In re Felix ( 2018 )

RECOMMENDED FOR FULL-TEXT PUBLICATION
File Name: 18b0005p.06
BANKRUPTCY APPELLATE PANEL
OF THE SIXTH CIRCUIT
In re: AUSTIN CHIDI FELIX; DOROTHY IFY FELIX, ┐
Debtors. │
> No. 17-8004
│
┘
Appeal from the United States Bankruptcy Court
for the Southern District of Ohio at Columbus.
No. 15-50016—Charles M. Caldwell, Judge.
Decided and Filed: April 6, 2018
Before: DELK, HARRISON, and WISE, Bankruptcy Appellate Panel Judges.
_________________
COUNSEL
ON BRIEF: Nancy Ashbrook Willis, LAW OFFICE OF NANCY ASHBROOK WILLIS,
Mount Vernon, Ohio, for Trustee. Austin Chidi Felix, Dorothy Ify Felix, Reynoldsburg, Ohio,
pro se.
_________________
OPINION
_________________
MARIAN F. HARRISON, Bankruptcy Appellate Panel Judge. This appeal concerns the
bankruptcy court’s order denying Austin and Dorothy Felix’s (collectively “debtors,”
individually Mr./Mrs. Felix) homestead exemption based on its finding that the debtors were not
domiciled in Ohio for the 730 days required by 11 U.S.C. § 522(b)(3)(A) before they filed their
bankruptcy petition. Because the bankruptcy court’s interpretation of the facts was not clearly
erroneous, its ruling is affirmed.
No. 17-8004 In re Felix Page 2
ISSUES ON APPEAL
1. Whether this appeal should be dismissed because the debtors’ brief was filed one day
late and does not comport with the formatting requirements.
2. Whether the bankruptcy court erred in refusing to admit certain evidence offered by
the debtors.
3. Whether the bankruptcy court erred in determining that the debtors were not entitled
to claim the Ohio Homestead Exemption in their property located in Ohio because
they were not domiciled in Ohio for the 730 days prior to filing their bankruptcy
petition.
JURISDICTION
The Bankruptcy Appellate Panel of the Sixth Circuit has jurisdiction to decide this
appeal. The United States District Court for the Southern District of Ohio has authorized appeals
to the Panel, and none of the parties have timely elected to have this appeal heard by the district
court. 28 U.S.C. § 158(b)(6), (c)(1). A final order of the bankruptcy court may be appealed as of
right pursuant to 28 U.S.C. § 158(a)(1). For purposes of appeal, an order is final if it “‘ends the
litigation on the merits and leaves nothing for the court to do but execute the judgment.’”
Midland Asphalt Corp. v. United States, 489 U.S. 794, 798, 109 S. Ct. 1494, 1497 (1989)
(citation omitted). A bankruptcy court’s order denying a claim of exemption is a final,
appealable order. Menninger v. Schramm (In re Schramm), 431 B.R. 397, 399 (B.A.P. 6th Cir.
2010) (citation omitted).
STANDARDS OF REVIEW
Conclusions of law are reviewed de novo. Mediofactoring v. McDermott (In re Connolly
N. Am., LLC), 802 F.3d 810, 814 (6th Cir. 2015) (citations omitted); Isaacs v. DBI-ASG
Coinvester Fund III, LLC (In re Isaacs), 569 B.R. 135, 139 (B.A.P. 6th Cir. 2017) (citation
omitted). “Under a de novo standard of review, the reviewing court decides an issue
independently of, and without deference to, the trial court’s determination.” Menninger v.
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Accredited Home Lenders (In re Morgeson), 371 B.R. 798, 800 (B.A.P. 6th Cir. 2007) (citation
omitted).
On the other hand, “[f]indings of fact . . . must not be set aside unless clearly erroneous,
and the reviewing court must give due regard to the trial court’s opportunity to judge the
witnesses’ credibility.” Fed. R. Civ. P. 52(a)(6); see In re Aubiel, 534 B.R. 300, 302 (B.A.P. 6th
Cir. 2015); Lester v. Storey (In re Lester), 141 B.R. 157, 160 (S.D. Ohio 1991). “Factual
findings are clearly erroneous only when the reviewing court ‘is left with the definite and firm
conviction that a mistake has been committed.’” United States v. Ray, 803 F.3d 244, 265 (6th
Cir. 2015) (quoting United States v. Navarro-Camacho, 186 F.3d 701, 705 (6th Cir. 1999)).
