ST. CROIX — The V.I. Government Hospitals and Health Facilities Corporation said Friday that its decision not to appear in a Michigan federal court lawsuit that resulted in a $6.36 million default judgment followed advice from legal counsel concerning the court's jurisdiction and questions about service of process. The corporation also disclosed that the underlying $6 million financing arrangement involved selling and leasing back medical equipment the Governor Juan F. Luis Hospital and Medical Center already owned.
The disclosures came in a joint statement issued by JFL and its governing corporation following several days of Consortium reporting on the judgment, the creditors' attempt to seize hospital bank accounts and other assets, and questions from Senate Vice President Kenneth Gittens about why the hospital failed to defend its interests in court.
The hospital also revised its previously reported payment total from approximately $2.9 million to $3,018,815.03, following a reconciliation that included additional payments made in late September and October.
According to the statement, the financing arrangement was established in 2024 when JFL faced severe financial difficulties, including mounting vendor obligations, payroll demands and essential operating expenses.
The hospital said it had limited financing options and entered into an approximately $6 million agreement with Varilease Finance, Inc. to obtain funding needed to sustain operations.
“The agreement was structured as a sale-leaseback involving equipment JFL already owned and used in its operations,” the statement disclosed.
Under a sale-leaseback arrangement, an organization sells assets and leases them back, allowing it to obtain financing while continuing to use the property. In JFL's case, the arrangement involved existing hospital equipment rather than simply acquiring new equipment through a conventional lease.
The agreement required 48 scheduled payments of $149,400, representing a total payment obligation of $7,171,200 over the scheduled term.
JFL said it maintained scheduled payments through October 2025, but financial pressures and the impact of a cybersecurity incident disrupted its ability to continue making the required amounts.
Between December 2025 and October 2026, the hospital said it made one payment of $50,000 and nine payments of $20,000, totaling $230,000 during that period.
The updated accounting raises the hospital's total reported payments under the agreement to $3,018,815.03. However, the statement did not provide a complete payment ledger or explain how that amount should be reconciled with the $6,357,600 judgment entered by the Michigan court.
The hospital's explanation for its failure to participate in the lawsuit represents another significant development.
In its previous statement Wednesday, JFL acknowledged the outstanding debt and described the financial circumstances behind the missed payments but offered no explanation for why neither the hospital nor its governing corporation responded to the lawsuit or appeared at the September 21 hearing.
On Friday, the corporation said the decision was deliberate and based on legal advice.
“The decision not to appear was made following advice from legal counsel based on questions concerning service of process and the Michigan court's jurisdiction,” the statement said.
The corporation did not identify the attorneys who provided that advice, explain the specific problems it believed existed with service of process, or say why those jurisdictional concerns were not presented to the Michigan court before the default judgment was entered.
The Michigan court's docket lists returns of service indicating that both defendants were served on April 10, 2026. The court subsequently entered defaults against them on May 6 after they failed to respond.
Neither defendant appeared at the September 21 hearing, and U.S. District Judge Brandy R. McMillion entered the $6,357,600 judgment the following day.
The corporation's newly disclosed jurisdictional concerns are particularly relevant in light of an order issued Thursday by Chief Judge Robert Molloy of the District Court of the Virgin Islands.
As the Consortium reported Friday, Judge Molloy ordered VFI KR SPE I LLC and Varilease Finance, Inc. to explain their legal authority to seize funds in JFL's and the territorial hospital corporation's Banco Popular accounts, along with other assets covered by their claimed security interests.
The creditors had registered the Michigan judgment locally and requested that federal marshals seize the funds and pledged property.
Judge Molloy cited 19 V.I.C. § 245b, which generally protects assets belonging to the territorial hospital corporation, including its funds, from judicial seizure. The statute nevertheless preserves certain rights of secured creditors to enforce valid mortgages, security interests and liens.
Before authorizing the requested seizure, Judge Molloy ordered the creditors to file a legal brief by November 13 explaining why they are entitled to execute against the corporation's assets.
The chief judge also raised questions about the Michigan court's jurisdiction in a footnote to his order.
He observed that the Government of the Virgin Islands is not considered a citizen for purposes of establishing federal diversity jurisdiction, while noting that the Third Circuit has not resolved whether the territorial hospital corporation should be treated as an extension of the government for those purposes.
Judge Molloy did not determine whether the Michigan court lacked jurisdiction, stating that the issue would be better resolved through arguments from opposing parties.
At the time of Thursday's order, the judge noted that neither defendant had entered an appearance in the Virgin Islands enforcement proceeding.
Friday's statement from JFL and the hospital corporation said legal counsel has now entered an appearance on the corporation's behalf and that additional motions are expected as attorneys examine the available legal options.
The statement did not identify the motions being contemplated.
The Michigan judgment remains in effect, and the Virgin Islands court has not yet determined whether the creditors may proceed with the requested asset seizure.
JFL and the territorial corporation said no medical equipment or other hospital assets had been seized or removed in connection with the matter as of Friday.
The Michigan ruling also requires the return of equipment identified in a 30-page inventory, including ventilators, operating tables, ultrasound scanners, infant incubators, hospital beds, patient monitors and sterilization systems.
Chris Finch, former chairman of the GHHFC Territorial Board and current chairman of the St. Croix District Governing Board, acknowledged the concerns surrounding the agreement and its potential consequences for hospital operations.
“This agreement has raised difficult but important questions, particularly about the potential impact on hospital resources. We understand those concerns and recognize the seriousness of the situation facing JFL,” Mr. Finch said.
He pledged that the hospital's interests would be represented in the legal proceedings while maintaining attention to the needs of patients, employees and the community.
JFL Chief Executive Officer Darlene Baptiste also addressed the financial challenges confronting the institution, emphasizing the need for stronger oversight of agreements involving essential hospital resources.
“I recognize that I have inherited challenges and agreements that must now be addressed,” Ms. Baptiste said. “My responsibility is not only to manage those matters, but also to help establish a more sustainable path forward.”
“Financial agreements that place essential hospital resources at significant risk must be subject to careful review and oversight. We are committed to strengthening our financial practices, improving accountability, and pursuing solutions that support the long-term stability of our hospitals.”
The hospital and territorial corporation also pointed to the broader financial challenges facing public healthcare facilities, including patient populations heavily dependent on Medicare and Medicaid reimbursements that do not necessarily cover the full cost of providing services.
JFL previously identified its outstanding financing obligation as a priority for consideration under Governor Albert Bryan Jr.'s proposed $250 million bond package, which includes $40 million for the St. Croix hospital. The proposed financing remains subject to legislative approval.
