Pirani v. Baharia (In re Pirani)

579 B.R. 396

IN RE: Abdul Karim PIRANI, Debtor.

Abdul Karim Pirani, Plaintiff,

v.Malik Baharia, Abdul Hamid Gilani, Nadirsha Lalani, and HNM Partners, LLC, Defendants.

Case No. 12–41916

Adv. Proc. No. 12–4114

United States Bankruptcy Court, E.D. Texas, Sherman Division.

Signed September 29, 2017

John J. Gitlin, Dallas, TX, for Plaintiff.

Collin Porterfield, La Jolla, CA, for Defendant.

FINDINGS OF FACT AND CONCLUSIONS OF LAW ON REMAND

HONORABLE BRENDA T. RHOADES, UNITED STATES BANKRUPTCY JUDGE

The Fifth Circuit remanded this adversary proceeding for additional consideration of two issues: (1) whether a foreclosure deficiency exists for which HNM Partners, LLC is liable, and (2) what percentage of the defendants' attorney's fees is attributable to their breach of contract claim. See Matter of Pirani , 824 F.3d 483 (5th Cir. 2016). The Court conducted a hearing on the remanded issues over three days in July 2017. The Court, having considered the evidence introduced at the original trial in 2013, as well as the supplementary evidence introduced at the hearing on remand, makes the following findings of fact.

I. FINDINGS OF FACT

1. As the Court explained in its original opinion, Abdul Pirani and his brother, Aziz, formed Circle Sherman LLC on November 25, 2008, for the purpose of owning a Days Inn hotel in Sherman, Texas. The hotel was a full-service hotel with 140 rooms, a pool, conference areas, and a restaurant.

2. Aziz and Pirani proposed to Malik Baharia, Abdul Hamid Gilani, and Nadirsha Lalani that they purchase a 50% membership interest in Circle Sherman. Baharia, Gilani, and Lalani formed HNM Partners, LLC for the purpose of holding their 50% membership interest in Circle Sherman.

3. On or about February 6, 2009, Baharia, Gilani and Lalani paid $475,000.00, through HNM, to or on behalf of Circle Sherman. On the same date, Circle Sherman executed a promissory note in the principal amount of $2,456,415 for the benefit of One World Bank ("OWB") in order to obtain funds to purchase and renovate the hotel. Pirani, Aziz and HNM signed the promissory note. In addition, Pirani, Aziz, HNM, and HNM's three individual members each guaranteed Circle Sherman's obligations to OWB under the Note.

4. The promissory note was secured by a deed of trust. In the event of a foreclosure on the hotel, and a suit for a deficiency, paragraph 3.10 of the deed of trust provided that the fair market value of the hotel would be determined as follows:

The following shall be the basis for the finder of fact's determination of the fair market value of the Property as of the date of the foreclosure sale in proceedings governed by Sections 51.003, 51.004 and 51.005 of the Texas Property Code (as amended from time to time): (i) the Property shall be valued in an "as is" condition as of the date of the foreclosure sale, without any assumption or expectation that the Property will be repaired or improved in any manner before a resale of the Property after foreclosure; (ii) the valuation shall be based upon an assumption that the foreclosure purchaser desires a resale of the Property for cash promptly (but no later than twelve (12) months following the foreclosure sale; (iii) all reasonable closing costs customarily borne by the seller in commercial real estate transactions should be deducted from the gross fair market value of the Property, including, without limitation, brokerage commissions, title insurance, a survey of the Property, tax prorations, attorneys' fees, and marketing costs; (iv) the gross fair market value of the Property shall be further discounted to account for any estimated holding costs associated with maintaining the Property pending sale, including, without limitation, utilities expenses, property management fees, taxes and assessments (to the extent not accounted for in (iii) above), and other maintenance, operational and ownership expenses; and (v) any expert opinion testimony given or considered in connection with a determination of the fair market value of the Property must be given by persons having at least five (5) years' experience in appraising property similar to the Property and who have conducted and prepared a complete written appraisal of the Property taking into consideration the factors set forth above.

5. After purchasing the hotel, Pirani, Aziz, HNM, and HNM's members immediately had a falling out about the use of funds for the renovation of the hotel. HNM filed Plaintiff's Original Petition, Application for Temporary Restraining Order and Permanent Injunction, and Request for Appointment of Temporary and Permanent Payment Receiver against Pirani, Aziz, and Circle Sherman in the 134^th Judicial District Court of Dallas County, Texas. Aziz and Pirani filed a counterclaim against HNM and a third-party petition against HNM's members. On July 27, 2009, Pirani, Aziz, and Circle Sherman entered into a settlement agreement with HNM and HNM's members wherein Pirani and Aziz agreed to return HNM's investment by re-purchasing HNM's membership interest for $475,000, among other things.

