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In our May 24 entry on this topic, the Northern Mariana Islands
Retirement Fund (the "Fund") was battling numerous
challenges to its Chapter 11 eligibility. The dispute revolved
around whether the Fund, which provides benefits to government
workers and retirees, was a "governmental unit" as
defined by the Bankruptcy Code. In a decision from the bench on
June 1st, U.S. Bankruptcy Court Judge Robert Faris affirmed his May
29th tentative ruling that the Fund is a "governmental
unit" and, as such, is ineligible for Chapter 11.
While a full memorandum opinion granting the motion to dismiss
is forthcoming, Judge Faris's tentative ruling provides useful
insight. In the tentative ruling, the Judge explained that
"Congress did not intend that the Bankruptcy Code could solve
all problems, least of all the financial problems of governmental
units[,]" as the Bankruptcy Code explicitly prohibits a
"governmental unit" from filing Chapter 11. The issue
turned on the factors highlighted in our previous entry, those
which focused on the formation and function of the Fund.
Ultimately, the Court found three factors persuasive: (i) the
Commonwealth of the Northern Mariana Islands (the
"Commonwealth") formed the Fund as a means of carrying
out the government's obligations to its current and retired
employees; (ii) the Commonwealth retains significant influence over
the Fund; and (iii) providing compensation and benefits to
government employees (and only government employees) is a
quintessential governmental function. The Judge concluded that
because the Fund acts solely as an intermediary between the
government and its employees and retirees, with no private employer
or nongovernmental employees involved, the Fund is a
"governmental unit."
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