Patel et al v. Patel et al

UNITED STATES BANKRUPTCY COURT
DISTRICT OF NEW MEXICO
In re: 	DIPAKKUMAR VANMALIBHAI PATEL and 	No. 7-10-12627 JA
PADMABEN DIPAKKUMAR PATEL,
Debtors.
HASMUKHBHAI K PATEL and USHABEN H. PATEL,
Individually and in their capacity as members of
ROSHAN HOSPITALITY, LLC,
Plaintiffs,
v. 	Adversary No. 10-1200 J
DIPAKKUMAR VANMALIBHAI PATEL, PADMABEN
DIPAKKUMAR PATEL and ROSHAN HOSPITALITY, LLC,
Defendants.
ORDER GRANTING DEFENDANTS’ MOTION FOR PARTIAL SUMMARY JUDGMENT,
IN PART, AND DISMISSING PLAINTIFF HASMUKHBHAI K. PATEL’S DERIVATIVE
CLAIMS IN THIS ADVERSARY PROCEEDING
THIS MATTER is before the Court on the Motion of Dipakkumar Vanmalibhai Patel and
Padmaben Dipakkumar Patel for Partial Summary Judgment against Hasmukhbhai K. Patel as a
Party (“Motion for Partial Summary Judgment”), filed by and through their attorneys of record,
Moore, Berkson & Gandarilla, P.C. (George M. Moore and Arin E. Berkson). See Docket No.
20. 	Defendants also filed a Memorandum in Support of Defendants’ Motion for Partial
Summary Judgment (Docket No. 20-1). Plaintiffs filed a response with supporting affidavit, and
Defendants filed a reply with supporting affidavit. See Docket No. 23 and Docket No. 24.1
1Since Plaintiffs filed their response, Puccini Law, P.A. (Leslie Montano Thompson and Louis Puccini, Jr.) have
entered their appearance on behalf of the Plaintiffs, replacing Plaintiffs’ former counsel of record, Michael K.
Daniels. See Order Authorizing Withdrawal of Plaintiffs’ Counsel (Docket No. 26) and Entry of Appearance on
Behalf of Plaintiffs (Docket No. 29).
Case 10-01200-j Doc 49 Filed 03/16/12 Entered 03/16/12 10:52:08 Page 1 of 10

2
Plaintiffs filed this action for a determination of non-dischargeability of debt under 11
U.S.C. § 523(a)(2)(A), (a)(4), and (a)(5), naming Roshan Hospitality, LLC as a Plaintiff, and
also “as a nominal defendant solely in a derivative capacity.” 	See Complaint to Determine
Dischargeability of Debt (“Complaint”), ¶ 12 - Docket No. 1. Defendants seek dismissal of all
claims made by Plaintiff Hasmukhbhai K. Patel (hereinafter, H.K. Patel) on grounds that he lacks
standing to bring this action in his individual capacity or as a derivative action on behalf of
Roshan Hospitality, LLC (the “Company”) because he was not a member of the Company at any
time relevant to the alleged wrongful acts described in the Complaint. 	In response to the
Motion, H.K. Patel counters that 1) he is a creditor of the Company and of the Defendants
individually; 2) he has been involved in the business affairs of the Company since its inception;
3) he has a community property interest in his wife’s formal ownership interest in the Company
sufficient to confer standing; and 4) his interactions with the parties and with the Company make
him a de facto member of the Company. 	See Response to Defendants[’] Motion for Summary
Judgment (“Response”) – Docket No. 23.
After consideration of the Motion for Partial Summary Judgment, the supporting
memorandum and affidavit, Defendants’ Response, and Plaintiffs’ reply with supporting
affidavit, and being otherwise sufficiently informed, the Court finds that the facts not subject to
genuine dispute establish, as a matter of law, that H.K. Patel does not hold an interest in the
Company sufficient to confer standing to assert a derivative action. However, because the
Motion for Partial Summary Judgment seeking dismissal of H.K. Patel, individually, relies solely
on the fact that H.K. Patel does not hold a membership interest in the Company, it is not
appropriate to dismiss H.K. Patel from this adversary proceeding in his individual capacity.2
2Defendants have not argued that the claims raised in the Complaint can only be brought as a derivative action.
