Four sue Fitial, DelRosario over LaoLao Bay lease

Four persons have filed a taxpayers’ lawsuit against Gov. Benigno R. Fitial, the Department of Public Lands, and DPL Secretary John S. DelRosario over the lease of 1.6 million square meters of prime public land to Saipan Laulau Development Inc., allegedly at an unreasonably low rental rate.

According to the lawsuit filed by Ramon M. San Nicolas, Vicente C. Aldan, Tarsicio Olopai, and Juan M. Deleon Guerrero, the Commonwealth will lose a minimum of $16.6 million for the full 40-year term of the lease agreement.

The plaintiffs, through counsel Edward Manibusan, challenged the legality of the lease, saying its terms are not commercially reasonable, contrary to the public interest, and are in violation of Article 11 of the CNMI Constitution.

Press secretary Charles Reyes Jr. said that Fitial is determined to defend and support this major investment for the Commonwealth. Reyes said the governor is confident that their position will prevail in court.

He said the governor is disappointed with the filing of the lawsuit, saying it has no merits and does not support the best interest of the CNMI.

“The governor expressed confidence that this was the right decision and it’s a decision that was made in the best economic interest of the Commonwealth,” Reyes said.

He pointed out that Kumho Asiana made a substantial investment commitment to the CNMI, not only to develop the property—the golf resort—into a multi-million dollar resort development, but also in terms of bringing additional flight capacity.

The plaintiffs asked the Superior Court to prevent DPL and DelRosario from proceeding with development of the property until the court makes a decision on the case.

The plaintiffs demanded that the lease be set aside as null and void. They also sought payment of attorney’s fees and court costs.

The CNMI government, through DPL and DelRosario, leased the LaoLao Bay Golf Resort to Saipan Laulau Development Inc. on Dec. 6, 2007. SLDI is wholly owned by Kumho Holdings (H.K.) Co. Ltd.

According to Manibusan, SLDI is owned by persons who are not of NMI descent.

Prior to entering the lease agreement, Manibusan said, Fitial and DelRosario failed to solicit or consider any other proposals for the lease of the property.

Manibusan said “DPL and Fitial knew or should have known that the appraised value of the land was inaccurate and extremely low and that the lease agreement predicated on these terms was not in the best interest of the people of the CNMI.”

“To ensure a commercially reasonable return on the rental of prime public property and that a lease of prime public land for commercial development was in the public interest, the Governor and the DPL Secretary had a duty to publicize the availability of the property for private use, in advance of leasing it, in order to solicit proposals from potential lessees,” he asserted.

The lawyer said that in failing to solicit competing proposals for the development of the property prior to entering into the lease agreement and by agreeing to an unreasonably low lease of the property, Fitial and DelRosario breached their fiduciary duty to the people of the CNMI.

Manibusan said DelRosario leased the property to SLDI for a total rental of $4,120,080, payable in five installments at $103,002 per year.

The fair market value of the property in a proposed lease agreement transmitted to the 16th NMI Legislature was $6,460,000, based on the value of vacant land.

Manibusan pointed out that the fair market value of the property as improved and set forth in the Dec. 6, 2007, lease agreement is $17,167,000.

He said the fair rental value of the property for the full 40-year term of the lease should generate revenues for the CNMI in the amount of at least $20,672,000, or about $516,800 per year.

Manibusan said that because Del Rosario failed to include a provision in the lease for the rent to periodically increase over the term of the lease and because the DPL Secretary granted the lessee considerable and extensive rental deductions, the fair rental value is understated.

For the full 40-year term of the lease, he said, the CNMI people will lose a minimum of $16,551,920.

Manibusan said the fair rental value of the property for the 40-year term of the lease is at least $20,6762,000 or $12.80 per square meter.

The DPL Secretary, however, the lawyer said, leased the property to SLDI for the sum of $4,120,080, or $2.55 per square meter.

He said based on the DPL’s assessment of the fair rental value, without consideration of the other economic terms of the lease or a independent assessment of the true value of the land, Fitial and Del Rosario leased the property to SLDI for 19.9 percent of its fair rental value.

Manibusan said the lease agreement departs from the standard lease in several respects.

First, Manibusan said, the lease does not contain any public benefit obligations characterizing most, if not all, other CNMI public lands leases for golf courses and resorts.

Second, he said, while Fitial has made much of the magnitude of the lessee’s investment in the CNMI, the lease is devoid of any concrete and definite obligations binding this lessee to make any such investment.

Third, he said, there is no public access guarantee, nor is there any junior golf programs or fundraising programs required of the lessee.

Fourth, Manibusan pointed out, the lease does not require the lessee to continue programs for students of Kagman High School, Junior Golf, and outreach programs to the local community.

Fifth, he said, no provision in the lease agreement requires the lessee to invest any definite amount in the construction of the facilities.

“The lessee has been further afforded certain preferential tax treatment by the government, further reducing the actual investment resources into the Commonwealth,” he said.

Manibusan said well after the lease had been consummated, Fitial approved a plan to provide up to $18 million in tax relief for the lessee.

“Fitial continues to pressure the Commonwealth Development Authority for additional financial concessions, in order to add even more benefits under the qualifying certificate program for the lessee,” he said.