Webb, Matter of
| Decision Date | 05 March 1992 |
| Docket Number | No. 91-1356,91-1356 |
| Parties | Bankr. L. Rep. P 74,494 In the Matter of James Thomas WEBB, Sr., and Verda Faye Webb, Debtors. James Thomas WEBB, Sr., and Verda Faye Webb, dba Webb Auto Supply, Appellees, v. RESERVE LIFE INSURANCE COMPANY, Appellant. |
| Court | U.S. Court of Appeals — Fifth Circuit |
Charles M. Walls, R. Byrn Bass, Jr., Harding, Bass, Fargason & Booth, Lubbock, Tex., for appellant.
Robert W. St. Clair, Curry, Curry & Robinson, Lubbock, Tex., for appellees, debtors.
Appeal from the United States District Court for the Northern District of Texas.
Before GOLDBERG, JOLLY, and WIENER, Circuit Judges
In this adversary proceeding arising out of a Chapter 7 bankruptcy, Defendant-Appellant, Reserve Life Insurance Company (Reserve), appeals from a decision of the district court reversing a bankruptcy court holding that a parcel of real property owned by James Thomas Webb, Sr. and Verda Faye Webb, the Debtors, did not constitute a part of their business homestead under Texas law. Finding that the district court did not apply the correct standard in its review of the bankruptcy court decision, 119 B.R. 114, we reverse the district court and reinstate and affirm the bankruptcy court judgment.
The Webbs started Webb Auto Supply as a retail and wholesale auto parts business in the early 1950s. In 1959, the Webbs In 1969, the Webbs purchased another property in which they located a second auto parts store (the 34th Street property). Shortly after acquiring the 34th Street property, the Webbs remodeled one side of the building and built an addition to the other side. The remodeled space and the addition were rented to other merchants from time to time, but were never used in the Webbs' auto supply business.
purchased a building located at the corner of Avenue F and 16th Street in Lubbock, Texas (the 16th Street property) in which they operated Webb Auto Supply.
In need of operating capital for their business in 1980, the Webbs executed a note in the original amount of $101,250 in favor of the First National Bank of Lubbock. As security for this note, the Webbs executed a deed of trust encumbering various properties, including the 34th Street property. The following year, the Webbs defaulted on the note, and refinanced it by executing a new note in the same principal amount in favor of Eureka Life Insurance Company. As security, the Webbs gave Eureka a deed of trust on the 34th Street property. At the same time, the Webbs executed a document designating both their personal residence and the 16th Street property as their urban homestead and expressly disclaiming the 34th Street property as constituting any part of their homestead. Reserve now holds the Eureka note and the deed of trust encumbering the 34th Street property.
In 1988, again in default and facing foreclosure, the Webbs filed for Chapter 11 bankruptcy protection. On June 16, 1988, the 34th Street property was heavily damaged in a fire, and the Webbs were unable to continue their business at that location. Shortly after the fire, Webb Auto Supply ceased doing business. Subsequently, the Chapter 11 proceeding was converted to a Chapter 7 proceeding, but the case was dismissed several months later. In neither bankruptcy proceeding did the Webbs originally list the 34th Street property as homestead property. They did, however, amend their schedules to reflect their desire to include the 34th Street property in their homestead exemption.
In November of 1989, the Webbs again filed for protection under Chapter 7, listing the 34th Street property as part of their homestead. Reserve sought to have the automatic stay lifted in order to foreclose its lien on the 34th Street property, but the Webbs countered with an adversary proceeding to determine the validity of the lien claimed by Reserve. The bankruptcy court found that the 34th Street property was not a part of the Webbs' homestead and that the Reserve lien was valid. The automatic stay was lifted, but the bankruptcy court granted the Webbs' motion for a stay pending appeal to the district court, conditioned on the Webbs' posting a bond in the amount of $25,000. The Webbs failed to post the required bond timely, and the 34th Street property was foreclosed.
