IPI, Yeom agree on $49M settlement, but Palacios said to have rejected it

Imperial Pacific International (CNMI) LLC director/manager Howyo Chi disclosed Friday that IPI and Commonwealth Casino Commission executive director Andrew Yeom have agreed to a proposed $49-million settlement, but Gov. Arnold I. Palacios has rejected the settlement terms.

Also, after IPI and Yeom, through their lawyers, completed their closing arguments during Friday’s hearing whether to revoke or not IPI’s exclusive casino license, CCC board vice chair Rafael S. Demapan and the board’s lawyer, assistant attorney general Carl Dela Cruz, said that IPI’s motion to disqualify the commissioners from presiding over the case, along with other motions, are placed under advisement and will be addressed in a written order.

Demapan said they are going to hold a public meeting within 30 days, in which the commissioners are also going to deliberate and members of the public will be allowed to speak.

IPI director/manager Chi testified that IPI and Yeom or the CCC have agreed for IPI to pay $16 million to $17 million just to lift the CCC’s suspension of IPI’s casino license, and then IPI will pay $31 million on its arrears in the annual regulatory and license fees.

“We have submitted proposals, which was not responded. I guess it was accepted by one party but rejected by another party or not responded by another party,” he said at the meeting held at the Office of the Governor’s conference room on Capital Hill. The revocation hearing was reconvened at the Office of the Attorney General’s conference room in the afternoon.

When IPI counsel Michael Chen asked for clarification what “another party” he was referring to, Chi said that Palacios did not approve the settlement proposal.

Chi said they basically had to renegotiate with Palacios through his counsel, but he (Palacios) has never given them a proposal that is acceptable to IPI.

He said Palacios waited for three weeks in trying to make his decision until he (Palacios) returned and told them he rejected the offer.

Chi said they had an agreement with CCC based on the settlement terms, but Palacios did not did not agree to that.

“And we had to go back to the table. We’re trying to figure out what…is acceptable [to] the governor, but the governor did not provide any counteroffer or proposal to us,” he said.

Chi said they at first were negotiating strictly with the CCC, without the governor or the governor’s counsel being present. Once IPI and Yeom had the framework developed that is agreeable to both CCC and IPI, the CCC was supposed to present it to Palacios.

Chi said they never got an answer from Palacios until the governor came in one day and stated that he would like to see all proposals and make his own decisions because this is a decision that he has to live with.

Chen pointed out that it is his understanding that the CCC is an autonomous agency that can make its own decision.

Chen said the terms of the proposed settlement are fairly comprehensive as it covers the arrears and both future license and regulatory fees and other payments as well, like penalties.

Chi said it is quite frustrating when they keep negotiating and not able to get something in return that’s agreeable to the CCC.

Chi agreed with Chen statement that the major obstacle to the process is that IPI is negotiating with more than one party and that IPI does not know what the CNMI necessarily wants.

Chi said if IPI fails to make any payment on the settlement terms, it would be voluntarily giving up the license and will not challenge any administrative proceedings.

Whether or not IPI waives its exclusive gaming license, Chi said they are fine with the splitting of the license.

He said IPI will agree for the Legislature to amend Public Law 18-56 to change the casino license from exclusive to non-exclusive, and the Casino License Agreement as well.

In response to assistant attorney general Keisha Blaise’s questions, Chi said he is authorized to accept some settlement terms up to a certain point, bu the will need to consult with the lawyer of IPI’s stakeholders past a certain point. Blaise is Yeom’s lawyer.

During further discussions, Chi said that IPI agreed to transfer its casino license to the Japan-based investor, Kyosei Bank Group.

He also clarified that IPI is not offering to pay CCC the full $62 million arrears in regulatory and license fees because of force majeure. Instead, IPI is looking for a way to settle this amicably.

Chi said IPI even offered to transfer the license and leave the island peacefully.

“It’s not our intention to go through this messy revocation process that could drag on for years to come,” he said.

Chi said the CCC is amenable to the offer to leave the island and transfer the license.

“We are just frustrated that the governor appears to have stuck on this messy litigation. We want to settle this as swiftly and peacefully as possible,” he said.

Chi said they believe COVID-19 played a major role in IPI’s inability to pay the 2020 license and regulatory fees. He said CCC suspended IPI’s license in April 2021 and since then IPI has not been in operation.

Chi said they also believe that once their license was suspended, they shouldn’t be continuously accruing fees going forward because they were not being able to use their license. “Why do we have to pay this license when we cannot even use this license? That is our main argument,” said Chi, adding that IPI’s casino closed in March 2020.

Chi said they have offered to pay for April 2021, with what they believe they have to pay, but it was not accepted. For the whole 2021, 2022, 2023, and 2024, Chi said they offered to pay for two years for $31 million and it also wasn’t accepted.

“So it’s really frustrating that we’re putting our best effort to resolve this issue, even though we believe we don’t have to pay after 2021,” Chi said.

In a good faith effort to try to settle this and move forward, he said, they will be willing to pay $16 million to $17 million just to get their license back, and for the arrears they will be willing to pay at one point—$31 million.

“So that’s a good $48 million or $49 million there. That offer was on the table and we could not get any answers [if] that’s enough to satisfy [the] CNMI,” he said.

Then there was the offer for IPI to walk away. Chi said that IPI would transfer the license to Kyosei Bank Group completely. IPI will be done with the CNMI and will be out of here.

