The truth behind the La Fiesta deal

Juan Babauta was inaugurated as CNMI governor in January 2002. Nearly six months after his inauguration, a Japanese firm, Coco’s Lagoon Development Corporation based in Guam, purchased the La Fiesta Mall in San Rogue on May 20, 2002 from Japan Air Lines, which owns and operates Nikko Hotel Saipan. The business transaction made CLDC the owner of all the buildings of the La Fiesta Mall, i.e., La Fiesta 1, 2, and 3, as well as all annexes, fixtures, furniture, and improvements established on the premises. Moreover, CLDC possessed the “license of right” to use the premises pursuant to an “unrecorded agreement” on May 14, 2002 between NHS as the seller and CLDC as the buyer stipulating the particulars of the La Fiesta facility purchase and license to the real property.

The La Fiesta Mall general manager Toshiro Arai told the media subsequent to the deal between the two above referenced Japanese firms, that “although the La Fiesta Mall structure had been sold to CLDC, the management and administration of the shopping mall remains with JAL”. In addition, Arai indicated that “the agreement was to sell the building and JAL was asked to maintain the management of the mall, but the land lease would be shouldered by CLDC.”

Approximately fifteen months after CLDC purchased the La Fiesta Mall from NHS, then Northern Marianas College chairman Vince Seman officially signed on Aug. 18, 2003 the acquisition agreement with the leaseholders and CLDC. The agreement encompassed an announced $7.5 million purchase contract for the La Fiesta Mall complex with NHS as the leasehold tenant of “certain property” and CLDC as the “owner of certain buildings and holder of a license for the use of real property.”

Notwithstanding the abovementioned arrangement regarding NHS with the “leasehold tenant of certain property” and CLDC as the “holder of a license for the use of real property”, the CNMI government records indicate that NHS holds ground leases for properties belonging to members of Babuata’s family, i.e., Manuel M. Babauta, Ana B. Babauta, Francisco I. Babauta, Thomas Babauta Castro, Blanco Vende, and Basalisa. Thus, the owners of the property would be the direct recipients of any “lease payments” made by NMC.

Galvin Guerrero, BOR member, told the media in December 2003 that “the probate problem has been settled and the current landowners have worked things out. In addition, Guerrero said that the title of the lands (except a lot or two outside the La Fiesta facility and on the south side) can be transferred now to NMC.” Did this “probate problem” Guerrero mentioned to the media involve the dispute as to who was really supposed to be the actual recipients of any monetary payments from NMC to lease the building and/or property it sits on? And as far as the “title of the lands other than the lot or two outside the La Fiesta facility on the south side, being transferred to NMC, can the BOR show documentation of the actual transfer of the title of lands?

According to the media story in December 2003, the signed documents between Seman on Aug. 18, 2003 reflected an acceptance of the assignment of all the involved leasehold and building interests regarding CLDC and NHS. Unless the actual contract is revealed, one can only project just how much of the assignment of all the involved leasehold and building interests actually exists between NMC, JAL, and CLDC.

Subsequent to the announcement of the signing of the business transaction by the BOR to be the new proprietors of the La Fiesta Mall, the media and island community were told in August 2003 that $2 million in federal grant money (funds from the Jobs Growth and Tax Relief Reconciliation Act of 2003) would come from Gov. Juan Babauta’s office as a “down payment” for the $7.5 million deal. Shortly thereafter, another announcement was made regarding the transfer of an additional $1.5 million would be forwarded in October 2003 making the total down-payment from federal appropriations to be approximately $3.5 million. The outstanding balance of $4 million would presumably be paid back to the property owners who happen to be Babauta’s family approximately $200,000 plus interest annually for 20 years.

