Thaw v. Moser
| Decision Date | 16 January 2014 |
| Docket Number | CIVIL ACTION NO. 4:13-CV-276 |
| Court | U.S. District Court — Eastern District of Texas |
| Parties | KERNELL THAW, Appellant, v. CHRISTOPHER MOSER, Appellee. |
Pending before the court is Kernell Thaw's ("Thaw" or "Appellant") appeal from the United States Bankruptcy Court's Order, entered March 20, 2013, sustaining trustee Christopher Moser's ("Moser" or "Trustee") Objection to Homestead Exemption. Having reviewed the bankruptcy judge's opinion and order, the record, the submissions of the parties, and the applicable law, the court is of the opinion that the bankruptcy court's decision should be affirmed.
Stanley Thaw ("Debtor") and Thaw were married on June 9, 2001. The following year, Debtor and Dr. Leslie Schachar ("Schachar") formed Theramedics, a health care business that proved to be unprofitable. In 2004 and 2006, Theramedics defaulted on various obligations that had been guaranteed by Debtor and Schachar. Schachar paid the obligations and subsequently sued to collect Debtor's share. Schachar recovered a judgment against Debtor in November 2009, and Debtor's appeals were unsuccessful. After Schachar attempted to enforce his judgment,Debtor filed for bankruptcy protection and Moser was appointed Chapter 7 Trustee of Debtor's bankruptcy estate.1
At the time of Debtor's bankruptcy filing, the Thaws were living in their homestead at 5197 Brandywine in Frisco, Texas ("Brandywine Property"). Debtor claimed an unlimited homestead exemption under the Texas Constitution and the Texas Property Code. See TEX. CONST. ART. XVI, §§ 50 and 51; TEX. PROP. CODE §§ 41.001-.002. Trustee objected to Debtor's exemption in a timely manner, arguing that it should be limited by 11 U.S.C. § 522(p), which caps the homestead exemption at $146,450 if the property was acquired within 1,215 days of the bankruptcy filing.2 Debtor stipulated that Trustee had established the requirements of § 522(p) and that the homestead exemption was correctly capped at $146,450.
Thaw, however, opposed Trustee's objection, asserting that her community property interest in the Brandywine Property is protected by the Texas Homestead Act. She argued that under Texas law, her homestead interest is a vested property right, similar to a life estate, which cannot be taken without just compensation. Thaw relied almost exclusively on one case, United States v. Rodgers ("Rodgers"), which characterized the Texas homestead right as "not a mere statutory entitlement, but a vested property right." 461 U.S. 677, 686 (1983).
The bankruptcy court held that Thaw has no separate and distinct, exempt homestead interest in the Brandywine Property that would allow her to claim a homestead exemption. Thebankruptcy court found Rodgers inapplicable in the context of bankruptcy law. Instead, the court cited a more-recent and confusingly similarly-styled Fifth Circuit case, In re Rogers ("Rogers"), which held that a homestead interest gives "protective legal security rather than vested economic rights." 513 F.3d 212, 224 (2008) (quoting Heggen v. Pemelton ("Heggen"), 836 S.W.2d 145, 148 (Tex. 1992)). Thaw filed the instant appeal on May 17, 2013, asserting that the bankruptcy court erred by sustaining Trustee's objection because the forced sale of her homestead, without just compensation, amounts to an unconstitutional taking.
District courts have jurisdiction to hear appeals from "final judgments, orders, and decrees" and, with leave of the court, "other interlocutory orders and decrees" of bankruptcy judges. 28 U.S.C. § 158(a). Pursuant to 28 U.S.C. § 158(c)(2), an appeal from the bankruptcy court to the district court "shall be taken in the same manner as appeals in civil proceedings generally are taken to the courts of appeals from the district courts . . . ." Id. Therefore, "when reviewing a bankruptcy court's decision in a 'core proceeding,' a district court functions as a[n] appellate court." Webb v. Reserve Life Ins. Co. (In re Webb), 954 F.2d 1102, 1103-04 (5th Cir. 1992); accord Perry v. Dearing (In re Perry), 345 F.3d 303, 308-09 (5th Cir. 2003); In re S. White Transp., Inc., 473 B.R. 695, 698 (S.D. Miss. 2012), aff'd, 725 F.3d 494, 496 (5th Cir. 2013).
