Smith v. H.D. Smith Wholesale Drug Co.Smith v. H.D. Smith Wholesale Drug Co.
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 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 thе sale of the home closed in December. The sale netted $398,849.03 in proceeds after payment of the mortgage and other expenses.
The Trustee issued a check jointly рayable 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 сompensation 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 сoncluded 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 lеave to appeal, the Trustee and H.D. Smith filed a joint motion seeking a declaration that Atkinson has waived the issues she 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 bаnkruptcy 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 (BAPC
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 procеeds. The court held that the lien attached 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 statе 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 governеd 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 to grant a partial release of its lien against homestead property under a contract to sell.
10
“This does not mean, however, that
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 еxemptible 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 cаp on the value of a homestead did not convert H.D. Smith’s lien on the homestead from one that was 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 сourt’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.
Ill
Atkinson argues that she has an independent right to assert protection abоve 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 thеy contend that Bankruptcy Rule of Procedure 8006 required her to include them in a statement of issues, and she failed to do so.
Bankruptcy Rule 8006 provides that, in an appeal to a district court or bankruptcy aрpellate 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 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 aрpeals 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 appeаl, 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
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 designatiоn 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 excеss 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 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 § 863(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-exеmpt 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 Ex
2. Whether the Bankruptcy Court erred in finding that the right to enforce the lien, arising only at the instant of bankruptcy commеncement, 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) divеsted 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 Trustee’s statement of issues understandably focused only on the rulings relating to the enforceability of H.D. Smith’s hen 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, inсluding 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 tо 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’ аnd 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 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
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.
Notes
.
See Drive Fin. Servs., L.P. v. Jordan,
.
Crosby v. Orthalliance New Image (In re OCA, Inc.),
. Id.
. See Tex. Const. art. XVI, §§ 50-51.
.
See
11 U.S.C. § 522(p)(1)(D);
Wallace
v.
Rogers (In re Rogers),
.
Raleigh v. Ill. Dep't of Revenue,
.
Id.
(citation omitted) (quoting
Butner v. United States,
.
Raleigh,
.
See Benchmark Bank v. Crowder,
.
Tanant Bank v. Miller,
.
Davis,
. 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).
. Fed. R. Bankr.P. 8006.
.
Zimmerman v. Jenkins (In re GGM, P.C.),
. 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).
. 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.
.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.
.
M.A. Baheth & Co. v. Schott (In re M.A. Baheth Constr. Co.),
. Fed. R.App. P. 6(b)(2)(B)(i) (2007).
.
Zimmerman v. Jenkins (In re GGM, P.C.),
.
See Melder v. Allstate Corp.,