Generally, case law regarding shareholder derivative suits brought against corporations prohibits individuals from
Case 10-01200-j Doc 49 Filed 03/16/12 Entered 03/16/12 10:52:08 Page 2 of 10

3
The Court will, therefore, grant the Motion for Partial Summary Judgment, in part, and dismiss
Plaintiff H.K. Patel in his capacity as member of the Company seeking a derivative claims
against Defendants.
SUMMARY JUDGMENT STANDARDS
Summary Judgment, governed by Rule 56, Fed.R.Civ.P., made applicable to adversary
proceedings by Rule 7056, Fed.R.Bankr.P. , will be granted when the movant demonstrates that
there is no genuine dispute as to any material fact and that the movant is entitled to judgment as a
matter of law. Rule 56(a), Fed.R.Civ.P. 	In order to defeat a motion for summary judgment,
the opposing party must “go beyond the pleadings and by [his] own affidavits, or by the
depositions, answers to interrogatories, and admissions on file, designate specific facts showing
that there is a genuine issue for trial.” Celotex Corp. v. Catrett, 477 U.S. 317, 324, 106 S.Ct.
2548, 91 L.Ed.2d 265 (1986)(internal citations omitted). When evaluating a motion for
summary judgment, the Court must view the facts in the light most favorable to the party
opposing summary judgment. Harris v. Beneficial Oklahoma, Inc., (In re Harris), 209 B.R. 990,
995 (10 th Cir. BAP 1997)(“When applying this standard, we are instructed to ‘examine the
factual record and reasonable inferences therefrom in the light most favorable to the party
suing a corporation directly when the alleged wrong was against the corporation. See, e.g., Kauffman v. Dreyfus
Fund, Inc., 434 F.2d 727, 732 (3 rd Cir. 1970)(explaining that “[a] stockholder of a corporation does not acquire
standing to maintain an action in his own right, as a shareholder, when the alleged injury is inflicted upon the
corporation and the only injury to the shareholder is the indirect harm which consists in the diminution in value of
his corporate shares resulting from the impairment of corporate assets.”); Marchman v. NCNB Texas Nat’l Bank,
120 N.M. 74, 82, 898 P.2d 709, 717 (1995)(stating that “[t]there must be a direct injury to the shareholder in his or
her individual capacity, independent of any duty to the corporation, before the shareholder is entitled to sue [in his or
her individual capacity,]” and explaining further that “[s]hareholders acquire standing to maintain actions in their
own right when they have suffered an injury separate and distinct from the other shareholders or when they are owed
a special duty by the wrongdoer.”)(citation omitted); Ayres v. AG Processing Inc., 345 F.Supp. 2d 1200, 1207
(D.Kan. 2004)(Nebraska law follows the general rule that “a corporate shareholder may not bring an action in his or
her own name to recover for wrongs done to the corporation or its property.”)(citations omitted). 	See also, Safety
Technologies, L.C. v. Biotronix 2000, Inc., 136 F.Supp.2d 1169, 1172 n.3 (D.Kan. 2001)(stating generally that [a]
shareholder in a corporation may not sue individually if the harm to the shareholder is derivative[,]” and suggesting
further that “the Kansas Supreme Court would [likely] also apply this precedent limiting lawsuits by individual
shareholders to limit lawsuits by members of limited liability companies.”)(citation omitted).
Case 10-01200-j Doc 49 Filed 03/16/12 Entered 03/16/12 10:52:08 Page 3 of 10

4
opposing summary judgment.’”)(quoting Wolf v. Prudential Ins. Co. of America, 50 F.3d 793,
796 (10 th Cir. 1995)(quoting Applied Genetics Int’l, Inc. v. First Affiliated Sec., Inc., 912 F.2d
1238, 1241 (10th Cir. 1990)(additional internal quotation marks omitted)).
FACTS
Defendants identify the following facts as not subject to genuine dispute: 1) Defendant
H. K. Patel is not a member of the Company; 2) Ushaben H. Patel (“Usha Patel”) owns a
minority interest in the Company; and 3) the only parties to this adversary proceeding who are
members of the Company are Usha Patel and Dipakkumar Vanmalibhai Patel (“Danny Patel”).
