BELLOWS FALLS >> The manager of a bankrupt estate is asking a court to award damages to the estate, paid from the coffers of a law firm that represented the developer of a failed hotel in Keene, N.H.
The former president of the Nanak Hotel Group, Gurdeep Nagra, was building a Hampton Inn in Keene on Key Road when he pleaded guilty to hiring illegal immigrants and conspiring to make false statements in connection with a bank loan. Nagra, who also owned the Quality Inn and Hampton Inn in Brattleboro, was accused in 2006 of allowing more than a dozen workers from Brazil, India and Central America to live in and work at his hotels. In 2009, Nagra, then 39, was sentenced to four months in prison and three years on supervised release. Nagra was also fined $10,000, deported to Canada and prohibited from entering the United States for 10 years.
After sentencing, Verinder Malhorta, an Ontario doctor who was the president and CEO of Nanak, attempted to push ahead with the construction of the hotel in Keene. George Nostrand, of Salmon and Nostrand in Bellows Falls, represented Malhotra's interests. On Sept. 21 of this year, Nostrand died.
In documents filed with the U.S. District Court for the District of Vermont, the Malhotra estate attorneys, Andrew A. Beerworth and John T. Sartore of Paul Frank + Collins of Burlington, contend Nostrand committed legal malpractice, causing the bankruptcy of Malhotra. Paul Frank + Collins had no comment on the legal proceedings.
Salmon and Nostrand represented Malhotra "in buying out the interest of a criminally indicted business associate in a series of commercial real estate ventures," wrote Beerworth and Sartore. "The Defendants' professional negligence left (Malhotra) exposed to claims from his business associate totaling several million dollars and forced him into bankruptcy in Canada."
Nostrand's "professional negligence" was the fact he did not put into writing an agreement between Malhotra and Nagra.
Late in 2007, Malhotra retained Nostrand to act on his behalf in purchasing Nagra's shares and to be his attorney on all matters going forward.
Beerworth and Sartore wrote that Malhotra was under a tremendous amount of stress "as he had personally invested significant dollars ... and was exposed to millions of dollars of liabilities arising from various personal guarantees he had executed, while concurrently never having had any of the hotel assets under his control."
Because Malhotra lived in Canada, he gave Nostrand a power of attorney to execute the purchase and sale of the properties.
The court filing noted that Nostrand "understood that Malhotra had no involvement with the operation of the Hotel Properties. Malhotra told Defendant Nostrand that he had no knowledge of their financial state. He had not participated in the loan or financing applications for any of the properties and he had had no access to the financial statements of the Companies. His role in the partnership was simply that of an investor. In fact, he trusted Nagra implicitly to oversee the operations of the Hotel Properties and manage his investments."
The court filing also noted that Nostrand "understood that proper balance sheets, financial statements, income statements and cash flow statements were not even maintained and accordingly, tracking the Companies' assets and liabilities would have been impossible."
Nagra, with the help of a lawyer, drafted the purchase and sale agreement, which was supposed to show the approximate value of the companies by way of reference to appraisals and other valuations coupled with Nagra's views on how much he felt the hotel properties would yield on a sale of the same. From that total, debts and contributions by Nagra and Malhotra were to be subtracted.
"All of the financial information ... was provided, without corroboration and without any due diligence having been performed, solely by Nagra," wrote Beerworth and Sartore.
However, before the refinancing was closed, Malhotrae discovered various large outstanding debts of more than $1.6 million as well as "an unknown amount" being claimed by one of the partners in BLM Investment Partnership, which held mortgages on the hotel properties. BLM was made up of Jasprit Bajaj, Malhotra and a third partner named as Dr. Limon in court documents filed in Superior Court in Ontario, Canada. According to that case, the debts totaled $7.1 million.
Because the total debts had not been disclosed by Nagra, Malhotra felt he had been "blindsided," and refused to close the purchase, contending because the accounting of debts was grossly inaccurate he could not form any basis for determining the net value of the properties.
In late 2007, the purchase and sale agreement was renegotiated to include the outstanding debts. Nagra agreed to help Malhotra sell the hotels and pay all debts out of the proceeds. In return, Malhotra was to receive his investment of $1,975,000. Any proceeds left over at that point were to be assigned to Nagra.
However, wrote Beerworth and Sartore, Nostrand never put the new agreement into writing, and after the properties were sold, there was nothing left over after paying off the debts. "In fact, Malhotra was never paid his $1,975,000 and moreover, was forced to remit further personal funds in order to ensure that all of the Companies' debts were satisfied."
Nostrand failed to take "reasonable steps to mitigate Dr. Malhotra's exposure for undisclosed debts, taxes and utilities. ... As a direct and proximate cause of Defendant Nostrand's negligence, Dr. Malhotra has suffered significant financial losses and damages ..." including having to file for bankruptcy.
In late 2010, Nagra sued Malhotra in Toronto, contending Malhotra owed him $3.5 million in relation to an unpaid promissory note. According to that filing, Nagra and Malhotra were equal shareholders in some 10 different American companies, which owned the properties and operated the hotels. According to Beerworth and Sartore, Malhotra spent $435,000 defending himself, which directly led to him having to declare bankruptcy.
At least two lawsuits were filed in Windham Superior Court in Newfane against Malhotra and companies related to the hotel properties, seeking recompense, but those cases have been closed. And in May of this year, a district court in New Jersey ordered Malhotra and Green Mountain Hospitality & Lodging to pay $326,331 to Ramada Worldwide.
The status of the lawsuits filed against Malhotra are in limbo due to his bankruptcy.
Bob Audette can be contacted at 802-254-2311, ext. 160.