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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No. 08-10144

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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No. 08-10144

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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No. 08-10144

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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No. 08-10144

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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No. 08-10144

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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No. 08-10144

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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No. 08-10144

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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