In re Patel

642 B.R. 187

In the MATTER OF: Rajesh C. PATEL, Debtor.

CASE NUMBER 16-65074-LRC

United States Bankruptcy Court, N.D. Georgia, Atlanta Division.

Signed June 23, 2022

Neil C. Gordon, Arnall, Golden & Gregory, LLP, Atlanta, GA, Trustee, Pro Se.

William Dale Matthews, Arnall Golden Gregory LLP, Atlanta, GA, for Trustee Neil C. Gordon.

Clayton A. Smith, Frank B. Wilensky, Macey Wilensky & Hennings LLP, Atlanta, GA, for Debtor.

ORDER

Lisa Ritchey Craig, United States Bankruptcy Court Judge

In this Motion to Enforce Stay and for Award of Mandatory Sanctions Pursuant to 11 U.S.C. § 362(k) (the "Motion," Doc. 135), filed by Rajesh C. Patel (the "Debtor"), Debtor asks the Court to sanction Hasmita Patel,¹ Mukesh Patel ("Mike Patel"), and Rishi Patel (collectively with Hasmita and Mike Patel, the "HP"), for continuing an arbitration proceeding against Debtor in violation of the automatic stay.² The HP oppose the Motion and seek annulment of the automatic stay (Doc. 145).

The Court held an evidentiary hearing, which began on January 31, 2020, was continued to October 19, 2021, and concluded on October 22, 2021 (the "Evidentiary Hearing"). The Court has jurisdiction over this core proceeding. See 28 U.S.C. §§ 157 ; 1334, § 157(b)(2)(A), (G), and (O) ; see also In re Combs, 2006 WL 6591825, at *1 (Bankr. N.D. Ga. Nov. 20, 2006) ; In re Howard , 391 B.R. 511, 520 (Bankr. N.D. Ga. 2008). Having considered the testimony of the witnesses, the exhibits, and the arguments of counsel, the Court makes the following findings of fact and conclusions of law in accordance with Rule 7052 and Rule 9014 of the Federal Rules of Bankruptcy Procedure.³

FINDINGS OF FACT

Prior to filing bankruptcy, Debtor and his brother, Mike Patel, created and operated a successful hotel business that generated significant assets for both families. Testimony of Debtor, Trial Transcript dated Oct. 19, 2021 (hereinafter "Vol. I"), at 128; Mike Patel, Vol. I, at 60-61. The Great Recession, however, resulted in the loss of many of the business assets and the entry of multiple judgments against Debtor and Mike Patel. Testimony of Debtor, Trial Transcript dated Oct. 20, 2021 (hereinafter "Vol. II"), at 2-36; HP Exh. 27. For these reasons, Debtor transferred all assets out of his name eight years before filing bankruptcy and did not acquire more assets in his name. Id. Thereafter, the two families—the HP and the Shama Parties (the "SP")—became involved in a series of disputes. Mike Patel, Vol. I, at 63-68; Debtor, Vol. I, at 120. The SP were comprised of Debtor, Jay Patel, Sonial Patel, Mayur Patel, Monica Patel, and Shama Patel. Debtor, Vol. I, at 146.

In 2015, the SP and the HP entered into a Release and Settlement Agreement (the "RSA") to resolve certain issues. Debtor, Vol. I, at 120; Testimony of Douglas Krevolin, Trial Transcript dated Oct. 21, 2021 (hereinafter "Vol. III"), at 3-120; HP Exh. 3. The RSA was viewed as a "final financial divorce between [Debtor's] family and Mike's family," that involved the transfer of various properties and assets between members of Debtor's family and Mike's family in an effort to divide up assets that were "jointly attained" by the two families through business dealings since 1981. Debtor, Vol. I, at 121-22, 125; HP Exh. 3; Debtor, Vol. II, at 2-22; Douglas Krevolin, Vol. III, at 3-122. Neither Debtor nor Mike Patel individually owned any assets at that time, however. Debtor, Vol. II, at 2-26. On February 9, 2016, after further disagreements, the two groups entered a First Amendment to Release and Settlement (the "First Amendment"), which provided for the arbitration of certain disputes. Debtor, Vol. II, at 2-24, 2-27 through 2-29; Douglas Krevolin, Vol. III, at 3-125; Jay Patel, Vol. III, at 3-230; HP Exh. 4. During the negotiations of the First Amendment, the SP wanted to include the arbitration provision and insisted on the designation of Hank Fellows (the "Arbitrator") as the arbitrator, and the parties so agreed. Douglas Krevolin, Vol. III, at 3-153; Jay Patel, Vol. III, at 3-234. Debtor did not own any of the businesses or properties at issue. Debtor, Vol. II, at 2-38 through 2-43; Testimony of Jay Patel, Trial Transcript dated Oct. 22, 2021 (hereinafter "Vol. IV"), at 4-20.

