Case: 08-20171 Document: 00511621794 Page: 1 Date Filed: 10/04/2011
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
October 4, 2011
No. 08-20171 Lyle W. Cayce
Clerk
In The Matter Of: MICHAEL RAY MCCOMBS,
Debtor.
W STEVE SMITH, as Trustee for Michael McCombs; ALICIA ATKINSON
MCCOMBS,
Appellants,
v.
HD SMITH WHOLESALE DRUG CO,
Appellee.
Appeal from the United States Bankruptcy Court
for the Southern District of Texas
Before OWEN and HAYNES, Circuit Judges.*
PRISCILLA R. OWEN, Circuit Judge:
Bankruptcy Trustee W. Steve Smith (Trustee or Smith) and nondebtor
spouse Alicia Atkinson McCombs (Atkinson) appeal the bankruptcy court’s grant
of summary judgment to H.D. Smith Wholesale Drug Company (H.D. Smith).
The Trustee and Atkinson argue that the bankruptcy court erred in holding that
*
This case is being decided by quorum due to the death of Judge William L. Garwood
on July 14, 2011. 28 U.S.C. § 46(d).
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No. 08-20171
H.D. Smith had an enforceable lien against the proceeds of the sale of the
debtor’s homestead property in excess of the $125,000 homestead exemption. We
reverse and remand.
I
In 2004, Michael Ray McCombs (McCombs or Debtor) and his wife,
Atkinson, purchased a home and an adjoining vacant lot in Katy, Texas. In
March 2006, H.D. Smith obtained a judgment against McCombs for $538,016.46.
In June, an abstract of judgment was issued, and H.D. Smith filed the abstract
in the Harris County real property records in July.
In November, McCombs filed a voluntary Chapter 7 bankruptcy petition.
Atkinson did not join the petition. McCombs listed the house and the vacant lot
as community property and claimed a $125,000 homestead exemption. Prior to
filing for bankruptcy, McCombs and Atkinson signed an agreement with one
another providing that Atkinson would be entitled to the proceeds of the sale
from the house. Atkinson and McCombs also found a buyer and executed a
contract to sell the house prior to McCombs’s petition for bankruptcy. Following
McCombs’s filing in November, the Trustee filed an emergency application to sell
the house free and clear of all liens, claims, charges, encumbrances, and
interests.
Atkinson told the Trustee that she would object to the sale unless there
was an agreement as to the division of proceeds from the sale. Atkinson
eventually agreed to allow the sale to go forward, but the parties stipulated that
the funds would be placed in escrow until the bankruptcy court determined how
the proceeds were to be distributed. The bankruptcy court granted the Trustee’s
motion to sell, and the sale of the home closed in December. The sale netted
$398,849.03 in proceeds after payment of the mortgage and other expenses.
Following the sale, H.D. Smith filed an adversary proceeding against the
Trustee and Atkinson. Atkinson and the Trustee filed answers and
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counterclaims denying that H.D. Smith was entitled to the proceeds and seeking
a determination that they were entitled to the sale proceeds.
The Trustee issued a check jointly payable to McCombs and Atkinson for
$125,000, the amount of the homestead exemption McCombs claimed in his
petition. The earlier stipulation between Atkinson and the Trustee provided
that the Trustee would continue to hold the excess proceeds in escrow.
While the bankruptcy court was considering H.D. Smith’s claim for the
house proceeds, the Trustee filed an emergency motion to sell the unimproved
lot. The bankruptcy court approved the sale, directing that all proceeds from the
sale would become part of the excess proceeds already held in escrow. According
to the Trustee, after the sale of the lot, the excess proceeds totaled $514,095.08.
The bankruptcy court granted H.D. Smith’s motion for summary
judgment. The court rejected Atkinson’s claims that (1) the property had been
partitioned or gifted, (2) her homestead rights trump the dollar limit in § 522(p),
(3) she was entitled to compensation for the homestead right, and (4) failure to
compensate her for the homestead right was an unconstitutional taking. The
court held that H.D. Smith’s judgment lien attached to the homestead and was
perfected prior to McCombs’s bankruptcy filing. The court also held that,
because the Bankruptcy Code limited the homestead exemption, H.D. Smith
obtained the right to enforce the lien after the homestead limit was applied. The
court concluded that the right to enforce the lien did not violate the automatic
stay or the prohibition against post-petition transfers.
The Trustee and Atkinson filed a notice of appeal to the district court.
They also filed a joint certification for direct appeal to the Fifth Circuit, and the
bankruptcy court certified the case for direct appeal. This court granted leave
to appeal under 28 U.S.C. § 158(d).
