Third Circuit: No Federal-Question Jurisdiction for 33 V.I.C. § 1692 Refund Claims Absent a “Substantial” Federal Issue; Direct Commerce Clause Refund Claims Borrow the Two-Year Personal-Injury Limitations Period

1. Introduction

B&B Manufacturing Inc. v. United States Virgin Islands (consolidated with appeals by Apex Construction Co. Inc., Bluewater Construction Inc., MSI Building Supplies Inc., United Corporation, and Impex Trading International Inc., d/b/a The Sea Chest) arose from the United States Virgin Islands’ (“USVI”) administration of its excise tax statute, 33 V.I.C. § 42(a) (“Section 42”).

Section 42 imposes an excise tax on “all articles, goods, merchandise or commodities manufactured in or brought into the Virgin Islands,” with limited exceptions. Although facially neutral, the USVI did not assess the tax on local manufacturers for decades (1984–early 2019), a practice previously found unconstitutional under the dormant Commerce Clause in the earlier “Reefco” litigation.

After the USVI changed course in 2019 by promulgating regulations assessing the excise tax on imported goods, six merchants (the “Taxpayers”) sued for refunds of excise taxes paid between 2016 and 2018—i.e., during the period when Section 42 was implemented in a discriminatory manner. They pleaded (i) claims directly under the Commerce Clause and (ii) claims under the USVI’s territorial refund statute, 33 V.I.C. § 1692. The suits were filed more than two years but less than three years after accrual.

The key issues on appeal were: (1) whether the USVI was collaterally estopped by the Reefco litigation from asserting defenses here; (2) whether the District Court had federal subject-matter jurisdiction over the § 1692 territorial refund claims under 28 U.S.C. § 1331; and (3) what statute of limitations governs a claim brought directly under the Commerce Clause for a tax refund.

2. Summary of the Opinion

The Third Circuit affirmed the dismissals. It held:

  • No collateral estoppel: the statute-of-limitations and subject-matter-jurisdiction issues in this case were not “actually litigated” and “determined” in Reefco.
  • No federal-question jurisdiction for § 1692 claims: the territorial refund claims did not “arise under” federal law under the Grable/Gunn framework because any embedded Commerce Clause issue was not “substantial” to the federal system as a whole.
  • Two-year limitations period for direct Commerce Clause claims: because there was no expressly applicable federal limitations period and no reason to borrow a federal tax-refund deadline, the court borrowed the Virgin Islands’ general personal-injury limitations period, 5 V.I.C. § 31(5)(A), consistent with the categorical approach used for 42 U.S.C. § 1983 and Bivens v. Six Unknown Named Agents of Federal Bureau of Narcotics claims.

3. Analysis

A. Precedents Cited

1) The Reefco cases (background, but not preclusive here)

  • Reefco Servs., Inc. v. Gov't of V.I. ("Reefco I"), No. 2014-cv-110, 2018 WL 4690366 (D.V.I. Sept. 28, 2018): held that USVI’s enforcement and regulatory interpretation effectively exempted local goods, violating the dormant Commerce Clause; ordered a refund.
  • Reefco Servs., Inc. v. Gov't of V.I. ("Reefco II"), 830 F. App'x 81 (3d Cir. 2020): affirmed, characterizing the discrimination as “blatant” and “obvious,” and grounding the analysis in Supreme Court Commerce Clause authority.

Reefco supplied the constitutional “wrong” (discriminatory administration of an otherwise neutral tax) but did not decide the procedural questions that controlled these appeals (limitations and federal jurisdiction over a territorial refund statute). That gap mattered for issue preclusion.

2) Issue preclusion / collateral estoppel

  • Karns v. Shanahan, 879 F.3d 504 (3d Cir. 2018): stated the four-part issue-preclusion test (same issue; actually litigated; final judgment; essential to judgment).
  • Nat'l R.R. Passenger Corp. v. Pa. Pub. Util. Comm'n, 342 F.3d 242 (3d Cir. 2003): quoted for the elements of collateral estoppel.
  • Parklane Hosiery Co. v. Shore, 439 U.S. 322 (1979): defined “non-mutual offensive collateral estoppel” (new plaintiff estops defendant using earlier loss).
  • Jean Alexander Cosms., Inc. v. L'Oreal USA, Inc., 458 F.3d 244 (3d Cir. 2006): provided the standard of review (abuse of discretion) for applying non-mutual offensive issue preclusion.

