Great Bay Condo. Owners Ass'n, Inc. v. Gov't of the Virgin Islands & Marvin L. Pickering

• Decision Date: 28 September 2018
• Docket Number: Civil No. 2017-33
• Parties: GREAT BAY CONDOMINIUM OWNERS ASSOCIATION, INC; TIMOTHY O'BRIEN; and KEITH CHEATHAM, Plaintiffs, v. GOVERNMENT OF THE VIRGIN ISLANDS and MARVIN L. PICKERING, DIRECTOR OF THE BUREAU OF INTERNAL REVENUE, in his official capacity Defendants.
• Court: U.S. District Court — Virgin Islands

GREAT BAY CONDOMINIUM OWNERS ASSOCIATION, INC;TIMOTHY O'BRIEN; and KEITH CHEATHAM, Plaintiffs, v. GOVERNMENT OF THE VIRGIN ISLANDS and MARVIN L. PICKERING, DIRECTOR OF THE BUREAUOF INTERNAL REVENUE, in his official capacity Defendants.

Civil No. 2017-33

DISTRICT COURT OF THE VIRGIN ISLANDS DIVISION OF ST. THOMAS AND ST. JOHN

September 28, 2018

ATTORNEYS:

Mark Wilczynski

Law Office of Wilczynski & Garten, P.C.

St. Thomas, V.I.

For the plaintiffs.

Claude E. Walker, Attorney General

Carol Thomas-Jacobs, Assistant Attorney General

Virgin Islands Department of Justice

St. Thomas, V.I.

For the defendants.

MEMORANDUM OPINION

GÓMEZ, J.

Before the Court is the complaint of Great Bay Condominium Owners Association, Inc.; Timothy O'Brien; and Keith Cheatham.

I. FACTUAL AND PROCEDURAL HISTORY

The Ritz-Carlton Club is a timeshare ownership program for Ritz-Carlton Club owned properties.

Great Bay Condominium Owners Association, Inc. (the "Association") is an association of owners of fractional interests in the Ritz-Carlton Club on St. Thomas. ECF No. 1, Complaint, at ¶ 1. Timothy O'Brien ("O'Brien") and Keith Cheatham ("Cheatham") (collectively with the Association ("Great Bay")) own fractional interests in the Ritz-Carlton Club on St. Thomas. Id. at ¶¶ 2-3.

Prior to March 8, 2008, all real property in the territory was taxed at a uniform rate. See id. at ¶ 20. On March 8, 2008, the Virgin Legislature enacted a new tax schedule. Id. That tax schedule (the "Disparate Tax Schedule") currently provides for different mill rates¹ for different types of real property: .004946 for unimproved non-commercial real property; .003770 for residential real property; .007110 for commercial real property; and .014070 for timeshare real property. Id.

On March 22, 2017, the Governor of the U.S. Virgin Islands, Kenneth Mapp, signed a law establishing the "Environmental/Infrastructure Impact Fee for Timeshares" (the "timeshare fee"). Id. at ¶ 9. That law imposes a $25 per day occupancy fee on timeshare occupants in the Virgin Islands. ECFNo. 1, Complaint, at ¶ 9; 33 V.I.C. § 54(b)(3)(A). A timeshare plan is a form of property ownership that allows owners of interests in the plan to share rights to use the timeshare plan property, where typically each owner is allotted their own period of time for use. The timeshare plan manager is responsible for collecting the timeshare fee, filing tax returns, and paying the timeshare fee to the Virgin Islands Bureau of Internal Revenue. ECF No. 1, Complaint, at ¶ 9; 33 V.I.C. § 54(b)(3)(B). The timeshare association is responsible for any and all assessments and liens. ECF No. 1, Complaint, at ¶ 9; 33 V.I.C. § 54(b)(3)(B).

The law establishing the timeshare fee allocates 15% of the revenues from the timeshare fee to the V.I. Tourism Revolving Fund "for the express purpose of partnering with the timeshare industry to promote timeshare or vacation club sales in the Virgin Islands." ECF No.1, Complaint, at ¶ 10; see also 33 V.I.C. § 54(b)(3)(D)(i). The remaining 85% of the revenues will be allocated to the General Fund or for other purposes unrelated to timeshares. See ECF No. 1, Complaint, at ¶¶ 11-12; 33 V.I.C. § 54(b)(3)(D)(ii)-(iv).

The Virgin Islands Bureau of Economic Research is required to "conduct a study on the impact of timeshare activities and components in the Virgin Islands within two years of implementation" of the timeshare fee. ECF No. 1, Complaint, at ¶ 12 (internal citations omitted); 33 V.I.C. § 54(b)(3)(F).

On May 3, 2017, Great Bay filed a seven-count complaint in this Court naming the Government of the Virgin Islands and the Director of the Bureau of Internal Revenue, in his official capacity (collectively, the "Virgin Islands" or "the Government"), as defendants. Count One alleges that the timeshare fee and Disparate Tax Schedule violate the Equal Protection Clause. Count Two alleges that the timeshare fee and Disparate Tax Schedule violate the Privileges and Immunities Clause. Count Three alleges that the timeshare fee and Disparate Tax Schedule violate the Commerce Clause. Count Four alleges that the timeshare fee's collection provisions violate the due process rights of the Association. Count Five alleges that the timeshare fee will reduce the value of timeshare property and, as such, constitutes a Fifth Amendment taking. Count Six alleges a taxpayer claim under local law, seeking to enjoin allegedly illegal acts.² Count Seven seeks a declaration as to the rights of the parties.

