In re Hodes
| Decision Date | 20 December 2002 |
| Docket Number | No. 99-2294-GTV.,Civil Action No. 99-2293-GTV.,No. 98-20040-7-I-JAR.,Bankruptcy No. 98-20039-7-I-JAR.,98-20040-7-I-JAR.,99-2294-GTV. |
| Citation | 287 B.R. 561 |
| Parties | In re Barbara E. HODES, Phillip Hodes, Debtors. Lawrence S. Jenkins, et al., Appellants, v. Barbara E. Hodes, et al., Appellees. |
| Court | U.S. District Court — District of Kansas |
Cynthia F. Grimes, Grimes & Rebein, L.C., Lenexa, KS, for Debtor/Appellees.
Mark S. Carder, Stinson Morrison Hecker LLP, MO, Michael L. Kahn, Central States Termo King, Inc., Kansas City, KS, Eric C. Rajala, Overland Park, KS, for Appellants.
This Memorandum and Order addresses the bankruptcy appeals in Civil Action Numbers 99-2293-GTV and 99-2294-GTV. Appellants, Judgment Creditors Lawrence Jenkins and Roger Hood and Trustee Eric Rajala, appeal an order of the United States Bankruptcy Court denying Appellants' objection to the homestead exemption of Appellees/Debtors, Barbara and Phillip Hodes. The bankruptcy court permitted Appellees/Debtors to claim as a homestead exemption a $225,000 cash deposit paid to a building contractor for an addition to Appellees/Debtors' home.1 The bankruptcy court determined that an exemption for the entire deposit should be granted even though the contractor had expended no portion of the deposit prior to the date Appellants Jenkins and Hood filed involuntary bankruptcy petitions against Appellees/Debtors and only $8,966.67 of the funds had been expended by the time the orders for relief were entered. The court exercises jurisdiction pursuant to 28 U.S.C. § 158(a)(1) and affirms.
In reviewing a decision of the bankruptcy court, the court accepts the bankruptcy court's findings of fact unless clearly erroneous and examines de novo the bankruptcy court's conclusions of law. Robinson v. Tenantry (In re Robinson), 987 F.2d 665, 667 (10th Cir.1993) (citations omitted). Where, as here, the bankruptcy court's findings of fact are undisputed, the court focuses only on the legal conclusions to be drawn from the facts found. Inland's Monthly Income Fund, L.P. v. Duckwall-ALCO Stores, Inc. (In re Duckwall-ALCO Stores, Inc.), 150 B.R. 965, 969 (D.Kan.1993) ).
As noted, the parties do not dispute the bankruptcy court's findings of fact. Those findings are as follows:
In 1993, Jenkins and Hood commenced a civil action against Phillip and Barbara Hodes seeking damages from a breach of a contract concerning the Hodeses' sale of their interest in certain corporate stock to Jenkins and Hood. On November 10, 1997, a jury returned a verdict against the Hodeses and other codefendants and in favor of Jenkins and Hood for $4 million. On November 17, 1997, the court entered a judgment in accordance with the verdict.
Soon thereafter, the Hodeses began liquidating approximately $514,000 in nonexempt securities and acquiring exempt assets with the funds. The Hodeses used part of this money to prepay a home builder for an addition to their home in Leawood, Kansas. There is no allegation that any of the funds paid to the builder were fraudulently obtained. The Hodeses contend that they began discussions with the home builder in the summer of 1997, when they decided to enlarge their home in anticipation of the birth of their daughter's twins. The twins were not going to live with them, but the Hodeses wanted more space so that they could babysit the twins. On December 7, 1997, the Hodeses entered into a contract with the builder and gave him a [$225,000] cash deposit. The contract estimated that the addition would cost $190,000 plus the builder's 15% fee, but no more than a total of [$225,000]. The contract called for a 1056 square foot addition to the Hodeses' 3700 square foot home. The addition included an office, an enlarged family room and modifications to the master bedroom. The Hodeses had purchased this home in 1989 for $545,000.
On January 6, 1998, Jenkins and Hood filed involuntary Chapter 7 bankruptcy petitions against Phillip Hodes and Barbara Hodes. As of January 6, the builder had not commenced construction of the addition and was in possession of the [$225,000] deposit.
