Crowell v. Theodore Bender Accounting, Inc. (In Re Crowell)

REVISED, May 8, 1998
UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
NO. 97-10683
In the Matter of: Charles R. Crowell,
Debtor.
CHARLES R. CROWELL,
Appellant,
VERSUS
THEODORE BENDER ACCOUNTING, INC.,d/b/a
THEODORE BENDER ACCOUNTING SERVICE, INC.
Appellee.
Appeal from the United States District Court
For the Northern District of Texas
April 29, 1998
Before DAVIS, WIENER and PARKER, Circuit Judges.
ROBERT M. PARKER, Circuit Judge:
I.
FACTS & PROCEDURAL HISTORY
Charles R. Crowell filed for Chapter 13 reorganization on
January 4, 1988. Crowell claimed a rural homestead exemption under
Texas law for a forty-two (42) acre tract of land within the city
limits of Keller, Texas. Theodore Bender Accounting, Inc.
(“Bender”) had a lien on the forty-two acres. The Chapter 13
Trustee objected to the designation of all forty-two acres as
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exempt rural homestead. Thereafter, Crowell intitiated an
adversary proceeding to invalidate Bender’s lien, and Bender
counter-claimed asserting the validity of its lien and sought a
judgment of foreclosure. Then, without notice to Bender and
without a hearing, the Chapter 13 Trustee abandoned his objection
by agreement with Crowell.
Following a trial in the adversary proceeding initiated by
Crowell, the bankruptcy court agreed with Bender, and designated
the land as urban homestead, reducing Crowell’s allowable exemption
to one (1) acre. The bankruptcy court dismissed Bender’s counter-
claim for foreclosure without prejudice to its rights to seek
relief from the automatic stay or to seek foreclosure in the event
the automatic stay was terminated. Finally, the bankruptcy court
ordered Crowell to choose which one of the forty-two acres he
wished to have exempted as urban homestead, and if he did not do
so, the Trustee would make the designation.1 On appeal the
district court affirmed the ruling of the bankruptcy court, and
Crowell timely appealed to this Court.
It is clear to us that the central issue is whether the
bankruptcy court and district court erred by designating Crowell’s
homestead as urban rather than rural. Out of this singular issue,
Crowell managed to distill fourteen (14) issues for this Court to
resolve on appeal. Nevertheless, we will attempt to focus on the
central issue here, passing only on those corollary issues which
1
The bankruptcy court’s order stipulated that the one acre
designated by Crowell or the Trustee had to include the house then standing
on the property.
2
are essential to resolution of this appeal.
II.
LAW & ANALYSIS
A.
Standard of Review
We review the decision of the district court by applying the
same standards of review to the bankruptcy court’s findings of fact
and conclusions of law as applied by the district court. In re
Kennard, 970 F.2d 1455, 1457 (5th Cir. 1992), citing In re
Killebrew, 888 F.2d 1516, 1519 (5th Cir. 1989). “A bankruptcy
court’s findings of fact are subject to clearly erroneous review
... [and] [c]onclusions of law ... are reviewed de novo.” Id. at
1457-58 (citations omitted). Whether a homestead is rural or urban
is a question of fact. U.S. v. Blakeman, 997 F.2d 1084, 1090-91
(5th Cir. 1992)(citing cases).
B.
Preliminary Matters
Crowell argues that the bankruptcy court was wrong to declare
Bender’s lien valid, because Bender did not timely file an
objection to the claimed exemption within thirty days of the § 341
creditors meeting as required by Bankruptcy Rule 4003(b). 11 U.S.C.
§ 4003(b). Further, Crowell argues that the agreed order signed by
the bankruptcy court withdrawing the Chapter 13 Trustee’s objection
to Crowell’s exemption is res judicata and precludes Bender’s claim
that its lien is valid.
i.
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Timeliness
The timeliness of Bender’s objection is irrelevant. The
bankruptcy court did not try the validity of the lien based on
Bender’s objection. Rather, Crowell instituted an adversary
proceeding to have Bender’s lien declared invalid. Hence, whether
Bender timely filed an objection to Crowell’s exemption or not, it
was Crowell who placed the validity of Bender’s lien in issue, and
therefore, Crowell cannot complain that the bankrupty court decided
the issue.
ii.
Res Judicata2
The agreed order between the Chapter 13 Trustee and Crowell
withdrawing the trustee’s objection to Crowell’s exemption has no
preclusive effect on Bender. The agreed order only stood for the
proposition that the Chapter 13 Trustee agreed that the entire
forty-two acres was rural homestead, and therefore, since there was
no other objection, the exemption would be allowed. The agreed
order does not address the validity of Bender’s lien, nor does it
address the rural or urban nature of the homestead. Therefore,
since the agreed order did not reach the merits of Bender’s lien or
of the claimed exemption, it has no preclusive effect on those
issues. Matter of Super Van, Inc., 92 F.3d 366, 370 (5th Cir.
