                  REVISED NOVEMBER 11, 2010
           IN THE UNITED STATES COURT OF APPEALS
                    FOR THE FIFTH CIRCUIT   United States Court of Appeals
                                                     Fifth Circuit

                                                                               FILED
                                                                           November 10, 2010
                                       No. 09-40912                           Lyle W. Cayce
                                                                                   Clerk

In the Matter of: GREGORIO VILLARREAL; ESTELA VILLARREAL,

              Debtors

------------------------------
GREGORIO VILLARREAL; ESTELA VILLARREAL,

                                                  Appellants
v.

Trustee DAVID W. SHOWALTER

                                                  Appellee



                   Appeal from the United States District Court
                        for the Southern District of Texas
                              USDC No. 7:09-CV-67


Before DENNIS, OWEN, and SOUTHWICK, Circuit Judges.
PER CURIAM:*
       Debtors-Appellants, Gregorio and Estela Villarreal, challenge the
bankruptcy court’s determination that they are equitably estopped from
protecting the restaurant and ballroom within which they covertly resided under

       *
         Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH CIR.
R. 47.5.4.
                                 No. 09-40912

the Texas Constitution’s homestead exemption provision, Article 16, § 50. This
case presents a novel question of Texas state law, which is dispositive of the
entire case. We certify the question to the Texas Supreme Court.


CERTIFICATION FROM THE UNITED STATES COURT OF APPEALS FOR
THE FIFTH CIRCUIT TO THE SUPREME COURT OF TEXAS, PURSUANT
TO THE TEXAS CONSTITUTION ART. 5, § 3-C AND RULE 58 OF THE
TEXAS RULES OF APPELLATE PROCEDURE


TO THE SUPREME COURT OF TEXAS AND THE HONORABLE JUSTICES
THEREOF:


I. STYLE OF THE CASE
      The style of the case in which certification is made is In re Villarreal or
Villarreal v. Showalter, No. 09-40912, in the United States Court of Appeals for
the Fifth Circuit, on appeal from the United States District Court for the
Southern District of Texas, McAllen Division, Civil Action No. 7:09-CV-67, and
the Bankruptcy Court, Southern District of Texas, McAllen Division, In re
Villarreal, 401 B.R. 823 (Bankr. S.D. Tex. 2009). The Fifth Circuit, on its own
motion, has decided to certify this question to the Justices of the Texas Supreme
Court.


II. STATEMENT OF THE CASE
      This bankruptcy case concerns whether the husband and wife Debtors are
equitably estopped from asserting the Texas homestead exemption to protect the
real property on which they surreptitiously resided, a restaurant and ballroom
known as Greg’s Ballroom, from foreclosure by their creditors, because (1)
although Debtors lived on the property, their residence there did not give a

                                       2
                                   No. 09-40912

reasonable prudent person notice that it was their homestead; and (2) Debtors
disclaimed the homestead protection of the property in a manner that met all the
doctrinal requirements for equitable estoppel to apply. See In re Villarreal, 401
B.R. 823.
      In 2005, Debtors’ prior family home was foreclosed upon. They moved into
their only other property, their place of business, Greg’s Ballroom, and
surreptitiously used it as their sole family home. They resided “in the restaurant
portion of the building behind a black curtain that concealed their bed and
bedroom furniture.” Id. at 830. “They use[d] the shower area in the back of the
building, which is inaccessible to visitors.” Id. While a friend of Debtors’ testified
that she was aware that they were living on the property, she also stated that
Debtors never allowed her to view their living area. Id. “Debtors admitted that
they have kept secret their residence at Greg’s Ballroom.” Id. Consequently,
there generally was no clothing, personal effects or home furnishings visible on
the property. Id. Although a police officer testified that he once saw toys and
furniture by the black curtain leading to Debtors’ sleeping area, he stated that
he had the impression that the curtain demarcated a storage area, not a living
space. Id. No county or real estate records indicated that Debtors were living on
the property. Id.
      In 2007, Mr. Villarreal settled lawsuits with the clients of David
Showalter, an attorney who would subsequently assume the role of Trustee for
his clients’ interests in the settlement. Id. at 828. The settlement, in relevant
part, stated that Mr. Villarreal would execute a promissory note for $70,000 plus
interest to Showalter as Trustee for his beneficiaries and that note would be
secured by a deed of trust against Greg’s Ballroom. Id. Mr. Villarreal executed
the promissory note. Id. at 829. That note listed Greg’s Ballroom as Mr.
Villarreal’s mailing address. Id. Debtors, both Mr. and Mrs. Villarreal, also
executed the deed of trust against Greg’s Ballroom. Id. The deed stated, “No part

