Webber v. Patel (In re Patel)

632 B.R. 903

IN RE Hasmukh PATEL and Niruben Patel, Debtors.

Richard B. Webber, Chapter 7 Trustee, Plaintiff,

v.Hasmukh Patel, Florida Family Hospitality, LLC, and Lisa Patel, Defendants.

Case No. 6:18-bk-00036-KSJ

Adversary No. 6:20-ap-00002-KSJ

United States Bankruptcy Court, M.D. Florida, Orlando Division.

Signed July 30, 2021

Stephenie Biernacki Anthony, Anthony & Partners LLC, Tampa, FL, for Plaintiff.

Daniel R. Fogarty, Stichter, Riedel, Blain & Postler, P.A., Tampa, FL, for Defendants Florida Family Hospitality, LLC.

Daniel A. Velasquez, Latham, Luna, Eden & Beaudine, LLP, Orlando, FL, for Defendants Hasmukh Patel.

MEMORANDUM OPINION

Karen S. Jennemann, United States Bankruptcy Judge

The issue is whether the Debtor, Hasmukh ("Hank") Patel, is the "true" but secret owner of Florida Family Hospitality, LLC ("FFH"), not Hank's daughter, Lisa Patel. The Chapter 7 trustee, Richard B. Webber, argues FFH is owned by the Debtor as his "alter ego" or "nominee."¹ If proven, Hank's secret interest in FFH is administrable in this bankruptcy case and Lisa, the legal owner of FFH, would need to turnover her shares of FFH and any monies she withdrew under §§ 542, 548(a)(1)(A) or (B), or 549 of the Bankruptcy Code.² The Defendants—Hank, Lisa, and FFH—oppose the Trustee's allegations, contending Hank has no interest in FFH and only Lisa legally and equitably owns FFH. After considering the trial testimony,³ stipulation of facts,⁴ evidence, and post-trial closing statements,⁵ I agree with the Defendants. Lisa owns FFH; Hank has no interest in the company; and the Trustee has no claim to Lisa's interest or FFH.

The Patel Family are Experienced Hoteliers

Hank has a long history of running and operating hotels.⁶ Over forty years ago, when Hank was about Lisa's age, he purchased his first hotel, which provided his father an income and a place to live.⁷ He later bought numerous hotels. And his immediate and extended family, including his wife, Niruben ("Nita") Patel, and her family, also are in the hospitality industry owning many more hotels.⁸ Because Hank has a wealth of experience in the industry, his family members rely on him for help with purchase negotiations, accounting, and computer-related issues.⁹

Yet, the close-knit family strictly maintains separate ownership of their individual hotels. They keep separate financial records¹⁰ and do not commingle ownership interests. Certainly, Hank has had formal joint ventures with family members, such as his brother-in-law, Ramanbhai ("Raman") P. Patel,¹¹ but such joint interests were disclosed and formalized. And the Patel family contributes monies, as needed, to help each other acquire new properties;¹² however, the family documents these transfers, follows industry practices, and does not commingle funds.¹³

The Debtors' Financial Problems

In 2014, Hank and his wife, Nita (collectively, the "Debtors"), were having financial troubles.¹⁴ He lost his "entire life investment" in his hotel businesses.¹⁵ Three hotels were in foreclosure: Hampton Inn in Melbourne, Florida; Super 8 in Titusville, Florida; and America's Best Value Inn in Yulee, Florida.¹⁶ Hank's only source of income were monies he earned by installing TV satellite dishes.¹⁷ Hank was close to retirement age, and the Debtors' youngest daughter is disabled and needs rigorous care.¹⁸ Hank focused on his TV satellite dish installation business rather than pursuing a new hotel.¹⁹ He did, however, as he always had, continue to help his family with their acquisition and operation of hotels.

At this time of financial stress in 2014, the Debtors moved into the hotel property that is the center of this dispute (the "Hotel"),²⁰ which at the time was called the JaxPort Inn.²¹ Nita initially acted as general manager; Hank focused on caring for their special-needs daughter and running his satellite dish business.²² But when their other daughter, Lisa, purchased the Hotel later in 2014, Hank assumed the role of manager.²³ Nita transitioned to Assistant General Manager, overseeing the housekeeping department.²⁴

The Debtors filed for Chapter 7 bankruptcy on January 4, 2018.²⁵ At the time of the bankruptcy filing, the Debtors listed four lawsuits including three that related to the failed hotel ventures.²⁶ The Debtors listed ownership interests in three corporate entities, but they listed no interest in FFH.²⁷

Raman Patel's Venture - Jax Florida and the JaxPort Inn

In early 2014, Hank discussed the opportunity to buy the Hotel with his brother-in-law, Raman, who is married to Hank's sister.²⁸ Raman had been in the hotel business for many years, and Hank and Raman had other joint business interests.²⁹ Hank did not want to buy the hotel, but, acting on Raman's behalf, he started negotiations to purchase the Hotel from CenterState Bank of Florida, N.A. ("CenterState").³⁰ I specifically find Hank was acting on behalf of Raman and at Raman's (not Hank's own) direction.³¹

Hank, acting for Raman, made an offer to purchase the Hotel for $1,000,000, with a $250,000 non-refundable earnest money deposit, executing a Purchase and Sale Agreement ("PSA").³² The PSA defined "Buyer" as "HASMUKH PATEL, his successors and/or assigns."³³ Hank always anticipated assigning the purchase to the entity Raman selected to take title to the Hotel.

