748 F.3d 647 (5th Cir. 2014), 10-10882, In re Odes Ho Kim

Docket Nº:10-10882
Citation:748 F.3d 647
Opinion Judge:PRISCILLA R. OWEN, Circuit Judge:
Party Name:In the Matter of: ODES HO KIM, Debtor. v. DOME ENTERTAINMENT CENTER, INC., Appellee ODES HO KIM; CHONG ANN KIM, Appellants,
Attorney:For Dome Entertainment Center, Incorporated, Appellee: Howard Marc Spector, Nathan Matthew Johnson, Spector & Johnson, P.L.L.C., Dallas, TX. For Odes HO Kim, Appellant: Gerrit M. Pronske, Pronske Goolsby & Kathman, P.C., Dallas, TX. For Chong Ann Kim, Appellant: Monica Susan Blacker, Jackson Walk...
Judge Panel:Before HIGGINBOTHAM, OWEN, and HAYNES, Circuit Judges.
Case Date:April 09, 2014
Court:United States Courts of Appeals, Court of Appeals for the Fifth Circuit
 
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Page 647

748 F.3d 647 (5th Cir. 2014)

In the Matter of: ODES HO KIM, Debtor.

ODES HO KIM; CHONG ANN KIM, Appellants,

v.

DOME ENTERTAINMENT CENTER, INC., Appellee

No. 10-10882

United States Court of Appeals, Fifth Circuit

April 9, 2014

As Revised, April 10, 2014

Page 648

[Copyrighted Material Omitted]

Page 649

Appeals from the United States District Court for the Northern District of Texas.

For Dome Entertainment Center, Incorporated, Appellee: Howard Marc Spector, Nathan Matthew Johnson, Spector & Johnson, P.L.L.C., Dallas, TX.

For Odes HO Kim, Appellant: Gerrit M. Pronske, Pronske Goolsby & Kathman, P.C., Dallas, TX.

For Chong Ann Kim, Appellant: Monica Susan Blacker, Jackson Walker, L.L.P., Dallas, TX.

Before HIGGINBOTHAM, OWEN, and HAYNES, Circuit Judges.

OPINION

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PRISCILLA R. OWEN, Circuit Judge:

A non-debtor spouse contends that her homestead rights in the Texas residence that she shares with her husband, the debtor in bankruptcy, preclude a forced sale of the property and alternatively, that if a sale occurs, she must be compensated for the loss of her homestead interest in the property. The district court affirmed the bankruptcy court's holding that the non-debtor spouse's homestead rights were limited to the dollar amount of the exemption in 11 U.S.C. § 522(p). The district court also affirmed the bankruptcy court's holding that there was no unconstitutional taking of the value of the non-debtor spouse's interest in the homestead. We affirm.

I

Odes Ho Kim purchased and took title in his name to a home in Irving, Texas where he and his wife Chong Ann Kim resided at all times pertinent to this case. The purchase price of the home was $1,048,028.36. At the time of the purchase, litigation was pending between Mr. Kim and Appellee Dome Entertainment Center, Inc. (Dome) in California, and approximately two years after Mr. Kim had purchased the residence, judgment was entered against him for more than $5,000,000. Less than 1,215 days after the residence was acquired by Mr. Kim, Dome instituted the underlying bankruptcy proceedings by filing an involuntary petition for relief against Mr. Kim. Following a trial, the bankruptcy court entered an order for relief under Chapter 7 of the Bankruptcy Code. Mr. Kim subsequently converted the case to a Chapter 11 proceeding and now operates as a debtor-in-possession.

Pursuant to 11 U.S.C. § 522(b)(3)(A), Mr. Kim claimed an unlimited homestead exemption under Texas law for the residence. Dome objected, asserting that, pursuant to § 522(p), the exemption should be limited to a $136,875. The bankruptcy court sustained the objection.

Mr. Kim then instituted the underlying adversary proceeding, seeking a declaratory judgment " to determine the extent of the interest of the Debtor's bankruptcy

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estate in and to the Property pursuant to 11 U.S.C. § 541," and to determine Mrs. Kim's rights and claims to the residence by virtue of her claim that it constitutes her homestead under Texas law. Dome intervened, and Dome and Mrs. Kim filed cross motions for summary judgment seeking a determination of whether Mrs. Kim retained an exempt homestead interest in the residence and, if so, whether that interest precluded a trustee or debtor-inpossession from forcing a sale of the property or, alternatively, required Mrs. Kim to be compensated in the event of a forced sale.

The bankruptcy court denied Mrs. Kim's motion and granted Dome's motion in part, holding that 11 U.S.C. § 522(p) overrides state law to the extent that state law would exempt the value of a homestead in excess of the amount specified in § 522(p). The bankruptcy court held that, as Mr. Kim's non-debtor spouse, Mrs. Kim did not have a " separate and distinct exempt homestead interest in the property that would entitle her to compensation or to prevent the sale of the Property." The bankruptcy court also denied Dome's motion in part, holding that fact issues remained as to whether a portion of the residence constituted Mrs. Kim's separate property or sole managed community property and was therefore not part of the bankruptcy estate under 11 U.S.C. § 541.

