Berne Corp. v. Government of Virgin Islands

262 F.Supp.2d 540

BERNE CORP. and B & B Corp., Twenty-one Queens Quarter, Inc., Miller Properties, Inc., Equivest St. Thomas, Inc., Robert Schmidt, Kim Holdsworth, Robert Schmidt Development Corp., and Dori P. Derr, The Cyril V. Francois Associates, LLC, Shell Seekers, Inc., Charles W. Consolvo, Linda B. Consolvo, Snegle Gade Associates LP, Charles W. Consolvo as Trustee of the Yvette B. Lederberg Trust, Arthur B. Choate, Stewart Loveland, and Stacy Loveland, Elisabeth Sharp, Lindon Corp., Gordon L. Coffelt, Soraya Diase Coffelt, and One Stop, Inc., Plaintiffs, v. GOVERNMENT OF THE VIRGIN ILANDS, Roy Martin, in his official capacity as Tax Assessor, and the Board of Tax Review, Defendants.

No. CIV.2000-141.

No. CIV.2000-167.

No. CIV. 2001-151.

No. CIV.2001-155.

No. CIV.2001-181.

No. CIV.2001-196.

No. CIV.2001-197.

No. CIV.2001-228,

No. CIV.2002-057.

District Court, Virgin Islands, D. St. Thomas and St. John.

May 12, 2003.

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James M. Derr, St. Thomas, VI, for plaintiffs Berne Corp. and B & B Corp., Miller Properties, Schmidt et al.

David A. Bornn, Rochelle Bermudez, St. Thomas, VI, for plaintiffs Twenty-one Queens Quarter, Inc, Cyril V. Francois Associates.

Chad C. Messier, William S. McConnell, St. Thomas, VI, for plaintiff Equivest St. Thomas, Inc.

David E. Nichols, St. Thomas, VI, for plaintiffs Shell Seekers.

Soraya Diase-Coffelt, St. Thomas, VI, for plaintiffs Lindon Corp. et al.

Kerry E. Drue, AAG, Wayne G. Anderson, AAG, Carol Thomas-Jacobs, AAG, St. Thomas, Michael McLaurin, AAG, St. Croix, VI, for the defendants.

PROPERTY TAX LITIGATION CONSOLIDATED TRIAL ON ON COMMON ISSUES

MEMORANDUM

MOORE, District Judge.

I. SYNOPSIS

Although the Virgin Islands is a nonself-governing territory of the United States, one of the areas of autonomy Congress has granted these Islands is the taxation of real property. All Congress requires is that the Territory design and implement a real property tax system based on the property's actual value. Unfortunately, the statutory framework for taxing real estate enacted by the Virgin Islands Legislature and the administration of this system by the Virgin Islands Tax Assessor and Board of Tax Review violates that federal mandate. The present Governor, his Attorney General, and the Tax Assessor, have known they are violating federal law since the Fall of 2000 when I granted the first plaintiffs' motion for a preliminary injunction. The Attorney General acknowledged as much in settling that case and agreeing to overhaul the process to insure that within two years all property would be assessed at its actual value. For whatever reason, the Governor decided to bypass that agreement and to relitigate the issue in these later-filed cases. Not only has the Attorney General thereafter been defending the indefensible in this Court, but also, during the very trial of these common issues, he mislead the Legislature into passing an amendment that obstructs the processes of this Court and perpetuates the illegal collection of property taxes without allowing for retroactive credits once the system complies with federal law.

In addition to the Executive Branch, the Legislature has also miserably failed the people of the Virgin Islands by not living up to its responsibility to determine how much revenue property taxes should contribute to the overall budget of the Virgin Islands Government. The best evidence of this shirking of legislative responsibility is the Legislature's failure to change the tax rate of 1.25 percent since it was set by Congress in 1936—almost seventy years ago. This failure to adjust the property tax rate to accommodate changes in the Government's budget puts undue and unnecessary pressure on the Tax Assessor's levels of assessment, which I believe has affected the integrity of the property tax system and has contributed to its failure to provide reliable and credible assessments. The Legislature has further contributed to the illegality of the property tax system by enacting provisions over the years that prevent the Tax Assessor from appraising commercial and residential property at actual value.

