In re Excise Tax Litig.

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IN RE EXCISE TAX LITIGATION

PSMT, LLC, Plaintiff, v. THE GOVERNMENT OF THE VIRGIN ISLANDS, THE VIRGIN ISLANDS BUREAU OF INTERNAL REVENUE, and JOEL A. LEE in his capacity as DIRECTOR OF INTERNAL REVENUE, Defendant.

APEX CONSTRUCTION COMPANY, INC., Plaintiff, v. THE UNITED STATES VIRGIN ISLANDS, Defendant.

BLUEWATER CONSTRUCTION, INC., Plaintiff, v. THE UNITED STATES VIRGIN ISLANDS, Defendant.

MSI BUILDING SUPPLIES, INC., Plaintiff, v. THE UNITED STATES VIRGIN ISLANDS, Defendant.

UNITED CORPORATION Plaintiff, v. THE UNITED STATES VIRGIN ISLANDS, Defendant.

IMPEX TRADING INTERNATIONAL, INC., Plaintiff, v. THE UNITED STATES VIRGIN ISLANDS, Defendant.

B&B MANUFACTURING, INC., Plaintiff, v. THE UNITED STATES VIRGIN ISLANDS, Defendant.

Nos. 3:19-cv-0118, 3:21-cv-0039, 3:21-cv-0040, 3:21-cv-0041, 3:21-cv-0043, 3:21-cv-0044, 3:21-cv-0052

United States District Court, D. Virgin Islands, St. Thomas and St. John Division

January 18, 2024

TAYLOR W. STRICKLING, ESQ. MARJORIE RAWLS ROBERTS, P.C. ST. THOMAS U.S. VIRGIN ISLANDS FOR PLAINTIFF PSMT, LLC

MICHAEL L. SHEESLEY, ESQ. MLSPC ST. THOMAS, U.S. VIRGIN ISLANDS FOR PLAINTIFFS APEX CONSTRUCTION COMPANY, INC. BLUEWATER CONSTRUCTION, INC., MSIBUILDING SUPPLIES, INC. UNITED CORPORATION, IMPEX TRADING INTERNATIONAL, INC., AND B&BMANUFACTURING, INC.,

JOSEPH A. DIRUZZO, ESQ. DIRUZZO & COMPANY FT. LAUDERDALE, FLORIDA FOR PLAINTIFFS APEX CONSTRUCTION COMPANY, INC., BLUEWATER CONSTRUCTION, INC., MSIBUILDING SUPPLIES, INC., UNITED CORPORATION, IMPEX TRADING INTERNATIONAL, INC., AND B&BMANUFACTURING, INC.,

ARIEL M. SMITH-FRANCOIS, ESQ. CHRISTOPHER M. TIMMONS, ESQ. JULIE ANNE BEBERMAN, ESQ. VIRGIN ISLANDS DEPARTMENT OF JUSTICE ST. THOMAS, U.S. VIRGIN ISLANDS FOR DEFENDANTS THE GOVERNMENT OF THE VIRGIN ISLANDS, THE VIRGIN ISLANDS BUREAU OF INTERNAL REVENUE, AND JOEL A. LEE IN HIS CAPACITY AS DIRECTOR OF INTERNAL REVENUE.

MEMORANDUM OPINION

ROBERT A. MOLLOY, CHIEF JUDGE

BEFORE THE COURT is the Magistrate Judges' Report and Recommendation recommending the Court deny the Defendant Government of the Virgin Islands' (“Virgin Islands”) Motions to Dismiss.^[1] For the reasons stated below, the Court will adopt the Report and Recommendation to the extent any portions remain outstanding and deny the Virgin Islands' motions to dismiss.^[2]

I. BACKGROUND

The seven plaintiffs in the above-captioned cases, PSMT, LLC, Apex Construction Company, Inc., Bluewater Construction, Inc., MSI Building Inc., United Corporation, Impex Trading International, Inc., and B&B Manufacturing, Inc. (“Plaintiffs”) are Virgin Islands businesses who regularly import goods into the territory. Between December 22, 2019, and June 18, 2021, the Plaintiffs each filed separate complaints alleging that from 2016-2018, and in PSMT's case, up until 2019,^[3] the Government of the Virgin Islands imposed excise taxes pursuant to 33 V.I.C. § 42 on the Plaintiffs' imported goods in violation of the Commerce Clause.^[4] On July 6, 2021,^[5] the Virgin Islands filed motions to dismiss in each case pursuant to Rule 12(b)(1) and Rule 12(b)(6). See ECF No. 8.^[6] The Virgin Islands offered several bases for dismissal of the Plaintiffs' respective complaints. The Virgin Islands first argued that the Plaintiffs lacked standing because they had failed to allege a cognizable injury since the Plaintiffs had not identified the existence of a similarly situated local competitor who benefited from the Virgin Islands' decision not to tax locally produced goods. See id. at 3-6. The Virgin Islands then asserted that the Plaintiffs had not stated a claim for which relief could be granted because, without an allegation that a similarly situated local competitor exists, Plaintiffs failed to allege a necessary element of a valid dormant Commerce Clause claim-that the Plaintiffs suffered a constitutionally cognizable injury protected by the Commerce Clause. See id. at 7. As a final argument, the Virgin Islands maintained that the tax comity doctrine dictated that the Court refuse jurisdiction over these claims and dismiss the cases. See id. at 7-10.

