ST. CROIX — Chief Judge Robert Molloy of the District Court of the Virgin Islands has ordered creditors of the Governor Juan F. Luis Hospital and Medical Center to establish their legal authority to seize hospital bank accounts and other assets, citing a territorial law that generally protects public hospital property from judicial seizure but expressly preserves certain enforcement rights for secured creditors.
The October 29 order gives VFI KR SPE I LLC and Varilease Finance, Inc. until November 13 to explain why they are legally entitled to execute against assets belonging to the V.I. Government Hospitals and Health Facilities Corporation, which operates JFL and the territory's other public healthcare facilities.
The companies secured a $6,357,600 default judgment against JFL and the territorial hospital corporation in the Eastern District of Michigan on September 22. After registering that judgment in the District Court of the Virgin Islands on October 27, they requested that federal marshals seize all funds in the defendants' Banco Popular bank accounts, along with other assets covered by their security interests.
Before authorizing such action, however, Judge Molloy said the court must establish whether Virgin Islands law permits the requested seizure.
At the center of the issue is 19 V.I.C. § 245b, which provides broad protection for the property of the territorial hospital corporation.
Under the statute, the corporation's property, including its funds, is generally exempt “from judicial process of every kind,” including attachment, levy, execution and judicial sale. The law also provides that a judgment cannot, by itself, create a lien or charge against the corporation's property or funds.
However, the same statute contains an explicit exception protecting the rights of certain secured creditors.
Section 245b(a) provides that the exemption does not limit the rights of creditors to foreclose or otherwise enforce mortgages or other security interests granted by the corporation. It also preserves remedies for enforcing liens or pledges given by the corporation against its revenues.
That distinction is particularly relevant because the Michigan judgment expressly ordered foreclosure of an existing all-asset lien held by the creditors. The lien was associated with a May 7, 2024, financing statement filed with the Office of the Lieutenant Governor of the Virgin Islands.
The statutory protection therefore does not automatically prevent every secured creditor from pursuing hospital corporation assets. Whether the creditors' particular security interest permits the seizure of the bank accounts and other property identified in their request remains the question before Judge Molloy.
The chief judge noted that the hospital corporation has the authority to sue and be sued, but that authority is subject to limitations established under Virgin Islands law.
“In this matter, Plaintiffs seek to execute on a judgment obtained in another federal district court by seizing the assets of ‘VIGHHFC,’” Judge Molloy wrote.
“In consideration of the statutes cited above, it is unclear under what authority Plaintiffs rely on to seek the requested relief,” the judge continued.
He therefore ordered the companies to submit a legal brief establishing their authority to execute against the corporation's assets, notwithstanding the judgment issued by the Michigan court.
The order does not invalidate the $6.36 million judgment, nor does it establish that the creditors are prohibited from seizing hospital assets. Judge Molloy has not decided whether the security interests fall within the statutory exception or whether the particular enforcement measures being requested are permissible.
Instead, the creditors must first provide the court with the legal justification for their requested action.
If Judge Molloy authorizes the seizure, creditors could pursue the hospital corporation’s bank funds and other pledged assets, potentially disrupting operations. If he denies the request, those assets would be protected from this particular collection effort, although a ruling that limits the enforcement of valid security interests could make future hospital borrowing more difficult or expensive.
The underlying judgment was issued by U.S. District Judge Brandy R. McMillion after JFL and the territorial hospital corporation failed to respond to a lawsuit alleging that they had breached a medical equipment lease.
The agreement, which began April 1, 2025, required monthly payments of $149,400 for approximately $6 million worth of medical equipment. The creditors alleged that JFL made only a partial payment in November 2025 and failed to make payments in December 2025, January 2026 and February 2026.
They also alleged that the hospital failed to provide financial statements required under the agreement.
The Michigan court awarded the companies $6,357,600, with interest accruing at 13 percent annually, along with $22,250 in attorneys' fees and $2,388.88 in costs.
Judge McMillion also ordered the defendants to return the leased medical equipment within 30 calendar days of the September 22 judgment and granted the creditors immediate possession of assets covered by the foreclosed lien.
The equipment identified in the complaint includes ventilators, operating tables, ultrasound scanners, infant incubators, hospital beds, patient monitors, sterilization systems and other medical and operational equipment.
Under the Michigan judgment, the monetary award must be reduced by the resale value of equipment returned or seized and the value of other assets delivered to the creditors.
Beyond the question of asset seizure, Judge Molloy raised another legal issue involving the Michigan court's jurisdiction over the original lawsuit.
In a footnote to Thursday's order, he observed that the Michigan court appeared to have exercised jurisdiction based on diversity of citizenship among the parties.
Under established precedent in the Third Circuit, the Government of the Virgin Islands is not considered a citizen for purposes of establishing diversity jurisdiction. However, Judge Molloy noted that the appeals court has not resolved whether the Virgin Islands Government Hospitals and Health Facilities Corporation should be treated as an extension of the government for those purposes.
If the corporation is considered an alter ego of the government, that classification could affect whether its citizenship can establish federal diversity jurisdiction.
The judge referenced an earlier case involving the territorial hospital corporation in which jurisdictional discovery was permitted, but the question remained unresolved after the parties settled.
He also cited a 2022 ruling involving the West Indian Company, another government-owned entity, which was found not to be an alter ego of the Virgin Islands government and could therefore be considered a citizen for diversity jurisdiction purposes.
Judge Molloy said the question concerning the hospital corporation is highly fact-specific and would be better addressed through arguments from the opposing parties.
Because neither JFL nor the territorial hospital corporation had entered an appearance in the Virgin Islands enforcement proceeding, he declined to address the jurisdictional question at this stage.
The latest court action follows Wednesday's statement from JFL acknowledging its outstanding financial obligation and attributing payment difficulties to financial pressures and the impact of a cybersecurity incident earlier this year.
The hospital said it had paid approximately $2.9 million toward the underlying agreement and had identified the outstanding debt as a funding priority under Governor Albert Bryan Jr.'s proposed $250 million bond-financing package.
JFL also said that no medical equipment had been removed by the hospital as of Wednesday and that it was working with legal counsel to address the judgment.
The hospital did not explain why it failed to respond to the Michigan lawsuit or appear in court, prompting Senate Vice President Kenneth Gittens to demand answers from hospital management, the territorial board and the Virgin Islands Attorney General.
“How in the world did this happen, who knew about it, and why was this matter not addressed before it reached this point?” Mr. Gittens asked Wednesday.
The administration's proposed financing package includes $40 million for JFL and $45 million for Schneider Regional Medical Center, but the legislation remains subject to approval by the 36th Legislature.
For now, the creditors' effort to seize hospital corporation funds and other assets remains before Judge Molloy, who has directed them to submit their legal arguments by November 13.
