U.S. ex rel. Richards v. De Leon Guerrero

• Decision Date: 01 September 1993
• Docket Number: 92-16372,Nos. 92-15884,s. 92-15884
• Citation: 4 F.3d 749
• Parties: UNITED STATES of America, ex rel. James R. RICHARDS, Inspector General, U.S. Department of the Interior, Petitioner-Appellee, v. Lorenzo De LEON GUERRERO, Governor and Custodian of Records for the Department of Finance, Commonwealth of the Northern Mariana Islands, Respondent. Herman S. Sablan, et al., Applicants-Appellants. UNITED STATES of America, ex rel. James R. RICHARDS, Inspector General, U.S. Department of the Interior, Plaintiff-Appellee, v. Lorenzo De LEON GUERRERO, Governor and Custodian of Records for the Department of Finance, Commonwealth of the Northern Mariana Islands, Defendant-Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 749

4 F.3d 749

26 Fed.R.Serv.3d 1162

UNITED STATES of America, ex rel. James R. RICHARDS,

Inspector General, U.S. Department of the

Interior, Petitioner-Appellee, v. Lorenzo De LEON GUERRERO, Governor and Custodian of Records

for the Department of Finance, Commonwealth of the

Northern Mariana Islands, Respondent.

Herman S. Sablan, et al., Applicants-Appellants.

UNITED STATES of America, ex rel. James R. RICHARDS,

Inspector General, U.S. Department of the

Interior, Plaintiff-Appellee, v. Lorenzo De LEON GUERRERO, Governor and Custodian of Records

for the Department of Finance, Commonwealth of the

Northern Mariana Islands, Defendant-Appellant.

Nos. 92-15884, 92-16372.

United States Court of Appeals Ninth Circuit.

Argued and Submitted Jan. 14, 1993.

Decided Sept. 1, 1993.

Howard P. Willens, Wilmer, Cutler & Pickering, Washington, DC, for respondent-defendant-appellant De Leon Guerrero.

Michael W. Dotts, Law Office of Robert J. O'Connor, Saipan, MP, for applicants-appellants Sablan and Salas.

Douglas Letter and Joan E. Hartman, U.S. Dept. of Justice, Washington, DC, for petitioner-plaintiff-appellee.

Appeal from the United States District Court for the Northern Mariana Islands.

Before: ALDISERT, ^* GOODWIN, and FLETCHER, Circuit Judges.

GOODWIN, Circuit Judge:

Lorenzo de Leon Guerrero, Governor and Custodian of Records for the Department of Finance of the Commonwealth of the Northern Mariana Islands ("CNMI" or "Commonwealth"), appeals the district court's enforcement of an administrative subpoena mandating the release to the Inspector General of the United States Interior Department of tax records necessary to conduct an audit of the CNMI pursuant to the Insular Areas Act, 48 U.S.C. Sec. 1681b. The Governor challenges the district court's determination that enforcement of the subpoena does not offend the Commonwealth's right of local self-government as defined under Sections 103 and 105 of the Covenant. In addition, taxpayers Herman S. Sablan and Antonio T. Salas appeal the district court's denial of their motion to intervene in the proceedings. We affirm.

I. Background

Rota, Tinian and Saipan, the most populated islands of the Northern Marianas, lie directly north of Guam. For over three hundred years, the Northern Marianas and Guam were Spanish colonies sharing common languages, religion, and culture. The political ties between the Northern Marianas and Guam were eventually broken by the Spanish-American War of 1898, with Guam becoming a territory of the United States and the Northern Marianas coming under German, and then Japanese, rule.

After World War II, the United Nations established the Trust Territory of the Pacific Islands encompassing most of the islands of Micronesia, among them the Northern Mariana Islands, to be administered by the United States pursuant to a Trusteeship Agreement with the United Nations Security Council. See Trusteeship Agreement for the Former Japanese Mandated Islands, 61 Stat. 3301, T.I.A.S. No. 1665, art. 3. The Trusteeship Agreement imposed on the United States an obligation to "promote the development of the inhabitants of the trust territory toward self-government or independence." Id. art. 6, Sec. 1.

In October 1969, the United States entered into negotiations with the Congress of Micronesia to determine Micronesia's future political status. Efforts to establish a unified Micronesian state, however, were undermined by a lack of consensus about the region's political future. Cultural, linguistic, and geographic differences among the populations of the Micronesian island groups led to several proposed solutions to the end of the Trusteeship. The Congress of Micronesia, for instance, was in favor of establishing a freely associated state, independent of the United States. The Northern Mariana Islands, on the other hand, sought a close and permanent association with the United States. Proximity and a shared history with Guam gave the people of the Northern Mariana Islands some familiarity with the United States, making it the least alien major power with whom negotiations might be initiated. Representatives of the Northern Marianas thus pursued separate political status talks with the United States over a period of years.

In 1972, the United States entered into formal negotiations with the Northern Marianas. Meanwhile, the residents of the eastern Caroline Islands, Pohnpei, and Kosrae, together with Chuuk and Yap in the west, began to form the Federated States of Micronesia. The Federated States and the Marshall Islands became independent, sovereign nations in 1985. Palau went its own way, and is now more or less an independent republic with some residual trust relations with the United States.

