AG Acceptance Corp. v. Veigel

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit

FILED
April 1, 2009

No. 08-10144 Charles R. Fulbruge III
Clerk

AG ACCEPTANCE CORPORATION; RABO AGRIFINANCE INC

Plaintiffs-Appellees
v.

ROBERT WAYNE VEIGEL; STEVE VEIGEL; TERRA XXI LTD; VEIGEL
CATTLE COMPANY; TERRA PARTNERS; BURNETT & VEIGEL INC;
WILLIAMS & VEIGEL INC; KIRK & VEIGEL INC; MASSEY, KIRK &
VEIGEL INC

Defendants-Appellants

Appeal from the United States District Court
for the Northern District of Texas

Before REAVLEY, BARKSDALE, and GARZA, Circuit Judges.
EMILIO M. GARZA, Circuit Judge:
In this property dispute, creditors AG Acceptance Corporation and Rabo
Agrifinance Inc. (collectively, the “Creditors”) filed suit against debtors Robert
Veigel, his family members, and various family-related entities (collectively, the
“Veigels”). The Creditors sought to quiet title to 960 acres of land (the “960
Acres”) previously used in the Veigels’ farming operations. Following a bench
trial, the district court entered a declaratory judgment specifying that (1) the
Creditors properly foreclosed and executed on the 960 Acres, (2) the Veigels’
attempts to transfer the property were fraudulent under the Texas Uniform
 No. 08-10144

Fraudulent Transfer Act (“TUFTA”), T EX. B US. & C OM. C ODE § 24.001 et seq.,
and (3) the Creditors were entitled to attorney’s fees. The Veigels now appeal.
For the following reasons, we reverse the award of attorney’s fees and affirm the
judgment in all other respects.
I
This case involves two separate property interests in the 960 Acres—a 25%
interest and a 75% interest. Prior to the events at issue, Robert Veigel owned
the 25% interest and certain of his relatives (the “Veigel Relatives”) owned the
75% interest. For clarity, the subsequent history of each property interest will
be discussed separately.
In 2001, the Veigel Relatives sold the 75% interest to AG Acceptance, a
creditor of the Veigel family’s farming operation. The following year, AG
Acceptance agreed to sell the 75% interest back to Terra XXI, a Veigel-family
entity. In August of 2003, AG Acceptance transferred the 75% interest to Terra
XXI, which in turn executed a note and deed of trust as security for the purchase
price. The day after executing the note, Terra XXI transferred the 75% interest
to Terra Partners, another Veigel-family entity. Neither Terra XXI nor Terra
Partners ever made a payment on the note to AG Acceptance. Accordingly, AG
Acceptance foreclosed on the 75% interest in October of 2003.
In 2000, Robert Veigel leased his 25% interest to Terra Partners. In 2003,
as AG Acceptance moved to collect on debts owed by the Veigels, Robert Veigel
executed a lease modification extending the Terra Partners lease until 2012. In
2006, as creditor Rabo Agrifinance moved to collect on other debts owed by the
Veigels, Robert Veigel executed a second modification extending the lease until
2021 and permitting himself to claim a homestead on the land. Rabo
Agrifinance subsequently secured a $3.9 million judgment against the Veigels
and moved to execute on the 25% interest in satisfaction of the judgment. As
this execution proceeding was pending, Robert Veigel and his wife filed a

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homestead declaration on the 25% interest. However, the Veigels were denied
homestead protection, and Rabo Agrifinance executed on the 25% interest.
In the instant case, the Creditors initially brought a diversity action to
partition the 960 Acres. When the Creditors subsequently acquired 100% of the
property, the complaint was amended to essentially request a declaratory
judgment (1) quieting title in the property and (2) declaring that the Veigels’
various transfers and lease modifications were “fraudulent transfers” under
TUFTA. In response, the Veigels challenged Rabo Agrifinance’s execution on the
25% interest, arguing that the interest was a protected homestead under Texas
law. They also challenged AG Acceptance’s foreclosure on the 75% interest.
After a bench trial, the court entered judgment in favor of the Creditors. The
court found that (1) AG Acceptance validly foreclosed on the 75% interest, (2)
Rabo Agrifinance validly executed on the 25% interest, which was not a
protected homestead, and (3) both the transfer of the 75% interest to Terra
Partners and the lease modifications were fraudulent under TUFTA. The court
also awarded attorney’s fees to the Creditors. The Veigels now challenge the
homestead finding, the fraudulent-transfer findings under TUFTA, and the
award of attorney’s fees.
II
On appeal from a bench trial, we review findings of fact for clear error and
legal issues de novo. Houston Exploration Co. v. Halliburton Energy Servs., Inc.,
359 F.3d 777, 779 (5th Cir. 2004). “A finding of fact is clearly erroneous when,
although there is evidence to support it, the reviewing court based on all the
evidence is left with the definitive and firm conviction that a mistake has been
committed.” Id. (internal quotation marks omitted).

