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Tuesday, April 22, 2014

Wiseman: PPA void from the start

Superior Court Associate Judge David A. Wiseman issued yesterday an order finding that then-governor Benigno R. Fitial did not have the authority to suspend Commonwealth Utilities Corp. procurement rules and that the power purchase agreement Fitial entered with the Saipan Development LLC is void ab initio (from the beginning).

In a 26-page order granting CUC’s motion for partial summary judgment, Wiseman ruled that, while Fitial had the authority to declare a state of disaster emergency after determining that CUC was unable to provide utilities to the public, he did not have the authority to suspend procurement regulations that bound the CUC executive director and CUC board of directors.

Wiseman determined that the regulations were not followed in the execution of the power purchase agreement.

A status conference will be held on Feb. 13, 2014, at 1:30pm, at which time the parties are directed to be prepared to discuss their position on further procedures in this case.

Fitial and then attorney general Edward T. Buckingham signed the power purchase agreement on Aug. 3, 2012, to build a new power plant on Saipan.

The allegedly secretive signing of the no-bid, 25-year $190.8 million agreement was one of the issues that led to the filing of impeachment charges against Fitial, who subsequently resigned as governor.

Prior to this, Attorney General Joey P. San Nicolas wrote Delaware-based Saipan Development LLC in January last year to inform it that his predecessor, Buckingham, made a mistake in indicating that the PPA and related agreements were sufficient as to form and legal capacity. San Nicolas pointed out that the PPA and related agreements were void from the beginning.

The state Senate, Rep. Janet U. Maratita (IR-Saipan), and Sen. Ray A. Yumul (IR-Saipan) are suing Fitial, San Nicolas, CUC, and SDLLC over the PPA and sought a preliminary injunction to stop it.

Wiseman granted the preliminary injunction on Aug. 31, 2012. The injunction bars all the defendants, except SDLLC, from performing on the PPA and all associated agreements.

In July 2013, CUC, through counsel Deborah Fisher, moved for a partial summary judgment on the basis that the PPA is illegal and void from the beginning because it did not meet the procurement regulations controlling such transactions. Maratita and Yumul later joined CUC’s motion for partial summary judgment.

SDLLC, through counsel William Fitzgerald, opposed the motion. Fitzgerald argued that the PPA was validly executed by CUC and signed by the acting CUC director; that CUC is bound by its agents’ actions and is stopped from arguing that Fitial lacked actual authority to execute the PPA; and that SDLLC relied upon representation of its highest officials of the CNMI.

Wiseman heard the motion on Sept. 19, 2013.

In his order yesterday, Wiseman said he finds the PPA void ab initio because the procurement regulations could not have been suspended before Fitial’s executive order declaring a disaster emergency was in effect.

Wiseman determined that the regulations requiring the signatures of CUC’s executive director or comptroller were not followed.

The judge also determined that Fitial did not have the authority to enter into the Development Agreement in the absence of the approval of CUC’s executive director or comptroller.

The Development Agreement, among other things, “authorized SDLLC to immediately proceed, without the need for further approvals, with the development of the power plant on an urgent basis.”

Wiseman said he finds the Development Agreement to be improper and facially invalid, and that CUC is not bound by its terms purporting to obligate CUC to enter into the PPA.

Wiseman said he finds AG San Nicolas’ opinion to be persuasive authority that explicitly supports the reasoning of his (judge’s) decision.

CUC relied on San Nicolas’ opinion in support of its motion.

Wiseman said he finds that summary judgment is appropriate to dispose of the legal issue presented by CUC’s motion because SDLLC has not met its burden in convincing the court that a jury trial is necessary to reconcile a genuine dispute as to a material fact.

On compliance with CUC procurement regulations, Wiseman said there were no findings that SDLLC would be the only company able to provide the necessary power in the accelerated time tables required by CUC, or that SDLLC would be able to provide power in the most efficient and cost-effective way possible.

“Further, the PPA itself does not specify the unique capabilities SDLLC would provide, why those capabilities are required, and whether or not other sources of the unique capabilities were considered,” he noted.

Wiseman said the procurement regulations applicable to contracts such as the PPA are designed to protect both the government agency or public corporation and the general public.

Wiseman said the need for checks and balances in industries such as power utilities is paramount due to the size of the projects and necessary agreements involved in completing them.

“Top-heavy leadership without routine and independent verification only increases the risk of improper or erroneous execution of contracts,” he added.

This issue, the judge noted, is exacerbated when the highest government official from the Executive Branch attempts to suspend those regulations in order to enter into agreements that may be improper or detrimental to the public as a whole.

Wiseman said public policy considerations of ensuring the protection and benefit of government agencies or public corporations, as well as the public as a whole, are vital to the proper operation of procurement mechanisms in industries such as power utilities.

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