Defendant H.K. Patel’s Response denies that he is not a member of the Company, but his
affidavit does not assert that he holds a formal membership interest in the Company. 	And
though Defendants’ Response denies that Usha Patel holds a minority interest in the Company,
H.K. Patel’s Affidavit contains an affirmative statement that Usha Patel is a minority member of
the Company. 	See Affidavit of Hasmukhbhai Patel, ¶ 6 – Docket No. 23-1. 	Plaintiffs’
Response is not supported by any evidence to the contrary.
DISCUSSION
Defendants assert that because H.K. Patel does not hold a membership interest in the
Company, he lacks standing to assert a derivative action on behalf of the Company. H.K. Patel
counters that he holds a beneficial ownership interest in his wife’s membership interest in the
Company sufficient to confer derivative standing. The Court concludes that H.K. Patel does not
have standing to assert a derivative action because he is not a member of the Company.
To assert a derivative action, a plaintiff must satisfy the procedural requirements of Rule
23.1, Fed.R.Civ.P., and any other requirements of applicable law. See Wallner v. Liebl (In re
Liebl), 434 B.R. 529, 537 n.3 (Bankr.N.D.Ill. 2010)(stating that “the Rule 23.1 requirements are
Case 10-01200-j Doc 49 Filed 03/16/12 Entered 03/16/12 10:52:08 Page 4 of 10

5
procedural pleading requirements, not substantive requirements[,]” and that “[t]he circumstances
under which a plaintiff has the right to bring a derivative action is determined by other
law.”)(citing Moore’s Federal Practice – Civil §§ 21.1.03 and 21.1.04)).3 Rule 23.1,
Fed.R.Civ.P., made applicable to adversary proceedings by Rule 7023.1, Fed.R.Bankr.P.,
provides, in relevant part:
This rule applies when one or more shareholders or members of a corporation or an
unincorporated association bring a derivative action to enforce a right that the corporation
or association may properly assert but has failed to enforce.
Rule 23.1(a), Fed.R.Civ.P.
Rule 23.1(a), Fed.R.Civ.P., permits a shareholder of a corporation, or a member of an
unincorporated association, in appropriate circumstances, to assert a derivative action to enforce
a right of the corporation or unincorporated association. Assuming that Rule 23.1(a),
Fed.R.Civ.P. applies to derivative suits initiated by a member of a limited liability company to
enforce a right of the limited liability company, H.K. Patel fails to satisfy the Rule’s procedural
requirements.
There is a presumption under New Mexico law that all property acquired during marriage
is community property of the spouses. N.M.S.A. 1978 § 40-3-12(A)(Repl. Pamp.
2006)(“Property acquired during marriage by either husband or wife, or both, is presumed to be
community property.”).4 Pursuant to N.M.S.A. 1978 § 40-3-14, either spouse has full power to
manage, control, dispose of, or encumber community personal property with certain exceptions.
N.M.S.A. 1978 § 40-3-14 (Repl. Pamp. 2006). One exception to this general rule applies when
3 See also Cadle v. Hicks, 272 Fed.Appx. 676, 678 (10 th Cir. 2008)(unpublished)(acknowledging that Rule 23.1 is a
procedural rule, and whether a litigant has satisfied the requirements of Rule 23.1 is a matter of federal law).
4See also, In re Victor, 341 B.R. 775, 779 (Bankr.D.N.M. 2006)(“Under New Mexico law, there is a statutory
presumption that all property acquired during the marriage is community property.”)(citing N.M.S.A. 1978 § 40-3-
12(A)(Repl. Pamp. 1999)(remaining citations omitted)); Swink v. Sunwest Bank (In re Fingado), 113 B.R. 37, 40
(Bankr.D.N.M. 1990), subsequently aff’d by, 995 F.2d 175 (10 th Cir. 1993)(“In New Mexico, there is a clearly stated
presumption of community property.”)(citing N.M.S.A. §40-3-12(A)(Repl.Pamp. 1989)).
