Kapitus Servicing, Inc., as Servicing Agent for Ka v. Monreal, individually and d/b/a Bison Plastering

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IT IS HEREBY ADJUDGED and DECREED that the below described is SO ORDERED.
Dated: June 18, 2026.
CY C
UNITED
OURT
X
AS
STERN DISTRICT
MICHAEL M. PARKER CHIEF UNITED STATES BANKRUPTCY JUDGE
IN THE UNITED STATES BANKRUPTCY COURT FOR THE WESTERN DISTRICT OF TEXAS SAN ANTONIO DIVISION
IN RE:
ALBERTO CIPRIANO MONREAL &
LAURA ARIAS MONREAL,
DEBTORS.
KAPITUS SERVICING, INC., AS SERVICING AGENT FOR KAPITUS, LLC,
PLAINTIFF
V.
ALBERTO CIPRIANO MONREAL,
INDIVIDUALLY AND DBA BISON PLASTERING,
DEFENDANT.
Los cos Los Los Los Los Los Los Los Los Los Los Los Los cos Los cos Los cos § § § § § § § § § §
CASE NO. 24-50063-MMP
CHAPTER 7
ADVERSARY NO. 24-05013-MMP
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AUTHENTICATED U.S. GOVERNMENT INFORMATION GPO

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OPINION
The Court tried this adversary proceeding on January 21 and 22, 2026. At the start, Plaintiff
Kapitus Servicing, Inc. (“Kapitus”) withdrew several of its claims, including a claim under
§ 523(a)(2)(B)1 and claims for fraud, fraudulent transfer, replevin, and unjust enrichment. See ECF
No. 1. Kapitus prosecuted only four claims: nondischargeability claims under § 523(a)(2)(A),
(a)(4), and (a)(6), and a claim for conversion under Virginia law.2
The Court grants Kapitus’s § 523(a)(2)(A) and Virginia-law conversion claims, as well as
Kapitus’s § 523(a)(4) claim only with respect to the debt due under the conversion claim, and
denies all other relief.
I. JURISDICTION
The Court has jurisdiction over this matter under 28 U.S.C. §§ 157 and 1334 and the
Standing Order of Reference of the United States District Court for the Western District of Texas
dated October 4, 2013. This is a core proceeding under 28 U.S.C. § 157(b)(2)(I). Venue is proper
under 28 U.S.C. § 1409. Both Plaintiff and Defendant Alberto Monreal (“Monreal”) have
consented to the entry of final orders and a judgment by this Court in this adversary proceeding.
ECF Nos. 15–16. This Opinion serves as this Court’s findings of fact and conclusions of law under
Federal Rules of Bankruptcy Procedure 7052 and 9014.
II. BACKGROUND
This dispute arises from an August 17, 2023 forward purchase agreement (“Agreement”)3
between Kapitus and Monreal’s former business entity, Bison Plastering, Inc. (“Bison Inc.”).
1 All statutory references are to Title 11 of the United States Code unless otherwise specified.
2 The Agreement is governed under the laws of Virginia. Pl.’s Ex. 2, at 10, § 4.5 (“This Agreement and any claim,
dispute or controversy (whether in contract, tort, or otherwise) at any time arising from or relating to this
Agreement is governed by, and this Agreement will be construed in accordance with Virginia law (to the extent
not preempted by federal law) without regard to internal principles of conflict of laws.”).
3 Pl.’s Ex. 2. Generally, under a forward purchase agreement, parties agree to buy or sell an asset at an agreed price
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Monreal operated his construction business as both a sole proprietorship and a corporation under
basically the same name: Bison Plastering. The Court will refer to Monreal’s sole proprietorship
as Bison SP to distinguish it from Bison Inc.4 Monreal operated as Bison Inc. at the signing of the
Agreement, but subsequently either as Bison SP or Bison Inc. depending upon what was more
advantageous for him personally, regardless of legal formalities.
Kapitus and Monreal had a history working together leading up to the Agreement. In total,
they inked six similar deals before the Agreement going back to 2017:
1. December 26, 2017 agreement between Kapitus (then operating as Strategic
Funding Source, Inc.) and Monreal as Bison SP and guarantor, see Pl.’s Ex. 25;
2. March 19, 2019 agreement between Kapitus and Bison Inc. with Monreal as
guarantor, see Pl.’s Ex. 26;
3. November 4, 2019 agreement between Kapitus and Bison Inc. with Monreal as
guarantor, see Pl.’s Ex. 27;
4. April 22, 2020 agreement between Kapitus and Bison Inc. with Monreal as
guarantor, see Pl.’s Ex. 29;
5. October 28, 2020 agreement between Kapitus and Bison Inc. with Monreal as
guarantor, see Pl.’s Ex. 31; and
6. February 17, 2022 agreement between Kapitus and Bison Inc. with Monreal as
guarantor, see Pl.’s Ex. 33.
It appears that Kapitus overhauled its agreements between October 2020 and February 2022 such
that the February 2022 agreement and the Agreement at issue now are distinctly different in form
at a future date or upon a specified future event.
4 Monreal operated his construction business initially through Bison SP, then through Bison Inc. from its formation
in 2018 (see Pl.’s Exs. 22–24) until Bison Inc.’s “wind down” and closure in December 2023, then again through
Bison SP. The transitions from Bison SP to Bison Inc. in 2018 and back again in 2023 were not clean. When
Monreal formed and began operating through Bison Inc., he did not transfer any assets over to the company; rather,
he testified that he owned the assets personally and lent them to Bison Inc. at no charge. And when he shuttered
Bison Inc. he simply transferred all its money into his own accounts and on behalf of Bison SP demanded and
accepted payments from Bison Inc. customers notwithstanding the existence of legal agreements between the
customers and Bison Inc.