Following the grant of leave to appeal, the Trustee and H.D. Smith filed
a joint motion seeking a declaration that Atkinson has waived the issues she
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presented in her appellate brief and requesting that we dismiss Atkinson’s
appeal. This court ordered the motion carried with the case and allowed the
Trustee to file a brief in response to Atkinson’s brief.
We have jurisdiction to review the bankruptcy court decision pursuant to
28 U.S.C. § 158(d).1 When we directly review an order from a bankruptcy court,
we review findings of fact for clear error and conclusions of law de novo.2 The
bankruptcy court’s grant of summary judgment is a question of law we review
de novo.3
II
Texas state law provides for homestead protection with an acreage limit
but no dollar limit.4 The Bankruptcy Code allows a debtor to elect state
exemptions; however, the Bankruptcy Abuse Prevention and Consumer
Protection Act of 2005 (BAPCPA) limits the state exemption in certain
circumstances, including imposing a $125,000 limit on the exemption if the
interest was acquired within 1,215 days of filing for bankruptcy.5 It is not
disputed that this provision of BAPCPA is applicable to McCombs’s homestead.
Following McCombs’s election of the $125,000 exemption, H.D. Smith
sought to enforce the lien it filed prior to the bankruptcy filing. The bankruptcy
court held that Texas homestead law did not prevent H.D. Smith from having
an enforceable lien on the excess proceeds. The court held that the lien attached
1
See Drive Fin. Servs., L.P. v. Jordan, 521 F.3d 343, 345 (5th Cir. 2008) (discussing 28
U.S.C. § 158(d)(2)).
2
Crosby v. Orthalliance New Image (In re OCA, Inc.), 552 F.3d 413, 419 (5th Cir. 2008).
3
Id.
4
See Tex. Const. art. XVI, §§ 50-51.
5
See 11 U.S.C. § 522(p)(1)(D); Wallace v. Rogers (In re Rogers), 513 F.3d 212, 217 (5th
Cir. 2008). The Judicial Conference of the United States has since adjusted the exemption
amount. See 11 U.S.C. § 104(b).
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to the property before the bankruptcy proceedings and became enforceable upon
application of the § 522(p) $125,000 homestead exemption.
“Creditors’ entitlements in bankruptcy arise in the first instance from the
underlying substantive law creating the debtor’s obligation, subject to any
qualifying or contrary provisions of the Bankruptcy Code.”6 “The ‘basic federal
rule’ in bankruptcy is that state law governs the substance of claims, Congress
having ‘generally left the determination of property rights in the assets of a
bankrupt’s estate to state law.’”7 “Unless some federal interest requires a
different result, there is no reason why [property] interests should be analyzed
differently simply because an interested party is involved in a bankruptcy
proceeding.”8
Whether H.D. Smith has an interest in the specific excess proceeds is not
directly governed by a federal interest; therefore, in determining H.D. Smith’s
rights in the excess proceeds, we look to Texas state law to characterize H.D.
Smith’s interest. Under Texas law, a lien is unenforceable against homestead
property.9 A judgment creditor may even be liable for slander of title for refusing
6
Raleigh v. Ill. Dep’t of Revenue, 530 U.S. 15, 20 (2000).
7
Id. (citation omitted) (quoting Butner v. United States, 440 U.S. 48, 54, 57 (1979)); see
also Carrieri v. Jobs.com Inc., 393 F.3d 508, 529 (5th Cir. 2004 ) (“The basic rule in bankruptcy
is that ‘state law governs the substance of claims.’ This court has agreed, stating that the
validity of a creditor’s claims against the debtor at the time the bankruptcy petition is filed
‘is to be determined by reference to state law.’” (quoting Raleigh, 530 U.S. at 20 and Kellogg
v. United States (In re W. Tex. Mktg. Co.), 54 F.3d 1194, 1196 (5th Cir. 1995))); Haber Oil Co.
v. Swinehart (In re Haber Oil Co.), 12 F.3d 426, 435 (5th Cir. 1994) (“[I]n the absence of
controlling federal bankruptcy law, the substantive nature of the property rights held by a
bankrupt and its creditors is defined by state law. The states can therefore have some effect
on the operation of the federal bankruptcy system by exercising their power to define property
rights.” (citations omitted)).
8
Raleigh, 530 U.S. at 20 (quoting Butner, 440 U.S. at 55).
