Muna leery of potential costs for BoS in lawsuit

Bank of Saipan receiver Antonio Muna is reluctant to pursue the civil action against former receiver Randall Fennell and the latter’s attorneys, citing potential costs that the bank might incur in the lawsuit.

This prompted the receivership court to send Muna and the bank’s board of directors to the negotiating table to discuss pursuing the lawsuit against Fennell and the bank’s exposure to the cost of a suit.

The bank’s board, through the law firm of David Mair, filed a civil complaint against Fennell and his attorneys in late September, accusing the defendants of breaching their fiduciary duties to the bank. The complaint, which seeks monetary damages against Fennell and the defendant attorneys, has yet to be served on Fennell.

Fennell’s co-defendants in the lawsuit include lawyers Richard Pierce and David Axelrod, and the law firms White Pierce Mailman & Nutting and Schwabe Williamson & Wyatt.

Associate judge Juan T. Lizama said that, while Mair’s law firm has agreed to take the case on contingency and to cap the costs at $50,000, subject to increase by vote of the bank’s board, there are other potential costs that puts the bank-in-rehabilitation at risk of exposure.

Lizama said it is foreseeable that a lawsuit against a past receiver will lead to counterclaims against the present receiver and the board of directors, which means the bank would be required to defend the receiver and the board. In addition, there is the possibility of damages should a counterclaim suit succeeds.

“This is a substantial risk to the bank’s funds at a time when large depositors like the Commonwealth’s Retirement Fund and MPLA [Marianas Public Lands Authority] still lack full access to their deposits,” he added.

Lizama said the court is reluctant to allow bank funds to be spent to pursue the lawsuit against Fennell without an arrangement limiting Fennell’s exposure.

He ordered Muna and the bank’s board to meet within 45 days to discuss ways to limit the bank’s potential exposure to the suit. Lizama said the court would intervene if Muna and the board fail to agree within the negotiation period.

“In conducting their negotiations, the board and the receiver should be aware that the court will be reluctant to allow expenditures of bank funds exceeding $200,000 total—including the costs of defending against counterclaims and paying damages on successful counterclaims,” Lizama said.

On April 30, 2002, the court appointed Fennell as temporary receiver at the request of the CNMI government. On May 10 that year, Mair said Fennell exclusively submitted a pleading in court, which resulted in an order extending the receivership indefinitely.

Mair said Fennell reopened the bank during his receivership without any rehabilitation plan in place, allowing depositors to withdraw a large percentage of the bank’s deposits and precipitating a bank run.

Fennell had also pushed for the liquidation of the bank’s assets to pay off depositors.

“Fennell and the receivership attorneys were motivated by, and conducted the receivership consistent with, a hidden agenda to destroy rather than rehabilitate the bank, and to retaliate against certain bank directors and major shareholders, to the detriment of the bank, its depositors and shareholders,” Mair said in the lawsuit.

Mair said Fennell and his attorneys repeatedly and deliberately failed to disclose material information to the bank, including conflicts of interests and hostility to the bank and its shareholders. He also said Fennell actively prevented the bank from participating in discussions and proceedings related to the financial institution’s continued existence.

Mair also noted Fennell’s request for the receivership court to exonerate him from claims that might result from his acts or omissions as receiver, which the court granted. The BoS appealed the Superior Court’s rulings granting Fennell full judicial immunity from possible lawsuits that may be filed against him.

Under Muna’s receivership term, the bank shifted gears, this time toward rehabilitation. Under a court-approved rehabilitation plan, the bank reopened on May 27, 2003.

To date, the bank has significantly revived services, including loan services. It announced earlier this month that the Garapan branch would soon reopen, more than a year after the reopening of the main branch in Chalan Kanoa.

Bank president Jon Bargfrede said that the bank’s net profit reached about $990,000 from January to October this year. He projected the bank’s net profit by yearend to reach over a million dollars. He also disclosed projections that the bank would earn between $450,000 to $600,000 in net profit next year.

Bargfrede said bank deposits have totaled $26 million, with some $3.6 million coming in since the May 2003 reopening. He said the bank’s cash and liquid investments have reached $12.5 million. About $3 million have been recovered from its delinquent loan portfolio.

Bargfrede said the bank has accepted about 1,000 new accounts since reopening. Since reviving loan services recently, the bank has loaned out approximately $140,000. He also said that the plan to issue ATM cards is in the process, following approval by the Federal Reserve Bank.