Petition — Antilles Industries, Inc. v. Government of Virgin Islands

Supreme Court brief1976

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Supreme Court, U. &

FILED

MICHAEL RODAK, JR., CLERK |

IN THE FO Se Ce Te Re

Supreme Court of the United States

Octosper TERM, 1975

No. 75-1675

ANTILLES INpDUsTRIEs, INC.

Petitioner,

GOVERNMENT OF THE ViRGIN IsLANDS; Metvin H.

Evans, Governor of the Virgin Islands ;‘STanLEyY

FarreLLy, Chairman of the Virgin Islands Indus-

trial Incentive Board; and Revsen B. WHEATLEY,

Commissioner of Finance,

Respondents.

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

Rosert H. Ruskin, Esquire

THoMas ALKON, EsQuiRE

GEOFFREY W. BARNARD, EsQuire

JAMES W, DizHM, Esquire

IsHERWOOD, COLIANNI, ALKON

AND BARNARD

46 King Street

Christiansted, St. Croix

Attorneys for Petitioner

Pases or Braonw S. Apams Paurrina, inc., Wasutroron, D. C.

TABLE OF CONTENTS

Page

Opinions Below ........ceseeceeeeeeseeeeeesneeees 2

DetaMha oo ccccccccvcccstecessvcecevessccecess 2

Questions Presented ........cccscccccccceccscveces 2

Meatabes Tmvebved ..ccccccccvccccccccccevcsccccees 2

Statement of the Case ..........cceeeeeee paWencede 3

Reasons for Granting the Writ ............eeeeeeees 5

I. The Court of Appeals Ignored the Standard of

Federal Appellate Review for Decisions of the

Territorial Courts on Purely Local Territoria!

Matters Established in Waialua Agricultural

Co. v. Christian, 305 U.S. 91 (1988) .......... 5

Il. The Constitutional Principles Embodied in Sec-

tion 34 of the Judicia ct of 1789, the Policy

of Which Was, Extended to the Territories in

Waialua, Require That the Court of Appeals

Adhere to Territorial Substantive Law on Mat-

ters of Purely Local Concern ............005: )

Commies cc cccvccccccecescccsccceccceceweceseces 12

Appendices :

A. Opinion of the United States Court of Appeals

for the Third Circuit ...........ccceeeeeeeees la

B. Opinion of the District Court, Virgin Island

District GE GOMER 6 cs cbcvcesetess . ewesdes : 10a

C. Judgment of the United States Court of Appeals

ee Ge Ts COED 0 c'c dave caessacnnccehsuce 25a

D. Denial of Petition for yay 4 the United

States Court of Appeals for the Third Circuit .. 26a

EK. Industrial Incentive Act of 1957 (No. 224) ..... 27a

F. Restatement of Contracts, Ch. 7, §§ 150-151 .... 39a

G. Opinion of the Attorney General No. 1960-17 .. 40a

AUTHORITIES CITED

Cases: Page

Buscaglia, Treas. v, Tax Court, 66 P.R.R. 670 (1946).. 8

Clen v. Jorgenson, 265 F’. 120 (3d Cir. 1920) ........ 5, 6

Erie R.R. Co. v. Tompkins, 304 U.S. 64 (1938) ....7, 10,11

Hanna v. Plumer, 380 U.S. 460 (1965) ........00.0005

Mookini v. United States, 303 U.S. 201 ere 6

O'Donoghue v. United States, 289 U.S. 516 (1933) ... 7

People of the Virgin Islands v. Price, 181 Fed. 2d 394,

on a REE te ee RE ee ene 5

Picard v. East Tennessee, Virginia & Georgia Railroad

es SO I n'a is a sc ccannccaccecécc 11

ne I ee ie 4,11

Sancho v. Texas Co., 308 U.S. 463 ( Se 6.00000 decede 7

Swift v. Tyson, 16 Pet. 1 (1842) ............000005.. 10

Thompson v. Consolidated Gas Utilities Corp., 300 U.S.

|} EAPO Ie Geet riots 6

United States v. Malmin, 272 F. 785 (3d Cir.1921)... 5

Waialua Agricultural Co. vy. Christian, 305 U.S. 91

DEE etheetiud Ceeehdbcesceedhaee cal. 2, 5, 7, 9, 10, 12

Srarures:

EE 2a iach ac cues evckbatae ddundeidicas 2

Ea 2,7, 10, 11

Act March 3, 1917, Ch. 171, 39 Stat. 1182 ............ 5

Act June 22, 1936, Ch. 699, 49 Stat. 1807 ............ 6

Act June 25, 1948, Ch. 646, 62 Stat. SS aa 5

Act July 22, 1954, Ch. 558, 68 Stat. 497, 48 U.S.C. § 1541 6,9

Industrial Incentive Act of 1957 (Act No, 224) ....... 3,4

1 Virgin Islands Code § 4 .............0ccccc0c0-.e, 4,10

Restatement of Contracts, §§ 151, 160 (1932) as incor-

porated in 1 V.L.C. § 4, supra .................. 4

Orner Aurnonriry:

Opinion of Attorney General of the Virgin Islands, No.

1960-17 (April 28, 1960), 4 V.I. Op. Atty. Gen. 29 8

IN THE

Supreme Court of the United States

OctToBEeR TERM, 1975

No.

ANTILLES INpusTRIES, INC,

Petitioner,

GOVERNMENT OF THE VirGIN ISLANDS; Metvin H.

Evans, Governor of the — Islands; STANLEY

FARRELLY, Chairman of the Virgin Islands Indus-

trial Incentive Board; and Revsen B. WHEATLEY,

: issioner of Finance,

Commissione Beidiedoate

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

Antilles Industries, Inc., the petitioner, prays that

a Writ of Certiorari issue to review the judgment of

the United States Court of Appeals For The Third

Cireuit entered herein January 27, 1976.

OPINIONS BELOW

The Opinion of the Court of Appeals (App. A, pp.

la-9a) is unreported. The Opinion of the District Court

of the Virgin Islands (App. B, pp. 10a-24a) is reported

in 388 F. Supp. 315; 11 VI .... (1975).

JURISDICTION

The judgment of the Court of Appeals was entered

January 27, 1976 (App. C, p. 25a). <A timely Petition

for Rehearing was denied by order entered February

19, 1976 (App. D, p. 26a). The jurisdiction of this

Court is invoked pursuant to 28 U.S.C. § 1254(1).

QUESTIONS PRESENTED

1, Whether the Court of Appeals in reviewing a

decision of the territorial District Court of the Virgin

Islands on a matter of local concern may substitute

its judgment for that of the territorial court, thereby

ignoring the standard of Federal Appellate Review

established for decisions of territorial ecvurts in

Waialua Agricultural Co. vy. Christian, 305 U.S. 91

(1938).

2. Whether is is constitutionally pe-missable for the

Court of Appeals in reviewing a decision of the terri-

torial District Court of the Virgin Islands on a matter

of purely local concern . disregard territorial law and

impose a rule of law in« ‘ict therewith.

STATUTES !NVOLVED

28 U.S.C. § 1652 provides:

The laws of the several states, except where the

Constitution or treaties of the United States or

Acts of Congress otherwise require or provide,

shall be regarded as rules of decision in civil

actions in the courts of the United States, in cases

ae they apply. June 25, 1948 c. 676, 62 Stat.

Industrial Incentive Act of 1957 (Act No. 224) is

printed in its entirety in Appendix E, pp. 27a-38a.

1 Virgin Islands Code § 4 provides:

The rules of the common law, as expressed in the

restatements of the law aproved by the American

Law Institute, and to the extent not so expressed,

as generally understood and applied in the United

States, shall be the rules of decision in the courts

of the Virgin Islands in cases to which they apply,

in the absence of local laws to the contrary.

Restatement of Contracts, as incorporated in 1 Y.L.C.

§ 4, the relevant sections of which are printed in Ap-

pendix F, p. 39a.

STATEMENT OF THE CASE .

In an effort to encourage new business activity in

the territory, the Virgin Islands legislature enacted

the Industrial Incentive Act of 1957, Act 224, which

offered tax exemptions and subsidies to qualified enter-

prises .

Induced by the exemptions and subsidies offered in

Act 224, a group of investors established Delaware

Watch Co. of the V.I. to manufacture and assemble

watches, and having met the qualifications enumerated

in the Act, was granted a ‘‘Certificate for Tax or Fee

Exemptions and Subsidies’’ for a limited period of

ten years. Subsequently, Delaware assigned, for a

valuable consideration, all its assets including its Certi-

ficate of Tax Exemption to Antilles Industries, Inc.,

another Vigin Islands watch company.

For reasons unrelated to this petition, which reasons

were characterized by the territorial District Court as

arbitrary and without authority and which were not

considered by the Court of Appeals, the Virgin Islands

Tax Exemption Board refused to recognize the assign-

ment.

Following the denial of the transfer, Antilles filed an

action charging that the Government had breached its

contractual obligations under Act 224.

The territorial District Court, after recognizing that

certificates granted pursuant to Act 224 were contracts,

applied the substantive law of assignments as set forth

in the Restatement of Contracts which is the appli-

cable local territorial law pursuant to Title 1 Virgin

Islands Code §4. (App. F, p. 39a.)

The Restatement of Contracts (App. F, p. 39a)

provides that contractual rights are assignable, absent

a prohibition, unless it would vary materially the per-

formance under the contract. The court noted the

absence of any prohibition, and found as a fact that the

assignment would not vary materially performance

under the contract. Accordingly, the court held the

assignment to be effective.

The Court of Appeals in reviewing the territorial

District Court decision refused to apply the territorial

law, but chose a different rule of law in conflict with

that law; i.e., that such contracts are not assignable

in the absence of express permission. The Court of

Appeals borrowed this conflicting rule of law from this

Court’s decisions in Picard v. East Tennessee, Virginia

& Georgia Railroad Co., 130 U.S. 637 (1889), and

Rochester Railway Co. v. City of Rochester, 205 U.S.

236 (1907). Finding no express permission, the Court

of Appeals found the assignment invalid and reversed

the terr.torial court’s decision.

REASONS FOR GRANTING THE WRIT

THE COURT OF APPEALS IGNORED THE STANDARD OF

" FEDERAL APPELLATE REVIEW FOR DECISIONS OF THE

TERRITORIAL COURTS ON PURELY LOCAL TERRITORIAL

MATTERS ESTABLISHED IN WAIALUA AGRICULTURAL

CO. v. CHRISTIAN, 305 US 91 (1938).

