Court Opinion

ID: 14706
Source: CourtListenerOpinion
Date Created: 2010-04-25 06:37:58+00
Date Added: 2024-06-11T16:46:35.310230
License: Public Domain

REVISED, May 8, 1998

                     UNITED STATES COURT OF APPEALS

                           FOR THE FIFTH CIRCUIT

                                NO. 97-10683

                 In the Matter of: Charles R. Crowell,

                                                                Debtor.
                            CHARLES R. CROWELL,

                                                               Appellant,

                                   VERSUS

                 THEODORE BENDER ACCOUNTING, INC.,d/b/a
                THEODORE BENDER ACCOUNTING SERVICE, INC.

                                                                Appellee.

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

                               April 29, 1998

Before DAVIS, WIENER and PARKER, Circuit Judges.

ROBERT M. PARKER, Circuit Judge:

                                     I.

                         FACTS & PROCEDURAL HISTORY

     Charles R. Crowell filed for Chapter 13 reorganization on

January 4, 1988. Crowell claimed a rural homestead exemption under

Texas law for a forty-two (42) acre tract of land within the city

limits   of    Keller,    Texas.   Theodore     Bender   Accounting,   Inc.

(“Bender”) had a lien on the forty-two acres.              The Chapter 13

Trustee objected to the designation of all forty-two acres as

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exempt       rural   homestead.     Thereafter,    Crowell   intitiated     an

adversary      proceeding   to    invalidate   Bender’s   lien,   and   Bender

counter-claimed asserting the validity of its lien and sought a

judgment of foreclosure.            Then, without notice to Bender and

without a hearing, the Chapter 13 Trustee abandoned his objection

by agreement with Crowell.

     Following a trial in the adversary proceeding initiated by

Crowell, the bankruptcy court agreed with Bender, and designated

the land as urban homestead, reducing Crowell’s allowable exemption

to one (1) acre.       The bankruptcy court dismissed Bender’s counter-

claim for foreclosure without prejudice to its rights to seek

relief from the automatic stay or to seek foreclosure in the event

the automatic stay was terminated.         Finally, the bankruptcy court

ordered Crowell to choose which one of the forty-two acres he

wished to have exempted as urban homestead, and if he did not do

so, the Trustee would make the designation.1                 On appeal the

district court affirmed the ruling of the bankruptcy court, and

Crowell timely appealed to this Court.

     It is clear to us that the central issue is whether the

bankruptcy court and district court erred by designating Crowell’s

homestead as urban rather than rural.          Out of this singular issue,

Crowell managed to distill fourteen (14) issues for this Court to

resolve on appeal.       Nevertheless, we will attempt to focus on the

central issue here, passing only on those corollary issues which

         1
       The bankruptcy court’s order stipulated that the one acre
designated by Crowell or the Trustee had to include the house then standing
on the property.

                                       2
are essential to resolution of this appeal.

                                         II.

                                 LAW & ANALYSIS

                                         A.

                            Standard of Review

     We review the decision of the district court by applying the

same standards of review to the bankruptcy court’s findings of fact

and conclusions of law as applied by the district court.                    In re

Kennard,   970 F.2d 1455,    1457    (5th     Cir.   1992),   citing   In   re

Killebrew, 888 F.2d 1516, 1519 (5th Cir. 1989).                    “A bankruptcy

court’s findings of fact are subject to clearly erroneous review

... [and] [c]onclusions of law ... are reviewed de novo.” Id. at

1457-58 (citations omitted). Whether a homestead is rural or urban

is a question of fact.       U.S. v. Blakeman, 997 F.2d 1084, 1090-91

(5th Cir. 1992)(citing cases).

                                         B.

                            Preliminary Matters

     Crowell argues that the bankruptcy court was wrong to declare

Bender’s   lien    valid,   because       Bender    did   not   timely   file    an

objection to the claimed exemption within thirty days of the § 341

creditors meeting as required by Bankruptcy Rule 4003(b). 11 U.S.C.

§ 4003(b). Further, Crowell argues that the agreed order signed by

the bankruptcy court withdrawing the Chapter 13 Trustee’s objection

to Crowell’s exemption is res judicata and precludes Bender’s claim

that its lien is valid.

                                         i.

                                          3
                              Timeliness

     The timeliness of Bender’s objection is irrelevant.               The

bankruptcy court did not try the validity of the lien based on

Bender’s   objection.    Rather,   Crowell   instituted    an    adversary

proceeding to have Bender’s lien declared invalid.        Hence, whether

Bender timely filed an objection to Crowell’s exemption or not, it

was Crowell who placed the validity of Bender’s lien in issue, and

therefore, Crowell cannot complain that the bankrupty court decided

the issue.

                                   ii.

