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Thaw v. Moser

United States District Court, Fifth Circuit

January 16, 2014

KERNELL THAW, Appellant,


MARCIA A. CRONE, District Judge.

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.

I. Background

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. The bankruptcy 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.

II. Analysis

A. Jurisdiction

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).

B. Standard of Review

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 unless clearly 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) (stating that a bankruptcy court's decision to sustain an objection to a homestead exemption in a Chapter 7 bankruptcy is a conclusion of ...

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