Bid to stop enforcement of derivative law denied

Superior Court associate judge Kenneth L. Govendo denied yesterday the NMI Retirement Fund’s motion for a preliminary injunction that seeks to stop the enforcement of the controversial Derivative Beneficiaries Act.

He said that duly enacted statutes are presumed constitutional and that Public Law 17-51 increased standing and has no direct impact on the Fund.

The new law allows Fund beneficiaries to sue on behalf of the pension program if the Fund’s board refuses to initiate such legal action.

Govendo said the termination of contracts by four of the Fund’s money managers is an incidental effect of Public Law 17-51.

“The granting of a preliminary injunction will not cause the Fund’s agents to resume their contracts. The Fund can hire new agents, and those agents can purchase insurance to mitigate the additional risks caused by Public Law 17-51,” said the judge in his 14-page ruling.

The Fund, through counsel, Carolyn M. Kern, had questioned the constitutionality of the derivative law and argued that issuing a temporary restraining order against it will ensure that the Fund’s assets are invested to maximize the length of time that benefit payments will continue.

The Fund had also asked the court to stop the Superior Court’s clerk of court from accepting any lawsuit filed pursuant to Public Law 17-51.

The Office of the Attorney General, as counsel for Fitial, Inos, and the Superior Courts’ clerk of court, had opposed the motion for temporary injunction.

Assistant attorney general Michael A. Stanker argued that Public Law 17-51 does not harm the Fund but actually endows it and the beneficiaries with additional benefits.

“While the practical effect of the law is that the Fund’s agents have quit, all the board needs to do to remedy this situation is hire new agents,” Stanker pointed out.

Three retirees-Mariano Taitano, Roman F. Tudela, and Patricia Guerrero-also opposed as intervenors to the Fund’s request for a TRO, arguing through counsel Michael Dotts that there is no justification for the court to restrain Public Law 17-51, which is a lawfully enacted law.

Dotts said the Fund has other managers besides those who have quit.

In the Fund’s TRO request, Kern said the Fund has already suffered irreparable harm when its investment consultant, actuary, and at least two money managers terminated or suspended their contracts with the Fund.

In denying the injunction, Govendo said that Public Law 17-51 does not directly affect the Fund’s assets.

“Without a direct effect, the law cannot violate the Constitution. It merely has the incidental effects of chaining the contracting climate that the board must operate in,” he said.

The judge said the temporary incidental effects of Public Law 17-51 do not constitute an impairment or a diminishment of the beneficiaries’ interests.

The Fund, Govendo said, is fully capable of suing for any conduct by its agents that violates contracts.

“Public Law 17-51 expands the Fund’s rights as the beneficiaries can now sue on behalf of the Fund when the board refuses to act. Thus, there is no impairment,” Govendo pointed out.

Govendo held an emergency hearing on the TRO request on Sept. 19.