LAND HOLDINGS (ST.THOMAS) LTD., AN ISLE OF MAN CORPORATION v. MEGA HOLDINGS, INC. KATHY MULLEN D/B/A REGENCY CHARTER SERVICES AQUAMARINE TOURS, INC. MAGDALENA JAMES DENNIS JAMES D/B/A BERNIE'S TREASURES STEVEN BISHOP D/B/A STEVEN BISHOP, INC. D/B/A BISHOPS ARCHITECTURAL CAPTAIN AND CREW OF THE CARIBBEAN, INC. CARIBBEAN SAILING CHARTERS, INC. ROBERT CARSON DENISE CARSON D/B/A CARSON YACHT BROKER VERNA RUAN D/B/A CREWED CHARTERS DARYL LANHAM SULLIVAN ERICA BENJAMIN D/B/A ERICA'S HAIR DESIGN CHUCK FERGUSON BRUCE WILLIAMS MANJO VED D/B/A M & J TRADING JEFF FROVARP D/B/A PLASTICALLY NEW DENNIS FRICKE D/B/A REFCO MARINE REFRIGERATION SEABORNE AVIATION, INC. MEL LUFF D/B/A UNDER WATER SAFARIS GATELE WEEKES D/B/A VI CANVAS D. AVELLOGG D/B/A VIRGIN ISLANDS CHARTER YACHT LEAGUE—FLAGSHIP MICHAEL RUICH D/B/A VIRGIN ISLAND CHARTER YACHT LEAGUE—MARINA WON'S CORPORATION D/B/A WOK ON WATER EXPRESS WATER UNDER THE PIER, INC. AND ANY AND ALL PERSONS OR CORPORATIONS CLAIMING AN INTEREST OF ANY KIND OR NATURE WHATSOEVER IN OR TO

Citations: 283 F.3d 616; 2002 U.S. App. LEXIS 4255Docket: 00-2890

Court: Court of Appeals for the Third Circuit; March 14, 2002; Federal Appellate Court

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The United States Court of Appeals for the Third Circuit upheld the District Court's summary judgment in favor of Land Holdings (St. Thomas) Ltd. in a foreclosure action against various appellants, including Aquamarine Tours, Inc. and Kathy Mullen d/b/a Regency Charter Services. The appellants raised four primary issues on appeal: 

1. They argued that the District Court lacked subject matter jurisdiction due to alleged collusion in establishing diversity and insufficient amount in controversy.
2. They claimed Land Holdings was barred from filing the foreclosure action due to non-compliance with the registration requirements under the Virgin Islands' Criminally Influenced and Corrupt Organizations Act (CICO).
3. They contended that summary judgment was premature because material facts were in dispute regarding whether Land Holdings was assigned the mortgage.
4. They asserted that Land Holdings was precluded from foreclosing on Aquamarine's lease, claiming it acquired the mortgage with actual knowledge of the lease interest.

The court affirmed the lower court's decision. The procedural background highlights that in 1986, Virgin Island Yacht Harbor, Inc. (VIYH) defaulted on a loan secured by a mortgage on real property in St. Thomas. After negotiating a Deed in Lieu of Foreclosure with the Bank of Nova Scotia, VIYH transferred the property to Yacht Haven Holdings (YHH), satisfying its debt. Subsequently, the Bank sold the mortgage to Land Holdings for over $3 million. YHH then transferred its ownership to Mega Holdings, leaving Mega Holdings as the property owner with Land Holdings holding a valid first priority lien.

Mega Holdings defaulted on a Mortgage held by Land Holdings, leading Land Holdings to initiate a lawsuit seeking a declaration that its lien on the Property was superior, a public auction sale to satisfy the debt, and a foreclosure judgment requiring all occupants to vacate. Initially naming 21 defendants, only Mega Holdings, Aquamarine Tours, and Kathy Mullen remained by the summary judgment stage.

Appellants argued that the assignment of the Mortgage from the Bank of Nova Scotia to Land Holdings was illegitimate and aimed at creating diversity jurisdiction in violation of federal law. The court evaluated the legitimacy of the assignment based on the assignor's interest in the foreclosure, the business purpose behind the assignment, and the consideration exchanged. The District Court found the assignment legitimate, agreeing that the transfer's legitimacy outweighed any potential motive to create diversity.

