IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

_____________________

91-1069

_____________________

IN THE MATTER OF: BILLYE M. LUCE,

d/b/a L & L INTERNATIONAL, L & L

LEASING, and L & L INTERNATIONAL

ENTERPRISES,

Debtor.

BILLYE M. LUCE, d/b/a L & L

INTERNATIONAL, L & L LEASING

and L & L INTERNATIONAL ENTERPRISES,

Appellant-Cross-Appellee,

versus

FIRST EQUIPMENT LEASING CORPORATION

Appellee-Cross Appellant.

_________________________________________________

IN THE MATTER OF: JACK M. LUCE

and BILLYE M. LUCE, d/b/a L & L

INTERNATIONAL and L & L LEASING,

Debtors.

BILLYE M. LUCE, d/b/a L & L

INTERNATIONAL and L & L LEASING,

Appellant-Cross-Appellee,

versus

WESTINGHOUSE CREDIT CORPORATION,

Appellee-Cross-Appellant.

_________________________________________________

Appeals from the United States District Court

for the Northern District of Texas

_________________________________________________

(April 30, 1992)

ON PETITION FOR REHEARING

(Opinion March 9, 1992, 5th Cir. 1992, ___ F.2d ___ )

Before GOLDBERG, SMITH, and DUHE, Circuit Judges.2

PER CURIAM:

Westinghouse Credit Corporation requested rehearing by the

panel to clarify the scope of the remand to the ban kruptcy court

articulated in the panel opinion reported at slip op. 3422 (5th

Cir. Mar. 9, 1992). After careful consideration, we voted to GRANT

the petition for panel rehearing. In connection therewith, we

withdraw our earlier opinion in this appeal in its entirety and

substitute the following:

In this bankruptcy case, we examine several issues concerning

a debtor's exemption from discharge. First, must this Court

retroactively apply the preponderance of evidence standard of proof

for dischargeability exceptions as articulated by the Supreme Court

after the bankruptcy court entered judgment?; second, did the

bankruptcy court clearly err in exempting the debt under three

Firs t Equipment Leasing Corporation leases and one Westinghouse

Credit Corporation lease from discharge?; third, did the bankruptcy

court clearly e rr in finding the debt from another Westinghouse

lease discharge able?; and, fourth, did the district court err in

refusing to award the prev ailing creditors either pre- or postpetition attorney's fees?

I. BROKE LUCE

Billye and Jack Luce ("the Luces" ) were partners in several

partnerships in the 1980's: L & L Leasing ("LLL"), L & L

International ("LLI"), and L & L International Enterprises ("LLE")1 In its opinion, the bankruptcy court provided a

complete review of the parties' claims, defenses, the stipulated

facts, and findings of fact as to FELC and WCC. First Equip.

Leasing Corp. v. Luce (In re Luce) , 109 B.R. 202 (Bankr. N.D.

Tex. 1989). Rather than repeat the facts in detail, we merely

summarize them.

3 (collectively, the "Luce Partners hips"). The Luces not only

operated a successful Amw ay distribution business, but also

purchased comp uter components for the purpose of combining them

into computer systems. First Equipment Leasing Corporation

("FELC") and Westinghouse Credit Corporation ("WCC") engaged in the

equipment leasing business. This case is about the unfortunate

liaison between the Luces and the equipment lessors. 1

The general scheme involved procurement of commercial

financing from various finance companies. The companies leased

parts for various multi-user computer systems to the Luces and the

Luce Partnerships. The finance companies, after Jack Luce signed

an acknowledgement that the particular equipment had been received

in good order, and, in some cases, after Billye Luce had personally

guaranteed the lease payments, advanced the cost of the equipment

l eased from them by the Luces and the Luce Partnershi ps to a

computer supplier. The computer supplier, however, was in cahoots

with Jack Luce. Instead of sending the leased equipment to the

Luce Partnerships, the equipment supplier secretly kicked back the

m oney it received from the finance companies to Jack Luce or the

Luce Partnerships. Out of fifteen funded leases, only two computer

systems were actually delivered. The two systems served as

collateral for at least fourteen financing transactions. In total,4

Jack and Billye Luce employed over $500,000 of the diverted funds

for personal use. The dispute we consider today concerns five

transactions with two different finance companies.

