Dr. Dipak Desai, the bankrupt gastroenterologist at the heart of a hepatitis C outbreak, has piled up $2.4 million in legal fees that are cutting deep into the dwindling assets left for his creditors, including the thousands of former patients suing him.
In a written opinion this week, U.S. Bankruptcy Judge Mike Nakagawa said the physician's reported estate at the time of his February 2010 bankruptcy filing appears to have been grossly overvalued at $22.3 million.
An investment firm's review of the biggest chunk of Desai's reported assets, about $18.3 million in stock and real estate holdings, valued at only $945,000, Nakagawa wrote.
The judge, in deciding to convert Desai's Chapter 11 debt reorganization case to a straight Chapter 7 bankruptcy liquidation, said Desai's assets should have been valued closer to $5 million when the case was filed.
After deducting $2.4 million in legal fees incurred in the past year, Desai has roughly $2.6 million in the estate to divvy up among the creditors, Nakagawa added.
Desai, 60, who has suffered two strokes in recent years, is being evaluated at the state mental hospital in Sparks to determine whether he is competent to stand trial on criminal charges stemming from a 2007 hepatitis outbreak at his clinics.
His trial, along with that of two of his former nurse anesthetists, Keith Mathahs and Ronald Lakeman, has been put off until March 12, 2012.
Prosecutors believe Desai's worth is far greater than disclosed in Bankruptcy Court, suggesting he might have hidden a fortune from public view.
Desai was said to have bragged about being worth as much as $200 million before the outbreak.
Nakagawa, however, said in his 11-page opinion that Chapter 7 liquidation is warranted because Desai, who has surrendered his license to practice medicine and is currently locked up at the Lakes Crossing mental facility, has little hope of earning money to pay his creditors.
Had the Chapter 11 reorganization plan been carried out, it would only have generated more administrative costs that benefit the professionals employed in the case rather than Desai's creditors, Nakagawa wrote.
Desai's estate, run by his wife, Kusum, is still likely to rack up more legal fees as the bankruptcy and criminal proceedings involving Desai move forward, the judge wrote.
Bankruptcy Court records filed by Desai's insurance carrier, Nevada Mutual Insurance Company, show that Desai's criminal attorneys at the law firm of Wright Stanish & Winckler have submitted requests to the court for more than $406,699 in legal fees since Desai's indictment last June.
But the vast majority of fees have gone to bankruptcy lawyers.
Desai's lawyers at Nossaman LLP, a national law firm with offices coast to coast, have requested $809,876.
The international law firm of Brown Rudnick LLP, which represents the creditors, has sought $948,181.
Desai spent more than $1 million more on legal fees to defend himself in the massive civil litigation over the hepatitis outbreak prior to filing for debt reorganization in Bankruptcy Court last year.
In court papers seeking to convert the case to Chapter 7, Nevada Mutual lawyers said the mounting legal fees were "rapidly depleting the few remaining assets of the estate."
"The time has come to move this case forward and to a close," the lawyers wrote.
Desai and the two nurse anesthetists face several felony charges, including racketeering, insurance fraud and neglect of patients.
The charges revolve around seven people who authorities say were infected with the potentially deadly hepatitis C virus at Desai's Endoscopy Center of Southern Nevada.
The criminal investigation, which began shortly after health officials disclosed the hepatitis C outbreak in February 2008, was one of the largest by Las Vegas police.
Desai came under scrutiny after the Southern Nevada Health District linked cases of hepatitis C to the endoscopy center.
Officials notified 40,000 former clinic patients about possible exposure to blood-borne diseases because of unsafe injection practices.
More notifications followed for patients of a sister clinic, Desert Shadow Endoscopy Center.
As many as 250 former clinic patients infected with hepatitis have filed medical malpractice lawsuits. Thousands more have sued over the stress of having to be tested for hepatitis C.
Contact Jeff German at firstname.lastname@example.org or 702-380-8135.