Opinions of the United
2003 Decisions States Court of Appeals
for the Third Circuit
2-28-2003
Bluebeard's Castle v. Govt of VI
Precedential or Non-Precedential: Precedential
Docket 02-2807
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PRECEDENTIAL
Filed February 28, 2003
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 02-2807
BLUEBEARD’S CASTLE, INC.;
CASTLE ACQUISITIONS, INC.
v.
GOVERNMENT OF THE VIRGIN ISLANDS;
ROY MARTIN, in his official capacity as Tax Assessor,
Appellants
On Appeal from the District Court of the Virgin Islands
Division of St. Thomas and St. John
D.C. Civil Action No. 01-cv-00155
(Honorable Thomas K. Moore)
Argued November 8, 2002
Before: SCIRICA, ALITO and RENDELL, Circuit Judges
(Filed February 28, 2003)
NANDI SEKOU, ESQUIRE (ARGUED)
KERRY E. DRUE, ESQUIRE
Office of the Attorney General of
the Virgin Islands
Department of Justice
48B-50C Kronprindsens Gade
GERS Building, 2nd Floor
Charlotte Amalie, St. Thomas
U.S. Virgin Islands 00802
Attorneys for Appellants
SIMONE R.D. FRANCIS, ESQUIRE
(ARGUED)
CHAD C. MESSIER, ESQUIRE
WILLIAM S. McCONNELL, ESQUIRE
Dudley, Topper and Feuerzeig, LLP
1A Frederiksberg Gade
P.O. Box 756
Charlotte Amalie, St. Thomas
U.S. Virgin Islands 00804
Attorneys for Appellees
OPINION OF THE COURT
SCIRICA, Circuit Judge:
In this appeal involving the assessment of real property
taxes in the Unites States Virgin Islands, we address the
special relationship between federal and territorial law. The
District Court enjoined the Virgin Islands tax assessor from
employing a certain tax assessment method, concluding it
violated federal law. Contending that any claims can only
arise under territorial law, the Government of the Virgin
Islands maintains the District Court lacked federal subject-
matter jurisdiction. We hold that plaintiff has properly pled
a federal claim.
I.
Plaintiff Equivest St. Thomas, Inc.1 is a United States
Virgin Islands corporation that owns commercial property
in St. Thomas, Virgin Islands. Plaintiff challenges the tax
assessment of three of its hotel resort properties,
Bluebeard’s Castle, Bluebeard’s Beach Club, and the
Elysian Resort. For the 2000 tax year, the Government of
the Virgin Islands assessed these three properties at more
than $98 million, resulting in a tax bill of approximately
$740,000. Plaintiff contends the assessment greatly exceeds
the properties’ actual value of less than $40 million.
_________________________________________________________________
1. Equivest is a corporation formed by the merger of the corporations
listed in the caption, Bluebeard’s Castle, Inc. and Castle Acquisition, Inc.
2
Federal statutory law, and its Virgin Islands corollary,
mandate that Virgin Islands real property must be assessed
at "actual value."2 48 U.S.C. S 1401a; 33 V.I. Code Ann.
S 2404. According to defendant Virgin Islands Tax Assessor
Roy Martin, the Virgin Islands primarily employed
replacement-cost value and declaration value in assessing
the properties, methods he conceded do not reflect fair
market value. Plaintiff contends that reliance on
replacement-cost and declaration value violates federal
statutory and Virgin Islands law. Plaintiff brought this
action under 42 U.S.C. S 1983, seeking to enjoin
defendants "from assessing real property taxes for
commercial property in the Virgin Islands other than in
strict accordance with 48 U.S.C. S 1401a and 33 V.I.C.
S 2404."3
Finding that plaintiff was likely to prevail on the merits
and had met the other requirements for preliminary relief,
the District Court enjoined the Government of the Virgin
Islands "from collecting property taxes against the hotel
properties owned by Equivest St. Thomas, Inc. until the tax
assessor can establish at a trial on the merits that the
property taxes on those properties have been assessed on
their actual value." Equivest St. Thomas, Inc. v. Gov’t of the
V.I., 208 F. Supp. 2d 545, 553 (D.V.I. 2002).
