Lizama issues ruling in Hafadai Hotel dispute

The Superior Court has granted a request to cancel a notice of a pending lawsuit that was placed on the title of the Hafadai Beach Hotel property in Garapan.

Associate Judge Juan T. Lizama ruled that the alleged dilution of shares in the hotel does not affect title to the property at issue.

Because there is no other claim immediately related to the title of the property, the claim of plaintiffs Guerrero Family Trust and others has not set forth allegations warranting a notice of a pending lawsuit, said Lizama in granting defendants Saipan Hotel Corp. and its officer Pedro J. L. Igitol’s motion to remove the notice.

The plaintiffs’ reasoning, the judge noted, would require a notice of a pending lawsuit—called a lis pendens—to be placed on all real property in the CNMI, simply to warn those of non-Northern Marianas descents not to buy it.

Lizama said that, since Article XII of the CNMI Constitution already provides this warning, the use of lis pendens to enforce the CNMI’s land alienation policy is unnecessary.

The judge explained that a lis pendens is appropriate in any case where the outcome of the case will in some way, either directly or indirectly, affect the title to or an interest in real property.

The purpose of a lis pendens is to notify any future purchasers of the title to the property that they will take the property subject to the result of the pending litigation, he said.

Court records show that the Guerrero Family Trust and others are the minority shareholders in two corporations, defendants Saipan Hotel Corp. (SHC) and its parent Pacific Development Inc. (PDI). Defendant Kinki Nippon Tourist Inc. is the majority shareholder of the corporations.

Hafadai Beach Hotel is the primary asset of PDI and SHC. SHC owns the property underlying the hotel and its staff housing in fee simple.

Plaintiffs sued Kinki Nippon and others. They alleged that defendants conspired to reorganize SHC and PDI and sell the hotel, in the process seriously diluting the value of the shares held by plaintiffs.

On the premise that the acts of the defendants could affect title to the property by triggering Article XII of the CNMI Constitution, plaintiffs placed a notice of pendency of action (lis pendens) on title to the property underlying the hotel.

Defendants moved to cancel the notice on grounds that there was no statutory or common law basis for this remedy.

In granting the request to remove the notice, Lizama said the actions that form the basis for the complaint are the defendants’ alleged breach or assistance in the breaching of the majority shareholders’ fiduciary duty to the minority shareholders.

Plaintiffs argued that the dilution of shares may result in the forfeiture of Kinki Nippon’s shares by law, and that this would directly affect title to the property.

Article XII restricts the acquisition of permanent and long-term interests in real property within the CNMI to persons of NMI descent.

Lizama said that in 1976, the Constitution classified a corporation as of NMI descent so long as it was incorporated in the CNMI, it had its principal place of business in the Commonwealth, 51 percent of its directors were of NMI descent and NMI descents held 51 percent of its voting shares.

Amendments to Article XII changed the required percentages of NMD directors and voting shares to 100 percent each. These requirements do not apply retroactively to corporations formed before Jan. 7, 1986.

SHC was formed in 1967 and was incorporated in the CNMI.

SHC, Lizama said, has thus far maintained its NMI descent status.

Regardless of its status, Article XII would prevent SHC from selling the property to a non-NMD, the judge said.

He said because the alleged dilution of shares cannot result in forfeiture of SHC’s previously acquired property, the action does not justify a lis pendens.

The alleged dilution of shares could not affect title to the property at issue, the judge pointed out.

“Plaintiffs’ broad request to enjoin defendants from taking any action that would divest SHC of its property is insufficient to warrant a lis pendens,” he said.

The complaint contains no allegations stating that the property has already been improperly sold to a non-NMD, Lizama said.

Nor does the complaint refer to an impending sale of the property to a non-NMD, he said.

“The mere possibility that a corporation might one day attempt to improperly sell its property to a non-NMD is too tenuous to serve as a basis for a lis pendens,” he added.