UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT BERNE CORP; B&B CORP; TWENTY-ONE QUEEN QUARTER, INC.; MILLER PROPERTIES, INC; EQUIVEST ST. THOMAS, INC.; ROBERT SCHMIDT; KIM HOLSWORTH, et al v. NO. 08-3897 GOVERNMENT OF THE VIRGIN ISLANDS; ROY MARTIN, IN HIS OFFICIAL CAPACITY AS TAX ASSESSOR; VIRGIN ISLANDS BOARD OF TAX REVIEW Appellants Transcript from the audio recording of the oral argument held Thursday, January 29, 2009, at the United States Courthouse, 601 Market Street, Philadelphia, Pennsylvania. This transcript was produced by James DeCrescenzo, a Fellow of the Academy of Professional Reporters, a Registered Diplomate Reporter, an Approved Reporter of the United States District Court. BEFORE: THE HONORABLE ANTHONY J. SCIRICA THE HONORABLE THOMAS L. AMBRO THE HONORABLE D. BROOKS SMITH 2 1 APPEARANCES: 2 TERRYLN M. SMOCK, ESQUIRE terrylns@yahoo.com 3 OFFICE OF THE ATTORNEY GENERAL OF VIRGIN ISLANDS 4 DEPARTMENT OF JUSTICE 34-38 Kronprindsens Gade, GERS Complex 5 2nd Floor, Charlotte Amalie St. Thomas, Virgin Islands 00802 6 340.774.5666 Attorney for Appellants 7 JAMES M. DERR, ESQUIRE 8 jimderr@earthlink.net P.O. Box 664 9 Charlotte Amalie, St. Thomas U.S. Virgin Islands 00804 10 340.244.2566 and 11 DAVID A. BORNN, ESQUIRE david.bornn@bornnfirm.vi 12 THE BORNN FIRM 5079 Norre Gade, Suite 1 13 Charlotte Amalie St. Thomas 14 U.S. Virgin Islands 00804 340.774.2602 15 Attorneys for Appellees 16 17 18 19 20 21 22 23 24 3 1 THE COURT: Good morning, everyone. 2 The first case is Berne Corporation versus the 3 Government of the Virgin Islands. 4 Ms. Smock. Good morning. 5 MS. SMOCK: Good morning, your 6 Honors. And may it please the Court, my name is 7 Terryln M. Smock and I have traveled from the 8 Virgin Islands along with the Attorney General of 9 the Virgin Islands, Vincent F. Frazer, attorneys 10 Carol Jacobs and Tamika Archer, assistant attorney 11 generals. 12 THE COURT: We're not going to ask you 13 what the weather's like down there. 14 MS. SMOCK: Oh, you're not? Yes, I 15 thought you would have had this in April instead of 16 January though. 17 THE COURT: It's not for lack of envy, 18 believe me. 19 MS. SMOCK: Well, come down. And I am 20 here on behalf of the Government of the Virgin 21 Islands, Roy Martin as the Tax Assessor and the 22 Board of Tax Review. 23 I reserve five minutes for rebuttal. 24 THE COURT: Fine. 4 1 MS. SMOCK: The 1936 statute has long 2 outlived its usefulness and now interferes with the 3 Virgin Islands' ability to perform an essential 4 governmental function. In Bluebeard's this Third 5 Circuit Court of Appeals held -- 6 THE COURT: You filed, the 7 Congressional act was what in '07; is that correct? 8 MS. SMOCK: 2007. That's correct. 9 THE COURT: And you filed how soon 10 thereafter to try to have the order of the court 11 lifted? 12 MS. SMOCK: We filed immediately 13 thereafter for some sort of expedited relief, 14 and -- 15 THE COURT: And the court didn't act 16 very expediently. 17 MS. SMOCK: No. The court did not act 18 on the expedited relief. We filed motion, 60(b) 19 motions, we had all sorts of hearings before the 20 court requesting that the injunction be vacated. 21 We did everything that was possible and feasible 22 under the circumstances because we realized that 23 our financial straits were dire in the Virgin 24 Islands. 5 1 We told the court that our government 2 needed money, it needed revenues. We were very 3 respectful and we were very sincere in our efforts 4 in pursuing the rights of the people of the Virgin 5 Islands. 6 And I think that we went to the court, 7 in many instances we had various testimony before 8 the court, we had various officials of the 9 Government of the Virgin Islands appear before the 10 court. 11 THE COURT: So you actually appeared 12 before the court? 13 MS. SMOCK: Yes. There were actually, 14 we had hearings, our Board of Tax Review was before 15 the court. We appeared before the court to express 16 our problems and our economic situation. And the 17 court, even in its partial vacatur recognized that 18 the Virgin Islands had economic problems that 19 needed to be addressed. 20 I think the court was aware of that 21 and the court in fact recognized it also. 22 There are many instances where we were 23 before the court. 24 THE COURT: Tell us why there's no 6 1 federal jurisdiction. 2 MS. SMOCK: There is no federal 3 jurisdiction in this instance because Congress has 4 made an unmistakably clear statement. 