Negotiations between the United States and the Northern Marianas culminated on February 15, 1975 with the signing of the Covenant to Establish a Commonwealth of the Northern Mariana Islands in Political Union with the United States of America ("Covenant"). The Covenant was unanimously endorsed by the NMI legislature, approved by 78.8% of NMI plebiscite voters, and enacted into law by Congress. Joint Resolution of March 24, 1976, Pub.L. No. 94-241, 90 Stat. 263, reprinted in 48 U.S.C. Sec. 1681 note. The Covenant was implemented in three phases between March 24, 1976 and November 3, 1986. Covenant Sec. 1003. On November 3, 1986, with the Covenant in full effect, the United States terminated the Trusteeship Agreement with respect to the CNMI by Presidential Proclamation. Proclamation No. 5564, 51 Fed.Reg. 40,399 (1986), reprinted in 48 U.S.C. Sec. 1681 note, at 222. ¹

The Covenant is comprised of ten articles governing the political relationship between the Northern Marianas and the United States. This case continues an ongoing debate about whether the Commonwealth's right of local self-government as defined in the Covenant under Section 103 substantially limits Congress' legislative powers over the Commonwealth under Section 105. This question has been implicated in one way or another in a number of our cases. See, e.g., Hillblom v. United States, 896 F.2d 426 (9th Cir.1990); A & E Pac. Constr. Co. v. Saipan Stevedore Co., 888 F.2d 68 (9th Cir.1989). Indeed, the legal question we now face was previously before the district court when the CNMI government resisted an audit by the Inspector General in 1989. The Inspector General issued a subpoena which was summarily enforced by the district court. The appeal, however, was eventually dismissed as moot when the CNMI complied with the district court order. See United States ex rel. Richards v. Sablan, Misc. No. 89-008, 1989 WL 158917, 1989 U.S.Dist. LEXIS 16786 (D.N.M.I. Oct. 27, 1989), appeal dismissed as moot, No. 89-16404 (9th Cir.1991).

Not surprisingly, the issue was revived when the Assistant Inspector General informed the Governor on May 29, 1991 that the Office of Inspector General intended to conduct an audit of the CNMI's Department of Finance. The CNMI government refused to grant the Inspector General access to the records necessary to conduct the audit, expressing concern that the intended audit would violate the CNMI's right of self-government and the privacy rights of CNMI taxpayers.

Meanwhile, two taxpayers, Herman S. Sablan and Antonio T. Salas, went to the CNMI courts seeking an injunction to prevent the CNMI from disclosing confidential taxpayer information to the Inspector General. On August 20, 1991, the CNMI Supreme Court issued a temporary injunction prohibiting the release of tax information to "any person not authorized by CNMI statute." Sablan v. Inos, No. 91-003, slip. op. at 3-4 (N.M.I. filed Aug. 20, 1991).

On December 11, 1991, the Inspector General served a subpoena duces tecum on the Governor, ordering him to produce all information pertaining to (1) the administration and operation of the CNMI income tax system, (2) Department of Finance personnel, and (3) enforcement of the CNMI income tax laws during 1989-91, including, but not limited to, all accounting records, reports, and tax returns. Then, on December 26, 1991, the CNMI Supreme Court issued its opinion in Sablan v. Inos, holding that the audit would impermissibly intrude on the taxpayers' privacy rights under the CNMI Constitution and under the CNMI tax confidentiality provision, 4 CMC Sec. 1701(d)(1). Sablan v. Inos, No. 91-018, slip op. at 4-5, 1991 WL 328470 (N.M.I. filed Dec. 26, 1991). The court also held that the Insular Areas Act, 48 U.S.C. Sec. 1681b, authorizing the Inspector General to audit the accounts of the Commonwealth was inconsistent with the self-governance provisions of the Covenant, and therefore that the statute "has no force and effect in the CNMI." Id. at 8.

Citing the decision in Sablan v. Inos, the Governor refused to comply with the subpoena, and the Inspector General petitioned for its enforcement in the district court. The district court enforced the administrative subpoena, finding that the Inspector General had statutory authority to exercise subpoena powers, and that exercise of such authority did not offend the right of self-government provisions of the Covenant.

The Governor challenges the decision of the district court on the following grounds: (1) that the enforcement of the subpoena violates the CNMI's right to local self-government, in contravention of both the plain meaning and the negotiating history of Sections 103 and 105 of the Covenant; (2) that the Inspector General lacks the statutory authority to exercise subpoena power under the Insular Areas Act; (3) that the confidentiality provisions of 26 U.S.C. Sec. 6103 prohibit the disclosure of confidential tax return information to the Inspector General; and (4) that the district court erroneously invalidated Section 502 of the Covenant.

Consolidated with the Governor's case is the appeal of taxpayers Herman S. Sablan and Antonio T. Salas challenging the district court's denial of their motion to intervene in the enforcement...