9
See Benchmark Bank v. Crowder, 919 S.W.2d 657, 660 (Tex. 1996) (“No mortgage,
trust deed, or lien is ever valid on the homestead unless such lien secures payment of one of
the[] . . . debts [specifically allowed by the Texas Constitution].”); accord Davis v. Davis (In re
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to grant a partial release of its lien against homestead property under a contract
to sell.10 “This does not mean, however, that a lien that is not valid and
enforceable is completely without effect.”11 “[T]he property or proceeds from the
sale of property may be subject to seizure if the property ever ceases to be the
debtor’s homestead.”12 However, we consider the status of H.D. Smith’s lien at
the time of the bankruptcy filing. It is undisputed that McCombs’s house and
lot were homestead property entitled to protection under Texas law at the time
McCombs filed bankruptcy. Therefore, H.D. Smith lacked an enforceable lien
at the time McCombs filed bankruptcy.
H.D. Smith urges the court to hold that the homestead cap in § 522(p) acts
to convert the lien from its previously unenforceable status to an enforceable
status. This argument is unpersuasive because it does not consider the court’s
responsibility to look to state law to define property interests. Section 522(p) is
a federal provision that operates to limit the debtor’s exemptible interest in the
property; it does not speak to H.D. Smith’s interest. In the absence of controlling
federal interests, the state characterization of the property prevails. The non-
exempt excess proceeds from the subsequent sale of the homestead property
during the bankruptcy proceeding became non-exempt by virtue of federal law,
not state law. The bankruptcy laws that place a cap on the value of a homestead
did not convert H.D. Smith’s lien on the homestead from one that was
Davis), 170 F.3d 475, 482 n.9 (5th Cir. 1999) (en banc) (“The Texas Supreme Court has
observed that a lien is never valid (in the sense of being enforceable) unless it secures payment
for certain debts provided for in Tex. Const. Art. XVI, § 50.” (citing Crowder, 919 S.W.2d at
660)).
10
Tarrant Bank v. Miller, 833 S.W.2d 666, 667-68 (Tex. App.—Eastland 1992, writ
denied).
11
Davis, 170 F.3d at 482 n.9.
12
Id. at 483; see also id. at 483 & n.10 (explaining how proceeds from the sale of
homestead property may become subject to seizure by creditors).
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unenforceable pre-petition to one that was enforceable as to the homestead post-
petition. The purpose of § 522(p) is to limit the amount of a homestead
exemption, thereby increasing the size of the bankruptcy estate available to
creditors. We can discern no indication that the intent of § 522(p) was to make
an otherwise unenforceable lien on homestead property enforceable instanter.
H.D. Smith should be accorded the same priority as a creditor that it would have
enjoyed had the bankruptcy not occurred.
Regardless of whether the lien attached prior to the bankruptcy
proceedings, the Trustee took the property with the state-law character it had
in the debtor’s hands: a property with an unenforceable lien. Therefore, we
reverse the district court’s grant of summary judgment. Because we conclude
that H.D. Smith’s lien is unenforceable, we need not consider whether enforcing
the lien would violate 11 U.S.C. § 362 or 11 U.S.C. § 549. We stress that
although we hold that H.D. Smith does not have a right specifically enforceable
in the excess proceeds, we do not today rule whether H.D. Smith has an
otherwise enforceable interest in the estate.
III
Atkinson argues that she has an independent right to assert protection
above that which McCombs claimed in the bankruptcy based on the Texas laws
governing homesteads. She argues that, if she cannot assert her homestead
right, she is entitled to compensation for a loss of that right and that if no
compensation is provided, there will have been an unconstitutional taking of her
property.
As a preliminary matter, H.D. Smith and the Trustee filed a motion
requesting the court to declare that Atkinson has waived her issues because they
contend that Bankruptcy Rule of Procedure 8006 required her to include them
in a statement of issues, and she failed to do so. H.D. Smith and the Trustee
argue that Atkinson designated certain issues in the statement of issues filed in
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the district court pursuant to Rule 8006 and that she identifies different issues
in her appellate brief before this court. Atkinson argues that the issues
presented in her brief are encompassed in the statement of issues she filed and
that the issues in her appellate brief were raised in the courts below. She
contends, in the alternative, that because the appeal was certified for direct
appeal, and because this court accepted the appeal, the district court appeal was
the “appeal that never was,” making the Rule 8006 designation in the district
court irrelevant.
