Land Holdings (St.Thomas) Ltd. v. Mega Holdings, Inc. , 283 F.3d 616 ( 2002 )

Opinions of the United
2002 Decisions States Court of Appeals
for the Third Circuit
3-15-2002
Land Holdings v. Mega Holdings Inc
Precedential or Non-Precedential:
Docket 0-2890
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Recommended Citation
"Land Holdings v. Mega Holdings Inc" (2002). 2002 Decisions. Paper 181.
http://digitalcommons.law.villanova.edu/thirdcircuit_2002/181
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PRECEDENTIAL
Filed March 15, 2002
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 00-2890
LAND HOLDINGS (ST. THOMAS) LTD., an Isle
of Man corporation
v.
MEGA HOLDINGS, INC.; KATHY MULLEN d/b/a
REGENCY CHARTER SERVICES; AQUAMARINE TOURS,
INC.; MAGDALENA JAMES; DENNIS JAMES d/b/a
BERNIE'S TREASURES; STEVEN BISHOP d/b/a STEVEN
BISHOP, INC. d/b/a BISHOPS ARCHITECTURAL;
CAPTAIN AND CREW OF THE CARIBBEAN, INC.;
CARIBBEAN SAILING CHARTERS, INC.; ROBERT
CARSON; DENISE CARSON d/b/a CARSON YACHT
BROKER; VERNA RUAN d/b/a CREWED CHARTERS;
DARYL LANHAM SULLIVAN; ERICA BENJAMIN d/b/a
ERICA'S HAIR DESIGN; CHUCK FERGUSON; BRUCE
WILLIAMS; MANJO VED d/b/a M&J TRADING; JEFF
FROVARP d/b/a PLASTICALLY NEW; DENNIS FRICKE
d/b/a REFCO MARINE REFRIGERATION; SEABORNE
AVIATION, INC.; MEL LUFF d/b/a UNDER WATER
SAFARIS; GATELE WEEKES d/b/a VI CANVAS; D.
AVELLOGG d/b/a VIRGIN ISLANDS CHARTER YACHT
LEAGUE - FLAGSHIP; MICHAEL RUICH d/b/a VIRGIN
ISLAND CHARTER YACHT LEAGUE - MARINA; WON'S
CORPORATION d/b/a WOK ON WATER EXPRESS;
WATER UNDER THE PIER, INC. AND ANY AND ALL
PERSONS OR CORPORATIONS CLAIMING AN INTEREST
OF ANY KIND OR NATURE WHATSOEVER IN OR TO
PLOTS 4 OR 4C OF ESTATE THOMAS, ST. THOMAS,
US VIRGIN ISLANDS
*Kathy Mullen d/b/a Regency Charter Services
and Aquamarine Tours, Inc.,
Appellants
*(See Court's Order dated 10/10/01)
APPEAL FROM THE DISTRICT COURT OF THE
VIRGIN ISLANDS
(D.C. No. 98-cv-00078)
District Judge: The Honorable Thomas K. Moore
Argued December 6, 2001
BEFORE: BECKER, Chief Judge, NYGAARD and COWEN,
Circuit Judges.
(Filed March 15, 2002)
John H. Benham, III, Esq. (Argued)
Watts & Benham
No. 1 Frederiksberg Gade
P.O. Box 11720
Charlotte Amalie, Saint Thomas
USVI, 00801
Counsel for Appellant
Richard H. Dollison, Esq. (Argued)
Stryker, Duensing, Casner &
Dollison
Drakes Passage, 2nd Floor
P.O. Box 6785
Charlotte Amalie, St. Thomas
USVI, 00804
Counsel for Appellee
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OPINION OF THE COURT
NYGAARD, Circuit Judge.
The District Court granted Land Holdings Ltd.'s motion
for summary judgment. Appellants, Aquamarine Tours, Inc.
and Kathy Mullen d/b/a Regency Charter Services, Inc.,
raise four issues on appeal. First, they contend that the
District Court of the Virgin Islands did not have subject
matter jurisdiction over this foreclosure action because
Land Holdings collusively manufactured diversity, and that
the amount in controversy did not reach the required
threshold. Second, they contend that Land Holdings should
have been precluded from filing this foreclosure action in
the Virgin Islands because they had not complied with the
registration requirements of the Virgin Islands' Criminally
Influenced and Corrupt Organizations Act ("CICO"), 14
V.I.C. S 600 et seq. Third, they contend that summary
judgment was inappropriate because there were issues of
material fact as to whether Land Holdings had ever actually
been assigned the mortgage, and, finally, Appellants claim
that Land Holdings was precluded from foreclosing
Aquamarine's lease because they acquired the Mortgage
with actual knowledge of this lease interest. We will affirm.
I.
