# Appendix — Rosenthal v. Conrad

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Appendix
- **Published:** January 1, 1999
- **Citation:** 526 U.S. 1069

## Text

EDITOR'S NOTE
THE FOLLOWING PAGES WERE POOR HARD COPY
AT THE TIME OF FILMING. IF AND WHEN A

BETTER COPY CAN BE OBTAINED, A NEW FICHE

WILL BE ISSUED.

ae

Supreme Court, U.S.
od FILED

9 81479 Jan 1 2199

~~

No.

IN THE OFFICE OF THE CLERK

Supreme ya of lhe CCnuted Ss; Gales

October Term, 1998

JEROME B. ROSENTHAL

Petitioner [Defendant]
V.

ROBERT NOLAN CONRAD, and

ROBERT NOLAN CONRAD, A LAW
CORPORATION

Respondents [Plaintiffs

On Petition For A Writ of Certiorari
To The Court of Appeal of California
Second Appellate District

APPENDIX TO
PETITION FOR WRIT OF CERTIORARI

JEROME B. ROSENTHAL, Petitioner
125 South Crescent Drive #6
Beverly Hills, California 90212
[310] 276-9673

Petitioner, PRO SE

Second Appellate District, Division Seven, No. B096046
$073011

IN THE SUPREME COURT OF CALIFORNIA

ROBERT NOLAN CONRAD, Respondent
SUPREME COURT

V. FILE O
OCT. 14 1998
JEROME B. ROSENTHAL, Appellant Robert Wandruff Clerk

Deputy

Appellant’s petition for review DENIED.
The request for an order directing publication of the
opinion is denied.

Mosk, J., did not participate.

GEORGE

Chief Justic a

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION 7

ROBERT NOLAN CONRAD, BO096046

Plaintiff and Respondent, Super. Ct.No. C545108)
V. COURT OF APPEAL - SECOND DIST
re: £ ete
JEROME B. ROSENTHAL, JUL 21 1998

JOSEPH A. LANE Clerk
Defendant and Appeiianht. © an vances eave ee
Deputy Clerk

APPEAL from an order of the Superior Court of Los Angeles County
Ronald M. Sohigian, Judge. Affirmed.

jerome B. Rosenthal, in pro. Per., for Defendant and Appellant.

Freeman, Freeman and Smiley, Michael Blumenteld and Leslie E

Wallis for Plaintiff and Respondent.

Appellant is a judgment debtor who claimed his $12,500 quarterly annuity
payments were exempt from levy. This appeal is form an order denying the
exemption. We affirm.

BACKGROUND

In 1985, Robert Nolan Conrad, respondent, filed an action against appellant,
Conrad v. Rosenthal, C545108. The action sought a declaratory judgment as to
the ownership of a $2.2 million legal fee which had been paid into a bank trust
account by the client pending the outcome of the lawsuit. The action also sought
actual and punitive damages against Rosenthal for Rosenthal’s interference with
Conrad's right to collect the fee from the clients.

After a jury trial in February 1990, the jury determined that Conrad was the
owner of the fee and also awarded Conrad $112,360 in compensatory damages
and $150,000 in punitive damages. Judgment was entered on March 19, 1990.
At the conclusion of Rosenthal’s unsuccessful appeal, the $2.2 million was paid
to Conrad. Conrad then set about collecting the $262,000 damage award. As a
result of this judgment, a writ of execution was issued for a money judgment in
favor of Conrad in the amount of $278,415.94.

In an attempt to satisfy the judgment, Conrad attempted to conduct a judgment
debtor examination. In May 1991, and following extensive briefing and
argument, Superior Court Judge Stephen O'Neil held Rosenthal in contempt for
willfully disobeying a court order to answer questions during that judgment
debtor examination. Asa result of the contempt order, Rosenthal remained in jail
between April 1991 and November 1993. Rosenthal’s attempts to overturn the
contempt citation were unsuccessful. Thereafter, although the contempt order
remained in effect, Rosenthal was released from custody.

Respondent discovered appellant had an annuity with Traveler’s Insurance trom
which he received $12,500 every three months. Respondent levied upon the
annuity. Appellant claimed the annuity was exempt from levy. The trial court
denied the exemption. This appeal followed.

ISCUSSION

Appellant contends his annuity is exempt from levy for two reasons:

(1) it “is not assignable or transferable” (Code Civ. Proc., Proc., Sec. 695.030")
and
(2) it is an “unmatured” policy (Code Civ. Proc., Sec. 704.100?

-b-

I
The section reads:

“(a) Exeept as otherwise provided by statute, property of the judgment
debtor that is not assignable or transferable is not subject to enforcement of a
money judgment.

“(b) the following property is subject to enforcement of a money judgment:

“(1) An interest in a trust, to the extent provided by law.

“(2) A cause of action for money or property that is the subject of a
pending action or special proceeding.”

[he section reads:

(a) Unmatured life insurance policies (including endowment and annuity
policies), but not the loan value of such policies, are exempt without making
a claim.

“(b) The aggregate loan value of unmatured life insurance policies
(including endowment and annuity policies) is subject to the enforcement of
a money judgment but is exempt in the amount of eight thousand dollars
($8.000). Ifthe judgment debtor is married. each spouse is entitled to a
separate exemption under this subdivision, and the exemptions of the
spouses may be combined, regardless of whether the policies belong to either
or both spouses and regardless of whether the spouse of the judgment debtor
is also a judgment debtor under the judgment. The exemption provided by
this subdivision shall be first applied to policies other than the policy before
the court and then, if the exemption is not exhausted, to the policy before the
court.

“(c) Benefits from matured life insurance policies (including endowment
and annuity policies) are exempt to the extent reasonably necessary for the
support of the judgment debtor and the spouse and dependents of the
judgment debtor.”

As to assignability, respondent has not sought to levy on the annuity
policy, only its proceeds. Manifestly, those $12,500 proceeds are assignable.

As to maturity, the answer is the same. (/n re Moffat (Bankr. C.D. Cal.
1989) 107 B.R. 255, 261; In re Moffat (9th Cir. 1992) 959 F.2d 740.)

Having so concluded, we need not address repondent’s other reasons
why it should prevail and why appellant's appeal should be dismissed. (See
Stone v. Bach (1978) 80 Cal. App. 3d 442.)

DISPOSITION
The order is affirmed. Costs on appeal are awarded to rrespondent.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS.
WOODS, J.

We concur.
LILLIE, }.
NEAL, ].

In re Gordon H. MOFFAT, Debtor.
Bankruptcy No. LA 88-2019-KM.
United States Bankruptcy Court,
C.D. California.
Oct. 31, 1989
IN RE MOFFAT Cite as 107 B.R. 255 (Bkrtcy, C.D.Cal. 1989
Trustee objected to exemptions claimed by Chapter 7 debtor in principal residence
and in annuity purchased in preparation for bankruptcy filing. The Bankruptcy Court,
Kathleen P. March, J., held that: (1) under California law, debtor was entitled to
automatic homestead exemption in property which he no longer owned, but in which
he continued to reside, rent-free, as settlor and beneficiary of trust, but (2) quarterly
payments which debtor received from matured, single-premium annuity were not
“reasonably necessary” to support debtor and spouse, within the meaning of
California exemption.
Objection sustained in part and overruled in part.

1. Homestead 88

Under California law, debtor was ertitled to automatic homestead exemption in
property which he no longer owned, but in which he continued to reside. as settlor
and beneficiary of revocable trust. West’s Ann.Cal.C.c.P. Sec. 704.720
2. Homestead 62

Under California law, debtor was entitled only to basic $30,000 homestead
exemption in property which he had conveyed to revocable trust for benefit of
himself and his wife; debtor’s wife, who was only other person to reside on property,
had noncommunity property interest therein as beneficiary of trust, such as would
prevent debtor from claiming special $45,000 homestead exemption. West’s
Ann.Cal.C.C.P. Sections 704.720, 704.730 (a)(1,2
3. Homestead 49

_ ’ ;
$ ' + . ’ . . , r ‘ . - |} :
Chapter 7 debtor’s interest in single premium deferred annuity which he purchased
sd ." + | : > . a r | 1
prepetition was “matured witnin meanir 9 of ( alifornia exemp nm. wnen deptor tilec
r I P ‘ tir ’ r Jag ; + + + mt ‘ rie + +,+ “4 at
Dankruplicy, notwithstanding tna rSi DayMent Was Made positpe On; GeDULOFr §$

rignt to payments arose on date that maturity was purchased. West’s Ann.Cal.C.C.P.

sec. 704.100.
See publication Words and Phrases for other judicial constructions
and definitions.
4. Exemptions 49
Quarterly payments that orthodontist would be receiving from annuity were not

reasonably nec essary’ to support orthodontist and wife, within meaning of California

exemption, where ortnodontist nad PrOss montnly income of over > » OOO trom

reasonably be expected to sell his practice in order to finance his retirement. West’s
Ann.Cal.C.C.P. Sec. 704.100 (c).

practice, received another $800 per month in social security payments, and ™
See publication Words and Phrases for other judicia! constructions

and definitions. ;

5. Exemptions 49 4
Debtor cannot make proceeds of annuity policy “reasonably necessary” for his
support, within meaning of state law exemption, merely by increasing his debts in
preparation for bankruptcy filing. West’s Ann.Cal.C.C.P. Sec. 704.100(c). :
j

6. Exemptions 49
California exemption for unmatured annuities extends only to “ownership” interests
in such annuities, and not to beneficial interests. West’s Ann.Cal. C.C.P. Sec.

704.100(a)
Richard M. Moneymaker, Moneymaker & Kelley, Los Angeles, Cal. For debtor. 7%
David R. Haberbush, Roquemore, Pringle & Moore, Los Angeles, Cal., Chapter 7 :

trustee. ;

OPINION

KATHLEEN P. MARCH, Bankruptcy Judge.
I.
FACTS

In this contested matter, the Chapter 7 Trustee, David Haberbush, filed a motion
pursuant to Bankruptcy Rule 4003(b), objecting to debtor’s claimed exemptions under
11 U.S.C. Sec. 522(b)(1). Debtor filed opposition responding to the Trustee’s
objections both on legal and factual grounds. Pursuant to rules 121(2) and 111(1)(k)
of the Local Rules of the United States Bankruptcy Court for the Central District of
California, the Court ordered the parties to prepare a pre-trial order and scheduled this
matter for an evidentiary hearing. After the evidentiary hearing, the parties were
ordered to submit closing briefs.

The Debtor Gordon H. Moffat, an orthodontist, filed his Chapter 7 petition on
September 22, 1989. Along with his petition, debtor filed a list of property claimed |
exempt under 11 U.S.C. Sec. 522(b)(1), as required by Bankruptcy Rule 4003(a).
Among the property claimed exempt by debtor were (1) a $45,000.00 homestead in
his personal residence located at 4927 El Sereno Street, La Crescenta, California, and
(2) an unspecified interest in a $190,000.00 single premium deferred annuity.’

There are two types of property interests in an annuity. There is the ownership
interest, and there is the interest in the benefit payments to be received from the

4

Debtor claimed these exemptions pursuant to California Code of Civil Procedure
Sections 704.720 and 704.100 respectively.”

In preparation for filing his present petition,’ debtor engaged in various pre-
bankruptcy transactions. On February 5, 1988, debtor along with his spouse, created
“The Gordon H. Moffat and Barbara B. Moffat Living Trust” (herein after referred to
as the “Living Trust”), naming themselves along with their children as trust
beneficiaries.* On the same day, debtor transferred title to his personal residence to
the Living Trust. On February 28, 1988, debtor borrowed $300,000.00 against nis
home, utilizing $190,000.00 of the proceeds to purchase a single premium preferred

annuity called the beneficial interest. California Code of Civil Procedure Sec
704.100 (West 1987) exempts the ownership interest in certain kinds of
annuities. Debtor’s B-4 schedule fails to specify which interest debtor is

' claiming as exempt. Given debtor’s failure to distinguish between the
ownership interest and the beneficiary interest in the annuity, this court must
construe debtor’s schedule as claiming an exemption in both the ownership and
beneficiary interest in the subject annuity.

2

There are Pursuant to the B-1 schedules filed herein, debtor also claims an
exemption in various life insurance policies with “Executive Life and Url
under California Code of Civil Procedure Sec. 704.710 (West 1987). The
trustee’s initial moving papers raised an objection to debtor’s claim that these
policies were exempt. The trustee, however, abandoned this objection by
failing to include it in the pre-trial order submitted by the parties and ultimately
approved by the court. To the extent the pretrial order supersedes the trustee's
initial moving papers as a summation of the trustee’s objections to debtor claim
of exemption, there is no pending issue before the court regarding the propriety
of debtor’s claim to an exemption in the subject life insurance policies.

3
This is debtor’s second bankruptcy filing. Debtor filed his first petition
approximately ten years ago with the assistance of present bankruptcy counsel,
the firm of Moneymaker & Kelly. Debtor testified that he filed his present
petition primarily for the purpose of discharging a debt arising from a
$300,000.00 malpractice judgment entered against him.

4

Specifically, debtor holds a 12% interest, debtor’s wife holds a 48% interest, and
debtor’s four children hold a 205 interest as beneficiaries of the living trust

5

Trust. Debtor testified at the evidentiary hearing that he and his spouse created th
Living Trust® and purchased the $190,000.00 annuity on the advice of counsel ip:
order to keep his creditors from reaching these assets by maximizing allowablda
exemptions.