“Where there are two permissible views of the evidence, the factfinder’s choice between them
cannot be clearly erroneous.” Anderson v. City of Bessemer City, 470 U.S. 564, 574, 105 S. Ct.
1504, 1511 (1985) (citations omitted).
A dispute regarding domicile, as in the present case, is generally considered as a mixed
question of law and fact. Morad v. Xifaras (In re Morad), 323 B.R. 818, 822 (B.A.P. 1st Cir.
2005) (citations omitted). See also Ku v. Brown (In re Ku), No. AZ-16-1174-BJuL, 2017 WL
2705301, at *3 (B.A.P. 9th Cir. June 21, 2017) (citations omitted) (“Domicile premised upon
intent and presence involves mixed questions of law and fact[.]”). As the Supreme Court
recently observed, “[m]ixed questions are not all alike” — those that rest primarily on the facts
are reviewed for clear error and those that rest primarily on the law are reviewed de novo. U.S.
Bank Nat’l Ass’n v. Vill. at Lakeridge, LLC, No. 15-1509, 2018 WL 1143822, at *5 (U.S. Mar. 5,
2018). “[T]he standard of review for a mixed question all depends—on whether answering it
entails primarily legal or factual work.” Id.“The bankruptcy court’s decision to admit or exclude evidence is reviewed for an abuse
of discretion.” Lebovitz v. Hagemeyer (In re Lebovitz), 360 B.R. 612, 615-16 (B.A.P. 6th Cir.
2007) (citation omitted). “‘A court abuses its discretion when it commits a clear error of
judgment, such as applying the incorrect legal standard, misapplying the correct legal standard,
or relying upon clearly erroneous findings of fact.’” Gourlay v. Sallie Mae, Inc. (In re Gourlay),
465 B.R. 124, 126 (B.A.P. 6th Cir. 2012) (quoting Auletta v. Ortino (In re Ferro Corp.
Derivative Litig.), 511 F.3d 611, 623 (6th Cir. 2008)). Where an objection to the admission of
No. 17-8004 In re Felix Page 4
evidence is not raised at the trial court level, however, the standard of review is plain error.
United States v. Olano, 507 U.S. 725, 733, 113 S. Ct. 1770 (1993). To prove that a lower court
made a plain error in admitting evidence, the party who failed to object must show (1) an error
(2) that is “clear or obvious,” (3) that affected the party’s “substantial rights,” and (4) that
“seriously affects the fairness, integrity or public reputation of judicial proceedings.” Puckett v.
United States, 556 U.S. 129, 135, 129 S. Ct. 1423 (2009) (internal quotations omitted).
FACTS
The debtors filed their chapter 7 bankruptcy petition in the Southern District of Ohio on
January 2, 2015. On Schedule A, the debtors listed two properties: 973 Mueller Drive,
Reynoldsburg, Ohio (“Ohio Home”) and 14700 Elberfeld Court, Upper Marlboro, Maryland
(“Maryland Home”). The debtors listed the Ohio Home as their residence, and on Schedule C,
the debtors claimed a $265,800 homestead exemption pursuant to Ohio Revised Code Ann.
§ 2329.66(A)(1). On their Statement of Intent, the debtors asserted their intent to retain the Ohio
Home and surrender their Maryland Home.
