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

filed: February 2, 1989.


Appeal from the District Court of the Virgin Islands Division of St. Croix, Christiansted Jurisdiction, D.C. Civil No. 87-0126.

Greenberg, Scirica, and Weis, Circuit Judges.

Author: Weis


WEIS, Circuit Judge.

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

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

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

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

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

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

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

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

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

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

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