Guam Duty Free Shop Pays $2.9 Million In Legal Fees Airport Incurred

Airport continues legal battle against DFS for awarding Lotte concession

By Gaynor Dumat-ol Daleno

HAGÅTÑA, Guam (Pacific Daily News, July 1, 2016) – A major retailer has reimbursed the A.B. Won Pat Guam International Airport Authority more than $2.9 million in legal fees in less than two years to defend a disputed contract, according to invoices and receipts between the Airport, Lotte Duty Free and the Calvo, Fisher and Jacob law firm.

An announcement from Airport Executive Manager Chuck Ada’s office Wednesday said Lotte “agreed to indemnify the airport for legal fees incurred in connection with the specialty retail concession.”

The Airport’s award of a 2013 contract to Lotte remains disputed in the Superior Court by DFS Guam. DFS has alleged procurement and ethical violations in the agency’s selection of Lotte, according to court filings.

Lotte attorney Cesar Cabot said Lotte is fulfilling “all of its legal obligations as required under its valid and binding concession agreement with the airport.”

Lotte’s financial assistance, according to the Airport, has been “a very significant money-saver for the airport, given all the lawsuits initiated by DFS.”

“It’s very fortunate that we have had the resources to fight DFS in court and defend a contract that has yielded tremendous benefits to the airport and is clearly in the best interests of the people of Guam and the traveling public,” according to the Airport’s statement.

The Airport’s executive manager said the airport would welcome the attorney general’s participation in the lingering dispute, in areas where it’s “possible and proper for her to do so.”

That contract allowed Lotte the right to sell duty-free, luxury goods, souvenirs and other items to air travelers, in exchange for a minimum payment of $15.4 million a year over 10 years. Lotte has the exclusive right to sell duty-free goods for five years, according to court documents.

The Airport has spent $5.3 million in total legal expenses for three consecutive fiscal years, through last year, annual audit reports from the Guam Office of Public Accountability show. The latest audit report, released earlier this year, was for fiscal 2015.

Lotte’s legal reimbursements of more than $2.9 million, were specifically for the Airport’s legal bills to defend DFS’ procurement protests and legal challenges over nearly a two-year period, through March 2015.

As part of the Lotte legal fees reimbursement process, the law firm sends monthly invoices to the Airport, each indicating a total amount due. The Airport would then issue check payments to the law firm, often within days. Printouts of the Airport’s online bank records show Lotte electronically sending money to the airport’s bank account.

The Pacific Daily News asked the Airport by email on June 24 why Lotte has reimbursed the airport for almost $3 million in legal fees and costs when the contract continues to be challenged by DFS in court.

Public Auditor Doris Flores Brooks said she was unaware the airport had been receiving legal fee reimbursements from Lotte. Now that she knows, she would ask the Airport for more information, she said Thursday.

In 2013, the Airport awarded the duty-free concession contract “in a fair, open and competitive selection process,” according to an Airport press release.

The Airport press release also discussed its loss to DFS in a separate arbitration proceeding, which was strictly on DFS’ $1.8 million security deposit for its former rent of shops at the airport terminal.

The Airport withdrew that money, which had been held at Citibank, claiming it was for unpaid rent, but the arbitration panel decided in May that the $1.8 million should be returned to DFS.

The panel also ordered the Airport to pay DFS’ legal fees related to the arbitration of the $1.8 million deposit.

The Pacific Daily News doesn’t have documents after March 2015 that indicate whether the payments from Lotte for the airport’s legal bills continued after that period.

Lotte requests detailed billings

Some of the fees Lotte has reimbursed the Airport for are payments to Calvo Fisher and Jacob which have exceeded $300,000 in a month.

Attorney Eduardo “Champ” Calvo, with the Calvo FIsher and Jacob law firm, said he’s traveling off island and would address the legal fee questions once he returns in a few days.

In one monthly billing example, Calvo Fisher and Jacob issued an invoice on July 19, 2013, for legal services for the previous month.

On Aug. 15, 2013, the Airport wrote a Bank of Guam check for $314,973.90 to Calvo Fisher and Jacob. Four days later, Lotte’s reimbursement for the exact amount, was electronically wired to the Airport’s Bank of Guam account, documents show.

The Airport has a policy to limit its legal expenses to $50,000 a month, but the Airport has made exceptions, including for the Lotte concession dispute, according to minutes of previous Airport board meetings.

Lotte, in a previous letter to the Airport, had asked for billings from Calvo Fisher and Jacob to be itemized.

For Lotte to reimburse the Airport based simply on “the grand total due,” is insufficient, according to Lotte. Lotte’s Korea head office needed a detailed billing to approve payment, Lotte Guam Chief Executive Officer Jung Min Lee wrote to the Airport on June 13, 2014.

Lotte eventually continued making payments to the Airport for Calvo Fisher and Jacob’s legal bills.