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III
A
The Veigels contend that the district court erred in finding that the 25%
interest was not a homestead under Texas law. The Veigels maintain that the
property’s status as a homestead rendered it exempt from execution by Rabo
Agrifinance. Whether a certain parcel of land constitutes a homestead is a
question of fact. See In re Niland, 825 F.2d 801, 806–07 (5th Cir. 1987).
Under Texas law, a landowner may have one homestead that is exempt
from execution by creditors. T EX. C ONST. art. XVI, §§ 50–51. The party seeking
homestead protection has the burden of establishing that a parcel of land
qualifies as a homestead. Chapman v. Olbrich, 217 S.W.3d 482, 495–96 (Tex.
App.—Houston [14th Dist.] 2006, no pet.). When the landowner does not
actually occupy the land (as here), a homestead may be established if the
landowner can show (1) a present intent to occupy and use the land as a home
and (2) an overt act in furtherance of this intent. Farrington v. First Nat’l Bank
of Bellville, 753 S.W.2d 248, 250 (Tex. App.—Houston [1st Dist.] 1988, writ
denied). As to the present-intent prong, the landowner must show a good faith
intent to use the land as a home “in a reasonable and definite time in the
future.” Id. at 250–51; see also Kendall Builders, Inc. v. Chesson, 149 S.W.3d
796, 809 (Tex. App.—Austin 2004, pet. denied) (explaining that the intent must
be “bona fide”); Matter of Claflin, 761 F.2d 1088, 1091 (5th Cir. 1985) (explaining
that the intent must be fixed, not “contingent” on other events).
As to the overt-act prong, the landowner must show “preparations toward
actual occupancy and use that are of such character and have proceeded to such
an extent as to manifest beyond doubt the intention to complete the
improvements and reside upon the place as a home.” Farrington, 753 S.W.2d at
250 (internal quotation marks omitted). In other words, mere commercial or
recreational use of the land is generally insufficient—the landowner must show

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an act of preparation to use the land as a home. See In re Brown, 191 B.R. 99,
101–02 (Bankr. N.D. Tex. 1995) (finding that the landowners failed to establish
a homestead because the they “did not make any repairs to or take any other
overt steps to move back into the . . . house”).
In the proceedings below, the Veigels argued that Robert Veigel
established a homestead on the 25% interest. They relied primarily on the
homestead declaration signed by Robert Veigel declaring his intent to use the
960 Acres as a family home. However, after reviewing the evidence and
testimony, the district court found that Robert Veigel (1) did not possess the
present intent to use any portion of the 960 Acres as a home and (2) did not take
any overt act in furtherance of his alleged intent.
We hold that the district court’s findings were not clearly erroneous. First,
there was more than enough evidence to support a finding that Robert Veigel did
not have a bona fide intent to use the 960 Acres as a home. The evidence
demonstrated that Robert Veigel had never lived on the 960 Acres, had not spent
a night there since 1998, and continued to claim a separate homestead on
another tract of land that his family had occupied for years. Although Robert
Veigel attempted to distance himself from this alternative homestead claim at
trial, the court apparently chose not to credit this testimony. See Coffel v.
Stryker Corp., 284 F.3d 625, 634 (5th Cir. 2002) (“Intent is a fact question
uniquely within the realm of the trier of fact because it so depends upon the
credibility of the witnesses and the weight to be given their testimony.”).
Moreover, the proffered homestead declaration itself fails to establish the
requisite intent. The document states that Robert Veigel and his wife had the
“present intent to reside on [the 960 Acres] in the event that their previously
asserted homestead rights in adjoining property are not judicially allowed after
a final appeal” (emphasis added). Giving this language its plain meaning, the
family’s intent to live on the 960 Acres depended on their being denied

