“Duly enacted statutes are presumed constitutional. PL 17-51 increased standing and has no direct impairment on the Fund. The termination of contracts by four of the Fund’s Agents is an incidental effect of P.L. 17-51,” Govendo stated in his ruling.
For Govendo, there is a presumption that properly passed bills that originate from the Legislature and properly signed into law by the Chief Executive are constitutional. Such presumption being a hallmark of a constitutional democracy, Govendo said the court “is and should be hesitant about declaring P.L. 17-51 as unconstitutional based on the testimony of one person and six documents pursuant to a motion for a temporary restraining order and/or motion for a preliminary injunction.
The ruling also stated that the evidence is not enough for a preliminary injunction.
Govendo explained that owing to the drastic nature of the injunctive relief, plaintiffs must use clear and convincing evidence to demonstrate this right to injunctive relief.
In deciding on the whether to issue or not a preliminary injunction, the court, Govendo said, examined the (1) plaintiffs’ likelihood of success on the merits; (2) level of irreparable harm to plaintiffs if relief is not granted; (3) balance between the harm to plaintiffs’ and defendants’ if injunction is granted or not; and (4) the injunction’s effect to the public interest.
In denying the motion for preliminary injunction, Govendo said granting a preliminary injunction will not cause the Fund’s Agents to resume their contracts. He also said the agency can still hire new agents who can purchase insurance to mitigate risks caused by P.L. 17-51.
No irreparable harm
The court reasoned that a necessary prerequisite to the entry of injunction is showing of irreparable injuries which the moving party must prove to be actual and imminent.
In this regard, the court stated, “the Fund failed to support this critical element except that certain Agents unilaterally terminated their contracts with the Fund.”
The court also found as speculative injury that the termination of contracts of four agents would lead to other agents not doing business with the Fund.
It also stated that the Fund has 30 days to look for a replacement for those who have invoked the 30-day notice provision of their contracts.
Govendo said that previous RFP attracted 70 money managers according to Fund Administrator Richard Villagomez’ testimony; however, the court found that no effort has been made to determine if any of those managers would be willing to contract with the Fund and replace those who terminated their contracts.
In checking whether the law violated Art. 1 Section 1 of the CNMI Constitution on the impaiment of obligation of contracts and Art. 1 Sec. 10 Clause 10 of the United States Constitution, Govendo said the court adopted a three-part test: (1) there must be a contract; (2) legislation must impair that contract; (3) impairment must be substantial.
The Fund had contracts with its agents.
The court ruled, contracts are not breached so long as the non-breaching party still has remedies under laws to cure such a breach.
Govendo said the board still has all the legal rights it had prior to P.L. 17-51 and all contracts entered into between the Fund and its agents are terminable at will of either party. The Fund, the ruling stated, can sue the agents for wrongful terminations.
“The Fund suffers no direct harm from P.L. 17-51,” Govendo’s ruling stated.
He, however, said that the law afforded the pension agency and its beneficiaries more rights and remedies.
It also found as temporary the Fund’s situation in which it was left to invest in low-yield accounts with the departure of its money managers and its assets left in the bank accounts instead of securities.
The court argued that the Fund has not taken action to start the RFP process in hiring replacements for agents who terminated contracts.
“Preliminary injunction will do nothing to remedy the current situation,” the ruling added.
In seeing the balance of harm between the defendants and plaintiffs from PL 17-51, the court said the Fund’s agents had harmed it by terminating their contracts and that harm is distinct from PL 17-51 and preliminary injunction will do nothing to improve the contracting climate of the agency.
However, if an injunction is granted, beneficiaries will be harmed by not being able to bring suits against those who have harmed the Fund during the duration of the injunction.
The court found two negative impacts of an injunction to the public interest: it will deprive the beneficiaries to sue those who have harmed the Fund—a power that the Fund board has always possessed and extended by the Legislature to the beneficiaries and the court’s presuming the constitutionality of duly enacted laws.
“Thus, to enjoin the law would enjoin the right of injured parties to seek a redress of their injuries in a court of law.”
