Justice Department Seeks to Dismiss Caneel Bay Lawsuit

Caneel Bay Resort sparkles in this view taken from the North Shore Road overlook. (Source photo by Amy H. Roberts)

The U.S. Attorney’s Office has filed a motion to dismiss a lawsuit that claims the Caneel Bay Resort at Virgin Islands National Park on St. John legally belongs to the company that has operated it since 2004.

The lawsuit, filed June 30 in V.I. District Court by EHI Acquisitions, a subsidiary of CBI Acquisitions, asks a federal judge to declare that the Interior Department has no legal claim to the property after it rejected an offer from CBI to transfer the land and its title to the government in 2019 for $70 million.

In a press release announcing the suit in June, Caneel Bay director of marketing Patrick Kidd said that EHI planned to create a charitable trust for the benefit of the people of St. John and the U.S. Virgin Islands and planned to donate the resort property to the trust.

“Once EHI gets the resort reopened, lease payments from the Resort operator will provide funds to the trust for local schools, affordable and workforce housing, and environmental preservation. At the end of the lease term, the Resort will be owned and controlled by the trust for the benefit of the people of St. John and the Virgin Islands community,” said Kidd.

Responding to the complaint on Wednesday, U.S. Attorney Delia Smith said the court should dismiss the suit because it does not include CBI Acquisitions, “a necessary and indispensable party” with a legal interest in the property.

In 1956, Laurance S. Rockefeller donated the land that today makes up Virgin Islands National Park but held back roughly 150 acres for the resort. In 1983, the Jackson Hole Preserve, which Rockefeller had established, donated the land to the park; but it came with a Retained Use Estate agreement that gave the Preserve free use of the property and its facilities for 40 years. At the end of that four-decade period, September 2023, the RUE document dictated that the buildings and their improvements be donated to the Park Service.

While the Preserve initially held the RUE, it was passed down to other companies and finally to CBI in 2004. The resort, however, has been closed since it was pummeled by hurricanes Irma and Maria in September 2017.

CBI principal Gary Engle has maintained that it would cost $100 million to restore the property and sought to extend the RUE for 60 years to recoup such an investment. When that effort failed, he offered in 2019 to terminate the RUE and sell the resort to the government for $70 million on the condition that EHI and CBI be released from all environmental liabilities related to the RUE and Caneel Bay land and improvements.

Environmental tests on the property have detected a variety of wastes, some hazardous to humans, on nearly eight acres of the grounds of the once-tony resort. That testing found varying levels of arsenic, elevated levels of certain pesticides, and a “mixture of benign organic materials, plastics, metals, and CERCLA (Comprehensive Environmental Response, Compensation, and Liability Act) hazardous substances, including the pesticide DDT and polychlorinated biphenyls.”

Cleanup of the waste was expected to cost at least $6 million. Whether the current and previous owners will all be held liable is still an open question.

“Plaintiff does not state how much insurance monies it received for the hurricane damage to the resort, nor why those monies could not be used to rebuild the resort,” Smith states in the motion to dismiss. “Plaintiff did not allege how it determined that the hurricane-damaged resort, which it stated would cost $100 million to rebuild, is valued at $70 million.”

Engle asserted that if the government rejected the offer to buy the property, then the title to the premises would revert automatically to EHI Acquisitions. However, Interior Department Solicitor Daniel Jorjani rejected that claim, writing in a June 2019 response that the agreement did not authorize demands for payment, indemnification, or releases as a condition of the RUE termination.

Smith notes in her motion to dismiss that although the offer to transfer title to the buildings and other improvements to the government was made by both EHI and CBI, “Plaintiff alleges that title reverted solely” to EHI.

The lawsuit’s failure to include CBI Acquisitions is grounds for dismissal or for the court to order that the absent party be joined in the action, Smith states in her motion.

“CBI is a necessary and indispensable party to this action. Plaintiff brought this action … to quiet title to property in which it claims three entities have a legal interest: Plaintiff, Defendant, and CBI. Plaintiff concedes that CBI has a legal interest in the property,” Smith states. Beyond the fact that the 2019 offer to sell the resort to the government included CBI, the company “is also the current assignee of the legal interest in the Improvements. Thus, it is undisputed that CBI has a legal interest in the Property.”

The court cannot decide whether EHI has a right to divest the government of the title to the property under the RUE’s “reversionary clause” unless CBI is joined as a party to the lawsuit, Smith states.

“First, since the offer to invoke the reversionary clause was made by both Plaintiff and CBI, CBI must relinquish all its alleged rights to the Improvements or the Property in order for the Property and Improvements to revert solely to Plaintiff,” said Smith.

“Second, the reversionary clause is contingent on several conditions, including whether the VINP ‘is not willing to accept a conveyance of fee title to the improvements located on the Premises’ as described in paragraph 8 of the RUE (emphasis added). … Since CBI is the current assignee of the Improvements, CBI must be joined as a party because the Court cannot extinguish CBI’s rights to the Improvements or the Property if CBI is not a party to the action,” the motion states.

Furthermore, without CBI as a plaintiff, the government would be “subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations,” said Smith. If the court did grant EHI “the relief it is requesting and extinguish CBI’s property interests, CBI would be denied an opportunity to defend its interests,” said Smith. The same would occur if the court grants title to the government, she noted.

“Not only would CBI be severely prejudiced if it were not given the opportunity to defend its interest, CBI would also be able to challenge the decision issued by the court, thereby subjecting the existing parties to ‘double, multiple, or otherwise inconsistent obligations,'” the motion states.

CBI is clearly an indispensable party to the action, Smith stated. “It is not clear why CBI was not joined as a party in the first instance, or whether it is feasible to join CBI.”

The court should find that CBI is a necessary party to the lawsuit, and if that is not feasible, it should dismiss the complaint, Smith concluded.

Chief Judge Robert Molloy is presiding over the case.