The Webbs appealed the bankruptcy court's decision to the district court. The district court, purporting to apply a clearly erroneous standard of review, found that the 34th Street property, at least insofar as it was used in the conduct of Webb Auto Supply, was protected by the Webbs' homestead exemption, invalidating the lien as to that property. The district court remanded the case to the bankruptcy court for the sole purpose of determining the legal description of that portion of the 34th Street property used in the Webbs' auto supply business. Reserve timely appealed.
When reviewing a bankruptcy court's decision in a "core proceeding," 1 a district court functions as a appellate court Findings of fact, whether based on oral or documentary evidence, shall not be set aside unless clearly erroneous, and due regard shall be given to the opportunity of the Bankruptcy Court to judge the credibility of the witnesses.
and applies the standard of review generally applied in federal court appeals. 2 Federal Rule of Bankruptcy Procedure 8013 prescribes the standard that a district court employs in reviewing a bankruptcy court's findings of fact. It provides in relevant part
The leading case defining and giving guidance on the term "clearly erroneous" is the Supreme Court's opinion in Anderson v. City of Bessemer. 3 Although Anderson concerned a federal appellate court's review of a district court decision, it is equally applicable to a district court's review of a bankruptcy court decision. The Court in Anderson instructs that:
Although the meaning of the phrase "clearly erroneous" is not immediately apparent, certain general principles governing the exercise of the appellate court's power to overturn findings of a district court may be derived from our cases. The foremost of these principles ... is that "[a] finding is clearly erroneous when although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed." ... This standard plainly does not entitle a reviewing court to reverse the finding of the trier of fact simply because it is convinced that it would have decided the case differently.... If the district court's account of the evidence is plausible in light of the record viewed in its entirety, the court of appeals may not reverse it even though convinced that had it been sitting as a trier of fact, it would have weighed the evidence differently. Where there are two permissible views of the evidence, the factfinder's choice between them cannot be clearly erroneous. 4
Our first task is to determine whether the district court did in fact apply the clearly erroneous standard in conducting its review of the bankruptcy court's findings of fact. If we determine that the district court failed to do so, our second task is to review the facts found by the bankruptcy court under the clearly erroneous standard. Finally, if we find no clear error by the bankruptcy court, we must determine whether the conclusions it derived are correct, based on its findings of fact.
After a two day hearing, in which Mr. Webb and another witness testified, the bankruptcy court entered its "Memorandum of Opinion on Homestead." In this opinion, the bankruptcy court set out the facts of the case essentially as we have above. In addition, the bankruptcy court found that the Webbs
operated two separate stores in similar lines of business, but not as one integrated business.
Undoubtedly, the 34th Street property was an aid to the retail automotive parts business. On the other hand, retail business continued from the [16th Street] property where wholesale business was also conducted and where the records of the business were kept. The court cannot find that the 34th Street property was essential to and necessary for the Debtors' business. In effect, the Debtors had two places of business, but they are entitled to claim only one as a business homestead. (emphasis added).
From these facts, the bankruptcy court concluded that the 34th Street property was not part of the Webbs' business homestead and, therefore, Reserve's lien on the 34th Street property was valid.
In its opinion reversing the bankruptcy court, the district court verbalized its obligation to apply the clearly erroneous standard in its review of the bankruptcy court's decision. That is not, however, what the district court proceeded to do. After examining the law governing Texas business homesteads, the district court indisputably conducted a de novo review of the factual findings of the bankruptcy court. This is obvious from an examination of the district court opinion, which reads in part:
In applying the test of Ford 5 to the facts before the Bankruptcy Court, the record indicates that two witnesses testified--Mr. Webb and a James Askew. Both were called by Mr. Webb.
Mr. Askew testified that, in his opinion, it would have been necessary for Webb to have a location outside of the downtown Lubbock area in order to be competitive in the retail and wholesale auto parts supply sales business, both in 1969 and continuing though (sic) the date of the hearing. Mr. Webb testified that:
(1) In the early 1980s the 16th Street store was in the wholesaling and warehousing business;
(2) Most of the gross revenue came from the 16th Street store, but most of net income was at the 34th Street store because of the lower overhead;
(3) The business records were kept at the 16th Street store and the businesses were handled more...
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