During the 11 U.S.C. § 341 Meeting of Creditors (“§ 341 Meeting”) held on February 10,
2015, the debtors informed the chapter 7 trustee (“Trustee”) of their desire to move to Maryland
and indicated they had been commuting between Ohio and Maryland. The debtors stated that
they previously owned a home health care business in Ohio. They sold that business to their son
several years prior to filing bankruptcy but continued to help him manage the business. The
debtors attempted to start a similar business in Maryland but were unsuccessful. When
questioned, Mrs. Felix gave confusing responses as to where she currently lived and where the
family intended to live. The debtors’ attorney at the time stated the debtors’ intent to “offer the
house in Ohio as an . . . [offer] of compromise to the IRS. . . . [D]o a loan modification in
Maryland. . . . Then [the debtors are] going to move there. . . . That’s the master plan.” (§ 341
Meeting Tr. at 23:24-24:7). Mrs. Felix testified that the debtors would not stay in the Ohio
Home because of the IRS’ tax lien. (Id. at 22:6-13). When asked if the Maryland Home was ever
a residence, Mrs. Felix answered “I stayed there a lot.” (Id. at 22:24-23:1). When asked further
about living in both places, Mrs. Felix answered “I moved to Maryland. . . . I was commuting
. . . . I really wanted to leave Ohio.” (Id. at 23:5-14). In a follow-up question, Mrs. Felix was
No. 17-8004 In re Felix Page 5
asked about plans for the family to move and responded: “Yes, they were going to meet us in
Maryland but the house in Maryland is in foreclosure at this point, so.” (Id. at 23:17-22). At that
point, the debtors’ attorney interrupted and stated: “The plan is to hopefully offer the house in
Ohio as an [offer] of compromise to the IRS. Hope it clears it. And then hope [the debtors] can
do a loan modification in Maryland. . . . Then they’re going to move there. . . . That’s the
master plan.” (Id. at 23:24-24:7).
Following the initial § 341 Meeting, the Trustee objected to the debtors’ homestead
exemption in the Ohio Home, arguing that it was not their domicile during the 730 days
immediately preceding their chapter 7 filing (i.e., from January 2, 2013, through January 2,
2015). The Trustee argued that the debtors’ domicile was located at the Maryland Home during
the relevant period. The debtors filed a response to the objection, noting that “they would like to
eventually move to Maryland when the case was over, but they identified as currently being Ohio
residents.” (Debtors’ Resp. at 1, March 31, 2015, Case No. 15-50016, ECF No. 16). The Ohio
homestead exemption is preferable, as it permits each debtor to claim a $132,9001 exemption in a
primary residence, or $265,800 for a joint bankruptcy case, whereas Maryland limits the
exemption to $6,000, and that amount may not be claimed by both a husband and wife in the
same bankruptcy proceeding. See Ohio Rev. Code Ann. § 2329.66(A)(1)(b) and Md. Code Ann.,
Cts. & Jud. Proc. § 11-504(f)(1)(i)(2)(A) and (f)(3).
After the objection and response were filed, the Trustee took Rule 2004 examinations of
the debtors, and the bankruptcy court heard five days of testimony on the Trustee’s objection to
the debtors’ homestead exemption. Prior to the first and second hearings, the parties stipulated
to a number of facts. On January 23, 2017, the bankruptcy court entered an order sustaining the
Trustee’s objection to exemption. On February 6, 2017, the debtors timely filed a notice of
appeal of the order sustaining the Trustee’s objection to exemptions.
1
Ohio law permits an adjustment of the exemption amount on the first day of April in each third calendar
year after 2010. At the time the debtors filed their bankruptcy case, the homestead exemption amount in Ohio was
$132,900. See Ohio Judicial Conference, http://www.ohiojudges.org/Document.ashx?DocGuid=c6a5f473-62f4-
4466-9e4f-aaf7b59c1b66 (last visited March 27, 2018).
No. 17-8004 In re Felix Page 6
DISCUSSION
Timeliness of Debtors’ Appellant Brief
As a preliminary matter, the Trustee asserts that this appeal should be dismissed because
the debtors’ brief was filed one day late and “fails to comply with nearly all briefing
requirements set out in Fed. R. Bankr. P. 8014(a).” (T’ee Br. at 4). Indeed, the debtors’ brief
was filed one day late and does not comport with the format generally required.
