Whatley v. Chatha (In re Chatha), 17-25335-B-7
| Decision Date | 09 August 2021 |
| Docket Number | 17-25335-B-7,Adversary 18-2102 |
| Parties | In re: RAJPAL SINGH CHATHA and TARANJIT KAUR CHATHA, Debtor(s). v. SIMRANJIT CHATHA; THRIVE MANAGEMENT LLC; SUMMERFEST HOSPITALITY, LLC, Defendant (s) . DOUGLAS WHATLEY, Chapter 7 Trustee, Plaintiff (s), |
| Court | U.S. Bankruptcy Court — Eastern District of California |
The matter having been tried to the court on regular notice, and after consideration of all properly admitted evidence as well as argument thereon, the court makes the following findings of fact and conclusions of law. See Fed.R.Civ.P 52(a); Fed.R.Bankr.P. 7052. Based on these findings of fact and conclusions of law, the court will enter judgment for plaintiff Douglas Whatley, in his capacity as the trustee appointed in the parent chapter 7 bankruptcy case, and against defendants Simranjit Chatha, Thrive Management, LLC and Summerfest Hospitality, LLC, to the extent explained below.
1. The complaint that initiated this adversary proceeding was filed on June 22, 2018. The Third Amended Complaint ("TAC") filed on September 17, 2020, is the operative complaint.
2. Rajpal Singh Chatha and Taranjit Kaur Chatha are the debtors in the parent chapter 7 case which was filed on August 11 2017 ("Petition Date").
3. Defendant Simranjit Chatha is Rajpal's and Taranjit's son.[1] Defendants Thrive Management, LLC, and Summerfest Hospitality, LLC, are limited liability companies owned and controlled by Simranjit.
4. Plaintiff is the duly-appointed trustee in Rajpal's and Taranjit's chapter 7 case.
5. This is an action to avoid transfers and to recover transferred interests, properties, rents, and profits from the defendants. The TAC alleges that the transfers subject to avoidance are either prepetition fraudulent transfers or unauthorized postpetition transfers.
6. One significant transfer at issue is the transfer of Rajpal's interest in Brightside Hospitality, LLC, a Texas Limited Liability Company ("Brightside"), and its principal asset to Simranjit. Brightside's principal asset is a La Quinta Hotel located at 1503 Breckinridge Road, Mansfield Texas ("Hotel"). Among others, documents relevant to this transfer include an Agreement for Sale of Seller's Membership Interest in LLC and a corresponding Bill of Sale for Seller's Membership Interest in Company (collectively, "Brightside Transfer Documents"). The Brightside Transfer Documents are dated, and dated to be effective as of, June 2, 2015. [TAC A, B; 16, 17]. The Brightside Transfer Documents are (and were intentionally) backdated. Simranjit's attorney Karen Schroeder ("Ms. Schroeder") of Midland, Texas, drafted the documents and emailed them to Simranjit on December 22, 2017. [84, 86]. Simranj'it testified that he signed the documents in early January 2018 and thereafter sent them to Rajpal.
7. Another significant transfer at issue is the transfer of Rajpal's and Taranjit's interest in Pacific Coast Ventures Management, LLC, a California Limited Liability Company ("PCV"), and its principal asset to Simranjit. PCV's principal asset is improved real property located at 513 B Street, Marysville, California, which consists of commercial and residential space ("Marysville Property"). Among others, documents relevant to this transfer include an Agreement for Sale of Seller's Membership Interest in LLC and a Bill of Sale for Seller's Membership Interest in Company dated, and dated to be effective as of, October 15, 2012, as to a 50% interest [TAC D, E; 26, 27] and an Agreement for Sale of Seller's Membership Interest in LLC and a Bill of Sale for Seller's Membership Interest in Company dated, and dated to be effective as of, July 18, 2013, as to a 50% interest (collectively, "PCV Transfer Documents") [TAC F, G; 29, 30]. The PCV Transfer Documents are (and were also intentionally) backdated. Ms. Schroeder drafted the documents and emailed them to Simranjit on January 8, 2018. [84, 96]. Simranjit testified that he signed the documents in early January 2018 and thereafter sent them to Rajpal.
8. Other transfers at issue include transfer of the Hotel from Brightside to Summerfest, Rajpal's transfer of funds from Brightside's bank account to Simranjit, and additional transfers of funds from Brightside and PCV to Simranjit.
9. Rajpal formed Brightside as the sole Manager and Member on or about April 11, 2007. [189].
10. On September 10, 2014, Brightside filed a voluntary chapter 11 petition in the United States Bankruptcy Court for the Northern District of Texas ("Texas Bankruptcy Court").