Jack, doing business as LLE, signed three equipment leases

with FELC. Billye personally guaranteed each of the leases. Jack

acknowledged that the computer system listed in each of the leases

had been delivered in good working order. In reasonable reliance

on the leases , guarantees, and acknowledgements, FELC paid a

computer system supplier ("Equipment Supplier") for the equipment.

But the Equipment Supplier never delivered the computer systems to

the Luces. Instead, the Equipment Supplier passed on approximately

seventy percent of the funds it received from FELC

-- $115,500 for

each of the three systems

-- to the Luce Partnerships. Jack and

Billye owe FELC almost five hundred thousand dollars under the

three equipment leases.

Both Billye and Jack Luce, doing business as LLI, signed two

other equipment leases, whic h the lessor later assigned to WCC.

The finance company paid the Equipment Supplier for the equipment,

then leased the equipment to the Luces. The Luces defaulted on

both leases, leaving Billye and Jack indebted to WCC for over two

hundred thousand dollars. WCC sued in state district court to

recover the unpaid balance under the two equipmen t leases and

sought sequestrat ion of the collateral for the leases. Proceeds

from the sale of certain collateral sequestered and s old remains

with the Clerk of the District Court of Dallas County.

In late 1986, the Luces filed a voluntary petition for relief2 § 523(a) of the Bankruptcy Code ("Code") provides in

relevant part that a discharge under the Code

does not discharge an individual debtor from any debt--

. . . . (2) for money, property, services, or an

extension, renewal, or refinancing of credit,

to the extent obtained by--

(A) false pretenses, a false representation, or

actual fraud, other than a statement respecting a

debtor's or an insider's financial condition;

. . . . (4) for fraud or defalcation while acting in

a fiduciary capacity, embezzlement, or

larceny;

11 U.S.C. § 523(a)(2), (a)(4) (1979 & Supp. I 1991).

5 under Chapter 7 of the Bankruptcy Code. This filing resulted in

the abatement of the state court litigation before the court made

a final determination on the merits. FELC and WCC initiated

adv ersary proceedings to determine the dischargeability of the

Luces' debt under the leases and guarantees. The bankruptcy court

entered an agreed judgment and order of nondischargeability against

Jack Luce in the adversary proceeding filed by FELC and in

companion adversary proceedings brought by other finance companies,

but not in the adversary proceeding filed by WCC. FELC attempted

to persuade the bankruptcy court to exempt Billye Luce's debt under

the guarantees from dischargeability under 11 U.S.C. § 523(a). 2

WCC argued that neither Jack nor Billye should be discharged from

debt under the two WCC leases under 11 U.S.C. § 523(a).

After a consolidated bench trial in the adversary proceedings,

the bankruptcy court entered its findings of fact and conclusions

o f law. In separate judgments, the court denied the

dischargeability of Billye Luce's entire debt to FELC and denied3 Jack Luce has not filed a brief in this appeal.

6 the dischargeability of Billye and Jack Luce's debt on the second

WCC lease. The court awarded both creditors pre- and post-judgment

interest and costs. The district court affirmed the judgments of

the bankruptcy court.

In this Court, Billye Luce appeals the non-dischargeability of

her debt to FELC and WCC. WCC appeals the dischargeability of

Billye and Jack Luce's debt on its first lease. FELC appeals the

denial of pre- and post-petition attorney's fees only as to Billye,

but WCC appeals the denial of attorney's fees as to both Billye and

Jack. 3 We affirm in part, vacate in part, and remand for further

proceedings consistent with this opinion.

II. PLAYING FAST AND LUCE

We set aside findings of fact by a bankruptcy court only when

they are clearly erroneous. J ordan v. Southeast Nat'l Bank (In re

Jordan) , 927 F.2d 221, 223-24 (5th Cir. 1991) (citing Bankr. Rule

8013). We engage in a de novo review of the bankruptcy court's

conclusions of law. Id . at 224 (citing Bankr. Rule 8013) . Since

"[d]eterminations as to the dischargeability of debts under section

523 are reviewed under the clearly erroneous standard," we subject

only the bankruptcy court's conclusions as to attorney's fees to de

novo review. See Cheripka v. Republic Ins. Co. (In re Cheripka)

,

N o. 91-3249, 1991 WL 276289, at *10 (3rd Cir. Dec. 31 , 1991)

(citations omitted).4 Other decisions by the bankruptcy court judge indicate

his consistent application of the clear and convincing standard.

