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The following constitutes the ruling of the court and has the force and effect therein described.

Signed March 26, 2021 __ feet A So

United States Bankruptcy Judge

IN THE UNITED STATES BANKRUPTCY COURT

FOR THE NORTHERN DISTRICT OF TEXAS

AMARILLO DIVISION

IN RE: §

§

KRISU HOSPITALITY, LLC, § CASE NO. 19-20347-rlj11

§

Debtor. §

MEMORANDUM OPINION

Prior to filing this chapter 11 case, the debtor, Krisu Hospitality, LLC (Krisu), obtained a

default judgment against Mukesh Bhakta (Bhakta) in Texas state court in the amount of

$3,185,883.17. Bhakta appealed the default judgment to the Amarillo Court of Appeals but

never posted a supersedeas bond to stay collection of the judgment. Krisu was then free to

collect on the money judgment and did so. While the case was on appeal, Krisu collected at least

$120,496.86 in cash and goods (consisting of gold and jewelry) from Bhakta. The state appellate

court ultimately reversed the default judgment and remanded the action back to the trial court

where it is still pending. Bhakta contends that Krisu must pay back what it collected and is

asking that he be allowed an administrative claim under§ 503(b)(1)(A) for the amount

collected.1 Both Krisu and Centennial Bank, a secured creditor, filed objections to Bhakta’s

request. For the reasons stated below, the Court denies Krisu’s request.

The Court has jurisdiction of this action under 28 U.S.C. §§ 1334(b) and 157(b)(2)(B).

I.

The basis of the state court action is a construction contract dispute between Krisu and

Bhakta.2 Krisu contracted with Bhakta (and his business M&L Builders) in September of 2014

to construct a La Quinta Inn and Suites within 365 days for $4,010,152.00. According to Krisu,

the construction was deficient and caused property damage that cost Krisu an additional

$1,900,554.00 to remedy. The hotel was not completed until December of 2016. Krisu allegedly

made demand on M&L Builders in May of 2017 that was unanswered. Thereafter, Krisu filed

suit in July 2017 for breach of contract; negligence; negligent hiring, supervision, and retention;

and breach of implied warranty of good and workmanlike services. In August 2017, Krisu filed

a motion for a default judgment, which was granted the next week after the state court conducted

an evidentiary hearing. In November 2017, Bhakta filed a notice of appeal but did nothing to

stay collection of the judgment; four days later, Krisu collected $83,954.86 from an account

owned by Bhakta under an agreed garnishment order issued by the state court. A few months

after that, Krisu collected jewelry, gold, and cash from Bhakta’s safety deposit box at

Community Bank.

Krisu filed chapter 11 bankruptcy on November 4, 2019, and is the debtor-in-possession

operating the hotel. On November 20, 2019, the Amarillo Court of Appeals reversed the default

1 All § references refer to 11 U.S.C. unless otherwise stated.

2 The suit was actually against Bhakta and his company M&L Builders. Bhakta and M&L Builders were found to be

jointly and severally liable on the judgment. M&L Builders filed chapter 7 bankruptcy in February of 2018.

According to M&L Builders’ Statement of Financial Affairs, Bhakta was the president of the company and owned

50% of the company. On May 1, 2018, the Amarillo Court of Appeals severed the appeal upon Bhakta’s motion. The

default judgment reversal was to Bhakta only, and presumably M&L Builders has no assets to collect for the judgment.

judgment against Bhakta for insufficient service and remanded the case back to the trial court.

On July 22, 2020, the clerk of the Amarillo Court of Appeals issued a mandate in accordance

with the judgment pursuant to Texas Rule of Appellate Procedure 18.1, which officially sent the

case back to the trial court.

Bhakta filed his application for administrative expense on October 26, 2020, for the

monies Krisu collected during the pending appeal. Bhakta claims that once the Amarillo Court

of Appeals’ mandate was issued, Krisu was required, under the doctrine of restitution, to

immediately pay to Bhakta all the monies it had previously collected in partial satisfaction of the

default judgment. Krisu has not paid the monies and is, according to Bhakta, therefore

wrongfully retaining money belonging to Bhakta and is liable to Bhakta in tort for money had

and received, as well as conversion of the gold and jewelry collected. Because the reversal

happened after Krisu filed bankruptcy, Bhakta says that these are post-petition torts committed

by the debtor that create an administrative expense in his favor under § 503(b)(1)(A). Bhakta

emphasizes that Krisu committed such torts by retaining the collected funds and property as the

debtor-in-possession.3 Last, Bhakta states that the claims are administrative expenses based on

the torts-exception to the benefit-of-the-estate requirement, under the Reading4 exception that

allows post-petition torts to qualify as administrative expense claims under § 503(b)(1)(A).