Bankruptcy Rule 8006 provides that, in an appeal to a district court or
bankruptcy appellate panel, “the appellant shall file with the clerk and serve on
the appellee a designation of the items to be included in the record on appeal and
a statement of the issues to be presented.”13 It is clear that under our case law,
“even if an issue is argued in the bankruptcy court and ruled on by that court,
it is not preserved for appeal under Bankruptcy Rule 8006 unless the appellant
includes the issue in its statement of issues on appeal.”14 The issue is waived on
subsequent appeal to the Fifth Circuit, even if the issue was argued before the
district court.15 Although it is clear under the law of this circuit that an issue
that is not designated in the statement of issues in the district court is waived
on appeal when the district court rules on the merits, we have not previously
addressed whether the argument is waived when the bankruptcy court or parties
certify, and we accept, a case for direct appeal pursuant to 28 U.S.C. § 158(d)(2).
As argued by the Trustee and H.D. Smith in their reply in support of their
motion, in enacting 28 U.S.C. § 158(d)(2), Congress also enacted procedural rules
13
FED. R. BANKR. P. 8006.
14
Zimmerman v. Jenkins (In re GGM, P.C.), 165 F.3d 1026, 1032 (5th Cir. 1999).
15
See id. at 1031-32 (holding that an issue was waived because it was not included in
the statement of issues presented to the district court, even though the argument was
presented before the district court).
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to be applied to such appeals, including the following: “The Federal Rules of
Appellate Procedure shall apply in the courts of appeals with respect to appeals
authorized under section 158(d)(2)(A), to the extent relevant and as if such
appeals were taken from final judgments, orders, or decrees of the district courts
or bankruptcy appellate panels exercising appellate jurisdiction . . . .”16 In turn,
the applicable version of FED. R. APP. P. 6, which applies to appeals in
bankruptcy cases from the district court or bankruptcy appellate panel to the
court of appeals, provides that “[w]ithin 10 days after filing the notice of appeal,
the appellant must file with the clerk possessing the record assembled in
accordance with Bankruptcy Rule 8006—and serve on the appellee—a statement
of the issues to be presented on appeal and a designation of the record to be
certified and sent to the circuit clerk.”17 FED. R. APP. P. 6 “clearly refers to and
parallels Bankruptcy Rule 8006’s requirement” that an appellant file and serve
a record designation and statement of the issues to be presented on appeal.18
Thus, considering FED. R. APP. P. 6 in conjunction with the requirement that
relevant rules of appellate procedure apply to direct appeals under § 158(d)(2)
as if they were typical appeals from the district court or bankruptcy appellate
panel, we conclude that, “[w]ithin 10 days after filing the notice of appeal,
[Atkinson and the Trustee were required to] file with the clerk possessing the
record assembled in accordance with Bankruptcy Rule 8006—and serve on the
16
Act of Apr. 20, 2005, Pub. L. 109-8, Title XII, § 1233(b)(6), 119 Stat. 23, 204.
Although the provisions contained in the rules were to be applied only until formal rules of
procedure “relating to such provision and such appeals” were promulgated or amended, the
rules of bankruptcy procedure promulgated in December 2008 regarding direct appeals do not
relate to the particular provision quoted, which appears to remain applicable.
17
FED. R. APP. P. 6(b)(2)(B)(i) (2007). The current version of the rule provides for a
fourteen-day deadline, but is otherwise identical.
18
M.A. Baheth & Co. v. Schott (In re M.A. Baheth Constr. Co.), 118 F.3d 1082, 1083
(5th Cir. 1997).
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appellee—a statement of the issues to be presented on appeal and a designation
of the record to be certified and sent to the circuit clerk.”19
In this case, neither appellant filed a statement of issues or designation
of the record after the notice of appeal to this court (consisting of our order
granting leave to appeal) was filed. Presumably, the reason for this omission
was that both parties had already filed such documents in anticipation of an
appeal to the district court before the direct appeal was certified. Those
documents were filed in the bankruptcy court and are also contained in the
record on appeal. There appears to be no reason to require the designation and
statement of issues to be filed a second time, nor is there any basis not to hold
the appellants to the issues contained in their previously filed statements. In
sum, the rules regarding preservation of issues on appeal in bankruptcy cases
apply with equal force regardless of whether the appeal is from the bankruptcy
court to the district court or bankruptcy appellate panel under 28 U.S.C.
§ 158(a), from the district court to the court of appeals under 28 U.S.C.
§ 158(d)(1), or from the bankruptcy court to the court of appeals upon proper
certification and authorization under 28 U.S.C. § 158(d)(2). Accordingly,
Atkinson’s statement of issues must be considered to determine whether she
properly preserved for appeal the issues and arguments contained in her brief.