At this time, the Government of the Virgin Islands does
not contest the District Court’s resolution of the merits.
Instead, the government contends the District Court lacked
jurisdiction because this dispute arises not under federal
law, but solely under Virgin Islands law.4
_________________________________________________________________
2. For present purposes, we need not determine what constitutes actual
value. We note, however, that historically, "[t]he phrases ‘saleable value,’
‘actual value,’ ‘cash value,’ and others used in the directions of assessing
officers, all mean the same thing, and are designed to effect the same
purpose." Cummings v. Merchants’ Nat’l Bank , 101 U.S. 153, 162 (1879).
3. Plaintiff also contends defendants are in breach of a settlement
agreement reached in an earlier case governing Virgin Islands tax
assessment. See Berne Corp. v. Gov’t of the V.I. , 120 F. Supp. 2d 528
(D.V.I. 2000), for a discussion of that case.
4. The Government of the Virgin Islands also argues the District Court
abused its discretion in rejecting plaintiff ’s argument that the injunction
should be denied because plaintiff lacks "clean hands." The government
contends plaintiff failed to pursue avenues for relief within the Virgin
Islands and insufficiently cooperated with Virgin Islands officials in this
matter. We see no abuse of discretion.
3
II.
a.
Property taxes are generally governed by state law. As we
discuss, the importance to the states of their tax systems is
such that comity mandates that federal courts are
ordinarily powerless to entertain challenges to state
taxation, even under 42 U.S.C. S 1983. Fair Assessment in
Real Estate Assoc. v. McNary, 454 U.S. 100, 116 (1981).
But the Virgin Islands is not a state;5 it is a territory
subject to Congress’s broad power under Article IV, section
3, clause 2 of the United States Constitution to govern
territories.6 See Examining Bd. of Eng’rs, Architects and
Surveyors v. Flores de Otero, 426 U.S. 572, 587 n.16
(1975).
It is settled that Congress has sovereignty over the
territories of the United States and accordingly has
power to legislate for a territory with respect to all
subjects upon which the legislature of a state might
legislate within the state. Simms v. Simms, 1899, 175
U.S. 162, 168. It is also settled that Congress may
delegate to a territory such of these powers as it sees
_________________________________________________________________
5. Were it a state, the District Court may have been subject to the
prohibition on tax injunctions under the Tax Injunction Act, 28 U.S.C.
S 1341, which provides, "The district courts shall not enjoin, suspend or
restrain the assessment, levy or collection of any tax under State law
where a plain, speedy and efficient remedy may be had in the courts of
such State." Where applicable, the Tax Injunction Act implicates federal
subject-matter jurisdiction. Moe v. Confederated Salish and Kootenai
Tribes, 425 U.S. 463, 470 (1976); Collins Holding Corp. v. Jasper County,
123 F.3d 797, 799 (4th Cir. 1997); Cumberland Farms, Inc. v. Tax
Assessor, 116 F.3d 943, 945 (1st Cir. 1997). Nevertheless, we have held
that the Tax Injunction Act does not apply to the Virgin Islands. Pan Am.
World Airways v. Gov’t of the V.I., 459 F.2d 387, 391 (3d Cir. 1972).
6. Clause 2 of Article IV, section 3 provides:
The Congress shall have Power to dispose of and make all needful
Rules and Regulations respecting the Territory or other Property
belonging to the United States; and nothing in this Constitution
shall be so construed as to Prejudice any Claims of the United
States, or of any particular State.
4
fit. Binns v. United States, 1904, 194 U.S. 486, 491-
492; Christianson v. King County, 1915, 239 U.S. 356,
364-366. And the right of Congress to revise, alter and
revoke these delegated powers does not diminish the
powers while they reside in the territory. Hornbuckle v.
Toombs, 1873, 18 Wall. 648, 85 U.S. 648, 655-656;
District of Columbia v. John R. Thompson Co., 1953,
346 U.S. 100, 106.
Harris v. Boreham, 233 F.2d 110, 113 (3d Cir. 1956).