                                          3
                                  No. 09-40912

of the property is used for residential purposes and is not, in whole or in part the
homestead of Grantors. Grantors acknowledge and represent that the debt
evidenced by the Note is used for business purposes for value received by
Grantors.” Id. The deed also listed Greg’s Ballroom as Debtors’ mailing address.
Id. Later in 2007, Mr. Villarreal defaulted on the promissory note and Trustee
“foreclosed on the lien.” Id.
      Debtors then brought suit in state court alleging that Trustee wrongfully
foreclosed on their property as it was exempt from seizure because it was their
homestead. Id. While those proceedings were pending, Debtors sought protection
under Chapter 13 of the bankruptcy code. Id. Debtors then removed their
wrongful foreclosure suit to federal court as part of the bankruptcy proceedings.
Id. See also 28 U.S.C. §§ 1334, 1452. Objections were entered to Debtors’ claimed
protection of Greg’s Ballroom as a homestead. In re Villarreal, 401 B.R. at 828.
It was argued both that the property was not Debtors’ valid homestead and that
even if it was, Debtors should be equitably estopped from protecting it from
foreclosure. Id. at 828, 833.
      Following hearings, the bankruptcy court concluded that Greg’s Ballroom
was Debtors’ valid homestead because, beginning in 2005, they had used it as
their sole and continuous residence. Id. 832-33. The bankruptcy court noted that
under Texas law, liens are generally not enforceable against homesteads. Id. at
833. However, the bankruptcy court determined that Texas law allows a certain
narrow class of homestead claimants to be equitably estopped from protecting
their homesteads from foreclosure. Id. at 834. Specifically, under the bankruptcy
court’s interpretation of Texas law, when a homestead claimant is living on the
property as his or her homestead, he or she can nonetheless be equitably
estopped from protecting that property as such, if his or her “acts were [not] such
as to put a reasonable prudent person on notice that the tract constituted a part
of the homestead.” Id. at 834-35 (quoting Prince v. N. State Bank, 484 S.W.2d

                                         4
                                  No. 09-40912

405, 411 (Tex. Civ. App.-Amarillo 1972, writ ref’d n.r.e.)) (internal quotation
marks omitted). Such a rule, the bankruptcy court continued, is consistent with
the “ambiguous possession” doctrine articulated by the Texas courts: that when
a claimant owns “only one piece of property but does not occupy it” and the
“‘visible circumstances’” on the property are consistent with the owner’s
disclaimer of the property as his or her homestead, the owner may be estopped
from later claiming the property as his or her homestead. Id. at 835 (quoting
First Interstate Bank v. Bland, 810 S.W.2d 277, 284, 287 (Tex. Civ. App.-Fort
Worth 1991)) (citing Alexander v. Wilson, 77 S.W.2d 873, 874 (Tex. 1935)). The
court acknowledged that this analysis was in tension with “[t]he general rule
that Texas courts have adopted unanimously in this situation where the
claimant owns only one piece of property and occupies it at the time of the
mortgage . . . that ‘the claimant is not estopped to set up the homestead
exemption notwithstanding the declarations in the mortgage contract.’” Id. at
834 (quoting First Interstate Bank, 810 S.W.2d at 283 (citing Tex. Land & Loan
Co. v. Blalock, 13 S.W. 12, 13 (Tex. 1890); Ray v. Metzger, 165 S.W.2d 207, 209
(Tex. Civ. App.-Fort Worth 1942), aff’d, 141 S.W.2d 480 (1943))). Yet the court
concluded that this apparent conflict in Texas law was reconcilable because the
rule against estoppel assumed that by occupying the homestead, the claimant’s
“use of the property as a home [would be] of so obvious a nature” that the lender
must have had notice it was the claimant’s homestead. Id. (quoting First
Interstate Bank, 810 S.W.2d at 283-84) (internal quotation marks omitted).
Accordingly, the bankruptcy court determined that the rule against estoppel did
not apply to the instant case. Id. at 836.
      Based on this interpretation of Texas law, the bankruptcy court concluded
that Debtors could be equitably estopped from protecting their property as their
homestead because Debtors had concealed their residence from public view. Id.
The area in which they were living appeared to an outsider as “a storage area.”

