Osborn, In re, 91-7008

Citation24 F.3d 1199
Decision Date13 May 1994
Docket NumberNo. 91-7008,91-7008
PartiesBankr. L. Rep. P 75,924 In re O.J. OSBORN and Roma Lou Osborn, Debtors. O.J. OSBORN and Roma Lou Osborn, Appellants, v. DURANT BANK & TRUST COMPANY, Appellee.
CourtUnited States Courts of Appeals. United States Court of Appeals (10th Circuit)

Rick Poland of Underwood, Bardrick, Poland & Snyder, Oklahoma City, OK, for appellants.

Mark A. Craige of Craige & Horgan, Tulsa, OK, for appellee.

Before EBEL and HOLLOWAY, Circuit Judges, and OWEN, * District Judge.

HOLLOWAY, Circuit Judge.

After examining the briefs and appellate record, this panel has determined unanimously that oral argument would not materially assist the determination of this appeal. See Fed.R.App.P. 34(a); 10th Cir.R. 34.1.9. The cause is therefore ordered submitted without oral argument.

The two debtors in this bankruptcy action, O.J. Osborn and Roma Lou Osborn ("the Osborns" or "the Debtors"), appeal from a ruling of the district court affirming the bankruptcy court's rejection of their claim of a homestead in realty in Dallas, Texas. A bankruptcy court order allowing or disallowing a homestead is a final appealable order under 28 U.S.C. Sec. 158(a)-(c). See Sumy v. Schlossberg, 777 F.2d 921 (4th Cir.1985); In re White, 727 F.2d 884 (9th Cir.1984). Because the facts of this case are crucial to our holdings we set them out in detail below.

I. Factual and Procedural Background

In 1956 the Osborns purchased and claimed as their homestead real estate located at 10818 Lake June Road in Dallas, Texas ("the Texas property"). The Osborns resided at the Texas property continuously from 1956 until this litigation began.

Beginning in the 1960s, the Osborns began to acquire land in Bryan County, Oklahoma ("the Oklahoma property"), intending to reside there and engage in farming and ranching once they had retired. The Osborns did not own a dwelling on the Oklahoma property. At the time this appeal was taken the Oklahoma property was subject to mortgages in excess of its value and was being liquidated by the bankruptcy trustee. When the litigation commenced in the bankruptcy court, the Texas property was unencumbered.

The Osborns filed a Chapter 12 proceeding in 1987 in the bankruptcy court of the Eastern District of Oklahoma. That action was subsequently dismissed. Durant Bank & Trust Co. ("the Bank"), holder of the mortgages on the Oklahoma property, then filed an involuntary Chapter 7 proceeding against the Osborns. That bankruptcy proceeding was later converted to a Chapter 11 proceeding in February 1988 on motion of the Debtors. This proceeding was eventually reconverted to Chapter 7.

During the pendency of the Chapter 11 voluntary proceeding, the Osborns filed their original Schedule B-1 listing two pieces of property: (1) Texas property described as "10818 Lake June Road, Dallas, Texas" and valued at $70,000; and (2) Oklahoma property valued at $238,950. See R. at 23. The accompanying Schedule B-4 listed as exempt, inter alia, a "Homestead," followed by a citation to "31 Okl St. Ann Sec. 31 et sq.," and stating the property was valued at $70,000. The schedule did not specify the location of that homestead. See R. at 28. 1 The Schedule B-4 also listed other exempt property, with a citation to the same Oklahoma statute, including furnishings, personal effects, and an automobile.

Many of the documents relating to the loans on the Oklahoma property listed an Oklahoma address for the Osborns. The original schedules filed in both the Chapter 12 proceeding and the involuntary Chapter 7 proceeding in the instant case listed the Oklahoma property as the Osborns' mailing address. Roma Lou Osborn later explained that she thought giving the Oklahoma property as their mailing address was proper because the bankruptcies were intended to reorganize the Osborns' farming operations, which were conducted on the Oklahoma property. See R. at 74-75. This testimony was not contradicted. The pleadings in the Chapter 7 and Chapter 11 cases also listed the Osborns as having an Oklahoma address. Finally, all of the notes, security agreements, Uniform Commercial Code financing statements ("UCC-1s"), and other documents relating to the Oklahoma property which the Osborns signed showed an Oklahoma address.

Roma Lou Osborn made no express representation that the Oklahoma property was her homestead. She has testified on several occasions that she initially had no understanding of the legal meaning of the word "homestead," and that she did not find out that homesteads are exempt from certain types of execution under state law and the Bankruptcy Code until the fall of 1989. See R. at 74-82.