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from the previous agreements; despite the overhaul, the relevant contract terms remain
substantively the same.
Under the agreements, Kapitus purchased a certain dollar amount of Bison SP or Bison
Inc.’s future accounts receivable and, in exchange, Bison SP/Bison Inc. gave Kapitus a percentage
of its receipts each month until Kapitus received the dollar amount it purchased. See Pl.’s Ex. 25,
at 1; Pl.’s Ex. 26, at 1; Pl.’s Ex. 27, at 1; Pl.’s Ex. 29, at 1; Pl.’s Ex. 31, at 1; Pl.’s Ex. 33, at 1. For
payment, Bison SP (for the 2017 agreement) or Bison Inc. (for all other agreements) had to
maintain a sufficiently funded deposit account from which Kapitus could withdraw a specified
amount periodically, and to ensure payment Kapitus took a blanket security interest in all of Bison
SP/Bison Inc.’s property and a personal guaranty from Monreal. See Pl.’s Ex. 25, at 1, 6–7; Pl.’s
Ex. 26, at 1, 7–9; Pl.’s Ex. 27, at 1, 7–9; Pl.’s Ex. 29, at 1, 7–9; Pl.’s Ex. 31, at 1, 7–9; Pl.’s Ex.
33, at 2, 13–15. In the event of a default or a violation of the terms and conditions, the percentage
of receivables due Kapitus would increase to 100%. See Pl.’s Ex. 25, at 1; Pl.’s Ex. 26, at 1; Pl.’s
Ex. 27, at 1; Pl.’s Ex. 29, at 1; Pl.’s Ex. 31, at 1; Pl.’s Ex. 33, at 1.
In the Agreement, Kapitus purchased $192,000 of Bison Inc.’s future accounts receivable
for $150,000. See Pl.’s Ex. 2, at 1. In exchange, Bison Inc. was required to fund a deposit account
with all its receipts (as specifically defined in the Agreement), from which Kapitus would
withdraw a base amount of $2,957 weekly up to 4.1% of Bison Inc.’s receipts. See id. at 1–2. If
Bison Inc. defaulted or otherwise violated the Agreement, Kapitus could withdraw 100% of the
amount it was due. See id. at 1.
In the Agreement and in a document separately signed on August 17, 2023, as part of the
Agreement (“Representations”), Monreal and Bison Inc. made several representations, primarily
regarding their then-present and expected financial conditions, including:
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1. The information Monreal provided to Kapitus fairly represented the financial
condition of Bison Inc. and Monreal;
2. Neither Bison Inc. nor Monreal expected any material changes to their condition,
operation, and ownership;
3. Both Bison Inc. and Monreal would inform Kapitus of any material changes to their
condition, operation, and ownership;
4. Neither Bison Inc. nor Monreal were party to any pending litigation that Monreal
expected would materially impact the business;
5. Neither Bison Inc. nor Monreal were subject to any tax liens or had any unpaid tax
obligations;
6. Monreal did not anticipate that he would close or sell the business within one year;
7. Neither Bison Inc. nor Monreal planned to file for bankruptcy within one year, and
both would provide Kapitus with advance notice if they were to file for bankruptcy;
8. Neither Bison Inc. nor Monreal were in arrears on any financial obligations;
9. Neither Bison Inc. nor Monreal would without written consent change the account
used for Bison Inc.’s deposits and Kapitus’s withdrawals, use any other account for
Bison Inc.’s receipts, or divert any of Bison Inc.’s receipts; and
10. Neither Bison Inc. nor Monreal would operate the business under any other name
or location without written advance notice.
Pl.’s Ex. 2, at 7–8; Pl.’s Ex. 3, at 1.
In December 2023, four months after entering the Agreement and signing the
Representations, Monreal closed Bison Inc., see Case No. 24-50063, ECF No. 1 at 75, and the
deposit account, see Pl.’s Ex. 6, without advance notice to, or written consent from, Kapitus and
began to operate his business as Bison SP again—notice and consent that if given would have
allowed Kapitus to seek immediate relief or make other arrangements. Monreal testified at trial
that, shortly before shuttering Bison Inc., he had reached out to Kapitus to attempt to delay
withdrawals; he said that he did not have enough revenue to sufficiently fund the account and he
needed some extra time to build revenue. He indicated that he decided to shutter Bison Inc. when
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Kapitus did not work with him. And he testified that he closed the deposit account because it
wasn’t sufficiently funded; he wanted to avoid additional charges if Kapitus were to attempt
withdrawals without sufficient funds in the account. But Monreal’s subsequent deposit of
$215,000 of Bison Inc. receivables into the Bison SP accounts shortly after closing the Bison Inc.
account suggests that Monreal’s asserted reason for transferring the Bison Inc. receivables to the
Bison SP accounts was pretextual. Kapitus may well have refused to modify the Agreement, but
the facts suggest it wasn’t insufficient funding that triggered Monreal to close the Bison Inc.
account and route Bison Inc. receivables into the Bison SP accounts.
On January 16, 2024, Monreal filed for bankruptcy without notifying Kapitus. On that day,
two of Monreal’s personal accounts that he used for Bison SP contained only $253.48 combined.
See Case No. 24-50063, ECF No. 1 at 14, ¶ 17.3–.4.
Monreal then deposited—between the petition date and the end of January 2024—
$215,836.50 into these two accounts. See Pl.’s Exs. 42–43. Monreal testified that he requested and
accepted money from Bison Inc. customers into Bison SP rather than Bison Inc. for Bison Inc.
projects because he allegedly was no longer operating as Bison Inc. When asked at trial whether
these January 2024 deposits were “related to work that was done as Bison Plastering,” Monreal
responded, “Yes.” Logistically speaking, Monreal had not resumed operating as Bison SP after
shuttering Bison Inc. long enough to have receivables. The Court therefore finds that all of the
January 2024 deposits were Bison Inc. receivables.