The Trustee objects to debtor’s claiming a homestead exemption on the ground thawi
pursuant to U.S.C. Sec. 522(b) debtor cannot claim an exemption in an asset whict 7
is not property of the estate. The trust document admitted into evidence confirms th
trustee’s allegation that title to the residence is held by the Living Trust. The trus
document, however, reveals that debtor and his spouse, and consequently ther
bankruptcy estate, hold various legal interests in the trust affecting title to the subjeche
residence, including (1) the right as trustor(s) to revoke the trust in whole or in partar
and (2) the right as beneficiaries under the trust to live on the property during their lifehne
time without obligation to pay rent. fr

The Trustee also objects to debtor’s claimed exemption in the ownership interestet
of the $190,000.00 single premium deferred annuity on the ground that, pursuant tow
California Code of Civil Procedure Sec. 704.100(a), debtor is not entitled to claim as3
exempt his ownership interest in a “matured” annuity. In addition, the trustee objects 0
‘to debtor’s claimed exemption in the beneficiary interest of the $190,000.00 annuity ¢
policy on the ground that pursuant to California Code of Civil Procedure Sec. €
704.100® debtor is not entitled to claim an exemption in annuity benefits which are t
not “reasonably necessary for the support of the judgment debtor and spouse and €
dependents of the judgment debtor.” t

The annuity policy admitted into evidence reveals that debtor purchased the subject f
annuity for a single premium of $190,000.00, naming himself both as owner and
annuitant under the policy. Debtor named his spouse as the contingent beneficiary. f

5

Throughout his testimony at the evidentiary hearing, debtor referred to the trust
created on February 5, 1988, in anticipation of filing his present bankruptcy
petition as the “family trust.” The trust document admitted into evidence,
however, is captioned “the Gordon H. Moffat and Barbara B. Moffat Living
Trust’ (emphasis added). The living trust consists of three trusts one of which is
entitled a “family trust.” However, it does not appear from the trust document
that the home in question was transferred into the family trust; rather the
property was transferred into the Living Trust. Article I of the trust document
provides that “This Trust and all trusts derived herefrom shall be known as the
GORDON H. MOFFAT AND BARBARA B MOFFAT LIVING TRUST.”
Accordingly, this court will refer to the trust in question as the “living trust”
rather than the “family trust.”

Re

suant to the terms of the policy, debtor as the annuitant, will receive forty quarterly

yments-certain” of $4,370.00 which commenced on October 1, 1988 (i.e., nine

/s after debtor filed for bankruptcy). The annuity provides that if the annuitant dies

‘ore receiving the forty “nayments-certain,” the contingent beneficiary, Mrs. Moffat,

‘| receive the remaining payments.

Jebtor is a practicing orthodontist. Not including any income from the annuity,

btor and his spouse receive a combined monthly gross income of $5,600.00

rned by debtor, and $600.00 earned by debtor’s wife, plus Social Security benefits.
ym these gross amounts debtor’s take home pay is $4,464.00 and his wife’s take
me pay is $432.00. (Debtor’s testimony, plus Schedule of Debtor’s Current Income

d Current Expenditures to his Bankruptcy Petition, received in evidence at the
aring.) Debtor testified that $5,000.00 of his monthly $5,600 gross income is salary
ym his orthodontics practice, paid through his wholly owned and operated
poration, Dr. Gordon H. Moffat, a Professional Corporation. Debtor testified his
holly owned corporation grosses approximately $400,000 a year. Debtor sees 200 -
10 patients a month in his practice. In addition to the income from his wholly
wned corporation, debtor testified that he receives $1,000 to $1,500 a month as
snsulting fees for consulting for an insurance company, the American Guild of
\thodontics. In addition to the earnings from his practice and consulting, debtor
stified that he also receives $800 a month of Social Security payments. No
vidence was submitted that debtor is unable to continue carrying on his practice for
1e foreseeable future. Moreover, debtor received an offer to purchase one part of his
ractice for $50,000.

Before mortgaging his home to purchase the subject annuity, debtor had a monthly
nortgage payment of only $1,600. After borrowing against the house to purchase the
190,000 annuity, debtor's monthly mortgage payment is $2,600. Debtor maintains
1e needs $4,370 quarterly annuity payment in order to service the debt on his home.

Lastly, in his closing brief, the trustee for the first time raises the argument that
Jebtor’s claim of exemption should be disallowed on the ground that debtor's
durchase of the annuity constitutes a fraudulent conveyance under California law.

II.
ISSUES PRESENTED
This contested proceeding presents the following issues:

A. Whether debtor is entitled to claim a $45,000 homestead exemption in his
0 California Code of Civil Procedure Section 704.720,

id in a living trust of which both debtor and his spouse

principal residence, pursuant t
when title to the dwelling is he

ate trustors and beneficiaries;
8 Whether debtor is entitled to claim an exemption in either the ownership or

beneficiary interest in a $190,000 single premium deferred annuity, pursuant to

7

California Code of Civil Procedure Sec.704.100, regardless of whether the annui
found to be “matured” or “unmatured;” and,
C. Whether debtor’s claim of exemption in the $190,000 single premium defer
annuity can be disallowed on the ground the purchase of the annuity constitut
fraudulent conveyance.
It.
ANALYSIS

The United States Bankruptcy Code permits states to opt out of the fed
exemption statutory schemes set forth in 11 U.S.C. Sec. 522(d). Bankruptcy C
Sec. 522(b)(1). In enacting California Code of Civil Procedure Sec. 703.1
California opted out of the federal exemption scheme relegating debtor to whate
exemptions are provided under state law. Consequently, substantive issues regarc
the allowance or disallowance of a claimed exemption are governed by state lav
California. However, the Bankruptcy Rules set forth the procedural framework
filing both a list of property claimed as exempt and objections to claimed exempti:
Bankruptcy Rule 4003(a) and (b). In a proceeding under Bankruptcy Rule 4003
the objecting party has the burden of providing that debtor is not entitled to
claimed exemption. Bankruptcy Rule 4003(c).
A. Debtor is Entitled to a $30,000 Homestead Exemption Pursuant to Califo:
Code of Civil Procedure Sec. 704.720

Debtor claims an “automatic”’ homestead exemption in his personal reside
pursuant to California Code of Civil Procedure Sec. 704.720 in the amoun
$45,000. In relation to the automatic homestead exemption, a “homesteac
defined as the “. . .the principal dwelling . . .in which the judgment debtor or
judgment debtor’s spouse resides... .” California Code of Civil Procedure |
704.710© (West 1987). (Emphasis added). For the purposes of the auton
homestead exemption, California Code of Civil Procedure Sec. 704.710 (a)(1) det
a “dwelling” as including “[a] house together with the outbuildings and the land uv:
which they are situated.”” The amount of a homestead is determined by Califc

6
For a discussion of the distinction between the “automatic” and the “declarec ”
homestead see /n re Knudsen, 80 B.R. 193 (Bankr.C.D.Cal. 1987).

7

The definition of dwelling under this automatic homestead article, Article 4, )
different from the definition of dwelling under C.C.P. Sec. 704.910 (West 19%
the declared homestead article, California Code of Civil Procedure Sec. 704.
(West 1987), gives a more restrictive definition of dwelling as follows: “‘(c)

8

j Code of Civil Procedure Sec. 704.730 (a)(1) which provides debtors with a $30,000

| homestead unless a debtor comes within subsection (a)(2) or (a)(3). Debtor herein

alleges he comes within subsection (a)(2) which provides a $45,000 homestead:
“[I]f the judgment debtor or spouse of the judgment debtor who resides in the

| homestead is at the time of the attempted sale of the homestead member of a family

»- unit and there is at least one member of the family unit who own nc interest in the
homestead or whose only interest in the homestead is a community property interest
with the judgment debtor.” California Code of Civil Procedure Section 704.730(a)(2)
(West 1989).

Debtor argues he is entitled to the 45,000 homestead exemption on the ground that
both he and his spouse utilize the subject dwelling as their principal residence and
both he and his spouse hold as an interest in the subject property as trustors, trustees
and beneficiaries under the subject trust. Debtor points out that California Code of

| Civil Procedure Sec. 704.720 does not limit the right to claim a homestead exemption
} « to individuals who have an “ownership” interest in the subject property.®
| 1. | The Bankruptcy Estate Holds Various Legal Interests
in the Subject Dwelling
[1] The Trustee objects to debtor’s claim to a $45,000 homestead on the ground that
debtor is not entitled to claim a homestead exemption in a dwelling which is not
property of the estate. 11 U.S.C. 522(b) provides that:

[nJotwithstanding section 541 of this title, an individual debtor may exempt from
the property of the estate the property listed in either paragraph (1) or, in the
alternative, paragraph (2) of this subsection.” 11 U.S.C. Sec. 522(b) (Emphasis added).

ME GS stats

‘Dwelling’ means any interest in real property . . .but does not include . . .the
interest of the beneficiary of a trust.” California Code of Civil Procedure Sec.
704.910 (West 1987).

Thus a debtor whose sole interest in a dwelling as a beneficiary of a trust could
not claim a declared homestead exemption regarding the dwelling, but could
claim an automatic homestead exemption regarding that dwelling, since
“dwelling” as defined in the automatic homestead article, California Code of
Civil Procedure Sec. 704.710 (West 1987) does not contain the restriction
regarding beneficiaries of trusts that the declared homestead exemption,
California Code of Civil Procedure Sec. 704.910 (West 1987) contains.

,

| As noted in footnote 7, Supra debtor is correct that the right to claim an
“automatic” homestead exemption is not limited to individuals who have an
ownership interest in the dwelling.

The trustee maintains that because debtor transferred title to the subject residence!
to the Living Trust before filing his bankruptcy petition, the residence is not property’
of the estate pursuant to 11 U.S.C. Sec.541(a) from which debtor can claim an!
exemption.’ The trustee’s contention that debtor cannot claim a homestead:
exemption in the subject dwelling because legal title to the property is not held by
the bankruptcy estate is without merit. While title to the dwelling is in the Livingé
Trust, as the trustee asserts, debtor holds various a interests” in the subjects
dwelling as a trustor and beneficiary of the living trust. ' f

11 U.S.C. 541 (a)(1) provides that, inter alia, “...a saab hh estate is comprisecl
of... all legal or equitable interests of the debtor ....” Debtor’s interest as a trustoré
and beneficiary under the Living Trust, among other things, all became property of
the bankruptcy estate pursuant to 11 U.S.C. Sec. 541 (a) upon the filing of debtot
petition. Debtor is entitled to claim an exemption in either of these legal interests. f

Pursuant to debtor’s interest as trustor in the “revocable” living trust, the bankruptcf
estate holds a “contingent reversionary interest” in the subject dwelling. Thef
bankruptcy trustee—standing in debtor’s place as trustor of the Living Trust —can, irk
his discretion, revoke the trust in whole or in part, reverting title in the residence baci
to the bankruptcy estate.'' Debtor claims a homestead in this “contingen4
reversionary interest” and the trustee has failed to produce any legal authority for the”
proposition that a homestead cannot be claimed in such an interest. The trustee ha@

¢
; .
Debtor argues Trustee’s contention is without merit because exempt property, b' j
its very nature, never becomes property of the estate. Debtor’s contention, ¢
however, is in error “[e]ven exempt property must initially be regarded as ;
property of the estate and then claimed and distributed as exempt.” (Citations
omitted) In re Poynor 68 B.R. 919, 921 (Bankr. N.D. Tex 1987).
10 a
Note, debtor also holds an “equitable interest” in the subject property as trustee #
of the Living Trust. h
1] a

If the trustee revoked the Living Trust (transferring title of the residence from
the living trust to the bankruptcy estate), the bankruptcy estate would hold lega! T
title to the dwelling subject to a first deed of trust in the sum of $300,000 and a:
abstract of judgement in the sum of $300,000. Consequently, if the bankruptcy
trustee reverted title in the dwelling back into the bankruptcy estate, there woul 4
be no equity from which debtor could claim a homestead exemption unless
debtor avoided the judgement lien pursuant to 11 U.S.C. Sec. 522 (f).

10

|

iled to meet his burden of proving a homestead exemption claim should be
sallowed. Consequently, this court must find that debtor is entitled to claim a
mestead exemption in his principal dwelling even if debtor’s sole interest in it was
“contingent reversionary interest.”
Furthermore, pursuant to debtor’s interest as a beneficiary under the Living Trust,
btor and his spouse are entitled to reside in the subject dwelling “without an
ligation to pay rent” during their life time, (i.e., debtor holds a “life estate”). Upon
fhe filing of debtor’s petition, however, debtor’s life estate transferred to the
Bankruptcy estate (i.e.,the bankruptcy estate holds an “estate pur altra vie”).'? Debtor
glaims a homestead exemption in this “life estate” and the trustee has failed to
oduce any legal authority for the proposition that a homestead exemption cannot
de claimed in such an interest. The trustee has failed to meet his burden of proving
hat debtor’s claim to a homestead exemption should be disallowed. Consequently,

is Court holds that debtor is entitled to claim a homestead exemption in his
jrincipal dwelling notwithstanding the fact debtor’s sole interest in the dwelling may
de a “life estate.”
4 Debtor Does Not qualify for a $45,000
. Homestead Exemption

[2] However, debtor is not entitled to claim a homestead exemption in the amount
f $45,000. Pursuant to California Code of Civil Procedure Sec. 704.730(a)(1) debtor
$s only entitled to a $30,000 homestead exemption, unless debtor comes with
ubsection (a)(2), i.e., that is “. . there is at least one member of the family unit who
wns no interest in the homestead or whose only interest in the homestead is a
ommunity property interest ....” (Emphasis added). The evidence presented at the
videntiary hearing, hance. sails that there is no member of a family unit who
olds either “no interest” or simply holds a “community property interest” in the
welling. Debtor and his spouse live in the subject property alone and both debtor
nd his spouse hold separate interest in the dwelling both in the form of “contingent
pversionary interests” and “life estates.” Consequently, debtor is only entitled to a
omestead exemption in the subject dwelling in n the amount of $30,000. The

—

12

heoretically, the bankruptcy trustee could sell debtor’s life estate in the subject

roperty, and debtor would be entitled to claim a homestead exemption from the
roceeds of the sale. As a practical matter, however, debtor’s life estate has little
‘any monetary value. As noted earlier, debtor’s residence is held subject to a

rst deed of trust in the sum of $300,000 and judicial lien in the sum of
300,000.

1]

trustee’s objection is overruled regarding debtor’s right to claim a homeste

exemption in the dwelling, but is partially sustained regarding the amount of t

exemption, since the proper amount of the exemption is $30,000, not the $45,0:

claimed.

