In re Davis, Civ. A. No. 3:94-CV-2024-D. Bankruptcy No. 487-41796-MT-11. Adv. No. 394-3070.

• Decision Date: 08 November 1995
• Docket Number: Civ. A. No. 3:94-CV-2024-D. Bankruptcy No. 487-41796-MT-11. Adv. No. 394-3070.
• Parties: In re Thomas Cullen DAVIS and Karen Joyce Davis, Debtors. Thomas Cullen DAVIS, Plaintiff-Appellee, v. Sandra DAVIS, Defendant-Appellant.
• Court: U.S. District Court — Northern District of Texas

188 B.R. 544 (1995)

In re Thomas Cullen DAVIS and Karen Joyce Davis, Debtors Thomas Cullen DAVIS, Plaintiff-Appellee, v. Sandra DAVIS, Defendant-Appellant.

Civ. A. No. 3:94-CV-2024-D. Bankruptcy No. 487-41796-MT-11. Adv. No. 394-3070.

United States District Court, N.D. Texas, Dallas Division.

November 8, 1995.

COPYRIGHT MATERIAL OMITTED

St. Clair Newbern, III, Ft. Worth, Tex., for defendant-appellant.

R. Steven Jones, Ronald R. Payne (argued), and Ted S. Byers of Hesse & Jones, Dallas, Tex., for plaintiff-appellee.

FITZWATER, District Judge:

This appeal presents the question whether 11 U.S.C. § 522(c)(1), which provides that exempt property is liable for § 523(a)(5) debts (family support obligations), preempts Texas homestead law. The bankruptcy court held that it does not. In re Davis, 170 B.R. 892 (Bankr.N.D.Tex.1994). Because Texas homestead law is not preempted, the bankruptcy court's order is affirmed.

I

Defendant-appellant Sandra Davis ("Sandra") and her former husband, debtor-plaintiff-appellee Thomas Cullen Davis ("Cullen"), were divorced in 1968.¹ Pursuant to a property settlement, support and child custody agreement (the "Agreement"), and the divorce judgment ("Divorce Judgment"), Cullen agreed to make monthly payments to Sandra through January 1, 1991, and thereafter to pay her other sums subject to certain contingencies. In 1979 Cullen married his current wife, debtor Karen Joyce Davis ("Karen"). In 1984 they purchased certain real property that they occupy and claim as their homestead (the "Homestead").

In 1987 Cullen and Karen filed a voluntary chapter 7 petition, which was subsequently converted to a chapter 11 case. They elected the exemptions under nonbankruptcy law and claimed certain property, including the Homestead, to be exempt under Texas law.

Cullen commenced an adversary proceeding against Sandra, seeking a determination that his indebtedness pursuant to the Agreement and Divorce Judgment was dischargeable. Sandra counterclaimed for a ruling that the indebtedness was nondischargeable pursuant to § 523(a)(5). In 1991 the parties settled the adversary proceeding, entering into an agreed final judgment of nondischargeability (the "Judgment") that awarded Sandra the total sum of $300,000 ($250,000 plus $50,000 in attorney's fees). The Judgment declared this sum to be nondischargeable pursuant to § 523(a)(5).

In 1993 Sandra filed the instant application for turnover order and other relief in aid of judgment. Sandra based her motion on Fed. R.Bankr.P. 7069, which in turn incorporates Fed.R.Civ.P. 69. She contended that she had been unable to collect the Judgment from Cullen, and requested that the bankruptcy court order him to turn over a warranty deed that conveyed the Homestead to her, and to turn over $29,915.00 in personal property in the event the Homestead was of inadequate value to satisfy the Judgment. Sandra argued that § 522(c)(1) rendered Cullen's otherwise exempt property liable for the Judgment because the debt was nondischargeable pursuant to § 523(a)(5).

Following a hearing, the bankruptcy court held that although Sandra held a nondischargeable judgment pursuant to § 523(a)(5), she could not execute on it against Cullen's Homestead. Davis, 170 B.R. at 898. Sandra argued that Rule 69(a), read in conjunction with § 522(c)(1), allowed her to execute on the Judgment. Rule 69 provides that execution shall be in accordance with Texas law, "except that any statute of the United States governs to the extent it is applicable." Section 522(c)(1) provides that exempt property remains "liable" for § 523(a)(5) family support debts. Sandra argued that § 522(c)(1) is a "statute of the United States" applicable to the Texas turnover statute, Tex.Civ.Prac. & Rem.Code Ann. § 31.002 (West 1986) (the "Turnover Statute"),² and thus preempts the statute's prohibition against execution on exempt property. See Davis, 170 B.R. at 896.

The bankruptcy court held that the Turnover Statute was unavailable to Sandra on two grounds. First, it noted that turnover is only obtainable for property that is not ordinarily subject to levy. The court reasoned that § 31.002(a)(1) and (a)(2) must be read independently. The fact that Sandra was unable to levy upon Cullen's exempt Homestead did not detract from the character of the Homestead, i.e., real property, as a type ordinarily subject to levy. Id. at 895-96. "The potential for Mr. Davis to resist that relief does not alter the status of the property nor subject it to this supplemental means for relief." Id. at 896. The bankruptcy court therefore concluded that Sandra had failed to meet the requirement for turnover in § 31.002(a)(1).

