Fed court asked to confirm Fund’s status as tax-exempt

The trustee of the NMI Settlement Fund and the counsel for Betty Johnson’s class action members have filed a joint motion to confirm the Fund’s status as a tax-exempt entity.

According to Fund trustee counsel Dean A. Manglona and Johnson’s class counsel Robert M. Hatch, the Settlement Fund is a tax exempt entity because the settlement agreement in Johnson’s class action expressly provides for the appointment of a “person to act as an officer of the District Court to be the trustee of the Settlement Fund.”

Manglona and Hatch said the Settlement Agreement further provides that the trustee of the Settlement Fund has the powers of a federal equity receiver under Federal Rules of Civil Procedure 66, and “shall act as the receiver for the Settlement Fund.”

As such, the lawyers said, the trustee reports directly to the district court.

The district court, the lawyers said, retained exclusive jurisdiction over all matters relating to the Settlement Fund, including interpretation of the settlement agreement.

Because the trustee is a Rule 66 receiver and the Settlement Fund is an extension of the District Court, the Settlement Fund falls squarely within the government exemption of the NMI Revenue and Taxation Act of 2004, Manglona and Hatch said.

The two filed the joint motion after U.S. District Court for the NMI designated Judge Frances Tydingco-Gatewood sought a full briefing on Settlement Fund trustee Joyce C.H. Tang’s position that the Settlement Fund is a non-profit, tax exempt entity under CNMI law.

Tang recently asked the court to confirm the non-profit tax exempt status of the Fund, since this issue has delayed the completion of the Fund’s fiscal year 2014 audit.

In her order, Tydingco-Gatewood gave the CNMI government until Jan. 5, 2016, to file its response.

The judge set the motion for hearing on Jan. 21, 2016.

The CNMI government argues that the Department of Finance has the authority to determine whether the Settlement Fund is a tax-exempt entity.

In disagreeing with Finance’s position, Manglona and Hatch said the district court has exclusive and continuing jurisdiction over all matters arising under the settlement agreement. Because the Settlement Fund is an extension of the district court, the government exemption statute should also apply to the Settlement Fund, they said.

Tang had sought a legal opinion from Attorney General Edward Manibusan on the issue but Manibusan declined to render one, saying the Settlement Fund “does not fall within the scope of representation”—presumably because it is not an NMI government agency.

According to Tang, the audit for the Settlement Fund for fiscal 2014 by Ernst & Young began in January 2015 and has been completed. However, because of a disagreement between the NMI government and the Settlement Fund whether the Settlement Fund is a non-profit, ta-exempt entity, the completion of the audit has been delayed.

Tang said the Settlement Fund’s purpose is not to make a profit.

Tang said the tax exemption should equally apply to the Settlement Fund because it is a “creature” of the district court.