In its appealed order granting summary judgment for H.D. Smith, the
bankruptcy court held as follows: (1) Atkinson was not entitled to the excess
proceeds pursuant to an agreement between her and the debtor because it was
not a valid partition agreement converting the Property into her separate
property, it could not be construed as a gift of the Property, and it instead
constituted an unenforceable agreement incident to divorce; (2) as a nondebtor
spouse, Atkinson could not maintain a separate homestead exemption that was
19
FED. R. APP. P. 6(b)(2)(B)(i) (2007).
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not subject to the limit in 11 U.S.C. § 522(p); (3) Atkinson’s homestead
exemption was not “akin to dower” such that she was entitled to a portion of the
excess proceeds under § 363(j); (4) limiting Atkinson’s homestead exemption was
not an unconstitutional taking; and (5) the debtor’s homestead was not exempt
from the attachment of H.D. Smith’s judgment lien, and because § 522(p) limits
the homestead exemption in bankruptcy to $125,000, H.D. Smith’s lien became
enforceable with respect to any non-exempt interest exceeding that amount.
The Trustee’s statement of issues, filed before Atkinson’s, presented the
following issues:
1. Whether the Bankruptcy Court erred in finding that H.D.
Smith Wholesale Drug Co. (“H.D. Smith”) has an enforceable
lien on the Excess Proceeds and the Lot (both as defined in
the Memorandum Opinion) and on any proceeds from the sale
of the Lot.
2. Whether the Bankruptcy Court erred in finding that the right
to enforce the lien, arising only at the instant of bankruptcy
commencement, did not violate one or more provisions of 11
U.S.C. § 362 and as such was void or voidable.
3. Whether the Bankruptcy Court erred in finding that the right
to enforce the lien, arising only at the instant of bankruptcy
commencement, did not violate 11 U.S.C. § 549 and as such
was void or voidable.
Atkinson’s subsequently filed statement of issues mirrored the Trustee’s.
In her appellate brief, on the other hand, Atkinson stated and argued the
following issues: (1) the bankruptcy court erred when it held that 11 U.S.C.
§ 522(p) divested her of her homestead property rights; (2) Atkinson should have
been compensated for her vested property interests under § 363(j); and (3)
alternatively, taking Atkinson’s property violated the Fifth Amendment.
In its summary judgment order, the bankruptcy court separately
addressed Atkinson’s and H.D. Smith’s claims of entitlement to the proceeds.
Because the court found Atkinson was not entitled to any of the proceeds, the
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Trustee’s statement of issues understandably focused only on the rulings
relating to the enforceability of H.D. Smith’s lien and not on Atkinson’s claims.
Atkinson argues that “it is impossible to reach the conclusion that H.D. Smith’s
lien is enforceable [the first issue] without concluding that Atkinson’s interest
evaporated upon the filing of the bankruptcy by her husband.” This construes
the first issue identified in her statement of the issues too broadly. There is no
indication in that statement that Atkinson intended to argue on appeal the
issues regarding her homestead rights, including whether § 522(p) applied to
limit those rights, whether she should have been compensated under § 363(j), or
whether her Fifth Amendment rights were violated.
H.D. Smith and the Trustee assert that, because Atkinson simply copied
the Trustee’s statement of issues, “even though the Bankruptcy Court ruled
against her for reasons that were separate and apart from the reasons that it
gave in its ruling against the Trustee,” Atkinson gave “no indication that the
Trustee and Atkinson would be adverse to one another in the course of appeal.”
We agree. The bankruptcy court’s rulings regarding Atkinson were clearly
stated in the summary judgment order, and she could easily have incorporated
them into her statement of issues. The fact that Atkinson argued these issues
in her summary judgment briefing is immaterial if she did not preserve them for
appeal by including them in her statement of issues.20
Atkinson maintains that the issues were preserved by their inclusion in
both the parties’ and the court’s certification for direct appeal. However, the
certification for direct appeal may be analogized to a district court’s certification
for interlocutory appeal, which does not specify or restrict the scope of the court
of appeals’ review of the appealed order.21 Moreover, the parties do not specify
20
Zimmerman v. Jenkins (In re GGM, P.C.), 165 F.3d 1026, 1032 (5th Cir. 1999).
21
See Melder v. Allstate Corp., 404 F.3d 328, 331 (5th Cir. 2005).
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the particular issues they seek to appeal in their certification, and the
bankruptcy court’s certification order, if anything, identifies the central issue
warranting certification as “whether the Debtor’s pre-petition homestead
exemption prevented the perfection of H.D. Smith’s judgment lien.”
For these reasons, we do not consider the issues that Atkinson argues in
her briefing in this court regarding homestead rights.
* * *
We REVERSE the judgment of the bankruptcy court and REMAND for
further proceedings.
13