Tracy Leigh Development Corporation v. Government of the Virgin Islands ( 1974 )

OPINION OF THE COURT

ADAMS, Circuit Judge

Resolution of this case turns primarily on the willingness or power of this Court to correct an alleged “drafting oversight” by the Virgin Islands legislature in enacting a statute that conferred certain specified categories of tax relief.

The appellant, Tracy Leigh Development Corp. (“Tracy Leigh”) contends vigorously that it is our province, and indeed our duty, to supply a term to the Virgin Islands Code which, it is asserted, the draftsmen unintentionally omitted. Standing in sharp counterpoint to this contention are doctrines of judicial temperance, doctrines which take on a heightened significance when the elemental relationship of courts to legislatures is put in issue.

I.

The facts of the case have been stipulated by the parties. Tracy Leigh was incorporated under the laws of the Virgin Islands on February 24,1967. On June 23,1967, Tracy Leigh purchased about four acres of land on St. Thomas, for approximately $130,000.¹ On October 26,1967, the corporation applied for a grant of “tax or fee exemptions and subsidies” under the Virgin Islands Industrial Incentive Act.² A public hearing on the application was held on December 14, 1967, and an executive committee of the Industrial Incentive Board approved the application on February 11, 1969.³ The grant was made effective from October 26,1967, the date of the application, for a period of ten years. Subsequently, in 1970, the Government of the Virgin Islands refused to pay Tracy Leigh the subsidies provided for in the grant, declined to recognize any of the tax exemptions conferred by the grant, and filed a lien against Tracy Leigh for taxes owed.⁴ The Government’s failure to comply with the terms of the grant reflected a recommendation by the Comptroller of the Virgin Islands to the Governor that “no subsidy payments be made under this grant” and “that any taxes or fees exempted under this grant be billed and collected, and that the grant be voided.”⁵ ■

Under protest Tracy Leigh paid the asserted tax deficiency, and then brought this lawsuit in the district court. It sought a declaration of the validity of the exemption and subsidy grant, a payment of the subsidies, and a refund of the taxes it had paid under protest.

The Government, in defending the suit, asserted that the tax exemption and subsidy grant exceeded the terms of the authorizing statute. The district court declared the grant void as not supported by the terms of the statute, and Tracy Leigh has appealed.

II.

The Virgin Islands Industrial Incentive Act was enacted by the Islands’ legislature “to promote the economic development of the Virgin Islands by the offering of certain incentives to the establishment or expansion of industries or businesses.”⁶ The Incentive program was repealed in July of 1972.⁷ As of September 25, 1967, the Act provided in part as follows:

“A person, firm, or corporation engaged in or about to engage in an industrial or business activity in the Virgin Islands, which industrial or business activity in the judgment of the Governor of the Virgin Islands, will promote the public interest by economic development of the Virgin Islands, may apply for the [tax exemption and subsidy] if such person, firm, or corporation meets the following requirements:

. . . (3) undertakes to invest in an industry or business in the Virgin Islands. . . .

(B) at least $75,000 in the establishment of a business engaged in the ownership of housing projects . . . , factories, industrial plants, or commercial warehouses, industrial parks, condondnium(s) . . . , including the actual construction of such housing projects, factories, industrial plants or commercial warehouses, industrial parks when such construction is engaged in by the owner.” (Emphasis added.)⁸

It is conceded by the parties that Tracy Leigh was engaged in the “construction” of condominiums. Indeed, the tax exemption and subsidy form reflects that the award to Tracy Leigh was predicated on the corporation’s intended “construction and sale to first buyer of condominium units.”⁹ The Government, in seeking to justify the voiding of the grant, points out what is plain: that in authorizing grants to those engaged solely in “construction,” the legislature did not include condominiums among the facilities for which construction grants could be given. Tracy Leigh, the Government urges, was thus not entitled to any grant for the construction of condominiums and, since condominium construction was the precise and express basis for Tracy Leigh’s tax exemption and subsidy, the grant was void ab initio.

Tracy Leigh’s central contention is that the failure of the legislature to include condominium construction among those activities for which exemptions and subsidies might validly be granted, was an “obvious drafting oversight.” In support of this contention we are pointed to an earlier version of the authorizing statute, enacted a few months prior to the amendment of September 25, 1967.¹⁰ The earlier statute, after listing condominiums among the facilities for which “ownership” grants could be given, further authorized grants for “construction or operation of the same,”¹¹ This terminology, beyond doubt, meant that exemptions and subsidies could validly issue under the earlier version of the Act for the construction of condominiums.