B. Debtor May Not Validly Exempt Either an Ownership or a Beneficiary
Interest in the $190,000 Single Premium Deferred Annuity

Debtor claims an exemption in both the ownership and beneficiary interests und
the $190,000 annuity policy pursuant to California Code of Civil Procedure Se
704.100. California Code of Civil Procedure Sec. 704.100 provides:

[a] Unmatured life insurance policies (including endowment and annuity policie
but not the loan value of such policies, are exempt without making a clair
(Emphasis added).

[c] Benefits from matured life insurance policies (including endowment and annu|
policies) are exempt to the extent reasonably necessary for the support of th
judgment debtor and the spouse and dependents of the judgment debtor. Calor
Code of Civil Procedure Sec. 704.100 (Emphasis added).

Debtor argues that the quarterly payments to be made under the annuity policy he
in issue are exempt under California Code of Civil Procedure Sec. 704.100(a) on t!
theory that the annuity policy is unmatured. Debtor argues in the alternative (ay
inconsistently) that if the quarterly payments to be paid under the annuity are mature
rather than unmatured, the $4,370 quarterly payments should still be held exeny
because these $4,370 payments are “reasonably necessary” for the support of te
debtor Moffat and his spouse. 3
1. The Subject Annuity is “Matured” 3

[3] In order to determine whether debtor can claim an exemption in any interest§
the annuity (either the ownership or the beneficiary interest), this Court me
determine whether the subject annuity is “matured” or “unmatured.” The annuity§
question is payable in quarterly payments over a ten year period. The payout peri
commenced in October of 1988. Neither the parties nor the court were able to loch
any dispositive state or federal court authority on point addressing the question
whether an annuity whose payment is contingent solely on the passage of timeg
“matured” or “unmatured.” However, logic dictates holding that the annuity ff
question was mature when purchased, since no further act of any kind was necess¢
on the part of the debtor, or any other person, for debtor to be entitled to the re
payments. C

This is unlike the situation where a life insurance policy is the instrument
question. In the case of a life insurance policy, the insured life has to die before
insurance company is obligated to pay. Here the debtor does not have to die, or 4

]2

~

7

a

y other act, and there is no insured life. Rather, the annuity Company was
ntractually obligated to pay the 40 payments as soon as the annuity policy was
rchased and th: $190,000 purchase price paid, with the 40 payments to start on
date chosen by debtor at the time debtor purchased the annuity. The fact that a
btor may choose an annuity contract where the stream of 40 payments starts a
ek or two after , rather than a week or two before, he files his bankruptcy petition
nnot rationally be deemed to make the policy unmatured as of the date of filing.
er all, the right to receive the 40 payments arises the day the annuity is purchased,
ate which is prepetition. Black’s Law Dictionary defines “maturity” as “the date
which an obligation . . .becomes due.” Black’s Law Dictionary 883 (Sth ed. 1979).
ere, the annuity company’s duty to pay arose on the date the annuity policy was
rchased. Thus, the obligation was owed, i.e., “became due,” on the date the
nuity was purchased, despite the fact that the debtor delayed the time the payments
uld be made to a later date convenient to him. Accordingly, this court holds that
subject single premium deferred annuity was “matured,” when purchased, as the
m “matured” is used in California Code of Civil Procedure Sec. 704.100.
4 The Benefit Payments Are Not Reasonably Necessary to Support the
; Debtor and His Spouse
1[{4] In light of this Court’s holding that the subject annuity has “matured,” debtor
nnot validly claim an exemption in any interest under the annuity under California
de of Civil Procedure Sec.704.100 (a) (governing “unmatured” annuities).
wever, debtor is entitled to claim an exemption in the annuity to the extend for by
lifornia Code of Civil Procedure section 704.100[c] (governing “matured”
Anuities). Pursuant to subsection [c], debtor is entitled to claim an exemption in the
neficiary interest of a matured annuity to the extent the benefit payments from the
nuity are “reasonably necessary” for the support of the judgment debtor and the
ouse and dependents of the judgment debtor. (California Code of Civil Procedure
c. 704.100[c] is quoted supra).
Based on the evidence presented, this Court finds that none of the forty quarterly
nefit payments are “reasonably necessary” for the support of debtor, his spouse or
dependents. As set forth supra, debtor receives a gross monthly income of $5,600
month from his orthodontics practice and consulting. Should he wish at some
ure daie to stop practicing, debtor can reasonably be expected to sell his practice
finance his retirement. He testified he had already received an offer to sell a
rtain part of his practice. No evidence was presented that the debtor is unable to
ntinue working. At the time of trial he was practicing actively. Debtor also testified
at he receives social security payments of approximately $800 a month. In addition
debtor’s earnings, debtor’s spouse, who also resides in the residence, receives a
oss salary of $600 per month. (Debtor’s testimony and Schedule of Current Income

and Current Expenditures to his Bankruptcy Petition, received in evidence).

(5] The fact that debtor’s mortgage payments on his residence increased because!
refinanced his residence to purchase the annuity does not mean that the annu®
pavments are “reasonably necessary” to support the debtor because his mortga
payments had gone up. Annuity payments cannot be held to be reasonably necess!
to support a debtor merely because a debtor immediately before bankrup |
voluntarily takes on additional debts. A debtor cannot make proceeds of an anni s
policy “reasonably necessary” for his support, and therefore unavailable to be ul
to pay his creditors, merely because the debtor goes out and increases his debt!
preparation for filing bankruptcy. To do so would reward debtors who borrow
much as possible immediately before bankruptcy, while penalizing debtors whe
not do so. The measure of “reasonably necessary” is not how much debt the det
can run up, but the objective standard of how much a debtor reasonably need
live.'? Ifa debtor has excessively incumbered his residence with consensual liens
may lose the residence, or he may use the 47,900 gross monthly income he anc |
wife have from their work and other sources to continue paying the higher mon”
mortgage.

3. If the Subject Annuity is Deemed “Unmatured”, Debtor is Still Not

Entitled to Claim an Exemption in the Beneficiary Interest

(6] Given the lack of dispositive state or federal court authority on the questio
whether an annuity has “matured,” this court will now, in the alternative, address :
question of what exemption, if any, debtor would be entitled to claim if the pc
were assumed, arguendo (and contrary to this Court’s holding), to be “unmatur
lf the annuity is assumed, arguendo to be “unmatured,” debtor cannot clain |
exemption in any interest under the annuity under California Code of Civil Proce
Section 704.100 [c] (governing “matured” annuities). However, debtor woul
entitled to claim an exemption in any interest in the policy provided for by Califo
Code of Civil Procedure Sec. 704.100 [a] (governing “unmatured” annui®
Subsection (a) quoted supra states: “lujnmatured . . annuity policies . . .are exeng

Though there does not appear to be a case directly on point, see by analogy
California Code of Civil Procedure Sec. 704.200 (b) (West 1989), which det
when an item of personal property is “ordinary and reasonably necessary” fo :
the debtor as being the objective standard of: “(1) The extent to which the ©
particular type of item is customarily found in a household. (2) Whether the —
particular item has extraordinary value as compared to the value of items of '
same type found in other households.” See In re Lucas, 77 B.R. 242 (9th Ci |
B.A.P. 1987) |

14

——_

plifornia code of Civil Procedure sec. 704.100 [a] (West 1987). There is a question,
bwever, as to whether this language or subsection exempts the “ownership interest”
an annuity, or the “beneficiary interest” of an annuity, or both the ownership and
'e beneficiary interest.
‘The Court and tne parties found no state court Cases, and only one federal case,
onstruing California Code of Civil Procedure Sec. 704.100 [a].'* That case is the
linth Circuit case of Woodson v. Fireman’s Fund Insurance Company, (In_re
Voodson), 839 F.2d 610 (9th Cir.1988), where the Ninth Circuit stated:

“Both federal and California law fully exempt the ownership interest

‘1 the unmatured life insurance policy and exempt the loan value of

the policy up to $4000. See 11 U.S.C. Sec. 522(D)(7)-(8); Cal. Civ.

Proc. Code Sections 703.140(b)(7)(8); 704.100(a)-(b). Both only

partially exempt the proceeds of matured life insurance policies based

on the needs of the debtor. See 11 U.S.C. Sec. 522 (d) (11) © (1892)

(proceeds of life insurance contract insuring life of individual of

whom debtor was a dependent at insured’s death are exempt to the

extent reasonably necessary for the support of the debtor and any

dependents of the debtor.) Cal.Civ.Proc. Code Sec. 704.100(c).”

Voodson, 839 F.2d at 618, Footnote 12 (emphasis added).

The Ninth Circuit in Woodson recognized the difference between the
»wnership interest and the beneficiary interest in a life insurance policy, concluding
hat “[w]e must treat the two interests disparately because the Bankruptcy Code does
0.” 839 F.2d at 618; see In re Poynor, 68 B.R. 919, 923 (Bankr. N.D.Tex.1987)
“(t]his distinction between the ownership rights and beneficiary right appears to be
nore consistent with the intent of the Bankruptcy Code.”)

Debtor argues that under the Woodson case, the payments to be received pursuant
an unmatured life insurance policy are completely exempt. However, Woodson,
as just quoted, does not say this. Woodson says only that the ownership interest in
he unmatured life insurance annuity policy, and the loan value up to $4000 are

exempt. It does not say that the payments whic h will eventually be received from an

insurance or an annuity policy are exempt.

Though as noted in Woodson v. Fireman's Fund Insurance Company, 839 F.2d
610 (9th Cir. 1988), there are cases construing 11 U.S.C. Sec. 522 (d) (7) and
(8), the federal exemption statute governing life insurance contracts (not annuity
contracts). However, as noted supra as allowed by 11 U.S.C. Sec. 522 9b) (1),
California opted to use its own statutory exemptions instead of the federal
exemption stated in 11 U.S.C. Sec. 522 (d).

|

Ws

Consistent with Woodson, this Court holds that California code of Civil Proce
Section 704.100 (a) only exempts the ownership interest in an insurance or ann
policy and does not exempt the beneficiary interest in an insurance or annuity po
Consequently, if the annuity in issue were deemed, arguendo, to be “unmatur
debtor would be entitled to claim an exemption in his ownership interest in
annuity. However, debtor would not be entitled to claim an exemption in
portion of the beneficiary interest — the 40 quarterly payments — payable under,
annutty.

To interpret California Code of Civil Procedure Section 704.100 (a) as deta
advocates would be both (1) inconsistent with the statutory scheme of exemptipg
specified by California state law, and (2) contrary to public policy. It would allog
debtor to put substantially all of his assets beyond the reach of his creditors, raty
than only putting the finite dollar amount of assets specified by the exemption sche
beyond the reach of his creditors.

California’s statutory exemption system (California Code of Civil Procedure S¢
704.010 through Section 704.210 (West 1987) like that of most states, provides
series of exemptions of specified dollar amounts relating to specific types of assets
the debtor. These exemptions are not limitless, they are primarily (with exceptiqg
such as pain and suffering from personal injury) for quantifiable finite amounts.
etfect the California exemption statutory scheme sets up a “pot” of possig
exemptions having a finite dollar amount. One exemption is the Homeste
exemption, discussed supra. Others are exemptions of specified amounts for mow
vehicles, household furniture, appliances, provisions, personal effects, jewelry, hea
aids, tools used in the trade, deposit accounts, vacation credits, cemetery plots, e
California Code of Civil Procedure Sections 704.010 - 704.210 (West 1989). Oneg
the specified exemptions is an exemption of a specified amount for life insurang
policies, as provided for by California Code of Civil Procedure Sec. 704.100, hereg
issue. There is also a catch-all maximum of $7,900 exemption, provided #
California Code ot Civil Procedure Sec. 703.10(b)(1) and (5), sometimes referred @
as the “wild card” exemption, which exempts the: V

“(1) The debtor's aggregate interest, not to exceed seven thousand, five hundrg
dollars ($7,500) in value, in real or personal property that the debtor or a dependeg
of the debtor uses as a residence, in a cooperative that owns property that the debtg
or a dependent of the debtor uses as a residence, or in a burial plot for the debtor ¢
a dependant of the debtor.

(5) The debtor’s aggregate interest, not to exceed in value four hundred dolla
(S400) plus any unused amount of the exemption provided under paragraph (1),
any property.” California Code of Civil Procedure Sec. 730.140 (b) (1) (West 1987,

Thus, the California exemption scheme contemplates that a specified dolle

16

————

sount of assets may be placed by the debtor beyond the reach of creditors. lf the
btor were correct that all assets may be placed beyond the reach of creditors—
srely by converting them into a single premium deferred annuity—then there would
no need to have the rest of California statutory exemptions for specific items,
cause most assets could be sold and the cash raised to purchase an annuity or, In
e case of items such as paid earnings (California Code of Civil Procedure Sec.
14.070), or deposit accounts (California Code of Civil Procedure Sec. 704.080)
hich are already in liquid form, the cash could be withdrawn and used to purchase
annuity. It is hornbook law that a statutory scheme should never be interpreted
.as to make parts of that statute or statutory scheme meaningless or redundant. /n
Borba, 736 F.2d 1317, 1320 (9th Cir. 1984); See also Martinez v. Traubner 32 Cal
1755, 187 Cal.Rptr. 251, 653 P. Id 1046 (1982). To interpret the annuity section
‘debtor contends would require making exactly this error in statutory construction,
nce it would render many sections of the California Code of Civil Procedure
kemption scheme, particularly the maximum $7,900 “wild card” exemption,
jperfluous.
} From a public policy point of view, the position urged by debtor is also untenable.
he statutory aim of a Chapter 7 bankruptcy of an individual debtor such as Dr.
loffat is to liquidate debtor’s nonexempt assets in an orderly way for the benefit of
ebtor’s creditors and to allow debtor a fresh start by discharging debts to the extend
ot paid by the liquidation of debtor’s assets. E.G., In re Tarnow, 35 B.R. 1014
Sankr.N.d.Ind.1983), reversed on other grounds, 749 F.2d 464 (7th Cir. 1984).
Sebtor here seeks to obtain the discharge which constitutes this fresh start while
Reping literally hundreds of thousands of dollars of his assets in the form of the forty
ingle premium deferred annuity payments of $4,370 each, and while leaving
factically no assets to be liquidated for the benefit of creditors. To allow debtors to
paid single premium deferred annuities to protect all of a substantial portion of
sir assets from liquidation, while receiving a discharge, would completely gut the
hts of creditors in bankruptcy. This would be contrary to the bankruptcy statutory
plated by the California state exemption scheme,

heme, and clearly was not contem
ect matters of finite dollar

wich sought to provide exemptions for specified subj
mounts. See In re Krantz, 97 B.R. 514 (Bankr. N.D.lowa 1989) (refusing to sustain
Aclaim of exemption in a case where a debtor purchased a $500,000 plus annuity
Blicy as part of a conduct which the court found to be a fraud on creditors).
iC. This Court Does Not Reach the Issue of Whether the Annuity May be
Held Non-Exempt on the Ground that Its Purchase Constitutes an
Alleged Fraudulent Conveyance
The Trustee also argues that his objection to the claim of exemption regarding the

afnuity must be sustained because the purchase of the single premium annuity policy
2

17

constituted a fraudulent conveyance pursuant to California law, specifically Califors
Civil Code Section 3439.04." California Civil Code Sec. 3439.04(a) provides tha
transfer is fraudulent if the transfer is made:

a) With actual intent to hinder, delay or defraud creditor of the debtor.
California Civil Code Sec. 3439.04(b) provides that a transfer is fraudulent if
transfer was made:

ib) witnout receiving a reasonably equivalent value in exchange for the trang
or obligation and the debtor: . . .