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homestead rights in their primary residence following a state-court appeal.
Under Texas law, this type of contingent intent is insufficient to establish a
homestead. See Matter of Claflin, 761 F.2d at 1091 (finding that the landowners
failed to establish a homestead because they “asserted only a contingent future
intent to move to the Houston Property if [one spouse] could not establish herself
professionally in Austin” ).
In the alternative, there is also sufficient evidence to support the district
court’s finding that Robert Veigel did not take any overt action in furtherance
of his alleged intent. The Veigels essentially concede that he did not take any
steps to build, plan, or occupy a home on the 960 Acres. Instead, they rely on
Robert Veigel’s long ownership and the commercial improvements made to the
property over the years, such as irrigation systems and the on-site office. These
are plainly not “preparations toward actual occupancy and use that are of such
character and have proceeded to such an extent as to manifest beyond doubt the
intention to complete the improvements and reside upon the place as a home.”1
Farrington, 753 S.W.2d at 250 (emphasis added and internal quotation marks
omitted).

1
The Veigels rely heavily on Graham v. Kleb, 2008 WL 243669 (S.D. Tex. Jan. 29,
2008) (unpublished), for the proposition that the overt acts need not necessarily relate to the
establishment of a dwelling. In Graham, the district court upheld the bankruptcy court’s
finding that landowner Kleb had established a homestead on a rural property, even though
Kleb had not taken any specific steps toward establishing a dwelling. Id. at *4–5. The court
reasoned that the property had been in Kleb’s family for many years and that Kleb had
improved the property by maintaining roads, fences, and hunting blinds. Id. at *4. The
Veigels’ reliance on this case is misplaced. First, the district court in Graham was reviewing
the bankruptcy court’s finding in favor of homestead rights for clear error. Second, the
bankruptcy court specifically credited Kleb’s testimony that he intended to build a home as
soon as his finances would permit. Id. Third, in direct contrast to the case at hand, “[t]he
evidence showed that Kleb had not claimed any other property as his homestead.” Id. Finally,
to the extent that this unreported federal case stands for the proposition that the overt act
need not demonstrate a home-use intent, it is clearly inconsistent with Texas case law. See
Farrington, 753 S.W.2d at 250.

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The district court did not clearly err in finding that the Veigels failed to
establish a homestead under Texas law. Accordingly, the 25% interest was
properly subject to execution by Rabo Agrifinance.2
B
The Veigels next contend that the district court erred in finding that
the transfer of the 75% interest to Terra Partners was a fraudulent transfer
under TUFTA. For the first time on appeal, the Veigels argue that the
transaction was exempt from TUFTA because the 75% interest was encumbered
by a valid lien at the time of the transfer. See T EX. B US. & C OM. C ODE A NN. §
24.002(12) & (2).
Under this Circuit’s general rule, arguments not raised before the district
court are waived and will not be considered on appeal unless the party can
demonstrate “extraordinary circumstances.”3 See N. Alamo Water Supply Corp.
v. City of San Juan, 90 F.3d 910, 916 (5th Cir. 1996). “Extraordinary
circumstances exist when the issue involved is a pure question of law and a
miscarriage of justice would result from our failure to consider it.” Id. Here, the
Veigels’ briefing is devoid of any argument that a miscarriage of justice would

2
Our homestead holding has a second consequence: The Veigels also claim the district
court erred in finding the lease modifications to be “fraudulent transfers” under TUFTA. On
this point, they argue only that the 25% interest was a homestead property and thus exempt
from TUFTA. Because we find that the 25% interest was not a homestead, the Veigels’ claim
of error on this point must fail.
3
The Veigels contend that it was unnecessary for them to raise the valid-lien argument
below because this case was tried to the bench. They cite Colonial Penn Ins. v. Market
Planners Ins. Agency Inc., 157 F.3d 1032, 1036–37 (5th Cir. 1998), for the proposition that a
party may raise an issue for the first time on appeal following a bench trial. However, Colonial
Penn holds only that a party need not object to a court’s factual findings or legal conclusions
in order to preserve the appeal of such findings and conclusions. Id. This holding does not
relieve a party of its responsibility for raising the substantive legal arguments that justify
relief during trial. See In re Liljeberg Enters., Inc., 304 F.3d 410, 468–69 (5th Cir. 2002)
(finding that the party’s failure to raise a legal argument during the bench trial constituted
waiver). Thus, the Veigels waived the valid-lien issue, and the extraordinary-circumstances
test applies on this appeal.