In sum, Great Bay seeks injunctive relief enjoining the defendants from enforcing the timeshare fee and from taxingtimeshare owners at a higher rate. Great Bay also seeks a declaration that the timeshare fee and Disparate Tax Schedule violate the United States Constitution. Finally, Great Bay seeks damages and compensation for the alleged taking.

On June 22, 2017, the Virgin Islands filed a motion to dismiss the complaint for lack of subject-matter jurisdiction and for failure to state a claim ("the jurisdictional motion"). At a hearing on the jurisdictional motion, Great Bay acknowledged that it had the burden to establish jurisdiction. It also acknowledged its need to undertake discovery efforts to be fully prepared to address the jurisdictional issues raised in the Government's motion to dismiss. On March 22, 2018, the Court denied the jurisdictional motion without prejudice and ordered further briefing on the jurisdictional issues raised by this action. The parties thereafter engaged in extensive discovery. The parties have since submitted their briefs. As such, the jurisdictional issues raised in the jurisdictional motion to dismiss are now ripe for consideration.

II. DISCUSSION

A party may bring either a facial or a factual challenge to the Court's subject-matter jurisdiction pursuant to Rule 12(b)(1). Gould Electronics, Inc. v. United States, 220 F.3d 169, 178 (3d Cir.2000). In considering a facial challenge under Rule 12(b)(1), all material allegations in the Complaint are taken as true. See Taliaferro v. Darby Twp. Zoning Bd., 458 F.3d 181, 188 (3d Cir.2006) (summarizing the standard for facial attacks under Rule 12(b)(1) as "whether the allegations on the face of the complaint, taken as true, allege facts sufficient to invoke the jurisdiction of the district court"); Mortensen, 549 F.2d at 891 (explaining that, in ruling upon a facial attack under Rule 12(b)(1), "the court must consider the allegations of the complaint as true"). Indeed, the "standard is the same when considering a facial attack under Rule 12(b)(1) or a motion to dismiss for failure to state a claim under Rule 12(b)(6)." Petruska v. Gannon Univ., 462 F.3d 294, 299 (3d Cir.2006).

"[A] factual challenge[ ] attacks the factual allegations underlying the complaint's assertion of jurisdiction, either through the filing of an answer or 'otherwise presenting competing facts.'" Davis v. Wells Fargo, 824 F.3d 333, 346 (3d Cir. 2016) (original alterations omitted) (quoting Constitution Party of Pa. v. Aichele, 757 F.3d 347, 358 (3d Cir. 2014)); see also Berardi v. Swanson Mem'l Lodge No. 48 of the Fraternal Order of Police, 920 F.2d 198, 200 (3d Cir. 1990) (holding that the factual basis for jurisdictional allegations in a complaint could be disputed before an answer was served). Where a motion to dismiss factually challenges the district court's jurisdiction, the court is not confined to the allegations in the complaint, but can consider other evidence, such as affidavits, depositions, and testimony, to resolve factual issues related to jurisdiction. See Mortensen v. First Fed. Sav. and Loan Ass'n, 549 F.2d 884, 891 (3d Cir. 1977) (stating that because at issue is the very power of the trial court to hear the case, a court is free to weigh evidence beyond the allegations in the complaint). Furthermore, "no presumptive truthfulness attaches to plaintiff's allegations" and "the plaintiff will have the burden of proof that jurisdiction does in fact exist." Id.

III. ANALYSIS

The Virgin Islands argues that the Tax Injunction Act ("TIA") bars the Court from exercising jurisdiction over this matter. The TIA provides that "[t]he 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." 28 U.S.C. § 1341.

By its explicit terms, the TIA bars injunctive relief. The Supreme Court has held that the TIA extends to declaratory relief. See California v. Grace Brethren Church, 457 U.S. 393, 408-11, 102 S. Ct. 2498, 2508-09, 73 L. Ed. 2d 93 (1982). The Supreme Court has not addressed whether the TIA bars the recovery of damages.

The Supreme Court has also held that when a plaintiff challenges a tax, principles of comity (the "tax comity doctrine") prevent district courts from granting injunctive or declaratory relief or awarding damages when the state provides remedies that are "plain, adequate, and complete." Fair Assessment in Real Estate Ass'n, Inc. v. McNary, 454 U.S. 100, 116, 102 S. Ct. 177, 186, 70 L. Ed. 2d 271 (1981) (damages); Great Lakes Dredge & Dock Co. v. Huffman, 319 U.S. 293, 297-302, 63 S. Ct. 1070, 1072-74, 87 L. Ed. 1407 (1943) (declaratory relief); Matthews v. Rodgers, 284 U.S. 521, 525-26, 52 S. Ct. 217, 219-20, 76 L. Ed. 447 (1932) (injunctive relief).

There is no significant difference between whether a remedy is plain, adequate, and complete and whether a remedy is plain, speedy, and efficient.³ See Fair Assessment in Real Estate Ass'n,Inc., 454 U.S. at 137 ("We discern no significant difference, for purposes of the principles recognized in this case, between remedies which are "plain, adequate, and complete," as that phrase has been used in articulating the doctrine of equitable restraint, and those which are "plain, speedy and efficient," within the meaning of § 1341."); see also Rosewell v. LaSalle Nat. Bank, 450 U.S. 503, 525 & n.33, 101 S. Ct. 1221, 1235, 67 L. Ed. 2d 464 (1981) (holding that not...