THE federal court has granted the motion of Best Sunshine International Ltd. and Imperial Pacific International LLC., and issued a temporary restraining order against the Commonwealth Casino Commission. The TRO prevents the commission from holding a hearing on May 24-25 to revoke IPI’s exclusive casino license.
Chief Judge Ramona V. Manglona of the District Court for the NMI issued the TRO on Monday afternoon, hours after the plaintiffs filed the emergency motion at 11:53 a.m.
The TRO will expire on June 3, 2022 at noon.
In her order, Judge Manglona directed that “CCC, its Executive Director, employees, agents and attorneys, and all persons acting in concert with it or them, shall immediately cease and desist from proceeding with Enforcement Action 2021-001-005 (consolidated) including convening the Enforcement Hearing scheduled for May 24-25, 2022.”
Judge Manglona also ordered CCC to appear on June 2, 2022 at 9 a.m., to show cause why a preliminary injunction, pursuant to Rule 65(a) of the Federal Rules of Civil Procedure, should not be issued.
“Defendant’s answering papers, if any, shall be filed with this court and served upon plaintiffs’ counsel on or before May 26, at 5 p.m.,” the judge added.
She also required Best Sunshine/IPI to submit and post a security in the amount of $100,000 prior to May 26, 2022 at 5 p.m.
Judge Manglona scheduled a status conference for May 25 at 9 a.m. and ordered the parties to appear. She said off-island counsel may appear virtually in coordination with the clerk’s office.
According to the judge, any action by the defendant in violation of the TRO “may be considered and prosecuted as contempt of the court.”
“Defendant is hereby further notified that failure to attend the show cause hearing scheduled herein shall result in the immediate issuance of the preliminary injunction, which shall be deemed to take effect immediately upon the expiration or dissolution of the TRO herein and shall extend during the pendency of this action the same injunctive relief previously granted by the TRO,” the judge said.
She added, “Defendant is hereby further notified that they shall be deemed to have actual notice of the issuance and terms of such preliminary injunction and that any act by them in violation of any of its terms may be considered and prosecuted as contempt of court.”
If the court declines to grant a temporary restraining order, the judge said, “plaintiffs will incur immediate and irreparable injury because plaintiffs will be deprived of their contractual right to assert a force majeure defense at § 25 of the Casino License Agreement and a procedural right to the dispute resolution process at § 30 of the CLA which allows for arbitration and the opportunity to submit the arbitrator’s decision to the Commonwealth Superior Court.”
According to the judge, “The harm to plaintiffs should this court decline to grant plaintiffs’ motion for a temporary restraining order greatly outweighs any harm which defendant may incur in the event this court grants plaintiffs’ motion.”
She said, “Plaintiffs anticipate receiving $150 million financing before the end of May to make payments due to the Commonwealth Casino Commission and other creditors and to resume its operations.”
Hence, “any revocation of IPI’s license following the CCC’s hearing scheduled for May 24-25 puts at risk this much needed capital infusion,” the judge said.
“Therefore, the balance of hardships tips decidedly in plaintiffs’ favor,” she added.
She also said that “plaintiffs have raised serious questions going to the merits of requiring arbitration pursuant to § 30 of the CLA, namely whether plaintiffs’ alleged breaches of the CLA by defendant, that are the subject of Enforcement Actions 2021-001-005 (consolidated), are excused under the Force Majeure clause in § 25 of the same Agreement.”
“The public interest would be served by the issuance of a temporary restraining order,” the judge said.
She ordered IPI to serve a copy of the TRO by hand-delivering it to the offices of the Commonwealth Casino Commission at Unit 13 & 14F, Springs Plaza, Gualo Rai, by 12 p.m. on May 24.
The TRO was issued on May 23 at 4:22 p.m. and shall expire on June 3, 2022 at p.m., unless terminated sooner by the court, the judge said.
Long-term investment
According to Best Sunshine/IPI, in 2014, it committed to a long-term investment of $3.14 billion in the CNMI for the development of a casino and hotel complex after Best Sunshine was awarded an exclusive license to operate a casino.
“Plaintiffs’ commitment was memorialized in a Casino License Agreement between Best Sunshine’s wholly owned subsidiary, IPI, and the CNMI, which was represented by the CNMI’s Lottery Commission and its Acting Attorney General. Upon execution of the CLA, the authority of the Lottery Commission ceased and the Office of the Governor and a recently established Commonwealth Casino Commission or CCC became charged with implementing and enforcing the CLA.”
The project was almost immediately beset by several force majeure events that impeded its progress, the complaint stated.
“The most recent of those force majeure events — the global Covid-19 pandemic — caused plaintiffs’ revenues to plummet from $412 million in 2018 to $3.1 million in 2020. As a result, IPI was unable to meet certain payment obligations under the CLA, including payments owed to the CCC. The CLA had anticipated such a possibility and included in Section 25 a force majeure provision that excused IPI from performing these obligations when faced with such force majeure events.
“The Governor of the CNMI acknowledged and admitted that IPI had been prevented from performing its payment obligations under the CLA by force majeure events and entered into an amendment of the CLA with IPI,” the complaint stated.
At the end of May 2022, IPI said it anticipates that it will begin receiving an infusion of $150 million of capital that will allow it to meet its obligations to its creditors, resume operations, and restart construction.
IPI said it recently signed a memorandum of understanding with the IH Group to provide that capital.
“If fully executed, the MOU provides that the financing tranche will be deposited with IPI before the end of May 2022, and the second tranche will be deposited during June 2022. This much needed investment — the benefits of which ultimately will inure to the CNMI — may never happen if the CCC is allowed to continue with its arbitrary and capricious attempt to revoke IPI’s license on the grounds of non-payment of fees and to refuse to consider IPI’s force majeure defenses at a hearing scheduled for May 24-25 2022 in breach of the arbitration agreement,” IPI stated.
Best Sunshine and IPI are represented by attorney Joey San Nicolas, and Washington-based attorneys Kevin T. Abikoff, and Samuel W. Salyer.
Issuing a TRO strongly furthers the public interest in preserving the CNMI economy, the lawyers said.
“The anticipated financing by IH Group will allow IPI to satisfy its creditors, resume operations, and restart construction. Restarting construction will create jobs for the local economy and prevent partially completed buildings from deteriorating and becoming a nuisance. The resumption of operations will increase CNMI’s tax revenues as well as enable IPI to pay the regulatory fees going forward while the Parties arbitrate IPI’s force majeure defenses to determine what, if anything, IPI owes for the disputed years of 2020 and 2021,” the lawyers added.
“The public interest overwhelmingly favors enjoining the CCC’s hearing to preserve the status quo and compelling arbitration under Article 30 of the CLA,” the lawyers said.
In March 2022, the Superior Court affirmed the casino commission’s authority to revoke IPI’s casino license.
