Reefco Services, Inc v. Government of the Virgin Islands; Virgin Islands Bureau of Internal Revenue

NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
_____________
No. 18-3290
_____________
REEFCO SERVICES, INC.
v.
GOVERNMENT OF THE VIRGIN ISLANDS; VIRGIN ISLANDS
BUREAU OF INTERNAL REVENUE,
Appellants
______________
Appeal from the District Court
of the Virgin Islands
(D.C. No. 3-14-cv-00110)
District Judge: Honorable Curtis V. Gomez
______________
Argued: December 10, 2019
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Before: SMITH, Chief Judge, McKEE, and SHWARTZ, Circuit Judges.
(Opinion filed: October 7, 2020)
Tamika M. Archer, Esq.
Hugh A. Greentree, Esq.
Dionne G. Sinclair, Esq. (Argued)
Office of Attorney General of Virgin Islands
Department of Justice
2nd Floor
34-38 Kronprindsens Gade
GERS Complex, 2nd Floor
St. Thomas, VI 00802
Counsel for Appellants

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Taylor W. Strickling, Esq. (Argued)
Marjorie Rawls Roberts
One Hibiscus Alley
5093 Dronningens Gade, Suite 1
St. Thomas, VI 00802
Counsel for Appellee
_______________________
OPINION*
______________________
McKEE, Circuit Judge.
The Government of the Virgin Islands (“GVI”) appeals the District Court’s award
of declaratory and monetary relief on Reefco Services, Inc.’s claim that the GVI violated
the Dormant Commerce Clause by only collecting its excise tax on imported goods.
After the District Court entered its Rule 52(a) Opinion and Order, the GVI continued to
restrict collection of its excise tax to imported goods. Consequently, the District Court
enjoined the GVI from collecting the excise tax at all, until the GVI satisfied the court
that it would be able to collect the excise tax in a constitutional manner. For the reasons
that follow, we will affirm the District Court’s award of declaratory, injunctive, and
monetary relief, in part, and vacate and remand for further proceedings regarding the
continued necessity of the injunction.
* This disposition is not an opinion of the full Court and pursuant to I.O.P. 5.7 does not
constitute binding precedent.

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I.
Prior to addressing the merits of the case, given the convoluted post-judgment
procedural history and promulgation of new rules and regulations by the GVI, we will
briefly address the justiciability of the matters before us. Article III authorizes federal
courts to exercise jurisdiction over “cases” and “controversies” that present live disputes.1
Even where, as here, neither party contests justiciability, this Court maintains “an
independent obligation at the threshold to examine whether we have appellate
jurisdiction.”2 The question raised by the post-judgment filings, decisions, and rules
promulgated after this appeal is whether circumstances have evolved since this appeal
was filed that have “forestalled any occasion for meaningful relief,”3 thus rendering the
appeal moot. They have not. For example, the GVI is still obligated to refund to Reefco
the $5, 287.74 assessed in taxes, but the GVI challenges the propriety of that ruling.
We must consider three factors before dismissing a case as moot:
(1) whether the appellant has expeditiously taken all steps necessary to perfect the
appeal and to preserve the status quo before the dispute became moot, (2) whether
the trial court’s order will have possible collateral consequences, and (3) whether
the dispute is of such a nature that it is capable of repetition yet evading review.4
1 Hartnett v. Pa. State Educ. Ass’n, 963 F.3d 301, 305 (3d Cir. 2020) (citing Summers v.
Earth Island Inst., 555 U.S. 488, 492-93 (2009)).
2 Saranchak v. Sec’y, Pa. Dep’t. of Corr., 802 F.3d 579, 592 (3d Cir. 2015) (quoting
Rendell v. Rumsfield, 484 F.3d 236, 240 (3d Cir. 2007)).
3 In re Surrick, 338 F.3d 224, 230 (3d Cir. 2003) (citation omitted).
4 Id. (citation omitted).

