Brown v. Sommers (In re Brown)
| Decision Date | 24 November 2015 |
| Docket Number | 15–20148.,Nos. 15–20034,s. 15–20034 |
| Citation | 807 F.3d 701 |
| Parties | In the matter of Michael Glyn BROWN, Deceased Debtor Rachel Brown, Appellant v. Ronald J. Sommers, Trustee, Appellee Michael Glyn Brown; Lionheart Company, Incorporated; Castlemane, Incorporated ; Prorentals, Incorporated; Superior Vehicle Leasing Company, Incorporated; MG Brown Company, L.L.C. Debtors. Judy Lenox, Representative of Michael Glyn Brown; Rachel Brown, Appellants v. Ronald J. Sommers, Trustee, Appellee. |
| Court | U.S. Court of Appeals — Fifth Circuit |
Mynde Shaune Eisen (argued), Law Office of Mynde S. Eisen, Houston, TX, Ferdinand P. Cribbs, Jr. (argued), Wilson, Cribbs & Goren, P.C., Houston, TX, Gary Frank Cerasuolo, Smith Cerasuolo, L.L.P., Houston, TX, for Appellants.
Richard Alan Kincheloe (argued), Nathan Sommers Jacobs, Houston, TX, for Appellee.
Appeals from the United States District Court for the Southern District of Texas.
Before DAVIS, PRADO, and SOUTHWICK, Circuit Judges.
Michael Glyn Brown ("Debtor") died during the pendency of his bankruptcy case. Debtor's estranged spouse, Rachel Brown ("Rachel"), and Debtor's personal representative, Judy Lenox ("Lenox"), claimed various allowances and exemptions under the Texas Estates Code in Debtor's bankruptcy case pursuant to Bankruptcy Code §§ 501, 502, and 522. The bankruptcy court ruled that neither Lenox nor Rachel was entitled to relief under the Texas Estates Code.
We dismiss the appeal to the extent Rachel seeks a probate allowance to be paid out of Debtor's bankruptcy estate. In all other respects, we affirm.
The parties do not dispute the essential facts of these consolidated appeals; they dispute only the legal significance of those facts.
Debtor was a successful surgeon who accumulated a great deal of wealth and property during his lifetime. For many years, Debtor resided with Rachel and their children at 9110 Memorial Drive, Houston, Texas (the "Memorial Property").
Debtor and Rachel separated in August 2010. Rachel initiated divorce proceedings in a Texas court in 2011. The divorce proceedings were acrimonious and protracted. As explained in greater detail below, Debtor and Rachel never obtained a final divorce.
Debtor moved to Miami, Florida in late 2011. Rachel and her minor children continued to reside in Texas at the Memorial Property.
Debtor filed a voluntary Chapter 11 bankruptcy petition in the Southern District of Florida (the "Florida Bankruptcy Court") on January 23, 2013.1 Rachel did not join Debtor's bankruptcy petition as a joint debtor.
Debtor engaged in significant misconduct during his bankruptcy case. As a result, the Florida Bankruptcy Court conditionally dismissed Debtor's bankruptcy case and appointed a chief restructuring officer to reorganize and operate Debtor's business and personal financial affairs.
After Debtor substantially interfered with the chief restructuring officer's efforts, the Florida Bankruptcy Court reinstated Debtor's bankruptcy case, transferred the case to the United States Bankruptcy Court for the Southern District of Texas (the "Texas Bankruptcy Court"), and directed the appointment of a Chapter 11 trustee, Ronald J. Sommers (the "Trustee").
Debtor died in Florida shortly thereafter. Although Debtor left numerous wills, none of the wills appear to be valid. As a result, no probate court has yet assumed jurisdiction over Debtor's probate estate, and it is unlikely that any probate proceedings will be instituted in the near future. The parties therefore agree that, for all practical purposes, Debtor "effectively ... died intestate."
In response to Debtor's death, the Texas Bankruptcy Court converted Debtor's bankruptcy case to a liquidation under Chapter 7 of the Bankruptcy Code.2 The Trustee remained assigned to the case as the chapter 7 trustee. The Texas Bankruptcy Court appointed Lenox to act as Debtor's personal representative in the bankruptcy case.
Because Debtor and Rachel never obtained a final divorce, Debtor and Rachel remained legally married at the time of Debtor's death.