The United States purchased the Danish West In-

dies in 1917. Pursuant to its plenary powers under

Article 4, Section 3, Clause 2 of the Constitution, Con-

gress enacted the Act of Congress of March 3, 1917,

Ch. 171, § 2, 39 Stat. 1132 (48 U.S.C. 1946 ed. § 1392),

which provided for needful Rules and Regulations re-

specting the Territory. The Act provided inter alia

for the continuance of the existing judicial system and

local laws in force and effect. This judicial system

consisted of three inferior courts, or ‘Lower Courts

and an “‘Ordinary”’ or “‘ District Court’’, which was a

local court established under Danish rule with juris-

diction over controversies of every kind. Appeals were

taken to the Danish Courts in Copenhagen.’

, ila | A

In the Act of 1917, the Third Circuit Court of p-

peals in Philadelphia replaced the Danish Court in

Copenhagen as the appellate court.’ It has been held

1Clen v. Jorgenson, 265 F. 120 (3 Cir. 1920); U.S. v. Malmin,

272 F. 785 (3d Cir. 1921).

i i the Third Circuit

*This appellate power of review granted to

Court of out was subject to a series of amendments poo

ing in the Act of June 25, 1948, ¢. 646, § 1, 62 Stat. 929, es ere-

in the Court of Appeals was granted jurisdiction ae aa

decisions of the District Court of the Virgin Islands. eople o

the Virgin Islands v. Price, 181 Fed. 2d 394, 397 (8rd Cir. 1950).

that in passing this Act, ‘“Congress intend[ed] ... to

preserve the local laws of the islands and to provide for

their enforcement through the local judicial tribunals

as then established’’.* Congress in 1936 pursuant to

fere!e 4, Section 3, Clause 2 of the Constitution, en-

acted the Organic Act of 1936, Act of June 22, 1936,

Ch. 699, 49 Stat. 1807, which inter alia granted the

territorial court known as the District Court of the

Virgin Islands appellate review over the judgments

and rulings of the inferior courts in the territory. In

1954 * Congress cloaked the District Court of the Vir-

gin Islands with the authority of a District Court of

the United States in federal matters* while retaining

the court’s original jurisdiction over territorial mat-

ters. However, this authority and nomenclature did

not change this Court from a territorial court to an

Article 3 District Court of the United States. Rey-

nolds v. United States, 98 U.S. 145, 154 (1878) ;

Mookini v. United States, 303 U.S. 201 (1938). It

remains a territorial legislative court created by Con-

* Clen v. Jorgenson, pp. 122-123, supra.

* Act of July 22, 1954, ch. 558, 68 Stat. 497, 48 USC 1541.

SIf the District Court of the Virgin Islands were to be con-

sidered strictly a Federal District Court for the purposes of the

case at bar, then the Court of Appeals for the Third Circuit was

nonetheless in error for failing to accord the appropriate defer-

ence and great weight to the decision of a lower federal court in

interpreting a statute dealing with a purely local matter.

When not instructed by some decision of a state court, we

are disposed, in exercising appellate jurisdiction, to accept

the construction given by the lower federal court to a statute

of the State, particularly when that court is composed as

in this instance, wholly of citizens of the State, familiar with

the history of the statute, the local conditions to which it

applies, and the character of the State’s laws. Thompson v.

Consolidated Gas Utilities Corp., 300 U.S. 55 (1937) pp. 74-75.

gress pursuant to Article 4, Section 3, Cl. 2 of the Con-

stitution. O’Donoghue v. United States, 289 U.S. 516

(1933).

Congress enacted the Judiciary Act of September 24,

1789, C. 20, 28 U.S.C. § 725, now 28 U.S.C. § 1652,

known as the Rules of Decision Act, requiring that state

law be followed in the federal courts in order to obtain

uniformity of decisions between the state courts and the

federal courts sitting in the states.

Erie v. Tompkins, 304 U.S. 64 (1938), furthered this

goal by declaring that state law, within the context of

the Rules of Decision Act, encompassed not only legis-

lative enactments, but also included decisional law of

state courts. This underlying policy of the Judiciary

Act as expressed in Erie v. Tompkins, supra, applies

with equal force to territorial law and decisions by ter-

ritorial courts, Waialua Agricultural Co. v. Christian,

305 U.S. 91 (1938), where the Court stated at p. 109

While the 34th section of the Judiciary Act is not

applicable to territories, the arguments of policy in

favor of having the state courts declare the law of

the state are applicable to the question of whether

or not territorial courts should declare the law of

the territories with the least possible interference.

In conformity with these considerations the Supreme

Court established in Waialua a narrow standard of re-

view for Courts of Appeals holding that the Courts of

Appeals were not to interfere with the decisions of the

territorial tribunals unless manifestly erroneous.

In Sancho v. Texas Co., 308 U.S. 463 (1940), this

Court repeated the admonition that careful and con-

sistent adherence to the legislative and judicial policy

of deference to the local laws and tribunals is founded

on sound policy. The Court stated at 471:

To reverse a judgment of a [loeal] tribunal on

such a local matter as the interpretation of an act

of the local Legislature it would not be sufficient

if we or the Circuit Court of Appeals merely dis-

agreed with that interpretation. Nor would it be

enough that the [local] tribunal chose what might

seem on appeal to be the less reasonable of two

possible interpretations. And such judgment of

reversal would not be sustained here even though

we felt that of several possible interpretations that

of the Circuit Court of Appeals was the most rea-

sonable one. For to justify reversal in such cases

the error must be clear or manifest; the inter pre-

tation must be inescapably wrong, the decision

must be patently erroneous. (Emphasis supplied. )

In holding the tax exemption certificate to be a con-

tract and to be validly transferable under the same

conditions as contracts generally, the territorial court

analyzed the substantive law and the legislative pur-

pose of the Act, and held that a determination uphold-

ing the validity of the transfer would better serve the

purpose of the Act, and would be consistent with the

prior opinion of the territorial Attorney General that

the Legislature did not intend to prohibit such assign-

ments.” This conclusion is also in accord with similar

decision of the territorial Supreme Court in neighbor-

ing Puerto Rico holding that similar certificates were

transferable under the Puerto Rico Act which was also

silent on the issue of assignment.’

4 V.I. Op. Atty. Gen. 29.

* Buscaglia, Treas. v. Tax Court, 66 P.R.R. 670 (1946).

The Court of Appeals ignored the territorial court’s

analysis and exercised its judgment to apply a rule

that transfers are prohibited absent permission.

Although the Court of Appeals may prefer this

rule * the conclusion of the territorial District Court

that the certificate was assignable was not manifestly

or patently erroneous, nor was it inescapably wrong.

Rather, it was not only a permissible interpretation of

the territorial law, it was absolutely correct and in sub-

stituting its judgment for that of the judgment of the

court vested with the authority to interpret territorial

law, the Court of Appeals for the Third Circuit ignored

the injunction of this Court in Waialua, supra, that

decisions of territorial courts in matters of territorial

concern should not be disturbed in the absence of mani-

fest error.

Il. THE CONSTITUTIONAL PRINCIPLES EMBODIED IN SECTION

34 OF THE JUDICIARY ACT OF 17°, THE POLICY OF WHICH

WAS EXTENDED TO THE TERRITORIES IN WAIALUA,

REQUIRE THAT THE COURT OF APPEALS ADHERE TO

TERRITORIAL SUBSTANTIVE LAW ON MATTERS OF

PURELY LOCAL CONCERN.

Congress, by Section 8 of the Revised Organic Act

of the Virgin Islands, approved July 22, 1954, 68 stat.

501; Title 48 U.S. Code § 1574, vested the legislative

power of the Virgin Islands in a local Legislature des-

ignated the ‘‘Legislature of the Virgin Islands.’”’ Sec-

tion 8 (e) authorized the Legislature to enact new laws

and amend, alter, modify or repeal any local law or

ordinance.

* The constitutionally impermissible nature of the effort by the

Court of Appeals to enforce its preference is discussed in Point

II, infra, together with the territorial rules of substantive law

applicable to the assignment.

On May 16, 1957, the Legislature of the Virgin

Islands enacted the Virgin Islands Code, which is the

official statement of the local laws and ordinances in

force in the Virgin Islands.

Title 1, § 4 of the Virgin Islands Code provides:

The rules of the common law, as expressed in the

restatements of the law approved by the American

Law Institute, and to the extent not so expressed,

as generally understood and applied in the United

States, shall be the rules of decision in the courts

of the Virgin Islands in cases to which they apply,

in the absence of loca! laws to the contrary.

As pointed out in Point I, supra, the 34th Section of

the Judiciary Act of September 24, 1789 ¢.20-28 U.S.C.

§ 725 now 28 U.S.C. § 1652, requires that federal courts,

when passing on state or territorial matters of a purely

local concern, must apply both the statutory and de-

cisional law of the state or territory.” In Erie, Jus-

tice Brandeis pointed out the constitutional basis for

this imperative, noting that no clause in the Constitu-

tion purports to confer a power upon the federal courts

to declare substantive rules of common law applicable

to a state.

The issue before the territorial court was the assign-

ability of a contract created by the territorial Legisla-

ture granting a tax exemption for a limited period.

The court pursuant to § 4 of Title 1 of the V.I. Code,

relied on the relevant provisions of the Restatement

of Contracts, together with the general law of assign-

ments, which provides that contractual rights are

assignable absent a prohibition in the contract unless

the assignment would vary materially the performance

* Swift v. Tyson, 16 Pet. 1 (1842); Erie R.R. Co. v. Tompkins,

304 U.S. 64 (1938); and Waialua Agricultural Co. vy. Christian,

305 U.S. 91 (1938).

of the parties." Applying these tests, the court found

that the Legislature did not intend to prohibit transfers

and that the performance of Antilles would not vary

materially from that of Delaware.

The Court of Appeals in reversing the territorial

Court selected a rule in conflict with the territorial

law, i.e., that such contracts are not assignable in the

absence of express permission, and not only ignored

the territorial law but went so far as to hold that the

territorial court erred in applying local law.

The constitutional basis for the injunction discussed

in Hrie by Justice Brandeis compels that the rule of

law which the Court of Appeals seeks to impose on the

territorial Court must fall, no matter how persuasive,

reasonable, or ‘‘better’’ that rule may be. As Chief

Justice Warren explained in Hanna v. Plumer, 380

U.S. 460 (1965) at p. 471-472:

We are reminded by the Erie opinion that neither

Congress nor the federal courts can, under the

guise of formulating rules of decision for federal

courts, fashion rules which are not supported by

a grant of federal authority contained in Article

1 or some other section of. the Constitution; in

such areas state law must govern because there

can be no other law.