Accordingly, Congress undisputedly has constitutional
authority to regulate property taxation in the territory of the
Virgin Islands.
In 1936, Congress exercised this authority. In order"to
equalize and more equitably to distribute existing taxes on
real property in the Virgin Islands of the United States and
to reduce the burden of taxation now imposed on land in
productive use in such islands," 48 U.S.C. S 1401,
Congress enacted a statute governing property taxes in the
Virgin Islands. 48 U.S.C. SS 1401-1401e. Section 1401a
provides:
For the calendar year 1936 and for all succeeding
years all taxes on real property in the Virgin Islands
shall be computed on the basis of the actual value of
such property and the rate in each municipality of
such islands shall be the same for all real property
subject to taxation in such municipality whether or not
such property is in cultivation and regardless of the
use to which such property is put.
The general requirements of S 1401a are followed by the
more specific requirements of S 1401b, which also
recognizes a measure of self-governance over specific
property tax requirements:
Until local tax laws conforming to the requirements
of sections 1401 to 1401e of this title are in effect in a
municipality the tax on real property in such
municipality for any calendar year shall be at the rate
of 1.25 per centum of the assessed value. If the
legislative authority of a municipality failed to enact
laws for the levy, assessment, collection or enforcement
of any tax imposed under authority of said sections,
5
within three months after May 26, 1936, the President
shall prescribe regulations for the levy, assessment,
collection, and enforcement of such tax, which shall be
in effect until the legislative authority of such
municipality shall make regulations for such purposes.
This section created an interim tax rate and specified a
source of interim regulations over the tax collection system.
But these provisions were to apply only "until local tax laws
conforming to the requirements of sections 1401 to 1401e
of this title are in effect," with respect to the tax rate, and
"until the legislative authority of [a] municipality shall make
regulations for such purposes," with respect to tax
collection and enforcement mechanisms.
The two sections fit together. Section 1401a provides
general requirements for property taxation in the Virgin
Islands--that taxes be uniformly assessed and that they be
"computed on the basis of the actual value" of the
properties taxed. Section 1401b provides details that
conform with the more general requirements of 1401a--
setting tax rates and directing the President to prescribe
regulations.7 Both 1401b requirements are subject to
change by local legislation, but they must "conform[ ] to the
requirements of sections 1401 to 1401e"--including the
general requirements in 1401a. The federal statute,
therefore, contemplates a hybrid scheme of real property
law: the general requirements are set by the federal
government, with specifics established as a matter of
territorial law consistent with federal law.8
_________________________________________________________________
7. President Roosevelt promulgated regulations in December 1936
applicable to St. Thomas and St. John. St. Croix had, by then, enacted
its own property tax law, so it was not subject to these regulations.
Berne, 120 F. Supp. 2d at 532.
8. Section 1401a’s "actual value" and uniformity requirements are
commonly found in state constitutions and statutes. See, e.g., S. Car.
Const. Art. III, S 29 ("Taxes laid upon actual assessed value."); Co. Const.
Art. X, S 3 (specifying both uniformity and"actual value" assessment); W.
Va. Const. Art. X, S 1 ("Subject to the exceptions in this section
contained, taxation shall be equal and uniform throughout the State,
and all property, both real and personal, shall be taxed in proportion to
its value to be ascertained as directed by law."); Pa. Const. Art. VII, S 1
("Uniformity of Taxation). Thus, this structure does not set Virgin Islands
property tax law apart from state property tax regimes. The difference is
that federal law provides a part of the Virgin Islands property tax system
that is often found within state tax systems.
6
b.
Plaintiff contends the Government of the Virgin Islands is
subject to, and in violation of, S 1401a’s requirement that
"all taxes on real property in the Virgin Islands shall be
computed on the basis of the actual value of such
property." (Emphasis added). In response, the government
argues this section no longer applies because it has been
superceded by Virgin Islands law.
