Judge Denies EHI’s Motion to Reconsider Caneel Bay Ruling

Caneel Bay, photographed from North Shore Road in 2015 before it was damaged by hurricanes Irma and Maria in 2017. The resort has been closed ever since. (Photo by Amy H. Roberts photo)

EHI Acquisitions has lost its bid to reverse a court order restoring the Caneel Bay Resort on St. John to the National Park Service, with the judge ruling on Wednesday that its motion for reconsideration is without merit.

EHI filed the motion on May 3 in V.I. District Court, disputing the order that was issued in April to transfer title to the Caneel Bay Resort and its improvements to the federal government, arguing that the judge overlooked that EHI holds a mortgage on the property.

However, in a concise three-page ruling on Wednesday, Third Circuit Judge Cheryl Ann Krause rejected EHI’s interpretation of the Retained Use Estate, also called the 1983 Indenture, governing the property.

Krause was assigned to the case in December after V.I. District Court Chief Judge Robert Molloy was removed without explanation.

“Plaintiff is correct that the Indenture governing this dispute permits the RUE’s owner to mortgage the RUE. It is also true that the Indenture states that ‘[s]o long as a mortgage of the Retained Use Estate is in effect, unless the mortgagee consents thereto . . . the Retained Use Estate shall not be terminated, and fee title to the land and title to the Retained Use Estate shall not merge,'” Krause wrote.

However, “in interpreting this language to mean that the RUE must remain extant as long as it is mortgaged, EHI reads too much into the Indenture,” she said.

As her April opinion explained, the clear intent of the RUE was that the entirety of the resort should “ultimately be an integral part” of the Virgin Islands National Park “for the public benefit,” said Krause.

Consistent with that, the terms of the RUE provided that it would last 40 years from the date of its execution and expire on Sept. 30, 2023, the judge noted. “Adopting Plaintiff’s reading of the Indenture would allow the RUE holder to indefinitely delay the contractually mandated expiration of the RUE, and thus to delay the resort’s integration into the National Park. Because such a reading defeats the parties’ clear intent, we decline to adopt it,” Krause wrote.

Moreover, EHI erred in conflating the words “terminated” and “expired,” the judge said.

“In general, when the Indenture uses ‘termination,’ it means the mechanism, set out in Paragraph 8, by which the RUE’s owner can seek to exit the RUE before its expiration. Thus, there is a difference between the RUE’s expiration — which, per the Indenture, ‘shall’ be on September 30, 2023 — and its termination according to the procedures in Paragraph 8,” Krause wrote.

EHI had also argued in its motion that Krause’s April order violated its 14th Amendment rights, alleging that “[d]ue process required, at minimum, that EHI be put on notice that the Government (or the Court) was asserting that the Retained Use Estate would end on September 23, 2023, triggering transfer of the Improvements, even though the RUE was encumbered by mortgages. If this issue had been raised, EHI would have had an opportunity to present all the relevant facts in context, and to make all of its arguments regarding these issues.”

Krause also rejected that claim, writing that as the United States observed in its opposition to EHI’s latest motion, “Plaintiff’s complaint to quiet title ‘necessarily required resolution of ownership of the RUE and improvements.’”

The parties know that disposition of the land, improvements and RUE are closely bound together by the 1983 Indenture’s complex provisions; the fate of one interest affects the fate of the others, said Krause.

“In this case, we interpreted ‘offer’ to mean ‘an offer to convey at no cost.’ Our construction of the contract necessarily flows from that interpretation: EHI did not make a valid offer pursuant to the Indenture; the RUE subsequently expired; and so, according to the Indenture, the improvements now belong to the United States,” the judge wrote.

“None of this should have been a surprise to the Plaintiff,” said Krause.

“In its prayer for relief, EHI asked the Court to ‘[q]uiet title in the Property and issue an order declaring that the United States has no legal interest in the Property and that Plaintiff . . . owns all right, title, and interest to the Property.’ Earlier in the Complaint, Plaintiff declared that it was ‘the legal owner of the Property, including both the Land and Improvements,’ (emphasis added), showing that it understood interests beyond title to the land were at stake,” she said.

Beyond that, the parties discussed ownership of the RUE and improvements at great length at a status conference held before the court on Jan. 17, the judge said. “At the conference, amid extensive discussion of the Indenture’s purpose and interpretation, Plaintiff’s counsel agreed that if the RUE ran its full forty-year course, the improvements should be conveyed to the United States for no cost,” she wrote.

“This is to say nothing of the many rounds of motions, answers, and supplemental filings that have unfolded in this matter for almost two years, all of which have shown EHI to be a sophisticated party that is deeply familiar with the six pages of the 1983 Indenture,” Krause added.

At issue in the lawsuit that was brought in June 2022 was whether the resort on 150 acres of prime St. John beachfront real estate belonged to EHI Acquisitions, which managed the property under the RUE agreement, or to the federal government after the RUE expired at the end of September.

The RUE was created in 1983 by Laurance Rockefeller, who donated some 5,000 acres of land to the National Park Service but reserved the Caneel Bay property for the Jackson Hole Preserve, the family’s land trust. Under the agreement, the preserved land was transferred to the NPS with the understanding the RUE would remain in place for 40 years. The resort has been managed by different entities since then, the latest being EHI Acquisitions, an affiliate of CBI Acquisitions.

Krause was unequivocal in her 20-page Memorandum Opinion and Order in April, that the language of the 1983 Indenture makes clear that the property and its improvements were to be given back to the government at the expiration of the RUE for a nominal consideration of $1.

“The gift of the resort to the United States is contingent — not on payment, which is nowhere mentioned in the Indenture — but on the Government’s willingness to abide by JHPI’s expressly philanthropic vision for Caneel Bay,” Krause wrote.

Patrick Kidd, director of marketing for Caneel Bay Resort, has said EHI plans to appeal the April ruling. Meantime, the NPS said earlier this month that it is “actively working to transition Caneel Bay Resort on St. John to National Park Service management.”