Accordingly, the Court of Appeals incorrectly and

impermissably borrowed language from this Court’s

decisions in Picard v. East Tennessee, Virginia &

Georgia Railroad Co., 130 U.S. 637 (1889) and Roches-

ter Railway Co. v. City of Rochester, 205 U.S. 236

(1907) to formulate a rule of law in conflict with the

territorial law, thus violating the constitutional

command of Section 34 of the Judiciary Act of 1789,

% App. F, p. 39a.

CONCLUSION

For the foregoing reasons Antilles Industries, Inc.

respectfully prays that a writ of certiorari issue to

review the judgment of the Court of Appeals below

upon plenary briefing and argument. Alternatively,

Antilles Industries, Ine. respectfully prays that this

Court summarily vacate the judgment below and rein-

state the judgment of the District Court of the Virgin

Islands pursuant to Waialua Agricultural Co. v. Chris-

tian, supra,

Respectfully submitted,

Rosert H, Ruskin, Esquire

THoMas ALKON, Esquire

GEorrrREY W. Barnarp, Esquire

JAMES W. Dieu, Esquire

IsHERWOOD, COLIANNI, ALKON

AND BARNARD

46 King Street

Christiansted, St. Croix

Attorneys for Petitioner

APPENDIX

APPENDIX A

UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT

No. 75-1176

No. 75-1458

AntiiLes Iypustrimes, Ino., Appellee

GoveRNMENT OF THe Vrrotn Istanps; Mervin H. Evans,

Governor of the Virgin Islands; Srawuzy Farre.ry,

Chairman of the Virgin Islands Industrial Incentive

Board, and Reveew B. Wueariey, Commissioner of

Finance, Appellants

Appea From tue District Court or rae Virarn Isuanps

Drviston or Sarnt Crorx

(D.C. Civil No, 423-1970)

Argued December 1, 1975

Before: Avpisert, Weis and Gartn, Circuit Judges.

Verne A. Hodge, Esquire

Attorney General of the Virgin Islands

Donald M. Bouton, Esquire

Assistant Attorney General of the V.I.

P.O. Box 280

St. Thomas, Virgin Islands

Attorneys for Appellants

Robert H. Ruskin, Dsquire

Thomas Alkon, Esquire

Geoffrey W. Barnard, Esquire

Isherwood, Colianni,

Alkon & Barnard

46 King Street

Christiansted, St, Croix

Virgin Islands

Attorneys for Appellee

Opinion of the Court

(Filed January 27, 1976)

Wears, Circuit Judge.

_The payment of taxes is one of the expected responsi-

bilities of citizenship. In order to preserve a resigned, if

not a cheerful, acceptance of that burden, policy dictates

that any waiver of the obligation by statute be not extended

beyond that expressly allowed, Accordingly, in this ap-

peal, we construe the terms of tax exemption legislation to

say no more than the wording requires, Since the enact-

ment did not speak to a right of assignment, we find none

existed and vacate the district court judgment which held

otherwise.

In an effort to encourage new business activity in the

territory, the Virgin Islands Legislature enacted the In-

dustrial Incentive Act of 1957, Act 224, which offered tax

exemptions and subsidiaries to qualified enterprises. The

Delaware Watch Company was granted such an exemption

on December 7, 1961, effective as of December 16, 1960 and

valid for a period of ten years thereafter. As a result,

the company was not required to pay excise or gross re-

ceipts taxes and it received non-taxable subsidies equal to

75% of the income taxes and 100% of the import duties

which it paid into the Treasury of the Virgin Islands.

Shortly afterward, Delaware encountered financial diffi-

culties. In June, 1962, it informed the Governor that it

was ceasing business, but hoped to resume operations at

some time in the future. Although the company continued

to file annual reports, it did not resume its manufacturing

activities.

Plaintiff Antilles Industries, Inc., a wholly-owned sub-

sidiary of General Time, Ine., began to manufacture

watches on St. Croix in 1961. On November 6, 1963 it

applied for a tax exemption but a decision on its request,

as well as on those of eleven other watchmaking com-

panies,’ was deferred. Fearing that an influx of time-

pieces to the United States would imperil import policies

favorable to Island industry, the Governor applied a

‘*freeze’’ on further exemptions for watchmaking concerns.

Antilles then arranged to secure an assignment of

Delaware’s exemption. On March 26, 1965, pursuant to the

Act of 1961, 33 V.I.C. § 4106,? Antilles petitioned the Tax

Incentive Board for a transfer of Delaware’s certificate.

On April 6, 1965, Delaware executed a ‘‘general assign-

ment and bill of sale’’ which purported to sell all of its

‘*business and preperties (other than its cash)’’ to Antilles

for a consideration of $28,700.00. Nothing in the record

suggests whether Delaware had anything to transfer other

than its certificate.’

’ Before that time, a total of 5 exemptions, including Delaware’s,

had been issued.

*The Act of November 3, 1961, No. 798, became effective on

January 1, 1962. It repealed Act 224, but provided that no tax

exemptions granted under that statute would be affected. How-

ever, there was to be no enlargement or expansion of the pre-exist-

ing exemptions.

A continuing source of confusion throughout these proceedings

was the failure of both Antilles and the Government to recognize

that the Delaware exemption had been issued under the terms of

the 1957 legislation, Act 224. The provision codified at 33 V.L.C.

§ 4106, which allowed transfer of an exemption by the Tax In-

centive Board, was part of the 1961 Act and did not appear

in the 1957 enactment. Consequently, the provision for transfer

did not apply to the Delaware certificate. See Vitex Manufactur-

ing Co. v. Government of Virgin Islands, 351 F.2d 313, 316 n.4

(3d Cir. 1965).

* The balance sheet of Delaware as of December, 1962 showed

a merchandise inventory of $545.00. The only other assets listed

were $364.00 cash in bank, loans receivable of $14,800.00, and an

industry subsidy receivable of $1,878.24. A profit and loss state-

ment for the same year included as other income the sale of fixed

assets, $15,850.00. On the record in this case it is difficult to escape

the conclusion that in fact nothing other than the exemption cer-

tificate was sold to Antilles in 1965.

i oe

On August 5, 1965, Antilles withdrew its request for

transfer of the Delaware certificate, but on September 27,

1968, resubmitted its petition.‘ On May 7, 1969, the Board

held a hearing to determine if the Delaware certificate

should be revoked. The record does not reveal whether

such an order was in fact issued. On July 22, 1970, the

Board wrote to the Governor stating that there was ‘‘no

outstanding or active business [of Delaware] on which to

predicate a transfer notwithstanding the eligibility of the

applicant [Antilles].’’ The Governor agreed with the

Board and denied Antilles’ application.

Plaintiff then filed suit in the district court. Follow-

ing the submission of an agreed statement of facts, the

district court decided that (1) the exemptions were assign-

able; (2) Antilles was the lawful assignee of Delaware’s

exemption as of April 6, 1965; and (3) it was entitled to a

refund of taxes paid thereafter. In a subsequent pro-

ceeding, the court entered a judgment fixing the amount of

the refunds at $2,232,286.38 plus interest and awarding

counsel fees.

The issue on appeal is simply whether an exemption

granted under the 1957 Act is assignable. The district

court, recognizing that the statute was silent on that point,

held that such exemptions were transferable. It reasoned

that since under the Act an exemption was ‘‘in the nature

of a contract,’’ traditional contract principles permitting

*In a letter requesting resubmission, Antilles stated that one

of the considerations for the withdrawal of its petition in August,

1965 was the decision of the district court. of the Virgin Islands in

Virgo Corporation v. Paiewonsky, 251 F. Supp. 279 (D. V.I. 1966).

Had the holding in that ease remained in effect, Antilles would

have been entitled to the exemption in its own right (under its

1963 request). The judgment in Virgo, however, was reversed by

this court in the following year, 384 F.2d 569 (3d Cir. 1967).

Since the opinion of the district court in the Virgo case was

dated March 14, 1966, it appears likely that the filing of the suit

rather than that decision, furnished the impetus for Antilles’ ac-

tion in August, 1965.

assignment should govern. We disagree with that analysis

because it did not utilize the proper standards for inter-

preting tax exemption legislation.

‘In the interpretation of statutes, the function of the

court is easily stated. It is to construe the language so as

to give effect to the intent of [the legislature].’’ United

States v. American Trucking Ass’ns, 310 U.S. 534, 542

(1940) (footnote omitted). On several occasions, we have

stated the basic rule of construction which is to be applied

in claims of tax exemption. In King Christian Enter-

prises, Inc. v. Government of the Virgin Islands, 345 F.2d

633 (3d Cir. 1965), Judge Maris wrote:

“It is a well settled rule that statutory exemptions

from taxation, being a matter of grace, are to be strictly

and narrowly construed.’’ (citations omitted) 345

F.2d at 637.

In Tracey Leigh Development Corp. v. Government of the

Virgin Islands, 501 F.2d 439, 443 (3d Cir. 1974), Judge

Adams repeated that language with approval, and added:

‘*This rule, when compounded with the precept that

‘to supply [statutory] omissions transcends the ju-

dicial function,’ makes the present case—a case in-

volving a tax exemption—a particularly inappropriate

occasion for judicial tampering with the clear lan-

guage of a statute.’’ (footnote omitted).°

Viewed in the light of the correct rule of construction,

therefore, the absence of any reference to assignability

5 Our opinion in Vitex Manufacturing Co. v. Government of the

Virgin Islands, supra, is distinguishable. While there the lan-

guage in the exemption legislation was construed against the

drafter in accordance with the contractual rule, the statute con-

tained verbie,+ which is pertinent. Here, there is a total lack

of any wording in the statute on the crucial issue and, hence, no

language to construc.

takes on particular significance in assertaining the intent

of the legislature. In the context of tax exemptions,

silence implies not permission, but denial of authoriza-

tion. We do not find in the Act a legislative intention to

include a right of transfer. Historically in the Virgin

Islands, such permission has been articulated. For ex-

ample, the predecessor legislation, Bill 293 (1954) of the

Municipal Council of St. Thomas and St. John, provided

at § 3(e):

**In the event of sale, transfer or assignment of any

tax exempt or subsidized business or industry here-

under, the exemption or subsidy granted shall not be

extended beyond the period originally authorized.”

By implication then, exemptions granted under that Act

could be assigned—at least in connection with the transfer

of the business to which it had been granted.

Act 798, 33 V.LC. § 4106, the 1961 statute which suc-

ceeded Act 224, contained a provision for limited trans-

ferability after approval by a governmental board.

Thus, both before and after Act 294 transferability was

expressed in statutory terms. The legislature has demon-

strated that, when it choose to permit transferability, it

knew how to do so. In these circumstances there is no

principle of logic commanding the conclusion that, by

absolute silence on the subject of transferability, the legis-

lature meant to include it. Indeed the contrary conclusion

1s compelling, to-wit, that the legislature did not wish to

provide transferability of Act 224 exemptions. See Vitex

v. Government of the Virgin islands, supra.