11. For reasons related to franchise branding and trademarks, through its chapter 11 bankruptcy case Brightside changed its name to March on Hospitality, LLC ("MOH"), effective May 13, 2015. Brightside and MOH are the same entity. The parties referred extensively throughout this adversary proceeding to the entity that owned the Hotel as Brightside. The court will do the same for purposes of continuity and clarity. References to Brightside are therefore reference to MOH and vise versa.
12. Brightside's Fourth Amended Plan of Reorganization Dated May 22, 2015 ("Plan") was confirmed by a June 1, 2015, Amended Order Confirming Debtor's Fourth Amended Plan of Reorganization Dated May 22, 2015 ("Confirmation Order"). [67]. The Plan includes two sections designated "5.07." The Second § 5.07 is the applicable and it states as follows:
On the Effective Date, all eguity interests shall be cancelled. The new equity interests in the Debtor shall be issued 100% to Simranjit Chatha who is contributing to the Debtor $60, 000.00 total. These funds shall be deposited into the Debtor's counsel's trust account prior to the Confirmation Date. If the Plan is not Confirmed, the $60, 000.00 will be returned to Simranjit Chatha.
13. The court must resolve an initial factual dispute over the operative "transfer" subject to avoidance as it pertains to the transfer of Rajpal's interest in Brightside and its assets to Simranjit and thence the ownership of the Hotel.
14. Defendants assert that the Plan and Confirmation Order are self-executing and are the operative "transfer" of the Brightside interest and its assets from Rajpal to Simranjit. Defendants also assert that the court can not avoid this "transfer" because doing so would be an impermissible modification of the Plan under 11 U.S.C. § 1125 and/or an impermissible revocation of the Confirmation Order under 11 U.S.C. § 1144.
15. Plaintiff asserts that the operative "transfer" of Rajpal's interest in Brightside and its assets to Simranjit occurred pursuant to a sale independent of the Plan and Confirmation Order. More precisely, plaintiff asserts that the Brightside Transfer Documents are the operative "transfer."
16. The dispute over the operative "transfer" resulted in this court's March 2020 amended order transferring venue of this adversary proceeding to the Texas Bankruptcy Court. On the basis of this court's concurrent jurisdiction to interpret the Plan, that the outcome of this adversary proceeding will have no adverse effect on Brightside's estate or any of Brightside's former creditors, and no further proceedings are necessary in Brightside's now-closed bankruptcy case, the Texas Bankruptcy Court transferred this adversary proceeding back to this court by orders filed in July and August 2020.
17. There were also related discovery proceedings before the United States District Court for the Northern District of Texas ("Texas District Court"). The discovery proceedings concerned an October 2019 subpoena for the production of documents and deposition testimony that plaintiff served on Ms. Schroeder. Ms. Schroeder represented Rajpal and Simranjit with regard to Brightside and PCV, the Brightside and PCV Transfer Documents, and related corporate matters.
18. For the most part, Rajpal, Simranjit, and Taranjit are not credible witnesses. Their memories are selective. When testifying at trial, these individuals were able to easily remember events beneficial to their interests. They could not, and often would not, remember events potentially detrimental or adverse to their interests. For example, Rajpal and Simranjit were able to clearly recall events that occurred in 2015 and, yet, were unable or unwilling to recall significant events that occurred several years later in 2017 and 2018.
19. With regard to Rajpal in particular, at times his trial testimony was conflicting and contradictory. He would say one thing and then say something completely different when pressed. For example, at one point he testified that potentially relevant corporate documents were destroyed and then recanted when questioned by the court. He also testified that he signed earlier versions of the Brightside and PCV Transfer Documents and, again, when pressed by the court he testified that no such documents ever existed.
20. The court also notes that Rajpal and Simranjit feigned ignorance for years as to when and by whom the Brightside Transfer Documents and the PCV Transfer Documents were drafted and when the documents were signed. It was only after the Texas District Court ordered Ms. Schroeder to produce nearly all documents that plaintiff subpoenaed and Ms. Schroeder was deposed about the documents she produced that Simranjit suddenly recalled that Ms. Schroeder drafted the Brightside Transfer Documents and the PCV Transfer Documents between December 2017 and January 2018, that he received the documents from Ms. Schroeder during that same time frame .and that he signed the documents in early January 2018. In other words, the court is convinced that the Texas District Court's order denying Ms. Schroeder's motion to quash plaintiff's subpoena left Simranjit with no choice but to admit that the Brightside...
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