See

, e.g.

, Zervas v. Nix (In re Nix) , 92 B.R. 164, 169 (Bankr.

N.D. Tex. 1988); Norton v. Dean (In re Dean) , 79 B.R. 659, 662

(Bankr. N.D. Tex. 1987). The memorandum order of the district

court exhibits application of the clear and convincing standard.

Mem. Order at 9.

7 A. Retroactive Application of Grogan

In Grogan v. Garner the Supreme Court announced a new rule:

The "stan dard of proof for the dischargeability exceptions in 11

U.S.C. § 523(a) is the ordinary preponderance-of-the-evidence

standard." G rogan v. Garner

, 111 S.Ct. 654, 661 (1991). The rule

that a creditor must establish the nondischargeability of its claim

by a preponderance of the evidence displa ced the clear and

convincing evidence rule utilized by the Court of Appeals for the

Eighth Circuit in rev ersing the G rogan district and bankruptcy

courts. I d

. at 656-57; see id

. at 657 & n.7 (noting that "most

other Circuits" required proof by clear and convincing evidence to

avoid dischargeability under § 523).

The Court decided Grogan

, however, after the bankruptcy court

and district court entered judgments in this proceeding. Since the

bankruptcy court and the district court apparently requir ed both

FELC and WCC to prove the nondischargeability of their claims by

clear and convi ncing evidence, 4 the creditors assert that this

Court should remand to allow the bankruptcy court to make findings

of fact based upon the lower preponderance of the evidence

standard. Both creditors urge this Court to apply the5 We do not apply the factors set out by the Supreme

Court in Chevron Oil v. Huson , 92 S.Ct. 349, 355-56 (1971), "if

the rule was retroactively applied to the parties in the case in

which it was originally announced." Sterling , slip op. at 2572

(citing Beam , 111 S.Ct. at 2446).

8 preponderance of the evidence standard adopted in G rogan

retroactively.

The issue before us, then, is whether we must apply the lower

standard of proof articulated in Grogan retroact ively. The

threshold question under James B. Beam Distilling Co. v. Georgia

,

111 S.Ct. 2439 (1991), is whether the Supreme Court applied the

rule enunciated in Grogan to the parties in that case

. S ee

Sterling v. Block

, No. 90-3913, slip op. at 2572 (5th Cir. Jan. 30,

1992). For "[o]nce retroactive application is chosen for any

assertedly new rule, it is chosen for all others who might seek its

prospect ive application." B eam

, 111 S.Ct. at 2447-48. 5 Although

Grogan did not overtly address the retroactivity issue, nor reserve

the question of whether its holding applied to the parties before

it, we read the case as "follow[ing] the normal rule of retroactive

application in civil cases" and applying the preponderance of the

evidence standard ret roactively to the parties before the Court.

Grogan , 111 S.Ct. at 661 (reversing the judgment of the court of

appeals that creditors who obtained a judgment of fraud in a

jurisdiction requiring proof by a prepo nderance of the evidence

could not inv oke collateral estoppel in the bankruptcy court

because the clear and convincing evidence standard applied to the

fraud exception from discharge under § 523) ; see Beam

, 111 S.Ct. at

2445.9

Since the Grogan Court applied its own rule, we must impose

the Grogan preponderance of the evidence standard retroactively in

this case. We remand the section 523 claims delineated in part

II(C) to the district court to en able it to find whether WCC

sustained its burden of proof under the preponderance of the

evidence standard enunciated in Grogan

.

B. Nondischargeability of Billye Luce's Debt to FELC and WCC

A discharge in bankruptcy "does not discharge an individual

debtor from any debt

. . . for money, property, services, or an

extension, renewal, or refinancing of credit, to the extent

obtained by

. . . false pretenses, a false representation, or

actual fraud . . . ." 11 U.S.C. § 523(a)(2)(A) (Supp. 1991).