Case 10-01200-j Doc 49 Filed 03/16/12 Entered 03/16/12 10:52:08 Page 5 of 10

6
only one spouse is named in the document evidencing ownership of community personal
property. N.M.S.A. 1978 § 40-3-14(A) and (B)(1)(Repl. Pamp. 2006).5 Thus, where only one
spouse is named in a document evidencing ownership of community personal property, only that
spouse has the power to manage, control, dispose of or encumber that property. Id.6
The facts not subject to genuine dispute establish that Usha Patel holds a membership
interest in the Company, but H.K. Patel does not. The Affidavit of H.K. Patel states that he
contributed funds that were used to purchase Usha Patel’s membership interest, but does not
contradict the implied fact that only Usha Patel is the record owner of the membership interest
held by Usha Patel. Because only Usha Patel, and not H.K. Patel, is named in the document
evidencing ownership of the membership interest, H.K. Patel has no right, under New Mexico
law, to manage or to exercise any control over his wife’s membership interest in the Company on
account of his community property interest in the membership interest. Asserting a derivative
action to enforce rights of the Company constitutes an exercise of management and control over
the membership interest. Accordingly, the Court concludes as a matter of law that under New
Mexico’s community property statutes H.K. Patel’s community property interest in his wife’s
membership interest in the Company is not of a nature that would give him the right to assert a
derivative action to enforce rights of the Company under Rule 23.1, Fed.R.Civ.P.
In addition, other New Mexico law does not confer upon H.K. Patel an interest in his
wife’s membership interest in the Company sufficient to confer upon him standing to assert a
5 Sections 40-3-14(A) and (B)(1) provide:
Except as provided in Subsections B and C of this section, either spouse alone has full power to manage,
control, dispose of and encumber the entire community personal property.
B. Where only one spouse is:
(1) named in a document evidencing ownership of community personal property[.]
N.M.S.A. 1978 § 40-3-14(A) and (B)(1).
6 See also Victor, 341 B.R. at 780 (finding that where the trailers were titled in the name of the non-filing spouse,
only the non-filing spouse had the power to manage and control the property under the applicable New Mexico
statute).
Case 10-01200-j Doc 49 Filed 03/16/12 Entered 03/16/12 10:52:08 Page 6 of 10

7
derivative action to enforce the rights of the Company. 	There is no express provision in the
New Mexico Limited Liability Company Act for member derivative actions7 , though the New
Mexico Liability Act includes a directive that “the principles of law and equity supplement that
act, including such principles applicable to corporations and their owners.” N.M.S.A. 1978 § 53-
19-65 (Repl. Pamp. 2001). 	The New Mexico Business Corporation Act provides for derivative
suits brought by shareholders of a corporation against the corporation. N.M.S.A. 1978 § 53-11-
47 (Repl.Pamp. 2001). Section 53-11-47 provides, in relevant part:
No action shall be brought in this state by a shareholder in the right of a domestic or
foreign corporation unless:
(1) The plaintiff was a shareholder of record or the beneficial owner of shares
held by a nominee or the holder of voting trust certificates at the time of the
transaction of which he complains, or his shares or his beneficial ownership of
shares held by a nominee or voting trust certificates thereafter devolved upon
him by operation of law from a person who was a holder of record at such
time.
N.M.S.A. 1978 § 53-11-47(A)(1)(Repl. Pamp. 2001).
The New Mexico Supreme Court has extended the scope of corporate derivative suits to
partnerships, but the New Mexico Court of Appeals has declined to decide whether derivative
suits can be brought in other, similar settings.8 Even if the general directive contained in the
7The Uniform Limited Liability Company Act and the Revised Uniform Limited Liability Company Act each
contain a section providing for derivative actions brought by members of a limited liability company on behalf of
the limited liability company. See Unif.Ltd.LiabilityCo.Act. § 1102 (1996); Rev’d.Unif.Ltd.LiabilityCo.Act. §§
902-903 (2006). Iowa, Idaho, Nebraska and Wyoming have adopted the Revised Uniform Limited Liability
Company Act (2006). Many other states have Limited Liability Company Acts that contain a derivative suit
provision. See, e.g., Liebl, 434 B.R. at 537 (applying Illinois law, 805 Ill. Comp. Stat. 180/40-1 providing for a
derivative action on behalf of a limited liability company); Halley v. Barnabe, 271 Kan. 652, 24 P.3d 140
(2001)(Kansas Revised Limited Liability Company Act authorizes derivative actions by members); Calpitano v.
