‘Approve MRC settlement now’

Acting Gov. Diego T. Benavente asked the Legislature yesterday to appropriate funds and approve the $3-million Outer Cove Marina settlement agreement with Marine Revitalization Corp. no later than Nov. 29 to avoid arbitration and huge financial liabilities.

“Time is running out. Arbitration is set to resume Nov. 29, 2004. Once arbitration is underway, settlement is unlikely, the inducement to contain costs is gone…I ask that you exert your authority to resolve this matter in the interest of the Commonwealth, avoid significant future fiscal liability, and acquire a valuable asset for economic development,” said Benavente in a letter he sent yesterday to Senate President Joaquin G. Adriano and House Speaker Benigno R. Fitial.

He said the settlement agreement, which was negotiated for over 12 months by the Attorney General’s Office, calls for an initial payment of $800,000 and an additional $2.2 million payable in deferred monthly installments over 20 years.

The $3-million figure, he said, was based in part on the Office of the Public Auditor’s report that indicated that businessman Anthony Pellegrino spent $3.6 million to build the marina.

In a contract dispute, he said, one legal approach is to put the parties back into their pre-contract positions.

“So if Mr. Pellegrino is paid the money that he spent to build the marina, he would be back where he started from. But that’s not all. Additional damages for which the Commonwealth may be liable include arbitration costs, attorneys’ fees, post-judgment interest and possibly lost profits. What these damages would total is uncertain. What is certain is that MRC would reinstate its claims excess of $5 million. Such increased liability can be avoided by implementing the settlement agreement now,” Benavente said.

To illustrate the advantage of a settlement over a judgment, he said that, in a scenario where $3 million is awarded by arbitrators, this becomes a judgment and an annual interest of 9 percent starts accruing at a rate of $270,000 a year. In addition, the CNMI would be liable for arbitrators’ fee, attorneys’ fees, and possibly pre-judgment interest.

“All of these costs are multiplied if the award is greater than $3 million. Under the settlement, we pay $800,000 now and $2.2 million over 20 years,” he said.

The amount, based on the agreement, can be paid through the operating revenues of the Outer Cove Marina.

If it generates no income or if the income is insufficient, the shortfall is counted as a dollar-for-dollar tax credit against the tax obligations of specified Pellegrino companies.

In addition to the cost factor, Benavente said that a settlement is greatly preferable because under a judgment, the Commonwealth does not gain possession of the marina until is it fully paid.

The settlement agreements allows the government immediate access to the property—the only commercial marina in the CNMI.

The issue has been pending resolution since April 1999 when MRC/Pellegrino sued the CNMI government for various breaches involving the company’s operation at the Outer Cove Marina. The lawsuit was dismissed for lack of jurisdiction and the parties began binding arbitration in April 2001. In January 2002, the independent arbitrator advised parties to enter into settlement negotiations.

“This only happens when it is clear to the arbitrator that liability exists for the defendant, in this case the CNMI. Settlement is urged because it would save time and money for all concerned,” said Benavente.

He said the AGO, then headed by Robert Torres and later by Ramona Manglona, negotiated for over 12 months to arrive at the settlement agreement that was finally executed on Feb. 11, 2003.