Caneel Bay: The Messy Legal Battle for Ownership

If you told me on Sept. 7, 2017 – the day I learned Hurricane Irma destroyed Caneel Bay – that its future would remain in limbo nearly six years later, I wouldn’t have believed you. But that’s precisely where we stand today. And if nothing changes this summer, the future of Caneel Bay will be determined at a federal trial this fall.

I’m sure you all know the story by now. Hurricane Irma barrelled through St. John on Sept. 6, 2017, with sustained winds of 185 miles per hour. The island was decimated, Caneel Bay included. Two weeks later, Hurricane Maria, another Category 5 storm, hit us.

Caneel Bay was a jewel of the Caribbean. The 166-room resort boasted seven pristine beaches enhanced by the island’s dazzling turquoise waters. The resort was luxurious, yet understated. Donkeys and deer roamed freely among its perfectly manicured lawns.

Laurance Rockefeller opened the Caneel Bay Resort on Dec. 1, 1956. The Virgin Islands National Park opened the same day, thanks to Rockefeller’s generous donation of land.

The land that Caneel Bay sits on today is not National Park land. That, however, is supposed to change in September when the property’s current Retained Use Estate (RUE) agreement expires. The RUE allows a private business, currently CBI/EHI Acquisitions, to operate a hotel on the property. Rockefeller, himself, oversaw the establishment of the RUE, which expires on September 30th. At that time, the land is supposed to become part of the Virgin Islands National Park, and CBI/EHI’s affiliation with the property is supposed to end. This is where the current federal lawsuit comes into play.

EHI Acquisitions filed a federal lawsuit against the United States of America in June 2022. In the lawsuit, EHI requested that the court issue a “quiet title in the Property and issue an order declaring the United States has no legal interest in the Property and that Plaintiff EHI Acquisitions, LLC owns all right, title, and interest to the Property.” The United States said absolutely not, and wrote in its opposition that this request “defies logic and common sense.”

(A quiet title action is a special legal proceeding to determine ownership of real property.)

There is a document called the 1983 Indenture that lays out the terms of the RUE, including what is expected to happen upon its expiration on September 30th. The United States thinks, according to its federal filings, that the issue is pretty cut and dry. It believes that Rockefeller’s wishes were clear in that he intended to donate not only the land but the buildings as well, to the National Park. EHI, however, believes the buildings, docks, facilities, and improvements belong to them. Keep in mind, the majority of these buildings remain damaged from the hurricanes.

Making matters more complicated is something called a reverter clause. There is a section of the 1983 Indenture that allows the RUE holder to terminate the RUE provided they give the United States one year’s notice, and the property is mortgage and lien-free, among other parameters. This is the crux of the federal case.

(Click here to read the 1983 Indenture in its entirety.)

EHI presented an offer to terminate the RUE in 2019. They notified the United States and said they would walk away for $70 million, and the release and indemnification of EHI “from all environmental liabilities related to the RUE and related to the Caneel Bay land and Improvements.” (Hazardous waste has been found on the property.) EHI believes, according to court filings, that if the United States said no to their $70 million offer that Caneel Bay, the land and the buildings, would automatically be given to EHI, a private, commercial entity, and the Virgin Islands National Park would no longer have any involvement, ever. They believed this is outlined in the 1983 Indenture. The attorneys representing the United States disagree.

Here is EHI’s argument per the court documents:

Plaintiff EHI Acquisitions, LLC and its affiliate CBI Acquisitions, LLC (collectively “Caneel Bay”) made an offer to the United States in 2019 to transfer its title to the buildings and other improvements in the Caneel Bay Resort (“Resort”) to the United States. The United States declined to accept that offer. As a result, title to the land automatically reverted to EHI Acquisitions, LLC (“EHI Acquisitions”). The United States, however, has refused to recognize that EHI Acquisitions has title to the property, and the United States continues to dispute that ownership. Plaintiff EHI Acquisitions brings this action to quiet title to the property.

The United States does not see it this way. They believe that the only way the RUE could be terminated is by way of gift (donation), not a $70 million payout. And this, my friends, is where we stand today.

EHI is arguing that Caneel Bay is theirs and that the government should “quiet title” the property to them. The United States says absolutely not and is demanding that the court dismiss the case and rule in their favor. In the meantime, Caneel Bay sits in shambles.

The two sides entered into mediation in April and asked for a continuance. In the event that the two sides do not come to a mutual agreement, a trial is scheduled for October 16th, per court documents.

And if the United States does prevail and the land and its buildings are awarded to the Virgin Islands National Park, we still do not know what the Park intends to do with the property. Earlier this year, it offered two proposals, basically an all-or-nothing scenario. Option A calls for no development, while Option B calls to redevelop the property. And while the Park has stated it is leaning toward rebuilding a hotel, it has not released any definitive plans.

If you would like to learn more about the National Park’s two proposals, you can click this link to read a story we posted earlier this year. That story also includes more history on the Caneel Bay property.

And now, we wait. This is messy folks. I will keep you posted.

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