5 Congress has said that the territory, 6 in property tax matters, shall be treated as any 7 other territory and state and should have no 8 restrictions whatsoever. 9 THE COURT: Now, Congress didn't, did 10 not use the same language as they used with Puerto 11 Rico though. The language there was more specific 12 in the statute. 13 Am I correct about that? 14 MS. SMOCK: I think that the language 15 in this instance in 2007, which Congress used, it 16 made it retroactive to 1954, I think Congress was 17 quite specific. 18 Congress clearly stated that there 19 should be no federal impact in Virgin Islands. It 20 said that this has long been the history. Congress 21 even stated that it believed as far as 1954 that it 22 had given the Virgin Islands broad powers over its 23 property tax matters. 24 THE COURT: Does this mean though that 7 1 if there's a federal due process claim that 2 Congress, Congress can't bar a constitutional claim 3 then just by a statute though, can it? 4 MS. SMOCK: In property tax matters I 5 think it's quite clear, and you have many cases, 6 U.S. Supreme Court cases that have dealt with this 7 issue, that it in constitutional claims or due 8 process claims, if a state court has the ability to 9 consider those and can handle that, it provides a 10 plain, speedy and adequate remedy for 11 constitutional issues and due process, then the 12 appropriate place is to go before the state court, 13 and in particular property taxes. 14 THE COURT: So are you conceding then 15 with that answer that the 2007 repealer did not by 16 itself oust the district court of jurisdiction with 17 respect to these due process claims? 18 MS. SMOCK: No. I think that by 19 itself the 2007 amendment, along with the comments 20 from Congress, in fact that was the intent at that 21 time, was to oust the district court from all 22 matters that are dealing with property tax. 23 I think that even if you consider -- 24 THE COURT: Even constitutional? 8 1 MS. SMOCK: Even constitutional 2 claims. Very clearly constitutional claims. 3 Because it said you shall have no impact when it 4 comes to the assessment, administration and 5 collection of property taxes, and if you 6 implicate -- if in a constitutional situation the 7 assessment, administration and collection is 8 implicated then it's very clear that Congress did 9 not intend for there to be any federal impact in 10 those instances. 11 THE COURT: Well, I'm not sure that 12 Congress has the power to foreclose a 13 constitutional claim. But as you say, there is 14 Supreme Court language to the effect that the state 15 court system can deal with the tax assessment and 16 appeal issues on a speedy and reasonable manner. 17 There may be deference to the state court system. 18 Now, did Judge Gomez address that 19 particular point in any of his orders or opinions? 20 MS. SMOCK: In fact Judge Gomez in his 21 partial vacatur order recognizes that Congress has 22 the power, the broad power to delegate to the 23 Virgin Islands over many issues. 24 And Judge Gomez also stated that 9 1 Congress, in repealing the 1936 act, gave the 2 Virgin Islands broad power over the property tax 3 matters in the Virgin Islands. 4 Judge Gomez accepts that premise, I 5 believe. 6 THE COURT: Did Judge Gomez address 7 the ability of the local courts to address this 8 question? 9 MS. SMOCK: Judge Gomez has indeed, I 10 believe, addressed that issue of local courts 11 having the ability. 12 THE COURT: Where in the opinions were 13 the most recent -- 14 MS. SMOCK: Let me just clarify. I 15 think that what Judge Gomez has done in his 16 opinion, he has essentially stated that the board 17 of tax review is the only entity that can address 18 the local matters. 19 But that clearly is not true because 20 we have a Superior Court and we have a Supreme 21 Court. And I think that that's probably, that he 22 seems to be basing it solely on the ability of the 23 Board of Tax Review as the only entity to address 24 those. And I think that that is incorrect, because 10 1 we do have a Superior Court and a Supreme Court. 2 THE COURT: So he really, in response 3 to Judge Smith's question he really did not address 4 the state court -- 5 MS. SMOCK: He did not and he should 6 have. It was -- 7 THE COURT: But what about the 8 immediate problem, which is that he believed that 9 the tax assessment board simply is not running the 10 way it's supposed to, that there are tremendous 11 backlogs, delays, no adjudications and it's simply 12 not functioning. 