Reefco Servs., Inc. v. Gov't of the Virgin Islands & Virgin Islands Bureau of Internal Revenue
| Decision Date | 26 November 2018 |
| Docket Number | Civil No. 2014-110 |
| Parties | REEFCO SERVICES, INC., Plaintiff, v. GOVERNMENT OF THE VIRGIN ISLANDS and VIRGIN ISLANDS BUREAU OF INTERNAL REVENUE, Defendants. |
| Court | U.S. District Court — Virgin Islands |
ATTORNEYS:
Alexander Golubitsky, Esq.
St. Thomas, U.S.V.I.
For the Reefco Services, Inc.,
Marjorie Rawls Roberts, P.C.
St. Thomas, U.S.V.I.
For the Reefco Services, Inc.,
Claude Walker, AG
Carol Thomas-Jacobs, AAG
V.I. Department of Justice
St. Thomas, U.S.V.I.
For the Government of the Virgin Islands and the Virgin Islands Bureau of Internal Revenue.
Before the Court is the motion of the Government of the Virgin Islands and the Virgin Islands Bureau of Internal Revenue to stay judgment pending appeal. On November 15, 2018, the Court entered an order denying that motion and ordering further relief. This Memorandum Opinion more fully outlines the reasons for that order.
Reefco Services, Inc. ("Reefco") is a corporation organized in the United States Virgin Islands. Reefco is engaged in the marine refrigeration business. Reefco installs and provides repair services for refrigeration units, air conditioning units, ice markers, and water makers on boats. The Virgin Islands Bureau of Internal Revenue ("VIBIR") is the agency of the Government of the Virgin Islands responsible for administering local tax laws.
Under Virgin Islands law--specifically, 33 V.I.C. § 42 ("Section 42")--certain items shipped into the United States Virgin Islands are subject to an excise tax, which is collected by the VIBIR. Among other things, "boats, boat engines, and boat parts" are exempt from excise taxes. See Act No. 4740, 1982 V.I. Sess. Laws 135-36, Act No. 6008, 1994 V.I. Sess. Laws 161. On a number of occasions dating back to 2011, Reefco paid excise taxes on various items it imported into the United States Virgin Islands to be installed on boats. Reefco contends that these items are boat parts and not subject to an excise tax. Reefco also contends that the excise tax violates the Commerce Clause.
On December 16, 2014, Reefco filed a complaint against the Government of the Virgin Islands and the VIBIR (collectively, the "GVI"). On March 13, 2015, Reefco filed an amended complaint (the "Amended Complaint").
The Amended Complaint asserts five counts. Count One asserts a claim for an unconstitutional taking. Count Two asserts that the excise tax violates the Commerce Clause. Count Three asserts that the excise tax violates the Import/Export Clause. Count Four asserts a claim for a refund of excise taxes paid. Count Five also asserts a claim for an unconstitutional taking.
On April 20, 2015, the GVI moved to dismiss the Amended Complaint. The Court granted GVI's motion to dismiss in part and denied it in part. The Court granted the motion with respect to Counts Two and Three. The Court also granted the motion with respect to Counts One and Five insofar as those counts raised Due Process claims. The Court denied the motion to dismiss with respect to Count Four. The Court also denied the motion with respect to Counts One and Five insofar as those counts asserted violations of the Takings Clause.
On April 12, 2017, the parties appeared before the Magistrate Judge for a telephone conference. At that conference, the parties agreed to submit the remaining issues for a decision on the papers. On May 2, 2017, the Magistrate Judge entered an order vacating the trial setting in this matter.
On September 28, 2018, the Court entered Judgment in this matter. First, the Court reconsidered its previously entered order dismissing Count Two of the Amended Complaint--Reefco's claim that the excise tax violates the Commerce Clause--and vacated that order insofar as it dismissed Count Two. Next, the Court held that Congress had not authorized the Government of the Virgin Islands to enact legislation that discriminated against interstate commerce.
Analyzing the excise tax under the dormant Commerce Clause, the Court observed that, prior to 1984, Section 42 only provided for the payment of excise taxes on items being imported into the Virgin Islands. In 1984, the Government of the Virgin Islands amended Section 42 to require the payment of excise taxes on "all articles, goods, merchandise and commodities manufactured in or brought into the Virgin Islands." 33 V.I.C. § 42(a). Significantly, however, there were no procedural mechanisms in place to collect excise taxes on items manufactured in the Virgin Islands. Moreover, it appeared from the record that the agency responsible for collecting excise taxes, the VIBIR, was unaware that Section 42 applied to locally manufactured goods.
