[note: click here for minute entry, issued by the U.S. Bankruptcy Court/Hawaii: Order.MinuteEntry.20April2012 ]
4/20/12, Fri., 9:30 p.m.
Hello: Today, I attended the First Day Hearing in the Bankruptcy Petition (Chapter 11 of the Federal Bankruptcy Code) filed by the Northern Mariana Islands Retirement Fund (NMIRF or Fund), Case No. 12-00004. Approximately 10 other retirees attended. This took place at the Federal District Court and was presided over, via teleconference, by District of Hawaii’s Chief Bankruptcy Judge Robert J. Faris. Attorney’s taking part on behalf of the Fund were Fund Board Attorney Braddock J. Huesman, and two attorneys from the law firm of Brown Rudnick, LLP, Jeremy B. Coffey, and Steven D. Pohl. Also present for this hearing were Fund Attorneys Carolyn Kern and Christopher Timmons, Board Attorney Viola Alepuyo, Fund Administrator Rich Villagomez, Fund Board Vice Chairwoman Adelina Roberto.
Also appearing via teleconference from Hawaii were: Attorneys Margery S. Bronster and Robert M. Hatch, of the law firm of Bronster Hoshibata, Associates of Attorney Bruce L. Jorgensen; Attorney ___Foster (sp.?), also an Associate of Attorney Jorgensen; Mr. Curtis Ching, Assistant U.S. Bankruptcy Trustee; and Terry Vivian (I’m not sure of her name but believe she works in the U.S. Trustee’s office. Djc).
Also taking part was local Attorney Stephen Woodruff, an Associate of Bruce L. Jorgensen. Attorney Jorgensen had filed in Federal Court Civil Action No. 09-00023, on behalf of retirees identified as Jane Roe and John Doe, against Gov. Benigno R. Fitial, then acting Fund Chairman Pedro Q. Dela Cruz, then Fund Trustee Sixto K. Igisomar, Trustee Adelina C. Roberto, then Acting Finance Secretary Robert Schrack, and U.S. Attorney General Eric Holder. This group has, just today, April 20, 2012, filed a Motion in the Federal Court to dismiss the Fund’s Petition for Bankruptcy filed April 17, 2012. Jorgensen’s Motion states that “the Fund is not a ‘person that may be a debtor under chapter 7,’ and, therefore, cannot file a petition under chapter 11. The Fund is a ‘governmental unit’ and ‘agency … of … a Commonwealth’ and, therefore is not a ‘person’ under the Bankruptcy Code.” This Motion for Dismissal says: “The burden of proving eligibility is on the Petitioner.” It will now be up to the Fund to file an answering Motion.
Attorney Coffee started by saying this First Day Hearing is critical to the smooth transition and every day operation of the Fund and for ensuring the paying out of benefits. He said it was his clients’ hope to be able to use the tools of the Federal Bankruptcy Court to help this “distressed company”. He told of the background of the Fund, this was mostly contained in the Declaration of Richard S. Villagomez In Support of First Day Pleadings. He said the Fund is now paying out benefits that far exceed the capability of the Fund. He said, “as a practical matter, there won’t be any money left” by July 2014. He said the Fund has about $256 million, about $144 million of that is left to pay pensions after the $113 set aside by the Superior court for active members (those working and those who have not as yet recouped what they contributed); there is about $30.5 million coming in; and expenses yearly are about $80.7 million. He said of the Fund, “It essentially has to cannibalize itself.” He called the Judge’s attention to Exhibits attached to Mr. Villagomez’ Declaration which had been presented at the last Superior Court Status Hearing on March 19, 2012, showing various predictions, based on varying factors, of how long the Fund can “stay alive” under differing scenarios for all Fund members.
Attorney Coffey said one goal is to determine how the government can increase what it pays to the Fund monthly and on it‘s $325 million debt to the fund . He said there are several thoughts on that but they are not final. He said they want “to align current obligations with the current level of ability to pay”. He said they need the establishment of a Creditors’ (retirees’) Committee so that resolution can be accomplished as soon as possible. He said, “we’re looking at 4-6 months.” He said Assistant U.S. Bankruptcy Trustee, Curtis Ching, has indicated that he is working quickly to get the Creditors’ Committee formed and active.
Attorney Coffee said this is the most significant Chapter 11 Bankruptcy case ever filed in the Commonwealth’s history. He said there have been indications that many don’t understand what this is. He said “people are frightened; they think everything will stop.” He said, “sentiment on the street is not good and we understand that.“ He said people fear they will be unable to continue to provide food, clothing, shelter, and health care for themselves and their families, and to pay mortgages and other ongoing debts and obligations. He held up the front page of the Saipan Tribune newspaper, with a bold headline: “Worst Time in CNMI History”. He said “many Fund members are scared to death”.
