In re Perry

Decision Date04 September 2003
Docket NumberNo. 02-50448.,02-50448.
Citation345 F.3d 303
PartiesIn the Matter of: Robert D. PERRY, Debtor. Robert D. Perry, Appellee, v. Dennie Dearing; Ellen Dearing; The Bank and Trust, SSB, formerly Del Rio Bank and Trust Company, Appellants.
CourtU.S. Court of Appeals — Fifth Circuit

Steven G. Cennamo (argued), San Antonio, TX, for Perry.

Benjamin R. Bingham (argued), Bingham & Lea, San Antonio, TX, for the Dearings.

Jerry T. Steed (argued), Baucum, Steed & Barker, San Antonio, TX, for Bank and Trust, SSB.

Appeal from the United States District Court for the Western District of Texas.

Before WIENER, BENAVIDES, and DENNIS, Circuit Judges.

BENAVIDES, Circuit Judge:

This factually complex bankruptcy case asks us to determine whether a debtor is entitled to exempt from claims of creditors approximately 85 acres of rural property upon which he lives and operates a mobile home park, by claiming it as his rural homestead.

I. Background

In 1980, Robert Perry, and his wife Estella,1 purchased an approximately 26-acre tract of land six miles outside of Del Rio, Texas. The Perrys operate a mobile home and RV park on the property, and have lived behind the park's office and convenience store on a 1.34 acre plot within the 26-acre tract ever since.2 They subsequently purchased an approximately 59-acre tract of land that directly adjoins the 26-acre tract. The 59-acre tract contains a sewage treatment plant and recreation facilities, all used in conjunction with the park.

In October 1985, Perry incorporated his business as American Campgrounds, Inc. ("the Corporation"). On December 5, 1985, in exchange for all of the stock in the Corporation,3 Perry executed a general warranty deed recorded in the Val Verde County deed records conveying the 26-acre tract to the Corporation. The Corporation, with Perry as President, then applied for a $127,000 loan from The Bank and Trust, S.S.B. ("the Bank"), formerly Del Rio Bank and Trust Co. The loan was approved and secured by a lien on the 26-acre tract. Proceeds from the loan were used, in part, to pay off a $44,000 unsecured line of credit that Perry had previously received from the Bank in his individual capacity.4 In 1989, Perry, in his capacity as the Corporation's president, signed an agreement with the Bank reaffirming the $127,000 loan.

On June 29, 1993, the Perrys individually refinanced the Corporation's loan for $178,000. The new loan, which was in the Perrys' names, was also secured by the 26-acre tract. No deed had reconveyed the property to the Perrys from the Corporation. Instead, Perry and his wife executed an affidavit declaring that American Campgrounds, Inc., their wholly owned corporation, was defunct, and that they had personally assumed all of the Corporation's assets and liabilities. The proceeds of the loan were used, in part, to pay off the Corporation's 1985 loan from the Bank. Three years later, in May 1996, Perry and his wife filed a homestead designation for the 26-acre tract, claiming the property as their homestead.

On March 21, 2000, Perry filed for bankruptcy under Chapter 7. On May 1, 2000, Perry, electing the state exemption scheme authorized in the Bankruptcy Code, claimed a rural homestead exemption for both the 26-acre and the 59-acre tracts.5

Dennie and Ellen Dearing ("the Dearings") are judgment creditors of Perry. In December 1996, the Dearings obtained a judgment of approximately $300,000 against Perry for breach of contract. The Dearings timely objected to Perry's homestead designation on May 19, 2000, on the grounds that the Corporation owns the 26-acre tract. The bankruptcy court held a hearing on the objection on September 18 and 19, 2000. At this time, the Bank had not filed an objection and did not participate in the hearing. The court, however, recognized that if it found the Perrys' conveyance of the 26-acre tract to the Corporation void, the validity of the Bank's lien on the property might be called into doubt. Consequently, the court ordered that the Bank be given notice of the proceedings and an opportunity to respond. On October 25, 2000, the Bank filed what it labeled its "objections" to Perry's claimed homestead exemption. The court heard the testimony of two witnesses of the Bank on January 10, 2001.

At the conclusion of the second hearing, the court found that the 1985 conveyance had validly transferred title to the 26-acre tract to the Corporation, and took other issues under advisement. On April 12, 2001, the bankruptcy court issued an order holding that the 59-acre tract qualified as exempt rural homestead, and that the 26-acre tract could not qualify as a rural homestead because it had been abandoned by both the sale to the corporation and the operation of a business on the property.