Krisu and Centennial Bank both filed objections to the application. Krisu objects to the

claim because the underlying payments are for pre-petition claims that are (i) still pending, (ii)

for construction services Bhakta was contractually obligated to perform, and (iii) not actual or

necessary costs to preserve the debtor’s estate. Additionally, Krisu says that Bhakta has not

established the elements for money had and received or conversion. Last, Krisu also asserts an

3 Bhakta emphatically says that the money is “due NOW.” ECF No. 91 ¶ 1 (all caps in original).

4 Reading Co. v. Brown, 391 U.S. 471, 485 (1968).

affirmative defense, claiming that a Rule 11 agreement between Krisu and Bhakta establishes

that the collected monies were a voluntary payment.5 Centennial Bank argues that Bhakta does

not have an administrative claim because the claim is based on pre-petition conduct and has not

matured since the merits underlying the state court action are still pending.

II.

A. Restitution Claim

Restitution is a remedy for an unjust enrichment claim where “[a] person who is unjustly

enriched at the expense of another is subject to liability in restitution.” Restatement (Third) of

Restitution and Unjust Enrichment § 1 (Am. L. Inst. 2011); see also Developments in the Law—

Unjust Enrichment: Introduction, 133 Harv. L. Rev. 2062, 2062 (2020). Many times, restitution

is used to remedy or recover a benefit conferred by a judgment that is subsequently set aside. A

judgment debtor’s entitlement to restitution is only as much “as necessary to avoid unjust

enrichment.” Restatement (Third) of Restitution § 18 cmt. e (Am. L. Inst. 2011); see also Miga

v. Jensen, 299 S.W.3d 98, 105 (Tex. 2009) (“Restitution is rooted in principles of unjust

enrichment.”).

In Texas, “[r]estitution after reversal has long been the rule.” Miga v. Jensen, 299

S.W.3d at 101; see also Cleveland v. Tufts, 69 Tex. 580, 583 (1888) (“It is settled that money

paid upon a judgment afterwards reversed may be recovered by the party making the payment.”).

“When a judgment is reversed, the prevailing party is entitled to restitution of any sum that it

paid in satisfaction of the judgment.” J & J Container Mfg., Inc. v. Cintas-R U.S., L.P., 516

S.W.3d 635, 638 (Tex. App.—Houston [1st Dist.] 2017, no pet.); see also Bank of U.S. v. Bank

5 Voluntary payment is a defense recognized under Texas law that is likely unenforceable here because the Rule 11

agreement wasn’t filed in the state court. Regardless, the Court, by denying Bhakta’s request for an administrative

claim for the reasons stated, need not further address this defense.

of Wash., 31 U.S. 8, 17 (1832) (“On the reversal of the judgment, the law raises an obligation in

the party to the record, who has received the benefit of the erroneous judgment, to make

restitution to the other party for what he lost.”). If the party that collected money during the

pendency of appeal does not return it after reversal, the prevailing appellant may seek judicial

assistance for the money’s return through restitution. Salgo v. Hoffman, 521 S.W.2d 922, 925

(Tex. Civ. App.—Dallas 1975, no writ). Restitution may be judicially determined after an

evidentiary hearing establishing with certainty what was lost. Outdoor Sys., Inc. v. BBE, L.L.C.,

105 S.W.3d 66, 75 (Tex. App.—Eastland 2003, pet. denied). Such judicial determination does

not have to be brought in a separate action but may be adjudicated in the same suit. Id. The

court’s power to enforce restitution is “equitable in nature” and therefore “restitution pursuant to

this power is a matter of equity rather than a matter of right.” In re Deepwater Horizon, 845

F.3d 634, 638 (5th Cir. 2017) (citing Atlantic Coast Line R. Co. v. Florida, 295 U.S. 301, 310

(1935); Mohamed v. Kerr, 91 F.3d 1124, 1126 (8th Cir. 1996)).

