Please allow me to begin by placing things into context. The NMI Retirement Fund is an administrative agency charged with receiving employee and employer contributions to the Retirement System, prudently investing these monies, and paying benefits to CNMI Government employees who retire or who become disabled. The Fund has been performing these functions for 31 years and has faithfully issued benefit checks, twice monthly, to retirees, survivors or disability annuitants, as required by law.
In order for the Fund to perform the functions mandated by law, the Board retains, and must pay, advisors. It would be a breach of the Board’s fiduciary duty to the trust to invest funds or to institute or attempt to defend litigation without such expert advice. Put simply, it is a necessary and normal cost of operation.
The amount that the Fund pays in legal fees in any given year is a direct consequence of the volume of legal issues that the Fund is forced to deal with. Consequently, in years in which there are intense or voluminous legal battles including litigation in court, drafting of legislation to improve the financial stability of the Fund or opposing proposed legislation that would be harmful to the Fund (such as the current year) the legal fees paid may be higher than average. In years during which there are only routine administrative appeals and standard operational issues that must be addressed, however, the legal fees will be lower.
Recent articles in the Marianas Variety have sought to “shock” or sensationalize the amount of legal fees paid by the Fund, but in fact overstated the amounts paid by more than $400,000. Even if unintended, I am sure all can agree that overstating amounts paid by more than $400,000 is a nearly unforgivable error and we expect an apology from the paper involved to all the readers who were misled.
Much of the focus of recent articles has been on amounts paid to the law firm of Board Counsel Viola Alepuyo. To set the record straight, the amounts paid each year were: for 2008, $102,897; for 2009, $242,161 (NOT $682,907 as mis-reported in an article in the Marianas Variety); and for 2010, $184,476 (NOT $168,076 as mis-reported in the same article). The total paid to this firm for the three year period was $529,534, NOT $930,340. This, of course, is still a large amount of money and people may wonder what the Fund received in return for it. I will summarize here of few of the things the Fund received.
Ms. Alepuyo led, directed and paid the legal team that successfully obtained a judgment of $231 million against the CNMI government for past due employer contributions and, just as importantly, convinced the Court to find P.L. 15-15 (allowing the government to take a “contribution holiday” and “legally” stop paying money into the Fund) unconstitutional.
It has repeatedly been asserted that this judgment generating “not one cent” for the Fund. How short all our memories are if we believe that statement. From March 2006 onward, the CNMI government had stopped contributing to the Fund. Allow me to repeat that fact – the CNMI government was paying ZERO employer contributions to the Fund and believed it was legally authorized to continue to do so, based on P.L. 15-15.
However, as a result of the lawsuit, the CNMI Government was ordered to make contributions and contributions began to be remitted along with tax revenues (a percentage of the hotel occupancy tax and the alcoholic beverage container tax). The taxes remitted were approximately $120,000 for FY09; $1.38 million for FY10; and $1.34 million so far for FY11. The total of these tax remittances is $2.84 million. Additionally, the order of the court served. as compelling guidance to agencies not involved in the suit to continue making contributions in the appropriate amounts as well. It would therefore be more appropriate to use the “not one cent” characterization to describe what was being paid to the Fund by the CNMI
Government to enable the Fund to pay benefits PRIOR to the lawsuit.
The litigation the Fund was involved in during 2009 required more than one attorney’s attention.
Ms. Alepuyo was authorized by the Board to hire or contract with other attorneys as necessary to meet all filing deadlines, to prepare and respond to discovery, and to prepare and present evidence and experts in the case of the Retirement Fund v. CNMI government, as well as in the District Court matter of Jane Roe and John Doe v. Board of the Retirement Fund and others.
Was it unreasonable of the Board to pay $242,161 in legal fees to obtain a judgment of $231 million? That level of legal fees represents a fee percentage of less than 1/24 of 1%, as compared to a “customary” contingent fee arrangement of 33 1/3 percent, which would have resulted in approximately $77 million being paid!!!. Further, without that particular lawsuit, it is clear that no further employer contributions would have come to the Fund and the Fund’s investments would have been entirely depleted in a much shorter time. Clearly, the Board in upholding its fiduciary duty to the trust was correct and reasonable in its decision to pay legal fees to have a Court determination that the CNMI government is obligated to continue to make employer contributions to the Fund at the actuarially determined level, that any law pretending to relieve it of that duty is unconstitutional, as well as recognizing the debt for past unpaid contributions.
I assure you there is nothing shocking about the amounts paid. Legal fees are paid based on services rendered — that is the number of hours and minutes worked. For the period of time recently reported upon — 2008 through 2010, no legal retainers were paid. In-house counsels were paid modest salaries and benefits and outside counsel were paid negotiated hourly fees. Outside counsels were required to, and did, invoice the Fund monthly, detailing the work performed, the time spent and the charge incurred. This is not interesting stuff, and that is the whole point of this letter – there is nothing extraordinary or sensational about the legal fees that were paid by the Fund.
I hope this helps to clarify the facts, put things in perspective and end the slanderous accusations of impropriety. Legal fees were paid for services required and rendered, all proper and most importantly necessary.
RICHARD VILLAGOMEZ
Administrator
Retirement Fund