                                        5
                                  No. 09-40912

Id. at 835. Neither the presence of visitors nor some personal items contradicted
this impression, as visitors were associated with Debtors’ business activities and
too few personal items were in public view to indicate that individuals were
living on the property. Id. Further, the external appearance of the property
suggested that it was a business. Id. Therefore, the bankruptcy court concluded
that “Debtors’ use of Greg’s Ballroom as a residence . . . was insufficient ‘to put
a reasonable prudent person on notice that the property was a homestead.’” Id.
(quoting Prince, 484 S.W.2d at 411).
      Finally, the bankruptcy court concluded that Debtors’ disclaimer of their
homestead rights satisfied each of the doctrinal requirements for equitable
estoppel because it was: “(1) a false representation or concealment of material
facts; (2) made with either actual or constructive knowledge of the truth; (3) to
a party without knowledge of the truth or without the means of knowing the
truth; (4) with the intention that the false representation or concealment should
be acted on; and (5) the party to whom it was made actually relied on or acted
on it to his prejudice.” Id. at 833, 836-37 (quoting Gulbenkian v. Penn, 252
S.W.2d 929, 932 (Tex. 1952)) (internal quotation marks omitted). Therefore, the
bankruptcy court concluded that Trustee’s “pre-petition foreclosure” on the
property “was valid”; and that the property should not become part of the
bankruptcy estate because Trustee could foreclose against it in satisfaction of
the debt his beneficiaries were owed. Id. at 839.
      The Debtors appealed. The district court affirmed, relying on a similar
analysis of the limitations of Texas’s homestead protection and citing primarily
the same Texas case law as the bankruptcy court.


III. FACTUAL AND LEGAL ISSUES RESOLVED
      Before setting forth the question to be certified, we resolve the other
pivotal factual and legal issues, leaving the certified question as dispositive of

                                        6
                                 No. 09-40912

the whole case. Debtors contest the bankruptcy court’s factual finding that they
resided surreptitiously and not openly in Greg’s Ballroom. They also deny that
they had actual or constructive knowledge of the fact that Greg’s Ballroom was
their homestead when they signed the deed of trust asserting that “[n]o part of
the property is used for residential purposes” and that Trustee Showalter relied
on their disclaimer of the property as their homestead. The bankruptcy court
resolved each of these factual issues in favor of Trustee.
      “We review the bankruptcy court’s rulings and decisions under the same
standards employed by the district court.” In re Perry, 345 F.3d 303, 309 (5th
Cir. 2003). “A finding of fact . . . may be disregarded only if it is clearly
erroneous.” Id. “Estoppel is ordinarily a question of fact.” Nottingham Manor
Owners Ass’n v. El Paso Elec. Co., 260 S.W.3d 186, 197 (Tex. Civ. App.-El Paso
2008).
      We see no clear error in the bankruptcy court’s findings. Debtors do not
contest that they concealed their living quarters on the property and that their
visible activities on the property were consistent with the types of business
activities that occurred at Greg’s Ballroom. They argue only that a reasonable
prudent person would have known that the property was their homestead
because (1) they listed the property as their home address in the promissory note
and deed of trust and on their driver’s licenses and tax returns, and (2)
sometimes there were visitors on the property when there were not events
scheduled at the ballroom. However, these marginal facts are insufficient to
establish that the bankruptcy court committed clear error in finding that they
used Greg’s Ballroom as their homestead surreptitiously and not openly.
Likewise, Debtors acknowledge that they had actual or constructive knowledge
that they were using part of the property for residential purposes, contrary to
the disclaimer in the deed of trust they signed. Debtors argue only that they
failed to realize the significance of those facts. Moreover, Debtors point to no

                                        7
                                       No. 09-40912

evidence suggesting Trustee Showalter did not rely on their misrepresentation
that the property was not being used for residential purposes; they merely argue
that he should have investigated further and determined that their homestead
disclaimer was false.1
       The remaining issue in this case, therefore, is whether Texas homestead
claimants can be equitably estopped from protecting their actual homesteads if
they have disclaimed the homestead protection and resided on the property
covertly and not openly. As described in the background section, there is a
tension in Texas law regarding this question. One of the foundational Texas
Supreme Court cases in this area, Texas Land & Loan Co. v. Blalock, states that
“no estoppel can arise in favor of a lender who has attempted to secure a lien on
homestead in actual use and possession of the family, based on declarations of
the husband and wife made orally or in writing contrary to the fact” that the
property was the family’s homestead. 13 S.W. 12, 13 (1890) (emphasis added).
Therefore, actual use of the property as a homestead, regardless of the nature
of that use, would seem to prevent estoppel.
       Other Texas courts have endorsed Texas Land’s statement of the law. See
Rutland Sav. Bank v. Isbell, 154 S.W.2d 442, 445 (Tex. 1941) (“Since the courts
below have found that the John D. Isbell family were actually living on the 34
acres as a homestead at that time, the lender should not have relied upon the
affidavit at all” and therefore no estoppel can arise.); Parrish v. Hawes, 66 S.W.
209, 212 (Tex. 1902) (stating that once a homestead is established “all persons
must take notice, and hence declarations . . . contrary thereto cannot be relied