Kapitus asks the Court to find nondischargeable Monreal’s personal guaranty of Bison
Inc.’s performance under the Agreement.
III. DISCUSSION
The Court will discuss the conversion claim first, then the nondischargeability claims.
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A. Conversion Under Virginia Law
In Virginia, conversion is “any wrongful exercise or assumption of authority . . . over
another’s goods, depriving [them] of their possession; and any act of dominion wrongfully exerted
over property in denial of the owner’s right, or inconsistent with it.” United Leasing Corp. v.
Thrift Ins. Corp., 440 S.E.2d 902, 905 (Va. 1994) (citing Universal C.I.T. Credit Corp. v. Kaplan,
92 S.E.2d 359, 365 (Va. 1956)). “[A] plaintiff must prove two elements by a preponderance of the
evidence: [1] the ownership or right to possession of the property at the time of the conversion and
[2] the wrongful exercise of dominion or control by defendant over the plaintiff’s property, thus
depriving plaintiff of possession.” Kirdassi v. White, 913 S.E.2d 311, 329 (Va. Ct. App. 2025)
(citations omitted). The Virginia Supreme Court notes that, “in many cases, the issue of conversion
depends upon whether the defendant or plaintiff has a superior property interest.” Grayson v.
Westwood Bldgs., 859 S.E.2d 651, 679 (Va. 2021) (citations omitted). “Only a clear, definite,
undisputed, and obvious property right in a thing to which the plaintiffs are entitled to immediate
possession is sufficient to support a claim for conversion.” Id. (quoting Mackey v. MacDannald,
842 S.E.2d 379, 387 (Va. 2020)).
“The correct measure of damages for conversion is the value of the property converted at
the time and place of the conversion.” Quick Serve Concepts, LLC v. Cedar Fair, LP, 83 Va. Cir.
59, 64 (Cir. Ct. 2011) (citing Straley v. Fisher, 10 S.E.2d 551, 553 (Va. 1940)).
Monreal testified that he personally owned much of the equipment and inventory that Bison
Inc. used; he never transferred their ownership over to Bison Inc. and instead loaned them to Bison
Inc. at no charge. While Monreal’s testimony is difficult to believe, Kapitus offered no evidence
to show otherwise. The only evidence of converted Bison Inc. assets are the Bison Inc. receivables
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that Monreal transferred from Bison Inc. to Bison SP, and that evidence shows that Bison Inc.
customers paid Bison SP in attempted satisfaction of Bison Inc. services at Monreal’s direction.
Monreal had no individual interest in Bison Inc. receivables or assets. Monreal made large
deposits into his personal accounts shortly after filing bankruptcy totaling $215,836.50. For
reasons previously enunciated, the Court finds all of these deposits were Bison Inc. receivables.
When he shuttered Bison Inc., he was required by law to “apply and distribute its property to
discharge, or make adequate provision for the discharge of, all of [Bison Inc.]’s liabilities and
obligations.” See TEX. BUS. ORGS. CODE § 11.053(a).5 Only after discharging all liabilities and
obligations could Bison Inc. distribute anything to Monreal. See TEX. BUS. ORGS. CODE
§ 11.053(c). Bison Inc. did not discharge its liabilities to Kapitus, so Monreal had no right to take
any of its assets for himself.
The Agreement gave Kapitus a security interest6 in virtually all of Bison Inc.’s assets: its
receivables, inventory, equipment, intangible property, investments, cash, and other items, to the
extent Bison Inc. had any, as well as books and records relating to them. See Pl.’s Ex. 2, at 13.
With respect to Bison Inc. receivables that Monreal deposited into his personal bank
accounts, Kapitus’s interest in them was superior to Monreal’s interest. The Court must therefore
5 Bison Inc. was a Texas corporation, so Texas law applies to its wind down.
6 The Court makes no decision whether the Agreement gives Kapitus ownership over Bison Inc. receivables or
merely a security interest. While the Agreement uses language purporting to transfer ownership of all of Bison
Inc.’s receivables to Kapitus until the loan is paid off, Kapitus’s rights under the Agreement may be no more than
that of a secured lender. When interpreting contracts under Virginia law, courts should look at words in the context
of the entire agreement. See Erie Ins. Exch. v. EPC MD 15, LLC, 822 S.E.2d 351, 355 (Va. 2019). Kapitus, under
the Agreement, has no right to exert control over the receivables except to the extent it may withdraw agreed
periodic payments; in the event of default, it may pursue its interest in the full amount of the receivables, but only
up to the amount it is still owed; and once Kapitus receives the amount it is owed, it loses what few rights it had
to control the receivables. Kapitus’s rights to the receivables under the Agreement suggest that the Agreement may
be merely a loan contract rather than a purchase agreement, and Kapitus a secured lender instead of a purchaser
and owner of the receivables. The Court declines to decide this issue because it makes no difference to the results
the Court reaches in this Opinion. For analysis, therefore, the Court will treat Kapitus as having only a security
interest in the receivables because it gives Kapitus the least amount of property interest that reaches the same
results.
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determine whether Kapitus was entitled to immediate possession of the Bison Inc. receivables at
the time Monreal deposited them into his personal bank accounts.
In Virginia, secured transactions fall under the uniform commercial code as codified in the
Virginia Code title 8.9A. The relevant provision for the right to possession of collateral after
default is § 8.9A-609, which allows a secured party to take possession of collateral after default
and without judicial process if it does so without breach of the peace.
Kapitus was entitled to immediate possession of the Bison Inc. receivables because it had
a security interest in them and because Bison Inc. defaulted under the agreement.
