Wolfe v. Jacobson (In Re Jacobson)

FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

In re: MYRNA JACOBSON, 

Debtor,

JOHN M. WOLFE, Chapter 7 No. 10-60040

Trustee,

Appellant,  BAP No.

10-1036

v. OPINION

MYRNA JACOBSON; DONALD

JACOBSON,

Appellees.



Appeal from the Ninth Circuit

Bankruptcy Appellate Panel

Kirscher, Pappas, and Taylor, Bankruptcy Judges, Presiding

Argued and Submitted

February 16, 2012—Pasadena, California

Filed April 23, 2012

Before: Jerome Farris and William A. Fletcher,

Circuit Judges, and Alvin K. Hellerstein,

Senior District Judge.*

Opinion by Judge Farris

*The Honorable Alvin K. Hellerstein, Senior United States District

Judge for the Southern District of New York, sitting by designation.

4335

IN RE JACOBSON 4337

COUNSEL

Sidney Lanier and Brent Ayscough, Ayscough & Marar, Tor-

rance, California, for the appellant.

Jeffrey T. Vanderveen, Law Offices of Jeffrey T. Vanderveen,

Vista, California, for the appellees.

OPINION

FARRIS, Circuit Judge:

This appeal grows out of an adversary proceeding in Myrna

Jacobson’s Chapter 7 bankruptcy proceedings. The bank-

ruptcy trustee filed a complaint against Myrna and her hus-

band, Donald Jacobson, claiming that certain money and

property belonged to Myrna’s bankruptcy estate. The trustee

sought turnover to the bankruptcy estate of certain proceeds

from the sale of the Jacobsons’ homestead, a rental property

4338 IN RE JACOBSON

held in Donald’s name, and income earned from the rental

property. The bankruptcy court rejected all of the trustee’s

claims. The Bankruptcy Appellate Panel affirmed. We have

jurisdiction under 28 U.S.C. § 158(d)(1).

We reverse in part and affirm in part. The proceeds from

the homestead sale belong to Myrna’s bankruptcy estate. The

rental property held in Donald’s name and the income from

it do not.

I.

This case arises from nearly three decades of litigation

between the Jacobsons and Myrna’s principal creditor, Larry

Cunningham. In 1985, Cunningham sued the Jacobsons and

their business partners in California state court for torts

related to the construction and sale of a beach home in Orange

County. The litigation dragged on for 10 years. In 1995, as a

re-trial neared, the Jacobsons filed a Chapter 7 bankruptcy

petition. The bankruptcy petition automatically stayed the

state court litigation under 11 U.S.C. § 362(a)(1).

In 1997, Cunningham filed an adversary complaint in the

bankruptcy court objecting to discharge of the Jacobsons’

debts, alleging the Jacobsons had fraudulently concealed

assets. After a trial, the bankruptcy court concluded that

Myrna had fraudulently hidden assets from the bankruptcy

court and denied her a discharge under 11 U.S.C. § 727(a).

The bankruptcy court concluded, however, that Donald could

not have formed the intent to commit fraud due to his mental

disabilities and dependence on Myrna to run his affairs. The

bankruptcy court thus granted Donald a discharge.

The bankruptcy court’s ruling left Cunningham free to pur-

sue his tort claims against Myrna in California state court. In

2000, a jury awarded Cunningham over $800,000.

By early 2006, Cunningham’s judgment had increased in

value to $1.3 million due to interest. Cunningham applied in

IN RE JACOBSON 4339

California state court for a judicial sale of the Jacobsons’

house on Kensington Road in Los Alamitos, California (the

“Kensington property”). In response, Myrna filed the current

Chapter 7 bankruptcy petition, which automatically stayed the

foreclosure sale under 11 U.S.C. § 362(a)(2). Myrna claimed

the Kensington property was her principal residence and

therefore qualified for a homestead exemption from creditors’

claims under California law. See Cal. Civ. Proc. Code

§ 704.720.

On Cunningham’s motion, the bankruptcy court lifted the

stay on the sale of the Kensington property. The Orange

County Sheriff sold the Kensington property at auction and

paid the Jacobsons a portion of the proceeds as required by

the California homestead exemption. Cal. Civ. Proc. Code

§ 704.730(a)(3). The homestead exemption provides that the

debtor’s portion of the proceeds loses its exempt status if not

reinvested in a new homestead within six months. Cal. Civ.

Proc. Code § 704.720(b). The Jacobsons did not reinvest their

portion of the proceeds within that window.

In 2007, the trustee filed this adversary proceeding against

Donald and Myrna. The trustee raised three claims. First, he

sought turnover to the bankruptcy estate of the Jacobsons’

share of the Kensington property proceeds. Second, he sought

turnover of a rental property on Enterprise Drive in Los

Alamitos (the “Enterprise property”) to which Donald alone

held title. Third, the trustee sought turnover of refinancing

proceeds and rental income earned from the Enterprise prop-

erty.

