Budgetel owners sue Modesto over $100K fine, claim city violated due process rights

The owners of the Budgetel Inn & Suites — the now-closed McHenry Avenue budget motel that has had trouble with drugs and prostitution but provided lodging for poor people — are suing Modesto, saying the city violated their due process rights when it imposed $100,000 in civil penalties against them.

Attorneys for the Khatri Bros. partnership filed a lawsuit March 28 against Modesto in Stanislaus Superior Court. The partnership wants a judgment stating its rights were violated, damages, attorneys fees, the lifting of the action that resulted in the civil penalties, and more time to address the motel’s “alleged nuisance conditions.”

The Stockton office of the Downey Brand law firm represents the Khatris. Attorneys did not respond to a request for comment, and Neal Khatri, one of the brothers, declined to comment.

Modesto City Attorney Adam Lindgren issued this statement: “Upon initial review, the City Attorney’s office believes it (the lawsuit) significantly misstates both laws and facts. The City Attorney expects to recommend to the City Council that the city actively defend itself, and continue to seek implementation of the Board of Building Appeals recommendations as ordered.”

Modesto officials asked the city’s Board of Building Appeals on Feb. 28 to impose the civil penalties and condemn the property as a public nuisance, which could be fixed through the proper repair of the property. Board members voted in favor of the city’s request.

City spokesman Thomas Reeves said in an email that city officials expect to meet with the Budgetel owners Wednesday to discuss “their intent and provide a schedule of repairs.”

Neal Khatri has claimed that Modesto has unfairly blamed the Khatri Bros. for the Budgetel’s problems. He has blamed the motel operator, United Resorts, which leased the property from the Khatri Bros., adding that as the owner his partnership was limited in what it could do.

But Police Chief Galen Carroll has said the Khatri Bros. refused to work with the city. Between Jan. 1, 2017, and Sept. 6, 2018, the property generated 732 calls for police and other agencies, resulting in arrests for drugs, prostitution and other activity.

A city inspection from last April showed 40 of the motel’s 99 rooms were occupied by long-term guests and six by daily guests. The rest were vacant, being used for storage, or in need of repair. Six rooms could not be checked.

United Resorts filed for Chapter 7 bankruptcy Jan. 25 and closed the motel the next day, leading to chaos as staff tried to force those living there to leave. Some did, but others stayed and continued to live there over several weeks.

Long-term guests told The Bee they had been paying $350 a week or more to live there. Some said they had no choice because evictions, bad credit and other problems had blocked them from renting an apartment.

The Khatri Bros. had been paying people to leave, in some cases as much as $800, according to paperwork filed with the lawsuit, and a family left the last occupied room Wednesday. All of the rooms were boarded up Thursday.

Modesto issued what is called a notice and order to United Resorts and the Khatri Bros. in September, requiring that the Budgetel be brought into compliance with city code. The problems included a lack of building maintenance and bed bugs and cockroaches. The city also wanted a plan that would “discourage all criminal and nuisance behaviors.”

Modesto then issued in December a notice and order over the lack of progress in addressing these issues before going before the Board of Building Appeals in February.

The lawsuit claims that the Khatris relied upon United Resort’s assurances that problems were being addressed and took quick action after the bankruptcy to secure the property, including hiring security guards and boarding up empty rooms.

The lawsuit states that the Khatris did not gain full control of the property until the bankruptcy judge released it to them Feb. 26, which meant that the Khatris had no ability to address the problems raised by the city sooner, and the city violated their due process rights by not giving them a reasonable amount of time.

The lawsuit alleges that the Board of Building Appeals had no interest in what Neal and Johnny Khatri had to say and the board serves as a rubber stamp for what the city wants.

This story was originally published April 11, 2019 at 4:38 PM.