Attorney Coffee said it was the Fund’s sincere intent “to restructure, not shut off completely”. He said it is the Fund’s further intent “to include Fund beneficiaries and not to exclude them.” He explained to the Judge some of the efforts the Fund has made since the announcement of the Bankruptcy filing to try to clarify matters to all the Fund’s members. He told of a press conference on 4/17/12 to make the first public announcement of the Bankruptcy Petition, of a “Town Hall” meeting with retirees that same evening on Saipan, of a similar meeting with retirees on Tinian the next evening and one on Rota tonight. He spoke of numerous opportunities given to the media for interviews in the last couple of days. He spoke of an information letter and a Frequently Asked Questions document distributed to retirees at the meetings and posted on the Fund website. The Frequently Asked Questions document has also been published in both local newspapers. He said “We have been working around the clock to try to get information out there.” He said “there are difficult decisions and choices to be made.” He said, based on input from some of the Fund members, the Fund believes some are beginning to understand the Fund’s intent. He said the Fund is aware that “all these procedures are being carefully watched by the Fund members.” With that, Attorney Coffey proposed that the Court proceed with the agenda to hear the six First Day Motions, all of which he said had been provided to Mr. Ching in advance.
The most important Motion was “Providing for the Continued Payment of Certain Benefits To Beneficiaries” to allow for the continued payment of regular benefits for up to a period of two months. He said the timing of the filing of this Bankruptcy Petition was such that it came right after a pension payment had been made. Mr. Coffey said they learned at the Town Hall meetings that many people feel very strongly about the continuation of their health insurance without any interruption. He said a Pension Holdings Corporation, a new CNMI corporation (the “Interim Funding Subsidiary”) was formed to insure being able to continue to pay full benefits, plus health and life insurance premiums, for the next two months while these proceedings are ongoing. He said the Fund could have filed this Petition on Guam or in Hawaii, but felt it better to file it here so that the majority of the Fund members could observe and take part. He said they were fully aware that Federal Judge Manglona would likely recuse herself and did not know which Federal judge would be assigned to hear the matter.
Attorney Coffey said the Fund felt that provision of two months of pension funds would help alleviate the panic some retirees might feel. He said one of the most often questions they have been getting is what happens after 60 days. He said they felt it appropriate to provide the two months of full payments to give the members time to make plans and deal with possible cuts to come. He said the quick activation of the Creditors’ Committee is essential and he hoped that could be in place within or less than 30 days. He said this request might be a little different from some other areas. He said, while some members have a right to payments now, others don’t (those still working). He pointed out that the Superior Court had ordered an amount to be set aside for those still working and those recently retired who have not as yet recouped as much as they had put in. That set aside amount is now at $113 million.
Judge Faris said a question was posed by the U.S. Trustee’s office, “why now if funds are there already”.
Mr. Ching said the U.S. Trustee is a party in all bankruptcy cases. He said that office is “intended to be a watchdog”. He said his office has no financial or other interest in these matters and is “a neutral party”. He said they “want the Debtor to succeed and continue as a healthy entity” and to see that the process goes smoothly. He said they would raise issues if they feel any of the process is not going as it should. He said his office “feels that the Debtor is putting great responsibility on the Creditors’ Committee.” He said “the Debtor tells how bad things are and then puts the onus on other people to say no.” He said that is a difficult position to put on those on the Committee and his office recognizes that. He said the Creditors’ Committee is allowed by the Code and his office is in the process of selecting 5-7 members for that. He said an attorney would be provided for the Committee to appear in Court and help along the process. He said the realistic way “is not to continue payments in full.” However, the Fund has already created an entity (the Pension Holdings Corporation) to do just that. He said his office’s concern is “that the payments to current beneficiaries will not allow others to be treated equally.”
One of the Hawaii female attorneys (I did not catch who this was. Djc) in the Jorgensen Federal Court case spoke. She said her firm “did not get any advance notice of these proceedings”. She said that while her firm wants to get the maximum amount to retirees, they are “quite concerned about the rush to change the status quo.” She said Attorney Jorgensen and Associated Attorneys have electronically filed a Motion to Dismiss these Bankruptcy proceedings and that had been provided to Attorneys Coffey and Huesman. She requested that the Court hold off making major decisions on these proceedings until the Court can decide whether the case should be dismissed. She said the Fund is a government agency and a public corporation. She said they do believe full payments to beneficiaries “should be continued and there is already a mechanism for that“. She said they believe the Court should not decide today.
Judge Faris spoke to remind everyone of the time difference between Hawaii and Saipan and said the Hawaii Court could only proceed for another 45 minutes.
Attorney Coffey said “we are confident we are an eligible Debtor”.
Judge Faris said he would “defer a decision”, as he saw no immediate emergency and an entity has already been set up to ensure continued payments to pensioners.