The Government of the Virgin Islands contends the
federal statute was supplanted in 1955 when the Virgin
Islands Legislature9 passed a real property assessment law,
including 33 V.I. Code Ann. S 2404, which enumerates the
factors to be considered in determining "actual value." In
support, the Government of the Virgin Islands focuses
primarily on the expiratory language in S 1401b, which
limits application "until local laws . . . are in effect."
According to the government, this reveals the temporary
nature of the 1936 act--whose effect ended with the
passage of 33 V.I. Code Ann. S 2404.
But as noted, the expiratory language in S 1401b applies
only to the specific requirements of that section; it does not
apply to the rest of the statute, including the general
requirements of S 1401a. Significantly, S 1401b expressly
provides that the local measures enacted must also
"conform[ ] to the requirements of sections 1401 to 1401e."
A local tax law cannot conform to the requirements of the
rest of the statute by abrogating it. It is a requirement of
S 1401a--that the tax be computed on the"actual value" of
the property--that plaintiff contends the Government of the
_________________________________________________________________
9. The form of government in the Virgin Islands is defined by the Organic
Act, originally passed by Congress in 1936, and subject to substantial
revision in 1954, when it became known as the Revised Organic Act, and
again in 1984. See Estate Thomas Mall, Inc. v. Territorial Court of the V.I.,
923 F.2d 258, 260-61 (3d Cir. 1991); Virgo Corp. v. Paiewonsky, 384
F.2d 569, 575-76 (3d Cir. 1967). The Revised Organic Act, 48 U.S.C.
S 1541 et seq., effectively serves as a constitution for the Virgin Islands.
Callwood v. Enos, 230 F.3d 615, 622 (3d Cir. 2000). The Organic Act
creates a unicameral legislative body comprised of fifteen senators. 48
U.S.C. S 1571. The executive branch is governed by an elected governor.
48 U.S.C. S 1591.
7
Virgin Islands has violated. Accordingly, while 33 V.I. Code
Ann. S 2404 may have abrogated the regulations prescribed
by President Roosevelt under S 1401b,10 the language of
S 1401b does not support the proposition asserted by the
Government of the Virgin Islands that S 1401a--or its
"actual value" requirement--has been abrogated.
c.
That S 1401a’s federal requirements apply does not end
our inquiry. The Government of the Virgin Islands contends
that considerations of federalism support its position that
real property taxation is a local matter, and that
notwithstanding 48 U.S.C. S 1401a, property tax disputes
should be resolved in territorial courts. In other words, the
Government of the Virgin Islands contends that federal
courts have no jurisdiction over such disputes.
The Government of the Virgin Islands argues that
because real property taxation is a matter generally left to
the states, courts should be reluctant to find otherwise
unless Congress has made an unmistakably clear
statement to that effect. See Pennhurst State Sch. & Hosp.
v. Halderman, 465 U.S. 89, 99 (1984). But the"clear
statement" rule does not command the result sought by the
Government of the Virgin Islands. Congress’s intent to enter
this area of law suffers from no ambiguity. Furthermore,
the present case does not fit within the "clear statement"
framework. It is indisputable that, in 1936, Congress
entered the field of property taxation in the Virgin Islands.
The Government of the Virgin Islands’s position is that
Congress later allowed the Legislature of the Virgin Islands
to take over. But it would make little sense to require that
Congress make a clear statement that it is retaining federal
control it indisputably had over this matter. The"clear
statement" rule ordinarily applies when Congress seeks to
change the relationship between federal and state
governments, not when it maintains the status quo.
In any event, principles governing the relations between
_________________________________________________________________
10. The Legislature of the Virgin Islands adopted the same 1.25 percent
tax rate specified in S 1401b. 33 V.I. Code Ann. S 2301.
8
the states and the federal government are not always
applicable to the territories. The principal reason for this is
that the Virgin Islands, like all territories, does not share
with the states the same sovereign independence. See
Parrott v. Gov’t. of the V.I., 230 F.3d 615, 623 (3d Cir. 2000)
("[B]oth the Territorial Court and the District Court [of the
Virgin Islands] derive their respective jurisdictional grants
from the same sovereign--namely, Congress, exercising its
authority under Article IV, S 3."); see also United States v.