Kapitus’s interest in the Bison Inc. receivables was superior to Monreal’s interest at the
time Monreal negotiated their satisfaction and deposited the proceeds of them into his personal
bank accounts, and Kapitus was entitled to immediate possession of such accounts and their
proceeds. Accordingly, the Court grants Kapitus’s claim for conversion with respect to those
receivables and the proceeds of those receivables.
Conversion damages are the amount converted at the time of the conversion. Quick Serve
Concepts, 83 Va. Cir. at 64. Monreal converted $215,836.50 of Bison Inc. receivables. Kapitus,
however, has only a limited interest in the converted receivables: its interest in Bison Inc.
receivables ends after it recoups the amount it is owed under the Agreement. See Pl.’s Ex. 2, at 1.
Bison Inc. and Monreal owe Kapitus the amount of the purchase amount remaining due under the
Agreement, which is $147,645.00 plus contractual interest and fees. See Pl.’s Ex. 2, at 1, 8–9; Pl.’s
Ex. 6, at 1.
Because Monreal converted $215,836.50 and Kapitus has an interest only up to
$147,645.00 of that amount, plus contractual interest and fees, the Court awards Kapitus
$147,645.00 plus contractual interest and fees for conversion damages.
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B. Section 523(a)(2)(A) Nondischargeability
A Chapter 7 debtor can receive a discharge of most debts. 11 U.S.C. § 727(a). Section 523,
however, excepts from discharge debts Congress has deemed nondischargeable. While § 523
protects certain creditors, it should be strictly construed against the objecting creditor and liberally
construed in favor of the debtor. Boyle v. Abilene Lumber (In re Boyle), 819 F.2d 583, 588 (5th
Cir. 1987). Nondischargeability actions are determined by preponderance of the evidence. Grogan
v. Garner, 498 U.S. 279, 291 (1991).
When a debtor obtains a debt by “false pretenses, a false representation, or actual fraud,
other than a statement respecting the debtor’s or an insider’s financial condition,” the debt is
nondischargeable under § 523(a)(2)(A). The nondischargeability elements for debts arising from
false pretenses and representations differ from the nondischargeability elements for debts arising
from actual fraud.
For nondischargeability of debts arising from false pretenses or representations, the
objecting party must show: (1) the debtor knowingly or fraudulently made false representations;
(2) describing past or current facts; (3) that were relied on by the other party. Allison v. Roberts
(In re Allison), 960 F.2d 481, 483 (5th Cir. 1992).
For nondischargeability of actual-fraud debts, the objecting party must show (1) the debtor
made a representation or engaged in other fraudulent conduct; (2) the debtor knew the
representation was false at the time they made it; (3) the debtor made the representation with the
intention to deceive the other party; (4) the other party justifiably relied on the representation; and
(5) the other party sustained losses as a proximate result of the representation. Clem v. Tomlinson
(In re Clem), 124 F.4th 341, 349 (5th Cir. 2024) (citing Saenz v. Gomez, 899 F.3d 384, 394 (5th
Cir. 2018)).
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Kapitus makes five allegations in its Complaint for nondischargeability under
§ 523(a)(2)(A), each related to the representations Monreal made as part of the Agreement:
1. Monreal misrepresented that Bison Inc. would not close without prior written
notice;
2. Monreal misrepresented that Bison Inc. would not sell its assets or equity interests
without prior written notice;
3. Monreal misrepresented that Bison Inc. would use the funding under the Agreement
for business purposes, not personal;
4. Monreal misrepresented that Bison Inc. would not change the account used for its
receipts and Kapitus’s withdrawals without written consent and would not remove
Kapitus’s access to the account; and
5. Monreal misrepresented that Bison Inc. would sufficiently fund the account for
Kapitus’s withdrawals.
With respect to the second allegation—that Bison Inc. would not sell assets or equity
interests—Kapitus did not meet its evidentiary burden to show Bison Inc. did sell assets or equity
interests. With respect to equity interests, Bison Inc. did not sell equity interests; rather, it simply
shut down. With respect to physical assets, Monreal’s unrebutted testimony was that he never
transferred Bison SP’s equipment into Bison Inc. He testified that instead he continued to
personally own the equipment and loaned it to Bison Inc. at no charge. His use of the equipment
as Bison SP after shuttering Bison Inc. would not have been the result of purchasing the assets. To
the extent Monreal rerouted Bison Inc.’s physical assets to himself personally or for use in Bison
SP, there is no evidence (other than possession for usage) that Bison Inc. owned those physical
assets. With respect to Bison Inc.’s financial assets—the receivables—Monreal converted those
assets to his own benefit, but he did not sell them. Monreal did not operate within corporate
formalities and did not distinguish between Bison Inc. and Bison SP, except when it favored his
individual interests.
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With respect to the third allegation—that Bison Inc. and Monreal would use the money for
business purposes and not personal—Kapitus did not meet its evidentiary burden. This allegation
is in reference to the Agreement § 2.13: “[Bison Inc.] is entering into this Agreement for business
purposes and not as a consumer for personal, family[,] or household purposes.” In context,
personal use means for a consumer, non-business purpose. Kapitus provided evidence that
Monreal converted Bison Inc. receivables and, based on Monreal’s RBFCU bank statements, used
them to pay many personal expenses. But while Kapitus showed Monreal used the Bison Inc.
receivables on the back end for a consumer, non-business purpose, it failed to provide sufficient
evidence that Monreal used the Agreement’s purchase amount on the front end for a consumer,
non-business purpose and failed to provide sufficient evidence that Monreal intended, at the time
of the Agreement, to use the purchase amount for consumer, non-business purposes.