Although the bankruptcy court found that Billye Luce did not

participate directly in Jack Luce's fraud, it imputed Jack Luce's

fraudulent misrepresentations to Bill y e Luce based on several

findings, which are all amply supported by the record.

First, Jack Luce did "obtain money, services and an extension

of credit from FELC by false pretenses, false representations and

actual fraud." L uce

, 109 B.R. at 206. Jack Luce made false

representations to WCC about the existence of the equipment covered

by the second WCC lease within the meaning of 523(a)(2)(A). I d

. at

209. Billye Luce does not challenge these findings that Jack

Luce's actions constituted "false pretenses, false representations,

or actual fraud" within the meaning of § 523(a)(2)(A). Second,10

Billye and Jack Luce were partners in the Luce Partnerships during

the time of Jack Luce's fraudulent misrepresentations to both FELC

and WCC. I d

. at 206, 209. Third, Jack Luce acted on behalf of the

Luce Partnerships and in the ordinary course of the business of the

Partnerships when he made the false representations. As Jack

Luce's partner, Billye Luce certainly "shared in the monetary

benefits" of Jack Luce's fraud. I d

. Based on these findings, the

bankruptcy judge imputed the "knowledge and actions" of Jack Luce

to Billye Luce. Id . at 206.

Billye Luce challenges the district court's affirmance of the

bankruptcy court's determination that her debt to WCC on the second

lease and to FELC was nondischargeable under section 523(a)(2)(A),

arguing that the court clearly erred. Billye Luce contends that

because she did not know about Jack Luce's fraudulent

representations and because Jack Luce's fraudulent representations

to FELC and WCC were outside the scope of the business of the Luce

Partnerships, his knowledge and actions cannot be imputed to her,

the "innocent partner." Moreover, Billye Luce argues that FELC and

WCC failed to sustain their burden of proof because the evidence

did not show that she actually obtained any money, property or

services by fraud or benefitted monetarily from Jack Luce's fraud.

Over a century ago, the Supreme Court established that

a partner's fraud [can] be imputed to a debtor to make a

debt non-dischargeable under § 17(a)(2) of the Bankruptcy

Act, [the predecessor statute to 11 U.S.C. § 523(a)(2)].

This is true not only where the debtor did not consent to

h[er] partner's fraudulent acts, but where [s]he had no

knowledge or reason to have knowledge of these acts.

Federal Dep. Ins. Corp. v. Calhoun (In re Calhoun) , 131 B.R. 757,6 See BancBoston Mortgage Corp. v. Ledford (In re

Ledford) , 127 B.R. 175, 184 (M.D. Tenn. 1991) ("authorities in

agreement that the fraud of one partner may be imputed to another

for determining dischargeability under 11 U.S.C. § 523(a)(2));

Terminal Builder Mart v. Warren (In re Warren) , 7 B.R. 571, 573

(Bankr. N.D. Ala. 1980) (question "well settled" that "a debt

arising from the obtaining of goods by false pretenses of a

partner, acting for the partnership, constitutes a claim which is

not dischargeable in bankruptcy as to the misbehaving partner,

the partnership, or an innocent partner"); cf

. Impulsora Del

Territorio Sur, S.A. v. Cecchini (In re Cecchini) , 780 F.2d 1440,

1443 (9th Cir. 1986) (imputing partner's knowledge and intent to

debtor under § 523(a)6) because partner acted on behalf of the

partnership and in the ordinary course of the business of the

partnership in converting funds); Love v. Smith (In re Smith) , 98

B.R. 423, 426 (Bankr. C.D. Ill. 1989) ("Many courts have found

that fraud committed by an agent would render a debt

nondischargeable as to a debtor-principal under § 523(a)(2));

Fluehr v. Paolino (In re Paolino) , 75 B.R. 641, 649 (Bankr. E.D.

Pa. 1987) (holding that if husband acted as wife's agent within

the scope of the agency relationship, then the agent's fraud

could be imputed to the principal under § 523(a)(2)); Citizens

State Bank v. Walker (In re Walker) , 53 B.R. 174, 179 (Bankr.

W.D. Mo. 1985) ("fraud of an authorized agent, without more, has

continually been recognized as a ground of nondischargeability").

