THE Commonwealth Casino Commission improperly imposed sanctions against Imperial Pacific International LLC for two complaints, according to the CNMI Supreme Court on Friday.
CCC improperly sanctioned IPI for Complaint 001, the justices said in their ruling.
“The Lottery Commission approved Amendment No. 9, which, in effect, eliminated IPI’s default by altering the due dates of its obligation to make the required contributions to the Community Benefit Fund,” the justices added.
The commission also improperly imposed sanctions on IPI for Complaint 002, they said.
“The record demonstrates that there was not substantial evidence to support CCC’s finding that Covid-19 was not the proximate cause of IPI’s failure to pay the Annual License Fee in 2020, excusing its default,” the justices said.
“The Annual License Fees for 2020 and the following years have accrued and continue to accrue, and CCC must now decide on a reasonable deadline for IPI to pay them,” the justices added.
However, they said the sanctions CCC imposed on IPI for Complaints 003, 004 and 005 — suspending its license and imposing fines — were proper, the justices said.
“Substantial evidence supports them because IPI admitted to the violations and offered no defense,” the justices said.
With their ruling, Chief Justice Alexandro Castro and Justices John Manglona and Perry Inos have affirmed in part and reversed in part Superior Court Associate Judge Wesley Bogdan’s issued order on March 15, 2022.
The justices remanded the case to the casino commission for further proceedings consistent with the high court ruling.
Background
In 2014, the Commonwealth Lottery Commission entered into an exclusive Casino License Agreement or CLA with IPI.
The CLA granted IPI the right to operate as the exclusive licensee. Under the CLA, “[t]he continuing validity of this License is conditional upon the Licensee’s compliance with applicable laws, rules, and regulations of the Commonwealth and the United States.”
Additionally, the agreement provides that “[f]ailure to pay any amount due and payable hereunder upon the date when such payment is due” is a material breach that permits suspension or revocation of the exclusive license.
Since its formation, the CLA has been amended nine times.
CCC is the regulatory agency responsible for overseeing the casino licensee and enforcing the CLA’s provisions.
Under the CLA, IPI must comply with multiple contractual, statutory, and regulatory requirements. These include paying the $15 million Annual License Fee and the annual $3 million Casino Regulatory Fee. IPI was also required to contribute $20 million annually to a Community Benefit Fund.
IPI failed to make the Community Benefit Fund contributions for 2018 and 2019. In March 2020, shortly after the advent of the Covid-19 pandemic, IPI closed the casino.
The complaints
Following IPI’s closure, CCC initiated five complaints over the course of 2020:
(1) Complaint 001— failure to pay the 2018 and 2019 Community Benefit Fund contributions.
(2) Complaint 002 — failure to pay the Annual License Fee due Aug. 12, 2020.
(3) Complaint 003 — failure to maintain the required cash or cash equivalents in a CNMI or United States bank.
(4) Complaint 004 — failure to pay accounts payable that were over 89 days old.
(5) Complaint 005 — failure to pay the Casino Regulatory Fee due by Oct. 1, 2020.
In December 2020, following the filing of CCC’s complaints, IPI and the Commonwealth Lottery Commission signed Amendment No. 9.
Amendment No. 9 addressed in part Covid-19’s impact on IPI’s ability to make Community Benefit Fund contributions, and extended the deadlines on the 2018 and 2019 contributions to 2025.
On Feb. 25, 2021, CCC conducted an evidentiary hearing for Complaints 001 and 002.
In response to Complaint 001, IPI said Amendment No. 9 extended the payment dates to 2025.
In response to Complaint 002, IPI invoked the force majeure clause, citing the devastating effects of the pandemic on the tourism industry.
On March 2, 2021, CCC conducted an evidentiary hearing for Complaints 003, 004, and 005. IPI did not dispute the violations and did not raise any affirmative defense.
On April 22, 2021, CCC met with an IPI representative. At this meeting, CCC asked about IPI’s parent company’s 2020 annual report, which included information regarding its financial situation. The casino commissioners then unanimously voted to suspend IPI’s exclusive casino license and issued monetary sanctions.
CCC imposed a total of $6.6 million in fines against IPI.
IPI appealed CCC’s order to the Superior Court, saying that Covid-19 and other factors like Super Typhoon Yutu and changes in federal immigration law constituted force majeure events that excused all its performance obligations.
Additionally, IPI claimed that CCC violated its due process rights by discussing IPI’s parent company’s annual report at the April 2021 meeting. IPI said CCC improperly considered evidence outside the record, leading it to decide against IPI’s force majeure defense.
Superior Court decision
In an order affirming CCC’s decision to suspend IPI’s license and impose fines, the Superior Court did not decide the question of force majeure.
The court instead found that while IPI had raised the issue of force majeure for Complaints 001 and 002, it had not raised force majeure or any other defense to Complaints 003–005, and thus CCC had properly suspended IPI’s license.
The court found no due process violation and held that CCC’s order was not arbitrary or capricious.
Appeal
On appeal, IPI said the trial court erred in failing to address force majeure, asserting that Covid-19 and other occurrences are force majeure events excusing performance in all five complaints.
IPI said CCC should have found that force majeure applied to Complaint 002 and held that Covid-19 was the proximate cause of its failure to pay the annual license fee.
Moreover, IPI said Amendment No. 9 constitutes a deferment of its obligations to pay the community benefit funds, the subject of Complaint 001.
IPI also said that it suffered a due process violation, which requires setting aside all sanctions.