13 MS. SMOCK: Well, I personally am the 14 counsel to the board of tax review for about a year 15 and a half. And I know that when I first started 16 there there were approximately 500 some cases. 17 There are now, from 1998 to 2005 cases 18 that were pending, there are only 80 cases pending. 19 And we have consistently met each 20 month to handle those cases and to remedy that 21 problem. So I know that the board of tax review is 22 functioning and it has functioned and it continues 23 to function. 24 And I think that Judge Gomez -- we had 11 1 testimony before Judge Gomez where you had the 2 Commissioner of Finance testify and you also had 3 the executive director of the Board of Tax Review 4 testifying. 5 We provided affidavits after that 6 point to demonstrate that we were in fact having 7 hearings on a regular basis. We hired a hearing 8 examiner, we hired additional persons to assist in 9 that. 10 We also had testimony before the court 11 that although the board may not have met for a 12 period of time, it did not mean that the functions 13 of the Board of Tax Review were not still active 14 because the executive director continued to 15 negotiate tax appeals, he negotiated with the Tax 16 Assessor. 17 There were reversion letters sent, in 18 excess of 200 reversion letters. Many taxpayers 19 responded to those reversion letters. In 20 responding to those reversion letters, many of them 21 accepted it. 22 Those who did not accept the reversion 23 letters, the Board of Tax Review set them down 24 specifically for hearings. 12 1 Additionally, there's something else 2 to consider, and this was also raised before the 3 District Court, that although the numbers may seem 4 large, it says appeals may be 300 appeals, that 5 does not mean that there are in fact 300 6 taxpayers. 7 We have what we call chronic 8 appealers, taxpayers who consistently appeal any 9 tax bill in instances. Since I have been there I 10 have seen where they have appealed a tax bill for 11 one year and there was only a $2 difference. So 12 you do have chronic appealers. 13 And I think that is a significant 14 amount of our taxpayers also, who appeal. 15 Also, you will also find that many, 16 that in this instance also, none of the plaintiffs 17 have appeals before the Board of Tax Review. And 18 also that issue was not fully addressed by Judge 19 Gomez either. 20 THE COURT: All right. Any 21 questions? Good. We'll have you back on rebuttal, 22 Ms. Smock. Thank you very much. 23 MS. SMOCK: Thank you so much. 24 THE COURT: Mr. Derr. Good morning. 13 1 MR. DERR: Good morning, your Honors. 2 May it please the Court, my name is Jim Derr and 3 together with attorney David Bornn I'm here on 4 behalf of Berne Corporation and the other appellees 5 in this case. 6 We've split our time. I will be 7 addressing settlement issues, jurisdictional 8 issues, and Attorney Bornn will be discussing 9 contempt issues. 10 THE COURT: All right. Fine. 11 THE COURT: On a jurisdictional issue, 12 there was an Amended Complaint in what, 2000; is 13 that right? Roughly? When was the complaint 14 filed? 15 MR. DERR: The complaints were filed 16 in early 2000, your Honor, late 1999. 17 THE COURT: I think there was an 18 amended one after it; is that correct? 19 MR. DERR: Some of the parties did 20 file amended complaints. Following the trial in 21 2003, several of the parties also moved for leave 22 to amend to conform to proof, which was never dealt 23 with by the district court. 24 THE COURT: And the primary claims in 14 1 2000 in the complaint were what? 2 MR. DERR: They were, the claims were 3 violation of 48 U.S.C. Section 1401(a). Also 4 constitutional due process and equal protection 5 violations arising under the Revised Organic Act in 6 the Fourteenth Amendment. 7 THE COURT: Now, the due process and 8 the equal protection arguments were they ever tied 9 up and resolved by the court in 2003? 10 MR. DERR: No. The issues were tried 11 and they were briefed and, or at least included in 12 the proposed findings of fact and conclusions of 13 law. 14 In a footnote to his opinion Judge 15 Moore found that because he was reaching the 16 statutory violation issue it wouldn't be 17 appropriate for him to reach the constitutional 18 issues. 19 Although I should point out that in 20 this court on the appeal the court was assuming 21 that even if the government's argument regarding 22 the implied repeal of 1401 applied, the fact that 23 we had alleged federal constitutional due process 24 and equal protection claims was sufficient to 15 1 confer jurisdiction. 