596 B.R. 335
Bankr. S.D. Tex.2019Background
- In 2013 NF Clean contracted with Salim Kakal (or his company Mondex) to buy and deliver a 2013 Ford F-150 Raptor; NF Clean pre-paid $84,851.87 (purchase + shipping).
- The truck was stolen in transit to Houston; Kakal later recovered it but sold it to a third party and did not remit proceeds to NF Clean.
- NF Clean sued in Texas state court (breach of contract, fraud, conversion, etc.); Kakal filed bankruptcy and NF Clean then brought an adversary under 11 U.S.C. § 523(a)(2), (4), and (6).
- At an evidentiary hearing the bankruptcy court found Kakal’s debt nondischargeable under § 523(a)(4) (larceny/embezzlement) and § 523(a)(6) (willful and malicious), awarding $54,255.73 in damages.
- Remaining dispute: whether NF Clean may recover its attorney’s fees, and if so whether those fees are nondischargeable under § 523.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| 1) Is NF Clean entitled to attorney's fees at all? | NF Clean: fees allowed under Texas statutory causes of action (Tex. Civ. Prac. & Rem. Code § 38.001 for contract and TTLA for theft). | Kakal: no basis; prepetition fees require a state-court judgment; postpetition fees require a contract authorizing fees. | Court: fees not available under § 38.001 because NF Clean’s successful theory was theft, not contract; fees are available under the TTLA. |
| 2) Do § 38.001 breach-of-contract fees apply to adversary fees here? | NF Clean: § 38.001 allows recovery for an oral contract. | Kakal: adversary prosecuted under § 523, not for breach of contract; § 38.001 is not the basis for nondischargeability. | Court: § 38.001 does not apply because the nondischargeable debt arose from theft/larceny, not breach of contract. |
| 3) Does the Texas Theft Liability Act (TTLA) permit recovery of attorney's fees for NF Clean? | NF Clean: TTLA authorizes fees where plaintiff proves civil theft under Penal Code. | Kakal: implicit denial; argued no statutory basis for fees in this proceeding. | Court: NF Clean met TTLA elements (ownership, unlawful appropriation, damages) and is entitled to attorney's fees under TTLA. |
| 4) If fees are allowed, are they nondischargeable under § 523? | NF Clean: fees should be excepted from discharge because they arise from nondischargeable conduct (theft/larceny). | Kakal: disputed; argued limits on awarding adversary fees and dischargeability. | Court: TTLA fees arise from the same conduct that produced the nondischargeable debt (larceny/embezzlement) and are excepted from discharge under § 523(a)(4). |
Key Cases Cited
- Alyeska Pipeline Serv. Co. v. Wilderness Soc’y, 421 U.S. 240 (1975) (American Rule; fees recoverable only by statute or contract)
- In re Gober, 100 F.3d 1195 (5th Cir.) (when underlying debt is nondischargeable, state-law attorney’s fees in the judgment are likewise nondischargeable)
- In re Luce, 960 F.2d 1277 (5th Cir.) (state statutory or contractual attorney’s fees tied to nondischargeable debt are nondischargeable)
- In re Williams, 337 F.3d 504 (5th Cir.) (§ 523(a)(6) exception for willful and malicious injury; circumstances allowing fees in nondischargeability context)
- Sherali v. S & S Food Corp. (In re Sherali), 490 B.R. 104 (Bankr. N.D. Tex.) (civil theft under TTLA satisfies larceny for § 523(a)(4), supporting nondischargeability of related damages and fees)