Baljinder Sandhu, individually; Glow Hospitality, LLC, a Minnesota Limited Liability Corporation Plaintiffs - Appellants
Jay L. Kanzler, Jr., individually; Witzel, Kanzler & Dimmitt, LLC, a Missouri Limited Liability Corporation Defendants - Appellees
Submitted: March 12, 2019
from United States District Court for the District of
Minnesota - St. Paul
SHEPHERD, ARNOLD, and KOBES, Circuit Judges.
SHEPHERD, CIRCUIT JUDGE.
Sandhu and Glow Hospitality, LLC appeal the district
court'sadverse grant of summary judgment on their
fraud and breach of fiduciary duty claims against attorney
Jay Kanzler and their vicarious liability claims against
Kanzler's employer, Witzel, Kanzler & Dimmitt, LLC
(WKD). Underlying this case is "an extremely complex
factual background and multiple intersecting allegations of
conflicts of interest and other breaches of fiduciary duty. .
. . The Court itself has had . . . difficulty sorting through
the parties' claims . . . ." See Afremov v.
Sulloway & Hollis, P.L.L.C., 922 F.Supp.2d 800,
816-17 (D. Minn. 2013). Having jurisdiction under 28 U.S.C.
§ 1291, we affirm.
the summer of 2007, Shivcharan Singh solicited investment
funds from Baljindar Sandhu in order to purchase and run a
Holiday Inn Express in Bemidji, Minnesota. Sandhu understood
that, in exchange for $300, 000, he would receive a 70%
ownership interest in the hotel, Singh would retain a 15%
interest, and a third investor would also receive a 15%
interest. Pursuant to this agreement, North East Property,
LLC, of which both Sandhu and Singh were members, transferred
$100, 000 to Singh to finance the hotel's purchase and
payment of a franchise fee.
Singh's interactions with Sandhu, Singh began working
with brothers Harkrishan (Harry) and Devindar Khatkar to
participate in acquisition of the hotel. In September 2007,
Singh approached Missouri attorney Jay Kanzler on behalf of
the Khatkars to organize a limited liability company, Glow
Hospitality, LLC, to purchase and operate the hotel. Kanzler
agreed to represent the Khatkars, who retained him on
September 20, 2007. The engagement letter provided
Kanzler's clients were the Khatkars and, once the company
was created, Glow itself, but Kanzler understood that Singh
had authority to act on behalf of the Khatkars and assist in
transactions. The engagement letter made no reference to
Sandhu as either Kanzler's client or a member of Glow,
but Sandhu knew Kanzler had been engaged to create Glow.
filed Glow's articles of organization on October 5, 2007.
The articles listed Harry and Devindar as Glow's sole
organizers. Glow's Operating Agreement, executed that
same day, indicated that Harry and Devindar each held a 50%
ownership interest in Glow. Sandhu received a copy of this
agreement and knew about the ownership interests it
disclosed. Sandhu testified that, in the fall of 2007, he
spoke to Kanzler, Singh, and Harry about his ownership
interests in Glow via conference call, but Kanzler denies
this. Regardless, Sandhu's ownership interest in Glow was
not documented at this time.
December 3, 2007, Singh emailed Kanzler and asked him to
change Glow's division of ownership to 85% for Devindar
and 15% for Harry. Kanzler supplied Singh with a modified
Operating Agreement reflecting this change. Sandhu received a
copy. The next day, Sandhu provided Kanzler with escrow
information regarding the hotel purchase. None of
Sandhu's emails mentioned his purported ownership
interest in Glow. On December 6, North East Property, LLC, of
which both Sandhu and Singh were members, transferred $198,
500 to Glow as the final deposit for the hotel's
closing on the purchase of the Bemidji Holiday Inn Express
occurred on January 10, 2008. Sandhu did not attend and his
signature does not appear on any of the loan
documents. Rather, the lenders understood that Glow
was equally owned by Harry and Devindar. On January 15, 2008,
the Khatkars executed a franchising license agreement with
Holiday Hospitality Franchising, Inc. This agreement
disclosed Harry and Devindar as Glow's sole owners, with
shares of 15% and 85%, respectively. On completion of the
final closing documents, Glow began operating the Bemidji
hotel without further involvement from Kanzler.
November 2008, Kanzler's clients directed him to prepare
an Amended Operating Agreement and related documents
redistributing Glow's ownership interests and indicating
that Harry owned 48% of Glow, Devindar 3%, and Singh 49%.
Kanzler drafted a membership interest assignment and
assumption agreement and an Amended Operating Agreement on
November 4, 2008 and emailed these documents to Singh.
However, Kanzler did not speak directly to Devindar about his
ownership interest reduction, stating that he generally sent
documents to Singh, who would secure the necessary signatures
and send the documents back.