Wheeler, 435 U.S. 313, 321 (1978). Thus, the limitations on
Congress flowing from the residual sovereignty of the states
do not apply where there is no such dual-sovereignty, as
when Congress acts under Article IV, section 3, clause 2 of
the Constitution.
To be sure, property tax law in the Virgin Islands is, for
the most part, "local" law, just as it is in the several states.
See Chase Manhattan Bank, N.A. v. Gov’t of the V.I., 300
F.3d 320, 323 (3d Cir. 2002) (characterizing property taxes
as among several "local taxes" in the Virgin Islands). But its
local character derives from Congress. To the limited extent
that Congress has entered the field and instituted its own
substantive requirements, the local character of property
taxation in the Virgin Islands has been altered.
The hybrid character of property taxation in the Virgin
Islands may raise questions about the appropriate
application of federalism principles in this case even
assuming the Virgin Islands were accorded the equivalence
of state sovereignty. "[P]rinciples of federalism and comity
generally counsel that courts should adopt a hands-off
approach with respect to state tax administration." Nat’l
Private Truck Council, Inc. v. Okla. Tax Comm’n, 515 U.S.
582 (1995). But in this instance, the tax system is not a
state tax system, nor is it entirely a territorial tax system.
It is partially a federal tax system, and it is not apparent
that the federal government should adopt a hands-off
approach to the federal aspects of a hybrid
federal/territorial system.
Furthermore, while the relative jurisdictions of the
territorial and district courts in the Virgin Islands mirror
the division of authority between state and Article III
district courts, this system derives not from the
9
Constitution, but solely from congressional action. Before
1990, the District Court of the United States Virgin Islands
had jurisdiction over most local matters, Brow v. Farrelly,
994 F.2d 1027, 1034 (3d Cir. 1993), including property tax
disputes, e.g., Ricardo v. Ambrose, 110 F. Supp. 716 (D.V.I.
1953) (action challenging property tax assessment). In
1984, Congress vested traditional federal jurisdiction--
federal question and diversity--in the district court, and
permitted the Government of the Virgin Islands to establish
exclusive jurisdiction in the territorial court over local
matters. Id. at 1033. In 1990, the Virgin Islands legislature
divested the district court of jurisdiction over local disputes.
Id. at 1023. Thus, just as the division of Virgin Islands tax
law into federal law and territorial law is subject to
Congress’s determination, so are the relative jurisdictions of
the territorial and the district courts. Congress chose to
regulate property taxation in the Virgin Islands and it chose
to grant jurisdiction to the district court over actions
arising under federal law.
At the same time, we believe Congress intended federal
regulation of Virgin Islands taxes to be limited. The system
devised by Congress is largely a parallel of state law.
Congress was not required to treat the Virgin Islands as
though it were sovereign, but in large measure it has
chosen to do so. The tax system is, for the most part, a
matter of local governance. And the territorial courts,
mirroring state courts, have been given primary jurisdiction
over local matters. Accordingly, although S 1401a adds a
significant federal element to the Virgin Islands tax regime,
it remains a local system--created, enforced, and
adjudicated locally. While federalism principles do not apply
directly as a result of the Virgin Islands’ sovereignty,
sensitivity to the division between federal and territorial
power in this area seems appropriate, given Congress’s
choice to treat Virgin Islands law--including its taxation
regime--with much of the independence of state law. This
counsels in favor of eschewing a broad interpretation of the
federal rights created by S 1401a that are justiciable in
District Court.
This conclusion is supported by the legislative history of
S 1401a. In 1936, Congress passed a bill "[t]o establish an
10
assessed valuation real property tax in the Virgin Islands of
the United States" to replace a system viewed as
encouraging unproductive use of land. S. Rep. No. 74-1973,
at 1 (1936). At that time, taxes were assessed at a certain
amount per acre based on the land’s use. Uncultivated land
was taxed at a low rate, providing an incentive to keep land
--even very valuable land--unproductive. Id. at 2 (letter of
Harold L. Ickes, Secretary of the Interior, to Representative
Leo Kocialkowski (May 24, 1935)). It was thought that
federal legislation was needed, as the local legislature was
unlikely to pass a change to a value-based tax system. S.