In April 2016, the SP, including Debtor, initiated an arbitration between the SP and the HP with the Arbitrator. Krevolin, Vol. III, at 3-154, 3-156; HP Exh. 68 (Arbitration Exh. 253); HP Exh. 6; Debtor, Vol. II, at 2-93; Rishi Patel, Vol. III, 3-9; Jeffrey Horst, Vol. III, at 3-106. Debtor filed a voluntary petition under Chapter 7 of the Bankruptcy Code on August 30, 2016 (the "Petition Date"). Doc. 1; Debtor, Vol. I, at 140. Neil C. Gordon (the "Trustee") was appointed as the Chapter 7 trustee. After the Petition Date, on September 16, 2016, Jay Patel, Debtor's son, filed a civil action in Gwinnett Superior Court (the "Gwinnett Action") against Rishi Patel, Mike Patel's son, and in response, Rishi Patel filed a motion to dismiss, transfer venue or, alternatively, to compel arbitration on December 6, 2016. Horst, Vol. IV, at 83; HP Exh. 7. Jay Patel agreed to a dismissal of the Gwinnett Action on the condition that the claims therein be arbitrated. HP Exh. 11.

In March of 2017, the Arbitrator held a conference call with counsel for the parties during which they discussed Debtor's active bankruptcy. Horst, Vol. III, at 3-66. Debtor was represented by Buddy Parker ("Mr. Parker") as legal counsel during these exchanges. Testimony of Wilmer Parker, III, Trial Transcript dated Jan. 31, 2020 (hereinafter "Vol. A"), at 53, 61. The Arbitrator asked counsel for legal research regarding the applicability of the automatic stay to the non-debtor SP. Horst, Vol. III, at 3-66. On March 24, 2017, Mr. Boutros, counsel for the HP, sent an email to the Arbitrator and copied counsel for the SP, stating "[f]ollowing up on the conference call from this past Tuesday, we believe the law permits the arbitration to move forward as to the other parties, and the bankruptcy only acts as a stay as to [Debtor] ...." Parker, Vol. A, at 66; Horst, Vol. III, at 3-63 through 3-64, Vol. IV, at 4-114 through 4-116; HP Exh. 16. The email provided six cases and the Collier on Bankruptcy treatise in support of that position. HP Exh. 16. Later that day, Mr. Boutros emailed the Arbitrator, copying counsel for the SP, with two United States District Court decisions, one of which held that there was a stay as to Debtor but not as to related parties in another case involving Debtor. Parker, Vol. A, at 68-70; HP Exh. 17; Horst, Vol. IV, at 4-119. Four days later, the Arbitrator emailed counsel for the HP and the SP to inform them that he had determined that he could proceed with the arbitration against the non-debtor parties. Horst, Vol. IV, at 4-120; HP Exh. 18.

The original arbitration agreement was prepared by the HP and approved by the Arbitrator. Horst, Vol. III, at 3-74. It provided that the parties would share the expense of the arbitration fee 50/50. HP Exh. 10. The SP revised the approved arbitration agreement to provide that the HP would have to pay the entire retainer fee to the Arbitrator without bringing it to the attention of the HP or the Arbitrator. Parker, Vol. A, at 93-95; Debtor, Vol. II, at 2-45, 2-49; Horst, Vol. III, at 3-64, 3-74; HP Exh. 21. The SP did not revise the approved version of the arbitration agreement to remove Debtor as a signatory or to change the scope of the arbitration—"all disputes between and among [the parties], including but not limited to, any and all disputes arising under or relating to the [RSA and/or the First Amendment] and any other issue either the [HP or the SP] raise." Horst, Vol. IV, at 4-107, 4-112; HP Exh. 21. Debtor signed the SP's revised version of the arbitration agreement. Id.; Debtor, Vol. II, at 2-48. The Arbitrator detected the change to the retainer provision and required the SP to sign the approved version of the arbitration agreement. Horst, Vol. III, at 3-74 through 3-75, Vol. IV, at 4-107, 4-109. Thereafter, Debtor signed the approved version of the arbitration agreement and, through his attorney, requested "a laptop hookup and screen to make his presentation." Horst, Vol. IV, at 4-112; HP Exh. 22; HP Exh. 23. Along with the SP's revised arbitration agreement, Mr. Parker had sent the Arbitrator his clients’ list of issues for arbitration. Parker, Vol. A, at 92; HP Exh. 21. The list of issues indicates that Debtor submitted affirmative claims against the HP. Parker, Vol. A, at 95; HP Exh. 21; Debtor, Vol. II, at 2-105; HP Ex. 54; Horst, Vol. IV, at 4-122; HP Exh. 19.

Mr. Parker knew of Debtor's bankruptcy case prior to the arbitration hearing. Parker, III, Vol. A, at 72-73. He believed that Debtor's bankruptcy petition should stay the arbitration and he "thought, as a matter of law, an arbitration award could not be issued and collected on against" Debtor. Id. He intentionally did not assert any bankruptcy stay would preclude the arbitration when the topic repeatedly came up with the Arbitrator in conference calls and emails because he wanted to create a "poison pill" to invalidate the arbitration if his client did not prevail in it. Id. Similarly, at all relevant times, the HP, their counsel, and the Arbitrator were aware of Debtor's bankruptcy case. Debtor, Vol. I, at 140; Rishi Patel, Vol. III, at 3-46; Horst, Vol. III, at 3-64, Vol. IV, at 4-116. The HP did not file a motion for relief from the automatic stay prior to the Arbitration Hearing. Horst, Vol. III, at 3-81. The HP's counsel had no intention of pursuing claims against Debtor in the arbitration and, after communicating with the Arbitrator and counsel for the SP, understood that the HP were going to pursue affirmative claims against only the "remaining Shama parties." Horst, Vol. IV, at 4-116, 4-120. As counsel for the HP, Mr. Horst understood, after various communications with the Arbitrator and Mr. Parker "that the arbitration was going to go forward, the [HP]...