(2) Intended to incur, or believed or reasonably should have believed that he or
would incur debts beyond his or her ability to pay as they became due.

Attempting to convert assets into exempt form obviously has the practical effec
hindering creditors from being paid in the bankruptcy. However, such convers
may not constitute “intent to hinder” creditors as that term is used in fraudul:
conveyance statutes, such as California Civil! Code Sec. 3439.04(a), since '
Congressional History regarding the part of the Code discussing exemptic
specifically states that converting property from non-exempt to exempt form is ©
fraudulent as to creditors.'® See Matter of Smiley, 864 F.2d 562, 566 (7th Cir. 198

The Trustee is not attempting to set aside debtor’s purchase of the annuity fre
Executive Life or Debtor’s transfer of the annuity to the Living Trust on the
ground that these “transfers” constitute fraudulent conveyance. Instead, the
Trustee is merely asking the court to disallow debtor’s claim to an exemption ©
the annuity on the ground that debtor’s acquisition of the annuity on the groun®
that debtor’s acquisition of the annuity would constitute a fraudulent
conveyance. However, there is some question whether the issue of fraudulent”
conveyance is in procedurally proper form to be decided as anelementofa
motion to disallow exemption. The Bankruptcy Rules require that a proceedir
to set aside a conveyance as fraudulent be raised by filing an adversary
proceeding, not by a motion. Bankruptcy Rules 7001; 11 U.S.C. Sec. 548. Th
Trustee might better raise a claim of fraudulent conveyance by bringing an
appropriate adversary proceeding, rather than claiming that the fact a
conveyance is fraudulent makes the property acquired by the conveyance non:
exempt.

16
However. as noted in Smiley, even if such a transfer is not a fraudulent
conveyance, such a conversion within one year of filing may constitute
“hindering creditors” as that term issued in Bankr. 11 U.S.C. Sec. 727(a)(2), 54

18

citing to House and Senate Reports regarding the Bankrupt
scheme, as follows:

‘As under current law, the debtor will be permitted to conve
into exempt property before filing a bankruptcy petition
fraudulent as to creditors, and permits the debtor to make fu
to which he is entitled under the law.” (Citations omitted) Mat
at 566.

However, the Congressional history just cited does not address
fraudulent conveyance statute here in issue, California Code of ¢
3439.04. Moreover, in addition to the question of whether the
as required by California Civil Code Sec. 3439.04(a), there is t
the purchase of the annuity was fraudulent under Californ
3439.04(b), which deals with purchases made for less than fair

Here, the purchase was not for fair consideration. (See Calif
343.03) defining fair consideration. Debtor paid $190,000 to +
payments totaling $174,000. Taking into account a discount
present value of the payments would be $112,441, or $77,559 less t
paid. This is not fair consideration. Debtor was so intent on ke:
from being paid that he decided he would rather lose $75,000 tt
creditors. The analysis of debtor’s schedules, of which the Court tak:
reflects that the purchase of the annuity in question rendered de!
the transaction would appear to be fraudulent under Calif
3439.04(b), which does not require actual intent to hinder or deft

However, even if the annuity purchase was held to be a fraudul:
it is unclear whether or not being a fraudulent conveyance would
nonexempt. Consistent with the legislative history of the code
Circuit cases hold that changing nonexempt to exempt ass¢

bankruptcy to place them beyond the reach of creditors (“pri

1

is allowable. E.g., Grover v. Jackson, In re Jackson, 472 |

5-,
Wudrick v. Clements, In re Wudrick, 451 F2d 988 (9th Cir. 197
97 B.r. 514, 531 (Bankr.N.D.lowa 1989) (sustained obiect

as to constitute grounds for denying a discharge under Bankr. 11 U.S
727(a)(2). See In re Oberst, 91 B.R. 97 (Bankr.C.D.Cal.1988)

not address the question of whether the conduct here in issue would |
for denying debtor a discharge under Bankr. 11 U.S.C.Sec.727 |

have done) since that issue would have to be raised by bringing
proceeding. E.g., Jn re Tveten, 70 B.R.529 (Bankr. D.Minn. 1987

19

debtor’s conduct in converting nonexempt to exempt property was done with inter
to hinder, delay or defraud creditors, and rose to the level of extrinsic fraud); an
Matter of Armstrong, 93 B.R. 197, 203 (Bankr.D. Neb.1988) (claim of exemptio
sustained unless activities of debtor exhibited “extrinsic fraud”). '” Because th
Court has held that neither the ownership interest nor the beneficial interest in th
annuity is exempt, for the reasons stated in part Ill C, supra, this Court does not nee
to reach, and does not reach, the questions of (1) whether the conveyance j
fraudulent under either California Civil Code Sec. 3439.04(a) or (b); or (2) Whether
if the annuity were held to have been purchased by a conveyance that wa
fraudulent, that fact, or debtor’s whole course of conduct, would constitute actua
fraud or extrinsic fraud so as to constitute a sufficient ground to deny the exemption

[his opinion constitutes the Findings of Fact and Conclusions of Law of the Court

In re Gordon H. MOFFAT, Debtor.
Gordon H. MOFFAT, Appellant,
v.

David R. HABBERBUSH, Appellee.
BAP No. CC-89-2062-POMe.
Bankruptcy No. LA 88-20019-KM.
United States Bankruptcy Appellate Panel
of the Ninth Circuit.

Argued and Submitted on June 25, 1990.
Decided Aug. 31, 1990.

Chapter 7 trustee objected to exemptions claimed by debtor in principal residence
and annuity purchased in preparation for bankruptcy filing. The Bankruptcy Court.
Kathleen March, J., 107 B.R. 255, sustained objection in part and overruled it in part,
and appeal was taken. The Bankruptcy Appellate Panel, Perris. J., held that: (1

Ninth Circuit cases decided after Wudrick discussing conversion of nonexempt
to exempt assets impliedly, though not expressly, seem to preserve this “actual
fraud” exception, because they state that conversion of assets from nonexempt to
exempt Status is not per se fraudulent. This leaves open the idea that the total
course of conduct in addition to the conversion itself, may rise to the level of
actual or extrinsic fraud. E.g.. Grover v. Jackson (In re Jackson) 472 F.2d 589,
590 (9th Cir. 1973); Wetzel v. Idaho State Bank, (In re Smith) 366 F.Supp. 1213,
1218 (D.Idaho 1973),

()

annuity had matured prior to date of debtor’s bankruptcy petition, and therefore,
payments under annuity were exempt under California law only to extent that they
were needed for support of debtor and his dependents, and (2) payments received by

debtor and his spouse, and thus, could not be claimed as exempt under California
law. Affirmed.
1. Exemptions 49

Se aul

Annuity had matured prior to date of debtor’s bankruptcy petition, and therefore,
payments under annuity were exempt pursuant to California law only to the extent

_ that they were needed for support of debtor and his dependents, where annuity was

designated on its face as immediate annuity, annuity took effect three days after issue
date, and initial quarterly payment was made at end of initial quarterly income
period. West’s Ann.Cal.C.C.P. Sec. 704.100.

2. Exemptions 49

Payments received by Chapter 7 debtor from annuity policy were not reasonably
necessary for support of debtor and his spouse, and thus, could not be claimed as
exempt under California law, where debtor’s monthly income of more than $5,000
was enough to meet expenses, including debt service on his residence, and even
though debtor’s age and medical condition suggested that monthly income would not
continue into distant future, there was no indication that income would not continue
for next few years. Bankr. Code, 11 U.S. C.A. Sec. 701 et seq.

Richard M. Moneymaker, Los Angeles, Cal. For appellant. David R. Haberbush,
Los Angeles, Cal., for appellee.

Before PERRIS, OLLASON and MEYERS, Bankruptcy Judges.

OPINION

PERRIS, Bankruptcy Judge:

This appeal concerns tne bankruptcy trustee’s objection to the debtor’s claimed
exemption in a $190,000 single premium immediate annuity. The bankruptcy court
determined that the subject annuity is a matured annuity and not reasonably
necessary to support the debtor and his spouse and therefore was not exempt. 107
B.R. 255. The debtor appeals from the order. We affirm.

FACTS

The debtor, Gordon H. Moffat (“the debtor”) is a practicing orthodontist who earns
a gross monthly salary of approximately $5,000 and monthly take-home pay of
approximately 44,000 from his wholly owned and operated professional corporation.
In addition, the debtor receives $1,000-$1,500 a month as a consultant for an
insurance a month as a consultant for an insurance company and 4800 a month in
social Security pavments. The debtor’s wife receives a gross monthly salary of $600.

21

—

Chapter 7 debtor from annuity policy were not “reasonably necessary” for support of:

—

aa aaa

Geptor testifiec

rnere

Dd ]
1D Ie CONTI!
‘ ) ‘

4 | rvao
» |
é re t

IS no medica

1 that he was developing glaucoma and had heal

|

| Opinion evidence that this, Or any oth

tors practice, nor any testimony that the debtor wou

|
ise cre ifed

‘The Gordon } 1. Moff

Nis spouse and the

title of his person:

‘onsideration of two sub-issues: (1) Whether the annuity had matured prior to the
late of the petition; and (2) Whether the payments received from the annuity are
easonably necessary for the support of the debtor and his spouse.

STANDARD OF REVIEW
Whether the annuity matured prior to the date of the petition is a legal question.
such a question is subject to de novo review. See In re Lewis, 79 B.R. 893, 895 (9th
-ir. BAP 1987). Whether the annuity is reasonably necessary for the support of the
mebtor and his spouse is a factual question that we review for clear error. See
i ankruptcy Rule 8013.
DISCUSSION

} California Code of Civil Procedure, section 704.100 provides, in relevant part
follows:

:

dS

(a) Unmatured life insurance policies (including endowment and annuity policies),
but not the loan value of such policies, are exempt without making a claim.

| eee Re

Ic] Benefits from matured life insurance policies (including endowment and ann
policies) are exempt to the extent reasonably necessary for the support of the
judgment debtor and the spouse and dependents of the judgment debtor.

| The bankruptcy court determined that the exemption was not available unde
section 704.100 because the annuity had matured and the payments were not
reasonably necessary for the support of debtor and his spouse. The court alternati\ ely
concluded that even if the annuity had not matured, the debtor could not claim an
exemption in any interest in the annuity because section 704.100(a) exempts only the
ownership interest in unmatured annuity policies and the payments which the debtor
sought to exempt were part of the beneficial interest.'? We do notconsider the
bankruptcy court’s analysis of the exemption of unmatured annuity policies under

section 704.100 (a) because the bankruptcy court did not commit reversible error in

determining that the annuity at issue matured prior to the date of the petition an

ine annuity is not reasonably necessary for the debtor’s support.

19

[he court also determined the debtor was entitled to a $30,000 homestead
-xemption in his residence and that it would not decide Bier the purchase of
‘he annuity was a fraudulent conveyance. Neither of these decisions a

ire raised

4S Issues On appeal. Similarly the parties do not raise any issue regarding
Whether exemption planning. if any, in this case would bar the exemption o1
reclude the debtor's discharge

|. | Whether the annuity had matured prior to the date of the petition.?°
[1] The debtor contends that the annuity had not matured as of the d
petition because maturity require that there be no further conditions to p

the debtor’s continued life was a condition to the payments.
that the annuity had

ate ou
aymen!
The Trustee conte
quisite to payments
arties nor the court cite relevant case™

an annuity. Our research similarly uncovered nog
law. Based upon the fundamental characteristics
Naracteristic Ss oft

matured because all contingencies prere
occurred prior to the petition. Neither the p
dealing with maturity date of

of annuities, the partiag
he annuity at issue and the plain meaning and application o#
term “mature,” we believe that the annuity at issue matured prior to the d

petition.

ate ov}

An annuity contract, in general, is one by which an annuitant makes an investres
which will assure his receipt of a specified annual or quarterly sum during his life ws
it he should die prematurely, his estate or those whon
ayments he has not yet received. See e.g., Garos v

. State Tax Commission, 99 } ‘
319, 321, 109 A.2d 844, 847 (1954). A fundamental characteristic of an “annul

iS a periodic payment made unconditionally without any contingency. In re Luci
Estate, 151 C.A.2d 481, 487, 312, P.2d 24, 29-31 (1957)
Annuities are classified upon various bases

1 he designates will receives

:
, including the structure of payma
See generally California Insurance Law and Practice sect

j
’

nade to the annuitants.

).20-20.21 (Matthew Bender 1990) (hereafter “California Insurance yf Bee

iccording to the structure of payments made to annuitants depends upon f

actors sq
(ne events which trigger the discontinuation of payments?! and, more importa®s
' Da) f

assifica

[he debtor’s exemption rights under state law: are determined as of the date o
the petition. / re Seyfert, 97 B.R. 590 (Bankr. S D.Cal. 1989): see In re

C
) a

igallunes, 96 B.R. 253, 255 (9th Cir. BAP 1988).