2 And I submit that that issue has 3 already been decided. The court has already said 4 the repeal of 1401, whether it's by enactment of 5 the revised Organic Act as the government argued at 6 that time or by the enactment of the public law 7 that repealed 1401 in this case is irrelevant 8 because there were additional claims that were pled 9 that gave the court jurisdiction. 10 There was a question also regarding 11 the -- 12 THE COURT: Let's stay on that for a 13 second. Ms. Smock says that there can be no 14 federal due process jurisdiction here. 15 MR. DERR: Your Honor, I completely 16 disagree with that statement. Congress, if it 17 wanted to, could not divest the federal courts of 18 jurisdiction to decide federal constitutional 19 issues. And -- 20 THE COURT: That goes to its 21 authority. What does the statute say, if anything, 22 with regard to constitutional claims? 23 MR. DERR: Section 1401 or the repeal, 24 your Honor? 16 1 THE COURT: Repeal. 2 THE COURT: The repeal. 3 MR. DERR: The repeal said nothing. 4 The repeal is a one-sentence statement that says 5 that 48 U.S.C. 1401(a) is repealed effective to the 6 date of the Revised Organic Act of 1954. That's 7 it. 8 Everything else that the government 9 cites and appears to argue is statutory language or 10 is somehow binding on this court is merely 11 contained in the report of the Committee that 12 prepared the bill and some arguments that were made 13 at the Congressional hearing before the Senate. 14 THE COURT: Should the district court 15 have addressed the proper functioning or the 16 functioning at all of the state court system to 17 handle these kinds of appeals? It seems to me he 18 did not. And does it make any difference if he did 19 not? 20 MR. DERR: No, it doesn't make any 21 difference at all, your Honor. There's no 22 principle of law that says the plaintiffs should be 23 required to pursue federal due process and equal 24 protection constitutional claims not in the federal 17 1 district courts but in the local territorial 2 courts. As I said before, Congress just doesn't 3 have the power to do that. 4 And Congress also doesn't have the 5 power to go as far as Attorney Smock argued in 6 completely divesting the federal system of any 7 oversight over the property tax system in the 8 Virgin Islands. 9 If Congress did that, then they would 10 be in violation of Article IV, Section 3, Clause 2, 11 the territories clause of the Constitution. And 12 they'd also be in violation of the Revised Organic 13 Act of 1954 that specifically said that Congress 14 reserves the right to overrule any act of the 15 Virgin Islands legislature. 16 So they cannot give that type of power 17 to the legislature or the local government. And if 18 you read the statutes themselves it was clear there 19 was no intention to do that. 20 THE COURT: What was the intent of the 21 repealer? 22 MR. DERR: It's never been clearly 23 stated, your Honor. My personal opinion is that 24 the intent was to violate or to repeal the statute 18 1 that the government was violating in order to allow 2 them to get out from under their obligations under 3 the Berne settlement agreement. 4 I haven't seen anything that indicates 5 anything to the contrary aside from some lofty 6 rhetoric about turning the property tax system over 7 to local control. 8 THE COURT: There's no legislative 9 history that says that, is there? 10 MR. DERR: There's legislative history 11 that says that property tax issues are generally 12 considered matters of local concern and we would 13 like to give the Virgin Islands control over those 14 local matters. 15 The problem with that, we weren't 16 allowed to have any input into that. That's just 17 what Congress says. But that ignores the 18 fundamental difference in the relationship between 19 the federal and state governments and between the 20 federal government and the territories. This leads 21 directly into the issue as to whether the Tax 22 Injunction Act even applies to the Virgin Islands. 23 Again -- 24 THE COURT: Do we have to decide that? 19 1 MR. DERR: No, your Honor. I was just 2 going to say in the words of Yogi Berra, "This is 3 deja vu all over again." It's already been 4 decided -- 5 THE COURT: We've addressed that. 6 MR. DERR: It was addressed by this 7 court in the Pan American Airways -- 8 THE COURT: All the way back in Pan Am 9 and more recently in Bluebeard's Castle. 