A federal judge has ordered the Caneel Bay Resort at Virgin Islands National Park turned over to the federal government/NPS file

A federal judge has transferred the title to the Caneel Bay Resort at Virgin Islands National Park to the Interior Department, ruling that a business that had been running the resort had no right to demand $70 million for the property and its improvements.

U.S. District Judge Cheryl Ann Krause held that EHI Acquisitions, LLC, was bound by the original agreement Laurence S. Rockefeller made with the Interior Department in 1983. Under that agreement, Rockefeller's Jackson Hole Preserve had free use of the property and its facilities for 40 years. At the end of that four-decade period, September 2023, the "Retained Use Estate" agreement dictated that the buildings and their improvements be donated to the National 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 (CBI) in 2004. In 2019, EHI's principal, Gary Engle, offered to essentially terminate the RUE and sell the hurricane-battered resort to the federal government for $70 million, a move that raised questions of whether he was properly interpreting the terms of Rockefeller's RUE.

In her 20-page ruling (attahed below), Krause said the RUE negotiated by Rockefeller made clear that if the holder of the RUE terminated it early, the property and any improvements would be transferred to the federal government "for and in consideration of One ($1.00) Dollar..."

"EHIA’s offer to sell the improvements to the United States for $70 million and indemnification [from any environmental damages] was not a valid offer for purposes of the indenture," the judge wrote in the ruling handed down last Thursday. "Accordingly, we will GRANT Defendant United States’ motion for summary judgment. The RUE having expired on September 30, 2023 without a valid offer from EHIA, title to the resort’s land remains with the United States, and title to the improvements thereon shall be conveyed and transferred to the Department of the Interior forthwith."

The judge also found Engle's argument that he should be paid $70 million for relinquishing the resort property early "absurd."

"EHIA’s reading of 'offer' would have an absurd consequence: EHIA concedes that if the RUE were allowed to expire, the improvements would go to the United States at no cost, yet it maintains that the Government must pay for the improvements if the RUE is terminated early," she pointed out. "Under EHIA’s interpretation of the Indenture, it is difficult to imagine why any rational actor would allow the RUE to expire, when doing so would mean giving the Government for free what it could have offered the government at a price—with the sweetener that if the Government declined, the RUE’s owner would keep its money and acquire premium property at no cost."

Rebuilding The Resort

In September 2017 the tony resort, where nightly room rates surged past $600,  was pummeled by back-to-back hurricanes, storms that essentially put the resort out of business. Engle 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. 

After the government rejected his request for $70 million to relinquish the property, Engle in June 2022 brought a lawsuit against the United States, claiming that the resort legally belonged to CBI, and asked a federal judge to declare the Interior Department had no legal claim to the property.

Judge Krause's ruling, barring appeal, appears to clear the way for the Park Service to move ahead with a redevelopment plan for the 150 acres that calls for a "21st century eco-resort" that could offer up to 166 overnight accommodations, which was the limit of the resort that was largely destroyed by the 2017 hurricanes. The plan did not, however, provide any detail for the lodgings or price ranges. It did call for day use areas for park visitors not staying at the resort, perhaps at Honeymoon Beach, Little Caneel Beach, and Caneel Beach.

Before the Park Service can seek bids for rebuilding and operating the resort, though, it has to address environmental contamination on the property. Testing has 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." 

Hurricane-battered structures determined to be beyond salvage also must be razed and removed.

That all was put on hold pending the outcome of the legal battle.

Long, Convoluted History

There's a long history in CBI's operation of the Caneel Bay Resort.

In 2010, Congress passed a law directing the Interior Department to weigh whether it was better to keep the facilities under the RUE or create a concessions agreement for the resort. In that law, Congress specified that if the property was turned into a leased concession, then "the owner of the retained use estate shall terminate, extinguish, and relinquish to the Secretary all rights under the retained use estate and shall transfer, without consideration, ownership of improvements on the retained use estate to the National Park Service."

Three years later, the Park Service, after studying which management approach made the most sense for the agency via an environmental assessment, recommended that the operating agreement be redefined as a long-term lease more in line with typical national park concessions agreements. The environmental assessment said that if the RUE remained in place, there could be impacts to land use, archaeology, cultural and historic resources, and species such as sea turtles and corals.

Indeed, a letter the national park's superintendent wrote in 2010 seeking a solicitor's opinion regarding the Park Service's authority to manage resources at Caneel Bay mentioned that RUE operators "over the years and without park notification destroyed half of a historic plantation’s slave village to install diesel tanks, trenched throughout the property cutting though prehistoric ceremonial sites, installed tennis courts, swimming pools, and sidewalks. In the past few years they have installed a modern floor in the plantation’s factory, and cleared with machinery along the shoreline resulting in the disturbance and erosion of materials from both the prehistoric record and the first European settlements on the island."

But that EA was never finalized, as talks were underway with CBI to reach a long-term lease. Whether any progress was made on negotiating a lease is debatable. While Park Service officials had maintained talks were continuing with Engle, he at the same time was reaching out to Interior Department officials to find a way around the RUE's 2023 sunset.

In December 2020, Interior officials announced they had reached a non-binding "understanding" with the operators of the Caneel Bay Resort that possibly could lead to a rebuilding of the resort and a long-term concessions-type lease.

The agreement itself was not released, and it was not considered to be a memorandum of understanding. Rather, it essentially created a framework for the two sides to move forward on getting the resort that was severely damaged by Hurricanes Irma and Maria in September 2017 back on its feet.

Two years later, Engle sued the government.