Perry and the Dearings moved to alter or amend the judgment. On May 15, 2001, the bankruptcy court issued an amended judgment holding that the 59-acre tract was not exempt because it was insufficiently related to the 1.34 acre tract on which the Perrys live. The court then held that Perry had a "beneficial interest" in the 1.34-acre tract, permitting Perry to seek homestead protection with respect to that portion of his property alone. The court confirmed that Perry had waived his right to claim the remainder of the 26-acre tract as a rural homestead by operating a business on the property.

II. Standard of Review

A district court, in reviewing the findings of a bankruptcy court, acts in an appellate capacity. In re Webb, 954 F.2d 1102, 1103 & n. 1 (5th Cir.1992). Accordingly, the weight we assign to the district court's conclusions is subject to our discretion. In re CPDC, Inc., 337 F.3d 436, 440-41 (5th Cir.2003). We review the bankruptcy court's rulings and decisions under the same standards employed by the district court. Id.; In re Kennard, 970 F.2d 1455, 1457 (5th Cir.1992). Conclusions of law are reviewed de novo. In re Killebrew, 888 F.2d 1516, 1519 (5th Cir.1989); In re Argo Financial, Inc., 337 F.3d 516, 521-22 (5th Cir.2003). A finding of fact, however, may be disregarded only if it is clearly erroneous. In re Barron, 325 F.3d 690, 692 (5th Cir.2003). The bankruptcy judge's opportunity to make first-hand credibility determinations entitles its assessment of the evidence to deference by both the district court and this court alike. Firstbank v. Pope, 141 B.R. 115, 118 (E.D.Tex.1992), aff'd, 979 F.2d 1534 (5th Cir.1992). Neither may weigh the evidence anew. Id. Rather, we must determine whether the evidence supports the bankruptcy court's findings and set them aside only if we are left with "the definite and firm conviction that a mistake has been committed." In re Dennis, 330 F.3d 696, 701 (5th Cir.2003); In re Williams, 337 F.3d 504, 508-09 (5th Cir.2003).

III. Discussion
A. The Testimony of January 10, 2001

We first address Perry's procedural point of appeal. Perry contends that the bankruptcy court erred by receiving and taking into consideration testimony presented by the Bank on January 10, 2001.

Under Federal Rule of Bankruptcy Procedure 4003(b), a party in interest who disputes an exemption claimed by the debtor must file an objection no later than 30 days after the meeting of creditors or 30 days after any amendment to the list of exemptions or supplemental schedules is filed. Perry contends, and the district court agreed, that the bankruptcy court erred when it permitted the Bank to file its objections to Perry's claimed homestead exemption well after the filing deadline. See In re Stoulig, 45 F.3d 957, 957-58 (5th Cir.1995) (holding that a bankruptcy court may not extend the 30-day objection period).

A review of the record, however, indicates that Perry and the district court mischaracterize the role of the Bank in the proceedings. Perry and the district court elevate form over substance by relying upon the Bank's self-titled pleading "Objection to Debtor's Claimed Exemptions" to define the Bank's involvement. See In re Transtexas Gas Corp., 303 F.3d 571, 581 (5th Cir.2002); Ins. Co. of N. Am. v. Dealy, 911 F.2d 1096, 1100 (5th Cir.1990). As counsel for the Bank noted, and the district court acknowledged, the Bank sought in its pleading not necessarily to object to Perry's claimed homestead exemption, but to respond in writing to the court's notice of pending litigation, as requested, and to express its willingness to participate in the proceedings to the degree that the court may desire.

Rule 611(a) of the Federal Rules of Evidence grants the court control over determining the mode and order of presenting evidence.6 We have held that judges are to be permitted "wide discretion" in exercising their power to control federal trials. See United States v. Fusco, 748 F.2d 996, 999 (5th Cir.1984); United States v. Sanchez, 988 F.2d 1384, 1393 (5th Cir.1993). This court has held that Rule 611(a) permits reopening a hearing for further testimony upon its own motion. See United States v. 1078.27 Acres of Land, More or Less, Situated in Galveston County, Texas, 446 F.2d 1030, 1034 (5th Cir.1971). The bankruptcy court's decision to do so, and to continue the September 18 and 19, 2000 hearing on the Dearings' objection to January 10, 2001, did not constitute an abuse of this discretion. The district court erred in holding that testimony from the January 10, 2001 hearing was improperly considered by the bankruptcy court.

B. Homestead Exemption
1. Pretended Sale

Texas permits a family who has filed for bankruptcy protection to exempt up to 200 rural acres of land from the bankruptcy estate if the property is used for the purpose of a rural home.7 Tex. Prop.Code Ann. § 41.002(b) (Vernon 2000). See also Tex. Const. art. XVI, § 51 (Vernon 1993). The homestead designation precludes property from forced sale in order to satisfy the bankrupt's debts, unless those debts are "for the purchase money thereof, or a part of such purchase money, the taxes due thereon, or...

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