Patel v. Shivai Nehal Realty LLC

• Court: Rhode Island Superior Court
• Writing for the Court: STERN
• Decision Date: 26 October 2012
• Docket Number: C.A. No. KB-2012-0301
• Citation: Patel v. Shivai Nehal Realty LLC, C.A. No. KB-2012-0301 (R.I. Super. Oct 26, 2012)
• Parties: JITENDRA PATEL v. SHIVAI NEHAL REALTY LLC

JITENDRA PATEL

v.SHIVAI NEHAL REALTY LLC

C.A. No. KB-2012-0301

STATE OF RHODE ISLAND AND PROVIDENCE PLANTATIONS KENT, SC. SUPERIOR COURT

FILED: OCTOBER 26, 2012

DECISION

STERN, J. This Motion to Authorize Payment of Fee was filed by Pinnacle Realty Investments seeking payment of a broker's fee pursuant to the terms of an agreement between Pinnacle Realty and Special Master Vincent Indeglia, Jr. The National Republic Bank of Chicago submitted a limited objection and the motion was heard before this Court on October 2, 2012.

IFacts and Travel

The case which underlies the motion presently before this Court arises from insolvency of the real estate holding company Shivai Nehal Realty LLC ("Respondent"). Respondent's primary asset is the Fairfield Inn and Suites Hotel (the "Hotel"), which has ninety rooms and is located in Coventry, Rhode Island. Jitendra Patel ("Petitioner") is the sole member of Respondent and, as such, decided to dissolve the limited liability company to prevent waste and loss of its remaining assets. For the same reason, Petitioner filed with this Court a Petition for the Appointment of a Receiver on March 20, 2012.

This Court appointed Vincent Indeglia, Jr. as Special Master (the "Special Master") of Respondent. The Special Master's main purpose was to oversee the sale of the Hotel. Infurtherance of this purpose, the Special Master entered negotiations with Pinnacle Realty Investments ("Pinnacle") to assist in the sale of the Hotel. These negotiations resulted in an engagement letter with terms providing Pinnacle with a fee equal to the greater of either 3.25% of the sale price or $100,000. Additionally, Pinnacle agreed to bear all marketing costs associated with the sale. This engagement letter was reviewed by the Special Master, Pinnacle, and The National Republic Bank of Chicago (the "Bank") who is the senior secured creditor with respect to the assets of Respondent, including the Hotel.

The Special Master subsequently filed a Petition to Hire a Professional Broker on April 20, 2012. Included with the Special Master's Petition was the proposed agreement, as embodied by the engagement letter, including terms concerning the deliverables, the extent of the work to be performed, and the contingency fee. On April 27, 2012, the Bank filed a Limited Objection to the Special Master's Petition to Hire a Professional Broker. The Bank's Limited Objection sought to limit Pinnacle's commission in the event that there was a successful stalking horse bid or credit bid at the sale of the Hotel.

As a result of the Bank's Limited Objection, the parties negotiated an agreed order which was entered by this Court on May 31, 2012 (the "Order"). This Order allowed the Special Master to hire Pinnacle; however, the Order also modified the proposed engagement letter by providing for a forty percent (40%) reduction in Pinnacle's fee in the event that Nayna Patel, Naivka Ent, or Bharat Patel successfully closed on the sale of the Hotel as the highest and best bidder. The Order did not address any adjustment in Pinnacle's fee in the event of a successful credit bid by the Bank. In consummation of Pinnacle's engagement by the Special Master, an agreement was entered into pursuant to the agreed upon terms (the "Agreement"). Other than the potential reduction of Pinnacle's fee in the event that Nayna Patel, Naivka Ent, or Bharat Patelsuccessfully closed on the sale, the Agreement provided that Pinnacle would be paid the greater of either 3.25% of the sale price or $100,000, subject to Court approval.

On July 16, 2012, the Bank filed a Limited Objection and Cross-Motion to the Special Master's First Interim Report. This Limited Objection and Cross-Motion sought not only to approve the Bank's secured claim but also to amend the Court's Order by allowing the Bank to credit bid on the Hotel and receive the forty percent (40%) reduction in Pinnacle's fee in the event that such a credit bid was successful. This Court heard arguments from the Bank and the Special Master on the Bank's Cross-Motion on July 26, 2012 and subsequently entered the proposed order on August 1, 2012 (the "Amended Order"). This Amended Order added the following language to the original Order:

"Furthermore, in the event that the Bank shall credit bid and its credit bid shall be the bid which closes due to the fact that the highest and best bidder should fail to close, then in such event Pinnacle's fees shall be reduced by forty percent (40%) as if Pinnacle had retained a third party as a co-transaction coordinator in the sales process." Order, Aug. 1, 2012.

Pinnacle had not been present at the July 26, 2012 hearing on the matter because it not been given notice of the Bank's Cross-Motion to amend the Order. Furthermore, at no point prior or subsequent was the Agreement between Pinnacle and the Special Master amended to reflect the changes made to the Order by the Amended Order's additional language.

