Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-3_11-cv-08146/USCOURTS-azd-3_11-cv-08146-1/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:1332 Diversity-Breach of Fiduciary Duty

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WO

IN THE UNITED STATES DISTRICT COURT 

FOR THE DISTRICT OF ARIZONA 

Forrest Shepard, as Trustee of the Bill N. 

Shepard Trust, 

Plaintiff, 

v. 

Pishit S. Patel, and Does 1-10, inclusive, 

Defendants.

No. CV-11-08146-PCT-NVW

PRELIMINARY INJUNCTION 

AND 

FINDINGS OF FACT AND 

CONCLUSIONS OF LAW 

Before the Court is Plaintiff’s Motion to Appoint Receiver or, Alternatively, for 

Preliminary Injunction (Doc. 31). An evidentiary hearing on this Motion was held on 

November 6 and 7, 2012. After reviewing all the evidence and the arguments of counsel, 

the Motion will be denied in part and granted in part, and a preliminary injunction will 

issue. 

I. FINDINGS OF FACT 

A. The Parties 

1. Plaintiff, Forrest Shepard, is an individual and the Trustee of the Bill 

N. Shepard Trust. 

2. Plaintiff is the successor-in-interest to Dr. Bill N. Shepard’s onethird (1/3) interest in the Partnerships (defined below). 

3. Defendant Pishit S. Patel (“Defendant”) is an individual who owns 

the remaining two-thirds (2/3) interest in the Partnerships. 

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B. The Partnerships 

4. In or about January 1995, in the City of Needles, County of San 

Bernardino, State of California, Bill N. Shepard, Rama P. Patel (“Mrs. Patel”), and 

Defendant jointly purchased certain real property, commonly referred to as 1300 West 

McCulloch Blvd., Lake Havasu City, Arizona, including improvements thereon, and all 

fixtures, equipment and personal property thereon, and operating as a motel/hotel 

business under the name and style of Island Inn Resort. 

5. Bill N. Shepard, Mrs. Patel, and Defendant entered into an oral 

partnership agreement for the Island Inn Resort. Said partnership agreement included, 

but was not limited to, the following pertinent provisions: for said parties to carry on as a 

partnership the motel/hotel business, utilizing the Island Inn Resort, including 

maintaining, repairing, improving and holding for appreciation the Island Inn Resort. 

The partnership created by this agreement is referred to as the “Island Inn Partnership” 

herein. 

6. Bill N. Shepard, Defendant, and Mrs. Patel jointly purchased that 

certain real property, commonly referred to as 831 North Bill Williams Avenue, 

Williams, Arizona, including improvements thereon, and all fixtures, equipment and 

personal property thereon, and operating as a motel/hotel business under the name and 

style of Motel 6 West. 

7. In or about June, 1996, in the City of Needles, County of San 

Bernardino, State of California, Bill N. Shepard, Defendant, and Mrs. Patel entered into 

an oral partnership agreement for the Motel 6 West (the “Motel 6 West Partnership”). 

Said partnership agreement included, but was not limited to, the following pertinent 

provisions: said parties to carry on as a partnership the motel/hotel business, utilizing the 

Motel 6 West, including maintaining, repairing, improving and holding for appreciation 

the Motel 6 West. The Motel 6 West Partnership and Island Inn Partnership are referred 

to collectively as the “Partnerships.” 

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8. In 1998, Dr. Shepard filed suit against Defendant and Mrs. Patel in 

California state court for declaratory relief, accounting, dissolution, fraud, and breach of 

fiduciary duty related to Defendant’s alleged mismanagement of the properties. 

9. In 2002, Defendant and Ms. Patel filed for Chapter 11 bankruptcy in 

Arizona; the then-pending litigation with Dr. Shepard was also removed to the 

bankruptcy court. 

10. On November 29, 2007, the bankruptcy court issued its judgment, 

finding Dr. Shepard had a one-third partnership interest in both Motels and entering 

money judgment for Dr. Shepard against the Patels related to both properties. 

11. The bankruptcy court also provided that a third-party management 

company, American Hospitality, Inc. (“American Hospitality”), would manage the 

properties until the money judgments for Dr. Shepard were paid, upon which time 

Defendant’s management company, Rohan Management (“Rohan”), could resume 

management of the properties. Rohan is owned solely by Defendant. American 

Hospitality charged a management fee of 2.5% of gross revenue plus $400 a month for 

accounting and payroll services. 

12. Bill N. Shepard died on July 3, 2008 and the Plaintiff acquired Bill 

N. Shepard’s interests in the Island Inn Resort Partnership and the Motel 6 West 

Partnership. 

