Paddock, LLC v. Bennett (In re Bennett), 18-2098

• Decision Date: 28 February 2019
• Docket Number: No. 18-2098,18-2098
• Citation: 917 F.3d 676
• Parties: IN RE: Benjamin Matthew BENNETT; Teresia Robin Bennett Debtors The Paddock, LLC Appellant v. Benjamin Matthew Bennett; Teresia Robin Bennett Appellees
• Court: U.S. Court of Appeals — Eighth Circuit

917 F.3d 676

IN RE: Benjamin Matthew BENNETT; Teresia Robin Bennett Debtors

The Paddock, LLC Appellant
v.
Benjamin Matthew Bennett; Teresia Robin Bennett Appellees

No. 18-2098

United States Court of Appeals, Eighth Circuit.

Submitted: November 14, 2018
Filed: February 28, 2019

Siobhan Briley, PUGH & HAGAN, Coralville, IA, for Appellant.

Rush Manatt Shortley, LAW FIRM OF RUSH M. SHORTLEY, Cedar Rapids, IA, for Appellees.

Before BENTON, BEAM, and ERICKSON, Circuit Judges.

BENTON, Circuit Judge.

Benjamin Matthew Bennett and Teresia Robin Bennett filed for Chapter 13 bankruptcy. Their plan proposed that The Paddock’s secured claim in their manufactured home would be bifurcated into secured and unsecured parts. The Paddock objected. The bankruptcy court¹ overruled the objection. It held that 11 U.S.C. § 1322(b)(2) ’s anti-modification provision did not apply to The Paddock’s claim. In re Bennett , 2017 WL 1417221 (Bankr. N.D. Iowa Apr. 20, 2017). The Paddock appealed. The Bankruptcy Appellate Panel (BAP) affirmed. In re Bennett , 584 B.R. 15 (8th Cir.BAP 2018). The Paddock again appeals. Having jurisdiction under 28 U.S.C. § 158(d)(1), this court affirms.

I.

The Paddock LLC installs, rents, and sells manufactured homes in a planned neighborhood it owns. The Bennetts rented and later purchased a manufactured home, financed by monthly payments to The Paddock. At the time of purchase, they also agreed, for the lot under the home, to a 990-year Ground Lease (99-year terms with 9 renewal options). By the lease, the Bennetts pay a monthly association fee. They pay personal-property taxes for the home; The Paddock pays real-property taxes for the lot.

The Bennetts filed for Chapter 13 bankruptcy. Their plan proposed that The Paddock’s claim—secured by a security interest only in their manufactured home—would be treated as partly secured and

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partly unsecured under 11 U.S.C. § 506(a)(1). The Paddock objected, arguing that an anti-modification provision bars bifurcation because the manufactured home is real property. This provision prohibits a plan from modifying the rights of creditors who have "a claim secured only by a security interest in real property that is the debtor’s principal residence." 11 U.S.C. § 1322(b)(2). After an evidentiary hearing, the bankruptcy court found that, under Iowa law, the home was personal—not real—property. The court overruled The Paddock’s objection and confirmed the plan. The Paddock appealed to the BAP, which reviewed for clear error and affirmed.

The Paddock appeals, arguing the bankruptcy court erred in finding the manufactured home was personal property under Iowa law.

II.

"In an appeal from the BAP, this court independently reviews the bankruptcy court’s decision, applying the same standard of review as the BAP." In re Terry , 687 F.3d 961, 963 (8th Cir. 2012). Factual findings are reviewed for clear error and conclusions of law de novo. Id. This appeal presents a mixed question of law and fact: whether the bankruptcy court’s factual findings meet Iowa’s legal test for fixtures. Because this question entails primarily factual work, its resolution is reviewed for clear error. See U.S. Bank N.A. v. Village at Lakeridge, LLC , ––– U.S. ––––, 138 S.Ct. 960, 967, 200 L.Ed.2d 218 (2018).

The Paddock has the burden to prove that its claim is within § 1322(b)(2) ’s anti-modification exception. See Educ. Assistance Corp. v. Zellner , 827 F.2d 1222, 1226 (8th Cir. 1987) (creditor objecting to Chapter 13 plan bears initial burden to produce satisfactory evidence supporting its objection). See also In re Jordan , 403 B.R. 339, 351 (Bankr. W.D. Pa. 2009) (collecting cases).