O.J. Osborn has on several occasions made statements indicating that he intended to claim the Oklahoma property as his homestead. During the first meeting of creditors on March 25, 1988, held pursuant to 11 U.S.C. Sec. 341 (1988), 2 in the Chapter 12 proceeding Mr. Osborn testified that he and his wife lived on the property in Bryan County. R. at 177-78. In examining Mr. Osborn, the Bank's attorney 3 referred to Osborn's In addition, although the Osborns had registered the Texas property as their homestead with the Dallas Central Appraisal District, see R. at 206, Mr. Osborn filed an application for a homestead declaration for the Oklahoma property in 1970. That application was denied. He again tried to get the Oklahoma property declared as his homestead in 1988 in connection with a tax challenge. That attempt also failed because the Bryan County Board of Equalization found that the Osborns did not reside on the Oklahoma property. See R. at 218.

"Schedule 34" which claimed certain property as exempt. The attorney said it did not show a legal description but that "it looks like you're trying to claim the homestead in Dallas as exempt, or do you intend your property in Oklahoma as exempt homestead?" Osborn replied: "I intend to claim my property in Oklahoma as my exempt homestead." R. at 178. Mr. Osborn was asked whether there were any mortgages against the Oklahoma property, to which he answered that there were not. 4

On July 6, 1988, the bankruptcy court granted the Bank an adequate protection lien on the Texas property, pursuant to Bankruptcy Code Sec. 364, and allowed the Debtors to use the cash proceeds from the sale of some of their cattle in order to maintain the herd, all of which were subject to the Bank's security interest. At that time the Osborns did not object that, as their homestead, the Texas property could not be encumbered by the lien.

The Bank later filed an adversary proceeding to deny the Osborns a discharge of their debt to the Bank. The parties then submitted an agreed journal entry of judgment which was entered by the bankruptcy court on January 9, 1990. That judgment provided that a debt of $225,000 was exempted from discharge. As part of the agreed judgment, the parties asked the Farmers' Home Administration ("FmHA") to reguarantee the loan. The judgment provided that:

In the event that the FmHA shall fail to pay the claim to be filed or fail to issue a subsequent guarantee on the balance of the obligation, [the Bank] shall have the right to execute upon this judgment and take any other legal action as it may deem reasonable, appropriate and necessary to enforce its rights.

The FmHA refused to guarantee the loan. The Osborns then sought relief from the agreed judgment pursuant to Fed.R.Civ.P. 60(b). The bankruptcy court denied the Rule 60(b) motion and the district judge affirmed.

On January 29, 1990, the Osborns filed another amendment to their Schedule B-4 to claim the Texas property as their exempt homestead, and the Bank objected. The bankruptcy judge denied that amendment. The Osborns timely appealed that decision to the district court, which affirmed by an order dated December 21, 1990. We treat the findings and reasoning underlying these orders later. The Osborns timely appealed to this Court.

On August 1, 1990, during the pendency of the Osborns' appeal to the district court, the bankruptcy court entered an order authorizing the trustee to sell the Texas property claimed as a homestead. On September 21, 1990, at the Osborns' request, the bankruptcy court stayed the sale on the conditions that the Osborns maintain insurance payments on the Texas property and pay "reasonable rent" of $450 per month to the Bank. That stay expired when the Osborns failed to comply with its conditions. On January 15, 1991, the trustee sold the Texas property at auction for $27,000. The Bank moved this court to dismiss the instant appeal as moot. That motion was submitted to us along with the other issues on appeal.

II. Issues on Appeal and Standard of Review

This appeal presents three principal issues: (1) whether the appeal is moot in light of the completed sale of the Texas property; (2) whether the bankruptcy court's ruling, affirmed by the district court, was in error in refusing to allow the Debtors to amend their We review legal determinations by the bankruptcy court de novo, 5 while we review its factual findings under the clearly erroneous standard. See In re Burkart Farm & Livestock, 938 F.2d 1114, 1115 (10th Cir.1991). It is especially important to be faithful to the clearly erroneous standard when the bankruptcy court's findings have been upheld by the district court. See In re Niland, 825 F.2d 801, 806 (5th Cir.1987). However, when a lower court's factual findings are premised on improper legal standards or on proper ones improperly applied, they are not entitled to the protection of the clearly erroneous standard, but are subject to de novo review. See id.

schedule of exemptions to claim the Texas realty as their homestead; and (3) whether the bankruptcy court's ruling, affirmed by the district court, was in error in denying on the merits the Debtors' claim of the Texas homestead.

III. Mootness

The Bank has moved for dismissal under Fed.R.App.P. 27 and Tenth Circuit Rule 27.2.1, claiming that...

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