The bankruptcy court denied all of the trustee’s claims. The

bankruptcy court ruled the Kensington property proceeds

were exempt, despite the Jacobsons’ failure to reinvest them.

The bankruptcy court reasoned that bankruptcy exemptions

are fixed at the time of the bankruptcy petition and cannot be

changed by post-petition events. The bankruptcy court viewed

the homestead exemption as covering the Kensington prop-

4340 IN RE JACOBSON

erty itself and concluded that post-petition conversion of the

Kensington property into sale proceeds could not change its

exempt status.

The bankruptcy court further held that Myrna had no inter-

est in the Enterprise property or its income. The bankruptcy

court found that documentary evidence established a pre-

sumption under California law that Donald was the sole

owner. The bankruptcy court also deemed credible the Jacob-

sons’ testimony that Donald had made the down payment on

the Enterprise property with an inheritance that was his sepa-

rate property. The bankruptcy court rejected the trustee’s

argument that judicial and collateral estoppel precluded the

Jacobsons from arguing the Enterprise property was Donald’s

separate property.

The Bankruptcy Appellate Panel affirmed, and the trustee

timely appealed.

II.

We review decisions of the Bankruptcy Appellate Panel de

novo and apply the same standard of review that the Bank-

ruptcy Appellate Panel applied to the bankruptcy court’s rul-

ing. In re Penrod, 611 F.3d 1158, 1160 (9th Cir. 2010). We

review conclusions of law de novo and findings of fact for

clear error. In re Hoopai, 581 F.3d 1090, 1095 (9th Cir.

2009). The decision whether to invoke judicial estoppel is

reviewed for abuse of discretion. United States v. Ruiz, 73

F.3d 949, 953 (9th Cir. 1996). We review the determination

whether collateral estoppel is available de novo. Dias v.

Elique, 436 F.3d 1125, 1128 (9th Cir. 2006).

III.

[1] We begin with the Kensington property proceeds. A

Chapter 7 bankruptcy petition creates an estate to satisfy cred-

itors’ claims. The estate consists of “all legal or equitable

IN RE JACOBSON 4341

interests of the debtor in property” when the petition is filed.

11 U.S.C. § 541(a)(1). A debtor may, however, exclude prop-

erty from the estate through various exemptions. Section 522

of the Bankruptcy Code provides a default list of exemptions

but allows states to opt out and define their own exemptions.

11 U.S.C. §§ 522(b)(2), 522(b)(3)(A), 522(d). California has

opted out of the federal exemption scheme and limited Chap-

ter 7 petitioners to the exemptions debtors may claim in non-

bankruptcy cases. Cal. Civ. Proc. Code §§ 703.010(a),

703.130.

[2] When Myrna filed the current bankruptcy petition, she

claimed a homestead exemption for the Kensington property.

California, like many states, gives debtors an exemption for

their “principal dwelling” or “homestead.” Cal. Civ. Proc.

Code §§ 704.710(c), 704.720(a). The California homestead

exemption does not, however, prevent a judgment creditor

from forcing a judicial sale of the homestead. See Cal. Civ.

Proc. Code § 704.740. Such a sale will go forward so long as

there are enough proceeds to satisfy all liens and encum-

brances on the property and provide the debtor with a statu-

torily prescribed exemption amount. Cal. Civ. Proc. Code

§§ 704.730, 704.800(a). When the Kensington property was

sold, the California homestead exemption entitled the Jacob-

sons to $150,000 of the proceeds. Cal. Civ. Proc. Code

§ 704.730(a)(3) (2007).

[3] The debtor’s share of the proceeds are not fully exempt

either. If the debtor does not reinvest his proceeds in a new

homestead within six months of receipt, they lose their

exempt status. Cal. Civ. Proc. Code § 704.720(b). The Jacob-

sons did not reinvest the $150,000 they received. The trustee

argues—and we agree—that these proceeds lost their exempt

status as a result.

[4] Under the so-called “snapshot” rule, bankruptcy

exemptions are fixed at the time of the bankruptcy petition.

See White v. Stump, 266 U.S. 310, 313 (1924). Those exemp-

4342 IN RE JACOBSON

tions must be determined in accordance with the state law

“applicable on the date of filing.” 11 U.S.C. § 522(b)(3)(A).

And “it is the entire state law applicable on the filing date that

is determinative” of whether an exemption applies. In re Zib-

man, 268 F.3d 298, 304 (5th Cir. 2001) (emphasis in origi-

nal). In this case, the entire state law includes a reinvestment

requirement for the debtor’s share of the homestead sale pro-

ceeds. Cal. Civ. Proc. Code § 704.720(b).