1996)(doctrine of res judicata only bars relitigation of matters
that have been or should have been previously determined on the
2
More precisely, the question here is one of issue preclusion
(collateral estoppel). Matter of Super Van Inc., 92 F.3d 366, 370 n. 11
(5th Cir. 1996).
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merits), citing Langston v. Ins. Co. of North America, 827 F.2d
1044, 1046 (5th Cir. 1987).
Finally, even if the agreed order had the effect of
determining the validity of Bender’s lien, no hearing was held
before the agreed order was entered and Bender was not given notice
that the Chapter 13 Trustee had stipulated to abandon its objection
until after the agreed order was entered. Therefore, Bender was in
no sense a party to the stipulation and is not bound by it.
Hansberry v. Lee, 311 U.S. 32, 61 S. Ct. 115 (1940)(due process
precludes binding a party to a judgment when he did not have notice
or an opportunity to be heard and his interests were not adequately
represented).
C.
Rural v. Urban
This Court has recently expounded, in some detail, the factors
to be considered by the bankruptcy court in determining whether any
particular property claimed as exempt under Texas law is rural or
urban.
These factors include “(1) the location of the land with
respect to the limits of the municipality; (2) the situs
of the lot in question; (3) the existence of municipal
utilities and services; (4) the use of the lot and
adjacent property; and (5) the presence of platted
streets, blocks, and the like.”
U.S. v. Blakeman, 997 F.2d 1084, 1091 n. 14 (5th Cir. 1992),
quoting In re Bradley, 960 F.2d 502, 511-12 n. 18 (5th Cir.
1992)(citing cases).
A review of the bankruptcy court’s findings of fact and
conclusions of law reveals that the bankruptcy court made a series
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of specific findings of fact relevant to each of the elements
outlined in Blakeman, supra 997 F.2d at 1091 n. 14. First, the
bankruptcy court found that the entire forty-two (42) acres has
been within the city limits of Keller, Texas, since February of
1979. Second, the bankruptcy court found that as of January, 1986,
city sewer and water services were available to the property upon
request, and the city provided police and fire protection. Private
electrical and natural gas pipeline service was also available to
the property. Third, prior to January, 1986, there were five
platted residential subdivisions in the surrounding immediate
vicinity of the Crowell property; Quail Valley, the Black Addition,
County Hill Estates, Sunrise Estates, and Oak Bend Estates. In
January, 1986, the adjacent properties to the west and north of the
Crowell Property were also subdivided into residential lots, none
larger than five acres. Mr. Crowell did raise cattle on his
property, but by city ordinance livestock could not be kept on the
property within 200 feet of any structure on neighboring land, and
as of January, 1986, the property was zoned for residential use.
Finally, as of January, 1986, approximately seventy-five percent of
the developable land in the city had been or was being developed,
and the city itself contained commercial development as well as
parks and recreational areas, i.e., Keller, Texas, was a full
service urban city, albeit a small one.
Our review of the record and exhibits presented to the
bankruptcy court shows no clear error in the bankruptcy court’s
findings of fact. Furthermore, the bankruptcy court’s findings
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with respect to each of the elements outlined in Blakeman, supra,
favors a finding that the property was urban homestead. The record
reflects that Crowell’s forty-two acre tract was on the edge of
development in Keller, but by the time Crowell filed for bankruptcy
and claimed a rural homestead exemption, residential development
had finally surrounded his property. Crowell was left with a small
farm in the middle of a residential neighborhood. Therefore, we
find no clear error in the bankruptcy court’s ultimate factual
conclusion that Crowell’s property was urban homestead.
D.
Involuntary Designation
Finally, Crowell argues that it was error for the bankruptcy
court to require him to designate the one acre of urban homestead
which would be exempt (with the understanding that it must include
the house on the property) or have the trustee do it for him.3
Sections 41.021-41.023 of the Texas Property Code provide the
method for designation of the homestead if a judgment creditor
proceeds to execute on the property, and the judgment debtor has
3
There is no error in requiring that the family home be included in
the designated one acre homestead. Regardless of who makes the
designation, under Texas law, the homestead must include the home. Loomis
v. Wallis & Short, P.C., No. 14-96-00389-CV, 1997 WL 535655, pg. *3 (Tex.
