United States Court of Appeals
For the First Circuit
No. 06-2023
UNITED STATES OF AMERICA,
Plaintiff, Appellee,
v.
FAIRWAY CAPITAL CORPORATION,
Defendant,
GOVERNMENT OF THE VIRGIN ISLANDS,
Claimant, Appellant,
THE LAW OFFICES OF HOLLAND & KNIGHT, LLP,
as Counsel to Joseph M. DiOrio, Trustee for Arnold Kilberg;
HENRY D. VARA; FRANCIS DIMENTO; JAMES C. CALLAHAN,
Claimants.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF RHODE ISLAND
[Hon. Ronald R. Lagueux, U.S. District Judge]
Before
Torruella, Circuit Judge,
Stahl, Senior Circuit Judge,
and Howard, Circuit Judge.
John J. Jacko, III, with whom H. Marc Tepper and Buchanan
Ingersoll & Rooney PC were on brief, for claimant-appellant.
Thomas W. Rigby, Chief Counsel for SBIC Liquidation, Office of
General Counsel, U.S. Small Business Administration, with whom
Stacey P. Nakasian and Duffy Sweeney & Scott, LTD. were on brief,
for appellee.
April 11, 2007
TORRUELLA, Circuit Judge. This is a case involving a
claim for possession of property and a monetary claim that the
Government of the Virgin Islands ("GVI") made against the Small
Business Administration ("SBA") receivership estate for Fairway
Capital Corporation. The SBA Receiver recommended that GVI's
possessory claim be denied, and that its monetary claim be granted
in part. GVI filed an objection, but the district court affirmed
the Receiver's Report and Recommendation. GVI now appeals the
court's disposition of its claims before the Receiver. After
careful consideration, we affirm.
I. Factual Background
A. Before the Receivership Proceedings
Protestant Cay is an island in the Virgin Islands. In
1964, the Virgin Islands legislature approved Act 1179, which
authorized GVI to negotiate a fifty-year lease for Protestant Cay.
The same year, GVI leased the land on Protestant Cay to Hotel-On-
The-Cay, Inc. for fifty years (the "Ground Lease"). In exchange
for the lease, Hotel-On-The-Cay, Inc. agreed to pay rent to GVI, to
construct a hotel, and to pay GVI a portion of the profits from the
hotel.
In 1969, GVI and Hotel-On-The-Cay, Inc. executed
Amendment No. 1 to the Ground Lease to protect the rights of
lenders who might hold a mortgage over the leasehold interest. No
legislative approval was sought for the amendment.
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Hotel-On-The-Cay, Inc. assigned its interest in the
Ground Lease to Oliver Plunkett ("Plunkett"). In 1980, Plunkett
filed a declaration in the Virgin Islands stating his intention to
create 2,900 weekly timeshare units to be known as "Hotel On The
Cay Resort" (the "Resort"). Plunkett had a fair bit of success,
selling 1,500 of the units. However, by 1982, 1,400 units remained
unsold, forcing Plunkett to declare bankruptcy. In 1986, the
trustee in Plunkett's bankruptcy conveyed Plunkett's interest in
the Ground Lease to Harborfront Properties, Inc. ("Harborfront")
and Plunkett's interest in the unsold timeshare units to Protestant
Cay, Ltd. ("PCL").
In 1990, Legend Resorts L.P. ("Legend") and TSA
Acquisition, Inc. ("TSA") agreed to acquire the unsold timeshare
units from PCL. In order to finance the acquisition, Legend and
TSA borrowed $1.7 million (the "Legend Loan") from Fairway Capital
Corp. ("Fairway"), a Small Business Investment Company as defined
in 15 U.S.C. § 681. The Legend Loan was secured by a mortgage on
the unsold timeshare units; Fairway was also made a 20% limited
partner in Legend. In addition, Harborfront gave Fairway a
mortgage on Harborfront's interest in the Ground Lease; Harborfront
later assigned the Ground Lease to Fairway in 1991. Thus, as of
1991, Fairway held (a) a mortgage interest in the unsold timeshare
units, (b) a mortgage interest in the Ground Lease, and (c) a 20%
limited partnership interest in Legend. The same year, GVI and
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Legend entered into Amendment No. 2 to the Ground Lease, which
provided in part that the lease would be subject to cancellation by
the lessor if the lessee was in arrears for sixty days after notice
of default. As with Amendment No. 1, this amendment was not
separately approved by the legislature.
In order to service the Legend Loan, Fairway formed a
subsidiary named Participation Services Corporation ("PSC") in
1994. Fairway assigned its interest in the Legend Loan to PSC the
same year. Legend defaulted on the Legend Loan, and PSC foreclosed
on the mortgages, naming Legend, TSA, Harborfront, and GVI in the
foreclosure action. A stipulated judgment of foreclosure was
entered on June 7, 1996. Thus, as of that date, PSC became the
owner of (a) the leasehold interest in the Ground Lease and (b) the
unsold timeshare units.
GVI then sent notice to Legend and Fairway that Legend
was in arrears and that GVI would terminate the Ground Lease.