On Aug. 9, 2004, an NMC Council meeting took place at the As Terlaje campus. The individuals employed by NMC and who were present at the meeting are the following: Tony Deleon Guerrero, Kurt Barnes, Jack Sablan, Reina Camacho, Raajkumar Kurapati, Lorraine Sonoda, Dean Papadopoulos, and Glenn Keaton. There were seven topics on the agenda; they are the following: Financial Situation; La Fiesta; Faculty Senate Work Plan; Institutional Reports; Pell Reimbursement Status; and Student Data Representation.

The summary of the discussion was sent via email to the participants of the meeting and the two sister campuses in Tinian and Rota. The discussion involving the La Fiesta agenda item is as follows: “Tony met with Nishigori on behalf of Nikko and Coco’s Development. Tony needs to write a letter requesting an extension of the leasehold payment. At that meeting, it was learned that $3.5 million did not all go towards the facility; rather half of the money was made towards the lease. With this info, La Fiesta is not just an asset, it is a liability in our books. It changes the outlook on our financial and accreditation perspective. We need to show how we can take care of our liabilities. If we do not make payment, we lose everything, the building and the lease. If we want La Fiesta, we need to begin negotiations with landowners immediately”.

It is evident from NMC’s council meeting summary that there is a conflict involving what the BOR and Babauta told the island community regarding the announced down payment for La Fiesta ($3.5 million) and what was actually transferred. Since CLDC presumably only received half of the $3.5 million ($1.75 million) and the outstanding balance of $4 million has been reduced to $2.25 million with the $1.75 million allocation, there is an outstanding deficit for La Fiesta that is approximately $4 million plus interest that was established without the blessing of both houses of the CNMI Legislature. The situation now incorporates an outstanding balance for the physical structure of $1.75 million and the lease with the property of owners of $2.25 million.

If Babauta’s office forwarded a total of $3.5 million from the JGTRRA O3 appropriations and only $1.75 million went to the purchase of the physical La Fiesta Mall structure, then the question that must be posed is: Who were the parties that received the $1.75 million regarding the lease and who authorized the lease payment of $1.75 million? If the funds went to the landowners who are Babauta’s family, then they would receive about $2 million if the first annual payment $200,000 with interest is made in October 2004.

Why did the BOR and the Governor’s Office not inform the media and island community the truth regarding the particulars of the La Fiesta Mall transaction? The cutting in half of the public funds that should have been expended for the physical mall but instead diverted to land owners from Babauta’s family should be looked into by the federal authorities and the grand jury to ascertain the extent of the misuse of public funds, as well as if there were improprieties.

Recently Babauta requested that a particular organization “come clean” about various issues. It might be appropriate to pose the same question to the governor in light of the fact that the circumstances surrounding the La Fiesta Mall transaction are peculiar and it is nebulous and convoluted because of the number of parties involved.

Article XIX (Code of Ethics) of the Commonwealth Constitution states that “the legislature shall enact a comprehensive Code of Ethics which shall apply to appointed and elected officers and employees of the Commonwealth and its political subdivisions, including members of boards, commissions, and other instrumentalities.

If was determined that the BOR was in “gross neglect or dereliction of duty and/or was responsible for breach of fiduciary duty” (Article III Executive Branch, Section 21), then the governor can remove any or all of the board members justifiably.

On the other hand, if the governor has been found to be involved with “corruption or neglect of duty” (Article III Executive Branch, Section 19), then the governor is subject to “impeachment” as provided in Article II, Section 8 of the Commonwealth Constitution.

The La Fiesta Mall transaction has raised important questions regarding the adherence of federal and CNMI statutes of public funds and the establishment of public debt. In light of the circumstances, a full scale investigation is warranted and in order to ascertain if any violation of the law, e.g., fraud, embezzlement, etc., took place when the La Fiesta deal was made with NMC, NHS, CDLC, and the property owners who happen to be the governor’s family.

Because the figure of $3.5 million appropriated to purchase the physical structure of La Fiesta was announced to the media and island community in August 2003 was not entirely expended for the facility, then the credibility of the governor and the people he appointed to the NMC BOR must be questioned and certainly not ignored.

Dr. Jesus D. Camacho
Delano, California