For example, annuities may be either Straight life annuities, the payments upo

Which will terminate upon the death of the annuitant regardless of how long hi
r she lives, annuities certain, the payments upon which will terminate at the &

of a specified number of years re

()

ee ee

gardless of how long the annuitant lives. or
period certain guaranteed minimum annuities. the payment upon which will
continue for the longer or a specified number of vears or the annuitant’s life.
See California Insurance Sec. 20. 21/[2]. The annuity at issue is a period certa:

2uaranteed minimum annuity because the insurance company will make

ee

‘ments to the debtor as long as he lives. but if the debtor dies prior to the en

F
3
;

’,
24

mm

.

aa ee

for purposes of determining maturity, the commencement of the benefits paid to an
annuitant. See California Insurance Sec. 29,21[2]-[3].

With regard to the commencement of benefits, there are two types of annuities: (1)
immediate annuities, in which the payment of benefits begins a short period of time
after the premium has been paid to the company, usually at the beginning or end of
the first income period; and (2) deferred annuities, in which the payment of benefits
begins on some future stated date. Id. At Sec. 20.21[3]. As stated in California
Insurance, Sec. 20.21[3][b], “[djeferred annuity contracts permit the annuitant to delay
the maturity date of the annuity [the date on which payments commence) . . .”
Although neither California Insurance nor other authorities discussed the definition
of maturity with respect to annuities, the quoted statement conveys the impression
that it is generally accepted that the maturity date of an annuity is the date upon
which the benefits under the annuity begin to accrue and that an immediate annuity
will be mature upon its effective date.

In this case, the annuity at issue is designated on its face as an immediate annuity.
This designation is consistent with the annuity’s terms because it took effect on July
1, 1988, three days after the issue date and the initial quarterly payment was to be
made on October 1, 1988, at the end of the initial quarterly income period. Thus,
although the initial payment was not to be made until October 1, 1988, the benefits,
as well as the right to payment commenced on July 1, 1988, the beginning of the
quarter for which the initial payment was made, and the annuity matured on that
date.

This conclusion is also consistent with the plain meaning of “maturity” and similar
terms. Black’s Law Dictionary defines “maturity” as “the date at which . . .an
obligation becomes due” and defines a “matured claim” as a “[c]laim which is
unconditionally due and owing.” Black’s Law Dictionary 883 (5th Ed. 1979). In this
case, the company’s duty to pay arose on the effective ate of the annuity, even though
the first payment was not to be made until three months later. Although it was not
certain that the payments would be made to the debtor, as opposed to his designated
beneficiary if he died within the 10 year period, on the July 1 effective date, there was
no pre-condition to the company’s obligation to make the payments under the
annuity. On that date, the debtor possessed an enforceable right to receive payments,
even though the debtor would not receive the first quarterly payment for the July-
September, 1988 quarter until October 1, 1988. Given the enforceable right and the
absence of conditions to the company’s obligation to pay, the annuity matured on

of the ten year period, the company will make payments to his wife, the
designated beneficiary, for the duration of the ten year period.

95

July 1, 1988.

The conclusion that the annuity matured on July 1, 1988 is not altered by the
debtor’s analogy of an annuity to life insurance. Although both annuity polices such
as this one and life insurance policies are similar in that they both involve an element
related to the annuitant’s or insured’s life, in life insurance contracts, the liability of
the company will arise upon the death of the insured. See California Insurance, Sec.
20.21[2]. This death is a pre-condition to the liability of the company and until the |

th occurs, the liability of the company will be, at the most, conditional and
By contrast, the death of the annuitant is not a pre- ¥

erkcansnta unmatured.
Rather, it is an event that will either !

condition to the company’s obligation to pay.

terminate the obligation to pay or, in this case, transfer that obligation to a different

1

party t
Nor do the debtor’s other arguments with respect to maturity alter the above €
conclusion. The debtor argues that under the definition of maturity adopted above, f
e

€

s and annuities would be mature on their date of purchase.
o immediate annuities, this is not the case as to life

| life insurance contract

Although this may be the case as t
nsurance policies or deferred annuities. As mentioned above, life insurance policies
will not mature until the pre-condition of the insured’s death has occurred. Deferred

ties will not mature until the future designated date comes to pass. The debtor %
a relies upon the trustee’s purported stipulation that the annuity was not mature on
the date of the petition. A review of the record, however, discloses that this

tipulation is far from clear.”
ic policy arguments are unpersuasive. In In re Woodson, 839

The debtor’s pub
F.2d 610, 618-19 (9th Cir. 1988), the Ninth Circuit explained the policy reasons ¥

O \

nderlying bankruptcy law’s distinction between an unmatured policy and a matured

solicv. While an unmatured policy may have value to the debtor and its loss could

+

jebtor to incur replacement costs, «

t n value, which is not exempt. On the other hand

+ + | ty yr
» the estate otner tan its | aN

nN unmatured policy will have no valu

AM bY om rine (
proceeds from a matured policy have value to the estate and can be used to pa)
The stream of payments arising from the annuity at Issue in this case would
to the estate. Any public policy arguments, therefore, support th |

L

creditors
have value
conclusion that the policy is matured. R
In summary, upon considering fundamental principles of annuity law, the plain

al

rhe record discloses that immediately after making the statement giving rise to
the purported stipulation, the trustee indicated that he disputed that the annuity
not matured on the date of the petition. See Excerpts of Record at

DOLCY Was I

26

aning of the term “matured” and the public policy concerns, the annuity at issue
tured on July 1, 1988, when the right to payment arose in the sense that the
efits began to accrue. Thus, the annuity matured prior to the September 21, 1988
ition.

Whether the payments received from the annuity are reasonably

necessary for the support of the debtor and his Spouse.
#2) Neither the parties nor the bankruptcy court cite any authority dealing with the
rpretation of the term “reasonably necessary for support” under section
100(c). Similarly, our research uncovered no authorities dealing with this
stion. In similar contexts, however, courts have set forth a number of factors to
in determining whether a given asset is reasonably necessary for the debtor’s
: port. See, e.g., In re McCabe, 74 B.R. 119, 122 (Bankr. N.D. lowa 1986). Tt
fors include the following: the debtor’s present and anticipated living expenses and
Bome; the age and health of the debtor and his or her dependents; tt

i
b
\

rese

ve debtor's
ity to work and earn a living; the debtor’s training, job skills and education: the
tor’s other assets and their liquidity; the debtor’s ability to save for retirement: and
speciai needs of the debtor and his or her dependents. /d. In addition, C.C.P.
703.115 requires that, in determining exemption based upon the need of the
tor and his spouse and dependents, the court should take into account the
erty of the judgment debtor’s spouse and dependents.

e do not believe that the bankruptcy court committed clear error in determining

I the annuity payments are not reasonably necessary for the support of his debtor
d his spouse. There is no contention that the debtor’s monthly income of more
a $5,000 is not enough to meet expenses,*’ including the debt service payments
the residence. Although the debtor’s age and medical condition suggest that this

Inthly income would not continue into the distant future, there is no indication that
fincome would not continue at this level

/

, or at least at a lever greater than the
Inthly social security payments, for the next few years. The debtor had a $30,000

j
i
:
oa

_

ough the bankruptcy court admitted into evidence a statement of the

or’s current income and expenses, that statement was not included in the

rd on appeal. That factor alone means that we cannot conclude that the
‘Tuptcy court’s determination was clearly erroneous. See In re Burkhart &4
658, 660 (9th Cir. BAP 1988).

aa a ia

interest in his home as another significant exempt asset.** In addition, the debtor’s
spouse had substantial interest in the home through her 485 interest in the Living
lrust. Given the debtor’s assets income and expenses, we affirm the bankruptcy
court's finding regarding the necessity of the annuity for the debtor’s support.
CONCLUSION

We determine (1) that the annuity at issue matured on its effective date, prior to the
bankruptcy petition and (2) that the bankruptcy court did not clearly err in finding that
the annuity is not necessary for the support of the debtor and his spouse. The
annuity, therefore, is not exempt under section 704.100 and we affirm the bankruptcy

{

urt s aetermination.

In re Gordon H. MOFFAT, Debtor.
Gordon H. MOFFAT, Appellant,
v.
David Richard HABERBUSH, Appellee.
No. 90-56134.

United States Court of Appeals, Ninth Circuit.
Argued and Submitted Oct. 8, 1991.
Memorandum Filed Dec. 12, 1991.

Order and Opinion Filed March 20, 1992.

Trustee objected to exemption claimed by Chapter 7 debtor in annuity purchased
in preparation for bankruptcy filing. The Bankruptcy Court, 107 B.R. 255, determined
that payments received from annuity were not reasonably necessary to support debtor:
and spouse within meaning of California exemption. Debtor appealed. Thi
Bankruptcy Appellate Panel, 119 B.R. 201, affirmed. The Court of Appeals, T.G
Nelson, Circuit Judge, subsequently filed opinion holding that annuity was matured
annuity and not reasonably necessary to support debtor and his spouse and, therefore
was not exempt from inclusion in bankruptcy estate under California law.

Affirmed.

1. Bankruptcy 2549
Annuity policy purchased by debtor in anticipation of bankruptcy was matured

annuity and was property of Chapter 7 estate pursuant to California law, where debtor

24

[he bankruptcy court also cited the debtor’s ability to sell his practice in the
future. It is doubtful, however, that this asset should be applied to the debtor’s
support because to the extent the stock in the debtor’s professional corporation
has any value, it apparently is property of the estate.

28

chose to have payout period commence on October 1, 1988, following the filing date
of his Chapter 7 petition on September 21, 1988; annuity matured on its effective
date prior to filing of petition. West’s Ann. Cal. C.C.P. Sec. 704.100.
2. Exemption 37

Immediate annuity purchased by Chapter 7 debtor in anticipation of bankruptcy
was not reasonably necessary for support of debtor and souse so as to be exempt from
bankruptcy estate under California law, given debtor’s assets, income and living
expenses. West’s Ann. Cal. C.C.P. Sections 704.100, 704.100(c).

Richard M. Moneymaker, Moneymaker & Kelley, Los Angeles, Cal., for appellant.
Peter C. Anderson, Roquemore, Pringle & Moore, Los Angeles, Cal., for appellant.
Appeal from Ninth Circuit Bankruptcy Appellate Panel.
Before BROWNING, ALARCON and T.G. NELSON, Circuit Judges.

ORDER

The memorandum disposition filed December 12,1991, is redesignated as an
authored opinion by Judge T.G. Nelson with minor modifications within the text.

OPINION
T.G.NELSON, Circuit Judge:

Debtor Dr. Gordon H. Moffat appeals from the Bankruptcy Appellate Panel’s
BAP’s) affirmance of the bankruptcy court’s determination” that the annuity at issue
is a matured annuity and not reasonably necessary to support the debtor and his
spouse, and therefore not exempt from the inclusion in the bankruptcy estate under
Califernia Code of Civil Procedure (C.C.P.) Sec. 704.100. We affirm.

On February 28, 1988, debtor borrowed $300,000 against his home and used
$190,000 of the proceeds to purchase a single premium immediate annuity, naming
himself as the annuitant and his wife as the contingent beneficiary. The issue date of
the annuity was June 28, 1988, and the effective date was July 1,1988. Debtor chose
to have the payout period for the 40 quarterly payments of $4,370 commence on
October 1, 1988, following the filing date of his Chapter 7 bankruptcy petition on
September 21,1988.

[1] After independent review, we agree with the BAP that the payout date chosen
by the debtor cannot rationally be deemed to make the policy unmatured as of the
date of filing the bankruptcy petition. The annuity policy provided tor immediate
payment following bankruptcy planning. Given the debtor’s enforceable right to

[he bankruptcy court decision is reported at /n re Moffat, 107 B.R. 255
(Bankr.C.D.Cal.1989). BAP’s opinion is found at Voffat v. Habberbush (sic),
119 B.R. 201 (9th Cir. BAP 1990).

29

t Lad rye ‘ ‘ r ? , Tiatat: + +} 9 ae | |
( i ) ( e company s obdiigation tO pay
tr a nuit mati and ’ ' eattect . into | . 1 1022 | ¢
latured ve date, July 1, 1988, prior to the September 21
] Tate motit ya T ‘Val: . 1 th . rer . , j
pe d lity and the California statute would have to be interpretec

ro th . | ‘ F
Lild Hera yT 1 the yiTy f mit hy th ’ t
If OF exemption Dy the debtor in tnis case
4 i
\ oO rT ) ea CONC ‘or ‘ Fr | Va r ‘no ‘1 : 4
1\ ray } re r iaded py deptor S argument tnat the trustes
. | lt tilda
t¢ } pir? f ' fr 4 mr + ol ij { f 4 oo ‘ on
it ( J i e | J Wa j atured ee MadhHverpus! 119 6 R if O5
i A } J J 4 ' . « « ‘
, \ \ f
ro S\A ? ‘ ’ ‘ ¥ ‘ , + + +} te + j
\ VV f iT¢ ) F ’ tin at ¢
: e istee WS ted } ne annuity wa
t ry 7 4 r +} ‘
1uUread ON f é f r f ‘ y ths taton nt + » i
, ate f ] ¢ iVe ri e To tne
i eaV 5 tt]
rted st DU.
wiit ’ 1
dition. unlit 4 + (9th Cir.1991). there is no conflic
|
f rye rt . r ) r + tr r
i ip al ang , if lage oft
v ¢ ( [ ne f wnetner ne exemt
' , fr j — , .
j ' | 4 > af ,
; ’ ' ‘ Cw if ) | f 17
. ’ rt —_ ‘ f ¢f
; Pr yr ‘ igment debtor ar
[ i
j ont loahtar ( ¢( Pp P t r 704 ()() (
r ' ‘ 9 . 9 ; ‘ i
} eX DE ( ) er evidenc
| y } VV
; ; ‘ ; . 4 + a ; A ‘ r
f ) ] ( " eP Dank pt
hers , ia arnt
t it e vy i
' ri\é r ? ; +
( f Y rth
. sif P
XVI. RES JUDICATA
. f A 1 ry :
ZOU Natur Joctrine
f r Hor
}
‘ rye } ‘ ) "401 2)
i (
t } A }
v\V v ‘
+ / ) |
f f ¢ { 4
)
) ) 1 ( 14 :
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[ i ) mtr |
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4 r

;
2) }

Rishell (1953) 40 ¢ .2d 477, 480, 254 P.2d 26; Estate of pinosa (1953) 117 C.A.2d
364, 367, 255 P.2d 843: Teitelbaum Furs v. Dominion Ins. Cc (1962) 58 C.2d 601,
25 C.R. 559, 375. P.2d 439, infra, Sec. 332: ¢ ommissioner v. Sunen (1948) 333 US

991, 68 S.Ct. 715, 719. 92 LEd. 894, 905; United States \ Vunsingwear (1950) 340

. 36, 71 S.Ct. 104, 95 L.Ed. 36; Busick v. Work Comp. App. Bd. (1972) 7 C.3d

167, 972,104 C.R. 42. 500 P.2d 1386, infra. Sec. 344, quoting the text: Vood vy.

