Cabinet execs subpoenaed

The Superior Court subpoenaed Department of Lands and Natural Resources Secretary Richard Seman and acting Finance Secretary Robert Schrack yesterday in connection with the $5.46 million judgment against the government in favor of marina builder Marine Revitalization Corp.

The court had awarded MRC over $5.46 million, affirming an out-of-court arbitration order that ended the legal dispute between the non-profit company and the DLNR over the former’s construction of the Outer Cove marina. The Babauta administration earlier disclosed that it has no money to pay the award.

The court’s subpoena compels Seman to produce the proposed budget for his department for fiscal year 2005, while the one on Schrack requires him to present the proposed CNMI government budget for the same fiscal year.

The subpoenas also compel the two Cabinet members to appear in court on May 3 and provide testimony. Failure to do so may result in the court’s issuance of bench warrants against the officials, who may also be declared in contempt.

After the arbitration proceeding some months ago, Lt. Gov. Diego T. Benavente said that the government has no money to pay MRC over $5.46 million, unless the Legislature identifies budgetary resources and earmarks them for payment.

According to Benavente, the absence of an appropriation for the payment might sink the government further into debt if it fails to pay the award due to interests. He chided the Legislature for not acting on the administration’s proposed $2.2 million settlement for MRC some two years ago, which could have saved the government substantial money instead of proceeding with arbitration.

“The government reached a settlement agreement with MRC that would have saved us millions of dollars. Now, that agreement has gone by the wayside,” he earlier said. “How do we expect to come up with nearly $6 million when they know there is no excess money in the budget?”

Since the court affirmed the arbitration ruling, no law has been passed by the Legislature to earmark funds for payments to MRC.

In the lawsuit, MRC and its founder, businessman Anthony Pellegrino, asked the court to confirm the arbitration award, impleading the Department of Lands and Natural Resources as defendant.

The award totaled $5,468,818. The amounts are payable to Pellegrino, $3,377,513; Saipan Ice & Water, $1,083,400; Show Boat Inc., $$3,877; Saipan Sea Ventures, $508,483; Pelly Boat Charter, $40,016; Pelly Enterprise, $46110; and Mobil Oil, $409,408.

The order also awarded attorney’s fees and expenses in the amount of $255,879.89 to the law firm of O’Connor Berman Dotts & Banes. It also set fees and expenses to arbitration officers Edward Manibusan, David Mair, and Robert A. Hefner in the amounts of $3,049, $2,250, and $11,992.10, respectively.

Pellegrino established MRC to build the Outer Cove Marina in the mid-90s, with the end objective of turning it over to the government. Arbitrators concluded that the marina project was a viable venture at that time because Saipan had limited mooring space at the Smiling Cove.

MRC then proposed the construction of the Outer Cove Marina, leasing submerged land that was memorialized in an agreement dated Aug. 24, 1995. A provision of the agreement bound the DLNR secretary to establish a policy to bar owners of commercial passengers and fishing boats from renting slips at Smiling Cove.

The provision was intended to divert commercial vessels to the Outer Cove Marina to ensure the viability of the project. MRC then proceeded to build the marina, which was opened in 1998.

However, a dispute between MRC and the government arose in 2001 after the latter not only failed to bar commercial vessels from renting slip space at Smiling Cove, but also actively solicited commercial lessees.

MRC’s position resulted in Pellegrino’s difficulty to pay off loans that were incurred in constructing the marina project, prompting it to seek rescission of the lease agreement.

After its suspension in 2002, arbitration proceeding resumed last Nov. 30. The arbitrators found the government breaching the intent of its partnership with MRC in connection with the marina construction project.

The arbitration order computed the award to MRC by ascertaining the cost of constructing the marina, including interests on loans obtained by Pellegrino, which were audited by the CNMI public auditor.