10 MR. DERR: Exactly. And the important 11 thing to note is that the Pan Am case arose in the 12 context of a gross receipts tax, not in the context 13 of a property tax. 14 So the government's arguments 15 regarding 1401, number one, are completely 16 irrelevant, and number two, this court's already 17 ruled on the issue, that it does not apply. 18 With regard to the functioning of the 19 Board of Tax Review, Judge Gomez did address the 20 issue in the context in which it's set up in the 21 Virgin Islands. 22 The normal process in the Virgin 23 Islands for pursuing an appeal is, until the recent 24 amendments, you paid the last unappealed amount of 20 1 tax, take an appeal to the Board of Tax Review. 2 Statutorily the board is required to act within, at 3 the time, 60 days, now 120 days, and render an 4 opinion. 5 If you're not satisfied with that, you 6 can proceed to the District Court by way of a Writ 7 of Review, which has an extremely limited scope. 8 Basically there's no de novo review as there were 9 in the other cases cited by the government that 10 found that there was sufficient protections for a 11 taxpayer. 12 The judge is limited to finding if 13 there was substantial evidence to support the 14 Board's finding, and if there was he just acts as a 15 rubber stamp. 16 The Third Circuit, when it was hearing 17 the appeals from the Territorial Court, now the 18 Superior Court of the Virgin Islands, has said that 19 they don't review those factual findings that have 20 already been approved by the district court judge. 21 So you don't have a procedure for 22 actually correctly challenging the system in a way 23 that's constitutionally permissible and that gives 24 a -- may I finish the sentence, your Honor? 21 1 THE COURT: We'll give you a few more 2 minutes and we'll give Ms. Smock a few more minutes 3 on her rebuttal. 4 MR. DERR: There's not a procedure in 5 place that allows for the de novo review by a 6 judicial officer and that allows for the raising of 7 constitutional claims. 8 I've done a number of appeals before 9 the Board of Tax Review and I can tell you that if 10 we started discussing constitutional issues with 11 bankers and realtors and those other members of the 12 board, it would probably be an exercise in 13 futility. 14 THE COURT: Anything else you want to 15 tell us? 16 MR. DERR: No, your Honor. I believe 17 I've addressed that. 18 Attorney Bornn can pick up anything 19 that I might have missed and also address the 20 contempt issues. 21 THE COURT: Any questions? Good. 22 Mr. Derr, thank you very much. 23 MR. DERR: Thank you, your Honor. 24 THE COURT: Mr. Bornn. 22 1 MR. BORNN: Good morning, your Honors. 2 THE COURT: Good morning. 3 MR. BORNN: A pleasure to be appearing 4 before you today. May it please the Court, my name 5 is David Bornn from The Bornn Firm, and I, along 6 with attorney Derr, represent the appellees. 7 I would like to address for you 8 principally and to respond to any questions you may 9 have regarding basically the contempt issues. 10 We view this principally as a matter, 11 the contempt order, directed at the government's 12 actions prior to the entry of its companion 13 decision on the vacatur decision. 14 It principally addresses a matter of 15 the respect of the law and of the court. 16 THE COURT: Does the government at any 17 point, did the government of the Virgin Islands at 18 any point actually dispute that they had disobeyed 19 the 2003 order? 20 MR. BORNN: No, your Honor. If you in 21 fact look at the supplemental appendix of the 22 transcript of the proceeding, it's the supplemental 23 appendix starting at page 21, you have an exchange 24 there between the Judge, the Tax Assessor and 23 1 Attorney Jacobs in which it is clear that the 2 government does not dispute any of the elements of 3 the contempt, the three elements going to contempt. 4 What the government disputes is the 5 validity of the underlying injunction, the 2003 6 injunction. 7 And it took it upon itself to make 8 that interpretation that it was invalid because of 9 the issues it raises here, the Tax Injunction Act, 10 the repeal of 1401(a). 11 The -- 12 THE COURT: An impossibility. 13 MR. BORNN: An impossibility because 14 those elements then set up an impossible scenario 15 that it could not do what the court had ordered in 16 the 2003 injunction and modified by the August 2003 17 amendment to issue bills at the 1998 assessed 18 values. 