Kalodner, Chief Judge, and Maris and Aldrich,*fn* Circuit Judges.
The Government of the Virgin Islands appeals from a judgment entered in the District Court of the Virgin Islands dismissing a claim filed by the Government against the Estate of Van B. Hooper, deceased, for reimbursement of $1,003,932.80, the amount of subsidies allegedly erroneously paid to the decedent for the tax years 1951 through 1960 under the industrial incentive program of the former Municipality of St. Croix, later of the Territory of the Virgin Islands.*fn1 The Government contends that dismissal of the claim by the District Court was erroneous because, as it asserts, the evidence conclusively shows that the grant of tax exemption and industrial subsidy payments to Hooper was an arbitrary action on the part of both the Tax Exemption Board and the Governor and was induced by fraud.
The evidence, which was undisputed, discloses the following facts:
Sometime prior to 1951 the decedent, Van B. Hooper, had organized a publishing company in Milwaukee, Wisconsin, Ideals Publishing Company, of which he was president and principal stockholder. Among other publications of the Company was a magazine called "Ideals" which Hooper had conceived and created and which apparently had a wide circulation. On January 16, 1951 Hooper entered into an agreement with his company to retire from active management thereof but "to render and give all required advice, and any and all creative services required by the Company in connection with preparing the publication of its various books and magazines, and to do any and all creative services required by the Company in connection with preparing the publication of its various books and magazines, and to do any and all research work including photography deemed by said Van B. Hooper as proper and incident thereto, and to make available to the said Company any or all of his present reference library and any additions thereto, resulting from his research subsequent to the date hereof." In addition he agreed to "direct to the extent required by said Company all research and editorial work, to the end that the publications of said Company will maintain their present standard, and improve as a result of the research and editorial service of said Van B. Hooper." He was not to be paid any further salary but rather to receive a royalty of 15 cents a copy for each copy of Ideals sold and 5 cents a copy for each of the other publications of the Company which were sold.
On March 20, 1951 Hooper applied to the Tax Exemption Board of the former Municipality of St. Croix for tax exemption and industrial subsidy under the Ordinance of the Municipal Council of St. Croix approved June 25, 1949, Bill No. 35, which was available in St. Croix to a person, firm or corporation qualifying as a new industry. In his application he described the type of business in which he proposed to engage as "Primarily creative editorial, advertising, tourist promotion and merchandising counsel. This will include the editing, supervising and creating of books, magazines, sales promotion and tourist promotion data." The amount of demonstrable capital invested was stated to be in excess of $10,000.00.*fn2
The Tax Exemption Board, which had been appointed under Section 5(a) of the Ordinance and was authorized to investigate all applications for tax or fee exemptions and for the granting of subsidies and to recommend to the Governor whether such applications should be approved or disapproved,*fn3 on July 10, 1951 recommended to the then acting Governor that Hooper's application be tentatively approved, conditioned, however, upon his transferring his "demonstrable capital investment" from the United States to St. Croix and, subject to that condition, the application was approved by the acting Governor.
On January 7, 1952 the Ordinance of June 25, 1949, Bill No. 35, was repealed and superseded by an Ordinance of the Municipal Council of St. Croix approved January 7, 1952, Bill No. 39. On March 10, 1952 Hooper received a grant of tax exemptions and industrial subsidies under the Ordinance of 1952, Bill No. 39, retroactive to March 5, 1951, for a period of eight years (later extended to ten years) "covering the editing, supervising and creating of books, magazines, sales promotion and tourist promotion data", conditioned upon continued compliance with the Ordinance. Under this grant he received exemptions from certain taxes and was paid industrial subsidies for ten years in an amount equal to 75% of the income tax which he paid into the treasury of the Municipality and later into the treasury of the Territory. No subsidy payments were made to Hooper until 1958 and 1959 when he was paid $659,064.08 for the tax years 1951 through 1958. Later he was paid $154,604.28 for the tax year 1959 and $190,264.44 for the tax year 1960, a total in all of $1,003,932.80.
Hooper's operation in the Virgin Islands consisted of assorting, selecting, and laying out art work and literary matter which eventually appeared in the magazine "Ideals" and other publications of Ideals Publishing Company. The contents of the magazine consisted principally of previously published poetry and illustrations carefully selected for each issue in keeping with the central theme which had been chosen for the issue. Members of the Company's staff in the Milwaukee office of the Company would go through volumes of poetry with a view to selecting poems relating to the theme. The poems so selected would be checked by other members of the Company's staff in Milwaukee before being sent to Hooper in St. Croix for his final selection and layout. Similar procedure would take place in Milwaukee with respect to prospective illustrations and art work. Then after Hooper had selected and laid out the contents of an issue, in some instances using designs or photographs of his own, he would send the format to the Company in Milwaukee where the printing and publication would take place and from whence the magazine was distributed.