Applying these cases, the court found the “same issue” and “actually litigated/determined” elements missing: Reefco resolved whether the USVI’s implementation violated the Commerce Clause, but not (i) the limitations period for direct constitutional refund claims, or (ii) whether § 1692 refund claims create federal-question jurisdiction.

3) Federal-question jurisdiction over state/territorial claims (the Grable/Gunn pathway)

  • Gunn v. Minton, 568 U.S. 251 (2013): supplied the four-part test for when a state-law claim “arises under” federal law—necessarily raised, actually disputed, substantial, and resolvable without disrupting the federal-state balance.
  • Grable & Sons Metal Prods., Inc. v. Darue Eng'g & Mfg., 545 U.S. 308 (2005): recognized the “slim category” of cases where a non-federal cause of action can still support § 1331 jurisdiction due to an embedded federal issue.
  • Empire Healthchoice Assur., Inc. v. McVeigh, 547 U.S. 677 (2006): emphasized substantiality and cautioned that fact-bound, situation-specific disputes typically do not qualify.
  • Manning v. Merrill Lynch Pierce Fenner & Smith, Inc., 772 F.3d 158 (3d Cir. 2014): reiterated that only a “slim category” satisfies the Gunn test.
  • Goldman v. Citigroup Glob. Mkts. Inc., 834 F.3d 242 (3d Cir. 2016): framed substantiality as “importance to the federal system as a whole,” not merely to the litigants.
  • Tyngsboro Sports II Solar, LLC v. Nat'l Grid USA Serv. Co., 88 F.4th 58 (1st Cir. 2023): cited for the idea that substantiality often involves measurable effects on the federal government or new interpretations governing many cases.
  • Adventure Outdoors, Inc. v. Bloomberg, 552 F.3d 1290 (11th Cir. 2008): used as an example that when federal law is clear and not genuinely uncertain, substantiality is harder to show.

These authorities drove the jurisdictional holding: even assuming the Commerce Clause issue is “necessarily raised” and “actually disputed” in a § 1692 refund suit, the federal issue was not “substantial” because (i) the governing Commerce Clause principles were clear and already applied to the USVI conduct in Reefco, and (ii) the challenged conduct had ceased in 2019 with no allegation of likely recurrence—limiting systemwide federal significance.

4) Dormant Commerce Clause discrimination baseline

  • Complete Auto Transit, Inc. v. Brady, 430 U.S. 274 (1977): quoted in Reefco II for the proposition that a tax violates the Commerce Clause where it “discriminate[s] against interstate commerce.”

While Complete Auto is foundational, the court treated the constitutional merits as straightforward and thus not jurisdictionally “substantial” under Gunn.

5) Borrowing statutes of limitations for constitutional claims

  • DelCostello v. Int'l Bhd. of Teamsters, 462 U.S. 151 (1983): supplied the general rule—borrow the most analogous state limitations period absent a federal statute—and the narrow exception for borrowing a federal period when it is a significantly more appropriate vehicle.
  • Dennis v. Higgins, 498 U.S. 439 (1991): held that § 1983 provides a cause of action for violations of rights under the Commerce Clause, linking Commerce Clause rights to the § 1983 remedial framework.
  • Owens v. Okure, 488 U.S. 235 (1989): mandated a categorical borrowing rule for § 1983—use the forum state’s general/residual personal-injury limitations period to avoid uncertainty and satellite litigation.
  • Fisher v. Hollingsworth, 115 F.4th 197 (3d Cir. 2024): extended the personal-injury borrowing rule to constitutional claims brought under Bivens, emphasizing predictability and a single residual period.
  • Bivens v. Six Unknown Named Agents of Federal Bureau of Narcotics, 403 U.S. 388 (1971): referenced via Fisher as the constitutional-claim analogue to § 1983 for federal actors.
  • Bieneman v. City of Chicago, 864 F.2d 463 (7th Cir. 1988): cited as support for aligning the limitations period for direct constitutional claims with the § 1983 limitations framework.

