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West Indian Co. v. Government of Virgin Islands

filed: March 31, 1988.


On Appeal From The District Court Of the Virgin Islands (St. Thomas), D.C. Civil No. 86-293.

Gibbons, Chief Judge, Stapleton, and Mansmann, Circuit Judges.

Author: Stapleton


STAPLETON, Circuit Judge:

The intervenors in this action, including the present Virgin Islands legislature and the officers of various interested citizen groups, appeal from a summary judgment in favor of, and grant of a permanent injunction to, the West Indian Co., Ltd. (WICO). The central issue presented is whether a 1982 agreement between WICO and the Government of the Virgin Islands, ratified by the legislature then sitting, should be considered contractually binding on the present legislature. The district court held that it should; the intervenors contend that it should not. Because we agree with the district court's conclusions that the 1982 agreement is a contract and that the present legislature's attempt to cancel it by means of the Repeal Act is a violation of the contract clause of the United States Constitution, incorporated into Virgin Islands law by § 3 of the Revised Organic Act, we will affirm.


WICO is a Dutch-owned Virgin Islands corporation. In 1913, Denmark, then the sovereign of the Virgin Islands, granted WICO, then a Dutch entity, rights in certain parts of the Long Bay area of the St. Thomas harbor on Charlotte Amalie. This grant was evidenced by two letters to WICO from the Danish Ministry of Finance, dated January 18, 1913 and April 16, 1913.*fn1 Of these letters, the first was the more significant; it provided that when designated submerged areas of the harbor had been reclaimed by WICO, the company would acquire free and unrestricted ownership of the land. No time limitations restricted WICO's reclamation rights under this original grant.

In 1914, WICO built a dock and harbor basin in the area covered by the grant, leaving it with reclamation rights in 42 additional acres. Although it did business in the Virgin Islands continuously over the years, using its dock and harbor basin, WICO did not proceed with any further reclamation until 1986.

In 1917, Denmark ceded the Virgin Islands to the United States. WICO's rights were specifically preserved by § 3 of the Convention of Cession, which read:

4) The United States will maintain the following grants, concessions and licenses, given by the Danish Government, in accordance with the terms on which they are given:

a. The concession granted to 'Det vestindiske Kompagni' (the West-Indian Company) Ltd. by the communications from the Ministry of Finance of January 18th 1913 and of April 16th 1913 relative to a license to embank, drain, deepen and utilize certain areas in St. Thomas Harbor, and preferential rights as to commercial, industrial or shipping establishments in the said Harbor.

App. at 30, 32. Before signing the Convention, the United States asked Denmark whether the grant to WICO was in perpetuity; Denmark responded that it was, and that there was no limitation as to the time within which WICO had to exercise its rights.*fn2

No further developments of significance took place until 1968, when the United States Department of the Interior filed suit in federal district court in the Virgin Islands, seeking to quiet title to the area of WICO's Danish grant and secure a declaratory judgment that WICO's treaty rights had lapsed. WICO defended this action, arguing that its treaty rights to reclaim and take title were vested and in perpetuity. While this suit was pending, the Danish Government sent a formal diplomatic note, dated June 25, 1970, to the United States Government, stating that WICO's treaty rights had originally been granted by Denmark without condition as to time and requesting that those rights be respected.

WICO proposed a settlement of the suit to both the Department of the Interior and the Virgin Islands Government, although the latter was not formally a party, and negotiations began. The parties to the negotiations included the United States Government, the Virgin Islands Government, WICO, and other private parties with interests in the harbor. The negotiations were successfully concluded in 1972 with a settlement agreement, the substance of which was that WICO would surrender reclamation rights to 12 out of the 42 acres at issue and the United States and Virgin Islands Governments would recognize WICO's right to reclaim and obtain title to the remaining 30 acres. A number of other obligations were also assumed by WICO as conditions of the settlement; for example, WICO agreed to fill in an extra 2.5 acres for public parkland and transfer it to the Virgin Islands Government, and to fill certain waterfront land so as to enable the Government to widen the shoreline highway from two to four lanes. The conditions of the settlement agreement were embodied in a document called the Memorandum of Understanding. The parties included in the Memorandum a statement of reasons why they believed the conveyance to WICO would further the public interest, including not only the above benefits but also the expected increase in employment, improvement of facilities for tourism, and elimination of the "possible cloud over the future of St. Thomas Harbor" posed by WICO's Danish rights.

