EDITOR'S NOTE: Kandit, as promised, brings to you this chronological series on the Port 7 scandal. This story of public corruption and political intrigue is the largest and longest-running political witch hunt in the history of the government of Guam. The story begins during the first year of the Eddie Calvo administration in 2011, and continues to this day. We are producing this investigative piece because of the age of this story and the many twists and details involved.
CHAPTER 1: It started with the blow of a whistle
CHAPTER 2: 'I was sent here to fire you'
CHAPTER 4
By Troy Torres
(Tumon, Guam) Calvo-owned YTK Corporation was not the only benefactor of corruption at the seaport in 2011 under the Calvo administration. The two victims at the center of the Port 7 Scandal also were blowing the whistle on a company attempting to screw the seaport out of millions of dollars in rent from a lease that went into default between the port and Casamar.
Casamar was the leaseholder of a prime water-front property on the docks of the seaport that was leased in 1970 for 20 years, with an option to renew every ten years for seven successive terms. Essentially, it was a 90-year lease unless the lease went into default or the terms were otherwise abrogated.
That happened in 2010, when Casamar failed to make payments over a prolonged period. Port managers tried contacting Casamar's owner, who had relocated off island, but to no avail. A check of its corporate documents revealed the company no longer existed.
The seaport board of directors in 2010 - under the administration of then-Gov. Felix Camacho - ordered the seaport management to take the property back. In the first decade of the millennium, Casamar paid less than $400,000 in rent for its five-acre lot at the Western Pacific's most valuable piece of property.
An appraisal report by the Captain Company at the time indicated the lease payments should be more than $500,000 a year, at least.
Seaport managers, on the heels of modernization planning at the time, saw the opportunity from the default to end the lease, take the property back and issue a new request for proposals to lease the property to a new company. With a new lease, the Port would be able to get fair market value on the property based on the appraisal instead of the small amount of $38,000 a year that the Casamar lease called for.
Enter Cabras Marine Corporation - a separate company that was trying to take over the Casamar lease (they eventually succeeded; read below).
Cabras Marine Corporation, which was run by Joe Cruz and Paul Blas, tried to circumvent the procurement process and piggy back off the 1970 lease. The company began negotiating on behalf of Casamar and told seaport managers that they could cure the default, but that the annual lease payment should only increase by no more than 10 percent every decade, as is contained in the Casamar lease that had already defaulted.
Documents among the parties show that Cabras Marine was attempting to buy Casamar's stock and, thereby, its leasehold asset, but that financing was predicated on resolution with the seaport on the default and the future lease payments.
Seaport managers and the Camacho-appointed board at the time, along with the seaport's legal counsel (former law firm of Lujan, Aguigui & Perez), and its special deputy attorney general assigned specifically to the seaport for real estate issues - Ted Christopher - disputed Cabras Marine's claim to the lease. And since the lease was in default and Casamar ceased its operations anyway, then the 10 percent cap provision should not be carried into any new lease with Cabras Marine.
The property was on its way back to seaport full ownership ripe for a new RFP, and then the Calvos came to power in 2011.
In April 2011, two major players took power at the seaport - Dan Tydingco had been confirmed by the Legislature as a member of the board of directors and was elected its chairman. Attorney Mike Phillips had been contracted as the seaport's new legal counsel.
In a May 5, 2011 email from deputy AG Christopher to Mr. Tydingco, Mr. Phillips, seaport general manager Pedro Leon Guerrero, Jr., attorney Rick Bordallo of the Phillips law firm, and deputy attorney general Pat Mason, Mr. Christopher memorialized the results of a meeting, where the Casamar lease issue was reassigned from him to Mr. Phillips.
"At today's meeting, it was clear that the Phillips firm is now handling Casamar, so I will plan to do no further work on it." - May 5, 2011 email excerpt from Attorney Ted Christopher
Mr. Tydingco wrote back to Mr. Christopher two days later with an odd instruction: "The assigment (sic) of all cases will be determined by the chair, in sonsultation (sic) with other members and the GM."
This directive was illegal, as the law does not give the seaport's board chairman any managerial powers, or the power to make decisions on behalf of the board without the consent of the majority of the members of the board voting in a duly noticed meeting. Among other things, it is a violation of the Open Government Act.
Mr. Christopher stated as much in a subsequent email to the same parties warning the port's board and management, and the Office of the Attorney General of the Open Government Act violations and that the assignment of the Casamar case to the Phillips law firm fell outside the scope of the legal contract. For the sake of legality, he argued, the Casamar issue fell within the purview of the personnel services agreement/memorandum of understanding between the seaport and the AG.
"As you may know, the distribution of cases which was determined on April 1 and 8, 2011, was part of the Attorney General's assessment of the propriety of the Port's procurement procedures for the legal services agreement. If the assignment of cases is going to deviate very much from this, then I recommend your keeping a record of the basis for each assignment, in order to protect the Port from allegations of fraud which ultimately might provide a basis for invalidating the contract with the Phillips firm.