Myers v. Matley, 318 U.S. 622 (1943), illustrates the proper

approach. Myers centered on a Nevada law that allowed a

debtor to claim a homestead exemption by filing a homestead

declaration with a county recorder. The debtor’s wife filed the

declaration after bankruptcy proceedings began. Id. at 623.

Nonetheless, the Supreme Court held the homestead was

exempt from the bankruptcy estate. The Supreme Court

looked at the whole Nevada homestead exemption, which

provided that a debtor could file a homestead declaration at

any time before a judicial sale. Id. at 626-28. Thus, it did not

matter that the homestead was not exempt when the bank-

ruptcy petition was filed. “[T]he right to make and record the

necessary declaration of homestead existed in the bankrupt at

the date of filing the petition[,] . . . [and] [t]he assertion of that

right before actual sale in accordance with State law did not

change the relative status of the claimant and the trustee sub-

sequent to the filing of the petition.” Id. at 628.

Similarly, we analyze the California homestead exemption

in terms of the exact scope of the rights it confers at the time

of the bankruptcy petition. In In re Golden, 789 F.2d 698 (9th

Cir. 1986), the debtor had filed for bankruptcy after selling his

California homestead and had then let the reinvestment period

lapse without investing his exempt share of the proceeds. Id.

at 699. The debtor argued the proceeds were nonetheless

exempt because they had been exempt when he filed for bank-

ruptcy. Id. at 700. We rejected that argument and held the

debtor had received the proceeds subject to the reinvestment

IN RE JACOBSON 4343

condition. Id. Those proceeds could thus lose their exempt

status once the reinvestment period lapsed. Id.

[5] There is no material difference between Golden and

this case. The homestead exemption gave the Jacobsons

clearly defined rights with respect to the Kensington property.

The Jacobsons had a right to $150,000 in proceeds. Cal. Civ.

Proc. Code § 704.730(a)(3) (2007). That right was contingent

on their reinvesting the proceeds in a new homestead within

six months of receipt. Cal. Civ. Proc. Code § 704.720(b). The

Jacobsons did not abide by that condition and thus forfeited

the exemption.

The Jacobsons argue Golden is inapposite because Myrna

filed for bankruptcy before the homestead was sold and thus

claimed an exemption in the Kensington property, not the pro-

ceeds. We reject the argument. The homestead exemption

merely gave the Jacobsons a conditional right to a portion of

the proceeds from the sale of the Kensington property. There

was no exemption in the Kensington property itself. To the

contrary, the exemption explicitly allowed Cunningham to

force a judicial sale of the Kensington property. Cal. Civ.

Proc. Code § 704.740. The Jacobsons could thus expect no

more than $150,000 in proceeds that were subject to a rein-

vestment requirement.

In trying to distinguish Golden, the Jacobsons essentially

ask us to read out the reinvestment requirement from the

homestead exemption. However, “[n]othing in [11 U.S.C.

§ 522(b)] limits [California’s] power to restrict the scope of

its exemptions; indeed, it could theoretically accord no

exemptions at all.” Owen v. Owen, 500 U.S. 305, 308 (1991).

The Bankruptcy Code does not allow the Jacobsons to invoke

one part of the homestead exemption and ignore another part.

We note that at least two courts have determined that the

debtor’s share of the proceeds from the post-petition sale of

his homestead should be permanently exempt. See In re Her-

4344 IN RE JACOBSON

man, 120 B.R. 127, 130 (B.A.P. 9th Cir. 1990) (analyzing

California homestead exemption); In re Lane, 364 B.R. 760,

762-64 (Bankr. D. Or. 2007) (analyzing Oregon homestead

exemption). To the extent these cases add anything to the

Jacobsons’ argument, they rely on policy arguments we find

unpersuasive.

Herman found that permanently exempting proceeds from

post-petition homestead sales served the Bankruptcy Code’s

goal of giving debtors a “fresh start.” 120 B.R. at 130. This

focus on a “fresh start” tells only half the story. By giving

states the opportunity to define exemptions for the purposes

of federal bankruptcy law, the Bankruptcy Code demands

respect for the ways in which states balance the rights of debt-

ors and creditors. See Owen, 500 U.S. at 308. California

enacted the homestead exemption to ensure that debtors and

their families do not become homeless. Webb v. Trippet, 235

Cal. App. 3d 647, 650 (Cal. Ct. App. 1991). To that end, it

“requires reinvestment in order to prevent the debtor from

squandering the proceeds for nonexempt purposes.” Golden,

789 F.2d at 700. California has thus determined that if a

debtor does not put his proceeds to proper use, they ought to

be used to satisfy creditors’ claims. Ignoring the reinvestment

requirement “would frustrate the objective of the California

homestead exemption and the bankruptcy act itself, which

limits exemptions to [those] provided by state or federal law.”