It may be argued that the Act of 1961, in allowing a

qualified right of transfer, was meant to narrow a much

wider privilege implied in the 1957 legislation. But it is

far more consistent to adopt the contrary view and to re-

gard the 1961 provisions as a step toward liberalizing the

negative feature of the earlier enactment.

Antilles contends that, since the statute refers to an

exemption as being ‘‘in the nature of a contract’’ and gen-

erally contracts are assignable, therefore an exemption is

transferable. We do not accept the proposition that a tax

exemption is an ordinary contract, and, examined in con-

text, the statutory language is not to the contrary.

The Act was intended to entice new business to the

Islands with the promise of a favorable tax treatment. To

assure prospective entrepreneurs that there would be no

change in the rules of the game after the initial invest-

ments, the legislature provided that:

‘“*(e) In order that the encouragement tendered by

this Act in the form of subsidies for the promotion of

the business and industrial development of the Islands

may be an incentive, having a real and unmistakably

sure basis, the Government of the Virgin Islands

hereby declares that it considers all orders granting

subsidies and tax exemptions made available under

the provisions of this Act as being in the nature of a

contract or agreement between the Government of the

Virgin Islands and the persons or corporations re-

ceiving the benefit of the subsidies or tax exemptions,

and that it will not adopt any legislation which may

impair or limit such subsidies or tax exemptions

granted hereunder or which may defeat the purpose

of this Act.’’ Act 224.

The statute thus establishes an arrangement which would

not allow impairment of benefits once conferred to be

diminished by legislative after-thought—a desirable pro-

tection for a prospective investor. But it does not follow

that he is free to pass on to others what has been granted

to him.

OD Comer ———

Per ee mee «

ee Ce SA

The personal nature of a tax exemption has been dis-

cussed by the Supreme Court in terms still appropriate

today although the opinions were handed down many years

ago. In Picard v. East Tennessee, Virginia & Georgia

Railroad Co., 130 U.S. 637, 641 (1889), the Court said:

‘Yielding to the doctrine that immunity from taxa-

tion may be granted, that point being already ad-

judged, it must be considered as a personal privilege

not extending beyond the immediate grantee, unless

otherwise so declared in express terms. The same

considerations which call for clear and unambiguous

language to justify the conclusion that immunity from

taxation has been granted in any instance must re-

quire similar distinctness of expression before the im-

munity will be extended to others than the original

grantee.’’

Rochester Railway Co. v. City of Rochester, 205 U.S. 236,

247 (1907), further explained :

‘‘This court has frequently had occasion to decide

whether an immunity from the exercise of governmen-

tal power which has been granted by contract to one,

has by legislative authority been vested in or trans-

ferred to another, and in the decisions certain general

principles, which control the determination of the case

at bar, have been established. Although the obliga-

tions of such a contract are protected by the Federal

Constitution from impairment by the State, the con-

tract itself is not property which, as such, can be trans-

ferred by the owner to another, because, being per-

sonal to him with whom it was made, it is incapable of

assignment. The person with whom the contract is

made by the State may continue to enjoy its benefits

unmolested as long as he chooses, but there his rights

end, and he cannot by any form of conveyance trans-

Rates |

mit the contract or its benefits, to a successor.”’ (cita-

tion omitted)

Later, the Court recited this language with approval in

Morris Canal and Banking Co. v. Baird, 239 U.S. 126, 131

(1915). See also 173 A.L.R. § 118 (1948).

In substance then, the Supreme Court cases establish

that a tax exemption is personal to the entity to which it

was granted, and unless the legislation so provides, the

privilege may not be assigned to another.* That being so,

the district court erred in applying the usual principles

of contract law favoring assignability.

Because we have found no right of assignability under

Act 224, we need not address the question of irregularities

during the administrative proceedings concerning the

transfer. The 1961 Act did not affect the exemptions

granted under the 1957 legislation. Consequently, Antilles’

petition for transfer and the Government’s actions there-

after were nullities.

The judgment of the district court will be vacated, and

we will enter judgment for the defendants.

A True Copy:

Teste:

Clerk of the United States Court of Appeals

for the Third Circuit.

* The district court in indicating that ‘‘ [t}he general law of as-

signments’’ required ‘‘that in the absence of language prohibiting

assignments, claims against the Government are freely assignable’’

relied upon Webster v. Luther, 163 U.S. 331, 341 (1896). That

case involved the pre-entry assignment of lands granted to a Civil

War veteran’s widow under a special homestead act. The unique

nature of a tax exemption distinguishes the case at bar and we

find the district court’s reliance on Webster was misplaced.

10a

APPENDIX B

DISTRICT COURT, VIRGIN ISLANDS,

D, ST, CROIX,

Civ. No. 70-423.

AntiLues [npustries, Inc., Plaintiff,

CGioVERNMENT OF THE VirGtn IsLaNpDs ET AL., Defendants.

Jan, 21, 1975.

Isherwood & Colianni, Christiansted, St. Croix, V. L.,

Thomas Alkon, Christiansted, St. Croix, V. L, of counsel,

for plaintiff.

Donald M. Bouton, Asst. Atty. Gen., Saint Thomas, V. L.,

for defendants.

Memorandum Opinion and Judgment

Warren H. Youna, District Judge.

Backerounp Facts

Antilles Industries, Inc, (herein ‘‘ Antilles’’) brings this

action against the Government of the Virgin Islands (here-

in ‘*Government’’) for the breach of a contract originally

entered into between the latter and Delaware Watch Com-

pany (herein ‘‘Delaware’’), On December 7, 1961, pursu-

ant to the provisions of Act No. 224, the Government

granted Delaware a ‘‘Certificate for Tax or Fee Exemp-

tions and Subsidies’’, which was to be effective for a period

of ten years commencing on December 16, 1960. Delaware

engaged in the manufacture and assembly of watch move-

ments until August, 1962, when it halted production due to

financial difficulties. Remaining dormant throughout the

ensuing period of time, Delaware, warranting that its tax

certificate was in good standing, sold all of its assets to

Antilles on April 6, 1965, by execution of a Bill of Sale

lla

which purported to include inter alia Delaware’s claim to

tax exemptions and subsidy benefits.

Prior to the acquisition, Antilles, also actively engaged

in the watch business, wrote to the Attorney General of the

Virgin Islands, noting its intention to purchase Delaware’s

watch production business and requesting verification as to

its eligibility to succeed to the unexpired portion of Dela-

ware’s certificate. Qn February 15, 1965, the Acting At-

torney General responded by suggesting that the proposed

assignment fell within Section 4106 of Act 798, but added

that approval thereof by the Board was necessary.

On March 26, 1965, Antilles submitted an application to

the Board for the transfer of the Delaware certificate. The

Board failed to act on the application for transfer for five

months, at which time Antilles withdrew its application,

but reserved the right to reapply. This right of reapplica-

tion was acknowledged by the Board in a letter dated

August 10 of the same year.

During the pendency of its application for transfer,

Antilles submitted an independent application for a Cer-

tifieate of Tax Exemption and Subsidies in its own right.

The withdrawal of the application for transfer, then,

amounted to a strategic assessment by Antilles that the

pendency of both applications might jeopardize action on

its application for an independent grant. On September

27, 1968, after its application for an independent grant was

denied by the Governor, Antilles reapplied for approval

of the transfer of Delaware’s certificate.

Seven months later, the Government published a notice

for Delaware to appear and show cause why its certificate

should not be revoked for failure to engage in the business

for which the tax benefits were granted. On May 7, 1969,

Antilles appeared by counsel and with witnesses prepared

to prove its entitlement to the benefits of Delaware’s cer-

tifieate by virtue of the aforementioned assignment. The

12a

Board, however, refused to hear testimony, asserting that

the issue noticed was the revocation of Delaware’s certifi-

cate rather than the validity of the transfer thereof. Ad-

ditionally, the Board determined that Antilles lacked stand-

ing to present evidence on the issue of revocation. On No-

vember 4, 1969, the Board met in Executive Session with-

out having scheduled a subsequent hearing and agreed to

recommend that the application for transfer of Delaware’s

certificate to Antilles be denied. Almost one year later on

October 27, 1970, Governor Evans notified Antilles that its

application for transfer was denied, at which time the in-

stant action was commenced,

TransrenaAsiuity or Act No, 224 Certiricates

Act No, 224, under which Delaware was granted its cer-

tifieate, was replaced on January 1, 1962, by Act No. 798.

Throughout their correspondence and continuing up to the

commencement of this action by Antilles, both Antilles and

the Government assumed incorrectly that Section 4106 of

Act No. 798! governed the transferability of Delaware’s

Tax Exemption Certificate. This assumption, however,

1 Section 4106 reads:

A certificate of tax exemption and/or subsidy benefits

granted under the provisions of this subtitle may be trans-

ferred, for the unexpired portion of the term of the certificate,

to another person, firm, or corporation who, or which, succeeds

the beneficiary in carrying on, or in operating, the tax exempt

business, upon determination by the Board that such person,

firm, or corporation is otherwise qualified to receive such bene-

fits and provided the industrial or business activity with re-

spect to which the certificate was granted, is continued by

said person, firm or corporation. Thereafter, the transferor

of the certificate shall lose all tax exemption and subsidy

benefits under this subtitle and shall be subject to the opera-

tion of the tax laws of the Virgin Islands.—Added Nov. 3,

1961, No. 798, § 2, Sess.L.1961, p. 260; March 26, 1963, No.

990, § 1, Sess.L.1963, p. 217.

13a

ignored Section 4115 of the same act, which reads in perti-

nent part:

‘*Nothing in this Act shall be construed to affect in

any manner any tax exemption or subsidies heretofore

granted under laws existing prior to the effective date

hereof’’.

See also Vitex Mfg. Co., Ltd., v. Government of the Virgin

Islands, 5 V.I. 429, 434-35 n. 4 (3d Cir. 1965).

Unlike Act No. 798, its predecessor is devoid of any pro-

vision regarding the transferability of certificates, thereby

raising difficult questions of statutory interpretation and

legislative intent. Any meaningful interpretation of either

statute, however, must begin with the important maxim

that once a certificate granting subsidies has been issued

by the Governor, a binding contract between the territory

and the taxpayer arises. See Act No. 224, § 1(e), V.I. Sess.

Laws (1957); Act No. 798 T. 33 V.LC. § 4001(b) (1962) ;

Virgo Corp. v. Paiewonsky, 6 V.I. 256, 286-87 (3rd Cir.

1967) ; Vitex Mfg. Co., Ltd. v. Government of the Virgin Is-

lands, 5 V.I. 429, 435 (3rd Cir. 1964); Pentheny, Ltd. v.