After the bankruptcy court issued its summary judgment order, the district court granted each of the parties leave to file an interlocutory appeal of the order and consolidated the three appeals. While that appeal was pending in the district court, the parties entered into a settlement agreement and resolved by stipulation the outstanding fact issues regarding the nature of the residential property, agreeing in pertinent part that, immediately prior to the petition date, the residence constituted (a) Mr. Kim's separate property, (b) Mr. Kim's sole management community property, or (c) the joint management community property of Mr. and Mrs. Kim. Based in part on this stipulation, the Bankruptcy Court entered an agreed Final Judgment, which was not separately appealed to the district court.

The district court subsequently affirmed the summary judgment order, holding that the Bankruptcy Code preempts Mrs. Kim's homestead property rights under state law and that Mrs. Kim has no right, as a non-debtor, to assert homestead rights to prevent the forced sale of the residence. The district court further held that Mrs. Kim's homestead exemption is not a vested property right and that she was not entitled to compensation, beyond her homestead interest in the capped exemption under § 522(p), upon the sale of the residence.

II

As an initial matter, Dome contends that both the district court and this court lack jurisdiction over the appeal of the bankruptcy court's summary judgment order. Dome argues that the parties' settlement agreement and the bankruptcy court's entry of the agreed Final Judgment, which incorporated the interlocutory summary judgment order and was not separately appealed, rendered the appeal to the district court moot. Although Dome raised this issue for the first time on appeal, subject matter jurisdiction cannot be waived.1

Dome cites Black v. J.I. Case Co.2 and

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Becker v. Tidewater, Inc.,3 among other decisions, for the general proposition that " an interlocutory order denying summary judgment is not to be reviewed where final judgment adverse to the movant is rendered on the basis of a subsequent full trial on the merits." 4 Those cases are inapposite. The legal issues on which the bankruptcy court's order granted summary judgment in favor of Dome are on appeal; the fact issues that led to the bankruptcy court's denial of summary judgment in that same order were subsequently resolved by stipulation. There has been no jury trial on the merits, and the bankruptcy court's Final Judgment adopted and incorporated the interlocutory summary judgment order and reflected the parties' settlement agreement and stipulation as to fact issues. The district court's order affirming the bankruptcy court was entered after the bankruptcy court entered its Final Judgment.

Despite the parties' settlement agreement, the settlement terms themselves are dependent on the outcome of the appeal. Mr. Kim agreed to execute a secured promissory note payable to Dome, the amount of which will be adjusted depending on the resolution of issues in the " final order [on appeal] disposing of [the adversary proceeding]." The Supreme Court and several circuit courts have held that such arrangements prevent an appeal from being mooted by settlement. For example, in Nixon v. Fitzgerald ,5 involving an interlocutory appeal of an order denying absolute immunity, the Supreme Court evaluated the effect of a settlement reached by the parties after the petition for certiorari and opposition were filed. The agreement provided for payment of liquidated damages, the amount of which was contingent upon the Court's resolution of the absolute immunity issue.6 The Court concluded that " [t]he limited agreement between the parties left both petitioner and respondent with a considerable financial stake in the resolution of the question presented," and that the case therefore " remain[ed] definite and concrete, touching the legal relations of parties having adverse legal interests." 7 Similarly, the parties before us continue to have a financial stake in the outcome of this appeal. The appeal is not moot, and we have jurisdiction to decide the merits of the issues presented.

III

In a bankruptcy appeal, this court " review[s] the decision of the district court by applying the same standard to the bankruptcy court's findings of fact and conclusions of law as the district court applied." 8 The bankruptcy court's findings of fact are reviewed for clear error, and its conclusions of law are reviewed de novo.9 This case presents only questions of law, which are whether the bankruptcy

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court could require the sale of the Kims' homestead, and if so, whether Mrs. Kim must be compensated for her homestead interest in the residence.

IV

The Kims contend that because Mrs. Kim was not a party to her husband's bankruptcy proceedings and her homestead interest in the residence was independent of her husband's interest in that property, the bankruptcy court could not order a forced sale of their home. They argue that Texas law is paramount and that the Bankruptcy Code does not provide for the sale of interests that are not part of the bankruptcy estate. Mrs. Kim's homestead rights, they maintain, are her separate property, entirely independent of her husband's homestead rights, and never became part of the bankruptcy estate.

The Texas Constitution and the Texas Property Code protect property that qualifies as a homestead from " forced sale[] for the payment of all debts," with enumerated exceptions such as a purchase...

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