Biggs, Chief Judge, and Staley and Ganey, Circuit Judges.
To encourage the establishment of new business and the investment of capital, the Virgin Islands enacted an Industrial Incentive Program. Act No. 224, Virgin Islands Sess. Laws (1957). Tax and fee exemptions, as well as industrial subsidies were to be granted to certain businesses and industries to achieve this end.
"(e) In order that the encouragement tendered by this Act * * * [would have] a real and unmistakably sure basis, the Government of the Virgin Islands * * * declare[d] that it consider[ed] 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 * * and the persons or corporations receiving the benefit of subsidies or tax exemptions, and that it [would] not adopt any legislation which [would] impair or limit such subsidies or tax exemptions * * *." Act No. 224 § 1(e), Virgin Islands Sess. Laws (1957).
Vitex Manufacturing Company, Limited ("Vitex") invested substantial amounts of capital to establish its woolen processing and finishing operations in the Virgin Islands. The district court found that these investments were induced by the availability of the tax and fee exemptions and subsidies. Vitex applied for and received on June 15, 1962, the tax and fee exemptions and subsidies made retroactive to September, 1961.*fn1 Pursuant to § 11 of the act, all exempt industries were to employ a minimum of 75% of their employees from resident sources. However, that same section also provided that temporary permits could be granted by the Tax Exemption Board (the statutory predecessor to the Industrial Incentive Board) to employ a greater percentage of aliens if resident labor was unavailable. Vitex obtained from the Board permission to employ up to 50% aliens, such permission ostensibly to expire on August 31, 1962. Two months after the limitation had expired, Vitex made application for an extension of the temporary permit, as sufficient resident labor was still unavailable. The Board replied by sending a notice of a hearing to Vitex with an order to appear and show cause why its tax exemption certificate should not be revoked. Both in the notice and at the hearing which followed, the only matter discussed was whether Vitex had violated the 75% quota requirements of § 11, in view of the time limitation that had been imposed by the Board.
On January 9, 1963, one day after Vitex's hearing, the Board met in executive session and voted to recommend to the Governor that the tax exemption certificate of Vitex be revoked. We believe the facts found by the district court, fully supported by the record, indicate more completely the circumstances surrounding the Board's deliberations:
"12. On January 9, 1963, the Virgin Islands Industrial Incentive Board in executive session, not only considered the availability of resident employees, but also considered facts and issues wholly unrelated to the question of available employees. Thus, it was established at the trial that the Governor of the Virgin Islands met with the Industrial Incentive Board prior to the executive session of January 9, 1963, and expressed his views regarding the appell[ee]*fn2 and its place in the economy of the Virgin Islands as it affected certain mainland industries and its right to continue to enjoy tax exemptions and subsidies. It was also established that the Board included the Governor's views in its deliberations while in executive session and also considered certain ex parte communications from the Governor which were not disclosed to the appell[ee] and which related to the appell[ee]'s place in the economy of the Virgin Islands * * *.
"13. At no time did the Board ever advise the appell[ee] that appell[ee]'s place in the economy of the mainland and the Virgin Islands and its right to continue to enjoy tax exemptions and subsidies would be considered by the Board or were under consideration by the Board, and appell[ee] received no notice of any such issue.
"14. The minutes of the executive session of the Board which was held on January 9, 1963, conclusively established that the Board considered matters not alluded to at the public hearing on January 8, 1963, in determining whether Vitex had complied with Section 11 of Act No. 224 and, as a matter of fact, it was established that other alleged violators of the 1957 Act were adjudged purely on the basis of compliance or non-compliance with Section 11, as distinct from the considerations and issues which determined the Board's conduct with regard to appell[ee].
"15. Other alleged violators of Section 11 of Act No. 224 (1957 Session Laws, 154) appearing on January 8, 1963, in response to a notice to show cause why their Certificates of Tax Exemption should not be revoked were Lee Manufacturing Company, Virgin Isle Hilton Hotel and Sapphire Beach Club. All except the Lee Manufacturing Company were found in violation of the law restricting alien employment; but nevertheless, no revocation or modification of any Certificate of Tax Exemption occurred to any of the alleged violators except appell[ee]."
On the basis of the Board's January 9 deliberations, the Governor was advised to revoke Vitex's certificate. The Governor, in a letter dated March 27, 1963, requested the Board to reconsider its recommendation in the light of the enactment of recent legislation and the proposal that Vitex voluntarily surrender its tax exemption certificate. Upon the Governor's approval of the Board's revised recommendations, the order reviewed here was then issued. In effect, the order deprived Vitex of most of the benefits it had previously enjoyed.
Upon application to the district court, the order was revoked on the grounds that Vitex had been denied due process because the notice and hearing did not include matters which were the bases of the Board's decision. Although the district court found the violations of the 75% quota requirement to be a "mere technical oversight," it concluded that the Board's recommendation and the Governor's order were "arbitrary and capricious." Act No. 224 § 9(b).
We agree with the result reached by the district court; however, we are unable to concur fully with its reasoning. It is clear to us that the district court's conclusion that Vitex had violated the statute was erroneous.*fn3 Section 11 of the 1957 Act provides:
"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. Provided, that the Board shall have the right to grant temporary 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 ...