Herson (1974) 39 C.A. 3d 737,745,114 CR. 365, citing the text: Shuffer \ Board of

Trustees (1977) 67 C.A. 3d 208, 216, 136 C.R. 527 quoting the tex; De Weese ,

nick (1980) 102 C.A. 3d 100, 105, 162 C.R. 259, citing the text: Nakash \ Superior
ourt (1987) 196 C.A. 3d 59, 67, 241 C.R. 578 infra. Sec. 349, quoting the text:
lifornia Coastal Com. \ »uperior Court (1989) 210 C.A. 3d 1488 1498, 1499 258
R 167; on the distinct doctrines of dw Of the Case and stare decisis. see 9 Cal Pree
Ltr 1ppea! SECTIONS 895 et oh ot @| 917 et se ] Cit Crnye ‘ t i
+t ff actior sectior 7A et eg
\ great deal of « ommentary WVallabDle f ¢ j e
tn, Cnap. 11; 47 Am.Jur.2d (Rev.ed Judgr ts Se 14 é > Harv. L.Re 18
¢ e disc ussion]; 56 Harv L.Rey 1; 103 Harv. | Re 1989 [clain Dreciusion
an latent disease Cases}: 40 ( al, | Rey, 412: 17 Si (a | R ey) $57
on of doctrine in multi-part tigatio 10 Hast
> the Effect of a Changs After
letinitive moderr treatmer
nent of ldggments., ( Napter
Sec. 281] Scope and Effect.
t te ome exception ang q
} al [Ss ¢ f er ~ ( )
pe f iT J ent f
? é
q
'
DIeCte D. 4
] ati f
r ) a ; r , ‘ 4 j ‘ j
} ( ction ¢ ? J t
' tigated | veen the |
) ( Dr ne eP Oetfern é
] r ¢ tT [ )¢ t t

} ict sections 10 | ntra, sec
> >
§. Restatement Second
‘ IND) id , |
[Sec. 282] Scope and Terminology.
] ‘ . + ¢} C . i pO +--+ ry rt ; icory mt woforr
f Cond Kestalt e | 4001 CONTAINS a
r r f é [ [ =) al qd effect ormne 1 citrine ire eit dld, and
oe) , ’ rat ; and té rinology i seq
‘ soe ike fate re t cac ine term : ry prec usion ror the
‘ +> nr > nmrea nn + r tor | scr nr 7
é | é j { ( Hate } eCStOopl el
ete tot n the opportunity u 1 second action t
t we tigated, or c 1} have Deen litigated, in a prior
; tt ‘el ‘dal nL ’ la ry) rey U (yr) and
; P ; nr ; Cre ; Ce,
[ erl aim arising ftror
¢ ly | f ited ICN a ain whnetne
i» } ‘ Th y ; > |
f ( eT Bal f ©’ PTeCciUSIOT
‘ ‘ . 7 ° »@ th, , +
e > i ] Nat a Da&i
; ; ‘ ; ‘ ta . ; rate } na previou
‘ tre +, ; , his ( ti r 2
} f ( f iT] D ¢ se ( On 34
} daement extend he { j Da yTtoti
[Dé f f ) | )
‘ ‘ ; f 5 mto ’
if
| ayat ‘ ryr
i
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lf ‘ ‘ t)
' j ,
} { Tale
itt
‘ thy, { -" { i
t \ c 1 Wi
‘ f ’ \ A, tr » =
' | . | ed the ntra ira aw oft re
. . ‘ ; ’ +} ré vf t nao
)
} r QD t K ey ( | i | fer Sta
; ; ; , a cl re ogn ri
| , ‘ | 2 ? r ¢ F > ct
{ woyfoar

aden, Salhi

| [b] [Sec. 283] Other Rules of Estoppel.

‘“

The terms “res judicata” and “collateral estoppel” have some

fer to some other and distinct forms of estoppel.

6 tage BS ae aa,

(1) Where a party attempts to take inconsistent positions wit!

Fare

ntention arising in concurrent or successive actions, he is ofter

ntradict in one action a position taken in other litigation. “S

ee ae

ye imposed under the doctrine of election of remedies, or
andor toward the court that a party may not assume inconsistent
denominated as estoppel in pais. Estoppel imposed under su
on the fact that a court has determined the claim or content

estoppel is imposed on the basis of events occurring bef

, / ;

i IN applying a rule of estoppel ir
+ eal . + .

licata, particularly the term © privity

tinct ry, 1, ! larity | th, -¢}

InNctTIONS Involved may Clarify DOU f

[c] [Section 284] Res Judicata and Law of Procedure
Despite the creation of the tieid Code of 1848
deral Rules of Civil Procedure, the law of res judi

roduct of decisional law, which took only belated

, | D .
anges (ne of the cnief tasks of Kestatement ts to st
vem ior msith th | yicl + ‘ torr tre |
Ss coordinate wit ne jegisiative syste 5; of proced

) >
eral R yes ang State STEMS (
‘ rie r eanTra ré t ot ‘
.

another chance to do so. A related but narrower principle-that one who has actually
litigated an issue should not be allowed to relitigate it-underlies the rule of issue

presuppositions about the law of procedure. The ‘chance’ to litigate is not simply

Ses
—v

”

as either legally inconclusive—that is, Not a serious and genuine ‘chanc’ to litigate—or
fundamentally unfair. Indeed, a procedure for ventilating a legal dispute that lacks
certain minimal elements of form wil] be treated as inconclusive for the reason that

it is fundamentally unfair, Putting the point differently, it may be a denial of Due |

Process to treat an undefined procedural mechanism as yielding a conclusive result
in determination of legal rights.” (Chapter 1, p.6.)

(3) “The law of res judicata expresses the terms for assessing whether the procedural
system afforded the contending party an adequate Opportunity to litigate. In the now
accepted phrase, the question is whether that Opportunity was ° full and fair.’ Modern
civil procedure usually does provide full and fair freedom to present substantive

contentions and full and fair access to evidence. Accordingly, under that system of |

procedure there must be compeli ing reasons to sustain a plea for a second chance..

Such is the general tenor of this Restatement.” (Chapter 1, p.9.) Thus, “the policy of
the modern law of res judicata is summed up in Sec. 26(f) of this Restatement,
allowing relitigation of a claim (except on other specific grounds) only if it is * clearly
and convincingly shown that the policies favoring preclusion of a second action are
overcome for an extraordinary reason.’” (Chapter 1, p.10.) (See Gouvis Engineering
v. Superior Court (Cambridge Terrace Owners’ Assn) 1995) 37 C.A. 4th 642, 650,
43 c.r.2d 785, citing the text.)

(4) “[W]hen the rules of Original procedure constrain the first Opportunity to litigate,
the rules of res judicata are adjusted reciprocally. In some types of courts of limited
jurisdiction and some types of administrative agencies, for example, the scope of
substantive inquiry and the potential for development of evidence are much more
restricted than the corresponding opportunity afforded in a court of general
jurisdiction in a comparable case. The results of res judicata with respect to the
judgments of such tribunals are correspondingly less restrictive. See Sections 26(c)
28 [c] and 83, Comment f.” (Chapter 1,p.10,)

,

!
|

(5) “However formulated and applied, the basic principle of res judicata reflects a
fundamental paradox. The law of res judicata endows judgments of courts with a
peculiar finality: They are immune from examination by other authorities and may be
reexamined by the courts themselves only in unusual circumstances. Yet this finality
attaches not because the courts are infallible but because they are inevitably fallible.
Adjudication is a procedure by which a disinterested agency-the judge or jury—is
authorized to impose a binding resolution of a controversy or ver legal rights.
Arriving at such a resolution requires either a determination of the facts or a
particularization of the law as it applies to facts, or both. lf there were infallible
personages who could discern law and facts in a way that engendered universal
assent, the process of adjudication would be socially unnecessary. Legal disputes
could simply be remanded to the oracles. It is because such personages do not exist
that the offices of judge and jury and a system of procedure are created by law,
supplying by fiat a practical substitute for perfect intelligence.” (Chapter 1, p.10.)

(6) “Finality, then, is the service rendered by the courts through operation of the jaw
of res judicata. The finality in contemplation includes the immediate finality that is
imposed on the litigation itself. It includes also imposition of finality on the dispute
that gave rise to the litigation so far as it is within the means of legal process to do so.
In a still broader sense, the law of res judicata judicata cumulatively reinforces the
authoritativess of the law itself. It holds that at some point arguable questions of right
and wrong for practical purposes simply cannot be argued any more.” (Chapter 1,
p.17.)

(7) “The central problem in finality of judgments is how far the principle of finality
is to be qualified. The law of res judicata grapples with this central problem. Its
specifications endeavor to state the conditions under which the possibility of failure
of civil justice is so substantial as to justify remedial action in the form of relitigation.
One the one hand, judgments must in general be accorded finality despite flaws in
the processes leading to decision and the unavoidable possibility that the results in
some instances were wrong. On the other hand, a judgment in a particular case must
be subject to reexamination in the name of substantial justice if the initial engagement
of the merits was inadequate. Mediation between these opposed considerations
cannot be simply ad hoc; if it were, both the finality of judgments and the opportunity
for reexamination would be a function of in the institutions of judges. A measure of
intuition and discretion, to be sure, is required in administering the law of res
judicata, as the rules in this Restatement frankly acknowledge. However, a policy of
reasonable finality requires rules that take into account the complex substantive and
procedural considerations going into a civil judgment. The laws of res judicata is thus
a mirror of legal justice itself.” (Chapter 1, p.12.)

4. [sec. 285] distinction: Direct Estoppel.

Loe)
nn

“Issue preclusion” generally occurs where an issue previously litigated and
determined is raised in a subsequent action between the same parties on a different
claim. This effect is commonly calied collateral estoppel. (See supra, Sec. 281 and
infra, Sec. 354.)

In some situations, however, the issue previously litigated and determined is raised
again in a subsequent proper action between the same parties on the same claim.
The Restatement characterizes this effect as direct estoppel. (See Rest.2d Judgments,
Int.Note, p. 131; Sec. 17, Comment c; sec. 20, Comment b; MIB v. Superior Court
(1980) 106 C.A.3d 228, 232, 164 C.R. 828: Smith v. Smith (1981) 127 C.A. 3d 203,
207, 208, 179 C.R. 492 [quoting and discussing Second Restatement Tentative Draft].)

Thus, if the defendant successfully raises the objections of lack of jurisdiction,
improper venue, or nonjoinder of parties, a resulting judgment of dismissal is not on
the merits and is therefore neither a merger nor a bar. Hence, the plaintiff may bring
a second action on the same claim. (Rest.2d, Judgments Sec. 20(1).) But the issue
determined in the first action —lack of jurisdiction, improper venue, or nonjoinder of
parties—is conclusive on the Parties in that second action. (Rest.2d, Judgments, Sec.
17, Comment c; Sec. 20, Comment b.) King v. International Union of Operating
Engineers (1952) 114 C.A.2d 159, 164, 250 P.2d 11, illustrates the concept, although
it does not utilize the Restatement’s terminology. The first suit was by a number of
members of a local union on behalf of all to obtain a declaration of local freedom
from control by the international union. It was dismissed without prejudice for failure
to exhaust inter-union remedies. Held, the judgment of dismissal was res judicata in
this second suit by other union members seeking the same relief without exhaustion
of those remedies.

MIB v. Superior Court, supra, citing the first Restatement, California cases and
the text, applied the doctrine to a determination of nonjurisdiction. In three prior
actions against MIB, a foreign corporation, the trial court quashed summons on the
ground that plaintiff had failed to show sufficient contacts with this state to subject
MIB to the jurisdiction of California courts. Held, this prior determination of the
jurisdictional issue was res judicata: 1.e., a determination of jurisdictional facts is
binding, whether it establishes jurisdiction or lack of jurisdiction. (106 C.A.3d 232,
234) (For a full discussion of the res judicata effect of jurisdictional determinations,
see 2 Cal.Proc. (4th), Jurisdictional, sec. 335 et seq.)

In Smith v. Smith, supra, plaintiff wife sued defendant husband for divorce in 1967,
but did not plead his military retirement benefits as community property. They were
therefore not considered and the decree divided only the listed items. In 1968,
plaintiff moved to amend the divorce judgment on the ground of mistake, etc., of her
former attorney (L) and, on denial of the motion for untimeliness, brought an action
against defendant seeking either to set aside the decree or an award of one-half of the

36

Rl

etirement benefits. Defendant demurred on the grounds that (a) L’s mistake was

atrinsic and not a basis for equitable relief; and (b) the divorce decree was res

udicata on community property rights. The demurrer was sustained and the action
vas dismissed. Plaintiff then sued her former attorney for malpractice and obtained

, judgment for $100,000-the value of her lost claim of community property benefits

Smith v. Smith (1975) 13 C.3d 349, 118 C.R. 621, 530 P.2d 589, 1 Cal. Proc. (4th),
Attorneys, Sec.344). In 1978, Plaintiff brought the present action to recover the same
lost benefits. The trial judge concluded that the current complaint was identical to
one cause of action of the 1968 complaint and that the judgment on demurrer in the
1968 action was res judicata. Held, affirmed.