Land Holdings, incorporated outside the Virgin Islands, and the defendants, citizens of the Virgin Islands, established proper diversity jurisdiction unless the assignment was deemed a sham. Land Holdings was formed for tax reasons, and it paid over three million dollars for the mortgage assignment, with no continuing interest retained by the Bank. The court noted that the Bank, a foreign corporation, could have pursued federal court action independently of the assignment, affirming the validity of the diversity.

Aquamarine contended that the amount in controversy was not met because a Deed in Lieu of Foreclosure discharged the debt owed by Mega Holdings. The court rejected this claim, clarifying that while the debt to VIYH was discharged, the Property remained under mortgage, and Mega Holdings was aware of this. The foreclosure action pertained to a multi-million dollar property, satisfying the amount in controversy requirement, and the District Court appropriately asserted diversity jurisdiction to hear the case.

The CICO Act prohibits alien corporations from owning, purchasing, or selling real property in the Virgin Islands, as well as from initiating lawsuits there, until they meet specific registration requirements. Land Holdings is classified as an "alien corporation" under this Act. Aquamarine contends that Land Holdings is barred from filing its action due to non-compliance with CICO registration. However, the District Court ruled that Land Holdings fulfilled the registration requirements under 13 V.I.C. 401(a), which the court determined were substantially similar to those of the CICO Act. Consequently, compliance with Title 13 was deemed sufficient to establish substantial compliance with the CICO Act, allowing Land Holdings to proceed with its foreclosure action. The CICO Act's purpose is to combat criminal activity in the Virgin Islands by imposing stringent reporting requirements on alien corporations to mitigate illegitimate uses. Since Land Holdings complied with Title 13, it is permitted to maintain its foreclosure lawsuit, and the District Court's summary judgment in favor of Land Holdings is affirmed. Additionally, Aquamarine's reliance on the Kramer case is addressed, noting that the circumstances differ significantly from the assignment in question here.

A district court lacks jurisdiction over civil actions if any party has been improperly or collusively joined to invoke jurisdiction (28 U.S.C. 1359). The CICO Act (14 V.I.C. 611(c)) mandates that foreign corporations provide a registered office address to the Lieutenant Governor, a requirement not present under 13 V.I.C. 401(a). The District Court determined that Land Holdings complied with the CICO Act by providing an address for its business agent in the Virgin Islands, supporting its ability to proceed with the case. Compliance with the registration requirements of one statute does not automatically imply compliance with the other. However, this does not prevent the Government of the Virgin Islands from enforcing compliance with the CICO Act.

Appellants raised two additional issues on appeal: whether the Bank retained a mortgage assigned to Land Holdings, and whether Land Holdings could foreclose Aquamarine's lease given its knowledge of the lease interest. The court found these arguments unpersuasive, affirming the District Court's conclusion of diversity jurisdiction for the foreclosure action. The CICO Act prohibits alien corporations from owning or selling real property and from suing in the Virgin Islands until registration requirements are met. The District Court ruled that Land Holdings fulfilled the foreign corporation registration requirements under 13 V.I.C. 401(a), which are substantially similar to those required by the CICO Act, thus allowing Land Holdings to proceed with its foreclosure action. The CICO Act necessitates detailed reporting to the Lieutenant Governor, including corporate name, address, officer and director information, and registered agent details, mirroring certain requirements of the foreign corporation registration statute.

The CICO Act, codified at 14 V.I.C. 601, aims to reduce criminal activity in the Virgin Islands, particularly targeting alien corporations that may operate under fictitious names for illegitimate purposes. To address this issue, the Act includes specific reporting requirements. Compliance with the similar reporting mandates under 13 V.I.C. 401 for foreign corporations effectively meets the objectives of the CICO Act. Land Holdings has adhered to Title 13, indicating substantial compliance with the CICO Act, allowing it to proceed with a foreclosure action in the District Court for the Virgin Islands. The District Court's summary judgment in favor of Land Holdings is affirmed.

The excerpt also discusses a legal precedent from Kramer v. Caribbean Mills, highlighting that an assignment aimed at obtaining diversity jurisdiction is invalid under certain conditions. However, the assignment in the current case is distinct from that in Kramer. Additionally, the CICO Act requires alien corporations to provide a registered office address, a requirement that Land Holdings met without any indication of concealment. The court clarifies that compliance with either the CICO Act or the foreign corporation registration does not automatically ensure compliance with the other.

Two further issues raised on appeal involve the validity of the mortgage assignment from the Bank to Land Holdings and allegations that Land Holdings was aware of Aquamarine's lease interest, which would preclude foreclosure. The court finds these arguments to be without merit, affirming Land Holdings' position.