Kapitus has satisfied its burden with respect to the first, fourth, and fifth allegations,
respectively: Monreal closed Bison Inc. without Kapitus’s prior written consent, he changed the
account for payment by closing it and removing Kapitus’s access to withdraw funds without
Kapitus’s prior written consent, and he failed to sufficiently fund the Bison Inc. account.
For the Court to find Monreal’s debt nondischargeable under § 523(a)(2)(A), Kapitus must
show Monreal—at the time he made representations that these events would not occur—either
intended to deceive Kapitus or knew his representations were false. Allison, 960 F.2d at 483; Clem,
124 F.4th at 349.
While evidence exists for and against nondischargeability, the most recent evidence favors
it. Monreal closed Bison Inc. down a mere four months after entering the Agreement. More dated
evidence shows nearly six years of similar agreements between the parties before the Agreement
with no indication under those agreements that Monreal wanted to take the money and run. While
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Monreal’s conduct under prior agreements shows a pattern indicating he acted in good faith under
those agreements, it does not explain Monreal’s inconsistent behavior under the Agreement—the
parties’ most recent agreement. Monreal also testified that, shortly before closing Bison Inc. down,
he reached out to Kapitus to delay payments so Bison Inc. could raise sufficient revenue to get
back on track, but the credibility of this self-serving testimony is overshadowed by the fact that,
despite his alleged revenue deficiencies, shortly after closing the Bison Inc. account Monreal
deposited $215,836.50 of Bison Inc. receivables into his Bison SP accounts.
The most compelling evidence lies in favor of nondischargeability. A smorgasbord of
evidence shows Monreal was playing fast and loose with corporate formalities. Monreal testified
that, after setting Bison Inc. up in 2018, he never transferred his business assets—inventory,
equipment, etc.—from Bison SP over to Bison Inc. even though he created Bison Inc. to take over
the business. This testimony was convenient for Monreal. This allowed him to take advantage of
Bison Inc.’s corporate limitations to liability while adding another layer of property protection to
assets essential to Bison Inc.’s business. If anyone sued Bison Inc., they arguably couldn’t reach
any of its business assets other than its bank accounts because Monreal would assert he owned
them personally. He wanted to have his cake and eat it, too. While the Court would have loved to
have seen Monreal’s tax returns to determine if Bison Inc. depreciated—and therefore claimed
ownership of—the equipment, no such evidence was ever offered to the Court. Nonetheless, the
lack of any sort of rental agreement or exchange of value between Bison Inc. and Bison SP (both
of which Monreal controlled) for the business assets reveals the loosey-goosey nature of Monreal’s
movement of assets to avoid their exposure to creditors. And when he shuttered Bison Inc., he
thought he could simply take all its financial assets—including receivables belonging to Bison Inc.
and in which Kapitus had some property interest—into his personal accounts, accept money from
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Bison Inc. customers as if they were Bison SP customers, and continue operating the business
through Bison SP.
The proximity in time of Bison Inc.’s closure to the Agreement date combined with the
evidence of Monreal’s apparent disregard for and taking advantage of corporate formalities is
sufficient evidence to show Monreal knew these representations were false when he made them.
The Court finds that Monreal knew his representations that he wouldn’t close Bison Inc., wouldn’t
close the Bison Inc. account, and would sufficiently fund the Bison Inc. account were false. He
was making no such promises. The Court finds that he made these misrepresentations to deceive
Kapitus into entering into the Agreement with him. And the Court finds that Kapitus relied on the
misrepresentations when it entered into the Agreement and suffered injuries when the
misrepresentations manifested.
The Court grants Plaintiff’s claim for nondischargeability under § 523(a)(2)(A).
C. Section 523(a)(4) Nondischargeability: Fraud or Defalcation
Under § 523(a)(4), debts are nondischargeable when they are the result of “fraud or
defalcation while acting in a fiduciary capacity, embezzlement, or larceny.”
Nondischargeability for fraud or defalcation requires a fiduciary relationship. Bennett v.
Bennett (In re Bennett), 989 F.2d 779, 784–85 (5th Cir. 1993). Whether a fiduciary exists for
§ 523(a)(4) analysis is determined by federal law and informed by state law. Id. “The scope of the
concept of fiduciary under 11 U.S.C. § 523(a)(4) is a question of federal law; however, state law
is important in determining whether or not a trust obligation exists.” Id. (citing In re Angelle, 610
F.2d 1335, 1339 (5th Cir. 1980)). Put more simply, courts should use state law to determine what
rights and duties the potential fiduciary has, then federal law for whether those rights and duties
are fiduciary under § 523(a)(4). Id. at 785; see also LSP Invest. v. Bennett (In re Bennett), 970
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F.2d 138, 143 (5th Cir. 1992) (elaborating that, when courts look to state law, they should look
beyond whether there is a formal trust agreement under state law and instead focus on what trust-
type obligations are imposed), withdrawn and substituted, Bennett v. Bennett, 989 F.2d 779.7
Fiduciary relationships under § 523(a)(4) are construed narrowly. They apply only to
technical trusts, and the fiduciary relationship must arise independent of any contractual
obligation. Tran, 151 F.3d at 343–46. They also must pre-exist the wrongful conduct, see Gupta
v. E. Idaho Tumor Inst., 394 F.3d 347, 350 (5th Cir. 2004) (“[A] trust must exist ‘prior to the
wrong and without reference to it’ in order to constitute a ‘technical trust’ within [§ 523(a)(4)].”