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result from our failure to consider the TUFTA issue. See id. (explaining that the
burden to establish extraordinary circumstances is on the party seeking review).
Moreover, the Veigels concede that reversal on this issue would not affect title
to the 75% interest, as the validity of AG Acceptance’s subsequent foreclosure is
undisputed on appeal. Accordingly, because the Veigels have failed to identify
any harm resulting from the district court’s TUFTA ruling, 4 we decline to
consider their substantive argument for the first time on appeal.
C
The Veigels next contend that the district court erred in awarding
attorney’s fees to the Creditors. This case was tried under the Federal
Declaratory Judgment Act (“FDJA”), 28 U.S.C. § 2201 et seq., which authorizes
an award of attorney’s fees “where ‘controlling [state] substantive law’ permits
such recovery.” See Self-Ins. Inst. of Am., Inc. v. Korioth, 53 F.3d 694, 697 (5th
Cir. 1995). The district court determined that the Texas Declaratory Judgment
Act (“TDJA”), T EX. C IV. P RAC. & R EM. C ODE A NN. § 37.001 et seq., was the
controlling substantive law in this diversity suit. After both parties briefed the
issue under the relevant TDJA standard, the court determined that the
Creditors were entitled to attorney’s fees.
For the first time on appeal, the Veigels correctly argue that our precedent
precludes an award of attorney’s fees pursuant to the TDJA as a matter of law.
See Utica Lloyd’s of Texas v. Mitchell, 138 F.3d 208, 210 (5th Cir. 1998) (holding
that “a party may not rely on the [TDJA] to authorize attorney’s fees in a
diversity case because the statute is not substantive law”). Because the Veigels
again failed to raise this argument below, we must consider whether
“extraordinary circumstances” justify our consideration of the issue on appeal.

4
As to harm, the Veigels do suggest that the TUFTA ruling affects Terra Partners’ joint
liability for the award of attorney’s fees. However, pursuant to Part III(C) of this opinion, the
award of attorney’s fees is reversed in its entirety.

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See N. Alamo Water, 90 F.3d at 916 (explaining that “[e]xtraordinary
circumstances exist when the issue involved is a pure question of law and a
miscarriage of justice would result from our failure to consider it”). Here, the
Veigels have demonstrated that such circumstances exist: First, the general
availability of attorney’s fees under a particular statute is a pure question of law.
See Finger Furniture Co. Inc. v. Commonwealth Ins. Co., 404 F.3d 312, 315 (5th
Cir. 2005). Second, our failure to correct the issue would result in a miscarriage
of justice. In this context, we have often considered whether the alleged error
is obvious or merely debatable. See Conley v. Bd. of Trs., 707 F.2d 175, 178 (5th
Cir. 1983) (reasoning that failure to reach the issue would not result in a
miscarriage of justice because “the merit of the [party’s] omitted claim is not so
plain or obvious”). Here, the district court’s award of attorney’s fees was
patently erroneous in light of controlling precedent. See Utica Lloyd’s, 138 F.3d
at 210. Furthermore, our failure to reach the issue would result in significant
actual harm to the Veigels—liability for approximately $206,544.52 in
unjustified attorney’s fees.
In sum, the Veigels have demonstrated the extraordinary circumstances
necessary to justify our review of their unraised argument. Accordingly, we
adhere to our precedent and reverse the district court’s award of attorney’s fees
pursuant to the TDJA. See Utica Lloyd’s, 138 F.3d at 210.
IV
For the foregoing reasons, we REVERSE the district court’s award of
attorney’s fees and AFFIRM the judgment in all other respects.

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