Texas courts have not clearly established whether restitution is absolute after reversal and

remand when the merits of the case have yet to be decided. See Peticolas v. Carpenter, 53 Tex.

23, 29 (1880) (“Where a judgment for debt is reversed after it has been enforced by execution,

and the case is finally decided in favor of defendant, he is certainly entitled to restitution.”). One

case, though, suggests that restitution may be appropriate even when the merits are still pending.

The Texas Supreme Court determined that a defendant was entitled to restitution for property

seized by the plaintiff. The plaintiff seized the property based on a default judgment that was

entered against the defendant. The defendant appealed the default judgment but did not post a

supersedeas bond. The court of appeals reversed the default judgment for improper service. The

underlying merits of the case were still being litigated when the defendant requested restitution

of the property seized; the Texas Supreme Court determined that the defendant was entitled to

recover the property where the judgment had been reversed. In re Disc. Rental, Inc., 216 S.W.3d

831, 832 (Tex. 2007) (defendant asked for return of property under § 34.021 of the Texas Civil

Practice and Remedies Code, which states “A person is entitled to recover his property that has

been seized through execution of a writ issued by a court if the judgment on which execution is

issued is reversed or set aside and the property has not been sold at execution”).

The Restatement on Restitution, however, suggests that restitution may be delayed when

the underlying merits have not yet been decided, to avoid “a circuity of action.” Restatement

(Third) of Restitution and Unjust Enrichment § 18 cmt. e (2011) (“In some circumstances—as

where a case has been remanded for retrial, and the trial court perceives a likelihood that the

original judgment will be at least substantially reinstated—the court might reasonably defer the

question of restitution pending further consideration of the merits of the dispute, simply to avoid

a circuity of action.”).

B. Administrative Expense Claim Under the Bankruptcy Code

In bankruptcy, administrative expenses are given priority over most unsecured claims in

the distribution of estate assets. See § 507(a)(2). These administrative expenses include the

actual and necessary costs of preserving the estate. See § 503(b)(1)(A). “[T]o qualify as an

‘actual and necessary cost’ under section 503(b)(1)(A), a claim against the estate must have

arisen post-petition and as a result of actions taken by the trustee [or debtor-in-possession] that

benefitted the estate.” In re Jack/Wade Drilling, Inc., 258 F.3d 385, 387 (5th Cir. 2001); see also

Toma Steel Supply, Inc. v. TransAmerican Nat. Gas Corp. (In re TransAmerican Nat. Gas

Corp.), 978 F.2d 1409, 1416 (5th Cir. 1992) (“A prima facie case under § 503(b)(1) may be

established by evidence that (1) the claim arises from a transaction with the debtor-in-possession;

and (2) the goods or services supplied enhanced the ability of the debtor-in-possession’s business

to function as a going concern.”).

The requirement that an expense arise post-petition, and therefore from actions taken by

the debtor-in-possession, is tied to the purpose of § 503(b)(1)(A), which “is designed to address a

specific business problem.” In re Whistler Energy II, L.L.C., 931 F.3d 432, 441 (5th Cir. 2019).

The problem is that third parties may refuse to extend credit or engage in business with the

debtor out of fear of not getting paid. Section 503 alleviates this problem by encouraging “third

parties to provide necessary goods and services to the debtor-in-possession so that it can continue

to conduct its business, thus generating funds from which prepetition creditors can be paid.” In

re TransAmerican Nat. Gas Corp., 978 F.2d at 1420. “This incentive is not required, however,

when the relevant obligation pre-dates the bankruptcy or when the debtor-in-possession does not

want or need the services at issue.” In re Whistler Energy II, L.L.C., 931 F.3d at 442. An

administrative claim, therefore, “must have arisen from a transaction with the debtor in

possession,” as opposed to a pre-petition debtor. In re Phones for All, Inc., 288 F.3d 730, 732

(5th Cir. 2002) (quoting In re Com. Fin. Servs., Inc., 246 F.3d 1291, 1294 (10th Cir. 2001)).