Sixty days later, GVI filed an eviction action against Legend and
Fairway in the Territorial Court of the Virgin Islands (the
"eviction action"). Neither Legend nor Fairway appeared, and the
Territorial Court entered a default judgment on September 18, 1997.
On December 31, 1997, PSC filed a motion to intervene and to set
aside the default judgment in the eviction action. At the same
time, a similar motion was filed by Hotel On the Cay Timeshare
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Association, Inc. ("HOTC"), an entity incorporated by the owners of
the sold timeshare units. Both motions were granted.
On May 22, 1998, GVI and HOTC entered into a settlement
agreement, which the parties refer to as the "Stipulated
Settlement." The Stipulated Settlement provided that in exchange
for HOTC withdrawing its intervention in the eviction action, GVI
would recognize HOTC as the lessee of the timeshare resort,
including the unsold timeshare units. In addition, the Stipulated
Settlement stated that HOTC would not be deemed a successor to
Legend or Fairway. Finally, the parties agreed in the Stipulated
Settlement that in the event that Legend and Fairway prevailed in
the eviction action and their lease of the resort was reinstated,
GVI would give credit to Legend and Fairway for all of HOTC's rent
payments. After concluding the Stipulated Settlement with HOTC,
GVI continued to prosecute its eviction action against Legend and
Fairway in the Territorial Court, filing a motion for summary
judgment on December 22, 1999.
On January 19, 2000, the SBA filed a complaint against
Fairway in the United States District Court for the District of
Rhode Island. The SBA's complaint asked that Fairway be placed in
receivership because of Fairway's breach of various SBA regulations
and its failure to pay amounts owed to the SBA. On March 13, 2000,
the district court entered an order placing Fairway in receivership
and imposing a stay on all litigation involving Fairway, including
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GVI's eviction action. At this time, the Territorial Court had not
yet ruled on GVI's motion for summary judgment in the eviction
action. Thus, as of March 13, 2000, PSC continued to hold an
interest in the Ground Lease and the unsold timeshare units subject
to the outcome of the stayed eviction proceedings. In March 2002,
the district court ordered these interests transferred to the
Fairway receivership estate.1
B. The Receivership Proceedings
GVI filed two claims with the SBA Receiver: an equitable
claim asking for immediate possession of the unsold timeshare units
and a monetary claim asking for $1,450,760 for unpaid rent, taxes,
unemployment insurance contributions, and associated costs,
interest, and penalties. The Receiver recommended denying the
equitable claim and granting the monetary claim to the extent of
$430,421.84. The Receiver found that the remainder of GVI's
monetary claim was either not supported by evidence that met
requirements set forth in the "Notice to Creditors," or that the
claim covered time during which neither Fairway nor Legend were in
possession of the resort.
1
PSC and its successor Pantheon were found to be instruments and
alter egos of Fairway. See Hotel on the Cay Time-Sharing Ass'n,
Inc. v. Kilberg, 2000 WL 34019282 at *10 (D.R.I. Apr. 6, 2000). As
such, assets owned by PSC and Pantheon were deemed to be assets of
Fairway.
-6-
At a preliminary hearing on the Receiver's Report, held
on February 16, 2005, the district court stated the procedure for
making objections:
Any objectors should file their materials
within 30 days as the order provides. The
Receiver will have 30 days to respond. And
then when I have that material, I will make a
determination of whether I can decide those
matters on the papers or whether a bench trial
is necessary. And I will reserve decision on
that until I see those papers.
After GVI stated that it would raise the issue of abstention, the
court responded:
I think [GVI] should put forth all of its
contentions in the objection, and then [the
Receiver will] respond to it, and then I'll
decide whether I'm going to have a hearing
separately on that question of abstention or
not.
GVI filed an objection to the Receiver's Report and Recommendation,
suggesting that the court abstain from deciding whether GVI was in
actual possession of the unsold timeshare units, and in the
alternative, arguing that GVI was in actual possession of the
unsold timeshare units, and thus would be entitled to judgment on
its equitable claim. GVI's objection also stated that it was
entitled to an additional $120,000 on its monetary claim, of which
it identified approximately $59,000 as being undisputed.
At a hearing on the objection on July 12, 2005, the court
asked GVI if it wanted to "present any evidence, any testimonial
evidence." GVI responded, "Not in addition to what's already been
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submitted, your Honor, that's correct." GVI then proceeded to
state that only its monetary claim was properly before the court
because the district court lacked jurisdiction over its equitable
claim for possession of the unsold timeshare units. The court
responded, "I thought everything was before the court. I have
jurisdiction over the whole works." GVI then argued that the court
lacked jurisdiction because the court had jurisdiction only over
assets possessed by Fairway, and that Fairway did not possess the
Resort. The court responded, "That's a question I will have to
decide, not the Territorial Court of the Virgin Islands. I have
exclusive jurisdiction of this matter. I've already ruled that.