“That was also on the table. Again, that has not been accepted either. So, you know, we were doing our best to try to resolve this,” he said.

Even with the revocation, Chi said, they will be willing to pay some money and just give them a little bit more time to negotiate.

As soon as the money comes in, IPI or Kyosei will immediately hire new employees, hire construction workers, and boost the economy, he said.

“I really believe IPI is doing what we can to try to resolve it,” he said.

In response to CCC board vice chair Rafael Demapan’s request for clarification, Chi said that Kyosei Bank is willing to take over the entire IPI operation so IPI will be out of the picture completely.

Kyosei Bank Group is not a bank but an investment firm, he said.

Chi said Blaise is asking IPI for $62 million in order to reinstate the license.

“We don’t agree that we need to pay that amount,” Chi said.

Blaise said they want to make clear that this revocation hearing is for the 2020 regulatory fee of $3.1 million.

Blaise said Chi stated that IPI received $20 million from Kyosei Bank, why did IPI not use some of that funding to pay the $3.1 million plus penalty.

Chi replied it’s because IPI believes force majeure applies and that since the license is suspended, they were not paying the full $3.15 million.

“This is why we have been telling you—that we will be willing to pay up until the day of suspension and you guys are not accepting. It’s not like we will we don’t want to make a payment. You don’t want to take a payment,” Chi told Blaise.

Chi said he was not present at the 2020 enforcement hearing or evidentiary hearing, but he would like to make that claim today that force majeure and the suspension of IPI’s license both played a role in why IPI did not make that payment.

In Yeom’s closing arguments, Blaise said as the commissioners deliberated on the revocation of IPI casino license for its failure to pay the 2020 casino regulatory fee, it is imperative that they maintain their focus on the central issue at hand—compliance with statutory and regulatory obligations.

“Today, you have heard testimony and evidence that the 2020 casino regulatory fee is required by CNMI statute and casino commission regulations,” Blaise said.

She said the commissioners heard that IPI was aware that the casino regulatory fee was a requirement subject to penalties for non-compliance.

Blaise said the commissioners have heard that IPI admitted at the 2021 enforcement hearings that it failed to pay the 2020 regulatory fee, accepted responsibility for its failure to pay the fee, and did not present any defense for its inability to pay.

“You have heard testimony today that the commission relies on the fee to fund its operations, pay its employees, and perform essential functions to regulate IPI, including its duty to ensure that IPI is suitable to be a casino licensee in the Commonwealth,” she said.

Blaise said the commissioners also heard that IPI had access to $20 million and up until today has not paid the obligation that could prevent the revocation of its license.

She said the commissioners have also heard testimony from IPI that settlement negotiations have taken place between the parties and an agreement was never reached. Blaise pointed out that settlement negotiations do not absolve IPI of its obligation to pay the regulatory fee.

She noted that the 2020 regulatory fee is not subject to negotiation or discretion as it is a mandatory requirement by the statutory and regulatory framework that governs the operation of a casino licensee on Saipan.

“Attempting to divert attention away from its failure to meet this obligation by citing settlement negotiations is a clear attempt by IPI to confuse the issue at hand,” Blaise said.

She said the commissioners have also heard testimony and evidence regarding force majeure as an excuse for IPIs failures.

Blaise said force majeure does not provide indefinite immunity from IPI obligations as the CNMI Supreme Court has already determined, therefore compliance is required today.

In essence, she said, the crux of this matter boils down to one crucial question: Has IPI fulfilled its obligations to the Commonwealth Casino Commission and the gaming industry as a whole?

“If the answer is no, as the evidence overwhelmingly suggests, then it is incumbent upon this honorable commission to revoke IPI’s casino license without hesitation,” she said. Blaise said the interests of justice, the integrity of the industry and the welfare of the community demand nothing less.

In IPI’s closing arguments, Chen said for the $3-million regulatory fee that the CCC is asking for has several constitutional issues.

“And we know that this came in after the agreement was made between Commonwealth and IPI. So at that time, when the contract was signed, IPI was not aware of this $-million annual fee,” Chen said.

He said the idea originally was to have the $3 million to be paid out of the general operating budget of the Commonwealth and later somehow was modified to make this come exclusively from IPI. Chen said this caused a number of constitutional issues.

Chen said that, based on Chi’s testimony, it showed that IPI has made it best effort to raise money either from its parent company, from certain parties, from investors, and from the public.

“It is obviously against their interest to put themselves in this position,” he said.

Chen said force majeure is an affirmative defense that either justifies IPI not paying that all or justifies that IPI is not in default that would trigger revocation. This was compounded by the fact that IPI’s license was suspended, he said.

Chen said it’s common sense that the regulatory fee is paid by somebody with an active casino operation.

He said the CCC’s amount of work was obviously reduced because IPI had been shut down. “I don’t deny that there’s some work that has to be done by CCC, even IPI was not in business, but we also all would agree that its work has been reduced,” Chen said.

He said he would argue that the revocation itself is not the right decision for a lot of reasons.

Chen said revocation of the license is going to hurt IPI for sure and it’s going to hurt the community, the gaming industry, or the image of the CNMI.

He said the commissioners have the discretion on the proper remedy.

“Absolute or final revocation, we all know, is basically it’s a lose-lose situation for everybody,” Chen said.