App.-Hous., Sept. 4, 1997)(“[T]he definition of ‘homestead’ as encompassing
lot or lots used for the purposes of a home, corresponds with recent case
law”), citing NCNB Texas Nat. Bank v. Carpenter, 849 S.W.2d 875, 879 (Tex.
App.-Fort Worth 1993); Gann v. Montgomery, 210 S.W.2d 255, 257-58
(Tex.Civ.App.--Fort Worth 1948, writ ref’d n.r.e.)(“[Homestead] ...
includes as an indispensable part thereof the dwelling-house or family
residence”), citing 40 C.J.S., Homesteads, § 52 (1941); Blomgren v. Van
Zandt, 126 S.W.2d 506, 509 (Tex.Civ.App.--Eastland 1939)(Head of family may
designate 200 acre homestead portion out of larger contiguous acreage, but
“[t]he part so designated must include the dwelling and appurtenances
thereto”), quoting Watkins Land Co. v. Temple, 135 S.W.2d 1063, 1064
(Tex.Civ.App. 1911).
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not yet made a voluntary designation of the homestead under §
41.005. The judgment creditor, having caused execution to issue,
must give notice to the judgment debtor to make a designation.
Tex. Prop. Code Ann., § 41.021. The judgment debtor then has until
the next Monday after 20 days after service of notice in which to
designate the homestead (one acre for urban homestead and 200 acres
for rural family homestead). Tex. Prop. Code Ann., § 41.022. If
the judgment debtor fails to make a voluntary designation within
the time allowed, then the court from which the writ of execution
issued must appoint a commissioner to designate the judgment
debtor’s homestead. Tex. Prop. Code Ann., § 41.023. The
bankruptcy court clearly did not use the method outlined in the
Tex. Prop. Code Ann., §§ 41.021-41.023.
Whether the bankruptcy court must use state law procedure for
designation of the homestead, when the debtor has claimed a state-
law homestead exemption as allowed by § 522 (b)(2)(A) of the
Bankruptcy Code, is a choice of law question which has not been
decided by this Court. We hold that the bankruptcy court is not
bound to follow the Texas Property Code procedure for designating
the debtor’s homestead from a larger parcel of property in order
that the remainder may be liquidated.
The governing law in federal bankruptcy court is the
Bankruptcy Code. That code incorporates state law to the extent
that it allows a debtor to claim a state-law exemption under §
522(b)(2)(A). Texas law provides for two types of homestead
exemption--rural and urban. The determination of whether the
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homestead is rural or urban is a state law question. In re
Bradley, 960 F.2d 502, 507 n. 7 (5th Cir. 1992), citing In re
Moody, 77 B.R. 580, 590 (S.D.Tex. 1987), aff’d, 862 F.2d 1194 (5th
Cir. 1989). However, once the nature of the homestead has been
determined (i.e., rural or urban homestead), Texas law provides no
substantive standards to guide the designation of that portion of
the debtor’s real property which is the actual homestead (assuming,
as in this case, that the property acreage exceeds the maximum
allowed for that type homestead), with the exception of the
requirement that it include the debtor’s residence.4 The Tex.
Prop. Code Ann., §§ 41.021-41.023, outlines only the procedure and
not the substantive standards for designation of the homestead, and
therefore, failure to follow these provisions cannot be expected to
result in a designation which differs materially from that which
might be made by a commissioner appointed under Tex. Prop. Code
Ann., §41.023.
In the administration of the bankruptcy estate the bankruptcy
court must be free to designate that portion of the debtor’s real
property which is exempt homestead using those entities and persons
already involved in the process established by the Bankruptcy Code.
The Texas state-law procedure, involving as it does the appointment
of actors foreign to the Bankruptcy Code, is a procedure apparently
not contemplated by the Code. The Bankruptcy Code, by simply
allowing debtor’s to claim a state-law exemption, should not be
understood to force bankruptcy courts to use state-law procedures
4
See note 3, supra.
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and state-law actors to make a determination which the trustee or
the bankruptcy court ordinarily would make if the debtor elected
the federal exemptions. Therefore, we must conclude that the
bankruptcy court did not err by failing to use the procedure
outlined in Tex. Prop. Code Ann., §§ 41.021-41.023.
III.
CONCLUSION
We find that the bankruptcy court followed the applicable law,
that its findings of fact were not clearly erroneous and that its
ultimate factual conclusion, i.e., that Crowell’s homestead was
urban rather than rural, is not clearly erroneous. Furthermore,
the bankruptcy court did not err by requiring Crowell to designate
that one-acre portion of the forty-two acres which would be exempt
as urban homestead (with the understanding that it include the
residence thereon) or have the trustee make the designation.
Therefore, we affirm.
AFFIRMED.
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