I denied the lifting of the stay." The court then explained:
I have taken exclusive jurisdiction of this
matter and any property that the Receiver
claims that belongs to Fairway. And you want
to contest that? Fine. That's what I'm here
to hear. . . . I will make a decision as to
whether the receiver owns those 1400 units of
timeshares, not the Territorial Court of the
Virgin Islands. . . . Now, if you say its not
before me today, then we'll put it before me
at some later time, but I considered it before
me today. I considered that I would hear
arguments on those issues, all those issues
today. And I'm prepared to take it under
advisement and write a written opinion about
this Court's jurisdiction, the question of
abstention, the question of title, the
question of forfeiture of the ground lease,
the power of the governor to enter into a
settlement stipulation which transferred title
to the tenants association, all the issues in
this case. I'm prepared to decide them all.
After a brief colloquy, GVI responded:
-8-
[T]o the extent that you believe jurisdiction
exists over a possession issue and claim, it's
our understanding that we would have the
opportunity to participate in a plenary
hearing on that issue.
The court answered, "I thought it was before me now. The Receiver
denied your equitable claim. So that matter is before me unless
you're waiving it."
Both GVI and the Receiver proceeded to make their
arguments regarding jurisdiction, abstention, and the substantive
question of whether or not GVI was in possession of the unsold
timeshare units. After both parties made their arguments, GVI
stated, "The issue of whether there exists a timeshare interest
that the receiver has title to is clearly one that's entitled to a
plenary hearing, whether it's something that is effectively
resolved in the territorial court or here." The court asked, "What
do you mean by that, plenary hearing?" GVI answered:
Well, [the Receiver] take[s] the position that
they actually have title in this mortgage
leasehold interest, which we say doesn't exist
anymore. So clearly there's a conflict there.
To the extent that they claim this title
exists, that's an issue that would have to be
fully litigated.
The court responded:
I gave you an opportunity to litigate it here
today. You were advised that if you had any
evidence to present on any of these issues,
you present it today.
GVI then stated:
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My understanding, and this was going to the
last point, so maybe I misunderstood you
earlier. In an earlier proceeding before your
Honor, you indicated that there would be a
full and fair opportunity to address the
concerns of [GVI], you know, to the extent
that evidence needs to be presented at a full
hearing, and I was articulating earlier that
[there are] logistical difficult[ies in
bringing witnesses.] . . . I was under the
impression that once you determined whether
there was jurisdiction here, which you said
you were going to make that determination,
that we would be given the opportunity to have
that hearing at another time.
The court responded, "Well, your impression is wrong. I
set aside two days to take testimony here starting today and
tomorrow. . . . My order from the bench was clear that when I was
going to hear this matter, I would hear any evidence you had to
present on any of these issues." GVI then conceded that, "what
we're talking about here and now, your Honor, are issues of law .
. . . [A]ll of the issues that are before your Honor in any event
really are issues of law that are based upon the record that is
before you, that are contained in our briefs." The court then
stated, "You had an opportunity to present any evidence you wanted
to present today. You didn't choose to do so. So I'm taking this
case under advisement."
On June 8, 2006, the court issued a written decision
affirming its jurisdiction over the unsold timeshare units and
rejecting GVI's arguments for abstention, its equitable claim for
possession, and its request for a higher monetary claim. The court
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then affirmed and accepted the Receiver's Report and Recommendation
with respect to GVI's claims. GVI now appeals.
II. Discussion
GVI makes four claims. First, GVI argues that the
district court should have abstained from deciding whether GVI was
entitled to possession of the unsold timeshare units. Second, GVI
suggests that the district court did not give it sufficient
opportunity to present evidence in favor of its claims. Third, GVI
argues that the district court wrongly concluded that it was not
entitled to possession of the unsold timeshare units. Fourth, GVI
contends that the district court erroneously resolved its monetary
claim. We take each claim in turn.
A. Abstention
GVI argues that the Territorial Court was in a better
position than the district court to hear its equitable claims for
possession and that the district court should have abstained from
hearing the case. GVI argues that two theories of abstention
support this argument: the doctrine of abstention discussed in
Colorado River Water Conservation Dist. v. United States, 424 U.S.
800 (1976), and the doctrine of abstention referenced in Odell v.
H. Batterman Co., 223 F. 292 (2d Cir. 1915).2
2
GVI also proposes a third theory of abstention based on the
holding in Princess Lida of Thurn and Taxis v. Thompson, 305 U.S.
456 (1939). Princess Lida held that "if the two suits are in rem,
or quasi in rem, so that the court, or its officer, has possession
or must have control of the property which is the subject of the
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1. Colorado River Abstention
In Colorado River, the Supreme Court held that in certain
circumstances, a court may abstain from hearing a case "due to the
presence of a concurrent state proceeding for reasons of wise
judicial administration." 424 U.S. at 818. We have emphasized
that these circumstances are quite limited, and that there is a
"heavy presumption favoring the exercise of jurisdiction." Villa
Marina Yacht Sales, Inc. v. Hatteras Yachts, 915 F.2d 7, 13 (1st
Cir. 1990). We consider eight factors in determining whether such
limited circumstances exist:
(1) whether either court has assumed
jurisdiction over a res; (2) the inconvenience
of the federal forum; (3) the desirability of
avoiding piecemeal litigation; (4) the order
in which the forums obtained jurisdiction; (5)
whether state or federal law controls; (6) the
adequacy of the state forum to protect the
parties' interests; (7) the vexatious or
contrived nature of the federal claim; and (8)
respect for the principles underlying removal
jurisdiction.