(a) If the 1968 judgment had been limited to the impropriety of the remedy of
equitable relief against a judgment, it would not be a.. .to a subsequent a tion
seeking an appropriate remedy. (127 C.A.3d 207, citing the text.) But the judgrnent
also resolved the issue of res judicata tendered by tne demurrer, i.e., it determined
‘hat failure to tender the issue of retirement benefits in the divorce action barred a
later claim for those benefits (127 C.A.3d 207.)

(b) Plaintiff's contention that the 1968 judgment was no res judicata because it did
not correctly decide the merits of her community property claim is unsound: a
judgment not passing directly on the substance of a claim may nevertheless operate
3s a bar to relitigation of the very issue that was litigated in the previous action. (127
C.A.3d 207, 208.) The 1968 judgment determined the issue of the res judicata effect
of the divorce decree on the claim of retirement benefits, and thus operated as a
direct estoppel. (127 C.A. 3d 209.)

5. [Sec. 286] Where Doctrine Is Inapplicable.

(a] Direct Attack on Judgment Not Final. By its very nature, the doctrine does not
prevent timely direct attack, e.g., by motion for new trial or appeal. It only applies
where the judgment is final and safe from direct attack, and is collaterally attacked
in a subsequent proceeding. (See Rest.2d, Judgments Sec. 13, Comment a; Sec.17,
Comment d; infra, Sec. 306 et seq.)

(b] Judgment Not on Merits. The doctrine only protects a final determination of the
controversy on the merits of the claims and defenses. if the judgment is on
procedural or other grounds unrelated to the merits, it is not res judicata. (See infra,
Sec. 313 et seq.)

(c] Judgment Void. Obviously a judgment, though final and on the merits, has no
binding force and is subject to collateral attack if it is wholly void for lack of
jurisdiction of the subject matter or person, an perhaps for excess of jurisdiction, or
where it is obtained by extrinsic fraud. (See Rest.2d, Judgments Sections 2 17:2
Cal. Proc. (4th), Jurisdiction, Sections 10, 108, 323; 8 Cal.Proc. (4th), Attack on
Judgment in Trial Court, Sections 6 et seq., 223 et seq.)

=

37

(d] Parties Not Adversaries. In Atherley vy. MacDonald, young & Nelson (1955) 135
C.A.2d 383, 287, P.2d 929, plaintiff sued M and F for personal injuries. Defendant
M cross-complained against defendant F on an agreement to hold M harmless from
liability. The trial judge struck out the cross-Complaint and M appealed. Pending the
appeal, the main action was tried with judgment for plaintiff against M and absolving
F. Held, M’s appeal was not rendered moot. “[I]n no event is a judgment in an action
in which the parties were not adversaries, but only joined as codefendats, res judicata
as between them in a later proceeding. . . .If respond ([F] had permitted appellants’
cross-complaint to go to trial then, of course, the parties would have Occupied the |
adversary position necessary to make the judgment res judicata between them.” (135 |
C.A.2d 385.) (See Truck Ins. Exchange v. Torres Installers (1972) 25 C.A.3d 491,
495, 101 C.R. 919: Schultz v. Harney (1994) 27 C.A.4th 1611, 1620, 33 C.r.2d 276
[citing Estate of Charters, infra. this section; res judicata did not bar action by |
guardians ad litem for minor to re. ver excessive attorneys’ fees awarded by probate
court in minor’s prior medical malpractice action; aftorney and guardians were not
adversaries jn medical.malpractice ac ton]; Rest.2d, Judgments Sec. 38, Comment b.)

[c] No Adversary Trial of Issue. In Estate of Charters (1956) 46 C.2d 227,293 P.2Gq_
778, S became guardian of the estate of a minor and also trustee of a testamentary
trust for her. S, in violation of the (rust terms, sold her residence, and had the account
approved. In this proceeding for instructions, the court ordered the trustee to
purchase a suitable home for her or provide her with rent. Held. affirmed; the order

settling the account was not res judicata. The trustee occupied a dual relationship,
the minor had no independent representation and no Opportunity to present her
Claims to the court, and there was therefore no adversary trial or decision of the issue. ae |
(46 C26 234.) 0 S0o crate ashen sean hath Nit
6. Discretionary Rejection of Doctrine.
(a) [Sec.287] Grenfield Case and Criticisms.

Greenfield v. Mather (1948) 32 C.2d 23, 194 P.2q interpleader suit, was the
culmination of a series of appellate proceedings over the division of a $12,549.60
fund between a divorced Nusband wife. On the fourth appeal in the action between
spouses, the Supreme Court finally decided the issue with reversal with directions to
enter judgment that the sum be paid: one-half to the husband and one-half to the
wife. (25 C.2d 5 ...) Trial judge entered the judgment, and it was accepted as res
judicata by the judge inthe interpleader suit in which the fund was divided. The wife
appealed, offering figures in support of herself to the whole of the fund. In this
appeal, the majority declare that the Supreme Court, in its previous decisions
Such a settlement and dismissa! of the lawsuit can fairly be construed as a judgment
favoring plaintiff on the merits.” (140 C.4.3d 939)

3) “Under no stretch of the iMagination can the Payment of $218,837 on the

et eS) “=~.

38

$262,600 judgment (83 percent of the judgment) be considered a judgment on the
merits for Deere; rather, it reflects a considered decision by Deere that pursuing the
~ appeal to its conclusion would result in Deere paying the full judgment plus interest.
Deere’s facade of continued nonliability by use of stereotyped language in the
settlement agreement does not alter the fact that the plaintiff prevailed in the lawsuit
because of the jury’s finding of a product defect.” It is the nature of the action and the
~ character of the judgment, not recitals in the judgment, that determine whether it is
| res judicata. (140 C.A. 3d, 940, citing Goddard v. Security Title Ins. & Guarantee Co.
| (1939) 14 C.2d 47, 52, 92 P.2d 804, infra, Sec. 318.) See Producers Dairy Delivery
Co. V. Sentry Ins. Co. (1986) 41C3d 903, 911, 226 C.R. 558, 718 P.2d 920 [following
Sandoval: settlement after affirmance on appeal and before expiration of time to
petition for review was final judgment for collateral estoppel purposes]; McClain v.
Rush (1989) 216 C.A.3d 18, 25, 264 C.R. 563 [following Sandoval; summary
judgment on issue]; Long Beach Unified School Dist. V. California (1990) 225 C.A.
3d 155, 169, 275 C.R. 449, supra, Sec. 307; Abelson v. National Union Fire Ins. Co.
(1994) 28 C.A.4th 776, 787, 35 C.R. 2d 13 [judgment in coordinated litigation not
final where ‘limited purpose” collateral estoppel was given for test case while test
case was on appeal].)
2. judgment on Merits.
(a) (Sec. 313] In General.

A final judgment is res judicata only if it was rendered on the merits. This
requirement is derived from the fundamental policy of the doctrine, which gives
stability to judgments after the parties have a fair opportunity to litigate their claims

_-and defenses. (See Goddard v. Security title ins.-& Guarantee -Co- (1939) 14-C:2d47,5 4"
31, 92, P.2d 804; Datta v. Staab (1959) 173 C.A.2d 613, 620, 343, P 2d 977, quoting
the text: Rest. 2d Judgments Sec. 605; 65 Harv. L. Rev. 835; supra, Sec. 280.) (On
conclusive effect of determination of an issue where the judgment is not on the merits
(direct estoppel), see supra, Sec. 285)

The judgment is on the merits if the substance of the claim is tried and determined,
no matter how wrongly it is decided. In other words, a judgment |s binding and
conclusive against collateral attack though it is harsh or unjust, contrary to the
evidence, or based on errors of law. (See Beverly Hills Nat. Bank v. Glynn (1971) 16
C.A. 3d 274, 286, 93 C.R. 907, quoting the text; Smith v. Smith (1981) 127 C.A.3d
203, 209, 179 C.R. 492, quoting the text [postdivorce ruling that decree was res
judicata on status of retirement benefits as community property barred further attempt
to recover benefits]; 46 am.Jur.2d (Rev.ed.), Judgment Sec. 606; 2 Cal.Proc. (4th),
Jurisdiction, Section 278; but see supra, Sec. 287.)

The rule, however, does not produce a fixed classification of judgments that are or

are not on the merits, it is often necessary to examine the record of the proceedings

to determine whether a particular adjudication is to be considered res judicata. (See
supra, Sec. 292 infra, Sec. 314 et seq.)
(b) What Judgments Are on Merits.
(1) [Sec. 314] Judgement After Trial on Facts.

The usual judgment that meets all the tests and carries out the policies of the
doctrine is one rendered after a trial of he issues of fact, by the jury or court. It is on
the merits though rendered on a directed verdict, or as a judgment notwithstanding
the verdict. (See Rest. 2d, Judgments Sec. 19, Comment h; 65 Har. L.rev. 836; 7
Cal.Proc. (4th), Trial, Sections 430,446.)

(2) [Sec.315] Judgement Without Trial on Facts.

(a) Summary Judgment. A judgment entered after granting a motion for summary
judgment is as final and conclusive a determination of the merits as a judgment after
trial. (See C.C.P. 437c; State Farm Mut. Auto. Ins. Co. V. Salazar (1957) 155 C.A.2d
Supp. 861, 864, 318 P.2d 210, citing the text; Martens v. Winder (1961) 191 C.A.2d
143, 151, 12 C.R. 413 [dictum]; Columbus Line v.Gray Line Sight-Seeing Cos.
Associated (1981) 120 C.A.3d 622, 629, 174 C.R. 527, citing the text; Castro v.
Higaki (1994) 31 C.A.4th 350, 357, 358, 37 C.R. 2d 84 [denial of petition under C.C.
1714.10 (leave to file civil conspiracy action against attorney is judgment on the
merits, analogous to granting of motion for summary judgment]; but cf. Koch v.
Rodlin Enterprises (1990) 223 C.A.3d 1591, 1595, 1597, 273 C.R. 438 [summary
judgment in previous action on ground that statute of limitations had run was not

judgment on merits]; 6 Cal. Proc. (4th), Proceedings Without Trial, Sec. 227.)

JAMES MARTIN, Petitioner v. THE SUPERIOR COURT
OF SACRAMENTO COUNTY et al., Respondents.

(Crim. No. 2683. In Bank.—June 28, 1924.]
In the Matter of the Application of FRED W. CHAPMAN
for a Writ of Habeas Corpus.
[S.F. No. 11139. In Bank.—June 28, 1924]
GEORGE ANASTASION, Petitioner, v. THE SUPERIOR COURT
OF SACRAMENTO COUNTY et al., Respondents.

[1] CONSTITUTIONAL LAW - CLASSIFICATION OF PERSONS OR
THINGS- BASIS OF DISTINCTION.—Where a classification of persons
or things is distinctive and such distinction is based upon some
“constitutional, or naturel, or intrinsic distinction,” laws may e made
applicable to such class alone, providing the act is uniform as to all
persons or things within such class.

[2] JURIES AND JURORS-SELECTION OF JURORS-SECTION 204,

40)

CODE OF CIVIL PROCEDURE, AS AMENDED IN 1923-
CONSTITUTIONAL LAW. That portion of section 204 of the Code
of civil Procedure as amended in 1923 (stats. 1923, c.195,p.436),
relating to the selection of jurors, which provides that, “In counties
and cities and counties having a population of ninethy thousand
‘nhabitants or over, such selection shall be made by a majority of the
judges of he superior court,” is nota special law; it is a general law
having a uniform operation upon a class of persons or things readily
and naturally differentiated form another class of persons or things by
reason of the necessities peculiar to the subject matter of the
legislation.

(3] CONSTITUTIONAL LAW-SPECIAL LAWS-CLASSIFICATION BY
LEGISLATURE.-A law Is not special legislation merely because it does
not apply to all persons, the legislature may classify for the purpose
of meeting different conditions, naturally requiring different
legislation, in order that legislation may by adapted to the needs of
the people. If the law is to bear equally upon all persons, the
legislature must classify whenever there exists a reason which may
rationally be held to justify a diversity of legislation; in other words,
different persons, different localities, and different governmental
organization and agencies may justly be found by the legislature to
stand in different relations to the law, and if the same law were, in
such a situation, to be applied to all alike, it would not bear equally
upon each of them.

[4] |.D-CHARACTER OF CLASSIFICATION.-The classification by the
legislature must not be arbitrarily made for the mere purpose of
classification, but must be based upon some distinction, natural,
intrinsic, OF constitutional, which suggests a reason for and justifies
the particular legislation; that is to say, not only must the ¢ lass itself
be germane to the purpose of the law but the individual components
of the class must be characterized by some substantial qualities or

attributes which suggest the need for and the propriety of the
legislation. Subject to these limitations a law is general despite the

fact that it operates only upon a class of individuals or things, if it
applies equally to all persons or things within the class to which It 1s

| addressed.
[5] ID.-FACTS JUSTIFYING CLASSIFICATION-LEGISLATL RE-
PRESUMPTIONS-COURTS.-The authority and the duty to ascertain

the facts which will justify « lassified legislation must of necessity rest

4]

sin iN cance

with the legislature, in the first instance, to whom has been given the
power to legislate and not to the courts and the decision of the
legislature in that behalf is ordinarily conclusive upon the courts.
Every presumption is in favor of the validity of the legislative act and
the legislative classification will not therefore be disturbed unless it is
palpably arbitrary in its nature and neither founded upon nor
supported by reason.

[6] ID-CLASSIFICATION-JUDICIAL NOTICE-COURTS.-In any given case
¢ the existence of a state of facts of which the court may take judicial
notice seems to have been made the basis of a particular piece of
legislation and if it may be reasonably said that such facts afford good
ground for the making of a particular classification, the legislative
enactment will be upheld although the reason therefor does not
appear prima facie in the law itself.

