Hospital seeks to void $6.36M judgment, says Michigan court lacked power

The Virgin Islands Government Hospitals and Health Facilities Corporation has moved to overturn a $6.36 million judgment, telling a federal judge on St. Croix that the Michigan court that issued it had no authority to do so.

Filed November 5 in a motion spanning 18 pages, the corporation's challenge rests on two main arguments: that creditors failed to serve the lawsuit correctly, and that as an arm of territorial government, the corporation cannot be sued in federal court under diversity jurisdiction rules.

Chief Judge Robert Molloy of the District Court of the Virgin Islands is being asked to set aside the September 22 default judgment and block creditors VFI KR SPE I LLC and Varilease Finance, Inc. from seizing hospital bank accounts and other assets.

How the lawsuit was served

On April 13, 2026, a process server handed court documents to Stephanie-Anne Oriol, a legal and administrative coordinator, claiming she was authorized to accept service on behalf of the corporation.

The corporation disputes this account. It says Oriol held no such authority under law and was not its registered agent. Federal rules require that a state-created government entity be served either through its chief executive officer or according to local law, the corporation argues. A declaration from Oriol herself contradicts the process server's statement about her legal standing to receive the documents.

Later, creditors sent default judgment documents to Governor Albert Bryan Jr., Attorney General Gordon Rhea, the corporation, and the hospital's chief executive officer. The corporation contends this did nothing to fix the initial service problem with the original summons and complaint.

The jurisdiction question

The underlying case was filed March 31 in Michigan's federal court and relied solely on diversity jurisdiction, which permits federal courts to hear civil disputes between parties from different states or jurisdictions.

The corporation argues diversity jurisdiction does not apply because it functions as part of the territorial government, not as an independent entity. The government itself cannot be a party to diversity cases, and the same principle should protect government-controlled agencies, the motion states.

The corporation emphasizes that the territorial government controls its operations, budget, staff, and finances. It cannot issue bonds independently and must borrow through the Virgin Islands Public Finance Authority. For fiscal year 2027, the Legislature appropriated $66.5 million from the General Fund to cover the hospital's operating costs, demonstrating its dependence on government funding.

What happens next

After the Michigan judgment was registered in Virgin Islands federal court on October 27, creditors asked federal marshals to seize hospital funds and pledged property.

On October 29, Judge Molloy questioned whether the seizure could proceed, citing a territorial law that generally shields hospital property from court-ordered seizure, though it preserves certain rights for secured creditors. He ordered creditors to submit legal arguments by November 13 on why they should be allowed to seize hospital assets. He also raised his own concerns about whether the Michigan court properly exercised jurisdiction.

The corporation argues that if the original judgment is invalid, the Virgin Islands court need not address whether creditors can execute against hospital assets. It has nevertheless reserved its defenses against seizure, including protections under territorial law for public hospital property.

Hospital officials said in an October 30 statement that they did not appear in the Michigan case based on legal advice about service of process and jurisdiction issues. They disclosed that the roughly $6 million financing arrangement stemmed from a 2024 sale-leaseback transaction involving medical equipment the hospital already owned, undertaken during severe financial hardship.