Friday at 9am.

In his tentative ruling, Faris said that only a “person” may be a debtor in a Chapter 11 case and that the term “person” does not include government units.

Faris said the question thus boils down to whether the Fund is an “instrumentality” of the CNMI government.

“Here the web of statutory definitions ends. The Bankruptcy Code does not define the term instrumentality,” the judge said.

The next step then is to look to the “plain meaning” of the word but unfortunately, Faris said, the word “instrumentality” has “no unique or canonical meaning” and no single “plain meaning.”

Faris said that reading the term “governmental unit” in the broadest sense, as Congress intended, and emphasizing the function of the Fund, he is inclined to hold that the Fund is an “instrumentality” of the Commonwealth.

The government, Faris said, formed the Fund as a means of carrying out the government’s obligations to its current and retired employees.

The Commonwealth has significant ongoing influence over the Fund, he added, pointing out that the governor appoints the Fund’s trustees and the Legislature specifies (and from time to time changes) to whom the Fund must pay benefits and in what amounts.

Perhaps more importantly, Faris said, the government “provides (or rather, is supposed to provide) virtually all of the Fund’s funding and resources.”

Faris said the Fund has no “customers” other than the government and its employees and retirees.

The judge said the Fund does literally nothing other than carry out the government’s duties.