                            Res Judicata2

     The agreed order between the Chapter 13 Trustee and Crowell

withdrawing the trustee’s objection to Crowell’s exemption has no

preclusive effect on Bender.    The agreed order only stood for the

proposition that the Chapter 13 Trustee agreed that the entire

forty-two acres was rural homestead, and therefore, since there was

no other objection, the exemption would be allowed.             The agreed

order does not address the validity of Bender’s lien, nor does it

address the rural or urban nature of the homestead.             Therefore,

since the agreed order did not reach the merits of Bender’s lien or

of the claimed exemption, it has no preclusive effect on those

issues.    Matter of Super Van, Inc., 92 F.3d 366, 370 (5th Cir.

1996)(doctrine of res judicata only bars relitigation of matters

that have been or should have been previously determined on the

      2
       More precisely, the question here is one of issue preclusion
(collateral estoppel). Matter of Super Van Inc., 92 F.3d 366, 370 n. 11
(5th Cir. 1996).

                                    4
merits), citing Langston v. Ins. Co. of North America, 827 F.2d
1044, 1046 (5th Cir. 1987).

     Finally,   even   if   the   agreed   order   had   the   effect   of

determining the validity of Bender’s lien, no hearing was held

before the agreed order was entered and Bender was not given notice

that the Chapter 13 Trustee had stipulated to abandon its objection

until after the agreed order was entered.     Therefore, Bender was in

no sense a party to the stipulation and is not bound by it.

Hansberry v. Lee, 311 U.S. 32, 61 S. Ct. 115 (1940)(due process

precludes binding a party to a judgment when he did not have notice

or an opportunity to be heard and his interests were not adequately

represented).

                                   C.

                            Rural v. Urban

     This Court has recently expounded, in some detail, the factors

to be considered by the bankruptcy court in determining whether any

particular property claimed as exempt under Texas law is rural or

urban.

     These factors include “(1) the location of the land with
     respect to the limits of the municipality; (2) the situs
     of the lot in question; (3) the existence of municipal
     utilities and services; (4) the use of the lot and
     adjacent property; and (5) the presence of platted
     streets, blocks, and the like.”

U.S. v. Blakeman, 997 F.2d 1084, 1091 n. 14 (5th Cir. 1992),

quoting In re Bradley, 960 F.2d 502, 511-12 n. 18 (5th Cir.

1992)(citing cases).

     A review of the bankruptcy court’s findings of fact and

conclusions of law reveals that the bankruptcy court made a series

                                    5
of specific findings of fact relevant to each of the elements

outlined in Blakeman, supra 997 F.2d at 1091 n. 14.                     First, the

bankruptcy court found that the entire forty-two (42) acres has

been within the city limits of Keller, Texas, since February of

1979. Second, the bankruptcy court found that as of January, 1986,

city sewer and water services were available to the property upon

request, and the city provided police and fire protection. Private

electrical and natural gas pipeline service was also available to

the property.       Third, prior to January, 1986, there were five

platted residential        subdivisions        in   the   surrounding    immediate

vicinity of the Crowell property; Quail Valley, the Black Addition,

County Hill Estates, Sunrise Estates, and Oak Bend Estates.                      In

January, 1986, the adjacent properties to the west and north of the

Crowell Property were also subdivided into residential lots, none

larger than five acres.            Mr. Crowell did raise cattle on his

property, but by city ordinance livestock could not be kept on the

property within 200 feet of any structure on neighboring land, and

as of January, 1986, the property was zoned for residential use.

Finally, as of January, 1986, approximately seventy-five percent of

the developable land in the city had been or was being developed,

and the city itself contained commercial development as well as

parks and recreational areas, i.e., Keller, Texas, was a full

service urban city, albeit a small one.

     Our   review    of    the   record       and   exhibits   presented   to   the

bankruptcy court shows no clear error in the bankruptcy court’s

findings of fact.         Furthermore, the bankruptcy court’s findings

                                          6
with respect to each of the elements outlined in Blakeman, supra,

favors a finding that the property was urban homestead. The record

reflects that Crowell’s forty-two acre tract was on the edge of

development in Keller, but by the time Crowell filed for bankruptcy

and claimed a rural homestead exemption, residential development

had finally surrounded his property.      Crowell was left with a small

farm in the middle of a residential neighborhood.          Therefore, we

find no clear error in the bankruptcy court’s ultimate factual

conclusion that Crowell’s property was urban homestead.

                                    D.

