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Hess Oil Virgin Islands Corp. & Subsidiaries v. The Government of United States Virgin Islands

United States District Court, S.D. New York

July 2, 2015

HESS OIL VIRGIN ISLANDS CORP. & SUBSIDIARIES, Plaintiff,
v.
THE GOVERNMENT OF THE UNITED STATES VIRGIN ISLANDS and THE VIRGIN ISLANDS BUREAU OF INTERNAL REVENUE, Defendants.

OPINION AND ORDER

J. PAUL OETKEN, District Judge.

Plaintiff, Hess Oil Virgin Islands Corp. & Subsidiaries ("HOVIC"), brings this action against Defendants the Government of the United States Virgin Islands (the "Government") and the Virgin Islands Bureau of Internal Revenue (the "BIR, " and together with Government, the "Virgin Islands"), seeking to recover alleged overpayments in income taxes to the BIR. Defendants move to dismiss the action, and Plaintiff moves to stay the action. The Court heard oral argument on June 24, 2015.

Under 28 U.S.C. § 1346(a)(1), "[t]he district courts shall have original jurisdiction... of [a]ny civil action against the United States" for tax refund claims. This suit presents an issue of first impression for federal courts: does the Virgin Islands qualify as "the United States" within the meaning of that provision (as Plaintiff argues) in light of the unique "mirror" tax structure applicable to the Virgin Islands? For the reasons that follow, the Virgin Islands does not so qualify and, therefore, the Court lacks subject matter jurisdiction over this action. Defendants' motion to dismiss is accordingly granted, and Plaintiff's motion for a stay is denied as moot.

I. Background

A. Factual Background

HOVIC is a holding company and subsidiary of Hess Corporation, an oil and gas company based in the United States. (Dkt. No. 1 ("Compl.") ¶ 6.) HOVIC is a fifty-percent partner in HOVENSA, LLC ("Hovensa"), a joint venture established in 1998 to own and operate a refinery on St. Croix in the Virgin Islands. ( Id. ¶ 1.) HOVIC is formed under the laws of the Virgin Islands and has its principal place of business in New York, New York. ( Id. ¶ 6.)

For some time, it appears, the joint venture was profitable. In its 2006 and 2007 tax returns, HOVIC reported taxable income of approximately $158 million and $88 million, respectively.[1] ( Id. ¶¶ 14-15.) But between 2008 and 2011, Hovensa suffered losses in excess of $1 billion for financial accounting purposes. ( Id. ¶ 1.) In 2012, the refinery shut down operations entirely. ( Id. )

In April 2011, HOVIC filed amended tax returns for 2006 and 2007, seeking a total refund of approximately $84 million based on a carryback of tax losses incurred in the 2008 and 2009 years. ( Id. ¶¶ 19-20.) HOVIC filed one tax refund claim for 2006, and two claims for 2007. ( Id. ) The BIR denied all of the claims.[2]

B. Procedural History

HOVIC filed this action on December 24, 2014. (Dkt. No. 1.) The Virgin Islands filed a motion to dismiss the complaint on March 16, 2015. (Dkt. No. 23.) HOVIC filed a motion to stay the proceedings, along with an opposition to the motion to dismiss, on April 2, 2015. (Dkt. No. 28.) The Virgin Islands filed a reply in support of its motion on April 13, 2015 (Dkt. No. 37), and a response to HOVIC's motion to stay on April 17 (Dkt. No. 38). HOVIC then filed a reply in support of its motion on April 24. (Dkt. No. 39.)

HOVIC seeks a stay on the basis that it has a pending petition in the District Court of the Virgin Islands (sitting as the Tax Court) challenging a notice of deficiency issued by the BIR for the 2008 tax year and seeking a redetermination of income tax for that year. (Dkt. No. 33, at 2-3.) HOVIC contends, accordingly, that the outcome of proceedings in the Virgin Islands may affect the outcome in this case. ( Id. at 1.) The Virgin Islands does not oppose a stay of proceedings, but contends that the motion to dismiss should be resolved first. (Dkt. No. 38, at 1-2.)

II. Subject Matter Jurisdiction

The Virgin Islands seek dismissal of this action on four grounds: lack of subject matter jurisdiction, lack of personal jurisdiction, lack of venue, and forum non conveniens. Because the Court concludes that it lacks subject matter jurisdiction, it does not reach the remaining grounds for dismissal.

"Generally, a claim may be properly dismissed for lack of subject matter jurisdiction where a district court lacks constitutional or statutory power to adjudicate it." Kingsley v. BMW of N. Am. LLC, 12-CV-234, 12-CV-350 (JPO), 2012 WL 1605054, at *2 (S.D.N.Y. May 8, 2012) (Oetken, J.). "In resolving a motion to dismiss under Rule 12(b)(1), the district court must take all uncontroverted facts in the complaint... as true, and draw all reasonable inferences in favor of the party asserting jurisdiction." Tandon v. Captain's Cove Marina of Bridgeport, Inc., 752 F.3d 239, 243 (2d Cir. 2014). At the same time, the court has "the power and obligation" to decide disputed jurisdictional facts by reference to materials outside the pleadings, including affidavits. APWU v. Potter, 343 F.3d 619, 627 (2d Cir. 2003) (internal quotation marks omitted). In that ...


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