19 It is important to note that the 20 government submitted to the jurisdiction of the 21 court under a motion for partial -- for vacating of 22 the injunction by a December 5th, 2007 motion under 23 Rule 60(b) which, according to the premises of this 24 court's rulings, is the appropriate mechanism to 24 1 have a determination if there is an applicable 2 change of law or other circumstances that would 3 permit them to deviate from the established 4 principles of the injunction. 5 Instead what they do, while that 6 motion is pending and out of pure impatience, yes 7 it may have been impatience driven by economic and 8 financial circumstances, but this court has also 9 said -- 10 THE COURT: They would use a stronger 11 word. It's not impatience, it was extreme 12 frustration. 13 MR. BORNN: But this court has also 14 stated that in those circumstances the party may 15 also petition to this court for further emergency 16 relief. 17 That was not done. Instead the 18 government through the Governor to the Legislature, 19 petitions the Legislature for the approval of the 20 amended tax provision, tax assessments statute. 21 They then use that statute on a notice 22 to the court, which was the informational notice in 23 the appendix, in the joint appendix, that simply 24 says to the court, please be advised we are issuing 25 1 the tax bills for 2006 at the 2006 rates and 2 values. 3 This is in direct contravention of the 4 court's outstanding order. So -- 5 THE COURT: Let me see if I understand 6 correctly. With the repeal by Congress of the act 7 back to, tax act back to 1954, what is left of your 8 claims? 9 MR. BORNN: The repeal only removed 10 the element of the application of the federal 11 statute. The remaining parts of the injunction 12 that applied to the enforcement of the settlement 13 agreement, the Berne Settlement Agreement, the 14 determination of the assessed, the propriety of the 15 assessed valuations according to that agreement, 16 the functioning of the Board of Tax Review, and the 17 functioning of the refund mechanism are all still 18 viable and outstanding. 19 THE COURT: But they haven't been 20 ruled on by the court. 21 MR. BORNN: They have not been ruled 22 on by the court to this point. 23 THE COURT: The last two specifically 24 were exempted from the court's decision in 2003. 26 1 MR. BORNN: The court held a hearing 2 in June of 2008 on the issue of the functioning of 3 the Board of Tax Review. That was incorporated 4 into the partial vacatur. 5 The court also held a partial hearing, 6 status conference on the issue of the master's 7 report. That has not been ruled on. 8 So those are the elements that remain 9 outstanding and fully enforceable by the operation 10 of the contempt as a coercive measure. 11 Remember that this matter has been 12 outstanding for nine years, six since the 2003 13 decision. And so the court has been operating with 14 a certain amount of frustration as well, that the 15 government complete what it was supposed to do when 16 it entered the original Berne Settlement Agreement. 17 Hence, the contempt sought to coerce 18 the government back into the position of what it 19 was supposed to be doing and it gave the keys to 20 the government to purge the contempt. It permitted 21 the government to initiate what the judge 22 specifically asked to the government in the course 23 of the proceeding. 24 Can you not go back, as you did 27 1 before, in 2003, to the legislature to put back 2 into place the provision that the tax bills can and 3 should be issued at the 1998 assessed values. It 4 said nothing per se in terms of the, what would 5 happen to the operation of the revised statute. 6 But it said couldn't you do that? And 7 if you did that, that would then permit the 8 government to come into compliance with the 9 injunction and the government would have its keys 10 to then come back to the court and say we have made 11 substantial efforts to seek to comply with the 12 injunction, at which point the court could then 13 make its decision on the terms of the release of 14 the government from the contempt sanctions. 15 THE COURT: Any other questions? 16 Anything else you want to tell us? 17 MR. BORNN: No, your Honor. 18 THE COURT: Good, Mr. Bornn. Thank 19 you very much. 20 MR. BORNN: Thank you very much. 21 THE COURT: Ms. Smock. 22 MS. SMOCK: Yes, thank you. Thank you 23 again. First of all, the court has said in its 24 partial vacatur order that there was only one 28 1 matter outstanding and that was the Board of Tax 2 Review. 3 The court clearly stated in its 4 partial vacatur order that the Berne Settlement 5 Agreement had been resolved, had been essentially 6 dissolved, I should say, with the passage by 7 Congress of the repeal of the 1936 act. That was 8 not an issue that was left for the court to decide 9 or determine. 