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The GVI timely perfected its appeal of both the District Court’s September 28,
2018 Opinion and Judgment as well as the subsequent November 15, 2018 Order and
November 26, 2018 Memorandum Opinion denying the GVI’s Motion to Stay and
enjoining the GVI from collecting excise taxes. As to collateral consequences, the GVI
claims that the District Court’s injunction is taking a dramatic toll on its revenue. Yet the
GVI challenges the propriety of that ruling and argues Reefco suffered no injury because
it passed the tax deficiency on to its customers. Finally, though the GVI now contends
that its promulgation of new rules and regulations in February 2019 moots Reefco’s
Commerce Clause challenge and eliminates the need for the injunction as well as the
basis for it,5 the constitutionality of the GVI’s thirty-five-year implementation of the
excise tax is capable of evading review. The new rules can, after all, be set aside at the
GVI’s discretion. Accordingly, we must adjudicate the merits of the District Court’s
ruling.
A. The District Court Correctly Held that 33 V.I.C. § 42, As Implemented by the
GVI, Violates Dormant Commerce Clause Principles.
In Polychrome International Corporation v. Krigger, we held that, under the
Territorial Clause, the Virgin Islands is subject to Dormant Commerce Clause principles.6
5 GVI Supp. Br. at 7 (GVI can no longer “fail[] to apply excise tax to local manufacturers
or importers for goods brought into the territory for business purposes.”).
6 5 F.3d 1522, 1534 (1993) (“Under the Territorial Clause, Congress has power to
prescribe all ‘needful Rules and Regulations’ for territories. . . . By necessary implication,
when territorial enactments affect interstate or foreign commerce—a subject over which
Congress has supreme control—those enactments must be scrutinized under Dormant
Commerce Clause principles. Any other conclusion would mean ‘that an unincorporated

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We are, of course, bound by that ruling. Accordingly, the Supreme Court’s test from
Complete Auto Transit, Inc. v. Brady, governs our inquiry.7
In Complete Auto, the Supreme Court held that a tax violates the Commerce
Clause where it “discriminate[s] against interstate commerce[.]”8 During the relevant
territory would have more power over commerce than the states possess.’”) (internal
citations omitted).
7 Id. at 1535 (citing Complete Auto Transit, Inc. v. Brady, 430 U.S. 274 (1977)). Reefco
argues that the Court should apply the general Dormant Commerce Clause test set forth
in Cloverland-Green Spring Dairies, Inc. v. Pennsylvania Milk Marketing Board, 462
F.3d 249, 261 (3d Cir. 2006). Under Cloverland-Green, “[i]n considering whether a state
law violates the Dormant Commerce Clause, the inquiry is twofold: a court considers first
whether ‘heightened scrutiny’ applies, and, if not, then considers whether the state law is
invalid under the Pike [v. Bruce Church, Inc.] balancing test.” Id. (citation omitted); see
also Pike v. Bruce Church, Inc., 397 U.S. 137, 142 (1970). “Heightened scrutiny applies
when a law discriminates against interstate commerce in its purpose or effect,” and “[t]he
party challenging the statute has the burden of proving the existence of such
discrimination.” Cloverland-Green, 462 F.3d at 261 (internal quotation marks and
citations omitted). Where discrimination is proven, the burden shifts to the state to
demonstrate that “the statute serves a legitimate local purpose, and that this purpose could
not be served as well by available nondiscriminatory means.” Id. (quoting Maine v.
Taylor, 477 U.S. 131, 138 (1986)). If a discriminatory purpose or effect is not shown
because the statute “regulates even-handedly to effectuate a legitimate local public
interest, and its effects on interstate commerce are only incidental,” Pike balancing
requires courts to consider whether “‘the burden imposed on such commerce is clearly
excessive in relation to the putative local benefits.’” Id. at 263 (quoting Pike, 397 U.S. at
142). The Court will use the Complete Auto test because, as we noted in Norfolk
Southern Corp. v. Oberly, that test permits a more nuanced inquiry that addresses the
unique concerns raised by tax cases. 822 F.2d 388, 399 n.16 (3d Cir. 1987) (citing
Complete Auto Transit, 430 U.S. at 287). However, even under the Cloverland-Green
test, the excise tax, while not facially discriminatory and thus not subject to heightened
scrutiny, fails Pike balancing where the GVI puts forth no legitimate local purpose
explaining why local manufacturers have not had to pay the excise tax assessed to foreign
and domestic importers.
8 430 U.S. at 279.