Government of the Virgin Islands, 5 V.I. 575, 585 (3rd

Cir. 1964). Relying heavily on the contractual nature of

Delaware’s grant, Antilles proposes that the tax exemption

certificate, like any contract right, should be fully assign-

able.

In its brief, the Government has raised two objectives to

Delaware’s attempted assignment of the benefits received

under its certificate—

(1) the respectable authority in this jurisdiction which

has deemed tax exemptions under the Industrial Inventive

Act to be matters of legislative grace and thus to be strictly

construed against the taxpayer [see Tracy Leigh Develop-

ment Corp. v. Government of the Virgin Islands, 501 F.2d

439, 443 (3d Cir. 1974); King Christian Enterprises, Ine.

———

- —_

l4a

yv. Government of the Virgin Islands, 345 F'.2d 633, 637 (3d

Cir. 1965) ] ;

(2) the prohibition, found in Section 160(3)(a) of the

Restatement of Contracts, against assigning contracts in

which performance by the assignee would vary materially

from that of the assignor.

In response to the Government’s first assertion, I find

the doctrine of strictissimus juris inapplicable to the in-

stant case? Preliminarily, it is helpful to put the rule in

its proper perspective. Far from compelling immediate

surrender to its dictates whenever an ambiguity arises, the

rule of strict construction should be employed as an ele-

ment of decision only when the court has exhausted its

experience by attempting other tests of meaning. It is,

therefore, not a substitute for all other rules, Citizens’

Bank v. Parker, 192 U.S. 73, 85-86, 24 S.Ct. 181, 48 L.Ed.

346 (1904).

Unlike the Tracy Leigh and King Christian cases in

which the Third Cireuit employed the rule, this Court is

not presented with solely a problem of statutory construe-

tion but rather is aided by both substantive law and legis-

lative purpose. The general law of assignments, for exam-

ple, states that in the absence of language prohibiting as-

signment, claims against the Government are freely assign-

able. Webster v. Luther, 163 U.S. 331, 341, 16 S.Ct. 963,

41 L.Ed. 179 (1896). In People ex rel. Stone v. Nudelman,

376 Il. 535, 34 N.E.2d 851 (Ill. 1941), the Supreme Court

of Illinois confronted the rule requiring strict construction

2The precedential impact of these authorities is somewhat neu-

tralized by the decisions which have held that because the Govern-

ment has declared the grants to be in the nature of a contract,

any ambiguity in the statute must be construed against its drafts-

man, the Government. See Vitex Mfg. Co., Ltd. v. Government of

the Virgin Islands, supra, at 435; Tumex Corp. v. Government

of the Virgin Islands, Civ. No. 160/70, at 4 (D.V.1. 1970).

15a

of a tax refunding statute in the context of an assignment

of a credit memorandum. The credit memorandum, issued

by the Department of Finance for the erroneous payment

of a retailers’ occupation tax, was transferred by the

grantee-company to an assignee for the benefit of creditors.

Noting that the refunding statute on which the issuance of

the credit memorandum was based was silent on the issue

of transferability, the Court declined to apply the doctrine

of strict construction, in favor of the rule upholding the

free assignability of claims against the Government. Id.

at 853. The foregoing decision is entirely consistent with

the weight of authority which provides that in the absence

of an express statutory prohibition against assignment,

the assignability of a claim for tax refund should be sus-

tained. See Crawford County Trust & Savings Bank v.

Crawford County, 66 F.2d 971, 972-73 (8th Cir. 1933); 51

Am. Jur, (Taxation) § 1182, at 1015; Annot., 134 A.L.R.

1202.

An additional, even more com elling, reason for not in-

voking the technical rule of construction is that to do so

would vitiate the important policies underlying Act No.

224. For, the rule is not to be applied where the real in-

tent of the statute can be gathered from the Act itself.

See State v. Taylor, 80 So.2d 618, 621 (Ala. 1955); Chi-

cago Home v. Carr, 300 Ill. 478, 183 N.E. 344 (IIL 1921).

As expressed in the Preamble and Declaration of Policy

of Act No, 224, the purpose of the statute is to promote the

local economy and to provide steady employment to the

people of the Virgin Islands by aiding and encouraging

new and existing business enterprises. It is difficult to

conceive in what way the economy of the Islands would be

harmed by permitting a marginally successful or defunct

enterprise like Delaware to transfer its tax exemptions and

subsidies to Antilles, a profitable business which would not

only preserve the jobs created by its predecessor company

but also maintain a high level of investment and capital

input. Cf. Tumex v. Government of the Virgin Islands,

l6a

Civ. No. 160/60, at 3 (D.V.I. 1970). To irretrievably tie

up a valuable tax exemption certificate in a corporation

that has ceased operating with almost eight years remain-

ing on its grant can only be termed counterproductive from

an economic standpoint.

Responding to an inquiry made by the Tax Exemption

Board regarding the transferability of tax exemption cer-

tificates issued pursuant to Act No. 224, the Attorney Gen-

eral of the Virgin Islands suggested that the Legislature

did not intend to prohibit assignment. Analyzing the poli-

cies of the Act from the standpoint of a potential investor,

he noted that:

‘*rijf ... an investor could look forward to the loss

of the special rights upon the sale of the business, he

would be far less willing to invest his money here.

So, likewise, would be a future investor by way of a

purchaser of an existing business. Upon purchase, he

would lose the benefits of the original owner.”

4 V.LOp. Atty. Gen. 29, Op. No. 1960-17 (Apr. 28, 1960).

In a recent appeal from this Court, the Third Circuit

emphasized the importance of the reasonable expectations

of applicants under the Industrial Incentive Act seeking

to establish new businesses in these Islands. Noting that

the Legislature deemed the tax exemption grant to be a

contract to assure companies that their rights thereunder

were vested and thus did not rest on gossamer nations of

legislative whim, the Court held that:

‘*to deny taxpayers who were induced to establish new

businesses in the Virgin Islands the benefits they rea-

sonably anticipated receiving would do immeasurable

harm to the economy of the territory and render un-

certain indeed its prospects of attracting any addi-

tional investment’’.

HMW Indus., Inc. v. Wheatley, 504 F.2d 146 at 155 (3d

Cir. 1974), citing this Court’s opinion in 368 F.Supp. 915,

17a

919-20 (D.V.I. 1973) ; see also Vitex Mfg. Co., Ltd. v. Gov-

ernment of the Virgin Islands, supra 5 V.1. at 434-35 n. 4.

Given the unequivocal declaration of the Legislature that

the arrangement between Delaware and the Government

was contractual, plus the lack of statutory prohibition

against assignment, Delaware could reasonably expect that

the validity of any subsequent transfer of its grant would

be governed by the law of contracts. Despite its dormancy,

Delaware maintained its status as a Virgin Islands corpo-

ration and continued to pay franchise taxes and file annual

reports. It then entered into an arms length transaction

with Antilles to transfer the certificate, and both parties

gave notice to the Government of the proposed transfer.

The feregoing action by Delaware was entirely consistent

with its reasonable expectation that its tax certificate was

a valuable and transferable asset. In addition, the letter

dated February 15, 1965, in which the Acting Attorney

General advised Antilles that the proposed assignment ap-

peared to be statutorily sanctioned, added further fuel to

Delaware’s expectations.

I now turn to the Government’s claim that Restatement

of Contracts, Section 160(3)(a) prohibits the transfer of

Delaware’s grant. Section 160(a)(3) provides in pertinent

part:

‘Performance . . . by a person delegated has the

same legal effect as performance . . . by the person

named in the contract, unless . . . performance by the

person delegated varies or would vary materially from

performance by the person named in the contract as

the one to perform... ’’.

The validity of an assignment, then, depends on whether it

makes a substantial difference to the Government whether

its performance is to be rendered by Delaware or Antilles.

See Simpson, Contracts § 127, at 267 (1954).

18a

The Government argues that in return for the generous

subsidies and exemptions afforded by the Act, the taxpayer

must respond with corresponding duties; that is, the tax-

payer’s industry or business must promote the public in-

terest by furthering the economic development of the terri-

tory. Since the extent to which one enterprise’s activities

benefit the economy, the argument continues, will normally

differ substantially from that of another business, the con-

tract is personal and thus non-assignable. For the reasons

stated herein, I must disagree with the foregoing analysis.

A thorough reading of Act No. 224 convinces me that the

considerations involved in the Government’s granting or

denying exemptions and subsidies under the statute are

fundamentally objective in nature.

This view is buttressed by a comparison of Act No. 224

with its successor, Act No. 798. Outlining the criteria re-

quired of applicants under 798, Section 4041 of Title 33 of

the V.I. Code reads:

‘*A person, firm, or corporation, engaged in or about

to engage in an industrial or business activity in the

Virgin Islands, which industrial or business activity,

in the judgment of the Governor of the Virgin Islands

will promote the public interest by economic develop-

ment of the Virgin Islands, may apply for the same

...?’. (Emphasis added.)

3 The Act requires only (1) that a business seeking exemptions

and subsidies thereunder have ‘‘an actual and demonstrable cap-

ital investment of at least Ten Thousand ($10,000.00) Dollars’’,

(2) that the product in which the business deals not have been

manufactured, processed, created or produced within the Virgin

Islands prior to January 1, 1947, (3) that ‘‘[n]ot less than seventy-

five (75%) per cent of all persons employed in any new industry

.. . be legal residents of the Virgin Islands’’, and finally (4) that

to be eligible a person has to be a registered voter and domiciled in

the Virgin Islands, while a corporation has to be organized under

the laws of the Virgin Islands.

19a

The provision, which essentially grants to the Governor au-

thority to weigh subjective factors in determining whether

a business should be granted exemptions [see Virgo Corp.

v. Paiewonsky, supra, at 288-89], is important for purposes

of the instant case only insofar as it is absent from its

predecessor statute. By adding subjective factors to the

1961 amendments, which the Legislature could have in-

cluded in the 1957 Act, it is strong evidence that the Legis-

lature intended no such interpretation of the prior law.

Vitex Mfg. Co., Ltd. v. Government of the Virgin Islands,

supra, 5 V.I1. at 436.

In the Vitex decision, the Third Circuit expressed

““strong disapproval’’ of a Board meeting in which ‘‘the

Governor’s views on the role of Vitex in the economy of

the Islands and the mainland’’ was discussed in the con-

text of a certificate issued under Act No. 224. The Court

urged that

“the statute from which [the Board] derives its au-

thority to act prescribes the standards to be applied

by it in the conduct of its functions, which may not be

disregarded merely because the Governor believes that

other considerations should enter into its deliberations

and recommendations.”

