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Bhakta v. Krisu Hospitality, LLC

Court of Appeals of Texas, Seventh District, Amarillo

November 20, 2019

MUKESH BHAKTA, APPELLANT
v.
KRISU HOSPITALITY, LLC, APPELLEE

          On Appeal from the 223rd District Court Gray County, Texas Trial Court No. 38, 934; Honorable Phil N. Vanderpool, Presiding

          Before QUINN, C.J., and PIRTLE and PARKER, JJ.

          MEMORANDUM OPINION

          PATRICK A. PIRTLE, JUSTICE

         Appellant, Mukesh Bhakta, filed a restricted appeal from the trial court's order granting a default judgment in favor of Appellee, Krisu Hospitality, LLC, in its action against Bhakta and M&L Builders, Inc. for breach of contract and various other claims involving a construction contract.[1] In the default judgment, the trial court awarded Krisu $1, 965, 953.78 in actual damages, $855, 000.00 in lost business income, $348, 414.76 in exemplary damages, [2] and $26, 007.75 in attorney's fees. Bhakta presents six issues challenging the default judgment. By his first two issues, he asserts the default judgment was improper because (1) the return of service was fatally defective and (2) the judgment failed to separate the award of exemplary damages against him and M&L Builders. By his next three issues, he contends the evidence was legally and factually insufficient to (3) establish the requisite level of culpable conduct by him to support the award of exemplary damages, (4) support the amount of exemplary damages awarded against him, and (5) support the award in favor of Krisu for future lost business income. By his sixth and final issue, Bhakta maintains the economic loss rule bars Krisu from recovering tort damages against him in a breach of contract action for a contract to which he was not a party. We reverse and remand.

         Krisu Hospitality, LLC's Suggestion of Bankruptcy

         Subsequent to the presentation of oral arguments, Krisu filed with this court its Suggestion of Bankruptcy indicating that Krisu Hospitality, LLC had filed for protection under the provisions of Chapter 11 of the United States Bankruptcy Code on November 4, 2019, in Cause No. 19-20347-rlj11, in the United States Bankruptcy Court for the Northern District of Texas, Amarillo Division. In accordance with Rule 8.2 of the Texas Rules of Appellate Procedure, a bankruptcy proceeding automatically suspends the appeal from the date the bankruptcy is filed until the appellate court reinstates or severs the appeal in accordance with federal law. Counsel for Bhakta has filed with this court a Motion to Reinstate Under TRAP 8.3(a), contending that the automatic stay provisions of the Bankruptcy Code are inapplicable to the facts of this case.

         Bhakta contends the automatic stay provisions of the Bankruptcy Code do not apply to a proceeding where the bankruptcy debtor (in this case Krisu) was in the position of a plaintiff in the trial court proceeding being appealed. See Ingersoll-Rand Fin. Corp. v. Miller Mining Co., 817 F.2d 1424, 1426 (9th Cir. 1987) (construing the automatic stay provisions of the bankruptcy code as applying to "the commencement or continuation . . . of a judicial, administrative, or other action or proceeding against the debtor that was or could have been commenced before the commencement of the [bankruptcy proceeding]." (Emphasis added)). We agree. Furthermore, based on the representation of counsel for Bhakta, counsel for Krisu does not oppose Bhakta's motion to reinstate. Accordingly, to the extent necessary pursuant to Rule 8.3(a) of the Texas Rules of Appellate Procedure, we reinstate this appeal for all purposes.

         Background

         Krisu contracted with Bhakta and M&L Builders on September 22, 2014, to have them construct a La Quinta Inn and Suites within 365 days from the date of commencement for $4, 010, 152.00. The contract was signed by Piyuch Patel, Krisu's owner, and Larry Cole signed as President of M&L Builders.[3] Bhakta was not a signatory to the contract. An Affidavit of Commencement was filed on September 26, 2014.

         Patel's son, Minesh, the project manager, testified that Bhakta was charged with hiring the initial subcontractors who made all the mistakes that resulted in faulty construction of the hotel. One of the first issues Minesh noticed was "waving" with sheetrock joints on walls and ceilings.[4] Bob Martin of CEM Enterprises, a project management company, was brought in by M&L Builders in early 2016 to address the construction deficiencies. Some ceilings showed water damage and black mold. Master plumbers were brought in to inspect the property and discovered serious issues with the plumbing system that required removal and replacement of drywall and ceilings. The hotel flooded during rain showers due to faulty installation of the storm drain system. The walls, ceilings, tile, millwork, texturing, and painting had to be redone. The original pool contractor's work was also deficient, and the pool drain had to be modified to comply with laws and regulations.[5]

         According to business records, Martin documented the construction issues and his comments and concerns in weekly logs. He determined that the original construction crew did not have the skill to perform the required tasks, much less remedy the issues, and he brought in new subcontractors.

         In April 2016, a meeting was called for Larry Cole, Piyuch, Minesh, and a banker to discuss the issues. According to Minesh, after the meeting, M&L Builders "basically walked off the job." Martin continued overseeing the remainder of the construction. The hotel was finally completed on December 21, 2016, well beyond the 365-day contract deadline and in excess of the budget by $1, 900, 554.00.

         On May 17, 2017, Krisu made a formal demand for damages sustained during construction of the hotel that necessitated repairs and replacements. Krisu also made a demand for all the months of lost revenue. The demand included a request for reasonable attorney's fees under section 38.001 of the Texas Civil Practice and Remedies Code. When the claims were not resolved, Krisu filed suit on July 6, 2017, for breach of contract, negligence, negligent hiring, supervision and retention, and breach of implied warranty of good and workmanlike services.

         The lawsuit was not answered and on August 15, 2017, Krisu filed a Motion for Default Judgment. A hearing was held on the motion on August 29, 2017. Bhakta was not present, and he was not represented by counsel. Krisu presented testimony from several witnesses and offered exhibits in support of its motion. At the conclusion of the hearing, the trial court granted a default judgment in favor of Krisu. Bhakta did not file any ...


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