December 2009, Sandhu met with Harry and Singh. He obtained a
handwritten document, signed by the three men, which
indicated Sandhu had invested almost $300, 000 in the Bemidji
hotel in exchange for a 40% ownership interest. Kanzler was
not present at this meeting and Sandhu did not send Kanzler
the document. Glow's 2008 tax return described Glow's
members as Sandhu, Harry, and Ajmer Singh. While Kanzler did
not participate in preparing the return, he did discuss
Sandhu's 40% ownership interest with Harry and Singh at
some point after December 12, 2010.
2010, Singh and Glow were named as defendants in a California
lawsuit unrelated to the Bemidji hotel. Singh signed and
filed a declaration that stated he was neither a member nor
an owner of Glow. He reiterated this statement in a
deposition, stating that the Khatkars were Glow's sole
members. However, Singh later corrected his deposition
testimony to say that he was not a member of Glow in July
2008, but subsequently became one. Harry executed a
declaration in the same lawsuit stating that he and Devindar
were Glow's only members. Kanzler did not participate in
this litigation or in the execution of Singh and Harry's
declarations. In the summer of 2010, Harry filed for
bankruptcy in California. A schedule filed with his
bankruptcy petition claimed a 15% ownership interest in Glow.
Kanzler had no role in and was not informed about Harry's
meeting in September 2010, Sandhu and other investors accused
Harry and Singh of diverting funds away from Glow. Sandhu
testified that he also spoke to Kanzler about his concerns.
After the meeting, Sandhu attempted to gain control of
Glow's deposit accounts in order to prevent Singh and
Harry from diverting funds. First National Bank of Bemidji,
which held the operating account for Glow, became concerned
about the changes, froze the account, and requested opinion
letters from counsel for Glow and Sandhu regarding Glow's
informed Sandhu and Devindar's attorney, Greg Gilbert,
that he believed Harry, Devindar, and Singh owned Glow, and
he provided Gilbert with copies of the 2008 Amended Operating
Agreement and related documents. Kanzler also provided the
bank's president with this documentation and opined-based
on Glow's corporate governance documents, documents
previously executed by Devindar, conversations with his
clients, and Singh and Harry's sworn declarations-that
Singh owned 49% of Glow, Harry 48%, and Devindar 3%. In
addition, Harry faxed a corporate resolution to First
National, which, by unanimous consent, stated that the
Khatkars were Glow's only members, removed Singh and
Sandhu as signators on Glow's bank accounts, and
established Harry as Glow's sole authorized signator for
Glow's First National accounts.
responded that the 2008 amended documents were neither
credible nor reliable and that Glow's ownership was as it
appeared in the December 2007 version of the Operating
Agreement-Harry with 15% and Devindar with 85%. He stated
that he considered Devindar's signatures on the corporate
resolution and the November 2008 documents to be forged and
that Devindar had not received executed copies of the
November 2008 documents until Singh faxed them to him in
attorney opined that Sandhu held an ownership interest in
Glow. The bank deferred to Kanzler, due to his familiarity
with Glow, and determined that the corporate resolution was a
legitimate exercise of Glow's majority owners'
authority. Gilbert then contacted Kanzler, telling him that
Singh and Harry were liars and that Kanzler had "an
affirmative duty to go back to [his] clients and check out
the veracity of their claims and update [his] opinion."
Kanzler did not change his opinion.
November 2010 and January 2011, Glow was declared in default
of its franchise licensing agreement with Holiday Hospitality
Franchising and on one of its loans and delinquent on another
loan. However, Glow cured its licensing agreement default in
February 2011 and entered a forbearance agreement in March
2011 regarding the loan default. It is unclear from the
record whether Glow cured its delinquency on the second loan.
and Devindar filed suit against Glow, Harry, Singh, and GIO
Management, Inc.-a company owned by Singh-on December 12,
2010 in Minnesota state court. Kanzler was not named as a
defendant. In their complaint, Sandhu and Devindar asserted
claims for fraud, breach of contract, and breach of fiduciary
duties, alleging that they had invested over $400, 000 into
Glow in exchange for majority ownership and that Singh and
Harry had illegally distributed corporate funds. They sought
inspection of corporate records, the fair value of membership
interests, and appointment of a receiver.
Minnesota state court defendants initially contacted Kanzler
for assistance with the lawsuit. Kanzler secured local
counsel for them and executed an affidavit detailing his
knowledge of Glow's ownership and solvency. The affidavit
stated that Sandhu had no ownership interest in Glow and that
Kanzler knew of no documentation suggesting otherwise. On
January 4, 2011, the plaintiffs' motion to appoint a
receiver was denied. In August, Kanzler withdrew from
participation because he could be called as a fact witness.