While the Panel has authority to dismiss an appeal for failure to comply with briefing
requirements, the Sixth Circuit favors adjudication on the merits, see, e.g., Little v. Yeutter,
984 F.2d 160, 162 (6th Cir. 1993), and has cautioned that dismissal “is a harsh sanction which
the court should order only in extreme situations showing ‘a clear record of delay or
contumacious conduct by the plaintiff.’” Carver v. Bunch, 946 F.2d 451, 454 (6th Cir. 1991)
(quoting Carter v. City of Memphis, 636 F.2d 159, 161 (6th Cir. 1980)). See also Island Creek
Coal Co. v. Local Union No. 1827 of United Mine Workers of Am., 568 F.2d 7, 8 (6th Cir. 1977)
(holding that dismissal was not warranted on the ground that appellant’s designation of the
record on appeal was incomplete where appellees were neither misled nor prejudiced by
appellant’s error, and there was no evidence that appellant’s omission was made in bad faith).
The Trustee has not asserted that the debtors acted in bad faith, nor has he articulated any
prejudice resulting from the debtors’ late brief or from its formatting. In fact, the Trustee’s brief
reflects that he was able to ascertain the debtors’ arguments from their brief. Therefore, the
Panel will not dismiss the appeal as a sanction for the one-day tardiness or the failure to follow
briefing guidelines.
Evidentiary Issues
The Trustee also raises objections to the “exhibits” attached to the debtors’ appellate brief.
The Panel only considered the actual trial exhibits made part of the record on appeal.
Accordingly, to the extent the debtors improperly attached exhibits to their brief, it is harmless
error.
The debtors assert that the bankruptcy court erred by not admitting Exhibit Q, a letter
from Chase Bank dated November 20, 2015, and Exhibit R, a notice of non-compliance from the
No. 17-8004 In re Felix Page 7
Maryland Home Owners Association. The bankruptcy court denied admission of both because
they did not relate to the relevant 730-day period. The bankruptcy court’s denial of admission of
these exhibits was not an abuse of discretion. The debtors also argue that the admission of
Exhibit 60, the assignment of mortgage to Chase Bank, and Exhibit 42, the loan closing file for
the Maryland Home, was prejudicial because they were outside the relevant time period. The
debtors’ argument fails because Exhibit 60 was admitted by stipulation and Exhibit 42 was
admitted without objection, and the debtors have not established that it was plain error to admit
Exhibit 42. United States v. Clements, 590 Fed. App’x 446, 449 (6th Cir. 2014) (“[A] party who
fails to object to the introduction of evidence may seek plain-error review of the forfeited
objection.”).
Domicile
As stated earlier, a dispute regarding domicile is generally considered as a mixed
question of law and fact. In re Morad, 323 B.R. 818, 822 (citations omitted). The determinative
issue in the present case is whether the bankruptcy court correctly held that the debtors were
domiciled in Maryland rather than Ohio for the 730 days prior to the date of the bankruptcy
petition. See 11 U.S.C. § 522(b)(3)(A). The legal standard for determining domicile is well
settled, and the bankruptcy court’s decision rests primarily on applying that standard to the facts
of this case. In other words, the bankruptcy court was compelled “to marshal and weigh
evidence,” and “make credibility judgments,” and therefore, the decision is reviewed for clear
error. U.S. Bank Nat’l Ass’n v. Vill. at Lakeridge, LLC, 2018 WL 1143822, at *5. The Panel
holds that the bankruptcy court’s decision was not clearly erroneous.
The filing of a bankruptcy petition under chapter 7 of the Bankruptcy Code creates a
bankruptcy estate. Under 11 U.S.C. § 541(a)(1), “property of the estate” is defined as “all legal
or equitable interests of the debtor in property as of the commencement of the case[.]” Pursuant
to 11 U.S.C. § 522(b), a debtor may exempt certain property from the bankruptcy estate.
A debtor may claim federal exemptions set forth in 11 U.S.C. § 522(d) unless the applicable state
has opted out of the federal exemptions and created its own exemptions. 11 U.S.C. § 522(b)(2).
To claim state-enacted exemptions, the debtor must be domiciled in that state for the 730 days
No. 17-8004 In re Felix Page 8
immediately preceding the date they file the petition.2 11 U.S.C. § 522(b)(3). At the time the
debtors filed their petition, they claimed the Ohio homestead exemption. See Ohio Rev. Code
Ann. § 2329.66(A)(1)(b). The Trustee objected to the exemption, asserting that the debtors were
not domiciled in Ohio for the 730 days prior to filing their petition.
