Proposed deal with law firm to pursue claims vs Merrill Lynch rejected

U.S. District Court for the NMI designated judge Frances Tydingco-Gatewood has rejected NMI Settlement Fund trustee Joyce C.H. Tang’s proposed engagement agreement with a law firm that is currently representing the claims against the NMI Retirement Fund’s former consultant, Merrill Lynch.

In an order on Thursday, Tydingco-Gatewood, however, ordered that, based on Tang’s representation that she has reviewed the Merrill Lynch litigation and has found the claims meritorious, the trustee, on behalf of the Settlement Fund, may pursue the assignment of the claims in the Merrill Lynch litigation.

Tydingco-Gatewood found that the financial terms proposed in the engagement agreement with a law firm were unreasonable. The judge said the trustee shall not assume any liability or obligation under the settlement and assignment agreement without prior court approval.

The judge ordered the trustee to negotiate the financial terms with counsel for the claimants in the Merrill Lynch litigation and to submit any such agreement to the court for approval.

Based on the Settlement Fund trustee legal team’s review of the litigation, Tang recommended that the court approve a request to substitute the trustee as claimant against Merrill Lunch in the claims that are now pending in an arbitration proceeding before the Financial Industry Regulatory Authority.

Tang made the recommendation in her combined second and third quarter report for fiscal year 2014 filed in federal court. Tydingco-Gatewood held a hearing on the report on Tuesday.

Tang said the work related to prosecuting the claims against Merrill Lynch will increase the cost of the trustee expenses and consultant fees, but the additional cost is justified by the potential damage award that the Settlement Fund can receive.

The trustee expects additional time and travel expenses will be incurred in connection with the FINRA arbitration of approximately $95,000 from last year’s budget of $180,000.

In addition, Tang said they would like to retain the services of Maggie Ralbovsky of Wilshire Consulting Inc., the Settlement Fund’s investment consultant, to advise the Settlement Fund regarding the issues in the lawsuit.

Tang said an additional $50,000 was budgeted for Ralbovsky’s consultant fee, which will be charged on a time and expenses basis.

Merrill Lynch was the Fund board’s investment consultant until 2010. During the time of the consultancy relationship, the value of Fund’s assets reportedly declined substantially.

As a result, individual claimants Mariano Taitano, Roman T. Tudela, and Patricia Guerrero filed a lawsuit in Superior Court against the Fund’s board, Merrill Lynch, and unnamed others, alleging various causes of action for damages relating to the decline of the Fund’s assets.

The Fund’s board later assigned its potential claims against Merrill Lynch to certain Fund members who were willing to litigate the claims.

The lawsuit in the Superior Court was then stayed and the matter was submitted to arbitration before FINRA.

Under the terms of the Betty Johnson’s settlement agreement, the proceeds from the Merrill Lynch litigation were assigned to the Settlement Fund.

Taitano, Tudela, and Guerrero are pursuing the assigned claims against Merrill Lynch on behalf of the Settlement Fund members in the FINRA arbitration proceeding.

The claimants have requested the Settlement Fund to substitute them as claimants in the FINRA arbitration.

Tang said that based on their in-depth independent review, the claims against Merrill Lynch are meritorious and there is basis for proceeding against the company.

Tang said subject to court’s approval, she recommends substituting in as the claimant in the FINRA arbitration and entering into an engagement agreement with claimants’ counsel.

Tang said they have been communicating with the claimants’ attorney, Peter Mougey, regarding this case and that the lawyer has asked the Settlement Fund trustee to substitute in.

Tang said the substitution would be accomplished by an assignment of the claims from the claimants to the Settlement Fund and with the consent of the CNMI governor.

She said if the court approves the substitution and the assignment of the claimants’ claims to the Settlement Fund, the Settlement Fund will enter into a legal engagement agreement with Mougey’s law firm.

During Tuesday’s hearing, attorney Margery Bronster, counsel for Betty Johnson and class, objected to the obligations being assumed by the Settlement Fund under the assignment agreement and the proposed financial term of the engagement agreement.

The CNMI government, through the Office of the Attorney General, joined Bronster’s objection.

In her order, Tydingco-Gatewood said she reviewed the settlement and assignment agreement, assignment agreement, and the engagement agreement.

Tydingco-Gatewood expressed concerns with the types of obligation that the Settlement Fund would be assuming under the assignment agreement and engagement agreement.