Federal judge throws out V.I. bid to reclaim Ocwen tax incentives

A federal judge has rejected the Government of the Virgin Islands' attempt to reclaim tax incentives paid to Ocwen USVI Services LLC, finding that the territory took the wrong legal path and filed its case too late.

District Judge Evan Rikhye issued a 22-page opinion on October 14 dismissing both of the government's claims with prejudice, a ruling that ends this lawsuit barring a successful appeal. The decision represents one chapter in a five-case dispute between Ocwen and the territory spanning more than a decade, involving refunds, assessments and incentives.

The government had contended that Ocwen improperly received substantial tax benefits from 2012 to 2020 despite earning income that fell outside the territory's Economic Development Commission program requirements. The territory maintained that Ocwen breached its economic development certificate and must repay benefits it never qualified to receive.

Judge Rikhye determined that the government's core dispute centered on unpaid income taxes, regardless of how the complaint was worded. The Virgin Islands' mirror tax system requires the government to follow specific procedures: auditing taxpayers, issuing deficiency notices and assessing tax liabilities. Instead, the government pursued a common-law unjust enrichment claim, which the court found could not circumvent the tax code's established framework.

"The GVI has chosen the wrong vehicle to pursue its litigation," Judge Rikhye wrote.

The judge also noted that the government had bypassed remedies available under Virgin Islands law. The Economic Development Authority possesses authority to revoke, suspend or modify certificates, or levy fines, provided proper notice and a hearing occur. The government's civil lawsuit could not replace these statutory processes.

Time also worked against the territory. The three-year statute of limitations for the tax years in question had expired. Ocwen's most recent tax return on record was filed October 14, 2021, meaning the assessment window closed October 14, 2024. The government filed its complaint roughly six months after that deadline passed.

Judge Rikhye further criticized the government's inclusion of regulatory enforcement actions against Ocwen in mainland states, calling the material a "tone-deaf tactical error" and cautioning government lawyers against inserting irrelevant or inflammatory content in future filings. He stopped short of imposing sanctions.

This ruling stands apart from a parallel dispute in which Ocwen seeks to enforce a December 2022 settlement agreement. Under that accord, the Virgin Islands agreed to pay Ocwen approximately 27.9 million dollars, plus interest, in tax refunds covering 2013 through 2015. Judge Rikhye previously rejected the government's bid to dismiss Ocwen's breach claim, determining the settlement was a binding contract. The government filed an appeal with the U.S. Court of Appeals for the Third Circuit on August 18, with the appellate court tentatively scheduling the case for spring 2027.

A third unresolved case involves a disputed 12.9 million dollar tax assessment against Ocwen for 2019.