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period, the statute setting forth the rate and base of excise taxes as well as any
exemptions, 33 V.I.C. § 42(a), provided:
Every individual and every firm, corporation and other association doing business
in the Virgin Islands, except those specially taxed, exempted, or excluded shall
pay an excise tax on all articles, goods, merchandise or commodities manufactured
in or brought into the Virgin Islands for personal use, use in a business, for
disposition or sale in the course of trade or business, for processing or
manufacturing or for any other business use or purpose . . . .9
The statute is facially neutral, directing the assessment of an excise tax on “all articles,
goods, merchandise or commodities manufactured in or brought into the Virgin
Islands.”10 The regulations implementing this section outline the procedure for
implementing the tax as to importers, and a statute instructs the Director of the Virgin
Islands Bureau of Internal Revenue to promulgate appropriate rules and regulations to
collect the tax from local manufacturers.11 However, in contravention of this statutory
mandate, no such rules were promulgated until February 2019.12 Thus, the excise tax
was not assessed on local manufacturers from 1984 until at least as recently as February
2019. That failure is nothing short of a blatant “preference for domestic commerce over
[interstate] commerce.”13 Local manufacturers were afforded a tax break not available to
9 § 42(a).
10 Id. (emphasis added).
11 33 V.I. ADC §§ 42b, 42c; 33 V.I.C. § 42a(b).
12 See JA52-52 (testimony of the Supervisor of Excise Tax as to the BIR practice of only
assessing an excise tax on items imported into the Virgin Islands); see also 33 V.I. R. &
Regs. § 42-2(a) (“The excise tax applies to all articles, goods, merchandise, or
commodities brought into the Virgin Islands.”).
13 Polychrome, 5 F.3d at 1539 (quoting Kraft Gen. Foods v. Iowa Dep’t of Revenue, 505
U.S. 71, 79 (1992)).

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foreign and domestic importers.14 The resulting violation of the Commerce Clause is
obvious and the GVI’s claims to the contrary do not merit further discussion.
Because the GVI assessed the excise tax against Reefco in violation of the
Dormant Commerce Clause, the District Court correctly held that Reefco is entitled to a
refund. The GVI’s claim that Reefco is not entitled to a refund because it recouped the
assessment by passing it on to its customers is not supported by anything in this record.15
Accordingly we will affirm the District Court’s award of money damages.16
B. The District Court Properly Enjoined the GVI’s Collection of Excise Taxes
But Exceeded its Authority By Ordering its Approval of Any Promulgated
Rules and Regulations.
After the District Court issued its September 28th Order declaring the GVI’s
implementation of the excise tax unconstitutional, the GVI nonetheless continued
collecting the tax. The Declaratory Judgment Act authorizes trial courts to enforce
declaratory judgments by providing injunctive relief conditioned upon certain limitations
not relevant here.17
14 Bacchus Imps., Ltd. v. Dias, 468 U.S. 263, 272 (1984) (“[N]o State may
discriminatorily tax the products manufactured or the business operations performed in
any other State.”) (citation omitted).
15 GVI Reply at 4 (“As most Virgin Islanders can attest, despite the absence of the excise
tax, there has been absolutely no corresponding reduction in the cost to the consumer of
any goods or services utilizing imports. As such, the award of money damages to Reefco
must be reversed. Such monies have long since been recouped.”) (citation omitted).
16 See Versarge v. Township of Clinton, 984 F.2d 1359, 1370 (3d Cir. 1993).
17 Chem. Leaman Tank Lines, Inc. v. Aetna Cas. & Sur. Co., 177 F.3d 210, 221 (3d Cir.
1999) (holding that 28 U.S.C. § 2202 “permits the original [declaratory] judgment to be
supplemented either by damages or by equitable relief . . .”) (alteration in original)
(citation omitted)).