Id. at 700.

[6] Lane expressed concern that allowing the proceeds

from post-petition homestead sales to lose their exempt status

would “undermine[ ] finality and foster[ ] inefficiency” as

well as “place[ ] a debtor’s rights in limbo.” 364 B.R. at 764.

The trustee’s rule, however, does not strike us as any less fair

or efficient than what Golden already allows. The reinvest-

ment period under the California homestead exemption lasts

six months regardless of when a debtor sells his homestead.

Lane theorized that if the proceeds from post-petition home-

stead sales could lose their exempt status, trustees might

IN RE JACOBSON 4345

“claim an interest in the homestead and postpone closing a

case so long as there is any possibility the debtor’s circum-

stances might change.” Id. at 765. We find this concern too

speculative. We doubt a trustee would delay liquidating an

estate because (1) the debtor’s homestead might be sold at

some point in the future and (2) the debtor might fail to rein-

vest his share of the proceeds six months after the sale.

IV.

[7] We turn to the trustee’s claims for turnover of the

Enterprise property and its income to Myrna’s bankruptcy

estate. Because these claims turn on questions of fact, we

must consider the appropriate burden and standard of proof.

The trustee has the burden of proving the estate is entitled to

a turnover. 5 Collier on Bankruptcy ¶ 542.02 (16th ed. 2011).

The bankruptcy court assumed—although the Supreme Court

has not conclusively held—that the standard of proof is a pre-

ponderance of the evidence. See id. at n.15. Because we agree

with the bankruptcy court that the trustee has not proven his

claim under this relatively forgiving standard, we need not

decide whether the Bankruptcy Code requires a higher one.

[8] First, title documents show Donald is the sole owner of

the Enterprise property. In California, record title is presump-

tively correct. Cal. Evid. Code § 662. Second, the presump-

tion under California law that property acquired during

marriage is community property does not apply here. See Cal.

Fam. Code § 760. There is no community property presump-

tion where a spouse acquires property in his name alone with

the other spouse’s consent. In re Marriage of Brooks, 169

Cal. App. 4th 176, 186-87 (Cal. Ct. App. 2008). The Enter-

prise property sale documents list Donald as the sole buyer,

and before the closing Myrna executed an interspousal trans-

fer deed confirming the Enterprise property was Donald’s

separate property. The community property presumption also

does not apply to property traceable to one spouse’s separate

property. See In re Marriage of Haines, 33 Cal. App. 4th 277,

4346 IN RE JACOBSON

289-90 (Cal. Ct. App. 1995). The Jacobsons testified that

Donald used part of a 1996 inheritance to make the down pay-

ment on the Enterprise property.

The trustee points to the absence of documentary proof that

Donald’s inheritance was kept separate from the Jacobsons’

community property. But the bankruptcy court determined

that the inheritance remained separate property after hearing

testimony from the Jacobsons. “When factual findings are

based on determinations regarding the credibility of wit-

nesses, we give great deference to [those] findings.” In re

Retz, 606 F.3d 1189, 1196 (9th Cir. 2010).

Next, the trustee argues that Donald’s inheritance belonged

to the bankruptcy estate from the 1990s bankruptcy proceed-

ings rather than Donald. The trustee lacks standing to raise

this claim. Article III standing requires, among other things,

a “concrete and particularized injury.” Friends of the Earth,

Inc. v. Laidlaw Envtl. Servs. (TOC), Inc., 528 U.S. 167, 180

(2000). The alleged injury affected the earlier bankruptcy

estate, not the current one.

Last, the trustee argues that judicial and collateral estoppel

require turnover of the Enterprise property. The trustee con-

tends the Jacobsons cannot claim Donald depends on Myrna

to run his affairs and then claim she has no interest in the

Enterprise property. This argument fails. “Judicial estoppel is

an equitable doctrine that precludes a party from gaining an

advantage by asserting one position, and then later seeking an

advantage by taking a clearly inconsistent position.” Hamilton

v. State Farm Fire & Cas. Co., 270 F.3d 778, 782 (9th Cir.

2001). It is not inconsistent for Donald to own separate prop-

erty and let Myrna run his affairs. Collateral estoppel “fore-

closes relitigation of those issues of fact or law that were

actually litigated and necessarily decided by a valid and final

judgment in a prior action between the parties.” In re Duncan,

713 F.2d 538, 541 (9th Cir. 1983). The finding from the

1990s bankruptcy proceedings that Myrna ran Donald’s

IN RE JACOBSON 4347

affairs did not decide whether Myrna has an interest in Don-

ald’s property.

REVERSED in part, AFFIRMED in part, and

REMANDED.

Each party shall bear its own costs on appeal.