Opinion ID: 202705
Heading Depth: 2
Heading Rank: 1

Heading: Before the Receivership Proceedings

Text: 2 Protestant Cay is an island in the Virgin Islands. In 1964, the Virgin Islands legislature approved Act 1179, which authorized GVI to negotiate a fifty-year lease for Protestant Cay. The same year, GVI leased the land on Protestant Cay to Hotel-On-The-Cay, Inc. for fifty years (the Ground Lease). In exchange for the lease, Hotel-On-The-Cay, Inc. agreed to pay rent to GVI, to construct a hotel, and to pay GVI a portion of the profits from the hotel. 3 In 1969, GVI and Hotel-On-The-Cay, Inc. executed Amendment No. 1 to the Ground Lease to protect the rights of lenders who might hold a mortgage over the leasehold interest. No legislative approval was sought for the amendment. 4 Hotel-On-The-Cay, Inc. assigned its interest in the Ground Lease to Oliver Plunkett (Plunkett). In 1980, Plunkett filed a declaration in the Virgin Islands stating his intention to create 2,900 weekly timeshare units to be known as Hotel On The Cay Resort (the Resort). Plunkett had a fair bit of success, selling 1,500 of the units. However, by 1982, 1,400 units remained unsold, forcing Plunkett to declare bankruptcy. In 1986, the trustee in Plunkett's bankruptcy conveyed Plunkett's interest in the Ground Lease to Harborfront Properties, Inc. (Harborfront) and Plunkett's interest in the unsold timeshare units to Protestant Cay, Ltd. (PCL). 5 In 1990, Legend Resorts L.P. (Legend) and TSA Acquisition, Inc. (TSA) agreed to acquire the unsold timeshare units from PCL. In order to finance the acquisition, Legend and TSA borrowed $1.7 million (the Legend Loan) from Fairway Capital Corp. (Fairway), a Small Business Investment Company as defined in 15 U.S.C. § 681. The Legend Loan was secured by a mortgage on the unsold timeshare units; Fairway was also made a 20% limited partner in Legend. In addition, Harborfront gave Fairway a mortgage on Harborfront's interest in the Ground Lease; Harborfront later assigned the Ground Lease to Fairway in 1991. Thus, as of 1991, Fairway held (a) a mortgage interest in the unsold timeshare units, (b) a mortgage interest in the Ground Lease, and (c) a 20% limited partnership interest in Legend. The same year, GVI and Legend entered into Amendment No. 2 to the Ground Lease, which provided in part that the lease would be subject to cancellation by the lessor if the lessee was in arrears for sixty days after notice of default. As with Amendment No. 1, this amendment was not separately approved by the legislature. 6 In order to service the Legend Loan, Fairway formed a subsidiary named Participation Services Corporation (PSC) in 1994. Fairway assigned its interest in the Legend Loan to PSC the same year. Legend defaulted on the Legend Loan, and PSC foreclosed on the mortgages, naming Legend, TSA, Harborfront, and GVI in the foreclosure action. A stipulated judgment of foreclosure was entered on June 7, 1996. Thus, as of that date, PSC became the owner of (a) the leasehold interest in the Ground Lease and (b) the unsold time-share units. 7 GVI then sent notice to Legend and Fairway that Legend was in arrears and that GVI would terminate the Ground Lease. Sixty days later, GVI filed an eviction action against Legend and Fairway in the Territorial Court of the Virgin Islands (the eviction action). Neither Legend nor Fairway appeared, and the Territorial Court entered a default judgment on September 18, 1997. On December 31, 1997, PSC filed a motion to intervene and to set aside the default judgment in the eviction action. At the same time, a similar motion was filed by Hotel On the Cay Timeshare Association, Inc. (HOTC), an entity incorporated by the owners of the sold timeshare units. Both motions were granted. 8 On May 22, 1998, GVI and HOTC entered into a settlement agreement, which the parties refer to as the Stipulated Settlement. The Stipulated Settlement provided that in exchange for HOTC withdrawing its intervention in the eviction action, GVI would recognize HOTC as the lessee of the timeshare resort, including the unsold timeshare units. In addition, the Stipulated Settlement stated that HOTC would not be deemed a successor to Legend or Fairway. Finally, the parties agreed in the Stipulated Settlement that in the event that Legend and Fairway prevailed in the eviction action and their lease of the resort was reinstated, GVI would give credit to Legend and Fairway for all of HOTC's rent payments. After concluding the Stipulated Settlement with HOTC, GVI continued to prosecute its eviction action against Legend and Fairway in the Territorial Court, filing a motion for summary judgment on December 22, 1999. 9 On January 19, 2000, the SBA filed a complaint against Fairway in the United States District Court for the District of Rhode Island. The SBA's complaint asked that Fairway be placed in receivership because of Fairway's breach of various SBA regulations and its failure to pay amounts owed to the SBA. On March 13, 2000, the district court entered an order placing Fairway in receivership and imposing a stay on all litigation involving Fairway, including GVI's eviction action. At this time, the Territorial Court had not yet ruled on GVI's motion for summary judgment in the eviction action. Thus, as of March 13, 2000, PSC continued to hold an interest in the Ground Lease and the unsold timeshare units subject to the outcome of the stayed eviction proceedings. In March 2002, the district court ordered these interests transferred to the Fairway receivership estate. 1