Dotts: Bankruptcy court has tremendous powers

A bankruptcy court has such tremendous powers it could force a shutdown of nonessential government agencies that do not pay their correct contributions on time, according to veteran lawyer Michael W. Dotts.

When asked yesterday for his thoughts about the NMI Retirement Fund’s decision to file for Chapter 11 bankruptcy, Dotts told Saipan Tribune that the bankruptcy court could possibly force CNMI agencies to actually pay the contributions they owe at the rate set by the Fund actuary.

Dotts said the bankruptcy court also has the power to force the Fitial administration to find money to pay the judgment to the Fund or face the seizure of government property to be sold under the court’s administration.

“The bankruptcy court can take its time in selling assets to maximize the protection of the Fund,” the lawyer said.

The central government owes the Fund an estimated $317 million in employer’s contributions.

Dotts said it appears the motive for filing the Chapter 11 petition was to utilize the power of the bankruptcy court to force the retirees to take drastic cuts in their pensions.

“But it is possible that the bankruptcy court might be able to help recover money from the administration and actually save the Fund with no or only a minimal reduction in benefits,” he said.

Dotts said that filing for bankruptcy may sound like a smart move but the court might be unwilling to do what the Fund board wants. He pointed out that the Fund is not really “bankrupt” and that the retirees are not really “creditors.”

“The bankruptcy judge might view the bankruptcy filing as a way for the politicians and trustees to avoid making their own tough decisions,” he said.

The judge, Dotts said, might feel the court is being improperly used to strip retirees of their constitutionally guaranteed benefits.

For these reasons, Dotts believes it is possible that the petition for bankruptcy will be thrown out of court.

The bankruptcy court might not have the power to reduce benefits, Dotts said, citing that the CNMI Constitution protects the benefits of retirees and that the power of the bankruptcy court to cancel contracts might not really apply because the Fund is not actually bankrupt.

Dotts pointed out that a trust running out of money to distribute is not the same thing as a company unable to pay creditors. “Even when the Fund runs out of money to distribute, the Commonwealth still has to pay the benefits to the retirees pursuant to the constitutional guarantee, so there is actually no desperate need to reduce benefits,” he noted.

When the Fund runs out of money, it is just going to become very hard for the administration to distribute about $50 million in annual retirement benefits and continue to operate essential services when the CNMI only collects about $102 million in annual revenue, he said.

Dotts said the bankruptcy is going to be very expensive for the Fund, having hired a bankruptcy counsel from a Boston law firm. He said the Boston lawyer who flew here “is no doubt high priced” and the Fund will have to pay the costs for administering the bankruptcy “and that will not be cheap.”

Dotts’ observation is that the Fund board intentionally hid its intent to file for bankruptcy from at least the Legislature and the retirees.

“The attorney who was present on Saipan for the Fund’s press conference flew all the way out here from Boston. That no doubt took time to arrange,” he said.

Dotts also noted that many papers were filed on Tuesday in the U.S. District Court for the NMI, a clear evidence that the Fund’s attorneys have been working on those documents for some time, probably weeks.

“Filing bankruptcy was not a sudden decision but was part of a deliberate plan,” the lawyer added.