St. Croix Hotel Corp. v. Government of the Virgin Islands

• Citation: 867 F.2d 169
• Decision Date: 02 February 1989
• Docket Number: No. 88-3433,88-3433
• Parties: ST. CROIX HOTEL CORPORATION, Appellant, v. GOVERNMENT OF THE VIRGIN ISLANDS.
• Court: United States Courts of Appeals. United States Court of Appeals (3rd Circuit)

Page 169

867 F.2d 169

ST. CROIX HOTEL CORPORATION, Appellant, v. GOVERNMENT OF THE VIRGIN ISLANDS.

No. 88-3433.

United States Court of Appeals, Third Circuit.

Argued Dec. 9, 1988.

Decided Feb. 2, 1989.

Joel H. Holt, (argued), Christiansted, St. Croix U.S.A. V.I., for appellant.

Godfrey R. de Castro, Atty. Gen., Rosalie Simmonds Ballentine, Sol. Gen., Joanne E. Bozzuto, (argued), Asst. Atty. Gen., Susan Frederick Rhodes, Asst. Atty. Gen., Dept. of Justice, St. Thomas, U.S.A. V.I., for appellee.

Before GREENBERG, SCIRICA and WEIS, Circuit Judges.

OPINION OF THE COURT

WEIS, Circuit Judge.

In this declaratory judgment action, the district court ruled that pre-petition property taxes assessed against plaintiff had been discharged in bankruptcy, but that post-petition taxes were administrative expenses that must be paid. We reject the plaintiff's arguments that a holding of that nature is reserved to the bankruptcy judge and was contrary to the terms of a settlement agreement with another governmental agency. Accordingly, we will affirm.

Plaintiff St. Croix Hotel Corporation operates the St. Croix-by-the-Sea resort complex in the Virgin Islands. In April 1981, plaintiff filed for reorganization under chapter 11. Among the creditors who filed proofs of claim were the Bureau of Internal Revenue and the Department of Finance of the Virgin Islands. Each agency filed separate claims--the Bureau of Internal Revenue for unpaid payroll taxes, hotel taxes, and gross receipts taxes; the Department of Finance for real estate taxes.

In August 1983 the bankruptcy judge approved the plaintiff's proposed reorganization plan. Paragraph 6(b) of the plan provided that the amounts "due the Government of the Virgin Islands will be paid by way of the transfer of certain [described] real property.... This transfer is proposed to be in lieu of payment of all debts, including priority claims and unsecured debts, owed the Government of the Virgin Islands." Transfer of the enumerated tracts was made in due course.

Because of pending litigation, the bankruptcy was not terminated immediately. Two years after the plan was confirmed and following a hearing on May 3, 1985, the bankruptcy judge signed the order of dismissal that included the statement: "The Court finds that the Debtor-in-Possession, St. Croix Hotel Corporation, has fully complied with the provisions of the reorganization plan and has satisfied all claims filed in this Court by various creditors as well as paid all administrative expenses pursuant to the reorganization plan."

The bankruptcy judge ordered that "all recorded liens, including tax liens, of any type whatsoever recorded against the assets of St. Croix Hotel Corporation shall be and hereby are deemed to be discharged as having been paid in full and said liens are no longer valid as of the date of this order so that the assets of St. Croix Hotel Corporation are free and clear of all claims." No appeal was taken from the order.

Some six months later, in November 1985, the Bureau of Internal Revenue, represented by the Office of the Attorney General, moved to reopen the proceedings, asserting that various withholding taxes remained unpaid. The bankruptcy judge denied the petition to reopen on the ground of laches, denying all pre-petition claims and sharply criticizing the government for its lengthy inattention to the case. The judge, however, ordered the payment of post-petition taxes, pursuant to the confirmed plan, to "the Bureau of Internal Revenue as and for administrative claims" in the sum of $127,219.48.

Both parties appealed to the district court which affirmed on April 18, 1986. 60 B.R. 412 (D.V.I.1986). Plaintiff and the Attorney General then agreed to settle the dispute for a lump sum payment of $203,000. They exchanged several drafts memorializing the compromise before they signed the agreement in May 1986. The final draft listed the parties as "St. Croix Hotel Corporation (hereinafter referred to as St. C.) and the Bureau of Internal Revenue, Government of the Virgin Islands (hereinafter referred to as Government)." Paragraph 3 of the agreement recited that the payment covered "all pre-petition and post-petition taxes due the Government" and also included "additional consideration which the Government agrees to accept in lieu of pursuing any pre-petition taxes which the Government insist (sic) may still be owed personally as trust funds by officers of St. C."