Because at that time the United States held title to the submerged lands surrounding the Virgin Islands, the parties to the settlement considered it necessary to arrange a two-step procedure for transferring title to the 30 acres to WICO after reclamation: the United States Government would convey to the Virgin Islands Government, and the Virgin Islands Government to WICO. The Memorandum was not particularly clear, however, on just when the transfer of title was to be accomplished. It provided that after specified conditions had been met, the parties would meet at a Closing to exchange various documents; after the Closing, further conditions would have to be met, mainly the completion of reclamation within specified time limits, before WICO would actually receive title. "Once reclaimed," § 15(b) of the Memorandum states, "the areas filled shall belong to WICO in fee simple . . . provided that WICO is then in compliance with Sections 2 and 8 of this Agreement requiring WICO to fill and provide land for the V.I. Government." Section 15(b) of the Memorandum also contains the following provision:

Except as otherwise specifically provided herein, this Agreement shall be binding upon and shall inure to the benefit of the parties, their successors and assigns.

When the settlement had been reached, public hearings were held. The agreement then went to the Virgin Islands legislature, the Ninth Legislature, for ratification, which was forthcoming in the form of Act No. 3326, passed on October 11, 1972 and formally approved by the Governor on October 30, 1972. Because the Virgin Islands Government was not a party to the underlying suit, its ratification of the settlement took the form of a recommendation to the United States Government to accept and implement the settlement. There is no evidence that the Ninth Legislature acted hastily or without full information and adequate opportunity for public comment in approving the settlement agreement.*fn3

The Memorandum of Understanding was signed on October 3, 1973 by the United States Government, the Virgin Islands Government, WICO, and the other interested private parties. The Memorandum was filed with the district court, and the Department of the Interior's action was stayed sine die pending completion of the various prerequisites to closing and ultimate transfer of title specified in the Memorandum.

The preconditions set by the Memorandum to transfer of title were never fulfilled; the order of events envisioned by the drafters of the Memorandum was altered in several respects. First, in October 5, 1974, the United States passed the 1974 Territorial Submerged Lands Act, 48 U.S.C. §§ 1701-1708 (1982 & 1987 Supp.). Under this law,

subject to valid existing rights, all right, title, and interest of the United States in lands permanently or periodically covered by tidal waters . . . and in artificially made, filled in, or reclaimed lands which were formerly permanently or periodically covered by tidal waters, are hereby conveyed to the governments of Guam, the Virgin Islands, and American Samoa, as the case may be, to be administered in trust for the benefit of the people thereof.

48 U.S.C. § 1705(a). To accommodate this change in circumstances, WICO drafted and presented to the Virgin Islands Government a First Addendum to the Memorandum, dated October 28, 1975. This Addendum simply eliminated the first of the two steps of the title transfer procedure. The executive branch of the Virgin Islands Government agreed to this change, and the Virgin Islands Attorney General, considering the change purely procedural, determined that there was no need to submit the First Addendum to the legislature for approval.

A second departure from the expected was the enactment, in October of 1978, of the Virgin Islands Coastal Zone Management Act (CZMA), 12 V.I.C. §§ 901-914 (1982 & 1987 Supp.). The general purpose of the Virgin Islands CZMA was to set up a comprehensive program for the management, conservation, and orderly development of the coastal area; the main method of implementing this program was a permit system run by the Coastal Zone Management Commission, a new unit of the Department of Conservation and Cultural Affairs. The thrust of the CZMA is thus to require those wishing to engage in new development of the coastal area, whether on private or public lands, to obtain a permit to do so from the Virgin Islands Coastal Zone Management Commission. Federal permits for coastal area development in the Virgin Islands must often be obtained in addition to Virgin Islands permits.*fn4

