Alacrity Holdings 6, LLC v. Popli (In re Alacrity Holdings 6, LLC)
| Docket Number | 22-20284-JRS,Adversary Proceeding 22-02020-JRS |
| Decision Date | 08 September 2023 |
| Parties | IN RE ALACRITY HOLDINGS 6, LLC, Debtor. v. MADAN POPLI, Defendant. ALACRITY HOLDINGS 6, LLC, Plaintiff, |
| Court | U.S. Bankruptcy Court — Northern District of Georgia |
Removed Case: Superior court of Bibb County, State of Georgia, Case No. 2021-CV-074647
This case requires examination of what constitutes sufficient consideration and proper corporate authority to enforce a contract. For example, under what circumstances, if any, can an individual member of a multimember LLC pledge all of the LLC's assets to secure an alleged debt owed only by the individual member without the consent of the other members? Is the grant of such a pledge enforceable against the LLC if it received no benefit from the loan to or obligation of the individual member? Was there any consideration for the note and security deed signed by the individual member? Are there any limitations on whether the settlement of a lawsuit can constitute adequate consideration for a such a pledge? Can a subsequent purchaser of the property challenge the validity of the lien on its property if it was not a party to the security document? Other issues include whether the Defendant - a holdover tenant - is liable for damages to the property that the Debtor discovered upon gaining possession of the property from him after it purchased the property and had him evicted and whether the Defendant owes fair market rent while he unsuccessfully appealed the eviction or whether he only owes the monthly amount stated in the agreement with the prior owner, which amount the Superior Court judge ordered be paid into the registry of the Court pending the outcome of the appeal.
The dispute in this case centers around a gas station located at 4331 Pio Nono Avenue in Macon, Georgia (the "Property"). Madan Popli ("Popli") owned the Property in 2014, but in 2016 Popli got caught in an illegal gambling operation related to coin operated amusement machines issued by the Georgia Lottery, which led to civil RICO charges being brought by the Houston County, Georgia District Attorney the assessment of a large fine and Popli's eventual arrest.[1] As part of the consequence of this gambling operation, the Houston County District Attorney seized Popli's assets and passport, restricted his travel rights out of the country, and Popli was forbidden from owning or operating a gas station in his name or being licensed for coin operated amusement machines in the future.
The Property was among the assets seized by the Houston County District Attorney, who sold it at a foreclosure sale in 2016 in partial payment of the fine owed. At the foreclosure sale Madan Lal ("Lal"), a cousin of Popli, bought the property through Robin Globe, LLC ("Robin Globe") for $1,150,000. Lal owned and operated Robin Globe solely in his name, but Popli testified that he maintained a verbal interest in Robin Globe, and in turn the Property, and that he did not need this interest reflected in paperwork because he trusted Lal, his cousin. Notably, no other evidence showed that Popli had a membership interest in Robin Globe, and as mentioned above the store licenses could not be in Popli's name due to the illegal gambling operation he ran in the past.[2] Lal did not testify at trial.
On February 20, 2019, the Property was sold again, this time to Durga Investments, LLC ("Durga"). Lal had reached out to Rajesh Kumar ("Kumar") with a plan to form Durga in order to purchase the Property and to use the proceeds of the sale to pay debts owed to the state stemming from the illegal gambling scheme including Popli's. Kumar, who knew Popli and Lal from running gas stations in Milwaukee, did in fact form Durga with Lal, and Durga purchased the Property. At the outset, Lal and Kumar operated Durga as 50/50 partners with no formal operating agreement.
At some unspecified point in 2019, Popli alleges that he loaned Kumar $500,000. Again, no documentary evidence showed that Popli ever loaned Kumar anything or that Kumar had any obligation to Popli, other than a promissory note executed by Kumar more than a year later. No receipts for this alleged loan exist, and no bank statements, checks, or communications evidencing the loan or other obligation were produced at trial. Nevertheless, Popli testified that at some time in 2019 he gave Kumar $500,000 in cash. On cross examination Popli testified:
When asked where the money came from, Popli said that he got somewhere between $125,000 and $160,000 from Shaneel Lalani ("Lalani"), and that the rest of the cash, an amount in excess of $300,000, came from funds he had sitting around in his home. When asked why and how he had this much cash on hand in his home, Popli testified that he made the money from cash sales and game machines while operating gas stations in the past. Kumar denied ever receiving a loan from Popli.[3] Lalani also testified that he never gave or loaned Popli any amount of money, let alone $150,000 or so. Once again, no documents were produced to support any transfer of money from Lalani to Popli.