In August 1986 at the instance of the Department of Finance, the Attorney General's Office notified the bankruptcy judge that certain real estate taxes owed by plaintiff, including those classified as administrative claims, had not been paid. The letter inquired whether the judge was aware that, as of the time the dismissal order was entered, these property taxes were unpaid notwithstanding the plaintiff's representations to the contrary. In light of this delinquency, the government wrote that it thought it "prudent and proper to seek your counsel in this matter before taking further action."

The letter prompted an exchange of correspondence between the plaintiff's counsel and the Attorney General's Office, but no formal action by the bankruptcy judge took place. At about this time, the congressional authorization for a separate bankruptcy judge in the Virgin Islands lapsed and the district judges assumed the additional bankruptcy duties.

When negotiations proved unsuccessful to remove certain real estate tax liens the Department of Finance had imposed, plaintiff filed the present action for declaratory judgment and slander of title. The complaint stated, inter alia, that the May 1986 settlement agreement extinguished the plaintiff's liability to the Department for property taxes. The Finance Department denied this allegation and petitioned for a declaration that the plaintiff's property tax liabilities for the years 1977 through 1985 be approved.

The district court granted the agency a partial declaratory judgment on January 22, 1988, holding that the Bureau of Internal Revenue lacked authority to bind the Commissioner of Finance to the May 1986 compromise agreement. The real estate tax claims, consequently, were unaffected by the settlement. The court then ordered each party to submit its calculation of the property taxes, if any, still outstanding.

In response, plaintiff challenged the district court's jurisdiction to determine what amounts were owing. Plaintiff argued that an assessment of that liability could not be made absent a reopening of the bankruptcy judge's dismissal order that had declared all claims satisfied.

In rebuffing the plaintiff's position, the district court ruled that the Department of Finance had not attempted to reopen the bankruptcy, but instead had sought only an interpretation of the terms of the settlement agreement. "Our function thus is merely to interpret the discharge in bankruptcy. We fail to see a lack of subject matter jurisdiction."

Relying on the previous ruling in the Bureau of Internal Revenue case, the court declared that the Department of Finance's claim for pre-petition real estate taxes had been discharged, but post-petition taxes--administrative expenses--were due. Plaintiff appealed, ¹ but the government did not cross-appeal.

On appeal, plaintiff renews its contention that the May 1986 settlement agreement applied to both the real estate taxes claimed by the Department of Finance as well as those taxes demanded by the Bureau of Internal Revenue. In addition, plaintiff asserts that the district court had no jurisdiction to adjudicate the validity of tax liens that accrued during the period of the bankruptcy. The two contentions raise discrete issues that we will address in turn.

I.

The May 1986 settlement agreement recited that it was to bind the Bureau of Internal Revenue and plaintiff. The document states that the payment made by plaintiff to resolve the dispute "covers all pre-petition and post-petition taxes due the Government arising out of the Bankruptcy proceedings." The term "Government," however, is explained in the first paragraph as meaning the Bureau of Internal Revenue. This definition replaced language in an earlier draft that had listed "the Government of the Virgin Islands" as one of the two parties. On execution, the agreement was signed, "Government of the Virgin Islands, by Anthony Olive, Bureau of Internal Revenue; Victor Schneider, Esquire, First Assistant Attorney General."

The district court stated as a conclusion of law that the Director of the Bureau of Internal Revenue has no authority over property taxes. See V.I.Code Ann. tit. 33, Secs. 2301-2584. Therefore, ruled the court, the Commissioner of Finance, entrusted with the duty of collecting real estate levies, see id. Sec. 2492, was legally bound by neither the settlement agreement nor the results of the earlier lawsuit brought by the Bureau of Internal Revenue.

In its reply brief in this Court, plaintiff concedes that "the Director of the Bureau of Internal Revenue could not compromise the taxes owed to the Department of Finance." But, says plaintiff, both agencies were represented by the Virgin Islands Attorney General, and one of the Assistant Attorneys General signed the agreement.

Although the Attorney General's Office represented both agencies at various times, the May 26 settlement agreement is specific in limiting its applicability to the Bureau of Internal Revenue. Plaintiff produced no evidence that, at the time the agreement was negotiated and executed, the Assistant Attorney General in charge of the case purported to...