KPS & Assocs. v. Designs by FMC, Inc., 318 F.3d 1, 10 (1st Cir.
2003). These factors are not "exhaustive, nor is any one factor
necessarily determinative." Id. Where a district court has
litigation in order to proceed with the cause and grant the relief
sought the jurisdiction of the one court must yield to that of the
other." 305 U.S. at 466. We have treated the issue of a state
court's in rem or quasi in rem jurisdiction as the first factor to
be considered in the Colorado River abstention analysis, and as
such, it is unnecessary to address abstention under Princess Lida
separately. See Bergeron v. Estate of Loeb, 777 F.2d 792, 799 (1st
Cir. 1985) (discussing application of Princess Lida doctrine in
Colorado River context).
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declined to exercise its discretion to abstain from hearing a case
under Colorado River doctrine, we review for abuse of discretion.
Río Grande Cmty. Health Ctr., Inc. v. Rullán, 397 F.3d 56, 68 (1st
Cir. 2005).
As to the first factor, the district court found that in
the eviction action, the Territorial Court did not exercise in rem
(or quasi in rem) jurisdiction over the unsold timeshare units. We
disagree. A quasi in rem action requires that "the court or its
officer have possession or control of the property which is the
subject of the suit in order to proceed with the cause and to grant
the relief sought." Penn Gen. Cas. Co. v. Pennsylvania, 294 U.S.
189, 195 (1935). Here, the Territorial Court must have
jurisdiction over the resort (including the unsold timeshare units)
in order to adjudicate GVI's possessory claim. As such, it is only
the parties' interests in the resort that serve as the basis of the
Territorial Court's jurisdiction. See Virgin Islands v. Legend
Resorts, L.P., 39 V.I. 12, 14 (V.I. Terr. Ct. 1998) (noting that
the subject of GVI's eviction action was "an interest related to
the leasehold"); Schindel v. Pelican Beach Inc., 16 V.I. 237, 250
(V.I. Terr. Ct. 1979) (describing a quasi in rem action as one that
"ha[s] the effect of adjudicating the parties' 'rights to
property'"); see also State Eng'r v. S. Fork Band of the Te-Moak
Tribe of W. Shoshone Indians of Nev., 339 F.3d 804, 811 (9th Cir.
2003) ("But 'it is the [parties'] interest[s] in the property that
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serve[] as the basis of the jurisdiction.' Therefore, the action
is quasi in rem." (quoting Black's Law Dictionary 1245 (6th ed.
1990)). Because GVI brought the eviction action to adjudicate
GVI's rights to the unsold timeshare units, i.e., whether it was
entitled to possession, the Territorial Court had "jurisdiction
over a res." KPS & Assocs., 318 F.3d at 10.
Nevertheless, a state court's quasi in rem jurisdiction
does not make abstention mandatory. See Bergeron v. Estate of
Loeb, 777 F.2d 792, 798 (1st Cir. 1985) ("Considering the Colorado
River factors in turn, we do not think that the Nevada state
district court's assumption of in rem jurisdiction over the trust
res compels dismissal here."). Here, the importance of the
Territorial Court's quasi in rem jurisdiction is diminished by the
fact that 15 U.S.C. § 687c(b) gives a district court "exclusive
jurisdiction" over the property of an SBA receivership estate.
Because the eviction action had not proceeded to final judgment,
the unsold timeshare units remained the property of the Fairway
estate at the time that GVI made its claim.3 While it may be true
3
GVI suggests that it possessed the unsold timeshare units, and
thus that the property was not part of the Fairway estate. This
allegation is at odds with the fact that GVI brought an eviction
action, which is "[a]n action for the recovery of the possession of
the premises." V.I. Code Ann. tit. 28, § 789(b). If GVI had been
in actual possession of the unsold timeshare units, it would not
have needed to bring an action for their recovery. Whether GVI is
ultimately entitled to possession is not determinative of whether
GVI was in actual possession of the unsold timeshare units at the
time that the eviction action was stayed.
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that § 687c(b) gives a district court discretion over whether to
retain jurisdiction over the property of an estate, it was not an
abuse of discretion for the district court to have concluded that
jurisdiction was necessary to disentangle Fairway's assets. See
United States v. Royal Bus. Funds Corp., 29 B.R. 777, 779-80
(S.D.N.Y. 1983) ("[T]he purpose of the federal receivership was to
protect the assets pending the Small Business Administration's
recovery on its investment, as well as to permit discovery of any
past abuses of program funds." (quoting United States v. Norwood
Capital Corp., 273 F. Supp. 236, 240 (D. S.C. 1967))). In addition,
the district court was only determining the validity of GVI's claim
to rights in the unsold timeshare units; as the Supreme Court
stated in Princess Lida, "an action in the federal court to
establish the validity or the amount of a claim constitutes no
interference with a state court's possession or control of a res."
