The absence of sound public land policy for existing land leases

The lawsuit filed in CNMI Superior Court involving Kan Pacific, Ltd., Imperial Pacific International dba Best Sunshine, Saipan Entertainment LLC dba Club 88, and the CNMI Department of Public Lands is a good example of the uncertainty and confusion inherent in the CNMI government’s public land policy with respect to businesses and investors who are now leasing or are planning to lease CNMI public lands.

The genesis of this litigation began about two years ago when Kan Pacific asked the CNMI government to renew its lease when it expires in a few years. The CNMI Department of Public Lands flat-out refused to negotiate a new lease with Kan Pacific, a company which had, for almost 40 years, literally invested hundreds of millions of dollars in hotel and golf course developments in the CNMI. (For those not familiar with the CNMI in the ’70s and ’80s, Kan Pacific was one of the original Japanese investors in the CNMI, together with the Hafadai Beach Hotel, the Saipan Grand Hotel, the Saipan Inter-Continental Hotel, the Coral Ocean Point Resort and Golf Course. and the former White Sands Hotel where the present Pacific Islands Club is now situated.)

After actively participating in the economic development of the Commonwealth for almost 40 years, what does the CNMI government do to Kan Pacific’s request to renew its lease? The CNMI Department of Public Lands flat-out told Kan Pacific “No.” It told Kan Pacific to submit a bid proposal with respect to renewing its lease on its own investment, just like any other interested bidder or proposer.

Was this decision of DPL based on sound public policy? Of course not. Was it fair? Clearly not. The fact that Best Sunshine was also interested in obtaining the Kan Pacific property had muddied Kan Pacific’s request to renew its lease. But the most damaging aspect of the DPL decision not to negotiate a new lease with Kan Pacific was the message it sent out, in the process, to all public land lessees, including the Hyatt Regency Saipan, the Fiesta Resort & Spa, the Kanoa Resort, and others. DPL gave notice for the first time that, once any public land lease expires, the lessee’s past and present contribution to the economy of the Commonwealth will not have any weight or relevance to the CNMI government. It will not be considered at all.

If this is the public policy that the government wants to apply to existing public land leases, investors both from within and outside the Commonwealth will once again be wary about doing business in the CNMI. The apparent basis for DPL making such bad public policy decision is, again, as we have seen all too often in recent years, the cronyism and the buddy-buddy system that is openly practiced by CNMI government officials with their favorite investors in so many aspects of government decision-making. This is bad public policy for the Commonwealth because good-faith investors will once again perceive the Commonwealth as a bad place for doing business. Why? Because the government is unfair and not above board.

The present lawsuit and countersuits going on among DPL, Best Sunshine, Kan Pacific, and Club 88 is the fallout from the bad public land policy decision that was made by DPL. This department did not fully consider all the adverse consequences that would flow from such bad policy decision. It conveniently decided to ignore the distinguishing feature of the Kan Pacific lease: that Kan Pacific is an existing lessee, not a prospective lessee applying to lease undeveloped public land. Realizing that the die was already cast, however, and that it was fighting a losing battle with DPL and Best Sunshine, Kan Pacific reluctantly decided to cut its losses and sell its investments to Best Sunshine.

Whenever bad public policy decisions are made by the CNMI government, their adverse consequences on the economic well-being of the Commonwealth can be enormous. The court now has to step in and try to unravel the Kan Pacific mess that should never have occurred had there been, from the beginning, a sound and fair approach taken by DPL in reviewing existing public land leases that are expiring. Only after the parties cannot negotiate a new lease should the CNMI government then issue a request for proposal inviting interested bidders to lease the property.

Jose S. Dela Cruz
Navy Hill