A federal judge has dismissed the Government of the Virgin Islands' lawsuit seeking to recover tax benefits granted to Ocwen USVI Services LLC, ruling that the government used the wrong legal procedures and waited too long to pursue claims arising from the company's participation in the territory's Economic Development Commission program.
In a 22-page opinion issued October 14, District Judge Evan Rikhye dismissed both claims brought by the government with prejudice, ending this particular lawsuit unless the decision is overturned on appeal. The ruling concerns one of five separate cases between Ocwen and the territory over tax refunds, assessments and incentives dating back more than a decade.
The government alleged that Ocwen received substantial tax benefits between 2012 and 2020 despite earning income that did not qualify under the territory's Economic Development Commission program. It argued that the company had violated the conditions of its economic development certificate and should therefore return benefits it was never entitled to receive.
The lawsuit sought recovery of those benefits and a judicial declaration that Ocwen owed outstanding taxes. Ocwen moved to dismiss the complaint, challenging the government's legal basis for bringing the action.
Judge Rikhye concluded that the government's claims were fundamentally about unpaid income taxes, regardless of how they were characterized in the complaint. Under the Virgin Islands' mirror tax system, he explained, the government must follow established procedures for auditing taxpayers, issuing deficiency notices, assessing liabilities and collecting taxes.
The government instead brought a common-law claim seeking recovery of benefits or debt, which the court interpreted as an unjust enrichment claim. That legal approach could not replace the procedures established under the tax code, the judge ruled.
"The GVI has chosen the wrong vehicle to pursue its litigation," Judge Rikhye wrote.
The judge also found that the government had failed to pursue the remedies prescribed by Virgin Islands law for alleged violations of Economic Development Commission certificates. Those procedures allow the Virgin Islands Economic Development Authority to revoke, suspend or modify certificates, or impose fines, subject to notice and an opportunity for a hearing.
According to the opinion, the government's complaint did not establish a viable claim under those provisions. The court determined that the territory could not use a general civil lawsuit to bypass the statutory processes governing economic development incentives and tax collection.
Judge Finds Tax Claims Were Filed Too Late
Beyond the government's choice of legal procedure, Judge Rikhye found that the applicable three-year statute of limitations had expired for the tax years at issue.
The most recent Ocwen tax return identified in the record was filed October 14, 2021, meaning the assessment period expired October 14, 2024. The government filed its complaint in the Superior Court of the Virgin Islands approximately six months later.
The judge concluded that the time limits had expired for claims associated with the tax years 2012 through 2020. Allowing the government to revive those claims through an unjust enrichment lawsuit would undermine the deadlines established by federal tax law, which applies in the Virgin Islands through the mirror tax system.
The court also dismissed the government's separate request for a declaratory judgment. Judge Rikhye found that such an action could not substitute for the required administrative procedures or serve as an independent means of recovering previously granted tax benefits.
Although the judge acknowledged the potential financial consequences of the government's allegations, he emphasized that the court was required to apply the governing law. His decision did not determine whether Ocwen had actually complied with every condition of its economic development certificate.
Judge Criticizes Government's Court Filing
The opinion also contains pointed criticism of portions of the government's complaint that discussed regulatory enforcement actions against Ocwen in mainland jurisdictions.
Judge Rikhye questioned the relevance of those allegations to the Virgin Islands tax dispute, describing their inclusion as a "tone-deaf tactical error" and warning government attorneys against placing irrelevant or inflammatory material in future court filings.
The judge said sanctions were not warranted at this time. He also made clear that the unrelated allegations played no role in his decision to dismiss the lawsuit.
Separate $28 Million Refund Dispute Continues
The October 14 decision is separate from Ocwen's ongoing lawsuit seeking to enforce a December 2022 agreement under which the Virgin Islands government agreed to pay the company $27,923,234, plus interest, in tax refunds for the years 2013 through 2015.
The Consortium reported in August that Judge Rikhye had rejected the government's attempt to dismiss Ocwen's claim for breach of that agreement, finding that the settlement constituted a binding contract under the applicable tax laws.
The government appealed that ruling to the U.S. Court of Appeals for the Third Circuit on August 18. The appellate court has tentatively placed the case on its spring 2027 calendar.
In the October 14 opinion, Judge Rikhye reaffirmed his earlier determination concerning the validity of the 2022 agreement, while acknowledging that the government's appeal remains pending.
Another separate case concerns a disputed $12,948,684 tax assessment against Ocwen for 2019. The Consortium reported earlier this month on a ruling allowing the Virgin Islands Attorney General to retain outside counsel in that litigation. The underlying assessment dispute remains unresolved.