As noted by the bankruptcy court in Calhoun , a "few sharply

criticized" decisions have refused to impute the fraud of an

agent to the principal without proof that the principal knew or

should have known of the agent's fraud. For a critical

discussion undermining the reasoning of those decisions, see

Calhoun , 131 B.R. at 761; Paolino , 75 B.R. at 648-49; Walker , 53

B.R. at 179-81.

11 760-61 (Bankr. D.D.C. 1991) (discussing Strang v. Bradner

, 5 S.Ct.

1038, 1041 (1885)). Our research confirms that "the lower courts

have held that the rule continues that fraud can be imputed to an

innocent partner regardless of his knowledge or inv olvement for

purposes of 11 U.S.C. § 523(a)(2)(A)." Id . at 761. 6

The evidence demonstrates that Jack Luce entered i nto the

equipment leases on behalf of the Luce Partnerships and in the

ordinary course of the business of the Luce Partnerships. Billye

Luce argues that she was a partner only in the "Amway business" and12

not in the "computer business." Thus, she reasons, Jack Luce's

fraud was outside the scope of the "Amwa y business." These two

"businesses" were both the business of the Luce Partnerships,

however. Billye Luce, Jack Luce's partner in the Luce

Partnerships, signed leases, guarantees and acceptances of delivery

connected with the lease financing.

Under section 523 (a)(2)(A), a debtor is not discharged from

any debt for money, property, services or credit obtained by fraud.

Billye Luce maintains that her debt to FELC and WCC remains

dischargeable because she never a ctually obtained any money,

property, services or credit for herself by fraud. The test under

section 523(a)(2)(A), however, is not whether the debtor actually

procured the money, property, services or credit for him or

herself. 3 Collier on Bankruptcy ¶ 523.08[1] (15th ed. 1991).

Rather, the Code dictates that a particular debt is

nondischargeable "[i] f the debtor benefits in some way" from the

money, property, services or credit obtained through deception.

Century First Nat'l Bank v. Holwerda (In re Holwerda)

, 29 B.R. 486,

489 (Bankr. M.D. Fla. 1983) (holding that debtor who was a

principal of a corporation "'obtained money' within the meaning of

§ 523(a)(2)" when the creditor approved a loan to the corporation).

Despite Billye Luce's testimony that she "never saw one dime

of that money," the evidence shows that Billye Luce did benefit

from Jack Luce's fraud. As a partner, Billye Luce benefitted when

the Equipment Supplier passed on funds received by it from the

equipment lessors to the Luce Partnerships. Most of the money13

obtained from the equip ment lessors went into Billye and Jack

Luce's joint bank accounts. In turn, the money in the joint bank

accounts was u sed to acquire real estate, stock and oil and gas

investments held jointly by Billye and Jack Luce, to pay business

and personal expenses of the Luces, and to make payments on leases

and loans, some of which Billye Luce had personally guaranteed.

Our review of the record thoroughly convinces us that the

district court did not commit clear error when it affirmed the

bankruptcy court's findings that FELC and WCC established,

apparently by clear and convincing evidence, that Billye and Jack

Luce's debt to WCC on the second lease and Billye Luce's debt to

FELC were nondischargeable under 11 U.S.C. § 523(a)(2)(A). FELC

and WCC were held to and satisfied a high er burden of proof than

that required by Grogan

. Our decision affirming the district

court's judgments "necessarily means that the creditor[s] would

have prevailed under a preponderance standard." A rkansas Aluminum

Alloys, Inc. v. Joyner (In re Joyner) , 132 B.R. 436, 439 (D. Kan.

1991).

C. Dischargeability of the Luces' Debt to WCC on the First Lease

In contrast to the equipment on the second WCC lease, which

the Equipment Supplier did not deliver to the Luces, the bankruptcy

court found that the Equipment Supplier "substantially delivered"7 Contrary to WCC's assertion, the bankruptcy court did

not clearly err in finding that the equipment on the first WCC

lease was "substantially delivered." The record supports this

finding.