Using these cases, the Third Circuit treated the Taxpayers’ direct Commerce Clause claims as functionally akin to constitutional-rights claims typically brought under § 1983, and thus subject to the same limitations borrowing logic: the Virgin Islands’ two-year personal-injury period, 5 V.I.C. § 31(5)(A).

6) Procedural and other supporting citations

  • Zimmerman v. Corbett, 873 F.3d 414 (3d Cir. 2017) and Kingvision Pay-Per-View, Corp. v. 898 Belmont, Inc., 366 F.3d 217 (3d Cir. 2004): plenary review standard for judgment on the pleadings.
  • Revell v. Port Auth. of N.Y., N.J., 598 F.3d 128 (3d Cir. 2010): Rule 12(c) analyzed like Rule 12(b)(6); accept allegations and draw inferences for non-movant.
  • Tourscher v. McCullough, 184 F.3d 236 (3d Cir. 1999): appellate court may affirm on any ground supported by the record.
  • In re Cmty. Med. Ctr., 623 F.2d 864 (3d Cir. 1980): declined to accept appellants’ shift from their district-court position.
  • Apex Constr. Co. v. United States Virgin Islands, No. 22-2675, 2023 WL 5287668 (3d Cir. Aug. 17, 2023): noted that tax comity doctrine does not apply to these proceedings (relevant procedural backdrop).

B. Legal Reasoning

1) Why Reefco did not bind the USVI on limitations or jurisdiction

The Taxpayers attempted to use Reefco as a procedural shortcut: if the USVI “lost” the Commerce Clause issue once, it should not be able to resist refunds later. The court rejected this by insisting on precision about what was decided. Under Karns v. Shanahan and Nat'l R.R. Passenger Corp. v. Pa. Pub. Util. Comm'n, issue preclusion attaches only to issues actually litigated and necessarily decided. Reefco decided discriminatory tax administration and provided a refund to Reefco; it did not decide (and had no need to decide) the limitations period for direct constitutional refund claims or the existence of federal-question jurisdiction for territorial refund causes of action.

The court therefore treated the Reefco merits holding as persuasive context, not as a preclusion tool that could extinguish defenses in later suits by different taxpayers.

2) Why § 1692 refund claims did not “arise under” federal law

The Taxpayers’ core jurisdictional theory was: even if § 1692 is territorial, their entitlement to a refund depends on proving a Commerce Clause violation, and thus the case belongs in federal court under § 1331.

The Third Circuit applied Gunn v. Minton’s four-part test and focused on “substantiality.” A federal issue is substantial when its resolution matters to the federal system as a whole—e.g., it affects federal government operations, generates a new controlling interpretation of federal law, or would govern a large number of cases. Here, in the court’s view:

  • The Commerce Clause rule was not in doubt; resolving the federal question would be a straightforward application of existing Supreme Court doctrine (as already reflected in Reefco II and Complete Auto Transit, Inc. v. Brady).
  • The challenged discriminatory practice ended in 2019; absent allegations of recurrence, there was limited prospective systemwide importance.

That combination made the embedded federal issue insufficiently “substantial” for the narrow Grable/Gunn category, so the District Court lacked original federal-question jurisdiction over § 1692 claims (and properly dismissed them once it declined supplemental jurisdiction).

3) Why the two-year personal-injury limitations period applied to direct Commerce Clause claims

The Taxpayers argued for a three-year tax-refund limitation (pointing to 26 U.S.C. § 6511(a) and 33 V.I.C. § 1181(a)). The court framed the problem as one of borrowing: because there is no express federal limitations statute for a claim brought directly under the Commerce Clause, DelCostello v. Int'l Bhd. of Teamsters directs courts to borrow the most analogous state/territorial period unless a federal limitations rule is clearly a better fit.