I accordingly will enter a decree enjoining the Tax Assessor from appraising and assessing any real property in the Virgin Islands until he has upgraded the system of appraisal and assessment to comply with federal law by assessing each property on its actual value. I will also enjoin the Government of the Virgin Islands from requiring payment of real property tax bills for the 1999 tax year and later years until the Tax Assessor is capable of reliably and credibly appraising and assessing all real property at its actual value and the Board of Tax Review consistently holds timely hearings and reaches timely decisions on all property tax appeals and the Department of Finance consistently remits any refunds resulting from Board's decision within the time prescribed by law.

II. INTRODUCTION

With the very first lawsuit of this consolidated civil rights litigation against the Government of the Virgin Islands and its Tax Assessor, it became clear that the system for assessing and taxing real property in the Virgin Islands is broken and does not implement the federal statutory requirement that all real property must be assessed at its actual value. The Government explicitly recognized this in its settlement of the Berne Case in December of 2000 by agreeing to bring the Tax Assessor's assessment procedures and processes into compliance with the uniform national appraisal standards, and to appoint an independent special master to review for compliance.

Unfortunately, but all too typically, rather than committing the necessary resources to fix its failed property tax system, the Government chose to ignore the Berne Settlement and relitigate the same issues in these other cases, elected to challenge this Court's federal question jurisdiction, failed to negotiate or conduct discovery in good faith, and, ultimately, decided to defend the indefensible at trial. The Government has lost on all counts: the Court of Appeals for the Third Circuit upheld this Court's jurisdiction and this Court is about to enjoin permanently the collection of property tax bills based on assessments made in violation of federal law, beginning with tax year 1999. But it is the people of the Virgin Islands who have truly lost by the Turnbull Administration's conduct of this litigation, for the real property assessment system still does not fairly or equitably tax their real property at its actual, fair market value.

On February 6, 2003, while this litigation was in progress and during the trial of the common facts and issues, the Governor of the Virgin Islands, Charles W. Turnbull, on the advice of his Attorney General, Iver Stridiron, sent to the Legislature and prompted those solons to enact a law that directly contradicts pre-existing orders of this Court and thus seriously obstructs the processes of this Court. In the face of this Court's valid and still binding ruling in Berne that the 1999 commercial property tax bills are based on an assessment process that violates federal law, the Attorney General misled Governor Turnbull into making certain representations in a letter dated February 2, 2003, to the President of the Legislature, Senator David Jones. The Governor wrote that

[t]he Attorney General has stated, however, that it is his opinion that if the law is changed, there would be no violation of the current Settlement Agreement. It is his opinion that the Government would still be able to continue with the process of sending out corrected commercial real property tax bills until such time as new appraisal guidelines are implemented. (Letter from Governor Charles W. Turnbull to Senator David S. Jones of Feb. 5, 2003, at 2.) The Legislature later enacted, and the Governor signed into law, a provision that would use these illegal commercial property assessments for 1999 as "the basis of computing commercial property taxes for the tax years 2001, 2002, 2003, and 2004." Act of Feb. 27, 2003, No. 6574 (amending 33 V.I.C. § 2402(b)). Attorney General Stridiron did not even attempt to save the validity of the Act by recommending that it allow for credits to those commercial property taxpayers whose 1999 bills turn out to be excessive once their properties are reappraised and assessed at their actual values by a fair and equitable system. The net result of the amendment is that the Turnbull Administration and the Legislature would require Virgin Islands commercial property owners to pay four more years of property taxes that have been assessed in violation of federal law.

III. GENERAL BACKGROUND

This is not the first time that special interests and the recalcitrance of local Virgin Islands officials have required federal intervention to correct the Territory's system for assessing and collecting real property taxes. The first time was almost seventy years ago, while drafts of the 1936 Organic Act were pending. The Congress of the United States exercised its legislative authority over this unincorporated territory to address an urgent problem with the assessment of real property taxes that "had been the target of criticism by all competent observers since the Virgin Islands came under the American flag" in 1917. (Ex. J-l, Letter of Harold Ickes, Secretary of Interior Apr. 23, 1935.) According to the committee of local government officials appointed by the Governor, "there is little probability that an equitable assessed valuation property tax could be got through the local" municipal councils because they were "largely made up of large property owners." For this reason it was necessary for the Congress to act, while at the same time giving the local municipal legislatures as much latitude as possible by making the "Federal tax operative only in the absence of local legislation conforming to the Federal requirements." The rate of 1.25 percent...