Second, the bankruptcy court noted that the Texas Turnover Statute is unavailable for exempt property and that Cullen's Homestead is exempt. Id. The court rejected Sandra's argument that § 522(c)(1) made the Homestead liable for § 523(a)(5) debts and that she therefore met the requirements of § 31.002(a)(2). The court reasoned that Rule 69(a), which concerns the application of statutes on execution, could not be invoked to apply § 522(c)(1) to the Turnover Statute. Id. Because § 522(c)(1) is not an execution statute, the court reasoned, it did not govern.

The bankruptcy court held that § 522(c)(1) did not preempt the protection of exempt property found in the Turnover Statute. Relying on First Gibraltar Bank, FSB v. Morales, 19 F.3d 1032 (5th Cir.), cert. denied, ___ U.S. ___, 115 S.Ct. 204, 130 L.Ed.2d 134 (1994), vacated on other grounds, 42 F.3d 895 (1995), the court determined that § 522(c)(1) would preempt the Turnover Statute only if Congress specifically intended to displace the police power of the State of Texas. Davis, 170 B.R. at 896-97. Moreover, on the basis that real property law was of "special concern to the states," the court held that there was a presumption against preemption. Id. at 897 (citing First Gibraltar, 19 F.3d at 1039). The court then looked to the language of the Bankruptcy Code and determined that although § 522(c)(1) did not bar execution on the Judgment, it also did not provide a mechanism for doing so. Id. at 897-98. Thus § 522(c)(1) did "not prevent non-bankruptcy law from imposing such an injunction" against execution. Id. at 898. Because Texas had enjoined execution, and § 522(c)(1) did not preempt Texas law, Sandra could not compel the turnover of Cullen's Homestead. Id. Sandra appeals.

II

Sandra contends the order denying her turnover application must be reversed because § 522(c)(1) inferentially preempts Texas law either by the pervasive scheme of bankruptcy legislation or by an actual conflict between state and federal law in this area.

A

Acting within the authority granted it by the Supremacy Clause of the Constitution, U.S. Const. art. VI, cl. 2, Congress may enact legislation that preempts state law. California v. ARC Am. Corp., 490 U.S. 93, 100, 109 S.Ct. 1661, 1664, 104 L.Ed.2d 86 (1989). Preemption is most easily recognized when Congress displaces state law "by so stating in express terms," Pacific Gas & Elec. Co. v. State Energy Resources Conserv. & Dev. Comm'n, 461 U.S. 190, 203, 103 S.Ct. 1713, 1722, 75 L.Ed.2d 752 (1983), but may also be "implicitly contained in its structure and purpose," Jones v. Rath Packing Co., 430 U.S. 519, 525, 97 S.Ct. 1305, 1309, 51 L.Ed.2d 604 (1977). The key inquiry in both instances is whether Congress intended that federal law supersede state law. See Louisiana Pub. Serv. Comm'n v. FCC, 476 U.S. 355, 369, 106 S.Ct. 1890, 1899, 90 L.Ed.2d 369 (1986). Courts inquiring whether a federal statute preempts state law must begin their analysis from the presumption that the police powers of the states are not to be disturbed unless this is the "clear and manifest purpose of Congress." Rice v. Santa Fe Elevator Corp., 331 U.S. 218, 230, 67 S.Ct. 1146, 1152, 91 L.Ed. 1447 (1947); see First Gibraltar, 19 F.3d at 1039.

Preemption may be implied where federal and state law conflict. Such a conflict exists when compliance with both federal and state law is a physical impossibility, or where state law obstructs "accomplishment and execution of the full purposes and objectives of Congress." Pacific Gas, 461 U.S. at 204, 103 S.Ct. at 1722. In addition, preemption may be implied where "a scheme of federal legislation is `so pervasive as to make reasonable the inference that Congress left no room for the States to supplement it.'" First Gibraltar, 19 F.3d at 1039 (quoting Pacific Gas, 461 U.S. at 204, 103 S.Ct. at 1722).

To determine whether Texas homestead law is preempted in the present case, the court must consider the intent of Congress manifested in the language of the Bankruptcy Code, as well as the police power of the State of Texas with respect to homestead protections.

Section 522(c)(1) of the Bankruptcy Code provides:

Unless the case is dismissed, property exempted under this section is not liable during or after the case for any debt of the debtor that arose, or that is determined under section 502 of this title as if such debt had arisen, before the commencement of the case except — a debt of a kind specified in section 523(a)(1) or 523(a)(5) of this title.

The exempt property that may be held liable pursuant to § 522(c)(1) includes Cullen's Homestead. The question presented is whether Texas homestead law interferes with the pervasive scheme in bankruptcy established by Congress, or conflicts with the terms of § 522(c)(1).

Texas laws protecting the homestead are expansive and deeply rooted. Cf. Zwernemann v. Von Rosenburg, 76 Tex. 522, 13 S.W. 485, 487 (1890). Homestead rights have long been zealously guarded, and they trace back to Texas' days as a republic, prior to admission into the Union. See Act of Jan. 26, 1839, 1839 Laws of Rep. of Tex. 1236. They "are not only based upon a tender regard for the welfare of the citizen, but have for their object the stability and welfare of the state." Andrews v. Security Nat'l Bank, 121 Tex....