Id. 5 V.I. at 436-37. Cf. 3 V.L.Op.Atty.Gen. 94, Op. No.

1954-57 (Nov. 24, 1957); 2 V.I.Op.Atty.Gen. 128, Op. No.

1951-16 (Feb. 23, 1951).

In light of the objective nature of the criteria under Act

No. 224, the Board’s revocatory powers, as set forth in

Section 9(a)(3) of the statute, ensure that performance by

Antilles will not, and indeed cannot, vary materially from

performance by Delaware. For, any failure to comply with

either the stated provisions of the Act or the rules and

regulations issued in accordance therewith would subject

the assignee to the loss of the certificate. Consequently,

20a

the Restatement of Contracts does not prohibit the trans-

ferability of grants issued pursuant to the 1957 Act.*

Consistent with the general law of assignments which I

have held applicable to the case before me, I find that the

transfer of the certificate became effective immediately

upon final acquisition by Antilles of all of Delaware’s as-

sets on April 6, 1965. Also in accordance with contractural

principles cf assignment, said transfer was valid without

Board approval, thereby rendering unnecessary Antilles’

applications for transfer on March 26, 1965 and Septem-

ber 27, 1968. On the date of effective transfer, Aatilles

became subject to revocatory powers of the Board; and

although the record fails to disclose whether Antilles com-

plied with the provisions of the Act from that date, I find

that the onus was on the Government, via its powers of

revocation, to initiate sanctions for failure to comply there-

with. Inasmuch as the Board did not initiate revocation

proceedings until April 28, 1969—more than four years

after the transfer—the Government clearly neglected its

above stated duty. Furthermore, since Antilles was not

required under Act No. 224 to apply for the transfer, it

cannot be faulted for either the subsequent withdrawal of

its application or the three-year lapse prior to the renewal

thereof.

III

ADMINISTRATIVE IRREGULARITIES

From the foregoing, it is clear that the Board’s determi-

nation that Antilles lacked standing to respond to the order

to show cause why Delaware’s certificate should not be re-

voked was erroneous. As a consequence, the Government

* Some courts have recognized that even personal service ecatracts

traditionally the quintessential example of non-assignability under

the common law, are assignable when no change in the employee’s

rights and duties are entailed. See, e.g., Haldor, Inc. v. Beebe, 72

Cal.2d 357, 164 P.2d 568, 572 (Cal. App. 1945).

2la

violated the clear procedural mandate of Section 14 of the

1957 Act, which provides that ‘‘[n]o tax or fee exemption

or subsidy granted herein shall be revoked, modified, or

rescinded, without notice and hearing... ”’

I now turn to plaintiff Antilles’ allegation that the

Board’s action in denying its application for transfer was

‘“‘arbitrary’’ as having no statutory basis therefor. See

Act No. 224, § -(b). Administrative action is deemed arbi-

trary.

‘if it is taken without any authority of law or upon a

misconstrvction of the statutory authority under which

it purports to be taken...’ (citations omitted).

In re Hooper’s Estate, 3 Cir., 359 F.2d 569 at 575 n.7. See

also United States v. Carmack, 329 U.S. 230, 243-44 n. 14,

67 S.Ct. 252, 91 L.Ed. 209 (1946); 2 Am.Jur.2d (Admin.

Law) §§ 620, 651.

Although the letter dated October 27, 1970, from Gov-

ernor Evans to Antilles, in which the latter was formally

notified of the rejection of its application for transfer,

fails to state any reason therefor, a prior letter from the

Executive Director of the Board to Lt. Governor Maas is

somewhat more informative:

‘‘This is to advise that the Industrial Incentive

Board at Executive Session after careful considera-

tion of the subject application found applicant (An-

tilles Industries, Inc.) ineligible to be the recipient of

the requested transfer, and that there is no active or

outstanding business operation and grant on which to

predicate a transfer notwithstanding, eligibility of ap-

plicant.’’

5 The Third Circuit has recognized that the exercise of the right

of judicial review of administrative determinations is rendered

practically impossible, or at least more difficult, when the agency’s

decision is not accompanied by express findings. See Morton v.

Delta Mining, Inc., 495 F.2d 38, 42 (3d Cir. 1974).

22a

Letter from G. Beretta, Dir. of Indus. Incentive Bd., to

D. Maas, Government Secretary of Virgin Islands (July

22, 1970) (emphasis added). The minutes of the Board’s

closed executive meeting of November 4, 1969 further indi-

cate that although other potential justifications for the

denial of the transfer were discussed,® the Board’s deci-

sion ultimately crystallized around the lack of a viable cer-

tificate to be transferred. Exec. Sess., V.I. Indus. Incen-

tive Bd., Record at 19 (Nov. 4, 1969). Since it is uncon-

troverted that Delaware’s certificate was never formally

revoked, the Board is necessarily suggesting, albeit indi-

rectly, that Delaware’s dormancy constituted a revocation

of its certificate as a matter of law. See Record, supra

at 4-5. This argument was explicitly rejected by Judge

Christian in Trumex Corp. v. Government of the Virgin

Islands, Civ. No. 160/70 (D.V.I. 1970). Tumex, a proc-

essor of tungsten ore who was granted a tax exemption

certification in 1964, closed operations and sold its plant

in earlv 1966 due to financial difficulties. In upholding

Tume: ~ laim for a refund of income and excise taxes paid

for the , ear 1966, the Court found no authority either in

language of the statute or in the legislative intent to sup-

port the Government’s assertion that Tumex, by terminat-

ing its operations, had violated the statutory conditions of

its grant and thereby forfeited any rights or benefits due

to it under the Act.

Section 9(a)(3) of Act No. 224 provides for revocation

of a tax or fee exemption for ‘‘failure of a person, firm or

corporation to which such exemption or subsidy was

granted to comply with the provisions of this Act and the

rules and regulations issued in accordance therewith’’.

®From the record, the Board appears to have considered two

other reasons for denying Antilles’ application for a transfer—(1)

that Antilles did not in fact ‘‘need’’ the tax exemptions and sub-

sidy benefits [see Record, supra, at 17]: and (2) the Governor

had made a philosophical decision to limit the number of watch

companies receiving said benefits [sce Record, supra, at 6, 15].

23a

No provision within Act No. 224 has been cited by the

Government which would lend support, either directly or

indirectly, to the Board’s theory of automatic revocation

by inactivity. Inasmuch as the Industrial Incentive Board

of the Virgin Islands is an administrative agency and thus

‘*a tribunal of limited jurisdiction’’ [Pentheny, Ltd. v.

Government of the Virgin Islands, supra at 582], its au-

thority to act is narrowly circumscribed by the statute

reposing power init. Id. See also Vitex Mfg. Co. v. Gov-

ernment of the Virgin Islands, supra at 435. It follows

that the Board’s action was without authority of law and,

therefore, arbitrary.

JUDGMENT

In accordance with the foregoing Memorandum Opinion

and the reasons set forth therein, it is hereby

Ordered, adjudged and decreed:

(1) That Antilles Industries, Inc. be deemed the lawful

assignee of Delaware Watch Company’s ‘‘Certificate for

Tax or Fee Exemptions and Subsidies’’ granted to Dela-

ware by defendant Government of the Virgin Islands on

December 7, 1961.

(2) That said assignment be deemed effective on April 6,

1965, and that the benefits arising thereunder inure to plain-

tiff Antilles until December 16, 1970, the date of expiration

of the certificate.

(3) That, following the submission by plaintiff Antilles

to this Court of adequate documentary proof of payment

thereof, defendant Government of the Virgin Islands re-

fund to Antilles the following taxes accruing between the

dates April 6, 1965 and December 16, 1970:

(a) one hundred percent (100%) of all excise taxes paid

by Antilles but which should have been exempted;

24a

(b) one hundred percent (100%) of all gross receipts

taxes paid by Antilles but which should have been ex-

empted ;

(4) That, upon submission of adequate documentary

proof of Antilles’ income tax liabilities for the period in

question, defendant shall grant to Antilles a subsidy equal

to seventy-five per centum (75%) of such liabilities actu-

ally paid or which shall be paid by Antilles and shall, if

shareholders of Antilles qualify, grant the statutory sub-

sidy to those qualifying shareholders in accordance with

the provisions of Act No. 224, if any dividend income was

received by said shareholders.

25a

APPENDIX C

UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT

Nos. 75-1176 and 75-1458

AntiLtes Inpustaigs, Ino.

vs.

GoVERNMENT OF THE VincIN IsLanps, et al.,

Appellants

(D.C. Civil Action No. 423-1970)

ON APPEAL FROM THE DISTRICT COURT OF THE VIRGIN ISLANDS

DIVISION OF ST. CROIX, CHRISTIANSTED JURISDICTION

Present: Aupisert, Weis and Garru, Circuit Judges.

Judgment

This cause came on to be heard on the record from the

District Court of the Virgin Islands, Division of St. Croix,

Christiansted Jurisdiction and was argued by counsel.

On consideration whereof, it is now here ordered and

adjudged by this Court that the judgment of the said

District Court, filed January 21, 1975, as amended April

10, 1975, as amended April 28, 1975, be, and the same is

hereby vacated and judgment is entered for the defendants.

ATTEST :

/s/ Tuomas F. Quinn

CLERK

January 27, 1976

Certified as a true copy and issued in lieu

of a formal mandate on February 27, 1976.

Test: /s/ Tuomas F, Quinn

Clerk, United States Court of Appeals

for the Third Circuit

26a

APPENDIX D

UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT

Nos. 75-1176 and 75-1458

AntTILtEs Inpustries, Inc.,

Appellee

Vv.

GOVERNMENT OF THE VirciIn IsLaAnps; Metvin H. Evans

Governor of the Virgin Islands; Sranuey FARRELLY,

Chairman of the Virgin Islands Industrial Incentive

Board, et al.,

Appellants

Sur Petition for Rehearing

Present: Serrrz, Chief Judge, Van Dusen, ALDISERT,

Apams, Grspons, Ros—enn, Hunter, Weis and

Gartu, Circuit Judges.

The petition for rehearing filed by

Appellee

in the above entitled case having been submitted to the

judges who participated in the decision of this court and

to all the other available circuit judges of the circuit in

regular active service, and no judge who concurred in the

decisior having asked for rehearing, and a majority of the

circuit judges of the circuit in regular active service not

having voted for rehearing by the court in bane, the

petition for rehearing is denied.

By the Court,

/s/ Illegible

Judge

Dated: February 19, 1976

27a

APPENDIX E

Virain Isiuanvs Session Laws

(BILL 479)

No. 224

(Approved July 5, 1957)

To Encourage the Establishment of New Business and In-

dustries—to Attract Investment Capital in order to further

the Economic Development of the Islands—to promote

Tourism and the Building of additional Hotels, Guest

Houses and Housing Projects—through the Granting of

Special Subsidies and for other Purposes.