305 U.S. at 467; see also Bergeron, 777 F.2d at 799 (stating that
Colorado River abstention was inappropriate where "claims against
the [res] appear to be unrelated to the administration of the
[res]"); Mattei v. V/O Prodintorg, 321 F.2d 180, 184 (1st Cir.
1963) ("[A] state court may properly adjudicate rights in property
in the possession of a federal court and . . . the same procedure
may be followed by a federal court with respect to property in the
possession of a state court."). Because of the district court's
"exclusive jurisdiction" over the timeshare units, we conclude that
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the Territorial Court's quasi in rem jurisdiction over the units
does not strongly favor abstention.
With respect to the second factor, we agree with the
district court that the federal forum was not inconvenient.
Although GVI initially claimed the need to present witnesses and
evidence, it later renounced that desire when it stated to the
court that "all of the issues that are before your Honor in any
event really are issues of law that are based upon the record that
is before you, that are contained in our briefs."4 Even though
Rhode Island may be physically distant from the Virgin Islands, in
this era of electronic communications, legal arguments travel
quickly. Because there was no need to bring any witnesses or
present any evidence, GVI's claims of inconvenience carry little
weight. See Villa Marina Yacht Sales, 915 F.2d at 15 (noting that
the inconvenient forum factor is "concerned with the physical
proximity of the federal forum to the evidence and witnesses").
The third factor requires the district court to determine
whether there is a risk that "piecemeal litigation" would result if
the case was held in a federal forum. The district court found
that there was little risk of piecemeal litigation. We agree. The
4
Indeed, we can discern no evidentiary disputes here; it appears
that the primary disagreements are over the contractual
construction of the Stipulated Settlement, which is a matter of
law. See U & W Indus. Supply, Inc. v. Martin Marietta Alumina,
Inc., 34 F.3d 180, 185 (3d Cir. 1994) (finding that "[t]he
construction of an unambiguous contract is a matter of law for the
court").
-16-
concern for piecemeal litigation does not arise simply when two
courts might exercise parallel jurisdiction; "in considering
whether the concern for avoiding piecemeal litigation should play
a role in this case, the district court must look beyond the
routine inefficiency that is the inevitable result of parallel
proceedings to determine whether there is some exceptional basis
for requiring the case to proceed entirely in [state] court." Id.
at 16. In Colorado River, the Supreme Court found an exceptional
basis where the federal statute that provided the cause of action
had a "clear federal policy [of] . . . the avoidance of piecemeal
adjudication." 424 U.S. at 819. In the present case, the
jurisdictional statute at issue evinces a clear federal policy of
resolving all disputes over Fairway's property in federal court.
See 15 U.S.C. § 687c(b) (noting that in a SBA receivership
proceeding, a court may "take exclusive jurisdiction of the
licensee or licensees and the assets thereof, wherever located; and
the court shall have jurisdiction in any such proceeding to appoint
a trustee or receiver to hold or administer under the direction of
the court the assets so possessed" (emphasis added)).
In addition, we have found that a risk of piecemeal
litigation arises when "a ruling from the [state court] . . . would
render our opinion merely advisory." Rivera-Feliciano v.
Acevedo-Vilá, 438 F.3d 50, 62 (1st Cir. 2006). Here, there is
little risk of that occurring: regardless of the ruling of the
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Territorial Court, GVI would not be entitled to possession of the
unsold timeshare units. If the Territorial Court was to rule in
the eviction proceeding that Fairway was entitled to possession,
then GVI would not be entitled to possession of the unsold
timeshare units. If the Territorial Court ruled in favor of GVI in
the eviction proceeding, GVI would still not be entitled to
possession of the unsold timeshare units because it has already re-
leased the property to HOTC.5 Thus, a later ruling by the
Territorial Court would have no effect on the district court's
determination that GVI is not entitled to possession of the unsold
timeshare units. Accordingly, there is little risk of piecemeal
litigation.
As for the fourth factor, neither party disputes the fact
that the Territorial Court obtained jurisdiction over the unsold
timeshare units before the district court, and that this factor
weighs in favor of abstention.
With regard to the fifth factor, the district court is
correct that this case does not present one of the "rare
circumstances [where] the presence of state-law issues may weigh in
favor of [the] surrender" of federal jurisdiction. Moses H. Cone
Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 26 (1983). The
5
GVI argues that a third possibility exists: that the Territorial
Court would rule the Stipulated Settlement unenforceable, and thus
HOTC's leasehold interest would revert to GVI. We find this
argument implausible. See infra Part II.C.
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district court found that the only issue involving Virgin Islands
law was the interpretation of the Stipulated Settlement because, as
we explained before, the only way that GVI could obtain possession
of the unsold timeshare units is if (a) it prevailed in the
eviction action and (b) the Stipulated Settlement was considered
unenforceable. The only argument based on Virgin Islands law that
GVI propounds in favor of finding the Stipulated Settlement
unenforceable is that the Stipulated Settlement violates V.I. Code
Ann. tit. 31, § 205(c), which states that no lease of Government
property exceeding one year shall be valid unless approved by the
legislature.6 In light of the statutory policy of giving federal
courts exclusive jurisdiction to resolve disputes over property
involved in a SBA receivership proceeding, 15 U.S.C. § 687c(b), we
conclude that it was within the discretion of the district court to
find that the presence of a single state law issue did not outweigh
the federal interests here.
