Pdvsa Petroleo S.A. v. Trigeant, Ltd.

Decision Date03 December 2012
Docket NumberCIVIL CASE NO. 2:09-cv-00038
CourtU.S. District Court — Southern District of Texas

In relevant part, PDVSA Petroleo S.A. (PDVSA) brought suit against Trigeant, Ltd. (Trigeant), BTB Refining, LLC (BTB), and Harry Sargeant, III (Sargeant) pursuant to diversity jurisdiction. (D.E. 120.) After a bench trial, PDVSA obtained findings of fact and conclusions of law against Trigeant and BTB that transfer of the subject asphalt refinery constituted actual and constructive fraud under the Texas Uniform Fraudulent Transfer Act (TUFTA). PDVSA requested attorney fees under TUFTA in its pleading and that request was deferred. (D.E. 120, pp. 3, 18; D.E. 239, p. 22.) Now before the Court is PDVSA's Motion for Attorney Fees (D.E. 242.) For the reasons set forth below, the motion is DENIED.

A. Federal Law Precludes "Procedural" Attorney Fees.

BTB has challenged PDVSA's request for attorney fees based upon the Court's diversity jurisdiction and federal law.1 (D.E. 254.) According to the argument, even though the award of attorney fees is requested under a substantive statute (TUFTA § 24.013), such a request isactually a "procedural" matter. Under Erie R.R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817 (1938), all such procedural matters are governed by federal law when the Court sits in diversity jurisdiction and there is a conflict between the state and federal law. The conflicting federal law is the "American Rule" by which litigants pay their own attorney fees and there is no fee-shifting absent applicable contractual or statutory provisions or well-defined exceptional circumstances. Chambers v. NASCO, Inc., 501 U.S. 32, 45-46, 111 S.Ct. 2123, 2133 (1991).2

One such exceptional circumstance is where there is bad faith, vexatious, wanton, or oppressive conduct by the party charged. Id. While it is not uncommon for a fraud case to involve conduct that could be said to fall within those categories, that "bad faith" exception has been held to be limited to conduct that takes place in the course of the subject litigation rather than in the conduct that triggered the claims in the first case. Sanchez v. Rowe, 870 F.2d 291, 295 (5th Cir. 1989); see also North Star Alaska Housing Corp. v. U.S., 85 Fed. Cl. 241, 245 (Fed. Cl. 2009) (collecting cases). Therefore, that exception does not apply here. No party has been found to have litigated this case in bad faith. Rather, the conduct with respect to the fraudulent transfer of the refinery was intentional or in bad faith.

The issue is whether the request for attorney fees arising under TUFTA is a "procedural" request.

B. TUFTA § 24.013 Supports Only a "Procedural" Request.

Where attorney fees are a component of available substantive relief for a prevailing party, those fees are typically granted. See, e.g., Chambers, 501 U.S. at 52, 111 S.Ct. at 2137 (citing Sioux County v. Nat'l Surety Co., 276 U.S. 238, 48 S.Ct. 239 (1928) (statute provided forrecovery of attorney fees for the prevailing party as a substantive right to damages)). PDVSA contends that it is entitled to attorney fees under § 24.013 of TUFTA, which reads, "In any proceeding under this chapter, the court may award costs and reasonable attorney's fees as are equitable and just." The parties have not cited, and the Court has not found, any case in which this particular attorney fee provision has been construed as substantive or procedural under an Erie analysis.

Instead, BTB invokes the holdings in cases that address the nearly identical attorney fee provision of the Texas Declaratory Judgment Act (TDJA). In Camacho v. Texas Workforce Comm'n, 445 F.3d 407 (5th Cir. 2006) and Utica Lloyd's of Texas v. Mitchell, 138 F.3d 208, 210 (5th Cir. 1998), the Fifth Circuit held that the fee-shifting provision of the TDJA was procedural because (1) the entire Act had been held to be procedural (in that it supplies a procedure for obtaining relief when the entitlement to relief is defined by other law); and (2) the fee-shifting provision is not necessarily tied to the outcome of the litigation. Because of the wide discretion the TDJA gives the trial judge in shifting fees in favor of a non-prevailing party, actual examples of which the Court supplied in its opinion in Camacho, the TDJA was confirmed as procedural in its specific fee-shifting language.

In general terms, TUFTA is not a procedural statute like the TDJA. However, like the TDJA, the § 24.013 attorney fee provision allows assessment of fees as are "equitable and just" without reference to the prevailing party. It is also set out independently from the substantive remedies available to prevailing parties and is labeled, "Costs." It is thus conceivable that a trial court could properly grant attorney fees in favor of a non-prevailing party.

The TDJA decisions and their rationale counsel in favor of determining that TUFTA § 24.013 is procedural in that it is not set out as a basis for assessing the prevailing party'scompensatory damages. The Court is not persuaded that the House Research Organization bill analysis, which recounts the arguments of supporters and opponents, supplies any "legislative history" that requires a reading of the statute that is more restrictive than the language, without ambiguity, allows.

Neither does the Court agree with the "common sense" argument that no court would ever award attorney fees to a party found to have engaged in a fraudulent transfer. The issue is not whether this scenario is likely. Under Chambers and Camacho, the fact that it is possible renders the "costs" statute procedural.

Section 24.013 is thus unavailable as a basis for the award of attorney fees to PDVSA in this diversity case.

C. No Federal Courts Have Awarded Attorney Fees in this Precise Context.

The parties have cited federal cases that appear to support an award of attorney fees under TUFTA in a federal court proceeding and the Court has performed its own research in this regard. The federal cases addressing the award of attorney fees in fraudulent transfer proceedings can be placed into three categories: (1) cases that expressly hold that the Uniform Act does not provide for the award of attorney fees;3 (2) cases arising under bankruptcy or receivership jurisdiction rather than diversity, thus avoiding the Erie question altogether;4 and (3)cases out of the Northern District of Texas that award attorney fees under § 24.013.5 The last is the only category requiring discussion.

The Mullins case simply noted TUFTA § 24.013 when awarding attorney fees. The award was actually independently supported by the statute allowing attorney fees to prevailing parties in contract actions. Mullins, 2006 WL 2167401, at *10-11. Thus this case is not helpful to the analysis here.

GE Capital, on the other hand, awarded attorney fees with the only statutory reference being TUFTA § 24.013. Importantly, three other forces were at work in the GE Capital case: (1) the parties had stipulated as to the amount of pre-judgment attorney fees that would be available to the prevailing party, thus consenting to an award by the court; (2) both parties' post-judgment conduct was used by the court as offsetting in the context of any post-judgment attorney fee award; and (3) there is no mention of an Erie-based objection. This opinion does not supply an analysis upon which this Court may rely in addressing the Erie-based objection here, particularly in light of the parties' stipulation.

Thus no federal court has awarded attorney fees under TUFTA in a manner that militates in favor of such an award in this diversity case where the Court's jurisdiction to do so has been clearly questioned.

D. Conclusion

It is certainly counter-intuitive to deny attorney fees in the face of statutory language specifically permitting fee-shifting. However, this Court is constrained by the Chambers and Camacho opinions and their analysis of governing law in a diversity jurisdiction case.

Accordingly, PDVSA's motion for attorney fees (D.E. 242) is DENIED.




1. Sargeant has joined with and adopted BTB's opposition. (D.E. 255, 270.)

2. Other exceptions to the American Rule include the "common fund" exception, sanctions for "willful disobedience of a court order," and the "collateral litigation" exception. See Chambers; RESTATEMENT (SECOND) OF TORTS § 914(2) (1979) ("collateral litigation" refers...

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