(quoting Angelle, 610 F.2d at 1340)), so any argument with respect to the “zone of insolvency”
does not apply. The zone-of-insolvency fiduciary relationship is “remote from the conventional
trust or fiduciary setting, in which someone . . . in whom confidence is reposed is entrusted with
another person’s money for safekeeping.” Follett Higher Educ. Grp. v. Berman (In re Berman),
629 F.3d 761, 767 (7th Cir. 2011).
There is no fiduciary relationship here. Despite clever drafting, the Agreement suggests a
contractual creditor–debtor relationship rather than a fiduciary one. As this Court noted in a recent
case also involving Kapitus, Kapitus and the borrower (here, Bison Inc.) were simply parties to a
contract and, while the contract imposed obligations on the borrower with respect to repayment of
a debt, none of those obligations could be construed as fiduciary in nature. Kapitus Servicing Inc.
7 While it is sometimes necessary for courts to look to a state statute for the creation of a formal trust, it is not the
creation of the formal trust that matters but rather whether the statute, as it applies to the particular relationship at
issue, creates the kind of obligations that, under federal law, constitute a fiduciary relationship under § 523(a)(4).
See Tex. Lottery Comm’n v. Tran (In re Tran), 151 F.3d 339, 342–43 (5th Cir. 1998) (“Statutory trusts . . . can
satisfy the dictates of § 523(a)(4). It is not enough, however, that a statute purports to create a trust . . . . The
question whether a state statute creates the type of fiduciary relationship required under § 523(a)(4) is one of
federal law. To make this determination[,] a federal court must nevertheless look to state law—here, to the statute
purporting to create a fiduciary relationship and to any regulations promulgated in regard thereto—to discern
whether the supposed fiduciary relationship possesses the attributes required under § 523(a)(4) . . . .”).
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v. Keith (In re Keith), No. 22-06003, 2023 Bankr. LEXIS 2662 (Bankr. W.D. Tex. Oct. 30, 2023)
(quoting Strategic Funding Source, Inc. v. Dodge (In re Dodge), 623 B.R. 663, 668 (N.D. Ga.
2020)). Neither the Agreement nor the guaranty create any fiduciary duties.
Because no fiduciary relationship exists here, the Court denies Kapitus’s claims under
§ 523(a)(4) with respect to fraud and defalcation.
D. Section 523(a)(4) Nondischargeability: Embezzlement and Larceny
The difference between larceny and embezzlement in § 523(a)(4) analysis is whether the
debtor initially had lawful possession of the property. See Miller v. J.D. Abrams Inc. (In re
Miller), 156 F.3d 598, 602 (5th Cir. 1998). Monreal’s alleged appropriation of Bison Inc.
receivable proceeds may constitute embezzlement but not larceny because Monreal initially had
lawful possession of the property.
Embezzlement under § 523(a)(4) is “the fraudulent appropriation of property by a person
to whom such property has been entrusted or into whose hands it has lawfully come.” Savage v.
Port Louis Owners Ass’n (In re Savage), 333 Fed. App’x 831, 835 (5th Cir. 2009) (citing Miller,
156 F.3d at 602). A creditor proves embezzlement by showing three elements:
1. Either that it entrusted its property to the debtor or that the debtor otherwise
lawfully obtained the property,
2. The debtor appropriated the property for a use other than that for which it has
possession, and
3. The circumstances indicate fraud.
Powers v. Caremark, Inc. (In re Powers), 261 Fed. App’x 719, 723 (5th Cir. 2008) (per curiam);
Miller, 156 F.3d at 603 (quoting Brady v. McAllister (In re Brady), 101 F.3d 1165, 1773 (6th Cir.
1996)).
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Fraud, in the context of embezzlement, is an intent to “deceive another person[] and to
induce such other person, in reliance upon the deception[,] to assume, create, transfer, alter[,] or
terminate a right or obligation with reference to property.” In re Harrell, 94 B.R. 86, 91 (Bankr.
W.D. Tex. 1988); see also PACCAR Fin. Corp. v. Dhaliwal (In re Dhaliwal), 630 B.R. 24, 31
(Bankr. S.D. Tex. 2021) (a recent case using a nearly identical quote and citing a string of cases
back to In re Harrell). “Fraudulent intent may be inferred from the conduct of the [d]ebtor and
from [the] circumstances of the situation” or “negated by the fact that the [d]ebtor applied the
funds openly, without any attempt at concealment.” In re Harrell, 94 B.R. at 91.
Courts have used four non-exhaustive factors when considering circumstantial evidence
for fraudulent intent under § 523(a)(4):
1. Whether the debtor alone had access to the creditor’s money;
2. Whether the debtor had knowledge that the creditor wanted his money returned;
3. Whether the debtor had accounted to the creditor for the funds; and
4. Whether an accounting had been made for the funds.
In re Bridges, No. 19-44181-elm, 2025 Bankr. LEXIS 2682, at *17 (Bankr. N.D. Tex. Oct. 17,
2025) (citing Williams v. Laughlin (In re Laughlin), No. 09-35842-H4-07, 2012 WL 1014754,
at *13 (Bankr. S.D. Tex. Mar. 23, 2012)).
Only the debt arising from conversion falls under embezzlement.
Embezzlement, if it exists in this case, must be through Monreal’s appropriation of Bison
Inc. receivables for the benefit of Bison SP operations because it was the only alleged
misappropriation discussed at trial.
Any allegation that Monreal appropriated Kapitus’s loan to Bison Inc. is incorrect because
the loan was neither entrusted to nor appropriated by Monreal. Kapitus loaned money to Bison
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Inc., not Monreal individually. And the money Monreal appropriated for use in Bison SP was made
of receivables he appropriated from Bison Inc. While the receivables were likely the product, at
least in part, of Bison Inc. spending the Kapitus loan on operations, the receivables were not
themselves the loan. Even if the Court assumes the Agreement was a purchase agreement and not
a loan contract, the purchase amount was no longer Kapitus property once the purchase was made.