13. On December 3, 2010, a divorce decree was entered in connection 

with the dissolution of marriage between Defendant and Mrs. Patel. As part of that 

divorce decree, Mrs. Patel’s one-third interest in the Island Inn Partnership was awarded 

to Defendant. 

14. On February 15, 2011, a final decree was entered and the 

administrative case in the bankruptcy matter was closed. 

15. Plaintiff and Defendant continued the Partnerships, and Defendant’s 

management company Rohan resumed managing the Motels following his satisfaction of 

the adversary proceeding judgment. 

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16. In March 2011, Defendant requested a cash contribution from 

Plaintiff to allegedly pay property taxes and other expenses related to the properties. 

Plaintiff did not respond to this request. 

17. Defendant also requested Plaintiff provide information to a bank for 

a proposed refinancing of the loan on the Motel 6 West property. Plaintiff did not 

respond to this request. 

18. After receiving these requests, Plaintiff, through his representatives, 

requested and was granted the right to inspect various books and records of the 

Partnerships and Motels located in Arizona in April 2011. 

19. Plaintiff filed his complaint on September 16, 2011. 

20. After the money judgments for Dr. Shepard ordered by the 

bankruptcy court were paid, Defendant’s company, Rohan Management, began charging 

the Partnerships a management fee of 5% without Plaintiff’s consent. Rohan 

Management later increased the management fee to 7%, again without Plaintiff’s consent. 

21. Defendant entered into a Franchise Agreement with Motel 6 for the 

Motel 6 West without Plaintiff’s consent—referring to himself alone as the “franchisee” 

rather than the Motel 6 West Partnership. The Franchise Agreement identifies Defendant 

as “Pishit Patel, as a sole proprietor” and the “owner” of the Motel 6 property. 

22. On October 1, 2011, Defendant entered into a Modification 

Agreement for a loan encumbering the Motel 6 West property without Plaintiff’s consent. 

23. Defendant, without Plaintiff’s consent, has been using Island Inn 

Partnership assets to lease a 2011 Mercedes S550 for himself, to register that vehicle, to 

insure that vehicle, and to make repairs to additional Mercedes. 

24. Island Inn Resort and Motel 6 West, the jointly owned properties 

managed by the Partnerships, have disbursed funds from the Partnerships to or for the 

personal benefit of the Defendant, Rohan, or other entities owned by the Defendant 

between 2008 and 2012 without the consent of Plaintiff. 

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25. The amount of recorded disbursements made by Island Inn Resort 

and Motel 6 West to Rohan due to the increase in the monthly management fees charged 

by Rohan through Island Inn Resort and Motel 6 West without the consent of Plaintiff 

from 2.5% previously charged by American Hospitality as of May 2008 to 5% charged 

by Rohan commencing June 2008 is $184,300 and then from 5% to 7% of revenues 

commencing January 2011 through July 2012 is $54,900, for a combined total of 

$239,200. 

26. The amount of recorded disbursements made by Island Inn Resort 

and Motel 6 West to the Defendant for reimbursements to the Defendant for payments he 

purportedly made on behalf of the Partnerships between 2008 and 2012 without the 

consent of Plaintiff is at least $537,000. 

27. Island Inn Resort and Motel 6 West disbursed funds in the amount of 

$160,000 from the Partnerships to Rohan for loans made by Rohan to both properties 

between 2008 and 2012, without the consent of Plaintiff. 

28. The amount of recorded disbursements made by Island Inn Resort 

and Motel 6 West between 2008 and 2012 while under the management of Rohan where 

no supporting vendor invoices or vendor receipts could be located in the business records 

of Island Inn Resort and Motel 6 West, contrary to the record retention requirements of 

the Internal Revenue Service, is at least $177,686. 

29. The amount of recorded disbursements made by Island Inn Resort 

and Motel 6 West between 2008 and 2012 while under the management of Rohan for 

which the supporting documents do not designate which hotel owed the bill, contrary to 

the record keeping requirements of the Internal Revenue Service, is at least $12,100. 

II. CONCLUSIONS OF LAW 

A. The Appointment of a Receiver is Inappropriate in this Case 

Plaintiff first seeks appointment of a receiver to manage the Partnerships. 