8 WCC also argues that it established its damages for

Jack Luce's conversion of the equipment on the first WCC lease by

a preponderance of the evidence. WCC misconstrues the nature of

the bankruptcy court's findings, however. WCC concedes that "the

issue of conversion was not asserted by any party or the court as

an issue during trial." Not only did the bankruptcy court raise

the conversion issue sua sponte , but it merely addressed the

matter in dicta . The bankruptcy court simply noted that Jack

Luce might have changed the serial numbers on particular

equipment on the first WCC lease. If proved by WCC, such

activity would have constituted conversion of WCC's collateral

under § 523(a)(6). Even if WCC had proved conversion, though,

WCC "failed to offer valuation testimony on allegedly converted

collateral on the first lease."

Even if we were to entertain an argument urging a statutory

basis for nondischargeability not asserted below, it seems quite

apparent that WCC did not satisfy its burden of proof as to the

"willful and malicious activity" necessary to establish

conversion of its collateral, nor did it meet the benchmark for

proving damages for conversion because it offered no valuation

evidence. First State Bank v. Iaquinta (In re Iaquinta) , 98 B.R.

919, 925 (Bankr. N.D. Ill. 1989) ("The fair market value of the

converted collateral under § 523(a)(6) is the appropriate measure

of damages for conversion.") (citing Morsovillo v. Krause (In re

Krause) , 44 B.R. 159, 163 (Bankr. N.D. Ill. 1984)); see Haile v.

McDonald (In re McDonald) , 73 B.R. 877, 882 (Bankr. N.D. Tex.

1987).

14 the equipment on the first WCC lease to the Luces. 7 Thus, any

representations made by Jack Luce concerning the existence of the

equipment on the first WCC lease were not false. WCC argues that

the bankruptcy court erred in failing to make findings of fact

relating to WCC's independent theories of nondischargeability under

section 523(a)(2) as to the debt on the first WCC lease. 8 First,

WCC argues that not only did Jack Luce falsely represent the

existence of the equipment

, but that Jack Luce inclu ded false

representations in the application for the first WCC lease and9 Billye Luce responds that this argument seems to be

directed only to Jack Luce. If Jack Luce obtained the first

lease on behalf of LLI while acting in the ordinary court of

partnership business, however, any fraud on Jack Luce's part

could be imputed to his partner, Billye Luce. See supra p. 11 &

n.6.

10 The district court explained the bankruptcy court's

lack of findings on whether Billye Luce was recklessly

indifferent in signing the first lease: "The case authority

cited by [WCC] . . . does not deal with a key factor in this

15 obtained the lease financing under false pretenses. WCC contends

that Jack Luce falsely represented that the equipment would be used

in the Amway part of LLI's business while harboring a secret intent

to use the money for other purposes, and that WCC detrimentally

relied on the false representation in its evaluation and approval

process. This evidence, according to WCC, provides an alternative

basis for determining that Jack Luce fraudulently obtai ned the

first WCC lease under section 523(a)(2)(A). 9

Second, WCC maintains that Billye Luce ac ted with reckless

indifference in blindly signing t he first WCC lease for over

$100,000 worth of equipment without regard for its truth or

falsity. WCC argues that Billye Luce never asked questions or made

objections when she signed obliga tions on behalf of the Luce

Partnerships. WCC contends that this reckless indifference

constitutes a "false representation" under section 523(a)(2)(A).

WCC also argues that Billye Luce's reckless indifferen ce to the

fraud of her agent, Jack Luc e, in obtaining the first WCC lease

renders her responsible for that fraud. Under either reckless

indifference theory, WCC argues that Billye Luce's debt on the

first lease is nondischargeable under section 523(a)(2)(A). 10case, viz., the fact that the partner with whom Billy Luce signed

the lease agreements was her husband of twenty-five years. Given

the Luce's marital relationship," the district court found no

error. Billye Luce similarly characterizes this case as one

"about an innocent, trusting, naive wife."

We view the imputation issue as one about business partners.

It is irrelevant to the determination of the dischargeability of

Billye Luce's debts under section 523(a)(2) that the business

partners also enjoyed a marital relationship. The concepts of

law we employ do not turn on the nature of the marital

relationship, but on the nature of the business relationship

between the Luces -- the Luce Partnerships. The picture of

Billye Luce as a woman who dutifully served her husband's

interests without questions and without options ignores the

import of her college education and extensive business

experience.

