James Spiotto '72 Interviewed about Northern Mariana Islands Retirement Fund Bankruptcy

From the Marianas Variety website:

THE Fund’s filing for Chapter 11 protection has a parallel in the Las Vegas Monorail Company which recently the court found to be eligible to file for bankruptcy under the same chapter.

Variety asked a disinterested party to the case, Illinois bankruptcy counsel James E. Spiotto, a partner to the firm Chapman and Cutler LLP, to share his opinion with regard to the Fund’s filing for Chapter 11 protection.

Spiotto, who has represented clients Sierra Kings and Jefferson County in Chapter 9 cases, opines that the Fund is similar to the Las Vegas Monorail Co. which the bankruptcy court ruled as eligible to file for bankruptcy under Chapter 11.

In examining the Fund’s enabling act, P.L. 6-17, Spiotto explored whether the Fund is a person or a governmental unit and under what chapters it is eligible to file for bankruptcy.

He told Variety, “Just like Puerto Rico the CNMI and  the Northern Mariana Islands Retirement Fund which filed for Chapter 11 bankruptcy protection  is not a subdivision, instrumentality or agency of a State so it can not file for Chapter 9.”

For Spiotto, it all boils down to whether the Fund is legally capable of filing for Chapter 11 bankruptcy.

“That will turn on whether it has under its organizing law the right to sue and be sued as a separate legal entity from the Commonwealth of Northern Marinas Islands,” he said.

Spiotto, in an email and in a phone interview, told Variety, “As you can determine from reviewing the Retirement Fund’s enabling act, the Retirement Fund is to be governed by a Board of Trustees and not the Commonwealth of the Northern Mariana Islands.”

The enabling act also showed that the Fund has the power to sue and be sued in its corporate name and is an autonomous agency and a public corporation of the government of the CNMI.

For Spiotto, “The Retirement Fund will probably argue that it is a person that has the right to sue and be sued that is intended to be autonomous from CNMI.”

Referencing the P.L. 6-17, Spiotto said, “The Retirement Fund was intended to be a separate, distinct legal entity, a public corporation, autonomous from CNMI even though CNMI and any governmental entity may be liable for payments to the Retirement Fund as a distinct legal pension obligation.”

He added, “Accordingly, it would appear that the issue of whether the Retirement Fund is eligible to file for Chapter 11 bankruptcy will turn on whether it is a ‘person’ or a ‘governmental unit’”.

Citing the Bankruptcy Code, Spiotto said a person that may be a debtor under Chapter 7 may be a Chapter 11 debtor.

He said, under Section 109 (d), “Only a railroad, a person that may be a debtor under chapter 7 of this title (except a stockbroker or a commodity broker), and an uninsured State member bank, or a corporation organized under section 25A of the Federal Reserve Act, which operates, or operates as, a multilateral clearing organization pursuant to section 409 of the Federal Deposit Insurance Corporation Improvement Act of 1991 may be a debtor under chapter 11 of this title.”

He added that Bankruptcy Code Section 101 (41) defines the person to include individual, partnership, corporation, but does not include governmental unit.

A governmental unit, according to Section 101 (27), means the “United States, state, commonwealth, district, territory, municipality, foreign state, department, agency, or instrumentality of the United States...”

In Spiotto’s opinion, the Fund may argue that its situation is similar to the case of the Las Vegas Monorail, also a public corporation, and was determined not a municipality or a governmental unit and was not eligible to file for Chapter 9 as determined by the Bankruptcy Court in a ruling in 2010 and is presently pursuing a Chapter 11 bankruptcy and developing a plan of reorganization.

He clarified that the Fund is not a municipality as defined in the Bankruptcy Code “because to be a municipality, the entity must be a political subdivision or agency or instrumentality of a state.”

“Accordingly, while the Retirement Fund may be argued by the parties that it is either a person or governmental unit, it is clear that is not a municipality and therefore cannot file Chapter 9,” he said.

Differentiating further between a government unit and a person, Spiotto looked into the operations of the Fund.

Again, citing the Fund’s enabling act, Spiotto said it showed that the Fund is responsible for its own operational costs and expenses.

“It was the intention of the act governing the Retirement Fund, as specifically set forth in Section 8384, that the payment of required contributions by any governmental entity shall be an obligation of the Government,” said Spiotto.

He said that it would appear that the Retirement Fund liabilities are not intended to be liabilities of the CNMI whereby CNMI would be responsible for operational costs and liabilities created by the fund.

“The Retirement Fund was intended to be a separate, distinct legal entity, a public corporation, autonomous from CNMI even though CNMI and any governmental entity may be liable for payments to the Retirement Fund as a distinct legal pension obligation,” said Spiotto.

For Spiotto, the CNMI is a government unit under Section 101(27) of the Bankruptcy Code.

“While CNMI, the government, is a Commonwealth and therefore is a governmental unit, the Retirement Fund, is to be an ‘autonomous agency’ of the Commonwealth which raises the question of whether such language is  the equivalent of an ‘agency of the Commonwealth’ and a governmental unit that cannot file a Chapter 11 or is the language interpreted to mean something different namely a separate distinct entity as a public corporation created by CNMI just like the Las Vegas Monorail that was allowed to file a Chapter 11 proceeding even though its organizational documents said it was an instrumentality of the state,” explained Spiotto.

Explaining further, he said that any court decision will turn on whether the “autonomous agency” is the equivalent of an agency of the Commonwealth and a governmental unit or is so separate, distinct and autonomous to be a “person” under the Bankruptcy Code.

In this instance, for Spiotto, “To say the Retirement Fund is a person and not a governmental unit may file a chapter 11 will be an uphill battle.”