Popli testified that after he gave Kumar the $500,000 in cash, Kumar paid that $500,000 by check to the state of Georgia on Popli's behalf to settle a fine related to the illegal gambling scheme that Popli got caught running. No check or other document was presented to the Court as evidence to support this statement. While Kumar denies ever receiving any cash from Popli, Kumar did testify that Lal used proceeds from the sale of the Property from Robin Globe to Durga to pay off the state and free up Popli's and other people's passports that were seized or restricted as a consequence of the illegal gambling operation. But no documents were admitted into evidence to support that testimony, either, and as previously mentioned, neither party called Lal as a witness.
Immediately following the sale of the Property to Durga, Lal operated the store, but in December of 2019, Kumar moved from Milwaukee to Macon and began running the store. With Lal's consent, Kumar formed Anika Gas N Go, Inc., ("Anika") to run the store. Kumar got licenses in Anika's name, including licenses for coin operated amusement machines, and put the coin operated amusement machines back into the store in order to drive up value for the store in hopes of selling the Property.
Shortly thereafter, Popli began showing up to the Property and telling Kumar that he owned the store. On December 19, 2019, with the help of attorney Joshua Hale ("Hale"), Popli filed a mechanic's lien on the Property in the amount of $500,000, even though Popli himself testified that he never provided any labor, material, or services to support the claim of lien. Around this same time, Popli had been engaged in discussions to purchase the Property through an intermediary named Snehalbai "Kenny" Patel ("Kenny"). Popli testified that his plan was to give Kenny money and have Kenny purchase the store in his name on Popli's behalf because Popli could not get a loan. Kenny and Durga entered into a purchase and sale agreement on May 7, 2020, and Kenny paid a deposit of $100,000 to Durga to purchase the Property. The Property ultimately did not sell to Kenny because Kenny "backed off."
On December 4, 2020, Popli commenced a lawsuit on the mechanic's lien. Kumar received notice of the commencement of the lawsuit on the claim of lien after he moved back to Milwaukee and had to return to Macon to deal with the situation. After some discussion, Kumar got into Popli's car and Popli drove Kumar to Hale's office on January 29, 2021. Hale prepared some documents and Kumar was told that if he signed the documents the lawsuit on the claim of lien would go away. These documents turned out to be a Promissory Note from Kumar in his individual capacity to Popli for $500,000 (the "Note"), and a Deed to Secure Debt from Durga in favor of Popli pledging the Property as collateral for the Note (the "Security Deed"). There was no evidence that Durga received any benefit from any obligation that Kumar may have had to Popli. In fact, the evidence showed that even if Popli advanced money to Kumar, only Popli benefited from it because Popli testified that Kumar used the money to pay an obligation for Popli's benefit.
The Court heard conflicting testimony on the point of whether Kumar knew what he was signing. Kumar testified that he did not know what he was signing, and that the entire interaction in Hale's office only lasted a matter of minutes. He testified that he signed the documents because he wanted to make the lawsuit on the claim of lien go away and was told that these documents would make that happen. Popli testified that Kumar took the time to read the documents thoroughly and that Hale actually spent time explaining the documents to Kumar. However, Popli also testified that it was Kumar's idea to go to Hale's office and have Hale prepare the Note and Security Deed even though Hale was Popli's attorney, not Kumar's. Hale did not testify at trial, either.
No evidence was presented to the Court indicating that other members of Durga consented to encumbering the Property with the Security Deed. Further, Kumar testified that at the time he only held 50% of the membership interests of Durga, and that Lal, the only other member of Durga, did not consent to Durga granting a Security Deed covering the Property.[4] The Security Deed also does not list settlement of the lawsuit on the claim of lien as consideration.[5] Instead the Security Deed states:
"That Grantor...
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