In reviewing a decision of the bankruptcy court, Rule 8013 of the Federal Rules of Bankruptcy Procedure requires the court to accept the bankruptcy court's findings of fact unlessclearly erroneous and to examine de novo the conclusions of law. See In re Halo Wireless, Inc. , 684 F.3d 581, 586 (5th Cir. 2012); Drive Fin. Servs., L.P. v. Jordan, 521 F.3d 343, 346 (5th Cir. 2008); Texas v. Soileau (In re Soileau), 488 F.3d 302, 305 (5th Cir. 2007), cert. denied, 552 U.S. 1180 (2008). Mixed questions of law and fact are reviewed de novo. In re San Patricio Cnty. Cmty. Action Agency, 575 F.3d 553, 557 (5th Cir. 2009). A finding of fact is clearly erroneous when although there is evidence to support it, the reviewing court is left with a firm and definite conviction that a mistake has been committed. See Bertucci Contracting Corp. v. M/V ANTWERPEN, 465 F.3d 254, 258-59 (5th Cir. 2006); see also In re Perry, 345 F.3d at 309 (quoting Robertson v. Dennis (In re Dennis), 330 F.3d 696, 701 (5th Cir. 2003)).
The bankruptcy court's ruling that a non-spouse has no separate and distinct, exempt homestead interest is a conclusion of law. See In re Mazoue, 240 B.R. 878, 880 (E.D. La. 1999) (). Therefore, the court will review the bankruptcy court's decision de novo.
The core of Thaw's appeal is that she has a vested property interest in the homestead that could not be taken without just compensation pursuant to the Fifth Amendment to the United States Constitution. Specifically, Thaw argues that the bankruptcy court erred in four ways: first, by incorrectly distinguishing the United States Supreme Court's holding in Rodgers; second, by misconstruing Fifth Circuit and Texas Supreme Court precedent by relying on Rogers; third, by incorrectly ruling that Bankruptcy Code § 363 provides protection to Thaw's interest in theBrandywine Property; and fourth, by relying on additional case law that is distinguishable from the present case.
"The Fifth Amendment, made applicable to the States through the Fourteenth Amendment, provides that 'private property' shall not be taken for public use, without 'just compensation.'" Urban Developers LLC v. City of Jackson, 468 F.3d 281, 292 (5th Cir. 2006) ); Hatfield v. Scott, 306 F.3d 223, 226 (5th Cir. 2002) (quoting Phillips v. Washington Legal Found., 524 U.S. 156, 163-64 (1998)). The purpose of the Takings Clause "is to prevent the government from 'forcing some people alone to bear public burdens, which, in all fairness, and justice, should be borne by the public as a whole.'" United States Fid. & Guar. Co. v. McKeithen, 226 F.3d 412, 416 (5th Cir. 2000) (quoting E. Enters. v. Apfel, 524 U.S. 498, 522 (1998)). To prevail on a takings claim, a plaintiff first "must demonstrate that he has a protectable property interest." Dennis Melancon, Inc. v. City of New Orleans, 703 F.3d 262, 269 (5th Cir. 2012), cert. denied, 133 S. Ct. 2396 (2013) (citing Ruckelshaus v. Monsanto Co., 467 U.S. 986, 1000 (1984)). Because the Constitution protects rather than creates property interests, courts must "resort to 'existing rules or understandings that stem from an independent source such as state law' to define the range of interests that qualify for protection as 'property' under the Fifth and Fourteenth Amendments." Lucas v. S.C. Coastal Council, 505 U.S. 1003, 1030 (1992) (quoting Bd. of Regents of State Colls. v. Roth, 408 U.S. 564, 577 (1972)). Thaw's argument thus depends on whether the Texas homestead interest is a property right under state law.
Thaw relies on Rodgers to establish that Texas law grants her a protected homestead interest in the Brandywine Property. In Rodgers, the United States Supreme Court considered whether § 7403 of the Internal Revenue Code "empowers a [federal] district court to order the sale of a family home in which a delinquent taxpayer had an interest at the time he incurred his indebtedness, but in which the taxpayer's spouse, who does not owe any of that indebtedness, also has a separate 'homestead' right as defined by Texas law." 461 U.S. at 677. The Court evaluated the nature of the Texas homestead right and determined that, under the Texas Constitution, each spouse in a marriage has "a separate and undivided possessory interest in the homestead, which is only lost by death or abandonment, and which may not be compromised either by the other spouse or by his or her heirs." Id. at 685. It characterized the homestead right as "not a mere statutory entitlement, but a vested property right." Id. at 686. The Court determined there was no "gratuitous confiscation" in Rodgers because compensation was paid to the nondelinquent spouse. The Court ultimately held that § 7403 of the Internal Revenue Code empowers federal district courts to order the sale of a home so long as the non-debtor spouse receives compensation for the loss of the homestead interest. Id. at 697.
The bankruptcy court found Rodgers distinguishable from the present case for two reasons. First, Rodgers was governed by the Internal Revenue Code, whereas this case deals exclusively with the Bankruptcy Code. Second, Rodgers involved the use of community property to pay a separate debt, whereas the present case involves the inclusion of community property in the bankruptcy estate to pay community debts. Pursuant to 11 U.S.C. § 363(i), if community property is to be sold, the nonbankrupt spouse has the right of first refusal. If the spouse does not...
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