Lee wrote to the Airport on April 8, 2015, that Lotte Guam expected Lotte’s senior management in Korea to approve subsequent payments to the airport for the agency’s legal bills, and that Lotte Guam was “hoping to wire the funds within a week.”

That same day, Lotte’s attorney, Cesar Cabot, emailed Calvo Fisher and Jacob to forward Lotte’s letter, indicating Lotte would wire funds to the airport for the law firm’s outstanding legal fees.

“Dear Champ and Mike,

Please see attached letter below from Jamie Lee to Mr. Chuck Ada, addressing the outstanding GIAA legal fees issue,” Cabot emailed to Champ Calvo and Michael Pangelinan, also from the Calvo Fisher Jacob law firm.

Attorneys’ paths intersect

Cabot and Champ Calvo’s legal paths have intersected in another government of Guam agency’s legal battles.

In an unrelated matter involving Calvo Fisher and Jacob’s representation of a private company in a years-long dispute with Port Authority of Guam, the law firm was awarded $1.3 million in attorney fees and costs.

Cabot was one of three arbitrators who decided on April 4, 2016, that Port Authority should pay $14 million to Guam YTK, a failed fisheries company, and the Guam YTK’s attorneys, for alleged breaches of their lease agreement on Hotel Wharf.

The Port Authority has challenged the Guam YTK arbitration panel based on various arguments, including that the arbitration panel allegedly exceeded its authority to validate an invalid lease agreement on Hotel Wharf.

The Port has argued that Guam YTK hadn’t made timely payments on the lease for years, didn’t develop a fisheries facility as agreed under the lease, and doesn’t have the required legislative approval to hold a 45-year lease.

Cabot was the Guam YTK’s chosen representative on the arbitration panel, and Port Authority didn’t object to his participation in the out-of-court tribunal.

Cabot said no conflict existed between his role as Lotte counsel and his role in the Port Authority arbitration.

“The fact that Lotte is co-defending alongside the government, against a seemingly frivolous lawsuit filed by DFS’ attorneys, does not give rise to a conflict,” Cabot said.

He said the Port Authority-Guam YTK matter is subject to a confidentiality and non-disclosure agreement.

“Thus, I am precluded from addressing the merits of the case,” Cabot said. “I am encouraged that this matter is under advisement by the court, and the surrounding facts shall eventually reveal the legal and contractual basis for the arbitrator’s decision.”

Champ Calvo and his siblings, through two layers of companies, bought Guam YTK from its previous owners, Tom and Yoshie Kamiyama, around the start of Gov. Eddie Calvo’s administration several years ago. Champ Calvo has previously said the governor and the governor’s parents and siblings have not been involved in Guam YTK.

Calvo Fisher and Jacob represents Guam YTK in the Hotel Wharf dispute and arbitration proceedings involving the Guam YTK lease.

DFS continues legal battle

As the Airport continues to defend its agreement with Lotte Duty Free Guam, Lotte’s parent company faces South Korean authorities’ investigation into alleged bribery.

The Wall Street Journal has reported, quoting South Korean media, that the raids were triggered by an investigation into whether a South Korean cosmetics company paid bribes in exchange for floor space at Lotte’s duty-free retail outlets in the country.

In Guam, DFS stated in its lawsuit that Lotte was required to submit a sworn affidavit that it did not violate a prohibition against “gratuities and kickbacks.”

Two Guam private-sector business managers “were promised and received ‘success fees’ that were contingent in part upon Lotte being awarded the contract,” DFS alleged, in part, in its lawsuit.

DFS also said in court papers “Lotte admitted that it gave gifts to GIAA board members who (Lotte) knew, or had reason to know were going to act on its proposal,” according to DFS’ October 2014 complaint in the Superior Court.

An Airport board member received a Coach bag and another board member received a bag of cosmetics during their visit to a Lotte store in South Korea before the bid was awarded to Lotte. The board members returned the gifts, saying they were unaware Lotte was a bidder for an airport contract, and that they didn’t know the gifts came from Lotte.

DFS also alleged in its lawsuit that the Airport “secretly entertained offers modified after the deadline for submission of offers … from just one of the proposers — Lotte.”

The Airport allowed Lotte to modify its offer from $13 million minimum rent a year to $15.4 million, according to DFS.

The procurement process was “skewed to favor Lotte and Lotte only,” according to DFS.

Lotte had responded to DFS’ allegations that its offer from $13 million to $15.4 million a year “constitutes a clarification, not a modification of the bid,” a January 2015 Airport decision denying DFS’ second protest states.

Before filing a lawsuit against the Airport, DFS filed a protest with the Airport.

Airport management notified DFS that it had denied DFS’ initial protest after the close of regular office hours on Friday, May 17, 2013, according to DFS. The next day, a Saturday, the Airport entered into a contract with Lotte before DFS had any possible opportunity to appeal GIAA’s decision on the protest, according to DFS in court papers.

Pacific Daily News
Copyright © 2016 Guam Pacific Daily News. All Rights Reserved

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