“A person may have two or more residences but only one domicile.” In re Acor,
510 B.R. 588, 592 (Bankr. W.D. Tenn. 2014) (quoting In re Gurley, 215 B.R. 703, 708 (Bankr.
W.D. Tenn. 1997)) (additional citations omitted). “A domicile is distinguished from a residence
by the permanency and scope of a party’s presence at either location. It is the place where a
person dwells and which is the center of his domestic, social, and civil life.” Bateman v. E.I.
DuPont De Nemours & Co., 7 F. Supp. 2d 910, 912 (E.D. Mich. 1998) (internal quotation marks,
citation, and emphasis omitted). Bankruptcy courts in the Sixth Circuit use a test, derived from
the Supreme Court, to determine domicile:
No single factor can conclusively establish domicile. Instead, to determine the
domicile of a debtor, a court must evaluate all of the circumstances of the case.
Galva Foundry Co. v. Heiden, 924 F.2d 729 (7th Cir. 1991). Among the factors to
be considered in evaluating the situs of a debtor’s domicile are: (1) the location of
the current residence; (2) voting registration and voting practices; (3) location of
spouse and family; (4) location of personal or real property; (5) location of
brokerage and bank accounts; (6) memberships in churches, clubs, unions and
other organizations; (7) location of a person’s physician, lawyer, accountant,
dentist and stockbroker; (8) place of employment or business; (9) driver’s license
and automobile registration; and (10) payment of taxes. District of Columbia v.
Murphy, 314 U.S. 441, 455–58, 62 S. Ct. 303, 309–11, 86 L. Ed. 329 (1941).
In re Felgner, No. 11-32274, 2011 WL 5056994, at *2 (Bankr. N.D. Ohio Oct. 24, 2011); see
also In re Aubiel, 534 B.R. 300, 307 (applying test from Felgner).
In deciding that the debtors’ domicile was in Maryland, the bankruptcy court applied the
correct legal standards. Specifically, the bankruptcy court ruled that “[d]omicile is a
combination of physical presence, along with the intent to remain permanently in the chosen
location . . . . On the other hand, residence is a person’s dwelling place or place of habitation.”
2
If a debtor has not had the same domicile for 730 days immediately preceding the filing, the Bankruptcy
Code requires looking at the 180 days prior to that. 11 U.S.C. § 522(b)(3). If the domicile has not been the same for
the full 180 days then the Bankruptcy Code allows a debtor to use state or local law where the debtor was domiciled
for the greater portion of the 180 days. Id.No. 17-8004 In re Felix Page 9
In re Felix, 562 B.R. 700, 705 (Bankr. S.D. Ohio 2017) (internal quotations and citations
omitted). The bankruptcy court explained that “a person may be absent from their domicile for
long periods of time without losing it, so long as a new domicile is not acquired,” id. (citation
omitted), and recognized that “[t]he objecting party carries the burden of proof by preponderance
of the evidence.” Id. (citing Fed. Rule Bankr. P. 4003(c); In re Wengerd, 453 B.R. 243, 246
(B.A.P. 6th Cir. 2011)). Further, the bankruptcy court correctly undertook its obligation to find
“the subjective intent of the debtors” using both “subjective statements of debtors, as well as
objective factors.” Id. (citations omitted).
The bankruptcy court’s interpretation of the proof was not clearly erroneous. See
Anderson v. Bessermer City, 470 U.S. 564, 574 (“Where there are two permissible views of the
evidence, the factfinder’s choice between them cannot be clearly erroneous.”). As the debtors
admitted and the bankruptcy court noted: “over the last decade, Debtors have resided in and
commuted between two houses, one in Ohio, and the other in Maryland.” In re Felix at 705.