On July 23, 1959 the Government Comptroller of the Virgin Islands filed an audit report taking exception to two payments of subsidy to Hooper based on income tax returns for the years 1951 and 1957. In both cases the exceptions were made on the ground that the payments represented subsidy on income tax paid on non-qualifying interest and dividend income.*fn4 It further appears that the exception in respect to the tax year 1957 was administratively settled but the question remained open in respect to the 1951 tax return. A reaudit by the Comptroller was requested. On February 20, 1961 the Comptroller filed a report on the audit which he had conducted of all the transactions involving the granting of the tax exemptions and industrial subsidies to Hooper. The Comptroller was of the opinion that Hooper's business did "not even, technically, qualify as a Virgin Islands business in itself" nor did it "by any stretch of the imagination come within the definition of 'new industry' within the purview of the intent and purposes contemplated by the Industrial Incentive Act of the Virgin Islands." He took an exception to the industrial subsidy payments to Hooper in the amount of $659,064.08 for the tax years 1951 through 1958, and recommended that the Board of Tax Review (Tax Exemption Board) consider the entire matter for the purpose of revoking the grant and requiring Hooper to return to the Government the amount of subsidy payments made to him, together with taxes and fees from which he had been exempted from payment. On December 29, 1961 the Board*fn5 reviewed the matter and adopted the opinion of the Attorney General who had expressed the view that there was no merit in any of the Comptroller's objections and that "Determination as to Mr. Van Hooper's eligibility as a 'new business or industry' was within the competence of the Tax Exemption Board and its judgment in this respect may not be reversed in the absence of a conclusive showing of arbitrariness or fraud." Subsidy payments were then authorized to be made to Hooper for the remaining tax years 1959 and 1960.
Hooper died on February 27, 1963 and letters testamentary were granted to the Marine National Exchange Bank of Milwaukee, the executor named under the will. The Comptroller on January 22, 1964 filed a supplementary audit report on the grant of the tax exemption and subsidies to Hooper and adhered to his earlier recommendation that action be taken to recover the amounts erroneously paid as subsidies. Accordingly, the Government filed a claim against the estate seeking recovery of $1,003,932.80, the amount allegedly erroneously paid to Hooper, which the executor refused to allow. The Government, pursuant to 15 V.I.C. § 395, then presented its claim against the estate to the district court for allowance.
After holding a hearing and considering the evidence, which was largely documentary, the district court filed findings of fact and concluded, as a matter of law, that the application for tax exemption and subsidies by Hooper had been made in good faith and without misrepresentation or fraud; that the recommendation by the Board to the Governor that the application be approved, conditioned upon the relocation of the invested capital to St. Croix, was not arbitrary or induced by fraud and was "deemed final" and that the grant of subsidies to Hooper was in the nature of a binding contract between the Government and Hooper which "may not be revoked, cancelled or rescinded". On the basis of these findings, a judgment was entered dismissing the Government's claim. This appeal by the Government of the Virgin Islands followed.
The Government contends that the Board, when it considered Hooper's application and recommended its approval, had acted arbitrarily in that certain procedures laid down by the Ordinances of 1949 and 1952 were not complied with. In this regard we observe that the Government is treating these proceedings as though it were appealing from an administrative order, in which event irregularities in procedure might be corrected upon review. However, in this case the time for review of errors or irregularities which do not go to the jurisdiction of the Board has long since passed. 1921 Code of St. Croix, title III, ch. 52, §§ 2, 4; 5 V.I.C. §§ 1421, 1422. See Lynch v. Bernal, 1870, 76 U.S. (9 Wall.) 315, 19 L. Ed. 714; 2 Am.Jur.2d Administrative Law §§ 493-495. Accordingly, these questions are not before us for consideration.
The Executor points out, and rightly so, that this action was brought to rescind a contract*fn6 on the ground of fraud or arbitrary conduct in its inception. It was upon this basis that the Government sought reimbursement of the industrial subsidy payments allegedly erroneously made to the decedent. We may say at the outset that we see no merit in the Government's contention that the Tax Exemption Board's recommendation was procured by such fraud and deceit as to vitiate the proceedings conducted by the Board. It would serve no useful purpose to discuss the grounds upon which the Government relies in support of its allegation of fraud. Suffice it to say that our review of the record convinces us that the district court did not err in ...