The second requirement, benefit to the estate, is the courts’ way of testing whether a

particular expense was “necessary” to the estate. See In re H.L.S. Energy Co., Inc., 151 F.3d

434, 437 (5th Cir. 1998). One exception to the benefit requirement is torts committed by the

trustee or debtor-in-possession while operating the business. Reading Co. v. Brown, 391 U.S.

471, 485 (1968). This is commonly known as the Reading exception. The Reading exception is

an “exception to the requirement that there be an actual benefit to the estate before a claim can

be accorded administrative priority [when] torts [are] committed by the trustee or debtor-in-

possession during the course of a chapter 11 proceeding.” In re ATP Oil & Gas Corp., No. 12-

36187, 2014 WL 1047818, at *9 (Bankr. S.D. Tex. Mar. 18, 2014) (emphasis in original)

(citations omitted). The policy behind the exception is “that it simply is not fair to deny innocent

victims compensation for injuries they would not have incurred had the law not allowed the

debtor to continue operating its business.” Pa. Dep’t of Env’t Res. v. Tri-State Clinical Labs.,

Inc., 178 F.3d 685, 691 (3d Cir. 1999).

Generally, when a tort is committed post-petition, the two important factors in

determining whether a claimant qualifies for the Reading exception in the Fifth Circuit are: (1)

the wrongful nature of the trustee’s, or debtor-in-possession’s, act; and (2) whether the act was

committed in the course of operating the debtor’s business. In re Jack/Wade Drilling, Inc., 258

F.3d at 390; see also In re Dahlgren Int’l, Inc., 147 B.R. 393, 402 (N.D. Tex. 1992) (“damages

for claims that arise during, and are caused by, the reorganized operation of a debtor’s business

—although not ultimately serving to preserve the estate—also have been held to satisfy section

503(b)(1)(A) on grounds that they are necessary costs and expenses of the estate”); In re Brooke

Corp., 485 B.R. 650, 659 (Bankr. D. Kan. 2013) (“the scope of § 503(b)(1)(A) is expanded to

encompass tort claims arising from postpetition conduct undertaken in the operation of the

estate’s business”).

“The claimant bears the burden of proving by a preponderance of the evidence that

its claim qualifies as an administrative expense.” In re Acis Cap. Mgmt., L.P., 604 B.R. 484, 517

(N.D. Tex. 2019) (citation omitted).

III.

A. Post-Petition Claim and the Debtor-in-Possession

To be an administrative claim, the transaction must have occurred post-petition. This is

also true, as observed by circuit courts, when the “transaction” is a tort. See In re Brooke Corp.,

485 B.R. at 658 (citing In re CF & I Fabricators of Utah, Inc., 150 F.3d 1293, 1298 (10th Cir.

1998)); Woburn Assoc. v. Kahn (In re Hemingway Transp., Inc.), 954 F.2d 1, 6 (1st Cir. 1992)

(emphasized that the basis of the suit was from pre-petition conduct and that post-petition

operation of the business did not cause the claim to arise and therefore could not be an

administrative expense claim); Pension Benefit Guar. Corp. v. Sunarhauserman, Inc. (In re

Sunarhauserman, Inc.), 126 F.3d 811, 817 (6th Cir. 1997) (cases following Reading exception

still require “that the liability at issue arise post-petition”); In re Jartran, Inc., 732 F.2d 584,

588–90 (7th Cir. 1984) (same); In re Abercrombie, 139 F.3d 755, 758 (9th Cir. 1998) (same).

To determine whether a transaction or tort took place pre- or post-petition, a majority of

courts look to “when the acts giving rise to a liability took place, not when they accrued.” In re

Sunarhauserman, Inc., 126 F.3d at 818 (“regardless of the substantive law on which the claim is

based, the proper standard for determining that claim’s administrative priority looks to when the

acts giving rise to a liability took place, not when they accrued”); see also In re Com. Fin. Servs.,

Inc., 246 F.3d 1291, 1295 (10th Cir. 2001) (to determine administrative priority, courts look to

“when the acts giving rise to a liability took place, not when they accrued”) (quotation omitted);

In re Pan Am. Hosp. Corp., 364 B.R. 839, 843–44 (Bankr. S.D. Fla. 2007) (stating that the time

when the act giving rise to the claim was performed determines if a claim arose pre- or post-

petition); In re McCormick, No. 06-80976, 2007 WL 1792509, at *2 (Bankr. M.D.N.C. June 18,

2007) (“This means that the actual acts giving rise to an estate’s liability for expenses must occur

post-petition—it is not enough that liability accrues post-petition.”); In re M Grp., Inc., 268 B.R.

