West
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MEMORANDUM AND ORDER (Signed by Judge Nancy F. Atlas) Parties notified.(sashabranner, )
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
WILLIAM G. WEST, Trustee,
Appellant,
v.
JOHN ROY CARLEW, Debtor,
Appellee.
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CIVIL ACTION NO. H-12-0913
Bankruptcy Case No. 11-37886-H4
MEMORANDUM AND ORDER
Trustee William G. West appeals from the United States Bankruptcy Court’s
March 9, 2012 Memorandum Opinion Regarding the Chapter 7 Trustee’s Objection
to Debtor’s Claim of Exemption (“Opinion”) [BR Doc. # 80]. Appellant filed his
Brief [Doc. # 4] and Appellee/Debtor John Roy Carlew filed his Brief [Doc. # 6].
Appellant neither filed a Reply Brief nor requested additional time to do so. Having
considered the parties’ briefing, the designated bankruptcy record, and applicable
legal authorities, the Court affirms the Bankruptcy Court’s decision.
I.
BACKGROUND
In September 2008, Debtor’s home was damaged during Hurricane Ike. Debtor
filed a claim under his insurance policy with Texas Windstorm Insurance Agency
(“TWIA”). After TWIA refused to pay the insurance claim, Debtor filed a lawsuit that
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was ultimately settled for $125,000.00, with a net payment to Debtor on July 11,
2011, of $73,353.98.
Two months later, on September 13, 2011, Debtor filed a voluntary Petition
under Chapter 7 of the United States Bankruptcy Code. Debtor listed the insurance
proceeds as exempt under Texas Property Code §§ 41.001-.002. The Trustee objected
to the claimed homestead exemption. The Trustee argued that Debtor waived his right
to a homestead exemption for the insurance proceeds by failing to use them within six
months to repair the home.1
Following a hearing on the Trustee’s objection, the Bankruptcy Court issued
its Opinion overruling the Trustee’s objection. The Bankruptcy Court held that the
six-month requirement applied only to funds received from the sale of a homestead,
not to insurance proceeds. The Trustee filed a timely Notice of Appeal.
II.
STANDARD OF REVIEW
The Court reviews a bankruptcy judge’s conclusions of law de novo and
findings of fact under the “clearly erroneous” standard. In re Idearc, Inc., 662 F.3d
315, 318 (5th Cir. 2011). Mixed questions of law and fact are reviewed de novo. In
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The Trustee argued also that the proceeds were paid in settlement of a lawsuit in
which Debtor asserted several causes of action and, as a result, the proceeds must be
apportioned among the various claims. The Bankruptcy Court rejected the Trustee’s
argument, and the Trustee does not appeal that aspect of the Bankruptcy Court’s
ruling.
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re ASARCO, L.L.C., 650 F.3d 593, 601 (5th Cir. 2011). “This Court may affirm if
there are any grounds in the record to support the judgment, even if those grounds
were not relied upon by the courts below.” In re Scotia Pacific Co., LLC, 508 F.3d
214, 218-19 (5th Cir. 2007) (quoting Bonneville Power Admin. v. Mirant Corp. (In re
Mirant Corp.), 440 F.3d 238, 245 (5th Cir. 2006)).
III.
ANALYSIS
The parties agree that, under long-standing Texas law, the proceeds of an
insurance policy take the place of the property that was lost. See Swayne v. Chase, 88
Tex. 218, 225, 30 S.W. 1049, 1052 (Tex. 1895). Additionally, there is no longer an
argument on appeal that the approximately $73,000.00 paid to Debtor in this case in
settlement of his lawsuit against TWIA must be apportioned between the claim for
insurance proceeds and the other claims in the lawsuit. As a result, there is no dispute
that the $73,000.00 constituted exempt property on the date the Chapter 7 petition was
filed.
The Trustee argues that the exemption terminated on January 11, 2012, because
Debtor did not reinvest the proceeds to make repairs to his home within six months
after receiving those funds. Section 41.001 of the Texas Property Code provides that
a “homestead claimant’s proceeds of a sale of a homestead are not subject to seizure
for a creditor’s claim for six months after the date of sale.” TEX. PROP. CODE
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§ 41.001(c). The Bankruptcy Court rejected the Trustee’s reliance on § 41.001, noting
that the provision refers only to proceeds from “a sale of a homestead.” See Opinion,
p. 15 (citing England v. Federal Deposit Ins. Corp., 975 F.2d 1168, 1174 (5th Cir.
1992)).
In England, a Chapter 7 debtor who claimed a ranch as his homestead claimed
also that the proceeds from the sale of his prior homestead were exempt property. The
Fifth Circuit noted that the “drafters of the exemption statute would have
unambiguously mandated that proceeds of both [a homestead and a former homestead]
be exempt, if that indeed is what they intended.” England, 975 F.2d at 1173. The
England Court found that the drafters did not do so and, instead, “the plain language
of section 41.001(c) clearly and ambiguously exempts only the proceeds of the sale
of [a] homestead.” Id. at 1174.
Although the Fifth Circuit in England was faced with a claimed exemption to
the proceeds from the sale of a former homestead, its analysis is equally applicable to
this appeal. The drafters of § 41.001(c) could easily have provided that insurance
proceeds are protected for only six months after they are received, but they did not do
so. Instead, the legislature provided only that the homestead exemption for proceeds
from the sale of a homestead are protected for the limited six-month period after the
sale.
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The clear and unambiguous language of § 41.001(c) is consistent with prior
Texas case law. “It has been definitely held by our Supreme Court that money due
upon an insurance policy on the homestead is exempt by virtue of that provision of the
[Texas] Constitution which exempts the homestead.” Johnson v. Hall, 163 S.W. 399,
402 (Tex. Civ. App. - Texarkana 1913). The Texas Court reasoned that proceeds from
an insurance policy for damage to the homestead “is not in all respects the same as
money realized from the sale of the homestead.” Id. at 404. This is true because the
conversion of the homestead to money is voluntary when the homestead is sold, but
where insurance money is collected, the conversion to money is involuntary. See id.
Therefore, the “proceeds from the voluntary sale of the homestead are exempt from
the payment of debts for [only] a limited period of time, by virtue of a statute
specifically enacted for that purpose, while the insurance money is protected by that
section of the Constitution which exempts the homestead itself.” Id.
The clear language of § 41.001(c) applies a six-month limitation on the
homestead exemption for proceeds from the sale of that homestead. As explained by
the Texas Court of Civil Appeals in Johnson, there is a distinction between voluntary
conversion of a homestead to sales proceeds in a sale of the homestead and the
involuntary conversion of a homestead to insurance proceeds when the homestead is
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damaged or destroyed. As a result, the six-month limitation in § 41.001(c) does not
apply to insurance proceeds.
IV.
CONCLUSION
Having reviewed the full record in this case and having applied relevant legal
authorities, the Court concludes de novo that the Bankruptcy Court’s ruling on the
Trustee’s objection to Debtor’s claimed homestead exemption was correct.
Accordingly, the Bankruptcy Court’s Memorandum Opinion is AFFIRMED. The
Court will issue a separate final order.
SIGNED at Houston, Texas this 23rd day of July, 2012.
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