During the course of its engagement by the Special Master, Pinnacle asserts—and it is undisputed by the parties—that it performed all of its obligations under the Agreement by developing marketing materials and aggressively marketing the Hotel. As a result of its efforts, Pinnacle created a "market" for the Hotel that otherwise might not have existed, thereby increasing the potential value to be received upon sale of the Hotel. On August 6, 2012, the Hotel was sold at auction. One of the bidders generated by Pinnacle, HRS Hotels Group ("HRSHotels"), bid $4,300,000 at the sale; however, the Bank outbid HRS Hotels by submitting a credit bid in the amount of $4,325,000.

The dispute presently before this Court is whether Pinnacle is entitled to a 3.25% fee from this sale pursuant to the terms of the Order or whether the Bank is entitled to a forty percent (40%) reduction in that fee pursuant to the terms of the Amended Order. Accordingly, Pinnacle filed the present Motion to Authorize Payment of Fee on September 6, 2012 and the Bank filed a Limited Objection to that motion on September 20, 2012. Arguments were heard before this Court on October 2, 2012. For each of the reasons discussed in the subsequent portions of this decision, Pinnacle's Motion to Authorize Payment of Fee is GRANTED.

IIStandard of Review

In reviewing the validity of claims, fees, and expenses payable during receivership proceedings, the Court is first and foremost bound by the receivership provisions in the Rhode Island Business Corporation Act. See G.L. 1956 § 7-1.2-1301 et seq. Section 1314 enumerates the grounds for appointing a receiver; however, "those grounds are not exclusive." Peck v. Jonathan Michael Builders, Inc., 2006 WL 3059981, at *6 (R.I. Super. Ct. Oct. 27, 2006) (citing 16 William Meade Feltcher et al., Cyclopedia of the Law of Private Corporations § 7711 (perm. ed., rev. vol. 1998) (hereinafter "Fletcher")). Rather, such statutory enumerations "are usually described as confirming the traditional equity powers of a court, not limiting that power." Id. (citing Cambio v. G-7 Corp., 1998 WL 1473896 (R.I. Super. Ct. Feb. 11, 1998)).

Being that Rhode Island's receivership statute represents "merely a codification of equitable principles," this Court must use such equitable principles to fashion fair and equitable rules of law where state statutes remain silent and binding precedent does not exist. Hill v. M. S.Alper & Son, Inc., 106 R.I. 38, 55, 256 A.2d 10, 19 (1969). Indeed, where state receivership law provides minimal guidance, this Court instead "looks to the Bankruptcy Act and to decisions by the federal courts for guidance." Reynolds v. E & C Associates, 693 A.2d 278, 281 (R.I. 1997) (citing Leonard Levin Co. v. Star Jewelry Co., 54 R.I. 465, 468, 175 A. 651, 653 (1934)).

IIIValidity of the Amended Order

In Rhode Island, it has been noted that "[t]he Legislature has granted broad powers of control to enable the court in a receivership proceeding to conserve the interests of all parties involved." Francis v. Buttonwood Realty Co., 765 A.2d 437, 443 (R.I. 2001) (quoting Bogosian v. Woloohojian, 901 F.Supp. 68, 72 (D.R.I.1995), appeal dismissed, vacated without opinion, 86 F.3d 1146 (1st Cir. 1996)). In exercising this broad power, "[i]t is the court's obligation to establish 'the terms and conditions of sale as it determines appropriate.'" Id. Thus, "once the Superior Court . . . approves the sale of . . . property and grant[s] the receiver's petition, the receiver [i]s bound by the conditions embodied in the court's order." Id. The complication in the present case is whether the receiver is bound by the terms of this Court's Order or its Amended Order in determining the appropriate compensation for Pinnacle.

Here, the Special Master and Pinnacle seek authorization of the full fee pursuant to the terms of the Order and their Agreement, which would equal 3.25% of the final sale price of the Hotel. However, the Bank objects, claiming that it owes a lesser fee pursuant to the terms of the Amended Order. Additionally, an Agreement exists between the Special Master and Pinnacle which was reviewed and approved by all parties, including the Bank. That Agreement was memorialized as the controlling document in this case by this Court's Order, to which the Agreement was attached as an exhibit.

The Court subsequently entered the Amended Order upon a Cross-Motion by the Bank. The Amended Order changed the terms of Pinnacle's compensation and was not objected to by Pinnacle. The reason for this is that the Bank failed to give notice to Pinnacle of the Cross-Motion to amend the Court's Order. The Bank argues that, despite a lack of notice to Pinnacle of the motion to amend the Order, Pinnacle had constructive and possibly actual notice of the motion through its interactions with the Special Master. While the Bank is correct that Rule 5(a) of the Rhode Island Superior Court Rules of Civil Procedure requires service of pleadings only to parties, it is also true that, as a general rule, a court...