Expressing its opinion on the Fund’s likelihood of success on the merits, the court finds that P.L. 17-51 does not affect the Fund’s assets and without a direct effect, the law cannot violate the constitution. It added that the temporary incidental effects of P.L. 17-51 do not constitute an impairment or beneficiaries’ interests.
Intervenors welcome the news
Lawyers representing retirees Mariano Taitano, Roman T. Tudela and Patricia Guerrero, welcomed Govendo’s ruling.
“As the attorney for the Retirees in this case and in their case against Merrill Lynch, I can say this is a victory for CNMI retirees and we are very pleased,” Atty. Robert O’Connor said.
He also said, “Judge Govendo ruled that P.L. 17-51 ‘actually increases the rights and remedies available to the Fund and beneficiaries,’ exactly as we have always maintained.He also held that ‘The Fund suffered no harm from the enactment of P.L. 17-51,’ which he held was constitutional and does not interfere with existing contracts.”
For O’Connor, P.L. 17-51 is designed to allow retirees to take legal action on behalf of the Fund, and in the name of the Fund, at no expense to the Fund when the Fund’s Board refuses to act.
“This law is obviously in the public interest and the interest of the Commonwealth’s retirees.This decision is a message to the Retirement Fund: you should start acting in the best interests of its retirees for a change,” O’Connor said.
He also told Variety in a statement that the Retirement Fund should never have opposed this act in the legislature or in the courts.“It makes you wonder what they are hiding.Why would the trustees of the Fund be fearful of retirees being able to bring actions on behalf of the Fund, with no expense to the Fund?”
Meanwhile, Govendo’s ruling was not what the Fund was hoping for.
Last Tuesday, as it sought to contain the damage of P.L. 17-51 to the assets, the Fund board authorized the investing in mutual funds and immediate issuance of emergency RFP’s for investment consultant, actuary and auditor. It also sought to fill two potential vacancies in its legal team by addressing budget issues.
Fund Administrator Richard Villagomez said, “The contracts between the Fund and investment consultant, actuary, and money managers, respectively, were broken by P.L.17-51.”
Dealing with uncertainties from all fronts, the Fund this morning suffered another blow with its auditor refusing to contract with the agency.
Villagomez said P.L. 17-51 is chasing all the service providers away.
He told Variety that the Fund received a call this Friday morning from auditor J Scott Magliari [whose firm was the sole respondent to the recently closed RFP for audit services] informing the agency that “even if indemnification from P.L. 17-51 were an option, he could not accept an indemnification from the Fund because it would violate his requirement to maintain independence as an auditor.The standard of independence applies to all audit firms.”
Magliari told the Fund that the explored the possibility of obtaining insurance to cover liabilities brought on by PL17-51; however, he was not able to find an insurance policy to cover the unforeseen liabilities of PL 17-51 even after an extensive search.
He told the Fund that his firm was withdrawing the proposal.
Villagomez said they will be issuing an emergency RFP as approved by the board during its emergency meeting last Tuesday.
“It is an emergency because the Fund has deadlines to meet to comply with the auditor’s requirements as well as the CNMI Government’s Single Audit,” the Fund administrator said.
He added, “If the Fund is not able to have its books audited, or if the auditors opinion is qualified due to the delay in getting the audit done, it will cause the entire CNMI Single Audit to be a qualified report. If this happens, it will be very bad for the CNMI.”
P.L. 17-51 is bad
Oscar Camacho, expressing his own opinion and not of the Commonwealth Retirees Association of which he’s the treasurer, told Variety in an interview, “Constitutional or not P.L. 17-51 is BAD.”
He said experts and those most affected by the law had expressed their concerns and opposition but the Legislature and the lt. governor did not heed to the experts’ pleas to have that not become law.
“Now they have havoc and how they deal with it they care less and care not. What was troubling was that the Attorney General who works directly under the Governor argued for the constitutionality of the law in court despite the Fund’s plea arguing that it be unconstitutional or that at the least a TRO be enforced until a remedy is found on how to placate the money managers’ and the fund consultant’s fears,” Camacho said.