10 The court went further to say that the 11 contract clause also could not survive in this 12 instance in that there was no impairment of a 13 contract clause as a consequence of the repeal of 14 the 1936 act. 15 Additionally, in 2008 -- 16 THE COURT: What about the propriety 17 of the assessments, the functioning of the Board of 18 Tax Review and the refunds? 19 MS. SMOCK: The court said in terms of 20 the propriety of the assessment, it believed that 21 the board was functioning to some degree. The 22 court also went into other issues in terms of the 23 assessment. 24 But also, if you have to consider that 29 1 in terms of the assessment by the Board of Tax 2 Review, once Congress repealed the 1936 act, that 3 was the only basis that the District Court had to 4 consider assessments and collections. And once 5 that was repealed, the District Court lost its 6 jurisdiction over that and could not consider those 7 issues. 8 And a court can lose its jurisdiction 9 at any point in time during a proceeding. And once 10 it loses its jurisdiction it no longer has a right 11 to continue to hear the matter. In 2008 -- 12 THE COURT: I'm lost. 13 MS. SMOCK: I'm sorry. 14 THE COURT: If there was a claim that 15 they made in 2000, due process, equal protection 16 claims, that the functioning of the Board of Tax 17 Review in doing its assessments and also the 18 refunds somehow violated the constitutional law and 19 the court hasn't ruled on those yet, aren't those 20 still before the court? 21 MS. SMOCK: Those are not before the 22 court because once it was repealed there was no 23 federal due process jurisdiction in property tax 24 matters. 30 1 And I think that it's very clear, and 2 this court has also held, that property taxes are 3 generally governed by state law. And the 4 importance to the states of their tax -- 5 THE COURT: You agree Congress cannot 6 take away a constitutional claim. Congress can 7 take away a statutory claim. 8 MS. SMOCK: Congress did take -- 9 THE COURT: In other words, it can do 10 something with 1401, which it did. But do you 11 agree that Congress cannot do away with a 12 constitutional claim? 13 MS. SMOCK: I think that in property 14 tax matters it's very clear the courts have held 15 that if it's property tax and if the state court 16 can hear the constitutional matters, then it should 17 be before the state court. And I think that's what 18 we have been arguing, that the constitutional 19 matters, issues here are based on the federal court 20 having jurisdiction. And once it lost jurisdiction 21 those constitutional matters could be heard by the 22 state court. 23 And in property tax matters they 24 should be heard by the state court. I think in 31 1 Fair Assessment it says that and also this court I 2 believe says that in Bluebeard's. 3 THE COURT: What I hear you saying is, 4 the answer is sort of a conclusion? 5 MS. SMOCK: I'm sorry? 6 THE COURT: Let's assume you're right, 7 that this may affect how you come out with regard 8 to the due process and equal protection claims. 9 But the court at some point has to make that 10 decision, which it has not yet done so. In other 11 words that's the merits. That's not before us. 12 MS. SMOCK: I think that once the 13 court lost jurisdiction over property tax it does 14 not make that decision. 15 THE COURT: You may be right and you 16 may prevail. But it has to be ruled on by Judge 17 Gomez first, does it not? 18 MS. SMOCK: I do not believe that it 19 does have to be ruled on by Judge Gomez, I'm sorry. 20 THE COURT: That's playing with fire. 21 THE COURT: Are you suggesting, so I 22 under -- 23 MS. SMOCK: No. I -- I'm sorry, go 24 ahead. 32 1 THE COURT: So I understand your 2 position, are you suggesting that there's something 3 before us in this appeal that would result in a 4 ruling that would oust the District Court of 5 jurisdiction such that Judge Gomez could not reach 6 the merits that Judge Ambro is referring to? 7 MS. SMOCK: Well, I think that there 8 are things before us that have been before the 9 courts. If we look at the principles of comity and 10 federalism, we can start there and we can see 11 that -- 12 THE COURT: How is federalism at all 13 applicable here? 14 MS. SMOCK: Because it clearly says 15 that there shall be no federal impact in matters 16 that -- 17 THE COURT: By states. 