Wuenrras is is deemed of great benefit to the people of the

Virgin Islands, as well as to the economy of the Virgin

Islands, to establish as many self-sustaining enterprises in

the Virgin Islands as is practical—to attract additional

investment capital—to promote tourism—to promote the

building of hotels, guest houses, and housing projects—

to the end that the economic life of the Virgin Islands may

be as diverse and stable as possible, and the people of the

Virgin Islands trained and employed in investments in

finance, in modern techniques of production, mechanical

skills, services and trades; and

Wuereas it is deemed to be in the public interest to ex-

tend such inducements and render such aid as will encour-

age persons, firms and corporations to establish and de-

velop new business enterprises; to make additional in-

vestment capital available to new and existing business; to

promote tourism and the building of hotels, guest houses

and housing projects.

Be it enacted by the Legislature of the Virgin Islands:

DecLaRATION OF PoLicy

Section 1. (a) In order to provide steady employment to

the people of the Virgin Islands and provide training in

28a

modern techniques of finance, investments, production, me-

chanical skills, services and trades, it is hereby declared

to be of great benefit to the people of the Virgin Islands

to have established in the Virgin Islands self-sustaining

business enterprises; to have investment capital made

available to new and existing business; to develop tourism

to the fullest extent possible and to have hotels, guest

houses and housing projects available for the many thou-

sands of persons wishing to reside and to spend their

vacations and holidays in the Virgin Islands.

(b) It is hereby declared to be of great benefit to the

economy of the Virgin Islands to have such enterprises as

are described in Section 1(a), established in that thereby

greater numbers of Virgin Islanders will be trained, de-

veloped and employed.

declared in Section 1(a), the economy of the Virgin Is-

lands will rest on a broader base.

(d) To achieve this objective, exemptions from pay-

ment of certain taxes or fees and the granting of special

subsidies shall be allowed to new business enterprises and

to such other persons and corporations as hereinafter pro-

vided, and

(e) In order that the encouragement tendered by this

Act in the form of subsidies for the promotion of the busi-

ness and industrial development of the Islands may be an

incentive, having a real and unmistakably sure basis, the

Government of the Virgin Islands hereby declares that

it considers all orders granting subsidies and tax exemp-

tions made available under the provisions of this Act as

being in the nature of a contract or agreement between the

Government of the Virgin Islands and the persons or cor-

porations receiving the benefit of the subsidies or tax ex-

emptions, and that it will not adopt any legislation which

may impair or limit such subsidies or tax exemptions

29a

granted hereunder or which may defeat the purpose of

this Act.

DeFINITION oF New BusIneEsses

Section 2. For the purpose of this Act, a person, firm or

corporation shall be deemed to be engaged in a new indus-

try if duly qualified to do any business in the Virgin Islands

involving the manufacture, processing, creation or produc-

tion of any articles or commodities, or the application

thereof to a known unique process, which were not being

manufactured, processed, created or produced within the

said Islands prior to January 1, 1947, and in which indus-

try at the time of granting tax exemption there is an actual

and demonstrable capital investment of at least Ten Thou-

sand ($10,000.00) Dollars. For the purpose of this Act,

an article or commodity shall be deemed as being manu-

factured, processed, created, or produced within the islands

prior to January 1, 1947, if it was being manufactured,

processed, created or produced by an enterprise having at

said time an actual and demonstrable capital investment

of at least Ten Thousand ($10,000.00) Dollars. Provided

that such article continues at the time of application to be

manufactured, processed, created, or produced in the

Virgin Islands.

EXEMPTIONS AND SussIpies

Section 3. New Businesses: From and after the date of

approval of this enactment, all persons, firms, or corpora-

tions shall, upon application thereof, as hereinafter pro-

vided, be granted exemption from the payment of taxes or

fees and shall be eligible for industrial subsidies as speci-

fied in Section 6 of this Act, upon satisfactory proof that

such person, firm or corporation is engaged in a new indus-

try as hereinbefore defined, the said exemption and sub-

sidies to last for a period of ten (10) years from the date

of the order granting such exemption or subsidy; Provided,

That application for tax or fee exemption and the granting

30a

of subsidies under this Act shall be made not later than

December 31, 1960; and Provided, further, That in the case

of any enterprise engaged in the manufacture, creation,

or production of more than one article or commodity, the

exemption from payment of taxes or fees or granting of

industrial subsidies shall be restricted and limited only to

the portion of such enterprise as is not in competition with

existing enterprises within the meaning and spirit of this

Act.

Horets & Guest Houses

Section 4. Each person, firm or corporation operating

hotels and guest houses located in the Virgin Islands shall

be eligible for tax or fee exemptions and the subsidies pro-

vided for in Section 6 of this Act; and for the purposes of

this provision a hotel shall be considered any establish-

ment for the accommodation of the public, including hous-

ing and feeding of paying guests and any cottage resort

affording the above accommodations in which at the time

of application for tax or fee exemption or for subsidy there

is an actual and demonstrable capital investment of at least

One Hundred Thousand ($100,000.00) Dollars, provided

that application for tax or fee exemption and the granting

of subsidies hereunder shall be filed not later than Decem-

ber 31, 1960. And, as an added incentive, each person, firm

or corporation now operating a hotel and receiving sub-

sidies or tax exemption under this Act or any previous tax

exemption law shall, for each additional One Hundred

Thousand ($100,000.00) Dollars invested by him or it in

building additional accommodations and facilities to his or

its hotel, receive tax exemptions and subsidies as provided

for in section 6 of this Act, for an additional three (3)

years, but in no event for more than a total of six (6) addi-

tional years.

APARTMENTS—Hovsine ProJects

Section 5. Each person, firm or corporation engaged in

the business of constructing or operating apartment houses,

3la

housing projects, industrial or commercial buildings, within

the Virgin Islands, shall be eligible for the tax or fee ex-

emptions and the subsidies provided for in section 6 of this

Act; Provided there is a demonstrable capital investment

of at least One Hundred Thousand ($100,000.00) Dollars;

provided further that application for such subsidies and

exemptions shall be made not later than December 31, 1960;

and it is further provided, that no subsidies or exemptions

shall be granted to any person for the construction of any

home or dwelling to be occupied by himself or his family.

Extent or Sussinies & Exemptions GRANTED

Section 6(a). Each person, firm or corporation qualify-

ing for tax exemptions or subsidies under sections 3, 4 and

5 of this Act shall be exempt from the payment of the fol-

lowing taxes and fees:

1. All property taxes.

2. All trade taxes or excise taxes on building materials,

furnishings, and equipment necessary for the con-

struction of any new business or industry.

3. All annual or specific fees, except liquor l'cense fees

and automobile license fees.

4. All gross receipts taxes, except that this exemption

shall not apply to businesses operated by concession

or rental agreement on the premises of persons, firms

or corporations, including hotels, eligible for tax or

fee exemption or industrial subsidy, for which busi-

nesses separate licenses are required or which, as

determined by the Tax Exemption Board, are not

ordinarily related to, or do not constitute an essen-

tial part of, the operation of the exempt or sub-

sidized new businesses or industry, and which busi-

nesses are not otherwise eligible for exemption or

subsidies as a distinct enterprise.

32a

(b) Each person, firm or corporation qualifying under

Sections 3, 4 and 5 of this Act shall also be entitled to re-

ceive a non-taxable subsidy in an amount equal to Seventy

Five (75%) Per Cent of the Income Tax paid into the

Treasury of the Virgin Islands and one hundred (100%)

per cent of the import duties and other taxes on raw ma-

terial brought into the Islands for processing, actually paid

into the Treasury of the Virgin Islands by any such per-

sons, firms, or corporations. This subsidy shall be granted

over a period of ten (10) years, beginning with the estab-

lishment of the new business or enterprise.

period of ten (10 )years as hereinabove set forth to all

stockholders or partners of corporations and firms qualify-

ing under Sections 3, 4, 5 and 7 of this Act in an amount

equal to Fifty (50%) Per Cent of the Income Tax actually

paid iuto the Treasury of the Government of the Virgin

Islands on income derived by any such stockholders or

partners from the operation of the business or industry

covered under this law; provided, that said stockholders

or partners are bona fide residents of the Virgin Islands.

(d) The period of ten (10) years referred to in this sec-

tion shall be deemed to operate retroactively to include

new businesses, industries and enterprises heretofore

granted exemptions or subsidies in accordance with Bill

No. 293, the Tax Exemption Ordinance of the Municipality

of Saint Thomas and Saint John, approved January 25,

1954, as amended, or Bill No. 39, the Tax Exemption Ordi-

nance of the Municipality of Saint Croix, approved Janu-

ary 7, 1952, as amended, or any other enactments ante-

cedent of either; Provided, however, that nothing herein

contained shall be construed to extend the period of any

such tax-exemption or subsidy heretofore granted beyond

the original period of such exemption or subsidy.

33a

SEcuRITIES

Section 7(a). Each bona fide resident of the Virgin

Islands and each firm or corporation organized and doing

business in the Virgin Islands shall, for a period of ten

(10) years from the enactment of this law, be entitled to a

non-taxable subsidy each year in an amount equal to Fifty

(50%) per cent of the Income Tax paid on that portion of

his or its income, including interest, dividends and all other

earnings, derived from the purchase, transfer, assignment

or sale of stock, bonds and all other kinds of securities or

debentures of whatever character, purchased or sold each

year through an investment company located and author-

ized under the laws of the Virgin Islands to engage in such

a business; Provided, that no more than One Hundred

Thousand ($100,000.00) Dollars shall be paid as such sub-

sidy to any one taxpayer in any one year; and, provided

further, that the Commissioner of Finance shall, within a

reasonable period of time after the tax on said income is

paid, pay a first installment of not more than Fifty (50%)

per cent of said subsidy which may be due to the taxpayer;

the remaining installment of fifty (50%) per cent of the

subsidy due to the said taxpayer shall be paid by the Com-

missioner of Finance within one (1) year after the first

installment is paid, upon proper certification and proof

furnished to him by the taxpayer that an amount equal to

fifty (50%) per cent of the subsidy to which the taxpayer

is entitled in said taxable year, has been invested in busi-

ness veniures or projects located in the Virgin Islands

whose objectives may further and enhance the economic

development of the islands, such as: (a) bonds or other

securities issued by the Government of the Virgin Islands;

(b) stocks, bonds and mortgages and other securities on

property and businesses located in the Virgin Islands; (c)

the construction, operation, purchase or financing of land,

hotels, apartments, homes, offices, industrial and all other

types of buildings and structures in the Virgin Islands;

and (d) the purchase, operation, establishment or financ-

34a

ing of any existing or new businesses or projects which

would further the economic development of the islands.