On March 10, 2022, the Magistrate Judge issued a Report and Recommendation (“R&R”) in each case, rebuffing the Virgin Islands' arguments and recommending this Court deny the Virgin Islands' motions to dismiss. See ECF No. 48. The Virgin Islands timely filed objections to the Magistrate Judge's recommendation on March 24, 2022. (ECF No. 49.) The filing contained two main objections. The Virgin Islands first argued that the Magistrate Judge incorrectly concluded that the tax comity doctrine applies to the Virgin Islands. See Id. at 2-7. As for the second bases, it argued that the Magistrate Judge incorrectly relied on the Court's prior decision in Reefco to conclude that no allegation of a similarly situated local competitor who benefited from the tax scheme is needed in order to overcome a Rule 12(b)(6) motion. See id. at 7-8.

After reviewing the record, the Court rejected the Magistrate Judge's recommendation and granted the Virgin Islands' motions, concluding that the tax comity doctrine favored dismissing the Plaintiffs' claims. See ECF No. 52.^[7] Because the Court determined that the tax comity doctrine precluded it from exercising jurisdiction, the Court did not address the remainder of the Virgin Islands' objections to the Magistrate Judge's R&R. See id.^[8]

Following the Court's decision, the tax comity issue went up on appeal to the Third Circuit. On August 17, 2023, the Third Circuit issued a decision finding that while the tax comity doctrine applied in the Virgin Islands, it did not apply in the instant cases because the Plaintiffs were seeking a legal remedy as opposed to an equitable one. See Apex Constr. Co. v. Virgin Islands, 2023 WL 5287668, at *3 (3d Cir. Aug. 17, 2023). As a result, the Third Circuit reversed the decision and remanded the case for further disposition. See id. at 4.

Following the Third Circuit's decision, the Virgin Islands filed a motion seeking to renew objections to the R&R. ECF No. 70. Specifically, the Virgin Islands sought to renew its objection to the Magistrate Judge's recommendation that the Virgin Islands' motions to dismiss for failure to state a claim be denied. See id. The Court finds that the Defendant's objection is properly before the Court, and thus, the Court will address the objection accordingly.^[9]

II. LEGAL STANDARD

A. Rule 12(b)(6) Failure to State a Claim

A complaint may be dismissed for “failure to state a claim upon which relief can be granted.” Fed.R.Civ.P. 12(b)(6). When reviewing a motion to dismiss brought pursuant to Federal Rule of Civil Procedure 12(b)(6), the Court construes the complaint “in the light most favorable to the plaintiff.” In re Ins. Brokerage Antitrust Litig., 618 F.3d 300, 314 (3d Cir. 2010). The Court must accept as true all the factual allegations contained in the complaint and draw all reasonable inferences in favor of the plaintiff. Alston v. Parker, 363 F.3d 229, 233 (3d Cir. 2004). “In deciding a Rule 12(b)(6) motion, a court must consider only the complaint, exhibits attached to the complaint, matters of public record, as well as undisputedly authentic documents if the complainant's claims are based upon these documents.” Mayer v. Belichick, 605 F.3d 223, 230 (3d Cir. 2010) cert. denied, 562 U.S. 1271 (2011).

The Supreme Court set forth the “plausibility” standard for overcoming a motion to dismiss in Bell Atl. v. Twombly, 550 U.S. 544 (2007), and refined this approach in Ashcroft v. Iqbal, 556 U.S. 662 (2009). The plausibility standard requires the complaint to allege “enough facts to state a claim to relief that is plausible on its face.” Twombly, 550 U.S. at 570. A complaint satisfies the plausibility standard when the factual pleadings “allow[ ] the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at 678 (citing Twombly, 550 U.S. at 556). This standard requires showing “more than a sheer possibility that a defendant has acted unlawfully.” Id. A complaint that pleads facts “merely consistent with a defendant's liability... stops short of the line between possibility and plausibility of entitlement of relief.” Id. (internal quotation marks omitted) (citing Twombly, 550 U.S. at 557).

To determine the sufficiency of a complaint under the plausibility standard, the Court must take the following three steps:

First, the court must “tak[e] note of the elements a plaintiff must plead to state a claim.” Second, the court should identify allegations that, “because they are no more than conclusions, are not entitled to the assumption of truth.” Finally, “where there are well-pleaded factual allegations, a court should assume their veracity and then determine whether they plausibly give rise to an entitlement for relief.”

Santiago v. Warminster Twp., 629 F.3d 121, 130 (3d Cir. 2010) (quoting Iqbal, 556 U.S. at 674, 679).

B. Dormant Commerce Clause

The Commerce Clause of the United States Constitution “empowers Congress ‘to regulate Commerce. among the several States.”' Dep't. of Revenue of Ky. v. Davis, 553 U.S. 328, 337 (2008) (quoting U.S Const. Art. 1, § 8, cl. 3). While the Commerce Clause provides an affirmative grant of power to Congress, the provision also contains a negative implication known as the dormant Commerce Clause. See id. The dormant Commerce Clause serves as an implicit limitation on the states' authority “to interfere with or impose burdens on interstate commerce” “even in the absence of a conflicting federal statute.” Oxford Assoc. v. Waste Sys. Auth. of E. Montgomery Cnty., 271 F.3d 140, 145 (3d Cir. 2001) (quoting Tolchin v. Supreme Court of the State of Nj., 111 F.3d 1099, 1106 (3d Cir. 1997) (additional internal...