896, 901 (Bankr. D. Del. 2001) (same).

Examination of when a liability arises—and not when the claim accrues—follows the

statutory policy of encouraging third parties to engage in business with a debtor. For example,

where a debtor enters into a contract pre-petition but payment on the contract does not accrue

until post-petition, such claim is a pre-petition claim and thus does not qualify for administrative

priority treatment. See 4 Collier on Bankruptcy ¶ 503.06[3]; see also In re Jartran, Inc., 732

F.2d at 587–88. This supports the business-problem policy because a transaction or act taken

pre-petition that gives rise to liability does not induce anyone to do business with the debtor post-

petition where the post-petition claim accrual is based on pre-petition conduct.6

For example, a case from the Ninth Circuit found that even where a debtor engaged in

misconduct post-petition, the claim associated with the misconduct was connected to a pre-

petition fraud claim and thus was not allowed as an administrative claim under § 503. Kadjevich

v. Kadjevich (In re Kadjevich), 220 F.3d 1016 (9th Cir. 2000). In In re Kadjevich, a creditor

filed an administrative claim application for attorney’s fees awarded to him by a state court post-

petition. The creditor had brought a fraud action against the debtor in state court pre-petition that

was ultimately resolved by a settlement. The debtor breached the settlement post-petition, and

the state court awarded attorney’s fees to the creditor for the breach. The Ninth Circuit

determined that the fee award resulted from a pre-petition tort claim, and the fact that the debtor

did not engage in the misconduct that caused the fees to be awarded until after he filed

bankruptcy did not change the fundamental pre-petition nature of the fraud action and of the total

resulting judgment. See also In re Specialized Clutch & Brake of Stockton, Inc., No. 05-cv-

01141, 2006 WL 8462187, at *3 (E.D. Cal. Apr. 13, 2006) (“regardless of their timing or nature,

6 In re Jack/Wade Drilling, Inc., though, suggests that the Fifth Circuit does not accept such a bright line rule that

claims that accrue post-petition based on pre-petition conduct are considered pre-petition claims. In that case, the

chapter 7 trustee brought an adversary proceeding against the claimant for breach of contract. The trustee lost the suit,

and the court awarded attorneys’ fees to the claimant based on the pre-petition contract. The Fifth Circuit stated that

they wanted to avoid placing a fictitious label on the award as pre-petition since the claimant did not have damages or

rights to damages until the trustee brought the suit and lost. In re Jack/Wade Drilling, Inc., 258 F.3d at 389 n.3. This

is a distinction recognized by a few other courts where a debtor or trustee brings a frivolous suit or continues

prosecution of a frivolous suit post-petition. This distinction, though, does not apply to this case at this time.

all of the awards resulted from the same suit (filed pre-petition) and therefore, all arose pre-

petition”) (emphasis in original).

Bhakta has not proved by a preponderance of the evidence that the claimed expense arose

post-petition. While the alleged right to restitution did not accrue until the Amarillo Court of

Appeals issued its mandate after the petition date, the restitution claim is based on the collection

of money and personal items that occurred pre-petition, by the pre-petition debtor, and relates to

pre-petition state court litigation. The acts underlying the liability for restitution are Krisu’s pre-

petition collection efforts. The assorted tort claims that are related to the restitution claim are

also inextricable based on Krisu’s pre-petition collection efforts and the pre-petition state court

litigation. Although the alleged right to restitution and subsequent torts became actionable post-

petition, the accrual date does not fundamentally change the pre-petition nature of the claim.

Bhakta’s application for administrative expense fails because his restitution claim and

tort claims are for pre-petition actions.

B. Benefitted the Estate/Reading Exception

Even if the Court were to determine that the claim took place post-petition, Bhakta’s

administrative claim application still fails because it does not fit within the Reading exception.