The Paddock’s claim is secured by a security interest only in the Bennetts’ manufactured home, which is their principal residence. The issue is whether the home is personal or real property. The Bankruptcy Code does not resolve this issue. "In the absence of a controlling federal rule, we generally assume that Congress has ‘left the determination of property rights in the assets of a bankrupt’s estate to state law,’ since such ‘[p]roperty interests are created and defined by state law.’ " Nobelman v. Am. Sav. Bank , 508 U.S. 324, 329, 113 S.Ct. 2106, 124 L.Ed.2d 228 (1993) (alteration in original), quoting Butner v. United States , 440 U.S. 48, 54–55, 99 S.Ct. 914, 59 L.Ed.2d 136 (1979). See In re WEB2B Payment Sols., Inc. , 815 F.3d 400, 405 (8th Cir. 2016) ("The nature and extent of the debtor’s interest in property are determined by state law."). Here, the issue is determined by Iowa law. See In re Reinhardt , 563 F.3d 558, 563–64 (6th Cir. 2009) (using state law to determine whether mobile home was personal or real property under § 1322(b)(2) ); In re Ennis , 558 F.3d 343, 345–46 (4th Cir. 2009) (same).

Under Iowa common law, personal property is a fixture—thus real property—when: "(1) it is actually annexed to the realty, or to something appurtenant thereto; (2) it is put to the same use as the realty with which it is connected; and (3) the party making the annexation intends to make a permanent accession to the freehold." Ford v. Venard , 340 N.W.2d 270, 271 (Iowa 1983), citing Cornell College v. Crain , 211 Iowa 1343, 235 N.W. 731, 732 (1931). The first two are "mainly important in determining the intention of the party making the annexation," which is "the controlling

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consideration in determining the whole question." Speer v. Donald , 201 Iowa 569, 207 N.W. 581, 582 (1926), quoting Ottumwa Woolen Mill Co. v. Hawley , 44 Iowa 57, 63 (1876). "[T]he intention is paramount and really the determining factor." Cornell College , 235 N.W. at 732. A party’s intention is a factual question. Speer , 207 N.W. at 582 (intention is "implied from all the facts," quoting Fehleisen v. Quinn , 182 Iowa 1283, 165 N.W. 213, 215 (1917) ). See Langer v. Iowa Beef Packers, Inc. , 420 F.2d 365, 367 & n.4 (8th Cir. 1970) (collecting cases).

The bankruptcy court specifically found that "the method of attachment does not indicate an intent to make the home a permanent accession to the property," and:

The Court finds—especially in light of the fact that Debtors own the home while The Paddock owns the lot and charges Debtors a monthly fee under the lease—that the [Ground Lease] does not clearly establish the intent to make the home a permanent accession to the real estate.

These findings are not clearly erroneous.

The bankruptcy court heard competing testimony about the home’s attachment to the ground. Mr. Bennett testified: he had looked behind the skirting that covers the space between the home and ground; the home is placed on pier pads and concrete blocks, not a concrete foundation; and, he has raised a pier pad several times to level the home due to ground sinkage. Sarah Slaymaker—The Paddock’s property manager (beginning two years after the home’s installation)—testified: there is a full concrete foundation behind the skirting² (based on other nearby homes having a concrete foundation); the wheels and axles used to install the home were removed but the underlying structure to which they were attached was probably still there; and, moving the home from its concrete foundation would damage both the home and the lot.

The bankruptcy court found Bennett more credible than Slaymaker because of his first-hand knowledge. The Paddock does not challenge this credibility determination, which there is no reason to disturb. See Dollar v. Smithway Motor Xpress, Inc. , 710 F.3d 798, 806 (8th Cir. 2013) ("A district court’s credibility determinations in a bench trial ... are virtually unassailable on appeal."). Bennett’s testimony sufficiently supports the bankruptcy court’s finding that "the home sits on piers and blocks, not on a concrete foundation."

For the first time in a footnote to its reply brief, The Paddock argues that a federal regulation "renders suspect" the bankruptcy court’s finding "that the piers are not deeply embedded into the ground." See 24 C.F.R. § 3285.312(b)(1) (conventional footings for manufactured homes "must be placed below the frost line depth for the site ...."). This court generally does not consider arguments raised for the first time in a reply brief. Cutcliff v. Reuter , 791 F.3d 875, 883 n.3 (8th Cir. 2015). Even if this court considered the argument, the factual record supports the bankruptcy court’s finding that "the home is more like a structure on blocks than a structure deeply embedded into the ground." The court found that the home does not have a foundation. Bennett testified that one pier pad repeatedly sunk into the ground. The Paddock did not present any evidence about the piers being deeply embedded. Its reliance on a federal regulation is irrelevant. The bankruptcy court’s structure-on-blocks

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finding was not clearly erroneous.

The Paddock also challenges the bankruptcy court’s finding that the home "could be removed from the property and would not lose substantial value if it was removed." However, this finding is supported by the finding that the home is like a structure on blocks, and by Slaymaker’s testimony that the underlying structure used to transport it was probably still there. No direct evidence shows that...