The next hearing on the fate of the Caneel Bay Resort at Virgin Islands National Park is set for February 8/NPS file

A legal quagmire has evolved from the battle over the Caneel Bay Resort at Virgin Islands National Park, with the latest turn focused on how phrases in a 40-year-old document should be interpreted.

At stake is whether EHI Acquisitions, LLC retains the right to redevelop the opulent resort within the park, whether the late Laurence S. Rockefeller's desire to see the property transferred to the National Park Service should be upheld, or whether the federal government must buy the hurricane-ruined resort. 

Rockefeller in 1956 donated the land on the island of St. John that today makes up Virgin Islands National Park. At the time, he held back roughly 150 acres for the Caneel Bay 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 [attached below] 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 EHI and its sister operation, Caneel Bay Acquisitions, LLC in 2004.

What's The Value?

Last fall the parties become embroiled in a short, but testy, exchange over how much insurance money EHI received for 2017 hurricane damage to the resort and what it did with the money.

In September of that year the resort was pummeled by back-to-back hurricanes, Irma and Maria, which essentially put the resort out of business. 

Gary Engle, CBI's principal, then worked with U.S. Rep. Stacy Plaskett, D-Virgin Islands, to craft legislation that would extend the RUE for 60 years, a time period Engle maintained was needed to attract investors for the estimated $100 million it would cost to restore the resort's glimmer. But that legislation failed to gain traction.

In 2019, Engle offered to essentially terminate the RUE and sell the resort to the federal government for $70 million, a move that raised questions of whether he was properly interpreting the the terms of Rockefeller's RUE.

Engle in June 2022 brought a lawsuit against the United States, claiming that the resort legally belongs to CBI, and asked a federal judge to declare the Interior Department has no legal claim to the property.

According to the 26-page filing, the federal government lost its hold on the property in 2019 when it turned down an offer from CBI to transfer the property and its title to the government for $70 million. Under that offer, CBI requested indemnity from any environmental liability tied to the property, "other than for contamination caused by Caneel Bay." Along with seeking that payout, CBI claimed it would still control the marina on Caneel Bay that services the resort and so any future operator would have to negotiate a deal to use it.

In dueling filings last fall, the federal government objected when a magistrate judge declined to order EHI to detail how it used the insurance proceeds. That information, the government maintained, was needed to determine whether EHI's offer to sell the resort to the government was made in good faith.

"Plaintiff [EHI] received a substantial amount of insurance proceeds for hurricane damage caused by Hurricane Irma. Plaintiff has refused to disclose how much insurance proceeds it received for hurricane damage caused by Hurricane Maria. The property is also encumbered with a significant amount of mortgage liens. The property has not been restored or rebuilt since the hurricanes. Despite extensive damage to the property, Plaintiff offered to sell the hurricane-damaged property to the United States for $70 million," the government argued.

"To determine whether the $70 million quote was made in good faith, Defendant needs to know the total amount of insurance proceeds received by EHI and whether the proceeds were used to pay off or reduce the mortgage liens," the lawyers continued. "If Plaintiff kept the insurance proceeds for itself, this is something Defendant also needs to know because at the expiration of the Retained Use Estate on September 30, 2023, fee title to the land and the RUE merge and Plaintiff is required to convey title to the Improvements to the United States. Thus, the requested insurance information could bear on or reasonably lead to other information that bear on Plaintiff’s good faith or lack thereof."

In response, EHI's attorneys maintained the magistrate had determined the information was irrelevant. Beyond that, the judge had ruled that the "relevant insurance-related information" had indeed been provided the federal government.

Furthermore, they argued, the federal government failed to explain how the mortgage liens were relevant to the fair market value of the resort. To that the government maintained that, "[P]laintiff was required to use the insurance proceeds to restore the Improvements on the Property, and the amount of proceeds that was used to restore the Property affects the value of the Property; (2) If Plaintiff did not use any proceeds to restore the Property but instead used it to pay down the mortgages on the Improvements, that is also relevant to the value of the Property;..."

Definitions, Please

While it's unclear how or whether that standoff was resolved, or if it was passed on up to the federal district judge assigned the case, that judge has given the two parties until February 8 to offer their interpretations of wording at issue in the case. Specifically, Judge Cheryl Ann Krause wants to know:

• How to interpret the "offer to convey and transfer" language for the property that was mentioned in the 1983 RUE;

• If the terms “offer” and “acceptance” are ambiguous as used in the 1983 [RUE], the extent to which the Court may consult extrinsic evidence to resolve that ambiguity;

• Whether the "'offer to convey and transfer constitutes a gift, or, in view of, e.g., the nominal monetary consideration and/or a 'reasonable opportunity' for Grantor to bid for the provision of 'public accommodations, facilities, and services,' it constitutes an exchange for value;"

The questions revolve around section 8 of the RUE:

Grantor may, upon one (1) year's prior written notice mailed or delivered to the Secretary, terminate and extinguish the Retained Use Estate on a specified date (the "Termination Date"), provided, however, that the Termination Date shall not be prior to three (3) years from the date hereof. Such notice of termination shall include an offer by Grantor to convey and transfer to Grantee as of the Termination Date fee title in and to all improvements located on the Premises (including the Improvements) title to which has not previously been conveyed and transferred to Grantee, and shall be accompanied by the form of an instrument to effect such conveyance and transfer which Grantor will execute and deliver upon acceptance by Grantee of such offer. All mortgage liens on the Retained Use Estate and the Improvements must be satisfied or discharged prior to conveyance thereof 4 to Grantee.