Moreover, because any embezzlement must be through Monreal’s appropriation of Bison
Inc. receivables toward Bison SP operations, it applies only for the debt arising under Kapitus’s
conversion claim and no other debts. Section 523(a)(4) states, in relevant part, that a discharge in
the bankruptcy case “does not discharge an individual debtor from any debt for . . .
embezzlement.” 11 U.S.C. § 523(a)(4) (emphasis added). The non-conversion debts in this case
are not for embezzlement; rather, they arise from Bison Inc.’s failure to pay Kapitus and other
breaches of the Agreement, as well as misrepresentations made when entering the Agreement.
Monreal’s appropriation of Bison Inc. receivables did not create the pre-existing non-conversion
debts owed Kapitus. The non-conversion debts owed Kapitus are not themselves “for
embezzlement,” as required under § 523(a)(4).
Kapitus has sufficient property interest to bring an embezzlement claim.
The Court must determine, then, whether a creditor—here, Kapitus—can support an
embezzlement claim with a debt that arose through the appropriation of assets that both it and the
debtor did not own.8 If so, the conversion claim in this case could be “for embezzlement” because
8 As discussed supra at note 6, the Court treats the Agreement as a loan contract rather than a purchase agreement,
and therefore Kapitus as having a security interest in, and not ownership of, the converted Bison Inc. receivables.
If instead Kapitus has ownership of the Bison Inc. receivables, then the result here remains the same.
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Kapitus’s conversion claim arose from Monreal’s appropriation of the Bison Inc. receivables—
property Kapitus had a security interest in but did not own.9
At first blush, the answer appears to be, “no.” Most courts hold that a security interest is
insufficient to trigger embezzlement liability, and the creditor must show it owns the allegedly
embezzled property. See, e.g., Kraus Anderson Cap., Inc. v. Bradley (In re Bradley), 507 B.R.
192, 200 (B.A.P. 6th Cir. 2014) (collecting cases). But the majority of these cases dealt with a
secured creditor who brought a claim against a debtor who owned the collateral—the property was
often a debtor’s financed vehicle or home.10 The rest of the cases dealt with a creditor with no
property interest at all.11 Diving deeper into these cases, the majority’s analysis underlying this
holding turns more on the debtor’s ownership than the creditor’s lack of ownership—like the Sixth
Circuit Bankruptcy Appellate Panel concluded: “This Panel agrees with this line of cases. ‘As
owner of the collateral, the debtor remained the owner of its proceeds, even though both the
collateral and its proceeds were subject to a security interest. No person can embezzle from
himself.’” Kraus Anderson Cap., 507 B.R. at 200 (quoting Deere & Co. v. Contella (In re
Contella), 166 B.R. 26, 30 (Bankr. W.D.N.Y. 1994)).
No other case, as far as the Court can tell, addresses what happens when the creditor has a
security interest in the property and the debtor has no interest at all. And so none had the
9 Virginia law allows Kapitus to pursue a conversion claim over assets it did not own because Kapitus held a superior
interest (a security lien) in the Bison Inc. receivables than did Monreal individually (no interest) and it had a right
to immediate possession of them.
10 See, e.g., Kraus Anderson Cap., 507 B.R. at 200; Pace Fin., LLC v. Herring (In re Herring), No. 20-00094, 2022
Bankr. LEXIS 1709, at *12 (Bankr. W.D. Tenn. June 14, 2022); BMO Harris Bank v. Richert (In re Richert),
632 B.R. 877, 893 (M.D. Fla. 2021); Morganroth & Morganroth, PLLC v. Stollman (In re Stollman), 404 B.R.
244, 273–74 (Bankr. E.D. Mich. 2009); Bank of Castille v. Kjoller (In re Kjoller), 395 B.R. 845, 851 (Bankr.
W.D.N.Y. 2008); Banco Popular v. Rodriguez (In re Rodriguez), No. 06-31471, 2007 Bankr. LEXIS 547, at *16
(Bankr. S.D. Tex. 2007); Bank Calumet v. Whiters (In re Whiters), 337 B.R. 326, 333 (Bankr. N.D. Ind. 2006);
Bombardier Cap., Inc. v. Tinkler (In re Tinkler), 311 B.R. 869, 876 (Bankr. D. Colo. 2004); In re Ayers, 25 B.R.
762, 774–75 (Bankr. M.D. Tenn. 1982).
11 See, e.g., Hulsing Hotels Tenn. v. Steffner (In re Steffner), 479 B.R. 746, 766 (E.D. Tenn. 2012); Mut. Mgmt.
Servs. v. Fairgrieves (In re Fairgrieves), 426 B.R. 748, 756 (N.D. Ill. 2010).
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opportunity to address what happens when the creditor has property interest in the appropriated
property sufficient to support a conversion claim but not outright ownership.
Embezzlement at its core is conversion, just with added elements. See Bullock v.
BankChampaign, 569 U.S. 267, 275 (2013) (noting that the defining feature of embezzlement
under § 523(a)(4) is conversion). The elements of embezzlement that distinguish it from plain
conversion address only a debtor’s actions and state of mind: first, how the debtor came into
possession; second, how the debtor used the property; and third, what the debtor intended. None
of these elements place any additional requirements on the creditor’s ownership of the property;
they don’t address the creditor at all. The Court cannot find a good reason why a creditor’s
ability—i.e., the sufficiency of its property interest in the property—to bring a § 523(a)(4)
embezzlement claim should be any different from its ability to bring a conversion claim.
This is consistent with the majority courts’ analysis, see generally supra note 10, that
secured creditors cannot bring embezzlement claims against debtor owners. In those cases, the
debtors owned the collateral at issue, so they could not embezzle their own property. And the
creditors, with merely a security interest in the property, had a lesser property interest than the
debtor owners. A security interest is insufficient against the owner of the property.