Rotundo, 2011 WL 3672092, *3 n.1 (Conn. Super. 2011)(unreported)(Connecticut limited liability statute provides
for derivative actions by members). See also, U.C.A. 1953 § 48-3-902 (Utah statute providing that a member of a
limited liability company “may maintain a derivative action to enforce a right of a limited liability company”);
Del.Code Ann. Tit.6, § 18-1001 (1998)(providing that a member or assignee of a limited liability company interest
can bring a derivative action).
8 See Hill v. Vanderbilt Capital Advisors, LLC, __ F.Supp.2d __, 2011 WL 6013025, *13 (D.N.M. 2011)(observing
that “[t]he Supreme Court of New Mexico extended the scope of derivative suits beyond the corporate context in
First Nat’l Bank v. Sanchez, 112 N.M. 317, 815, P.2d 613 (1991), and allowed a partner’s derivative suit on behalf
of a general partnership.”); In the Matter of Norwest Bank of New Mexico, 134 N.M. 516, 519- 520, 80 P.2d 98,
Case 10-01200-j Doc 49 Filed 03/16/12 Entered 03/16/12 10:52:08 Page 7 of 10

8
New Mexico Limited Liability Company Act were sufficient grounds to apply the provisions of
the New Mexico Business Corporation Act governing shareholder derivative suits to limited
liability companies and their members, N.M.S.A. 1978 § 53-11-47 does not confer standing upon
H.K. Patel.
The New Mexico Business Corporation Act extends standing to assert a derivative action
to a “beneficial owner of shares held by a nominee.” 9 N.M.S.A. 1978 § 53-11-47 (Repl. Pamp.
2001). Such language is not broad enough to include a generalized beneficial ownership interest
such as a community property interest under state law. See White on Behalf of Banes Co.
Derivative Action v. Banes Co, 116 N.M. 611, 613 and 614, 866 P.2d 339, 341 and 342
(1993)(stating that “[f]or a shareholder to bring an action . . . he or she must be, ‘a shareholder of
record or the beneficial owner of shares held by a nominee or the holder of voting trust
certificates at the time of the transaction of which he complains . . . .’” (quoting NMSA 1978 §
53-11-47(A)) and observing, further that, “[t]hus, ‘[s]tanding is justified only by [the] proprietary
interest created by the stockholder relationship and the possible indirect benefits the nominal
plaintiff may acquire qua stockholder of the corporation which is the real party in
interest.’”)(quoting Kauffman v. Dreyfus Fund, Inc., 434 F.2d 727, 735-36 (3rd Cir. 1970)).10
101-102 (Ct.App.2003)(stating that “New Mexico law is silent on whether a beneficiary of a testamentary trust may
bring a derivative action. Accordingly, we assume, without deciding, that such a derivative action is permissible.”);
Saylor v. Valles, 133 N.M. 432, 436, 63 P.3d 1152, 1156 (Ct.App. 2002)(“Whether members of a nonprofit
corporation have standing to bring derivative actions is a question that we decline to answer in this case because
Plaintiffs’ pleadings are deficient in at least two respects.”).
9 H.K. Patel has not asserted that he holds a membership interest of record in the Company, that he is the holder of
voting trust certificates, or that the is the beneficial owner of membership interests held by a nominee which would
confer standing under N.M.S.A. 1978 § 53-11-47.
10Cf. Borne v. Gonstead Advanced Techniques, Inc., 266 Wis.2d 253, 265, 667 N.W.2d 709, 714 (Ct.App.
