AGO wants ‘cover over’ suit dropped

The Attorney General’s Office is dropping the lawsuit filed by the Babauta administration against the U.S. Department of Treasury for the federal government’s failure to transfer—or “cover over”—to the Commonwealth federal taxes collected from Northern Marianas residents.

According to acting Attorney General Matthew Gregory, the Fitial administration has written the law firm representing the CNMI government in the lawsuit, asking the former administration’s lawyers to cease and desist from pursuing legal action against the U.S. Treasury and its secretary John Snow.

“They may be representing [former governor] Babauta, but not me,” Gov. Benigno R. Fitial said Friday.

Gregory said, however, that the AGO will pursue recovery of the potential $60 million in proceeds of U.S. estate taxes and gift taxes collected in the Commonwealth since 1978.

“We’re looking for the best method for recovery—one that will maximize the recovery for the Commonwealth without spending an enormous amount on legal fees, and one that will best bring the Department of Treasury on the negotiating table,” Gregory said.

The Babauta administration reportedly promised to grant the Williamson & Wyatt law firm 30 percent of the amount recovered.

“Obviously these are crucial funds we’re talking about. It’s a large amount of money, up to $60 million. We want to make sure that recovery is done as efficiently as possible,” Gregory said.

On Dec. 20, 2005, the CNMI Department of Finance, through counsel William J. Ohle, sued the U.S Treasury and Secretary Snow for breach of the Covenant and breach of fiduciary duty.

Specifically, Finance asked the U.S. District Court for the NMI to order the U.S. government to pay to the local treasury all of the proceeds and interest of all U.S. estate and gift taxes levied on the NMI inhabitants since the Covenant became effective on Jan. 9, 1978.

Finance requested the court to direct the Department of Treasury to make an accounting of all U.S. estate and gift taxes received by the defendant and to provide to the Commonwealth complete information to enable the identification of all such proceeds.

The Commonwealth also demanded payment for monetary benefit received by the defendants from the wrongful withholding of U.S. estate and gift taxes that were not timely transferred to the local treasury.

These estates include the estate of Larry Lee Hillblom, the estate of Erwin Canham, and others, Ohle said. These tax receipts have earned interest and have increased in value since their receipt by the U.S, said Ohle, adding that the “proceeds” of tax receipts include all such increases.

Ohle said the U.S. has not transferred to the Commonwealth any proceeds of U.S. estate or gift taxes levied on NMI inhabitants since the effective date of Article VII of the Covenant, Jan. 9, 1978.