FACTS AND PROCEDURAL BACKGROUND
In 1986, Virgin Island Yacht Harbor, Inc. ("VIYH")
borrowed more than $15,000,000 from the Bank of Nova
Scotia, secured by a duly recorded first priority mortgage
on a parcel of real property in St. Thomas, U.S. Virgin
Islands. VIYH defaulted on the note and mortgage, and
negotiated a Deed in Lieu of Foreclosure Agreement with
the Bank, pursuant to which VIYH conveyed the Property to
Yacht Haven Holdings ("YHH"), a separate legal entity
created and wholly owned by the Bank. This transfer
constituted complete satisfaction of VIYH's debt to the
Bank.
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After this transfer, the Bank sold and assigned the
Mortgage on the Property to Land Holdings, Inc. for more
than $3 million. This transfer was recorded. At the same
time, YHH quitclaimed its fee ownership of the Property to
Mega Holdings, Inc. for the price of $1. The result of these,
and other, complicated transactions was that the Bank
completely divested itself of all interests resulting from its
dealings with VIYH, and Mega Holdings became the fee
owner of the Property, which was encumbered by a valid
first priority lien held by Land Holdings.
Mega Holdings subsequently defaulted on the Mortgage,
now held by Land Holdings and secured by the Property.
Land Holdings then sued Mega Holdings for: an
adjudication that its lien on the Property was superior to all
other claims; a decree that the Property was to be sold at
public auction to satisfy the debt; and a judgment of
foreclosure on the Property that would require all parties in
possession of the Property to quit the premises in
anticipation of the foreclosure sale. The initial lawsuit
named 21 separate defendants, but by the time the District
Court reached the summary judgment stage, only Mega
Holdings, Aquamarine Tours, and Kathy Mullen d/b/a
Regency Charter Services remained.
II.
DISCUSSION
A. Diversity Jurisdiction
Appellants contend that the assignment of the Mortgage
from the Bank of Nova Scotia to Land Holdings was
illegitimate or a sham, designed to collusively manufacture
diversity jurisdiction in violation of federal law. We disagree.
When evaluating the legitimacy of the assignment of a
mortgage as it relates to diversity jurisdiction, courts must
consider: the amount of interest the assignor (the Bank)
retains in the foreclosure action; what legitimate business
purpose motivated the assignment; and the amount of
consideration given by the assignee for the assignment. See
Wright, Miller & Cooper, Federal Practice and Procedure:
Jurisdiction 2d S 3639. Looking at these factors, the District
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Court concluded that the assignment was legitimate. We
agree.
Case law makes clear that the legitimacy of the transfer
or assignment of a mortgage is a far more important factor
in determining whether jurisdiction was collusively
manufactured than is the motive of the parties for the
assignment. As we have previously held, "[i]f the transferor
retains no interest in the subject matter and the transfer is
unconditional, the transfer is not improper or collusive even
if motivated by a desire to create diversity." Nobel v.
Morchesky, 697 F.2d 97, 101 (3d Cir. 1982). 1 Thus, parties
can enter into a transaction to create diversity, so long as
the transaction is legitimate.
Land Holdings was incorporated outside of the Virgin
Islands (it is organized under the laws of the Isle of Man),
and all Defendants/Appellants are citizens of the Virgin
Islands. Thus diversity jurisdiction is proper unless the
facts show that either the offshore organization of Land
Holdings or the assignment of the Mortgage to it was a sham.2
Land Holdings was organized offshore for tax purposes, and
this practice of utilizing offshore corporations is part of the
"normal and customary practice" of its principals.
Furthermore, Land Holdings paid more than three million
dollars to the Bank of Nova Scotia for the assignment of the
mortgage. It is also a customary business practice to sell
defaulted loans at a discount. Additionally, the Bank did
not retain any continuing interest in the Mortgage or in the
_________________________________________________________________
1. Aquamarine relies on Kramer v. Carribean Mills, Inc., 394 U.S. 823(1969) for the proposition that an assignment motivated by a desire to
acquire diversity jurisdiction is invalid. However, Aquamarine ignores
that in Kramer, the attorney who accepted the assignment of the claim
paid $1 for it and agreed to pay back to the assignor 95% of any net
recovery. Under these circumstances, the Court concluded that this was
in fact no assignment at all, but rather, Kramer was paid a 5% fee "for
the use of his name and his trouble in collecting." Id. at 528. As is
discussed below, the assignment at issue in this case bears no
resemblance to that in Kramer.
2. 128 U.S.C. S 1359 states "a district court shall not have jurisdiction
of
a civil action in which any party, by assignment or otherwise, has been
improperly or collusively made or joined to invoke the jurisdiction of
such court."
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foreclosure proceedings. Finally, and perhaps most
important, the Bank itself was a foreign corporation that
could have brought this foreclosure action in federal court
absent the assignment. Considering these facts, the District
Court was correct to find valid diversity among the parties.