2003)(observing, under Wisconsin law, that “‘beneficial shareholder’ is defined by statute as a ‘person who is a
beneficial owner of shares held by a nominee as shareholder[,]’’ that “a ‘beneficial owner’ must have a certificate of
the nominee on file with the corporation in order to come within that statutory definition[,]” and finding that the
trust that was not a shareholder at the relevant time period, lacked standing to assert a derivative claim). But cf.
Patrick v. Alacer Corp., 167 Cal.App.4 th 995, 1011, 84 Cal.Rptr.3d 642, 657 (Ct.App. 2008)(finding that plaintiff’s
alleged community property interest rendered her a beneficial shareholder which could confer standing to assert a
derivative suit, recognizing that “‘courts in California have historically given derivative suit standing requirements a
Case 10-01200-j Doc 49 Filed 03/16/12 Entered 03/16/12 10:52:08 Page 8 of 10

9
Therefore, even if provisions of the Business Corporation Act governing derivative suits were
extended to limited liability companies, H.K. Patel’s community property interest in his wife’s
membership interest in the Company is insufficient under the statute to confer standing.
Finally, H.K. Patel’s assertion that he is a de facto member of the Company is insufficient
to confer standing upon him to assert a derivative action. H.K. Patel has cited no case law in
support of this proposition. H.K. Patel may have taken such an active role in the day-to-day
business activities, financial decisions, and management of the Company that he has become a de
facto manager of the Company,11 but such activity is not sufficient to create an ownership
interest in the Company that confers upon him the rights of a member.
Defendants’ Motion for Partial Summary Judgment includes a request for an award of
attorneys’ fees but fails to cite any statute or contract between the parties that would establish a
right to recovery of attorneys’ fees. 	The Court will, therefore, deny Defendants’ request for an
award of fees.
liberal construction.’”)(quoting Pearce v. Superior Court (1983) 149 Cal.App.3d 1058, 1066, 197 Cal.Rptr. 238));
LaHue v. Keystone Inv. Co., 6 Wash.App. 765, 777, 496 P.2d 343, 350 (Ct.App. 1972)(holding that widow who
held a presumptive community property interest in husband’s stock at the time the stock was acquired, at the time of
the alleged wrongdoing, and at the time she filed suit had standing to maintain a shareholder derivative action based
on her one-half vested community interest in the stock).
On subsequent appeal, the Alacer court determined that because the court specifically found that the
plaintiff did not, in fact, have a community property interest in the stock, she was neither a record, nor beneficial
shareholder and could not state any derivative cause of action. Patrick v. Alacer Corp., 201 Cal.App.4 th 1326,
1345, 136 Cal. Rptr.3d 669, 684 (Ct. App. 2011).
11 Cf. Hawks Holdings, LLC v. Kalinowski (In re Kalinowski), 449 B.R. 797, 812 (Bankr.D.N.M. 2011)(finding that
individual who did not have an ownership interest in the limited liability company, but who undertook to carry out
the fiduciary duties of the limited liability company and served as its primary decision maker, acted as the de-facto
manager of the company, and was, therefore acting within a fiduciary capacity sufficient to fall within the scope of
11 U.S.C. § 523(a)(4)).
Case 10-01200-j Doc 49 Filed 03/16/12 Entered 03/16/12 10:52:08 Page 9 of 10

10
Based on the foregoing, IT IS HEREBY ORDERED that the Motion for Partial Summary
Judgment is GRANTED, in part, and DENIED, in part. The claims of H.K. Patel filed
derivatively on behalf of the Company are DISMISSED. 	H.K. Patel’s claims filed in his
individual capacity remain pending.
SO ORDERED.
________________________________________________
ROBERT H. JACOBVITZ
United States Bankruptcy Judge
Date entered on docket: March 16, 2012
COPY TO:
Louis Puccini, Jr. 	Arin Elizabeth Berkson
Leslie Montano Thompson 	George M. Moore
Puccini Law, P.A. 	Moore, Berkson & Gandarilla, P.C.
Attorneys for Plaintiffs 	Attorneys for Defendants
PO Box 50700 	PO Box 7459
Albuquerque, NM 87180-0700 	Albuquerque, NM 87194
Case 10-01200-j Doc 49 Filed 03/16/12 Entered 03/16/12 10:52:08 Page 10 of 10