“[A]ppointing a receiver is an extraordinary equitable remedy”, which should be applied 

with caution. Canada Life v. LaPeter, 563 F.3d 837, 844 (9th Cir. 2009) (citing Aviation 

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Supply Corp. v. R.S.B.I. Aerospace, Inc., 999 F.2d 314, 316 (8th Cir. 1993)). The Court 

has discretion in determining whether to appoint a receiver, it may consider all relevant 

factors, and no one factor is necessarily dispositive. See, e.g., Canada Life, 563 F.3d at 

845. Defendant has self-dealt in this case. But depending on the nature of a business, a 

receiver can also be detrimental to a business requiring proactive skillful management. In 

this case and in light of the short time between now and the expected dissolution of the 

Partnerships and/or partition of the real properties, there is greater danger to the value of 

the Partnerships with the appointment of a receiver than with continued management by 

Rohan. For these reasons, Plaintiff’s request for the appointment of a receiver will be 

denied.

B. A Preliminary Injunction Should Issue to Protect the Partnerships’ 

Property and Assets 

In the alternative, Plaintiff seeks a preliminary injunction. “The purpose of a 

preliminary injunction is merely to preserve the relative positions of the parties until a 

trial on the merits can be held.” University of Texas v. Camenisch, 451 U.S. 390, 395 

(1981). To obtain a preliminary injunction, a plaintiff must establish (1) a likelihood of 

success on the merits; (2) a likelihood of irreparable harm in the absence of preliminary 

relief; (3) that the balance of equity tips in his favor; and (4) the injunction is in the public 

interest. Winter v. National Resources Defense Counsel, 555 U.S. 7, 20 (2008). In this 

case, a preliminary injunction is appropriate to bring an end to Defendant’s self-dealing 

without depriving the Partnerships of the benefit of Rohan’s management. 

A preliminary injunction properly issues in actions seeking dissolution and 

accounting of partnerships to maintain the status quo pending adjudication on the merits. 

See Wind v. Herbert, 186 Cal. App. 2d 276, 8 Cal. Rptr. 817 (1960); Kendall v. Foulks, 

180 Cal. 171, 173-174, 179 P. 866 (1919). A fiduciary’s commingling of partnership 

assets with personal assets raises a presumption of impropriety with respect to the 

commingled sums. See, e.g., Hurst v. Hurst, 1 Ariz. App. 603, 607, 405 P.2d 913, 917 

(1965). Here, Defendant has made numerous self-interested disbursements of the 

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Partnerships’ assets to or on behalf of himself or to his company, Rohan Management, 

that were neither disclosed to, nor approved by, Plaintiff. To prevent any further 

improper disbursements of partnership assets and to ensure an accurate accounting at the 

time of trial, a preliminary injunction is appropriate and necessary. 

C. Plaintiff Is Likely to Succeed on the Merits 

It is likely that Plaintiff will prevail on his claims of accounting and dissolution 

and breach of fiduciary duty in this action. It is a near certainty that the Partnerships will 

be dissolved in this lawsuit, as both Plaintiff and Defendant request this relief. Plaintiff is 

therefore likely succeed on his claim for accounting and dissolution. 

Additionally, Plaintiff is likely to succeed on his claim that Defendant has 

breached his fiduciary duties to the Partnerships. Where a fiduciary commingles 

partnership assets with personal assets, the entire commingled mass is treated as 

partnership property except so far as the fiduciary may be able to distinguish what is 

separately his. Hurst, 1 Ariz. App. at 607, 405 P.2d at 917. Moreover, “absent an 

express agreement, a partner is not entitled to any compensation for his services to the 

partnership other than his share of the profits.” Wind, 186 Cal. App. 2d at 286, 8 Cal. 

Rptr. at 817. Indeed, a partner must fully disclose all material facts relating to 

partnership affairs, and the commingling of partnership property with a partner’s own 

property gives rise to a presumption that the entire commingled mass is partnership 

property. Ohaco Sheep Co., Inc. v. Heirs of Ohaco, 148 Ariz. 142, 145, 713 P.2d 343, 

346 (1986); Hurst, 1 Ariz. App. at 606-07, 405 P.2d at 916-17. There is no express 

agreement in the Partnerships for any compensation to Defendant other than his pro rata 

share of the profits. It is likely that some other agreement for management fees to 

Defendant will be proven, as the partnerships had a course of performance involving such 

payments. But the amount of such payments was changed by Defendant without 

knowledge of Plaintiff. Some substantial part of those payments are likely self-dealing in 

breach of Defendant’s fiduciary duty to the Partnerships. In addition, there has not been 

any fair allocation of the costs of Defendant’s Mercedes to the other properties that he 

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manages. Further, with respect to Rohan’s management fee, there has been double 

payment. Defendant has disbursed the Partnerships’ assets to Rohan through a 7% gross 

management fee in addition to using the Partnerships’ assets to pay Rohan’s expenses. 