[7] JURIES AND JURORS-CLASSIFICATION MADE BY SECTION 204,
CODE OF CIVIL PROCEDURE-BASIS FOR-CONSTITUTIONAL
| AW.-It cannot be said that the classification made by the legislature
in providing by the 1923 amendment to section 204 of the Code of
Civil Procedure that in counties and cities and counties having a
population of ninety thousand inhabitants or over the selection of
jurors shall be made by a majority of the judges of the superior court,
is palpably arbitrary and was made merely for the purpose of a
classification which bears no relation to the inherent purpose of the
law, the amendment in question doubtless having been enacted in
order to facilitate and expedite the work of the superior courts in the
more populous counties of the state.

[8] ID.-CLASSIFIED LEGISLATION-JUDICIAL NOTICE.-In determining the
need and propriety of classified legistation, where the same does not
appear upon the face of the legislative enactment, the court may
resort to its judicial knowledge of the contemporaneous conditions
and situation of the people, the existing economic, sociologic, and
civic policy of the state and all other matters of common knowledge.

(9] ID.-SELECTION OF JURORS-JUDICIAL NOTICE.-It is a matter of
common knowledge, to be noticed judicially, that there are several
counties of the state each possessing a population many times greater
than the population of each of the remaining counties of the state; that
the counties with the greater populations have vastly more court
business and consequently require many more trial jurors than the
less populous counties; that the boards of supervisors of the counties

42

of the greater population have a larger, more continuous and
complicated volume of official business to deal with and dispose of
than do the boards of supervisors of the many less populous counties;
that the boards of supervisors of the more populous counties are
personally acquainted with only a comparatively small percentage of
their constituents and, therefore, less qualified to determine who,
among their constituents, possess the degree of moral and intellectual
fitness requisite for jurors, than are the boards of supervisors of the
less populous counties who are ordinarily in closer communication
with their constituents; that the judges of the superior courts, coming
as they do constantly in contact with the personnel of trial jurors, are,
by reason of their observation and experience, well qualified to
perform the duties of selecting and listing persons to serve as trial
jurors; and that in a situation where the persons to be selected as trial
jurors in the more populous counties are not personally known to the
boards of supervisors, the judges of the superior court, doubtless, are
better qualified to make the required selection than the boards of
supervisors who, because of their multitudinous duties incidental to
the government of such counties, cannot be expected to give the time
and though requisite to the selection of trial jurors.

[10] ID.-REDUCTION OF NUMERICAL BASIS OF CLASSIFICATION-
POWER OF LEGISLATURE.-The power of determining the numerical
basis of the classification of counties in the matter of selection of
jurors rested with the legislature and having the power to fix the limit
of population at one hurdred thousand to which, in the fist instance,
‘the legislation applied, the legislature had the power to reasonably
reduce the numerical limits of population where ever, in the exercise
of a wise discretion, the exigencies of a given situation so required;
in other words, “where the discretion so to classify is vested in the
legislature, the selection of a limit is a legislative power which will be
judicially reviewed only in the plain case of abuse.”

[11] ID.-J,\URY COMMISSIONER-PUBLIC OFFICERS-CONSTITUTIONAL
LAW.-the provision of section 204 of the Code of Civil Procedure
which provides for and permits the appointment of a jury
commissioner, in certain designated counties, to assist the judges of
the superior courts of those counties in making selections of trial and

grand jurors does not create a state or county office, and the jury
commissioner, when appointed, like uther attaches of the judicial
system of the state, is no more than en adjunct of that system acting

43

in the capacity of a mere employee to enable the court to transact its
judicial work in an orderly and expeditious manner and is an adjunct
“which the legislature . . .has the right to provide for when it deems
necessary.”

(1) 12 C.J., pp. 1129, 134, secs. 55, 858; 30 Cyc., pp. 992, 993. 92) 36 Cyc., p.
987. (3) 12 C.J., p. 1129, sec. 855; 36 Cyc., p. 986. (4) 12 C.J., p. 1130, sec. 855; 36
Cyc., p. 985. (5) 12 C.J., pp. 794, 891, 1129, 1130, secs. 222, 390, 855. (6) 12 C.J.,
pp. 787, 1129, secs. 219, 855 (1926 Anno.). (7) 12 C.J., p. 1134, sec. 858. (8) 12
C.|., p. 787, sec. 219 (1926 Anno.). (9) 23 C.J., pp. 59, 161, secs, 1810, 1987. (10)
12 CJ., p. 1130, sec. 855. (11) 35 CJ., pp. 258, 259, sec. 205 (1926 Anno.).

PROCEEDINGS in Prohibition to restrain the Superior Court of Sacramento County
from proceeding to a trial of certain actions; and proceeding in habeas corpus to
secure release from judgment of contempt of court. Writs of prohibition denied; writ
of habeas corpus denied.

The facts are stated in the opinion ot the court.

S. Luke Howe, R.B. Hibbitt. Markham Johnston, O.F. Meldon and T.A.Farrell for
Petitioner in S.F. No. 11128.

Edward T. Bishop, County Counsel, Roy W. Dowds, Deputy County Counsel, R.
Platnauer and Wm. H. Devlin, Amici Curiae.

Thomas B. Leeper for petitioner in Crim. No. 2683.

|.T. Henderson district Attorney, and Wm. V. Cowan, Assistant District Attorney, for
Respondents in Crim. No. 2683.

Wm. H. Devlin, Edward T. Bishop, County Counsel, and Roy W. Dowds, Deputy
County Counsel, amici Curiae in support of petition in Crim. No. 2683.

l.A. Farrell for petitioner in S.F. No. 11139.

Edward T. Bishop, County Counsel, Roy w. Dowds, Deputy County Counsel and
Wm. H. Devlin, amici Curiae in S.F. No. 11139

LENNON, J.-The three above-entitled cases, although differing in the facts which
form the basis of the respective petitions, present precisely the same legal questions
for decision. Each petition attacks the legality of the procedure provided for the
selection and listing of trial jurors in certain counties of the state of which the county
ot Sacramento is one.

In the matter of the application of Fred w. Chapman, the petitioner seeks his release
upon habeas corpus from a judgment adjudging him guilty of contempt of court in
refusing to answer a Summons to appear and serve as a trial juror and in refusing to
act as a trial juror in the superior court of the county of Sacramento. The petitioner,
Chapman, was summoned pursuant to the procedure provided by section 204 et seq.

of the Code ot Civil Procedure The petitioners in the Anastasion case and the

44

Martin case seek writs of prohibition to have the superior court in and for the county
of Sacramento restrained from proceeding to a trial of the causes, in which they are
respectively defendants, with a jury composed of persons selected to serve as trial
jurors in said court for the year 1924.

In the Anastasion case the petitioner was charged with unlawfully having in his
possession intoxicating liquor in violation of the Wright Act 9Stats. 1921, p. 79) with
two prior convictions. Thereafter he was arraigned and pleaded not guilty and his
Case was set for trial for the thirtieth day of April, 1924. The manner and method of
listing and selecting the persons to serve as trial jurors in the same superior court and
from whom the jurors were to be drawn for the trial of the two last-mentioned cases
followed the provisions of the code sections last above referred to.

A discussion and a decision of the facts and the law as applied to the martin case
will suffice as a basis for the decision in the other two cases.

The petition for a writ of prohibition in the Martin case is predicated upon the
following facts: the petitioner was on the twenty-seventh day of November, 1923,
indicted by the grand jury of the county of Sacramento for the crime of murder.
Thereafter, the petitioner was duly arraigned upon said charge and thereupon pleaded
not guilty. Subsequently the cause was set down for trial upon a designated day.
Thereafter, at a time some several weeks in advance of the date set for the trial of the
Cause a majority of the judges of said superior court made and entered a court order
directed to one Matt P. Barnes . as “Jury Commissioner of Sacramento County,” to
return to said court within a specified time a list of one hundred qualified persons to
act as trial jurors in civil and criminal causes during the ensuing year. Thereafter,
pursuant to saic der, the said Barnes, as jury commissioner, returned to said court
a list of persons qualified to act as jurors. \Whereupon, the said judges selected each
and all of said persons to serve as trial jurors in said court for the ensuing year of
1924. Subsequently the judge of department one of said court, wherein the charge
of murder was and is pending against the petitioner, made and entered an order
directing the clerk of said court to draw from the regular trial jury-box of said county,
in which were the names, and only the names, of persons returned and selected in
the first instance as aforesaid, the names of seventy-five persons from which would
be drawn the names of the persons to serve as trial jurors during the April session of
said superior court. Upon said drawing being made the court directed to be issued
and placed and there was issued and placed in the hands of the sheriff of the county
a venire for the summoning of said persons returnable April 14,1924. Thereafter, the
said sheriff returned said venire to said court, together with his return thereon,
specifying the names of said jurors so summoned.

Prior to the filing herein of the Martin petition, the said superior court, over the

objection of the petitioner, declared its intention and purpose to proceed with the trial

fue
‘A

of the case of the said petitioner, now pending in said court, with the persons so as
aforesaid selected to serve as trial jurors in said court.

In support of the petition for the writ of prohibition, it is contended that the portion
of section 204 of the Code of Civil Procedure as amended in 1923 (Stats. 1923, c.
195, p. 436) relating to the selection of jurors, which provides, that “In counties and
cities and counties having a population of ninety thousand inhabitants or over, such
selection shall be made by a majority of the judges of the superior court... ., “ is
unconstitutional and void in that it violates those provisions of the state constitution
which provide that, G

(1) “all laws of a general nature shall have a uniform operation.” (Art. |, sec. 11.)

(2) “No special privileges or immunities shall ever be granted which may not be
altered, revoked, or repealed by the legislature, nor shall any citizen, or class of
citizens, be granted privileges or immunities which, upon the same terms, shall not
be granted to all citizens.” (Art. |., Sec. 21.)

(3) “The legislature shall not pass local or special laws in any of the following

enumerated cases, that is to say; . . .Regulating the practice of courts of justice. . .
Summoning and impaneling grand and petit juries, and providing for their
compensation....” (Art. IV, sec. 25, subds. 3 and 8.)

While the petitioner refers to and relies upon all of the sections of the constitution
above quoted, nevertheless the sum and substance of the argument made in support
of the petition is condensed into the one proposition, that the law in question is
special legislation in that it does not uniformly apply to and operate upon all persons
and things throughout the state.

Section.204 of the Code of Civi! Procedure as it existed prior to.1923. provided in
substance and effect that the superior court of each county, in the month of January
of each year, should designate the estimated number of grand and trial jurors required
for the transaction of the business of the court and the trial of causes therein during
the ensuing year; that the court should select and list the grand jurors, and that
immediately after the making of the order designating the estimated number of trial
jurors, “the board of supervisors shall select . . .a list of men and women to serve as
trial jurors . . .during the ensuing year, .. . “ It will be noted that the selection in
question that, “In counties and cities and counties having a population of one
hundred thousand inhabitants or over, such selection shall be made by a majority of
the judges of the superior court.”

By the amendment in question, as enacted in 1923, the basis of classification for
the purpose of selecting and returning jurors for courts of record was changed from
counties and cities and counties having a population of one hundred thousand
inhabitants or over to counties and cities and counties having a population of ninety
thousand inhabitants or over.

46

[1] It is conceded, as indeed it must be, that where a classification of persons or
things is distinctive and such distinction is based upon some “constitutional, or
natural, or intrinsic distinction,” laws may be made applicable to such class alone
providing the act is uniform as to all persons or things within such class. But it is
argued in the instant case that there is no “constitutional, or natural or intrins
distinction” inherent in the procedure and practice requisite for the selection and
listing of trial jurors in counties having a population of ninety thousand or over and
the procedure and practice required for the same purpose in the remaining «
of the state having smaller populations.

[2] the amendment under consideration is not, in our Opinion, a special! law
a general law having a uniform operation upon a class of persons or things read
and naturally differentiated form another class of persons or things by reason
necessities peculiar to the subject matter of the legislation. [3] A law is not specia
legislation merely because it does not apply to all persons. It is a settled prin
constitutional law that the legislature may classify for the purpose of meeting different
conditions, naturally requiring different legislation, in order that legislation may be
adapted to the needs of the people. If the law is to bear equally upon al! persons, the
legislature must classify whenever there exists a reason which may rationally be held
to justify a diversity of legislation. In other words, different persons, different
localities, and different governmental organizations and agencies may justly be found
by legislature to stand in different relations to the law and if the same law v
such a situation, to be applied to all alike, it would not bear equally upon each
them. (Darcy v. Mayor etc. of San Jose, 104 Cal.642 [38 Pac. 500} imida

--177 Cal..388-[170 Pac. 823}.

[4] the classification, however, must not be aeinail made for the mer:
of classification, but must be based upon some distinction, natural. intri:
constitutional, which suggests a reason for and justifies the particular legislation. That
is to say, not only must the class itself be germane to the perpose of the law b
individual components of the class must be characterized by som:
qualities or attributes which suggest the need for and the propriety of t!

Subject to these limitations a law is general despite the fact that it operates

a class of individuals or things, if it applies equally to all persons or things \
class to which it is addressed. (Pasadena v. Stimson, 91 Cal. 238 (27
McDonald v. Conniff, 99 Cal. 386 [34 Pac. 71]; Darcy v. Mayor etc. of Sa
supra; People v. Central pac. R.R. Co., 105 Cal. 576 [38 Pac. 905]: Deyoe
Court 140 Cal. 476 [98 am. St. Rep. 73, 74 Pac. 28]; ruperich v. Baehr

[75 Pac. 782]; Title etc. Restoration Co. v. Kerrigan, 150 Cal. 289 [119 An
199, 8 L.R.A. 682, 88 Pac. 356]; Ex parte King, 157 Cal. 51[26 L.r.A. (N.S
Pac. 235]; Matter of Application of Miller, 162 Cal. 687 [124 Pac. 4

47

“ellows, 166 Cal. 765 [138 Pac. 355]; In re Sumida, supra; In re Morganstern, 61 Cam
App. 702 (215 Pac. 721].

cise thereof. [5] the authority and the duty to ascertain the facts which wi

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386018_1430%3A2. Public record. Not legal advice.