The construction commenced sometime after January 6. On February 23, 1998, Jenkins and Hood filed a motion under § 303(f)2 to stop the construction and to restrict the Hodeses' use of the deposited funds prior to entry of the orders for relief. The parties attempted to resolve this contested § 303(f) motion and on March 2, 1998, recited the terms of their settlement to the Court. The settlement included the Hodeses' agreement to obtain a mortgage on their home and use these borrowed funds to pay $290,000 to Jenkins and Hood. Later, when the Hodeses failed to pay the $290,000, Jenkins and Hood filed a motion to compel settlement. In their submissions on the exemption issue, the parties did not refer to this motion to compel. The courtroom minute sheet from the hearing on October 28, 1998, states that Jenkins and Hood agreed to withdraw their motion to compel, but they have not yet submitted a journal entry withdrawing the motion.
In the meantime, construction of the home addition proceeded. On April 16, 1998, the Hodeses consented to the entry of orders for relief in their cases on that date. At the time of the entry of the orders for relief, the builder had expended $8,966.67 of the deposit. As of October 28, 1998,3 the builder had expended a total of $164,837.24.
In re Hodes, 235 B.R. 104, 105-06 (Bankr.D.Kan.1999).
The court notes that Appellants have also pinpointed additional facts in their Appeal Brief which they contend are undisputed in the record below, but which are not specifically contained in the bankruptcy court's findings of fact. Although this court may look to facts in the record that are not specifically mentioned by the bankruptcy court to determine whether the bankruptcy court's factual findings and inferences are clearly erroneous, Davis v. Mather (In re Davis), 239 B.R. 573, 577 (10th Cir. BAP 1999) (citations omitted), it is not permitted to decide factual issues not addressed by the bankruptcy court, Robinson, 987 F.2d at 669 (citation omitted). Because the parties do not dispute the bankruptcy court's findings of fact in this case, the court need not look to the Appellants' additional facts to determine whether the bankruptcy court's findings of fact are clearly erroneous. To the extent that Appellants impliedly request that this court make its own factual findings based on these additional facts, the court is not permitted to do so.
Appellants advanced three arguments to the bankruptcy court in support of their objection to Appellees/Debtors' $225,000 homestead exemption. The bankruptcy court rejected all three. The bankruptcy court first found without merit Appellants' argument that Appellees/Debtors waived their homestead exemption as part of the proposed settlement of the contested § 303(f) motion. The bankruptcy court concluded that: (1) the settlement was never reached; (2) Appellants represented to the court that they were withdrawing the contested § 303(f) motion; and (3) even if the proposed settlement agreement included a waiver of the exemption, such a waiver by executory contract would be unenforceable as contrary to public policy. The bankruptcy court also rejected Appellants' contention that Appellees/Debtors lost their claim of exemption by engaging in fraudulent conduct. Specifically, the bankruptcy court found that Appellants had presented insufficient evidence to establish that Appellees/Debtors engaged in fraudulent conduct and the mere fact that Appellees/Debtors used nonexempt assets to fund a $225,000 addition to a $545,000 home was not prima facie evidence of fraud. Finally, the bankruptcy court disagreed with Appellants' argument that Appellees/Debtors were prohibited from claiming as an exemption the cost or value of any improvements made to the homestead after the involuntary bankruptcy petitions were filed, or in the alternative, after the orders for relief were entered. The bankruptcy court reasoned that Kansas public policy dictates that involuntary debtors should be permitted to claim as exempt any funds used to improve a homestead, regardless of whether actual construction was completed before the involuntary petitions were filed or orders for relief entered.
On appeal, Appellants appear to raise seven specific arguments. Appellants contend that Appellees/Debtors are not entitled to claim the $225,000 cash deposit as a homestead exemption because: (1) a cash deposit derived from the sale of nonexempt property does not constitute property which can qualify for a homestead exemption because it is neither a homestead nor an improvement to a homestead; (2) any improvements made to the homestead from the $225,000 deposit must have been completed by the time the involuntary petitions were filed, or at the latest, at the time the orders for relief were entered, and in this case no funds had been expended prior to the filing of the involuntary petitions and only $8,966.67 had been expended at the time the orders for relief were entered; (3) the Kansas exemption laws are intended to protect the destitute and Appellees/Debtors are not destitute; (4) use of the $225,000 deposit after the involuntary petitions were filed violated the automatic bankruptcy stay; (5) Appellees/Debtors lost their ability to use the exemption by engaging in fraudulent conduct; (6) Appellees/Debtors waived or should be estopped from asserting the exemption as a result of their purported settlement of the contested § 303(f) motion; and (7) Trustee Rajala had a "special interest" in Appellees/Debtors' homestead.
By enacting K.S.A. § 60-2312, Kansas has opted out of the federal bankruptcy exemption scheme outlined in 11...
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