Finally, Aquamarine claims, in the alternative, that the
amount in controversy requirement has not been met
because the Deed in Lieu of Foreclosure discharged the
entire mortgage debt and thus, Mega Holdings actually
owes no money to Land Holdings. This is not true. The
Deed in Lieu of Foreclosure discharged the debt as to VIYH,
but the Property remained encumbered with the Mortgage,
and Mega Holdings knew and does not dispute this. There
is no other explanation for how Mega Holdings acquired a
multi-million dollar parcel of land for $1. Because this
foreclosure action concerns a multi-million dollar parcel of
property, the amount in controversy requirement was easily
met and Aquamarine's claim to the contrary is without
merit. See, e.g., Ambassador East, Inc. v. Orsatti, Inc., 257
F.2d 79 (3d Cir. 1958). The District Court properly
concluded that it had diversity jurisdiction to hear this
foreclosure action.
B. The CICO Act
CICO forbids alien corporations from owning, purchasing
or selling real property in the Virgin Islands, and from
bringing suit in the Virgin Islands, until that corporation
has complied with the registration requirements of the
CICO Act. 14 V.I.C. S 611(e). Land Holdings is an "alien
corporation" within the meaning of this Act. 14 V.I.C.
S 604(a). Aquamarine argues that Land Holdings is barred
from filing this action because it has not registered
pursuant to CICO. The District Court found that Land
Holdings did comply with the foreign corporation
registration requirements found at 13 V.I.C. S 401(a) and
that, because this statute requires a corporation to provide
to the Lieutenant Governor information that is substantially
similar to that required by the CICO statute, compliance
with the former brought Land Holdings into substantial
compliance with the later. Thus, the District Court
concluded, Land Holdings could proceed with its
foreclosure action. We agree.
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The CICO Act requires alien corporations to file with the
Lieutenant Governor a sworn report setting forth the name
of the corporation, the address of the corporation, the
names and addresses of each officer and director of the
corporation, the name of the registered agent and the
address of the registered agent and registered office of the
corporation, and the signatures of the corporate president
and other officers attesting to the accuracy of the above
information. 14 V.I.C. S 611(c). Similarly, 13 V.I.C. S 401
requires foreign corporations desiring to do business in the
Virgin Islands to file with the Lieutenant Governor a
certified copy of its charter or certificate of incorporation, a
certificate designating the corporation's agent for service of
process, and a sworn statement of the assets, liabilities and
capital stock of the corporation.
The purpose of the CICO Act, as stated at 14 V.I.C.S 601,
is to "curtail criminal activity . . . in the . .. Virgin Islands."
The Virgin Islands legislature found that alien corporations,
through the use of fictitious names, may be used for
illegitimate purposes. 14 V.I.C. S 603(c). To crack down on
these illegitimate alien corporations, the Act, among other
things, imposes the reporting requirements detailed above.
Because 13 V.I.C. S 401 imposes substantially similar
reporting requirements on foreign corporations doing
business in the Virgin Islands, compliance with the Title 13
requirements achieves the goals of the CICO Act. 3 Land
Holdings has complied with Title 13. Thus, it is in
substantial compliance with the CICO Act and can
maintain this foreclosure action in the District Court for the
Virgin Islands.4 We will affirm. 5
_________________________________________________________________
3. The main registration requirement that the CICO Act, 14 V.I.C.
S 611(c), imposes on foreign corporations that is not required under 13
V.I.C. S 401(a), is that alien corporations must under CICO provide the
Lieutenant Governor with the address of a "registered office." 14 V.I.C.
S 611(c)(4). Because Land Holdings provided an address for its business
agent in the Virgin Islands, and there is no suggestion that it attempted
to conceal the location from which it operated in the Virgin Islands, we
think that the District Court did not err in concluding that Land
Holdings substantially complied with the CICO Act for purposes of
proceeding with this case.
4. We do not hold that a corporation's compliance with the registration
requirements of either the Virgin Islands CICO Act, 14 V.I.C. S 611(c), or
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III.
CONCLUSION
In sum, and for the above reasons, we will affirm the
District Court's grant of summary judgment in favor of
Land Holdings.
A True Copy:
Teste:
Clerk of the United States Court of Appeals
for the Third Circuit
_________________________________________________________________
with the registration requirements for foreign corporations found at 13
V.I.C. S 401(a), always constitutes substantial compliance with the other.
We also note that our holding does not preclude the Government of the
Virgin Islands from pursuing an action to require Land Holdings to
comply with the registration requirements of the CICO Act.
5. Appellants' raise two other issues on appeal. First they contend that
"it [is] a disputed fact whether the Bank retained the mortgage that it
purported to assign to Land Holdings." They argue that "[i]f [the Bank]
transferred the Mortgage to YHH in 1997, and then assigned that same
Mortgage to Land Holdings in 1998, they [the Bank] assigned nothing to
the Plaintiff, and Plaintiff received nothing by way of the assignment,
because an assignee takes only what his assignor conveys, and nothing
more." Following this reasoning, they argue that if the Mortgage was not
assigned to Land Holdings, it has no foreclosure claim to bring and this
action should be dismissed. Next they argue that Land Holdings was
precluded from foreclosing Aquamarine's lease because Land Holdings
acquired the Mortgage with actual knowledge of this lease interest. These
arguments are without merit.
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