Bhakta asserts that the restitution claim “benefits” the estate and should be granted priority based

on the tort exception created under the Supreme Court’s Reading decision. The Reading

exception has been adopted by the Fifth Circuit. See, e.g., In re Al Copeland Enters., Inc., 991

F.2d 233, 239 (5th Cir. 1993) (Reading survived amendments to the Code); In re Broughton Ltd.

P'ship, 474 B.R. 206, 217 (Bankr. N.D. Tex. 2012) (“It has been black letter law since the

Supreme Court rendered its decision in Reading Co. v. Brown, 391 U.S. 471, 478, 88 S.Ct. 1759,

20 L.Ed.2d 751 (1968), that torts committed by an estate representative in the course of

performing his, her or its duties give rise to claims entitled to administrative priority.”).

The two Reading factors require the Court to determine whether 1) Krisu acted

wrongfully, and 2) whether “the act was committed in the course of operating the debtor’s

business so as to improve the position of existing creditors.” See In re Willow Bend Ventures,

LLC, No. 17-11178, 2019 WL 2252498, at *6 (Bankr. E.D. La. May 24, 2019) (quoting In re

Jack/Wade Drilling, Inc., 258 F.3d at 390).

To determine whether a tort under the Reading exception may be an administrative

expense, many courts focus on whether the tort occurred during the operation of the debtor’s

business post-petition. See In re GT Advanced Techs., Inc., 547 B.R. 3, 12–13 (Bankr. D.N.H.

2016); In re Corbett, 550 B.R. 170, 185 (Bankr. D. Mass. 2016); In re Energy Conversion

Devices, Inc., 528 B.R. 697, 709 (Bankr. E.D. Mich. 2015) (“Courts applying the Reading

doctrine have limited administrative expense priority to claims arising from the bankruptcy

debtor’s operation of its business. . . . [Creditor’s] claim does not arise from the debtor in

possession[’s] operation of its business after filing bankruptcy.”); In re RadLAX Gateway Hotel,

LLC, 447 B.R. 570, 576–77 (Bankr. N.D. Ill. 2011); In re Old Carco LLC, No. 09-cv-50002,

2010 WL 4455648, at *4 (S.D.N.Y. Nov. 2, 2010) (stating that under Reading, a claim may be

an administrative expense if the expense is “ordinarily incident to operation of a business”);

Suntrust Bank v. Roberson (In re Baseline Sports, Inc.), 393 B.R. 105, 130 (Bankr. E.D. Va.

2008) (“[P]ost-petition torts committed by the debtor-in-possession while acting in the

furtherance of the operation of the business satisfy the second or ‘burden’ prong of the

administrative expense test, and claims for such torts may be accorded priority as an

administrative expense.”); In re Unidigital, Inc., 262 B.R. 283, 290 (Bankr. D. Del. 2001)

(denying administrative claim where tort, if there even was one, did not arise from the operation

of the debtor’s business). This is because the “Reading exception provides that a post-petition

tort committed by the debtor-in-possession within the course and scope of its continued

operation of the estate’s business may, itself, be considered a cost of doing business and is,

therefore, entitled to administrative expense priority under § 503(b)(1)(A).” In re Blanchard,

547 B.R. 347, 353 (Bankr. C.D. Cal. 2016).

The alleged wrong here was not committed in the course of Krisu’s hotel operations.

Krisu’s retention of the collected money, if it is a tort, is within the context of the pre-petition

state court litigation that remains ongoing; it does not arise from Krisu’s operation of its business

after filing for bankruptcy.

C. Money Had and Received and Conversion

Bhakta also fails to establish the torts supporting the administrative claim application. He

first asserts that money had and received is a tort action. An action for money had and received

is an equitable remedy and not considered a tort. See, e.g., Bank of Saipan v. CNG Fin. Corp.,

380 F.3d 836, 840 (5th Cir. 2004) (“Money had and received is an equitable doctrine applied to

prevent unjust enrichment”); Best Buy Co. v. Barrera, 248 S.W.3d 160, 162 (Tex. 2007) (“A

claim for ‘money had and received’ is equitable in nature.”); Mayers v. Addison Brown, LLC,