The debtors bought the Ohio Home in 2004, and lived there with at least five of their six
children. The minor children attended Ohio public schools, and the debtors were charged owner-
occupied property taxes on the Ohio property. Mrs. Felix had family in Maryland, and the
debtors intended to open a business in Maryland and relocate there permanently. In furtherance
of their plan to move, the debtors purchased the Maryland Home, a 4607 square foot house, for
$651,815 in 2009. To obtain financing for the Maryland Home, the debtors executed a sworn
affidavit as part of the mortgage process which stated that the home would be their primary
residence for 12 months out of the year. Mrs. Felix physically moved to the Maryland Home,
which was at least partially furnished, obtained a Maryland driver’s license (although she does
not drive), registered to vote in Maryland, and opened a bank account in Maryland. At least one
of the debtors’ adult children also moved into the Maryland Home and attended college in
Maryland, while Mr. Felix and some of their children remained in Ohio. The minor children
attended school in Ohio, and the family’s regular physicians and churches were in Ohio during
the relevant period. Both debtors frequently commuted back and forth between Maryland and
Ohio. Routine daily activities occurred in both states, and even the debtors’ witnesses testified
regarding the existence of the Maryland Home and of the debtors’ desire to move there
permanently. In 2012, the debtors sold the Ohio business to their son but continued to work
No. 17-8004 In re Felix Page 10
there. The Ohio business remained the only source of the debtors’ income. Between the years
2005 and 2013, the debtors formed six entities and registered trade names in Maryland and the
District of Columbia; however, none of the debtors’ attempts at starting a new business in
Maryland were successful. The debtors’ business and personal bank records showed regular
debit transactions that occurred in both states.
When the debtors filed their bankruptcy petition in 2015, they claimed a homestead
exemption in the Ohio Home, which they valued at $279,700. At the time, there was no
mortgage on the Ohio Home but the Internal Revenue Service (“IRS”) had levied two tax liens
on the property, one for $145,122.03 and the other for $264,887.12. On their Statement of
Intent, the debtors expressed their intent to surrender the Maryland Home, which they valued at
$532,300. The Maryland Home had a mortgage of $647,418.40.
During the § 341 Meeting, Mrs. Felix and the debtors’ original bankruptcy attorney
confirmed that the debtors’ actual plan was to submit an offer of compromise to the IRS based
on the equity in the Ohio Home and seek a loan modification to retain the Maryland Home. At
Mr. Felix’s Rule 2004 Examination, he testified that the debtors physically moved to Maryland
and occupied the Maryland Home even though they were coming back and forth to Ohio. At
Mrs. Felix’s Rule 2004 Examination, she testified that she lived at both houses, going back and
forth, but usually stayed at the Maryland Home. It was only when the Trustee objected to the
debtors’ claimed exemption in the Ohio Home that the debtors learned the IRS had recorded its
tax liens in the wrong Ohio county. After this revelation, the debtors’ testimony changed. At
trial, the debtors testified that they spent most of their time at the Ohio Home. Mrs. Felix
testified that they only went to the Maryland Home every two and a half months, and the
debtors’ Maryland neighbor testified that he rarely saw them at the Maryland Home.
The bankruptcy court noted that “the hallmark of this case is the tardy disclosure of an
intricate organization that defies all explanation of necessity” and that the “Debtors’ credibility
in providing complete and candid answers suffers.” In re Felix, 562 B.R. at 707. The
bankruptcy court concluded that once the debtors became aware of the recording error, they
changed their professed housing plans and “that this change in heart is a tactic to shield a
valuable asset, rather than a valid assertion of domicile.” Id. at 708. The bankruptcy court’s
No. 17-8004 In re Felix Page 11
finding regarding credibility is to be given great weight. See Brock v. Hammonds (In re Triton
Enters., Inc.), 464 B.R. 62, 62 (B.A.P. 6th Cir. 2011) (unpublished table decision) (citations
omitted) (“The bankruptcy court is in the best position to assess the testimony and credibility of
witnesses.”).
While one could reach either domicile conclusion from the evidence, this Panel must
afford due deference to the bankruptcy court’s assessment of the witnesses’ credibility.
Therefore, the bankruptcy court’s domicile determination was not clearly erroneous. This
conclusion is strengthened by the bankruptcy court’s express findings regarding the debtors’
credibility.
CONCLUSION
For the reasons stated, the bankruptcy court’s order denying the debtors’ Ohio homestead
exemption is AFFIRMED.