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However, the District Court exceeded the scope of its authority when, in addition
to enjoining the GVI from only collecting excise taxes from importers and not local
manufacturers, the court effectively mandated that the GVI pass rules and regulations that
met the court’s approval. In its November 26th Memorandum Opinion enjoining the GVI
from continuing to collect excise taxes, the District Court “recognize[d] that the GVI
[wa]s currently developing additional collection procedures that may bring Section 42
into compliance with the Commerce Clause.”18 However, the District Court clearly did
not credit this intention as sufficient given its issuance of an injunction.
Nor did the District Court find any of the GVI’s subsequent efforts enough to lift
the injunction. Four days after the court’s November 26th Memorandum Opinion, the
GVI filed an Emergency Motion to Lift the Injunction, stating that it had sent letters to
manufacturing license holders within the territory, explaining they would owe a new tax.
The court did not respond. Three months after that the GVI advised the District Court
that it had promulgated rules and regulations establishing a procedure for the collection
of excise taxes from local manufacturers. In response, the District Court did not lift the
injunction, but it did hold an evidentiary hearing to assess the steps taken by the GVI to
implement the collection of excise taxes from local manufacturers.19 The court initially
declined to rule on the outstanding motion given the pending appeal.20 But, four days
before oral argument, the District Court issued an Order construing the emergency
18 JA205.
19 GVI Supp. Br. Ex. at 8-114.
20 Id. at 115-16.

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motion as a “renewal and extension” of a post-judgment motion to stay and denied it after
determining the February 2019 Rules and Regulations still violated the Commerce
Clause.21
Thus, the District Court effectively compelled the GVI to enact regulations that
would meet with the court’s approval. That was a “bridge too far.” The Judicial Power
authorized by Article III vests courts with the power to adjudicate violations of the law,
not to make law.22 Consequently, if and when the GVI began assessing the excise tax on
local manufacturers, it complied with the District Court’s judgment, and the court should
have had no more say in the matter. As it is not clear from the record whether the GVI
has begun to collect excise taxes from local manufacturers, we will remand for further
proceedings on that issue alone with an instruction to the District Court to lift the
November 26th injunction upon receiving evidence that the GVI is in fact assessing an
excise tax on local manufactures. To the extent that the February 2019 Rules and
Regulations still violate dormant Commerce Clause principles, that issue must be raised
by an injured party, not the District Court.
II.
21 Id. at 121, 126. The parties briefed what effect, if any, the District Court’s December
6, 2019 Order and Opinion had on this appeal. Given our holdings regarding the District
Court’s exercise of its authority to issue injunctive relief under the Declaratory Judgment
Act, we need not answer that question in this appeal. Moreover, we deny the motion to
consolidate the appeal of the December 6th order with this case.
22 See Steel Co. v. Citizens for a Better Env’t, 523 U.S. 83, 102 n.4 (1998) (“[C]ourts
must stay within their constitutionally prescribed sphere of action”).

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We therefore affirm the District Court’s declaratory and monetary relief ordered in
its September 28th Judgment and Opinion. We also affirm the District Court’s November
26th Memorandum Opinion in part, as to its enjoining of the GVI from continuing to
collect excise taxes from importers, but not local manufacturers. We vacate the District
Court’s November 26th Order in so far as it requires court approval of promulgated rules
and regulations by the GVI and remand for further proceedings as to whether the excise
tax has been assessed against local manufacturers. Upon obtaining proof that the GVI is
assessing the excise tax on local manufacturers, we direct the District Court to lift the
injunction.

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