16 The bankruptcy court did not make specific findings of fact

regarding the fraud of Jack Luce in obtaining the first WCC lease

or the reckless indifference of Billye Luce in signing the first

WCC lease. Federal Rule of Civil Procedure 52(a), which applies in

adversary pro ceedings under Bankruptcy Rule 7052, requires a

bankruptcy court to "find the facts specially" in all cases tried

upon the facts without a jury. See Texas Extrusion Corp. v.

Palmer, Palmer & Coffee (In re Texas Extrusion Corp.)

, 836 F.2d

217, 220 (5th Cir.), order aff'd

, 844 F.2d 1142, cert. denied

, 109

S.Ct. 311 (1988); Cities Serv. Co. v. Ocean Drilling and

Exploration Co.

, 758 F.2d 1063, 1072 (5th Cir. 1985). "Findings of

fact are especially important when the trial court's decision turns

in part upon factual determinations." T exas Extrusion

, 836 F.2d at

220. Since we have no opportunity, as did the bankruptcy judge

during the bench trial, to "judge the credibility of the

witnesses," the determination of the dischargeability of the Luces'

debt under section 523(a) presents a question of fact properly17

resolvable by the bankruptcy court. Fed. R. Civ. P. 52(a).

We vacate the judgment of the distric t court affirming the

bankruptcy court's judgment with respect to the Luces' debt on the

first WCC lease. We remand to enable the bankruptcy court to

determine whether WCC pro ved its independent theories of

nondischargeabili ty as to the debt on the first WCC lease by a

preponderance of the evidence. Specifically, 1) Did WCC prove by

a preponderance of the evidence that Jack Luce made false

representations in obtain ing the first WCC lease, rendering Jack

Luce's debt on that l ease nondischargeable under section

523(a)(2)(A)? If so, is that fraud properly imputed to Billye Luce

under the standards set forth in section II(B) of this opinion,

rendering Billye Luce's debt on the first WCC lease

nondischargeable under section 523(a)(2)(A)?; 2) Did WCC prove by

a preponderance of the evidence that Billye Luce acted with

reckless indifference with respect to the fir st WCC lease,

rendering Billye Luce's debt on the firs t WCC lease

nondischargeable under section 523(a)(2(A)?

D. Attorney's Fees

The district court affirmed the bankruptcy court's denial of

all attorney's fe es to both FELC and WCC. On cross-appeal, both

creditors seek prepetition attorney's fees, or, alternatively,

postpetition attorney's fees. We review these questions of law de

novo.18

1. Prepetition Attorney's Fees.

Both FELC and WCC claim entitle ment to attorney's fees

incurred befor e the Luces filed a voluntary petition for relief

under Chapter 7 of the Bankruptcy Code. WCC instituted suit to

recover the unpaid balance on its equipment leases in state

district court before the Luces filed under Chapter 7. The state

court did not finally determine the merits of the dispute.

In Klingman the bankruptcy court held that a creditor who

prevailed under section 523(a)(4) could recover prepetition

attorney's fees awarded in state court. Klingman v. Levinson (In

re Levinson) , 58 B.R. 831, 837 (Bankr. N.D. Ill. 1986), aff'd , 66

B.R. 548 (N.D. Ill. 1986), aff'd

, 831 F.2d 1292 (1987); cf

. Galpin

v. Galpin (In re Galpin)

, 66 B.R. 127, 132 (N.D. Ga. 1985) (holding

that the "bankruptcy court should not . . . award attorney's fees

for work on proceedings in state court that have not been awarded

by the relevant state court."). When a bankruptcy court determines

that the underlying debt is nondischargeable, then "attorney's fees

awarded by a state court based on state statutory or contractual

grounds are [also] nondischargeable." L evinson

, 58 B.R. at 837 n.7

(citations omitted). The L evinson cour t reasoned that the

"attorney's fees are part of the state court judgment." Id .; see

Texas Venture Partners v . Christian (In re Christian) , 111 B.R.