However, in the September 25th amendment the legislature did not use the phrase “the same”. Instead, the legislature undertook a specific enumeration of all those types of facilities for which construction grants were authorized. This enumeration tracked the listing of valid ownership grants, with the single exception of condominiums. Tracy Leigh maintains that, when read against the earlier enactment, the omission from the September 25th amendment of an authorization of grants for construction of condominiums was clearly an unintended omission — an “oversight” — by the legislature. We are asked to rectify that oversight by supplying the missing term, and so uphold the validity of Tracy Leigh’s grant.

This we decline to do. We take it as a tenet of our jurisprudence that “[a] judge must not rewrite a statute, neither to enlarge nor to contract it.”¹² At base, this adage is expressive of the fundamental separation between the judiciary and the legislature in our system. Where a statute is on its face clear, strict, literal interpretation renders a federal court functus officio. Departure from the plain import of statutory terms is justified only where terminological ambiguity is apparent,¹³ where inherent contradiction exists,¹⁴ or, perhaps, where the legislative history conclusively establishes that an oversight in draftsmanship has clearly occurred.¹⁵ None of these situations obtains here. Despite Tracy Leigh’s assertion that the legislature fully intended to authorize grants for the construction of condominiums, not a single fragment of legislative history —except perhaps the above-mentioned predecessor of the applicable statutory section — has been brought to our attention indicating that the legislature intended to authorize grants for the construction of condominiums.

Indeed, we hesitate to adopt Tracy Leigh’s characterization of the omission from the statute of condominium construction grants, as “obvious”. For reasons that may have been perfectly rational, the legislature may have intended precisely what Tracy maintains was unintended. Under the Incentive Act, “condominium” was a statutory term of art. It meant “the ownership of single units in a multi-unit building with common elements.”¹⁶ Inasmuch as the legislature promulgated an express definition of “condominium”, we think it somewhat unlikely that the lawmakers would simply neglect to include that term in the grant authorization section of the same Act. At any rate, the reason for the omission of the term “condominium” in the grant section of the Act is considerably less clear than Tracy Leigh would have us conclude.

Additional considerations militate against judicial insertion of an allegedly “missing” word into this section of the Act. As Judge Maris has pointed out:

“It is a well settled rule that statutory exemptions from taxation, being a matter of grace, are to be strictly and narrowly construed.”¹⁷ This rule, when compounded with the precept that “to supply [statutory] omissions transcends the judicial function/’¹⁸ makes the present case — a case involving a tax exemption — a particularly inappropriate occasion for judicial tampering with the clear language of a statute. Thus, we conclude that the grant to Tracy Leigh was ultra vires the statutory authorization, and therefore invalid.

Tracy Leigh mounts a second argument against the district court’s judgment. It maintains that, in reliance upon the Government’s initial approval of the grant, Tracy Leigh “changed its position” and “gambled on building and selling the first condominiums constructed in the Virgin Islands.”¹⁹ Notwithstanding that this is part of a stipulation, we think it of limited significance. First, it is conceded that Tracy Leigh bought the land for the condominiums in question well before the approval of the tax exemption and subsidy.²⁰ The purchase involved a substantial risk; this risk cannot be deemed to have been undertaken in “reliance” on a grant that had not yet been made.²¹ Moreover, another brace of venerated principles dictate that:

“. . . [C]ontracts with agents of the Government must be in strict conformity with the [statutory] authority conferred .... The Government is neither estopped by acts of its officers or agents in entering into an arrangement or agreement to do or cause to be done what the law does not sanction or permit.”²²

Thus, even were we of the opinion that, under some circumstances, Tracy Leigh’s “reliance” on the grant might have been significant, it cannot overcome the fact that the grant was not authorized under Virgin Islands law. The district court was therefore entirely justified in refusing to enforce the terms of the grant.

It may be argued that the general objective of the Industrial Incentive program might have been furthered somewhat by judicial enforcement of the grant to Tracy Leigh. Nonetheless, we are always loathe to substitute our own notions of how best to administer a legislative program, when the legislature itself has set out the guidelines.²³ The general inhibition against the “rewriting” of statutes is reinforced here by the fact that a tax-exemption statute is involved. In these circumstances, strict adherence to the literal terms of the statute would appear to be the appropriate course.

There is some suggestion by Tracy Leigh that, irrespective of our interpretation of the “construction” section of the Incentive Act, we should still deem Tracy Leigh’s tax exemption and subsidy grant to be valid and enforceable. This argument is grounded on the proposition that, before it could sell any of the condominium units it had planned to construct, Tracy Leigh would perforce own such units. Therefore, the contention goes, Tracy Leigh’s grant was technically authorized by the “ownership” provision of the Act.²⁴ It is on this point that the dissent agrees with Tracy Leigh.