Attorney Coffee asked the Judge for “An Order Extending The Time Within Which Debtor Must File Its (I) Schedule Of Assets And Liabilities, (II) Schedule Of Executory Contracts And Unexpired Leases; and (III) Statement Of Financial Affairs”. He asked that this be extended to May 16. The Judge said he would grant that Motion and asked that the Order be prepared.
Attorney Coffee asked the Judge for “Entry of an Order Authorizing the Debtor to (A) Maintain Existing Bank Accounts and Continue Use of Cash Management System, (B) Continue Use of Existing Business Forms, and (C) Open New Debtor-in-Possession Accounts; and (D) Forgo Bond Requirements For Investments (the “Cash Management Motion”)”. I’m sorry but I did not understand what was the Judge’s decision on this.
Attorney Coffee asked the Judge for “Entry of Order Pursuant to 11 U.S.C. § 105(a) Enforcing Protections of 11 U.S.C. § 362 and Prohibiting Unauthorized Actions Against the Debtor’s Management and Board of Trustees During this Proceeding (the “Aid Of Automatic Stay Motion”)”.
Mr. Ching said he had not seen a granting of immunity during any Chapter 11 case and didn’t feel it necessary.
Judge Faris said he would not grant that Motion because the Automatic Stay was in place. He said the Automatic Stay is “a very serious matter having extremely serious consequences”. He said everyone needs to be very cognizant of that. As for protection for the Fund Board and employees, the Judge said he felt that is unnecessary. He said he believed the Automatic Stay covers them. He said if an emergency arises, he can be contacted “quickly”. He denied this Motion.
Attorney Pohl said the Fund had 3 Motions left to bring up. He said the “Motion of Debtor for an Order Authorizing the Retention and Employment of Professionals Used in the Ordinary Course of Business (the “Ordinary Course Professionals Motion”)” had been discussed with Mr. Ching and this could be put off to the second day of Hearings.
The next Motion Attorney Pohl brought up was a “Motion of the Debtor for Entry of an Order Authorizing the Debtor to (A) Maintain Existing Bank Accounts and Continue Use of Cash Management System, (B) Continue Use of Existing Business Forms, and (C) Open New Debtor-in-Possession Accounts; and (D) Forgo Bond Requirements For Investments (the “Cash Management Motion”)”. He said checks could be stamped with “Debtor-in-Possession”
Attorney Pohl said this Motion was about the corpus of the estate. He said they gave Mr. Ching information as to what the Fund investments look like. He said a report as of April 6, 2012 shows that 9% is in cash, 13% is in large cap equities, 65% is with ______ (sorry, I didn’t get this. Djc), and minor amounts are in Certificates of Deposit. He said, because of the very short investment horizon, the Fund must have a very cautious investment strategy. The Judge said he would approve this Motion on an “interim basis”
Attorney Pohl said the last was a “Motion of the Debtor for an Order Authorizing (I) Payment of Pre-Petition Employee Wages, Salaries, and Other Compensation; (II) Reimbursement of Pre-Petition Employee Business Expenses; (III) Payment of Pre-Petition Tax and Other Withholdings to Third-Parties; (IV) Contributions to Pre-Petition Employee Health and Other Benefit Programs and Continuation of Such Programs; (V) Payment of Workers’ Compensation Obligations and Other Insurance Premiums; and (VI) Related Relief (the “Wage Motion”)”
Attorney Pohl said they had discussed this with Mr. Ching and they had one matter of difference, a pre-petition matter involving only about $1,500. A woman from Hawaii spoke (I didn’t catch her name except it sounded like Vivian and I believe she is with Mr. Ching‘s office). She said the $1,500 is so small, they would have no objection.
The Judge granted this Motion and asked for the Order to be prepared.
Attorney Coffey asked the Judge to have Attorney Bronster’s clients comply with certain rules. The Judge laughed but asked them to “read rule 2019 and comply”. Judge Faris said, “for purposes of this case only the Hawaii Bankruptcy rules will apply”. Attorney Coffey said his clients would be agreeable to that.
Taking into consideration some conflicting schedules of some of the attorneys involved, the date of Friday, June 1, 2012, at 9:30 a.m., was set for the next Hearing in Federal District Court. I strongly urge all who can to attend this. Watch for notices in the media or call the Fund for confirmation. If you do plan to attend, remember that the Federal Court Marshals strictly forbid bringing into the courtroom any cameras and cell phones. If a visitor arrives with one, they insist the visitor return it to their car.
I remind you that these notes are not a formal or official record of this Hearing and what is written here is strictly my “understanding” of what transpired; I could be wrong on some points. Often, it is extremely difficult to hear and understand everything being said. There are sometimes items on which I simple don’t feel capable of providing reasonably good interpretations. My notes are abbreviated, and do not always cover all that takes place. To get full and accurate information for yourself, you should personally attend.
Further, I remind you to periodically check out the NMIRF website, www.nmiretirement.com, and Glen Hunter’s website for retirees,http://kixproductions.com/
Warm regards. Donna