No. 19-cv-3043, 2020 WL 7646973, at *4 (N.D. Tex. Dec. 22, 2020) (“A money-had-and-

received claim is an equitable doctrine applied to prevent unjust enrichment. . . . [it] is not

premised on wrongdoing, but instead looks to whether a defendant has received money that

rightfully belongs to another.”). A money had and received claim is not a tort action that invokes

the Reading exception.7

7 There are other unresolved issues with this claim. The Fifth Circuit recently acknowledged a dispute in Texas where

“courts are divided on whether unjust enrichment is recognized as an independent cause of action or is merely

As for conversion, Bhakta has not alleged facts sufficient to establish the elements of

conversion. Bhakta’s brief provides the elements of conversion. “To succeed on a conversion

claim under Texas law, the plaintiff must prove that ‘(1) he legally possessed the property or was

entitled to it; (2) the defendant wrongfully exercised dominion and control over the property,

excluding the plaintiff; (3) the plaintiff demanded the property’s return; and (4) the defendant

refused.’” U.S. v. Boardwalk Motor Sports, Ltd., 692 F.3d 378, 381 (5th Cir. 2012) (many courts

also require that a plaintiff prove injury). “Conversion generally takes place only after refusal of

a demand for return of the property, and only extraordinary circumstances excuse the need for a

demand.” In re TXNB Internal Case, 483 F.3d 292, 307 (5th Cir. 2007); see also Guillory v.

Dietrich, 598 S.W.3d 284, 294 (Tex. App.—Dallas 2020, pet. denied) (stating that where a

person initially acquires possession of the property lawfully, “ordinarily, a demand and refusal

are required to establish conversion”). Bhakta has not alleged demand for the property’s return

or provided an excuse for not making such demand; he states that filing the application was the

demand. Without such allegations, the Court cannot find conversion to support an administrative

expense application.8

D. “Actual” Expense

Section 503(b)(1)(A) requires that an expense be “actual” in order to qualify for

administrative priority. While there are few cases on the “actual”-expense requirement, courts

have determined that there cannot be an administrative claim for a contingent expense. In re

Corbett, 550 B.R. at 187 (contingent damage expenses that depended on outcome of pending

recognized as a quasi-contractual theory of recovery.” Matter of Okedokun, 968 F.3d 378, 391 (5th Cir. 2020)

(discussing money had and received claim). The court goes on to state that “a plaintiff can only recover [for unjust

enrichment claim/money had and received] when ‘one person has obtained a benefit from another by fraud, duress, or

the taking of an undue advantage.’” Id. (quoting Heldenfels Bros. v. City of Corpus Christi, 832 S.W.2d 39, 41 (Tex.

1992)).

8 This claim also depends on whether or not Bhakta is entitled to restitution. If not, or not at this time, then there is

no wrongful exercise of control over the property to support a conversion claim.

litigation was not an “actual” expense entitled to administrative priority); In re Rock & Republic

Enters., No. 10-11728, 2011 WL 4756571, at *5 (Bankr. S.D.N.Y. Oct. 7, 2011); In re Oldco M

Corp., 438 B.R. 775, 786 (Bankr. S.D.N.Y. 2010); In re HNRC Dissolution Co., 371 B.R. 210,

225 (E.D. Ky. 2007), aff'd, 536 F.3d 683 (6th Cir. 2008) (claimed expenses were not “actual”

because they had not been realized yet).

Bhakta’s asserted administrative expense is not for an “actual” expense. The merits of

Krisu’s lawsuit against Bhakta are still being litigated in state court. If Krisu is successful,

Bhakta will be liable for more than the collected amount, even if only five percent of the alleged

damages are awarded. If Krisu is not successful, there is no doubt that Bhakta would have a

claim for return of the collected money and property. But these claims are contingent upon

future court determinations. Bhakta’s claim is unfit for priority designation at this time. Such

uncertain future determinations make it impossible to find that Bhakta’s claim is an “actual”

expense to the bankruptcy estate.

IV.

The Court denies Bhakta’s administrative expense application. The claimed expense is

for alleged torts that are pre-petition in nature and were not committed within the scope of

operating Krisu’s business. Bhakta failed to prove the alleged torts, and the alleged claim is not

an actual expense.

### End of Memorandum Opinion ###