       1
         Debtors also argue that Ms. Villarreal cannot be estopped because she was not a party
to the settlement between Showalter’s clients and Mr. Villarreal. This argument misses the
point. The misrepresentation that led the bankruptcy court to conclude Debtors could be
estopped occurred in the deed of trust. That document, which both Debtors acknowledge that
they signed, stated that Greg’s Ballroom was not their homestead. It is that misrepresentation
that resulted in the bankruptcy court concluding Debtors were equitably estopped.

                                              8
                                  No. 09-40912

on”). Likewise, relying on the above statement from Texas Land, the Fifth
Circuit has suggested “that a homestead claimant is not estopped to assert his
homestead rights in property on the basis of declarations made to the contrary
if, at the time of the declarations, the claimant was in actual use and possession
of the property.” In re Niland, 825 F.2d 801, 808 (5th Cir. 1987). Finally, a Texas
treatise on homestead rights declares that “[w]here it is shown that, at the time
a person dealt with the homestead property, the homestead claimant was
occupying the premises in a manner sufficient to sustain the homestead
exemption [i.e., for it to be found that the property was the claimant’s
homestead], the homestead exemption cannot, as a rule, be destroyed by any
statement, declaration, or representation made by the claimant that the status
of the property is otherwise.” 43 Tex. Jur. Homesteads § 83 (3d ed. 2010).
      However, there is a series of cases that supports the rule articulated in the
bankruptcy court opinion, that a homestead claimant can be estopped from
asserting the homestead protection if he or she does not live on the property in
a manner to give a reasonable prudent person notice that he or she was using
the property as a homestead. For instance, Alexander v. Wilson stated that
“unless the visible circumstances existing at the time were of such import as to
apprise [the mortagee] of the fact that the [property] was the home of the
mortgagors,” the mortgagors could be estopped from asserting the homestead
protection for the property. 77 S.W.2d 873, 874 (Tex. 1935). Likewise, in Lincoln
v. Bennett, the Texas Supreme Court stated that liens could be enforced against
homesteads where “the owners, . . . so using it that its status is dubious at the
time the mortgage is executed, represent that it is not their homestead.” 156
S.W.2d 504, 505 (Tex. 1941). Finally, Prince v. North State Bank stated that if
a homestead claimant was living on the property at the same time that he or she
disclaimed the homestead protection, “the determining factor [for whether the
homestead protection will be enforced] is whether the claimant’s acts were such

                                        9
                                   No. 09-40912

as to put a reasonable prudent person on notice that the tract constituted a part
of the homestead.” 484 S.W.2d 405, 411 (Tex. Civ. App.-Amarillo 1972, writ ref’d
n.r.e.).
       Nonetheless, each of these cases is factually distinct from the present case.
In Alexander and Prince, the homestead claimants were not living on the
property claimed as a homestead at the time that they allegedly disclaimed their
homestead rights. Lincoln never applied the doctrine it articulated, as the court
found that the claimants were openly using the property as their homestead.
Accordingly, it is unclear whether the broad rule that these cases state is
applicable to circumstances in which the homestead claimant is living on the
property as a homestead at the time he or she disclaims the homestead
protection.
       Given the tension extant in Texas law between the Texas Land and
Alexander lines of cases, we request that the Texas Supreme Court address and
answer the question that we certify below.


IV. QUESTION CERTIFIED
       Whether an otherwise valid homestead exemption claim against seizure
and sale by creditors is foreclosed by equitable estoppel when (1) claimants’ use
of the property as a homestead was surreptitious; (2) the claimants publicly
declared at the time that the lien was placed on the property that no such use
of the property was being made; and (3) the other criteria for equitable estoppel
have been met, viz., (a) that a false representation was made with either actual
or constructive knowledge of the truth; (b) to a party without knowledge of the
truth or without the means of knowing the truth; (c) with the intention that the
false representation or concealment should be acted on; and (d) the party to
whom it was made actually relied on or acted on it to his prejudice.



                                         10
                                   No. 09-40912

      We disclaim any intention or desire that the Supreme Court of Texas
confine its reply to the precise form or scope of the question certified. The answer
provided by the Supreme Court of Texas will determine the dispositive issue on
appeal in this case. The record of this case, together with copies of the parties’
briefs, is transmitted herewith.


QUESTION CERTIFIED.




                                        11