Section 910 of the CZMA sets forth conditions regarding when a Virgin Islands coastal zone permit is required and may be granted, and outlines the procedures for application. These conditions and procedures apply to both privately- and publicly-held land. However, § 911 imposes stringent additional restrictions and conditions on use or development of public lands. The most important of these additional restrictions, for purposes of this case, are those of §§ 911(a) and (d). These sections forbid conveyance of publicly-held coastal zone areas to private parties; they require a permit or lease for any development or occupancy of such areas, and limit the term of such permit or lease to a maximum of 20 years.*fn5 Coastal zone permits for any use of public lands must provide for payment of rental fees; if the permit authorizes dredging, the permit must provide for reclamation fees. § 911(f)(1), (2). Fee schedules are set by the Coastal Zone Management Commission. § 911 (f)(3). A coastal zone permit for public lands may be modified or revoked during its term, upon a determination by the Governor that revocation or modification is in the public interest and necessary to prevent significant environmental damage. § 911(g). The CZMA is careful to avoid retroactive effect by specifying that

nothing herein contained shall be construed to abridge or alter vested rights obtained in a development in the first tier coastal zone prior to the effective date of this chapter or any occupancy permit or lease of trust lands or other submerged or filled lands issued prior to the effective date of this chapter. . . .

§ 905(g).*fn6

After passage of the CZMA, WICO promptly notified the Virgin Islands Legislature and Governor that it would consider application of the CZMA to it to be a material breach of the Memorandum of Understanding. Negotiations began, and by September of 1981 a compromise had been worked out. The basic terms of this bargain, embodied in a Second Addendum to the Memorandum of Understanding,*fn7 were that WICO would give up about half of its remaining 30-acre claim in exchange for the Virgin Islands Government's promise to convey to WICO title to the 15 acres left.*fn8 There are many additional conditions in the Second Addendum. WICO agreed, for example, to specified zoning restrictions and specified limited uses, to a height restriction of three stories, and to reserve a certain percentage of its area for "usable open space." § 11(b). These agreed-upon restrictions, however, apply only to development commenced within ten years of reclamation and completed within 15 years of reclamation; any development not commenced or completed within these time limits, and "any development beyond that explicitly contemplated by this Agreement," is controlled instead by the "then current laws," the CZMA or its future equivalent. § 12(a). In addition, the Second Addendum provides that "as to any matters not specifically covered by the Agreement, such as utilities, siting, performance standards, design and landscape, WICO shall be subject to the requirement of a Coastal Zone Management permit." § 12(b). The Virgin Islands Government, for its part, agreed in the Second Addendum that WICO was not to be subject to the charges mandated by § 911 for rental of or removal of dredge fill from publicly-held lands, and that WICO was to be able to use its land free of the use or rental charges imposed by § 911 on publicly-held land. § 19(e).

Like the Memorandum, the Second Addendum provides that after certain conditions are met, a Closing is to be held, at which conveyances and other documents are to be exchanged by the parties; transfer of title is accomplished after further conditions are met, most importantly completion of reclamation. Once WICO begins reclamation, as it has done, time limits within which it must finish apply. The Second Addendum follows the Memorandum in stating that when the specified acreage has been reclaimed, "WICO shall have title to and ownership of the areas filled . . . provided that WICO is then in compliance with Section 2 of this Agreement requiring WICO to fill and provide land for the V.I. Government," and that "except as otherwise specifically provided herein, this Agreement shall be binding upon and shall inure to the benefit of the parties, their successors and assigns." § 16(b). The Second Addendum also specifies that nothing contained in it is to affect the rights of the United States or Virgin Islands Governments to acquire by eminent domain or condemnation the lands covered by the Addendum. § 19(a).

A condition of the Second Addendum was that the CZMA be amended to exempt WICO from its provisions insofar as the Addendum replaced or nullified application of those provisions. The CZMA was duly amended by the Fourteenth Legislature on April 7, 1982 by Act No. 4700. Act No. 4700 added the following paragraph to the Coastal Zone Act:

(5) any treaty right, grant, or concession which was vested in any party prior to the date of enactment of this chapter and which in whole or in part has been expressly recognized by statute, court order, or lawfully executed agreement as binding on the Government of the Virgin Islands, whether such recognition precedes or succeeds the date of enactment of this chapter, and subject to any agreements or Memorandums of ...

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