Sa.es or SECURITIES

(b) No firm, company, or corporation shall, without first

securing a license or authorization to engage in said busi-

ness from the Government Secretary of the Virgin Islands,

engage in an investment brokerage business for the pur-

pose of buying and selling stocks, bonds, and other securi-

ties or debentures to and for others. No such license shall

issue, unless the firm, company, or corporation deposits in

a Reserve Account with a bank, designated by the Govern-

ment Secretary, Fifty Thousand ($50,000.00) Dollars in

cash or in interest-bearing United States Government Obli-

gations.

taxable subsidies pursuant to this Section shall annually,

within 60 days after payment of his or its Income Tax,

make application for said subsidies upon such forms and

pursuant to such rules and regulations as the Commissioner

of Finance shall prescribe.

PayMENT oF SussIpIEsS—REPORT

Section 8. The Commissioner of Finance shall compute

and determine annually the specific amount of the subsidy

to which each person, firm or corporation granted a subsidy

hereunder is entitled, and he is hereby authorized to make

payment of said subsidy in each case to [sic] person, firm

or corporation entitled to receive same from funds avail-

able in the special fund in the Treasury of the Virgin

Islands, and the Legislature of the Virgin Islands shall

appropriate sufficient funds in each annual budget to carry

out the provisions of this Act.

35a

Tax Exemption Boarp—Duties & Powers

Section 9(a). The provisions of this Act shall be admin-

istered by the Board of Tax Review heretofore created,

which shall, for the purposes of this Act, constitute the

Tax Exemption Board. Members of the Board shall be

entitled to travel allowance and such other compensation

as the legislature may provide.

All persons, firms or corporations entitled to tax benefits

pursuant to Sections 3, 4 and 5 of this Act shall, within 60

days after payment of such taxes, make applications for

tax or fee exemptions and for the granting of subsidies

under this Act to the said Board. In the performance of

its duties here under the said Board shall exercise the

following powers and authority.

1. Conduct preliminary hearings, after due notice

to all interested parties, with respect to applications

for tax or fee exemption and for the granting of sub-

sidies hereunder. At such hearings the Board shall

determine whether the proposed applicant is qualified

under the provisions of this Act. On the basis of its

findings, and not later than sixty (60) days after

receipt of application, the Board shall recommend to

the Governor that the application be approved or dis-

approved, and in the event approval is reconuiuended

that a temporary certificate of tax or fee exemption, or

qualification for subsidy be issued to the applicant

conditioned upon actual compliance with the provi-

sions of the law within a stated period.

2. Upon application of any person granted a tem-

porary certificate in accordance with the preceding

paragraph, or upon the expiration of any time limit

set in such a certificate, as the case may be, the Board

shall recommend to the Governor the final approval or

disapproval of applications made hereunder; provided

that if the Governor shall fail to either approve or

36a

disapprove the applications within thirty (30) days

after receipt of the Board’s recommendation the same

shall at the end of such period be deemed approved.

3. Recommend to the Governor, after notice and

hearing, the revocation of any tax or fce exemption or

denial of any subsidy for the unexpired portion of the

period for which granted in the event of the failure

of a person, firm or corporation to which such exemp-

tion or subsidy was granted to comply with the pro-

visions of this Act and the rules and regulations issued

in accordance therewith.

4. Hold hearings and investigations, subpoena wit-

nesses, records and books and inspect tax-exempt

properties and facilities upon due notice and promul-

gate such rules and regulations as may be necessary

to implement the operation of the program.

(b) Decisions of the Board, as to questions of fact, shall

be deemed final in any proceedings in any court except in

such cases as it shall be conclusively shown that any such

decision was arrived at by arbitrary or fraudulent means.

operate as an agency within the Department of Tourism

and Trade or its successor, and it shall be authorized to

employ such personnel from time to time as may be re-

quired to effectively administer and enforce the provisions

of this Act.

(d) The Board shall prescribe the procedure for all

applications for tax exemption and subsidies, and shall

give public notice in all local newspapers published and of

general circulation in the islands of all applications. Any

person, firm or corporation interested in the approval or

disapproval of an application may file a written statement

with the Board prior to the hearing on such application.

37a

GENERAL Provisions

Section 10, Upon the recommendations of the Board

tax or fee exemptions and subsidies as herein provided

for shall be granted in the name of the Government of the

Virgin Islands by the Governor of the Virgin Islands.

Section 11. Not less than seventy-five (75%) per cent of

all persons employed in any new industry, subject to this

law, shall be legal residents of the Virgin Islands. Pro-

vided, that the Board shall have the right to grant tempor-

ary permits to any new industry applying for or receiving

benefits under this law to employ a greater percentage of

non-residents of the Virgin Islands, when it is conclusively

proven to the Board that residents with the necessary

ability to perform the services required are not available

within the Virgin Islands and the industry is or will be

greatly handicapped as a result thereof; provided further

that the Board shall revoke or modify the permit when-

ever it appears that the necessary services have become

available within the Virgin Islands.

Section 12. Any person to be eligitle to receive a non-

taxable subsidy, pursuant to Section 7 of this Act, must be

a registered voter and have his domicile in the Virgin

Islands. Corporations to be eligible to receive the benefits

of the provisions of this Act must be organized and estab-

lished under the laws of the Virgin Islands,

Section 13. Trade or excise taxes or import duties or

income tax payments made by persons qualifying under

this Act shall be covered into a Special Account in the

Treasury of the Virgin Islands to be designated as the

‘Tax Exemption Fund’. The proper officers are hereby

authorized, without further legislation, to make refunds of

such taxes authorized under this Act from moneys in such

special account.

Section 14. No tax or fee exemption or subsidy granted

hereunder shall be revoked, modified, or rescinded without

38a

notice and hearing and under such rules as may be promul-

gated by the Tax Exemption Board from time to time.

Section 15. If any provision of this Act or the applica-

tion thereof to any person or circumstance is held invalid,

the remainder of the Act and the application of such pro-

visions to other persons or circumstances shall not be

affected thereby.

Section 16. (a) The following laws and ordinances are

hereby repealed: (1) Municipal Council of Saint Thomas

and Saint John, approved September 11, 1945 (Bill No.

99); November 11, 1948 (Bill No. 291); June 25, 1949

(Bill) No. 8); August 17, 1951 (Bill No. 67); July 7, 1953

(Bill No. 198); January 25, 1954 (Bill No. 293); February

16, 1954 (Bill No. 334); April 1, 1954 (Bill No. 349) ;

(2) Municipal Council of Saint Croix, approved June

25, 1949 (Bill No. 35); January 7, 1952 (Bill No. 39);

December 30, 1952 (Bill No. 98); January 4, 1954 (Bill

No. 96); September 24, 1954 (Bill No. 169) ;

(3) Act of the Legislature of the Virgin Islands, ap-

proved May 29, 1956 (Act No. 90).

(b) There is also hereby repealed all other laws, ordi-

nances or parts thereof as may be in conflict with any of the

provisions of this Act.

Approved July 5, 1957.

39a

APPENDIX F

Restatement of Contracts

Ch. 7 §§ 150-151

§ 151. Waar Ricuts Can Bz Errectivety Assicnep.

A right j i i

Z ght may be the subject of effective assignment un-

(a) the substitution of a right of the assignee for the

right of the assignor would vary materially the duty

of the obligor, or increase materially the burden or

risk imposed upon him by his contract, or impair

materially his chance of obtaining return perfor-

mance, or

(b) the assignment is forbidden b

y statute or by th

policy of the common law, or ge:

ue by the contract creating

§ 160. DeLecation or Perrormanog or a Duty

or A ConpDlITION.

(3) Performance or offer of

performance by a person

delegated has the same legal effect as performance a offer

- ~<a: by the person named in the contract, un-

(a) performance by the person delegated varies or would

vary materially from performance by the person

named in the contract as the one to perform, and

there has been no such assent to the del i i

stated in § 162, or creases

(b) the delegation is forbidden b i

y statute or b

of the common law, or edb

40a

APPENDIX G

Opinion of ine Attorney General

No. 1960-17

April 28, 1960

Dr. Roy H. Bornn

Chairman

Tax Exemption Board

St. Thomas, Virgin Islands

Dear Dr. Bornn:

I have your letter of March 2nd in which you request an

opinion as to the transferability of a tax exemption or sub-

sidy granted to an enterprise upon the event of a sale of

the enterprise.

I have looked over the statutes governing the granting

of exemptions and the making of subsidies to certain types

of businesses. At no place is found an express prohibition

concerning the transferability of such rights once vested in

a business with the exception of those sections which

provide for the revocation, modification or rescission of

the exemption or subsidy upon certain conditions of non-

compliance with the terms of the initial award.

It would seem thei that in order to determine whether

the intent of the Legislature was to affix this right unto

the business itself rather than to the specific owner of the

business, we must look to the declaration of intent as set

forth by the Legislature.

A key idea expressed in 33 V.I.C. § 404’ and in previous

declarations of policy in this type of legislation, is the idea

that the purpose is to attract new capital to the Virgin

Islands and to encourage the establishment of new industry

and to promote and stabilize the economy of the Virgin

Islands. Also, to have investment capital made available

1 So in original. Probably should be § 4001.

we.

to new and existiug businesses. I think this declaration

of policy pretty well solves the problem for the reason that

investment capital to a certain extent is attracted by

these promoting mechanisms of the local economy where

the lender or timancier participant expects to have a fi-

nancial benefit not customarily found in competitive fields.

This benefit, of course, is the making of certain exceptions

to certain types of taxation and the granting of certain

money payments to those businesses which qualify. If,

therefore, an investor could look forward to the loss of the

special rights upon the sale of the business, he would be far

less willing to invest his money here. So, likewise, would be

a future investor by way of a purchaser of an existing

business. Upon purchase, he would lose the benefits of

the original owner. Indeed, where a corporation is in-

volved as the one named in the grant, the beneficial owner

of the corporation is, of course, the shareholder. A share

transaction in which the purchaser of a business instead

of purchasing the assets, bought only the stock would

probably not come to the attention of the Government. In

the transfer of ownership by an individual or partnership

the stock transaction would not be possible. From the

administrative standpoint the Legislature undoubtedly con-

templated that the form of the business activity, whether

individual, partnership, or corporate, was of no special

importance since each was entitled to the grant where

qualified.

It is our opinion, therefore, that the exemption and

subsidy attaches to the business and not to the ownership

and continues for the period of the award, subject to mat-

ters such as are contemplated by 33 V.I.C. § 4109(a) (3).

Respectfully,

Russe.u B. Jonnson

Attorney General

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