As to the sixth factor, we do not agree with the district
court that the Territorial Court would be inadequate to protect
federal interests simply because it is not a court constituted
6
The district court was correct to conclude that any remaining
questions of contract construction under Virgin Islands law could
be resolved by reference to the Restatement (Second) of Contracts.
See James v. Zurich-Amer. Ins. Co., 203 F.3d 250, 255 (3d Cir.
2000) ("All of the ALI Restatements of the Law (thus including the
Restatement (Second) of Contracts . . .) have been adopted as
definitive sources of rules of decision by the Virgin Islands
Legislature.").
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under Article III of the Constitution. State and territorial
courts are normally competent to hear cases that involve federal
interests. See, e.g., Gulf Offshore Co. v. Mobil Oil Corp., 453
U.S. 473, 479 (1981) ("[T]he presumption of concurrent jurisdiction
can be rebutted by an explicit statutory directive, by unmistakable
implication from legislative history, or by a clear incompatibility
between state-court jurisdiction and federal interests."). The
statement in 15 U.S.C. § 687c(b) that a federal court "may take
. . . exclusive jurisdiction" over the assets of a SBA receivership
estate is not sufficient to establish an "explicit statutory
directive" to divest state courts of all jurisdiction over matters
involving those assets, nor is there an "unmistakable implication
from legislative history" to that effect. See Gulf Offshore Co.,
453 U.S. at 479. Nor has the SBA Receiver argued that there is
clear incompatibility between state court jurisdiction and federal
interests. See id. Thus, the Territorial Court would not
necessarily have been an inadequate forum to hear GVI's possessory
claim. However, the fact that the Territorial Court might be an
adequate forum does not militate in favor of abstention; we
understand this factor to be important only when it disfavors
abstention. See Bethlehem Contracting Co. v. Lehrer/McGovern,
Inc., 800 F.2d 325, 328 (2d Cir. 1986). In other words, because
"the possibility that the state court proceeding might adequately
protect the interests of the parties is not enough to justify the
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district court's deference to the state action," id., we find that
this factor is neutral.
The seventh factor is the "vexatious or contrived nature
of the federal claim." The district court did not address this
factor directly. However, we do not see any basis for an argument
that the receivership proceedings were "vexatious" or "contrived."
Finally, the eighth factor is "respect for the principles
underlying removal jurisdiction." The district court did not make
any finding as to this factor, but we believe that it does not
favor abstention. In Villa Marina Yacht Sales, we stated that this
factor was relevant if a plaintiff was attempting to evade the
policy in 28 U.S.C. § 1441 that only a defendant be able to remove
a lawsuit from state court to federal court. 915 F.2d at 14. We
do not see how this factor is relevant in the present case, where
GVI has evinced no desire to remove its eviction action from the
Territorial Court to federal court.
Thus, of the eight factors, only one factor favors
abstention: that the Territorial Court obtained jurisdiction before
the district court did. The remaining factors are either neutral
or favor a federal forum. Given that federal courts have a
"virtually unflagging obligation" to exercise jurisdiction,
Colorado River, 424 U.S. at 817, we do not believe that the
district court abused its discretion in determining that this case
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did not present the "exceptional" circumstances required for
abstention.
2. "Odell Abstention"
In Odell v. H. Batterman & Co., the Second Circuit held
that where a federal receiver had taken a tenant into receivership
(because of financial problems), the receivership court should
allow the tenant's landlord to pursue eviction proceedings in a
parallel proceeding in state court. 223 F. at 299. The Second
Circuit held that "[a] landlord has a right, which the court cannot
properly disregard, to have its claim to the possession of [its]
property passed upon and determined, and, if found to be valid, it
has a right to be restored to the immediate possession of the
property." Id. One might understand Odell to stand for the
proposition that where a blanket stay of litigation would prohibit
a party from having its claim of possession adjudicated, a federal
court may exercise its discretion to lift the stay as to that
party. Thus, our review is for abuse of discretion. See, e.g.,
Manhattan Rubber Mfg. Co. v. Lucey Mfg. Co., 5 F.2d 39, 41 (2d Cir.
1925) (finding that Odell applied an abuse of discretion standard);
see also New Eng. Power and Marine, Inc. v. Town of Tyngsborough
(In re Middlesex Power Equip. & Marine, Inc.), 292 F.3d 61, 69 (1st
Cir. 2002) (noting that appellate courts review discretionary
abstention decisions for abuse of discretion).
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Odell was decided in 1918, and has not been cited since
1952. We need not decide whether it should be resurrected because
there is a clear and significant difference between the facts of
Odell and the situation here. In Odell, the landlord seeking to
regain possession of his property had no forum in which to pursue
a remedy; its state court action was stayed, and the federal court
did not provide an opportunity for resolution of its claims. 223
F. at 299. GVI, however, has a federal forum for the resolution of
its claims: the district court. In fact, GVI has had its
possessory claim adjudicated. Thus, even assuming that we would
recognize a doctrine of Odell abstention, we would find that the
district court did not abuse its discretion in refusing to abstain
from hearing GVI's possessory claim.
