Jagmohan Dhillon, the Texas-based operator behind several Bay Area budget hotels, has turned to Chapter 11 to stall a looming foreclosure and keep a pair of San Jose motels running. The dual-branded complex, a Motel 6 and a Super 8 by Wyndham, has been tangled in loan defaults and contested lender moves for months, spawning depositions, court motions and now a court-appointed trustee watching over the case.
As reported by The Mercury News, the property at 2560 Fontaine Road in east San Jose has roughly 204 rooms and fell behind on a $21.7 million loan that Choice Hotels made in 2024. In bankruptcy filings, the owner told the court the hotels are worth about $17 million including furniture and equipment, a valuation that now sits at the center of the dispute.
Choice Hotels Pushes for a Takeover Trustee
Choice Hotels asked the court to sideline Dhillon and install a trustee, accusing the current ownership of mismanagement and keeping unreliable books and records, according to BKAlerts. Exhibits attached to that motion include deposition transcripts where Dhillon acknowledged multiple prior bankruptcies, a history that creditors pointed to as a reason the estates need an independent referee.
Judge Installs Trustee as Owner Floats Plan
Court dockets show the U.S. Trustee selected Behrooz P. Vida and that a bankruptcy judge entered an order appointing a trustee on Jan. 23, according to Inforuptcy. By that point, the debtor had already filed a Chapter 11 plan and a disclosure statement in January, paperwork that also pegged the property value near $17 million and briefly nudged the case toward a plan-confirmation schedule.
Part of a Wider Bay Area Budget Hotel Slump
The fight is unfolding against a backdrop of hotel loan trouble across the Bay Area as higher interest rates and softer demand squeeze operators and small owners. Coverage of the market has charted similar cracks, including a Super 8 in Livermore that defaulted on a roughly $7.7 million loan and went into bankruptcy, highlighting how budget-oriented lodging is feeling the strain, as noted by The Real Deal.
What Comes Next for the San Jose Motels
The debtor pulled back its disclosure statement on Wednesday, while the trustee has started the routine early work of hiring counsel and beginning to administer the estate, according to the public docket. Creditors face claim deadlines, and the trustee’s opening moves, including retaining lawyers and reviewing day-to-day operations, will help determine whether the hotels are restructured, sold or ultimately turned over to Choice Hotels. For now, anyone following the drama has to watch the bankruptcy docket, where each new filing hints at which way the case might break.
Legal Stakes of a Trustee Takeover
The appointment of a trustee under Section 1104 is a big step in any Chapter 11 case. It hands an independent manager the power to run assets or pursue a sale and signals that the court found sufficient cause to remove control from the debtor. Federal rules require the trustee to disclose connections and generally allow this kind of appointment only after notice and a hearing, a process that can speed up either an investigation into past management or a push for a sale. The statute authorizing such appointments is 11 U.S.C. § 1104, which is available through Cornell Law School.