Accordingly, the Court held that Section 42--as interpreted and enforced by the VIBIR--violates the Commerce Clause. The Court entered Judgment in favor of Reefco on Count Two and Count Four of the Amended Complaint. In relevant part, the Judgment read:
On October 12, 2018, the GVI filed a notice of appeal. On October 19, 2018, the GVI moved to stay execution of the September 28, 2018, judgment pending appeal.
On November 8, 2018, the Court held a hearing on the GVI's motion to stay. At the hearing, the GVI asserted that, on average, it collected over $20 million dollars in excise taxes a year, and as such, the excise tax was an important source of revenue for the Government of the Virgin Islands. The GVI also asserted that developing and implementing a procedure for the collection of excise taxes on locally manufactured items was a difficult endeavor that would take a great deal of time. The GVI argued that, without a stay of the Court's judgment, it would suffer irreparable harm because it would be unable to collect excise taxes.
Reefco asserted that the VIBIR had not stopped collecting excise taxes, and that as recently as October 31, 2018, items that Reefco imported had been assessed an excise tax. Subsequently, the GVI admitted it was continuing to collect excise taxes in the manner the Court's Judgment found to be unconstitutional.
At the conclusion of the November 8, 2018, hearing, the Court directed the parties to brief several issues and scheduled an evidentiary hearing on the GVI's motion to stay. On November 15, 2018 the Court held an evidentiary hearing on the GVI's motion to stay. At that hearing, the GVI called Glenford Hodge ("Hodge"), the Supervisor of Excise Tax at the VIBIR, as a witness. Hodge testified that the VIBIR was continuing to collect excise taxes on goods brought into the Virgin Islands.
Specifically, the Court had the following colloquy with Hodge:
Hr'g Test. of Glenford Hodge at 11:42 P.M. on November 15, 2018.
Hodge also testified that the VIBIR was currently developing procedures for the collection of excise taxes on goods manufactured in the Virgin Islands. While, as of November 15, 2018, the VIBIR was not prepared to collect excise taxes on locally manufactured goods, Hodge anticipated that a system to do so would be in place by December 1, 2018.
At the conclusion of the November 15, 2018, hearing, the Court ruled from the bench and subsequently issued a written order (1) denying GVI's motion to stay; (2) enjoining the GVI "from collecting excise taxes in a manner that violates Commerce Clause principles"; and (3) directing the GVI to "advise the Court if and when it is prepared to collect excise in a manner consistent with the Court's September 28, 2018, Judgment and Memorandum Opinion." ECF No. 93 at 2. This Memorandum Opinion more fully outlines the reasons for that order.
Federal Rule of Appellate Procedure 8 provides that litigants "must ordinarily move first in the district court for . . . a stay of the judgment or order of a district court pending appeal." Fed. R. App. P. 8(a)(1)(A). Federal Rule of Civil Procedure 62 ("Rule 62") outlines the procedures for obtaining a "[s]tay of [p]roceedings to [e]nforce a [j]udgment." See Fed. R. Civ. P. 62. Rule 62(c) provides a mechanism for seeking a stay of a "judgment that grants, dissolves, or denies an injunction":
While an appeal is pending from an interlocutory order or final judgment that grants, dissolves, or denies an injunction, the court may suspend, modify, restore, or grant an injunction on terms for bond or other terms that secure the opposing party's rights.
Fed. R. Civ. P. 62(c). Rule 62(d) provides a mechanism for obtaining a stay with bond:
If an appeal is taken, the appellant may obtain a stay by supersedeas bond, except in an action described in Rule 62(a)(1) or (2). The bond may be given upon or after filing the notice of appeal or after obtaining the order allowing the appeal. The stay takes effect when the court approves the bond.
As an initial matter, the GVI does not specify what subsection of Rule 62 it brings its motion for a stay under. The Judgment against the GVI consisted of two forms of relief to Reefco: (1) a declaratory judgment declaring that the enforcement of Section 42 violated the Commerce Clause; and (2) a money judgment ordering the VIBIR to refund to Reefco the excise taxes Reefco paid. At the...
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