Lenox attempted to claim the Memorial Property as Debtor's exempt homestead under Texas Property Code § 41.001 and Texas Constitution art. 16 § 50. Soon after Lenox claimed that exemption, however, she learned that the Memorial Property was deeply encumbered by debt. Although the commencement of a bankruptcy case ordinarily imposes an automatic stay that bars creditors from pursuing debt collection activities,3 the Texas Bankruptcy Court entered an agreed order authorizing the first lienholder to "pursue its state law remedies, ... including foreclosure, repossession, and/or eviction" against the Memorial Property. The first lienholder accordingly foreclosed upon the Memorial Property, and Rachel and her children had to move out of the house. Thus, although the parties agree that Lenox was entitled to claim a homestead exemption under the Texas Property Code on Debtor's behalf, that exemption was essentially worthless.
Lenox therefore amended her schedule of exemptions to instead claim $45,000 cash in lieu of exempt homestead property under the Texas Estates Code (the "Cash Alternative Exemption"). This exemption would benefit Rachel and her minor children.
The Trustee objected to the Cash Alternative Exemption, and the bankruptcy court sustained the Trustee's objection. Lenox now appeals that order, and Rachel joins Lenox's appeal.4
Whereas Lenox sought to claim exemptions on Debtor's behalf, Rachel also claimed various allowances and exemptions on behalf of herself and her children pursuant to 11 U.S.C. §§ 501 and 502, the provisions of the Bankruptcy Code which govern the filing and allowance of claims by creditors.5 Rachel maintains that the Texas Estates Code entitles her to $56,250.00 cash in lieu of homestead and exempt property, plus a $496,080.00 family allowance. Rachel argues that this money should be paid to her as an administrative expense or a domestic support obligation out of Debtor's bankruptcy estate.6
The Trustee objected to Rachel's claim as well. The Texas Bankruptcy Court sustained the Trustee's objection to the extent Rachel requested an allowance under Texas law to be paid out of Debtor's bankruptcy estate. However, the court ruled that Rachel was entitled to an $18,000 allowance under Florida law to be paid out of Debtor's probate estate. That allowance was significantly smaller than the amount Rachel requested under Texas law.
The Texas Bankruptcy Court entered a final order which states that "no assets from the bankruptcy estate shall be used to pay" Rachel's claim for a probate allowance. However, because the Texas Bankruptcy Court concluded that it lacked constitutional authority to enter an award against Debtor's probate estate, the court submitted proposed findings of fact and conclusions of law to the district court respecting that issue. The district court adopted the Texas Bankruptcy Court's proposed findings and conclusions and entered a final order granting Rachel "a family allowance from the assets of the Debtor's probate estate in the total amount of $18,000, payable in a single lump sum."
Rachel now appeals. Rachel has also filed a motion to certify certain questions to the Supreme Court of Texas. Lenox is not a party to Rachel's appeal. We have consolidated Rachel's appeal with Lenox's appeal.
"Bankruptcy court findings of fact are subject to the clearly erroneous standard of review and will be reversed only if, on the entire evidence, we are left with the definite and firm conviction that a mistake has been made."7 We review a bankruptcy court's conclusions of law de novo .8
We first conclude that the Texas Bankruptcy Court correctly denied the cash in lieu of homestead exemption that Lenox claimed on Debtor's behalf under Bankruptcy Code § 522.9
"Under the Bankruptcy Code, the commencement of a bankruptcy case creates an estate comprising all legal and equitable interests in property ... of the debtor as of that date."10 However, § 522 of the Bankruptcy Code permits the debtor to exempt certain property from the bankruptcy estate if certain prerequisites are met.11 Property exempted under § 522 is generally "not liable during or after the case for any debt of the debtor that arose ... before the commencement of the case."12
Lenox, as Debtor's personal representative, stands in Debtor's shoes. The Texas Bankruptcy Court has authorized her to claim any exemptions to which Debtor would have been entitled.
With exceptions not applicable here, a debtor may "take advantage of either the federal exemption provisions in the Bankruptcy Code or those provided under state law."13 Here, Lenox claims an exemption on Debtor's behalf under Texas Estates Code § 353.053, which provides:
This provision permits the surviving spouse "an allowance in lieu of the [homestead] exemption" in situations where the homestead is "so [e]ncumbered with liens that its permanency as a home may be defeated at the will of the lienholder."15
The Texas Bankruptcy Court concluded that Lenox could not claim an exemption under Texas Estates Code § 353.053 because Debtor was only entitled to claim state law exemptions under Florida law. We turn first to that choice of law issue.
To determine which State's exemptions are potentially available to a debtor under § 522, we first determine whether the debtor was domiciled in a single State for...
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