The Court agrees with the majority courts’ analysis but will refine and refocus the rule: a
creditor must have sufficient property interest in the allegedly embezzled property such that the
creditor could bring a conversion claim.
Determining whether a creditor has sufficient property interest requires looking to state
law.12 Section 523(a)(4) already does this with its fraud-or-defalcation element. See supra § III(C);
12 See Columbia Gas Transmission Corp. v. Exclusive Natural Gas Storage Easement, 962 F.2d 1192, 1198 (6th
Cir. 1992) (“[P]roperty rights have traditionally been, and to a large degree are still, defined in substantial part by
state law.”).
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see generally NextGear Capital, Inc. v. Garcia (In re Garcia), _ B.R. _, No. 25-03017, 2026 WL
899306, at *5–13. (Bankr. W.D. Tex. Apr. 1, 2026). Courts should use state law to determine what
rights and duties exist, then federal law for what effect those rights and duties have under
§ 523(a)(4). See Bennett v. Bennett, 989 F.2d at 785. For fraud or defalcation, a court looks to
state law for the creation and existence of the rights and duties of the potential fiduciary; it then
uses federal law to determine whether those rights and duties actually make a fiduciary. Id.
This analysis applies equally to whether a creditor plaintiff has sufficient property interest
to bring an embezzlement claim under § 523(a)(4). State law dictates whether the creditor has
sufficient property interest to support a conversion claim, and federal law determines whether the
elements of embezzlement are met.
Here, Virginia law applies, and Kapitus has a valid claim under Virginia Law for
conversion. It therefore has sufficient property interest in the allegedly embezzled property to bring
a § 523(a)(4) embezzlement claim against Monreal.
The debt arising from conversion is § 523(a)(4) embezzlement and is nondischargeable.
The three elements of an embezzlement claim are met here.
The first element—that the creditor entrusted its property to the debtor or the debtor
otherwise lawfully obtained the property—is met. Monreal lawfully obtained the Bison Inc.
receivables because, as sole owner of Bison Inc., he had possession and control over its assets.
The second element—that the debtor appropriated the property for a use other than that for
which it has possession—is met. Monreal appropriated the Bison Inc. receivables toward his
business in Bison SP. As discussed supra, Bison Inc. had outstanding debt to Kapitus when it shut
down, so Monreal had no right under Texas law to take assets out of Bison Inc.
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The third element—that the circumstances indicate fraud—is met. Monreal closed the
required deposit account and moved the funds to his personal bank accounts, giving him sole
access to the Bison Inc. receivables. He stated that he closed the account because it wasn’t
sufficiently funded and, when he continued to receive payments from Bison Inc. customers—
$215,836.50—he refused to reopen the account, pay Kapitus (even though he knew Kapitus
wanted payment), or inform Kapitus in any way what he was doing with the receivables. Rather
than work with Kapitus to resolve the issues, Monreal cut off all communication with Kapitus and
appropriated the receivables to his personal business. This circumstantial evidence shows Monreal
intended to deceive Kapitus and permanently deprive it of the receivables that were collectable by
Kapitus.
The Court therefore finds the debt arising from Kapitus’s conversion claim
nondischargeable under § 523(a)(4). The Court grants Kapitus’s claims under § 523(a)(4) with
respect to the conversion debt and denies Kapitus’s claim under § 523(a)(4) with respect to any
debts other than those arising under Kapitus’s conversion claim.
E. Section 523(a)(6) Nondischargeability
Under § 523(a)(6), debts are nondischargeable when they result from “willful and
malicious injury . . . to another entity or to the property of another entity.” This requires “a
deliberate or intentional injury, not merely a deliberate or intentional act that leads to injury.”
Kawaauhau v. Geiger, 523 U.S. 57, 61 (1998) (emphasis in original). Nondischargeability
requires an actor to “intend the consequences of an act, not simply the act itself,” mirroring the
definition of an intentional tort. Id. at 61–62 (internal quotation marks omitted). Simple breaches
of contract, even if intentional, do not cause injuries that may be excepted from discharge unless
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accompanied by willful and malicious tortious conduct. Id. at 62; Williams v. Int’l Bhd. of Elec.
Workers Loc. 520, 337 F.3d 504, 509 (5th Cir. 2003).
Kapitus has not provided sufficient evidence to show Monreal intended to injure Kapitus.
Monreal deceived and made misrepresentations to induce Kapitus into favorable terms under the
Agreement. It is also apparent that he closed his business and moved assets to keep Kapitus from
collecting its debt. But his intention to obtain and keep the Bison Inc. receivables for his own
benefit does not prove that he intended injury to Kapitus. There is not sufficient evidence to suggest
he had any independent intention to injure Kapitus.
Because Kapitus failed to provide sufficient evidence that Monreal intended to injure
Kapitus, the Court denies Kapitus’s claims under § 523(a)(6).
IV. CONCLUSION
The Court will separately enter a judgment granting Kapitus’s conversion claim under
Virginia law, nondischargeability claim under § 523(a)(2)(A), and nondischargeability claim (for
conversion damages only) under § 523(a)(4) and denying all other relief, as well as an award to
Kapitus for $147,645.00 in damages plus contractual interest and fees.
Normally, the Court would enter a judgment contemporaneously with this Opinion
declaring the amount of the nondischargeable debt held by Kapitus, but in this case further
proceedings are necessary to determine attorney’s fees and accrued interest due to Kapitus. So, the
Court directs the parties to attempt to reach an agreement within twenty-one days of this Opinion
on the amount of attorney’s fees and interest that will also be declared nondischargeable. If the
parties cannot come to an agreement, the Court instructs Kapitus to file a motion seeking a hearing
to determine the amount, if any, of attorney’s fees and interest due to Kapitus related to the Court’s
Opinion.
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