Under Arizona partnership law, the authorization or ratification of all partners (or 

a lesser number or percentage only where specified in a partnership agreement, which 

does not exist in this case) is necessary to “authorize or ratify an act or transaction that 

otherwise would violate a fiduciary duty of a partner.” A.R.S. § 29-1034(H). Here, 

Defendant failed to apprise Plaintiff of the self-interested distributions and never obtained 

Plaintiff’s authorization or consent. Accordingly, Plaintiff is likely to succeed on the 

merits of his claim for breach of fiduciary duty. 

D. Plaintiff Will Suffer Irreparable Harm in the Absence of Injunctive 

Relief 

Continued self-dealing by Defendant, through disbursements to himself and 

related persons and entities, will cause irreparable harm to Plaintiff and the Partnerships 

in the absence of injunctive relief. This conduct dissipates the Partnerships’ assets to the 

detriment of an accurate accounting and proper dissolution and wind-up. Defendant is 

also not maintaining records in compliance with IRS standards, which is a grave threat to 

the financial interest of all partners. A preliminary injunction is appropriate to avoid 

irreparable harm to the Partnerships’ assets. 

E. The Balance of Equities Tips in the Plaintiff’s Favor 

The balance of equities tips strongly in favor of issuing a preliminary injunction to 

preserve the status quo in this case. In the context of provisional remedies, such as 

preliminary injunction, the issue in evaluating the balance of hardships raised “is the 

degree of harm that will be suffered by the plaintiff or defendant if the injunction is 

improperly granted or denied.” Scotts Co. v. United Industries Corp., 315 F.3d 264, 284 

(4th Cir. 2002). Here, an injunction should have little adverse impact on Defendant, as it 

would ensure only proper, non-self-interested disbursements of the assets of the 

Partnerships. Conversely, Plaintiff is likely to suffer harm if an injunction is not issued 

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because Defendant would continue to dissipate the Partnerships’ assets pending a final 

resolution. Accordingly, the balance of equities tips strongly in favor of issuing a 

preliminary injunction. 

F. A Preliminary Injunction Is in the Public Interest 

There is public interest in issuing preliminary injunctions to maintain the status 

quo for claims of accounting and dissolution of partnerships. See Wind, 186 Cal. App. 2d 

276, 8 Cal. Rptr. 817. Where an injunction’s reach is narrow and affects only the 

parties—with no impact on nonparties—“the public interest will be at most a neutral 

factor in the analysis rather than one that favors granting or denying the preliminary 

injunction.” Stormans, Inc. v. Selecky, 586 F.3d 1109, 1139 (9th Cir. 2009). The 

injunction in this case would enjoin only Defendant from making self-interested 

disbursements, and thus would not affect third parties. As a result, the public interest is 

either in favor of, or neutral to, enjoining Defendant. 

III. BOND 

A preliminary injunction must be conditioned on the plaintiff posting security “in 

an amount that the court considers proper to pay the costs and damages sustained by any 

party found to have been wrongfully enjoined or restrained.” Fed. R. Civ. P. 65(c). The 

amount of the bond is within the Court's discretion. See Save Our Sonoran, Inc. v. 

Flowers, 408 F.3d 1113, 1126 (9th Cir. 2005). A bond will be required in the amount of 

$5,000.00. 

IT IS THEREFORE ORDERED that Plaintiff’s Motion to Appoint Receiver or, 

Alternatively, for Preliminary Injunction (Doc. 31) is DENIED as to the request for 

appointment of a Receiver and GRANTED as to the request for a Preliminary Injunction. 

IT IS FURTHER ORDERED that Defendant, Pishit Patel, is enjoined during the 

pendency of this litigation, or until further order of this Court, from doing any of the 

following: 

a. Making payments, in any form, to himself or to Rohan or for the 

benefit of himself or Rohan from the funds or deposits of the Partnerships without the 

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express prior written consent of Plaintiff, except for a management fee to Rohan up to 5% 

of gross receipts; 

b. Depositing the receipts of the Partnerships in a new bank account 

other than any account currently maintained or operated by or for the Partnerships; 

c. Paying from the Partnerships’ assets any expenses of Rohan or any 

amounts for wages of persons that are not exclusively working on behalf of the 

Partnerships. 

IT IS FURTHER ORDERED that Defendant maintain the records of the 

Partnerships in accordance with Generally Accepted Accounting Principles and in 

compliance with the standards of the Internal Revenue Service during the pendency of 

this matter or until further order of this Court. 

This preliminary injunction is conditioned upon Plaintiff posting a bond in the 

amount of $5,000.00 pursuant to Federal Rule of Civil Procedure 65(c). 

Dated this 26th day of November, 2012. 

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