B. Plenary Hearing
GVI argues that it was entitled to a plenary hearing on
its equitable and monetary claims, and that the district court did
not provide it with one. The district court treated the Receiver's
Report and Recommendation much like a summary judgment: it
determined that there were no material disputes of fact and
resolved the questions of law. Cf. City Equities Anaheim v.
Lincoln Plaza Dev. Co. (In re City Equities Anaheim), 22 F.3d 954,
958 (9th Cir. 1994) ("Like many litigants, Lincoln sought to end a
suit based on the absence of any disputed material facts. In this
respect, its motion was akin to a motion for summary judgment.").
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Summary judgment is appropriate only when "there is no genuine
issue of material fact." Vives v. Fajardo, 472 F.3d 19, 21 (1st
Cir. 2007). We review a grant of summary judgment de novo. Id.
GVI's claim that it was entitled to a plenary hearing
cannot succeed because it fails to identify any disputed issues of
fact. This was ultimately the same position GVI took in the
district court. The court ordered GVI to put all of its objections
(both factual and legal) to the SBA Receiver's Report and
Recommendation in one single motion. GVI failed to raise any
issues of fact in this motion. At the hearing on GVI's motion,
when asked whether it had any additional evidence, GVI stated "Not
in addition to what's already been submitted." Although GVI later
asked for an evidentiary hearing on its equitable and monetary
claims, after the court denied the request, GVI retreated and
instead stated that "what we're talking about here and now, your
Honor, are issues of law."
In light of GVI's on-the-record position that there were
no factual disputes, and in light of GVI's inability to now point
to evidence that would establish a disputed issue of material fact,
we conclude that the district court did not err in approving the
SBA Receiver's report and denying GVI an evidentiary hearing on its
claims. See United States v. Ianniello, 824 F.2d 203, 207 (2d Cir.
1987) (finding no need for a plenary hearing where the court "gave
defendants ample opportunity to rebut the government's case").
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C. GVI's Equitable Claim for Possession
GVI argues that the court erred in denying its equitable
claim for possession of the unsold timeshare units. Because there
appear to be no disputed facts, we review the court's decision de
novo. See Villafañe-Neriz v. FDIC, 75 F.3d 727, 730 (1st Cir. 1996)
("As the essential facts are not in dispute, and all that is before
us is a question of law, our review of the district court's
decision is de novo."); Hope Furnace Assocs. v. FDIC, 71 F.3d 39,
42 (1st Cir. 1995).
We begin by assuming, as the district court appears to
have done, that GVI was entitled to terminate the Ground Lease with
Fairway and that this would give GVI possession of the unsold
timeshare units. However, GVI has entered into the Stipulated
Settlement with HOTC, which gives HOTC possession of the units.
Thus, if the Stipulated Settlement is valid and enforceable, HOTC,
and not GVI, would be entitled to equitable possession of the
timeshare units.7 The district court found that the Stipulated
7
GVI also raises an objection to consideration of the Stipulated
Settlement under Federal Rule of Evidence 408. Rule 408 provides
that a settlement agreement may not be used to prove "liability
for, invalidity of, or amount of a claim that was disputed as to
validity or amount." Here, the Stipulated Settlement is not being
used as evidence of liability on the part of GVI. To the contrary,
we have assumed for the purposes of argument that Fairway was
liable and that GVI was entitled to terminate the Ground Lease.
Instead, we use the Stipulated Settlement only to determine whether
GVI has subsequently relet the unsold timeshare units to another
party, in which case GVI would no longer be entitled to possession
of the premises. Thus, the district court's use of the Stipulated
Settlement does not implicate Rule 408 concerns.
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Settlement was valid and enforceable, and thus denied GVI's
equitable claim for possession. We agree that GVI is not entitled
to possession of the unsold timeshare units.
GVI raises two arguments against enforcing the Stipulated
Settlement. First, GVI argues that V.I. Code Ann. tit. 31, § 205
(c) requires that all dispositions of government property,
including each individual lease and subsequent reletting, be
approved by the legislature of the Virgin Islands. Section 205(c)
states, in relevant part:
[N]o sale, exchange, lease or sublease of
government real estate, nor any use permit of
the same for a term exceeding one year
(including the period of any allowable
extensions or renewals) nor sublease of
government real estate for a term exceeding
five years (including the period of any
allowable extensions or renewals) shall be
deemed binding upon the Government of the
United States Virgin Islands, unless and until
(1) such proposed sale or exchange or such
proposed lease or sublease shall have been
submitted to the Legislature, while in regular
or special session, (2) shall have been
approved by the Legislature.