118, 122 (Bankr. W.D. Tex. 1989) (holding that attorney's fees

awarded to creditors in a state court final judgment were

nondischa rgeable under § 523(a)(2)(A) (citations omitted). We

have not found, nor have the creditors directed our attention to,11 The record indicates that FELC did proceed in state

court against the Equipment Supplier and individuals other than

the Luces.

19 any cases holding that prepetition atto r ney's fees are

nondischargeable under section 523(a) absent a state court judgment

awarding attorney's fees to the creditors.

The state courts did not award attorney's fees to FELC or WCC.

FELC did not even proceed against the Luces or the Luce Partnership

in state court. 11 The state court did not enter a final judgment

in the case broug ht by WCC to recover the unpaid balances on its

equipment leases. We agree with the district court's affirmance of

the bankruptcy court's denial of prepetition at torney's fees to

FELC and WCC.

2. Postpetition Attorney's Fees.

FELC and WCC also seek postpetition attorney's fees incurred

by them in litigating this adversary proceeding. After the

bankruptcy court and district court entered judgments in this

adversary proceeding, this Court decided Jordan v. Southeast Nat'l

Bank (In re Jordan)

, 927 F.2d 221 (5th Cir. 1991). In J ordan this

Court first confronted the issue of whether postpetition attorney's

fees incurred by prevailing c reditors are exempt under 11 U.S.C.

523(a)(2). We explicitly adopted the Sixth Circuit's approach:

11 U.S.C. § 523(a)(2)(B) excepts from discharge the whole

of any debt incurred by use of a fraudulent financial

statement, and such a debt includes state-approved

contractually required attorney's fees

.

Id

. at 227 (quoting Martin v. B ank of Germantown (In re Martin)

,

761 F.2d 1163, 1168 (6th Cir. 1985) (emph asis added)); s ee12 For a thorough discussion reconciling the statutory

language and legislative history of § 523(d) with the recovery of

postpetition attorney's fees by a prevailing creditor based on

the creditor's contractual right to attorney's fees, see

Transouth , 931 F.2d at 1509; Jordan , 927 F.2d at 227-28; Martin

, 761 F.2d at 1167-68. But see Transouth , 931 F.2d at 1514-18

(Clark, J., dissenting) ("validity under state law of a

contractual provision for attorney's fees [does not] control[]

when Congress expressly evidences an intent to disallow such

fees.").

20 Transouth Fin. Corp. v. Johnson

, 931 F.2d 1505, 1509 (11th Cir.

1991). Like section 523(a)(2)(B), section 523(a)(2)(A) excepts

from discharge the debt incurred "by fal se pretenses, a false

representation, or actual fraud," which encompasses "state-approved

contractually required attorney's fees." C f

. Davidson v. Davidson

(In re Davidson)

, 947 F.2d 1294, 1298 (5th Cir. 1991) (following

Jordan holding that "where a party has contracted to pay attorneys'

fees for the collection of a nondischargeable debt, the fees also

will not be discharged in bankruptcy" in a § 523(a)(5) case).

Although "prevailing creditors still have no statutory right

to attorney's fees" because secti on 523(d) only gives prevailing

debtors a right to attorney's fees in an adversary proceeding, we

reconc iled giving prevailing creditors the c ontractual right to

attorney's fe es with both the statutory language and legislative

history of section 523(d). J ordan

, 927 F.2d at 227 (quoting

Martin

, 761 F.2d at 1168) (emphasis added). 12 Of course, a creditor

can only recover postpetition attorney's fees when that right

arises from a contract between the creditor and the debtor that is

enforceable under state law. T ransouth

, 931 F.2d at 1509; Jordan

,

927 F.2d at 227.21

We vacate the judgment of the district court affirming the

judgment of the bankruptcy court denying FELC and WCC postpetition

attorney's fees. We remand to allow the bankruptcy court to

examine the enforceability of any provisions in the FELC and WCC

leases or guarantees entitling FELC to attorney's fees as against

Billye Luce or entitling WCC to attorney's fees as against Billye

or Jack Luce. If those provisions are enforceable under state law,

then the bankruptcy court should determine the appropriate

postpetition attorney's fees.

III. A FEW LUCE ENDS

For the reasons stated above, we AFFIRM in part, VACATE in

part, and REMAND for further proceedings consistent with this

opinion.