Rep. No. 74-1973, at 6 (statement of Lawrence W. Cramer,
Lieutenant Governor of St. Croix; Robert Herrick,
Government Secretary, and George S. Robinson,
Government Attorney).
Congress took care to enter this area of law only in a
limited way calculated to require a change in the overall
system of property taxation to one employing uniform rates
tied to actual value, but refraining from instituting
permanent particular requirements. It seems apparent,
therefore, that the 1936 Act was never intended to change
the underlying character of property taxation as primarily
subject to local governance.
The Government of the Virgin Islands contends that
plaintiff ’s action is "nothing more than a routine challenge
of the alleged excessiveness of their year 2000 property tax
assessment." As such, they contend it is a purely local tax
question, subject only to territorial court jurisdiction.
Where this is the case, jurisdiction in the District Court
is improper. An aggrieved taxpayer does not state a federal
claim by objecting that its taxes are not based on the actual
"actual value" of its property. If an assessor arrives at a
figure greater than what the taxpayer believes to be the
correct number, the assessor has not necessarily violated
the requirement that the tax assessment be based on
actual value. Only if the assessment method does not
constitute a reasonable attempt to determine the actual
value can a claim be brought under S 1401a. A challenge to
the system of tax assessments in federal court may be
permissible depending on whether it directly implicates
11
federal law; an ordinary challenge to an assessment must
be brought in territorial court.
Plaintiff here has adequately alleged a violation under 48
U.S.C. S 1401a. See Growth Horizons, Inc. v. Delaware
County, 983 F.2d 1277, 1281 (3d Cir. 1993) ("A district
court has federal question jurisdiction in any case where a
plaintiff with standing makes a non-frivolous allegation that
he or she is entitled to relief because the defendant’s
conduct violated a federal statute."). It contends defendants
systematically employed a method of assessment not
calculated to determine the actual value of its properties.
Because plaintiff ’s claims "arise under"S 1401a, they are
subject to the jurisdiction of the District Court under 48
U.S.C. S 1612 and 28 U.S.C. S 1331.
In this respect, this case is distinguishable from our
decision in Club Comanche, Inc. v. Gov’t of the V.I., 278
F.3d 250 (3d Cir. 2002). In an action to quiet title, the
parties asserted federal jurisdiction because the property
boundaries were determined, in part, by federal law.
Notwithstanding that federal law may have had an effect on
the ultimate resolution of the action, we held it was a
territorial law claim because it arose under the Virgin
Islands quiet title statute. Id. at 259-60."A suit arises
under the law that creates the cause of action." Am. Well
Works Co. v. Layne & Bowler Co., 241 U.S. 257, 260
(1916). Plaintiff here claims the government violated
S 1401a. It could do so apart from a territorial cause of
action to challenge the tax assessments. In this particular
case, federal law "creates the cause of action."
d.
In sum, property taxation in the Virgin Islands is
governed by a mixture of federal and territorial law. Federal
law provides general requirements for real property taxation
in the Virgin Islands. Territorial law and its application
must be consistent with these federal requirements.
Because plaintiff has properly alleged a violation of a
federal requirement, it has stated a federal claim in the
United States District Court for the District of the Virgin
Islands.
12
Under Article IV, section 3 of the United States
Constitution, Congress has the power to regulate taxation
in the Virgin Islands. In 1936, it did so. Nothing in that
statute, or in any other act of Congress identified by the
Government of the Virgin Islands provides a basis to
disregard the requirements of that statute.
Because the government has not challenged the District
Court’s preliminary determination of the merits, we do not
address what constitutes "actual value" for these purposes,
nor whether the methods employed by defendants represent
reasonable means of determining actual value. We also do
not address the other requirements for issuance of a
preliminary injunction, as defendants have not taken issue
with these rulings on appeal.
Accordingly, we will affirm the District Court’s
preliminary injunction and remand for further proceedings.
A True Copy:
Teste:
Clerk of the United States Court of Appeals
for the Third Circuit
13