Gov’t sues Oregon-based law firm over ‘cover over’ suit

The CNMI government has sued the Oregon-based law firm that is representing the Department of Finance in its “cover over” lawsuit against the U.S. government, saying that the law firm’s contract with the Babauta administration was invalid.

The government, through assistant attorney general James R. Stump, sued the law firm of Schwabe, Williamson and Wyatt Professional Corp., to invalidate its contract with the Department of Finance.

In the lawsuit filed in Superior Court on Wednesday, Stump asserted that the June 15, 2005 contract is not valid as it fails to comply with applicable Commonwealth Procurement Regulations.

Stump stated that on June 15, Pamela Brown, in her capacity as legal counsel for then Gov. Juan Babauta, then Deputy Attorney General Clyde Lemons Jr., and attorney David W. Axelrod for the Schwabe law firm, signed a document identifying a fee arrangement related to the provision of legal representation for the CNMI.

There are no other signatures on the document, Stump said.

In this case, the contractor signed the document without the required signatures of the director of Procurement and Supply, the governor, and the Finance secretary, he said.

Stump asserted that the court should declare the document an invalid contract for the following reasons:

* Failure to follow required procurement regulations.

* Failure to obtain required contract oversight and review.

* Failure to include requirement for right to audit.

* Failure to properly distribute copies of June 15 document.

The CNMI, through the Department of Finance, sued the U.S. Department of the Treasury and its secretary John Snow, for breach of the Covenant and breach of fiduciary duty.

Finance alleged that the U.S. government failed to transfer to the treasury of the Commonwealth more than $50 million in proceeds of U.S. estate taxes and gift taxes that have been collected from NMI residents.

Finance, through counsel William J. Ohle, asked the U.S. District Court for the NMI to order the U.S. government to pay to the local treasury all of the proceeds and interest of all U.S. estate and gift taxes levied on the NMI inhabitants since Jan. 9, 1978.

Finance requested the court to direct the Department of Treasury to make an accounting of all U.S. estate and gift taxes received by the defendant and to provide to the Commonwealth complete information to enable the identification of all such proceeds.

The Commonwealth also demanded payment for monetary benefit received by the United States from the wrongful withholding of U.S. estate and gift taxes that were not timely transferred to the local treasury.

Acting Attorney General Matthew Gregory earlier disclosed that the Fitial administration had written the Oregon law firm to cease and desist from pursuing the lawsuit.

The Babauta administration reportedly promised to grant the law firm 30 percent of the amount recovered in that lawsuit.