                         Involuntary Designation

         Finally, Crowell argues that it was error for the bankruptcy

court to require him to designate the one acre of urban homestead

which would be exempt (with the understanding that it must include

the house on the property) or have the trustee do it for him.3

Sections 41.021-41.023 of the Texas Property Code provide the

method for designation of the homestead if a judgment creditor

proceeds to execute on the property, and the judgment debtor has

     3
      There is no error in requiring that the family home be included in
the designated one acre homestead.         Regardless of who makes the
designation, under Texas law, the homestead must include the home. Loomis
v. Wallis & Short, P.C., No. 14-96-00389-CV, 1997 WL 535655, pg. *3 (Tex.
App.-Hous., Sept. 4, 1997)(“[T]he definition of ‘homestead’ as encompassing
lot or lots used for the purposes of a home, corresponds with recent case
law”), citing NCNB Texas Nat. Bank v. Carpenter, 849 S.W.2d 875, 879 (Tex.
App.-Fort Worth 1993); Gann v. Montgomery, 210 S.W.2d 255, 257-58
(Tex.Civ.App.--Fort Worth 1948, writ ref’d n.r.e.)(“[Homestead] ...
includes as an indispensable part thereof the dwelling-house or family
residence”), citing 40 C.J.S., Homesteads, § 52 (1941); Blomgren v. Van
Zandt, 126 S.W.2d 506, 509 (Tex.Civ.App.--Eastland 1939)(Head of family may
designate 200 acre homestead portion out of larger contiguous acreage, but
“[t]he part so designated must include the dwelling and appurtenances
thereto”), quoting Watkins Land Co. v. Temple, 135 S.W.2d 1063, 1064
(Tex.Civ.App. 1911).

                                    7
not yet made a voluntary designation of the homestead under §

41.005.    The judgment creditor, having caused execution to issue,

must give notice to the judgment debtor to make a designation.

Tex. Prop. Code Ann., § 41.021.       The judgment debtor then has until

the next Monday after 20 days after service of notice in which to

designate the homestead (one acre for urban homestead and 200 acres

for rural family homestead).        Tex. Prop. Code Ann., § 41.022.         If

the judgment debtor fails to make a voluntary designation within

the time allowed, then the court from which the writ of execution

issued must appoint a commissioner to designate the judgment

debtor’s   homestead.     Tex.      Prop.   Code   Ann.,   §   41.023.      The

bankruptcy court clearly did not use the method outlined in the

Tex. Prop. Code Ann., §§ 41.021-41.023.

     Whether the bankruptcy court must use state law procedure for

designation of the homestead, when the debtor has claimed a state-

law homestead exemption as allowed by § 522 (b)(2)(A) of the

Bankruptcy Code, is a choice of law question which has not been

decided by this Court.        We hold that the bankruptcy court is not

bound to follow the Texas Property Code procedure for designating

the debtor’s homestead from a larger parcel of property in order

that the remainder may be liquidated.

     The   governing    law    in   federal    bankruptcy      court   is   the

Bankruptcy Code.    That code incorporates state law to the extent

that it allows a debtor to claim a state-law exemption under §

522(b)(2)(A).     Texas law provides for two types of homestead

exemption--rural and urban.          The determination of whether the

                                      8
homestead is rural or urban is a state law question.                In re

Bradley, 960 F.2d 502, 507 n. 7 (5th Cir. 1992), citing In re

Moody, 77 B.R. 580, 590 (S.D.Tex. 1987), aff’d, 862 F.2d 1194 (5th

Cir. 1989).   However, once the nature of the homestead has been

determined (i.e., rural or urban homestead), Texas law provides no

substantive standards to guide the designation of that portion of

the debtor’s real property which is the actual homestead (assuming,

as in this case, that the property acreage exceeds the maximum

allowed for   that   type   homestead),   with   the   exception   of   the

requirement that it include the debtor’s residence.4           The Tex.

Prop. Code Ann., §§ 41.021-41.023, outlines only the procedure and

not the substantive standards for designation of the homestead, and

therefore, failure to follow these provisions cannot be expected to

result in a designation which differs materially from that which

might be made by a commissioner appointed under Tex. Prop. Code

Ann., §41.023.

     In the administration of the bankruptcy estate the bankruptcy

court must be free to designate that portion of the debtor’s real

property which is exempt homestead using those entities and persons

already involved in the process established by the Bankruptcy Code.

The Texas state-law procedure, involving as it does the appointment

of actors foreign to the Bankruptcy Code, is a procedure apparently

not contemplated by the Code.          The Bankruptcy Code, by simply

allowing debtor’s to claim a state-law exemption, should not be

understood to force bankruptcy courts to use state-law procedures

     4
      See note 3, supra.

                                   9
and state-law actors to make a determination which the trustee or

the bankruptcy court ordinarily would make if the debtor elected

the federal exemptions.    Therefore, we must conclude that the

bankruptcy court did not err by failing to use the procedure

outlined in Tex. Prop. Code Ann., §§ 41.021-41.023.

                               III.

                            CONCLUSION

     We find that the bankruptcy court followed the applicable law,

that its findings of fact were not clearly erroneous and that its

ultimate factual conclusion, i.e., that Crowell’s homestead was

urban rather than rural, is not clearly erroneous.    Furthermore,

the bankruptcy court did not err by requiring Crowell to designate

that one-acre portion of the forty-two acres which would be exempt

as urban homestead (with the understanding that it include the

residence thereon) or have the trustee make the designation.

Therefore, we affirm.

AFFIRMED.

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