18 MS. SMOCK: And Congress has broad 19 powers to delegate to the territories those same 20 powers that the states have. 21 THE COURT: Where is there any 22 authority that suggests that federalism is 23 applicable to the territories? Show me language 24 from some source, anywhere, because I'm completely 33 1 unaware of it. 2 MS. SMOCK: I think that in -- 3 THE COURT: I don't think Plaut helps 4 you. 5 MS. SMOCK: I'm sorry? 6 THE COURT: I don't think the Supreme 7 Court case in Plaut, P-L-A-U-T, helps you. 8 MS. SMOCK: I think in Fair Assessment 9 it may help us, and I think that possibly -- 10 THE COURT: How's that? 11 MS. SMOCK: I think that also in Perez 12 it may help us. I believe that because I think 13 that even, that it seems to me very clear -- 14 THE COURT: Where in Perez and where 15 in Fair Assessment does it answer the question of 16 Judge Smith your way? 17 MS. SMOCK: Well, I believe that when 18 it comes to federal rights it says in Fair 19 Assessment at 116, I think that we could go into -- 20 116 in Fair Assessment it starts talking about the 21 assertion of constitutional rights. 22 And I believe that it is implied from 23 that that if the Section 1983 action, 24 constitutional right does not prevail in property 34 1 tax matters. So I think that you could imply from 2 that that those principles would also apply. 3 Because it clearly means to me that there should be 4 no federal impact in property tax matters, in 5 particular, unless Congress has spoken differently. 6 THE COURT: Why don't you quote the 7 actual language at page 116. 8 MS. SMOCK: It says that taxpayers are 9 barred by the principle of comity from asserting 10 the Section 1983 constitutional actions against the 11 validity of state tax systems in federal courts. 12 THE COURT: State tax systems. 13 MS. SMOCK: Yes. And I think that 14 state tax systems, but I think in this instance 15 what Congress has done, Congress has treated the 16 territory, the Virgin Islands for property tax 17 purposes, the same as a state, and it has required 18 that there be no federal impact. 19 THE COURT: You have answered my 20 question -- 21 MS. SMOCK: Yes. 22 THE COURT: -- largely. Let me just 23 try to close the circle. 24 MS. SMOCK: Yes. 35 1 THE COURT: You are then though 2 conceding, I assume, that there's no language in 3 any Supreme Court decision, nor a decision of this 4 court for that matter, because we do have some 5 language, from which we could conclude that the 6 principles of federalism apply to a territory. 7 You are basing that argument entirely 8 on the language of the repealer? 9 MS. SMOCK: No, I'm not basing it 10 entirely -- I'm basing -- 11 THE COURT: It's something implicit to 12 the statute. 13 MS. SMOCK: Yes, it's implicit there, 14 I believe. But I think that there's enough 15 jurisprudence to also confer that. 16 THE COURT: Good. Anything else, 17 Ms. Smock? 18 MS. SMOCK: No. That's all. Thank 19 you. 20 THE COURT: Well, good. Thank you 21 very, very much. 22 MS. SMOCK: Thank you. 23 THE COURT: We appreciate lawyers 24 coming here from the Virgin Islands. 36 1 MS. SMOCK: Oh, thank you so much. 2 THE COURT: Hope nobody catches a cold 3 in the meantime. 4 MS. SMOCK: So far we're healthy. 5 THE COURT: Very good. 6 MS. SMOCK: And we understand you're 7 also visiting the Virgin Islands. 8 THE COURT: We'll be down there in a 9 couple months. 10 MS. SMOCK: Well, good. We hope to 11 see you then. Thank you very much. 12 THE COURT: Thank you. The case was 13 very well argued. We'll take the case under 14 advisement. 15 The court would like to have a 16 transcript of the oral argument and we would ask 17 that both parties share the costs of this. Would 18 you please check with the clerk's office as you 19 leave. They'll tell you how to accomplish this. 20 The transcript will aid us in writing the opinion 21 in this matter. Thank you very much. 22 23 24 37 1 CERTIFICATION 2 3 I, JAMES DeCRESCENZO, a Registered 4 Diplomate Reporter, Certified Realtime Reporter, 5 Certified Shorthand Reporter of New Jersey, License 6 Number XI 00807, and Notary Public, hereby certify 7 that the foregoing is a true and accurate 8 transcript. 9 10 I further certify that I am neither 11 attorney nor counsel for, not related to nor 12 employed by any of the parties to this action; and 13 further, that I am not a relative or employee of 14 any attorney or counsel employed in this action, 15 nor am I financially interested in this case. 16 17 ____________________________ 18 James DeCrescenzo Registered Diplomate Reporter 19 Certified Shorthand Reporter Notary Public 20 21 22 23 24