V.I. Code Ann. tit. 31, § 205(c). Although there do not appear to
be any Virgin Islands law decisions that interpret Section 205(c),
we find GVI's proposed interpretation of the law to be highly
improbable. First, neither of the prior amendments to the Ground
Lease appear to have received legislative approval. In addition,
V.I. Code Ann. tit. 3, § 218(a)(5) appears to give the Department
of Property and Procurement of the Virgin Islands the power to
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"manage rental properties owned or controlled by the Government,
except as limited by Federal law, hotels, and housing development
programs or projects; and make inventory and establish forms and
procedures for the sale, rental, or disposition thereof." In
addition, Article 8.03(b) of Amendment No. 2 to the Ground Lease,
whose validity is not in dispute, plainly states that in the event
of a lessee's default, GVI may "[e]ither cancel this Lease by
notice or without canceling this Lease, relet the Lease premises or
any part thereof upon such terms and conditions as shall appear
advisable to [GVI]." Thus, while § 205(c) may require some
authorizing act for the disposition of government real estate, we
do not believe it requires the legislature to engage in the
minutiae of defaults and relettings. Because the legislature
authorized the initial lease of Protestant Cay in Act No. 1178
(April 2, 1964), we conclude that no additional legislative
approval was needed for the Stipulated Settlement, which relet the
premises to HOTC.8
8
To the extent that GVI claims that the Stipulated Settlement
constituted an entirely new lease, we agree with the district court
that, in the absence of contrary indication, contracts should be
construed so as to be legal and enforceable. Restatement (Second)
of Contracts, § 203(a) cmt. c. Thus, in accordance with this canon
of contract construction, we construe the Stipulated Settlement to
be a valid and lawful reletting rather than an invalid and unlawful
separate lease. This conclusion is bolstered by the fact that GVI
calls the Stipulated Settlement "merely an attempt to mitigate
GVI's damages," rather than a new contractual arrangement. See
Appellant's Br. at 59.
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GVI's second argument is that the SBA Receiver may not
use the Stipulated Settlement to deny GVI's equitable claim because
Fairway was neither a party to the agreement nor an intended
beneficiary of the agreement. Thus, GVI argues, the only party who
may use the Stipulated Settlement to deny GVI's claim is HOTC. The
district court found that "the Receiver was appointed to receive
the claims of all creditors of the Fairway Estate and to recommend
the disposition of those claims." Thus, the district court
concluded that the SBA Receiver could use the Stipulated Settlement
in determining whether GVI was entitled to possession of the unsold
timeshare units.
Section 687c(b) gives a court the power to put a Small
Business Investment Company into receivership; "the receiver is
charged with the responsibility for obtaining possession of the
assets of the corporation prior to its liquidation." Small
Business Administration v. Segal, 383 F. Supp. 198, 203 (D. Conn.
1974). Receivership is "an attempt to provide equitable relief on
the road to some form of full and final relief." 13 Moore's
Federal Practice § 66.03. Thus, "a district court in its
discretionary supervision of an equitable receivership may deny
remedies like rescission and restitution where the equities of the
situation suggest such a denial would be appropriate." United
States v. Vanguard Inv. Co., 6 F.3d 222, 227 (4th Cir. 1993).
Here, the SBA Receiver was charged with collecting, disentangling,
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and liquidating the assets of Fairway. The SBA Receiver collected
the unsold timeshare units because Fairway was "in possession" of
them at the time the receivership proceedings were brought. GVI
then submitted a equitable claim to the Receiver because it
believed that it was entitled to possession of the resort.
However, the SBA Receiver was not limited to merely determining
whether GVI's claim to the unsold timeshare units was superior to
that of Fairway. Rather, the SBA Receiver was entitled to
determine, based on the evidence submitted, whether GVI had any
equitable claim to possession of the unsold timeshare units. While
Fairway may or may not have been entitled to possession of the
unsold timeshare units,9 it is clear from the Stipulated Settlement
that GVI was not entitled to possession of them. Thus, neither the
SBA Receiver nor the district court erred in concluding that, based
on the Stipulated Settlement, GVI's possessory claim to the unsold
timeshare units should be denied.
D. GVI's Monetary Claim
GVI also brought a monetary claim against the Fairway
receivership estate in the amount of $1,450,760. The district
court granted $430,421.84 of the claim, denying the remainder. GVI
argues that at a minimum, it was entitled to $489,552.09. This
9
In this respect, HOTC also submitted a monetary, but not a
possessory, claim to the Receiver. Whether HOTC or the
receivership estate would prevail in a possessory claim is beyond
the scope of this opinion.
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discrepancy appears to be the result of a disagreement as to when
PSC stopped managing the resort and HOTC took over. GVI claims
that PSC stopped managing the resort on May 31, 1998, and thus it
is entitled to rent until this date. The district court, relying
on the findings of fact in Hotel on the Cay Time-Sharing Assoc. v.
Kilberg, 2000 WL 34019282 (D.R.I. 2000), found that PSC stopped
managing the resort on May 31, 1997. GVI seems to suggest that
some of the findings of fact in that case were erroneous. However,
GVI does not point to any evidence that it submitted which would
suggest that Kilberg got the date wrong, or that its date is the
correct date. Simply put, GVI cannot show, based on the record,
what was wrong with the district court's disposition of its
monetary claim. Accordingly, we detect no error.
III. Conclusion
For the reasons stated herein, we affirm the judgment of
the district court.
Affirmed.
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