This final argument overlooks the fact that Tracy Leigh’s tax exemption and subsidy grant was explicitly tailored to reward only the “construction” of condominiums, an enterprise for which, as we have seen, the legislature did not authorize such grants. Moreover, the “ownership” section of the statute authorized grants to “business [es] engaged in the ownership of . . . condominiums.” Even conceding the fact that at some point in time Tracy Leigh was technically an owner, it can hardly be said that the corporation was “engaged” in the “business” of owning condominiums. The language of Tracy Leigh’s grant reflected that the corporation intended to engage in the “construction and sale to first buyer of condominium units . . . ,” not the continued ownership of such units. Moreover, we note that the statute, in authorizing certain construction grants, seeks to insure that such “construction is engaged in by the owner.”

Accordingly, the judgment of the district court will be affirmed.

1 The original capital stock of Tracy Leigh was issued in exchange for the land. The land was valued at $130,000. and was described as “parcels Nos. 8-1-2 and 8-56-1, Estate Nazareth, No. 1 Red Hook Quarter, St. Thomas, Virgin Islands.”

2 33 V.I.C. § 4001 et seq.

3 The grant was approved and signed into effect by Governor Ralph M. Paiewonsky on February 11, 1969.

4 Under the Act, a grantee is entitled to exemption from real property taxes, excise taxes, and certain license fees. See 88 U.I.C. § 4061. However, Tracy Leigh seeks here only a refund of real property taxes.

5 Stipulation No. 11. The letter containing the recommendation was sent to Governor Melvin H. Evans by the Comptroller, under date of April 2, 1970.

6 33 V.I.C. § 4001.

7 Act No. 3263, § 4, Sess. L. 1972, p. 220.

8 33 V.I.C. § 4041(3) (B).

9 District Court Exhibit 2, App. 7.

10 The amendment of September 25, 1967, was Act No. 2062. The language set out above (see text accompanying Note 8, supra) is as amended September 25, 1967. The earlier amendment was Act No. 2028, July 11, 1967.

11 Act No. 2028, July 11, 1967. (Emphasis added.)

12 Frankfurter, Some Reflections on the Reading¹ of Statutes, 47 Colum. L. Rev. 527, 533 (1947).

13 Id.

14 Id.

15 Cf. Rogers C. B. Morton v. Delta Mining, Inc., No. 73-1752 (3d Cir., March 20, 1974), slip op. at 7; Schiaffo v. Helstoski, No. 72-2167 (3d Cir., Jan. 4, 1974), slip op. at 25, 26; PBW Stock Exchange, Inc. v. SEC, 485 F.2d 718, 739 (Adams, J., dissenting); Giuseppi v. Walling, 144 F.2d 608, 624 (2d Cir. 1944) (L. Hand, J., concurring).

16 28 V.I.C. § 901 (i). This statutory definition of “condominium” was incorporated by reference into the grant authorization section of the Incentive Act, by Act No. 2062, supra Note 10.

17 King Christian Enterprises, Inc. v. Government of the Virgin Islands, 345 F.2d 633, 637 (3d Cir. 1965).

18 Iselin v. United States, 270 U.S. 245, 251 (1926).

19 Stipulation No. 14.

20 To reiterate, -the land was “purchased” for Tracy Leigh shares on June 23, 1967, and the grant was not approved until February 11, 1969.

21 In addition, the Government in its answer points out that Tracy Leigh had spent over a half-million dollars on the condominium project well before the grant was approved. This indicates, claims the Government, that “a definite decision to proceed with construction had been reached long before the date of application.”

22 In re Hooper’s Estate, 359 F.2d 569, 577 (3d Cir. 1966).

23 See Rogers C. B. Morton v. Delta Mining, Inc., supra, at 10. Ordinarily, we might consider the Comptroller General’s interpretation of the Act to he entitled to great weight. Cf. Udall v. Tallman, 380 U.S. 1, 16 (1965). However, since the Industrial Incentive Board apparently construed the Act in favor of Tracy Leigh, we do not invoke here the principle that courts should “show great deference to the interpretation given [a] statute by [those] charged with its administration.” Id.

24 See text accompanying Note 8, supra.

1 Tracy Leigh itself no longer claims such benefits. (Appellant’s Supplemental Brief p. 1). See also n. 4 Majority Opinion: “. . . However, Tracy Leigh seeks here only a refund of real property taxes.” As is pointed out in the text of this dissent, my reading of the complaint would indicate that Tracy Leigh seeks both a refund of real property taxes and a subsidy of percentage of income taxes for the particular years in question.