6. With respect to HNM, paragraph 3.1 of the settlement agreement provided in pertinent part as follows:

Until the Purchase Price (including any interest and sales profit) is paid in full to HNM, HNM shall retain its Membership Interest in the Company. Notwithstanding the foregoing, HNM shall not be liable for any losses incurred by [Circle Sherman] nor be entitled to any profits of [Circle Sherman] and shall not be subject to any capital calls by [Circle Sherman].

In addition, paragraph 4.1 provided in pertinent part as follows:

[Circle Sherman and Pirani] forever release and discharge HNM Partners, LLC, of and from any and all claims, damages, losses, demands, liabilities, costs, expenses, actions, causes of actions, suits, damages, judgments of any kind, type or nature whatsoever, in law or in equity, whether known or unknown, which against HNM [Circle Sherman] ever had, now has or hereafter can, shall or may have, relating to the subject matter of the Litigation to the date of this Agreement SAVE AND EXCEPT the continuing obligations of HNM under this Agreement.

(Emphasis added.) The settlement agreement defined "Litigation" as HNM's original petition, the counterclaim by Pirani and Aziz, and the third-party petition against HNM's members.

7. With respect to the individual defendants, paragraph 3.2 of the settlement agreement provided as follows:

In the event that [Circle Sherman] obtains a third party investor for the purpose of purchasing HNM's Membership Interest, [Circle Sherman] shall in good faith make best efforts to have the Bank release Gilani, Baharia and Lalani from their personal guaranties of the loan. If [Circle Sherman] is unable to obtain a release from the bank of the guaranties, Gilani, Baharia and Lalani agree to continue to be guarantors of the Loan until July 9, 2012, at which time they shall be released either through [Circle Sherman's] refinancing of the Loan or sale of the Hotel.

8. Paragraph 6.7 of the settlement agreement provided that the prevailing party in any action brought to enforce any term or provision of the agreement would be entitled to reasonable attorney's fees and expenses from the other party.

9. Pirani and Aziz (through Circle Sherman) spent several months renovating the hotel. The estimated cost of the renovation and repairs was approximately $1.1 million.

10. On February 17, 2010, Days Inn Worldwide ("Days Inn") issued a notice to Circle Sherman of quality assurance defaults.

11. Circle Sherman began to market the hotel for sale in or around April 2010. The marketing was based, in part, on an appraisal that represented the market value of the hotel as $4.5 million.

12. In June 2010, Circle Sherman defaulted on payment of the note to OWB.

13. In late July or August 2010, OWB filed a state court suit against Pirani, Aziz, HNM and HNM's three individual members as guarantors of the loan to Circle Sherman. OWB asserted claims for breach of the note and guaranty agreement. HNM and its members obtained counsel, and Pirani and Aziz obtained different counsel.

14. HNM and its members (Baharia, Gilani, and Lalani) believed that they already should have been released from any obligation under the note and guaranty agreement pursuant to the settlement agreement. However, Pirani, Aziz, HNM, and HNM's members initially presented a united front to OWB and coordinated their defense in OWB's guaranty suit.

15. On August 24, 2010, Days Inn issued another notice of quality assurance defaults to Circle Sherman.

16. The local property appraisal district assessed the value of the hotel at $2,420,500 for 2010.

17. On October 4, 2010, Circle Sherman filed for bankruptcy under chapter 11 of the Bankruptcy Code. In Circle Sherman's "Schedule A—Real Property," Circle Sherman stated that the hotel had a value of $3,500,000.00.¹ The value listed in Schedule A was consistent with Circle Sherman's 2011 tax return, which reported a value of $3,543,834 for the hotel.

18. OWB filed a motion for relief from the automatic stay in Circle Sherman's bankruptcy case so that it could foreclose on its interest in the hotel. In its motion, OWB stated that the total amount due and owing to it was $2,638,981 as of October 4, 2010 (exclusive of ad valorem taxes, reasonable attorneys' fees, and later accruing interest). This Court entered a final order granting OWB's motion on June 24, 2011.

19. Foreclosure occurred on August 2, 2011. Approximately forty rooms were not in service at the time of foreclosure, and the hotel needed significant repairs.

20. OWB was the only bidder at the foreclosure auction. OWB bid $2,350,000 for the hotel and credited that amount against Circle Sherman's obligations to OWB under the note.

21. On August 8, 2011, this Court dismissed Circle Sherman's bankruptcy case.

22. Circle Sherman's 2011 tax return included $902,402 in losses as a result of the foreclosure of the hotel as well as $128,000 in operating losses. Pirani represented...