"And, of course, assignments of cases are subject to the Rules of Professional Conduct, the memorandum of understanding between the Port and the Attorney General and instructions I may receive from the Attorney General.
"As we discussed, I continue to believe that the need for a clear delegation is even more important with respect to matters other than the assignment of cases, particularly settlement on short notice, such as where someone makes or wants to make a settlement offer with, say, a one-hour deadline in the middle of a trial. I am not aware of the Port ever having resolved this issue." - May 7 email excerpt from Attorney Ted Christopher to Dan Tydingco
Ted Christopher and the former port legal team from Lujan, Aguigui & Perez were working to get the property back so that the seaport could reinvest it, make millions of dollars from it, and keep the costs of consumer goods that flow through the seaport lower.
But Dan Tydingco and the new legal team from the Mike Phillips law firm reversed course.
The underlying issue was the attempt by Mr. Cruz to continue the Casamar lease, have the lease assigned to Cabras Marine Corporation, and keep the annual rent from increasing to the appraised rate of more than $500,000 annually.
The issue was brought to the attention of the seaport board of directors in its June 23, 2011 meeting. Board secretary Jovyna Lujan, a holdover from the Camacho administration, raised the issue of Casamar's technical default. Board member-select Shelly Gibson, who participated in the meeting but was not at the time a voting member, said that the seaport should get as much money as possible from the property.
For every objection raised by board members and concerns by management, Mr. Phillips sided with Casamar, even though he represented the seaport.
Ms. Lujan ended up moving for the board to table Cabras Marine's requests for assignment of the lease and an Estoppel Certificate until Mr. Phillips speaks with the seaport's commercial manager, Glenn Nelson. Mr. Nelson and his boss, then-corporate services manager Vivian Leon, were the seaport officials working to get the property back from Casamar.
In a July 28, 2011 'confidential legal memorandum' from Mr. Phillips to Mr. Leon Guerrero and Mr Tydingco, Mr. Phillips wrote, in part:
"We recommend and the Board authorized a counter-offer settling the matter by increasing the current rent to $50,000 per year. Casamar and Cabras have accepted such proposal. Counsels for the parties executed an initial letter agreement to memorialize the agreements on rental increases, which agreement contemplated the preparation of an Assignment of Sublease, an Amendment to Sublease, and a revised Estoppel Certificate subject to the Port's review and approval.
"[W]e recommend the Port execute and approve these transactions, including the forms of Assignment of Sublease, Amendment to Sublease, and revised Estoppel Certificate, attached hereto, which are consistent with the terms reflecting the increased rent."
Mr. Phillips, who had taken over the Casamar lease issue, was advocating for the seaport to stop its efforts to get the property back and end the 90-year lease (which would run its course in 2060). His recommendation would forgive Casamar's default and hand the lease over to the new company without any new RFP, and would lock the seaport into the 1970 lease provision's 10 percent cap on rent increases once a decade.
On the same date of the confidential legal memorandum, the seaport board met again, went into executive session to discuss the Casamar and Cabras Marine issue, then reemerged and voted to approve Cabras Marine's requests. Board member Ed Ilao made the motion.
Cabras Marine Corporation went on to start a dry dock operation on its newly-leased property, which ended up running Guam Shipyard into the ground. Meanwhile, the people of Guam are leasing this multi-million dollar property to this company with a monopoly on the industry for only $50,000 a year for the next 40 years. The company now has hundreds of millions of dollars in federal contracts because of that lease.
Joe Cruz, the president of Cabras Marine Corporation, is part of a closely-knit clique of friends from the Father Duenas Memorial School class of 1979, which includes former Gov. Eddie Calvo, his chief of staff at the time Franklin Arriola, Dan Tydingco, and Judge Michael Bordallo. Mr. Cruz and his company were major financial contributors to the Calvo Tenorio 2010 and 2014 reelection campaigns.
Mr. Phillips was legal counsel to the Calvo Tenorio campaign.
The secretive and hasty push to reverse the seaport's policy against the advice of the Attorney General, along with Cabras Marine's relationships with the new administration and the companion corruption of the YTK issue was enough for then-seaport marketing manager Bernadette Meno to blow the whistle on the Casamar-Cabras Marine deal.
On August 3, 2011, Ms. Meno emailed the corresponding documents she had on the issue, including the ownership and leasehold issues, to the Pacific Daily News. A series of stories on the matter ran in late 2011 because of the revelation.
This was the second scandal involving millions of dollars pushed by the Calvo administration that Ms. Leon and Ms. Meno had looked into and exposed, and it was only a little more than halfway into the first year of Gov. Eddie Calvo's first term in office.
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