Before closing, JaxFlorida Group, LLC ("JaxFlorida") was created as a Florida limited liability company. Raman was listed as the member, manager, and registered agent.³⁴ Hank later assigned the PSA to JaxFlorida, Raman's company.³⁵ On February 21, 2014, JaxFlorida and CenterState closed on the sale of the Hotel for the purchase price of $1,000,000.³⁶

Hank contributed none of the monies Raman used to buy the Hotel. The $250,000 earnest money deposit and the other money needed for closing was wired from an account belonging to Dhanumati Patel, Hank's mother-in-law, on which Nita, was an authorized signer.³⁷ The remainder of the purchase price was funded by a loan from Southern Hospitality Funding, LLC ("Southern Hospitality").³⁸ Although Hank helped Raman get this loan from Southern Hospitality,³⁹ and the loan was guaranteed by Raman, Hank, and their spouses, no monies flowed to Hank or through any account he controlled.⁴⁰

From February to December 2014, JaxFlorida was the legal owner of the Hotel and did business as the JaxPort Inn.⁴¹ Nita managed the JaxPort Inn;⁴² Hank assisted with management but was focused on caring for their special-needs daughter and his TV satellite dish business.⁴³

Lisa Patel's Venture - FFH and the Econo Lodge

Raman, however, soon decided he wanted to sell the Hotel and agreed to sell it to Lisa in April 2014.⁴⁴ FFH was created as a Florida limited liability company.⁴⁵ Lisa was listed as the member and manager; Kantaben ("Kanta") Patel⁴⁶ was listed as the registered agent.⁴⁷ In May 2014, Lisa signed the "Real Estate and Asset Purchase Agreement" agreeing FFH would buy the Hotel for $1,300,000. She gave Raman a non-refundable deposit of $25,000.⁴⁸ None of these monies came from the Debtors.

To fund the Hotel purchase, Lisa received funds from fifteen extended family members of $322,000.⁴⁹ None of these monies came from her parents, the Debtors.⁵⁰ Besides the family funds, FFH applied for financing with NOA Bank ("NOA").⁵¹ Hank handled most of the communications with the hospitality loan broker, Rick Patel, and NOA on the financing.⁵² But Hank always kept Lisa informed; they spoke several times per week on the details of the loan and the purchase. Lisa provided all documents requested by NOA to her father. She signed all required documents, including her financial statement, the loan application, a borrower information form, and FFH's franchise application and agreement with Choice Hotels.⁵³ Hank did not complete these forms or include any of his personal financial information. I specifically find that Lisa was the principal behind this purchase; although her father helped her with the negotiations and the paperwork, it was Lisa, not her parents, who was the intended owner of the Hotel through FFH.

FFH received an SBA-backed loan⁵⁴ from NOA for $1,050,000, which supported a purchase price of $1,120,000.⁵⁵ Lisa signed a revised sales contract for FFH's acquisition of the Hotel at the new price and provided a further non-refundable deposit of $275,000.⁵⁶ NOA's credit memo stated that Lisa was the member and 100% owner of FFH. Hank was designated as the "Key Manager."⁵⁷ The Debtors guaranteed the NOA loan and offered their home as collateral.⁵⁸

FFH closed the purchase of the Hotel from JaxFlorida in December 2014.⁵⁹ The Hotel since has operated as an Econo Lodge.⁶⁰ Lisa makes all management decisions for the Hotel. And, as the owner of FFH, Lisa takes substantial financial distributions when the Hotel is doing well totaling about $300,000.⁶¹

The Trustee notes Lisa has paid for her parents, by adding them as authorized users on her personal credit card and by independently paying some of their expenses from 2017-2018 when their bank accounts were frozen due to litigation.⁶² Lisa also paid for a family trip.⁶³ Lisa, using her personal credit card or her individual bank accounts, paid $22,924.03 in expenses for her parents from April 2017 through July 2019.⁶⁴

I specifically find Lisa made these relatively minimal gifts to her parents to help them during a difficult time and not as a ruse to hide their actual ownership interest in the Hotel. And, by comparing the relative amounts—Lisa paid herself $300,000; her parents received about $23,000—one easily concludes these payments were not because of any secret equity interest in the Hotel.

Hank Patel's Limited Role at the Hotel

Hank earns a modest salary of $45,000 per year as the general manager of the Hotel.⁶⁵ He, his wife, and their youngest daughter continue to live at the Hotel.⁶⁶ Hank also receives a cell phone paid for by FFH.⁶⁷

As the general manager, Hank is responsible for the day-to-day operations of the Hotel.⁶⁸ But all major decisions on large...