The panel refused to import federal tax-refund timing rules because the Taxpayers did not show why federal policies or litigation practicalities demanded it (the DelCostello exception). Instead, the court used a categorical analogy: Commerce Clause rights can be enforced via § 1983 (Dennis v. Higgins), and § 1983 claims categorically borrow the general personal-injury limitations period (Owens v. Okure). The Third Circuit then extended that same approach to constitutional claims brought directly under the Constitution, citing Fisher v. Hollingsworth and Bieneman v. City of Chicago.

With the Virgin Islands’ general personal-injury period set at two years (5 V.I.C. § 31(5)(A)), the direct Commerce Clause claims filed after two years were time-barred.

C. Impact

1) Channeling refund litigation away from federal court when based on territorial refund statutes

The most practically significant holding is jurisdictional: a territorial tax refund cause of action (here, § 1692) does not automatically become a federal case merely because a federal constitutional issue is part of the merits. Plaintiffs must satisfy the demanding Gunn “substantiality” requirement—something the court suggested will often fail when the federal rule is clear, the dispute is retrospective, and the challenged conduct is not ongoing.

2) Tight limitations window for direct constitutional refund theories

For litigants attempting to bypass territorial refund procedures by pleading directly under the Commerce Clause, this decision signals a short clock: the “general/residual personal injury” period—two years in the Virgin Islands—will likely apply. That pushes plaintiffs toward prompt filing or toward territorial remedies where longer refund limitations might exist (though those may come with jurisdictional constraints in federal court).

3) Reefco’s merits victory does not automatically unlock refunds for others

The rejection of non-mutual offensive collateral estoppel (on these procedural issues) underscores that even a clear prior constitutional ruling against a government tax practice may not foreclose later defenses in other taxpayers’ cases, especially defenses not litigated in the first action.

Note: The opinion is labeled “NOT PRECEDENTIAL,” so it does not bind future Third Circuit panels under the court’s internal operating procedures, though it may be cited for persuasive value depending on applicable rules.

4. Complex Concepts Simplified

  • Dormant Commerce Clause: an implied constitutional principle that prevents states/territories from discriminating against or unduly burdening interstate commerce—even when Congress has not passed a specific law on the topic. In Reefco, the problem was discriminatory tax administration favoring local manufacturers.
  • Collateral estoppel (issue preclusion): you cannot re-litigate an issue that was already litigated and necessarily decided in a prior final judgment. Here, Reefco decided the discrimination question, but not the statute-of-limitations or jurisdiction questions presented by these Taxpayers.
  • Federal-question jurisdiction (“arising under”): federal courts can hear cases created by federal law, and a narrow class of state/territorial-law claims that embed an important federal issue. The Gunn v. Minton test governs this “embedded issue” category.
  • “Substantial” federal issue (Gunn): not “important to the parties,” but important to the federal system—typically where the decision affects federal government operations or sets a broadly controlling federal rule.
  • Borrowing a statute of limitations: when Congress has not set a filing deadline for a federal claim, courts usually borrow the most analogous state/territorial deadline. For constitutional-rights claims, courts often borrow the general personal-injury period for predictability.

5. Conclusion

The Third Circuit’s decision affirms dismissal of six merchants’ excise-tax refund suits and, in doing so, clarifies three procedural gatekeepers in this context: (1) prior merits wins like Reefco do not preclude litigation of distinct procedural defenses never previously decided; (2) territorial refund claims under 33 V.I.C. § 1692 do not create federal-question jurisdiction unless the embedded federal issue is “substantial” under Gunn v. Minton; and (3) direct Commerce Clause refund claims borrow the Virgin Islands’ two-year general personal-injury limitations period (5 V.I.C. § 31(5)(A)) by analogy to § 1983 and Bivens limitations rules.

In broader terms, the opinion reflects a disciplined separation between (a) constitutional merits (where the discrimination was already deemed obvious) and (b) the procedural architecture that determines where and when taxpayers may litigate refund entitlements.