In re: Robert Kenneth Ziegler

FILED JUN 06 2016 SUSAN M. SPRAUL, CLERK 1 NOT FOR PUBLICATION U.S. BKCY. APP. PANEL OF THE NINTH CIRCUIT — 2 — 3 UNITED STATES BANKRUPTCY APPELLATE PANEL 4 OF THE NINTH CIRCUIT — 5 — 6 In re: ) BAP No. CC-15-1231-KiTaL ) 7 ROBERT KENNETH ZIEGLER, ) Bk. No. 8:13-bk-20257-CB ) 8 Debtor. ) ) 9 ) ROBERT KENNETH ZIEGLER, ) 10 ) Appellant, ) 11 ) v. ) M E M O R A N D U M1 12 ) THOMAS H. CASEY, Chapter 7 ) 13 Trustee; UNITED STATES ) TRUSTEE, ) 14 ) Appellees. ) 15 ______________________________) 16 Argued and Submitted on May 19, 2016, at Pasadena, California — 17 — Filed - June 6, 2016 — 18 — Appeal from the United States Bankruptcy Court 19 for the Central District of California 20 Honorable Catherine E. Bauer, Bankruptcy Judge, Presiding — 21 — Appearances: Richard G. Heston of Heston & Heston argued for 22 appellant Robert Kenneth Ziegler; Kathleen J. McCarthy and Steve Burnell of Law Office of Thomas 23 H. Casey, Inc. argued for appellee Thomas H. Casey, Chapter 7 Trustee. — 24 — — 25 — — 26 — — 1 — 27 This disposition is not appropriate for publication. Although it may be cited for whatever persuasive value it may 28 have, it has no precedential value. See 9th Cir. BAP Rule 8024-1. 1 Before: KIRSCHER, TAYLOR and LANDIS,2 Bankruptcy Judges. 2 Chapter 73 debtor Robert Kenneth Ziegler appeals an order 3 sustaining the trustee's objection to Debtor's amended "wildcard" 4 exemption for what were initially exempted homestead sale proceeds 5 which Debtor failed to reinvest in a new homestead within six 6 months as allowed under CAL. CIV. CODE P. ("CCP") § 704.720(b)4 and 7 Wolfe v. Jacobson (In re Jacobson), 676 F.3d 1193 (9th Cir. 2012). 8 The bankruptcy court failed to make sufficient findings to support 9 its decision to disallow the exemption. Nonetheless, because the 10 prior turnover order adjudicated against Debtor the issue of 11 whether he could exempt a portion of the non-reinvested homestead 12 sale proceeds under the wildcard exemption, we AFFIRM. 13 I. FACTUAL BACKGROUND AND PROCEDURAL HISTORY 14 A. Debtor first claims sale proceeds exempt under the homestead exemption. — 15 — 16 Debtor filed his chapter 7 bankruptcy case on December 30, 17 2013. Thomas H. Casey was appointed as chapter 7 trustee. 18 Debtor's residence, which had significant equity, was days away 19 from foreclosure. Debtor was unemployed at the time and had no — 20 — — 2 — 21 Hon. August B. Landis, Bankruptcy Judge for the District of Nevada, sitting by designation. — 22 — — 3 — Unless specified otherwise, all chapter, code and rule 23 references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532 , and the Federal Rules of Bankruptcy Procedure, Rules 1001-9037. The 24 Federal Rules of Civil Procedure are referred to as “Civil Rules.” 25 4 CCP § 704.720(b) provides, in relevant part: 26 If a homestead is sold under this division . . . the proceeds of sale . . . are exempt in the amount of the homestead 27 exemption provided in Section 704.730. The proceeds are exempt for a period of six months after the time the proceeds 28 are actually received by the judgment debtor[.] -21 income. In his Schedule A, Debtor estimated the residence's value 2 at $485,000, subject to secured liens totaling $353,279. Debtor 3 initially claimed a homestead exemption of $100,000, but later 4 filed an amended Schedule C and reduced his exemption in the 5 residence to $75,000. Trustee did not object to Debtor's $75,000 6 homestead exemption under CCP § 704.730(a)(1). 7 Trustee sold Debtor's residence for $495,000. Initially, 8 Trustee had requested, and Debtor opposed, that Trustee be allowed 9 to retain the claimed exempt homestead funds for the statutory six 10 months pending evidence from Debtor that he would use the funds to 11 purchase a new homestead. Trustee ultimately conceded after 12 reviewing applicable legal authorities that Debtor was entitled to 13 receive the funds upon the close of escrow. 14 The order to sell Debtor's residence provided that Trustee 15 had the right to recover the exempt homestead funds in the event 16 Debtor failed to timely reinvest them in a homestead. 17 Debtor received the homestead funds on June 18, 2014. The 18 deadline to reinvest the funds expired on or about December 18, 19 2014. 20 Immediately after the six-month deadline, Trustee requested 21 evidence from Debtor's counsel that the homestead funds were 22 timely reinvested. At a later continued § 341(a) examination, at 23 which Debtor failed to appear, Debtor's counsel could not provide 24 any evidence that Debtor had timely reinvested the funds in a 25 homestead. Thereafter, Trustee emailed Debtor's counsel to 26 determine what date Debtor would be available for a Rule 2004 27 examination regarding the status of the homestead funds. In his 28 response, Debtor's counsel indicated he was withdrawing from the -31 case and that Trustee should contact Debtor directly. In his 2 motion to withdraw, Debtor's counsel stated that despite his 3 repeated advice to Debtor regarding the consequences of not 4 reinvesting the homestead funds in a new homestead, Debtor had 5 failed to reinvest the funds. Counsel had advised Debtor that the 6 funds were no longer exempt and therefore had to be turned over to 7 Trustee. 8 Trustee then moved for an order authorizing a Rule 2004 9 examination of Debtor, which was granted. Just before the 10 examination, Debtor provided Trustee with documents showing that 11 the homestead funds were not reinvested in a homestead and that, 12 as of January 30, 2015, Debtor had only approximately $29,000 13 remaining of the $75,000. 14 At his Rule 2004 examination, Debtor testified that he was 15 aware of and understood the language in the sale order concerning 16 the homestead funds, including that Trustee would be entitled to 17 recover the $75,000 should Debtor fail to reinvest the funds in a 18 homestead. When asked if he had any intention of purchasing a 19 home within the six months after he received the money, Debtor 20 testified that he hoped he might buy a mobile home or trailer, 21 with his parents' help, but admitted that he never looked for a 22 place to buy during the six-month period. 23 Debtor admitted, and the record reflects, that he began 24 spending the funds on things other than a homestead the day after 25 he received them, including: $11,500 paid to his father for the 26 repayment of a postpetition loan; $7,000 paid to the new owner of 27 his home for three months rent; $6,000 paid for a new car; $5,580 28 paid for rent of a friend's home; buying gifts for his daughter; -41 and paying for various living expenses. Debtor indicated he would 2 turn over the remaining $29,000 in homestead funds to Trustee if 3 ordered to do so. 4 Trustee then filed a motion requiring Debtor to turn over the 5 $75,000 in homestead funds, contending the funds had lost their 6 exempt status for Debtor's failure to reinvest them in a homestead 7 and were now property of the estate. On February 20, 2015, the 8 bankruptcy court ordered Debtor to return immediately to Trustee 9 the homestead funds in the full amount of $75,000. The turnover 10 order was not appealed. 11 On March 2, 2015, Debtor remitted $25,000 to Trustee, leaving 12 the remaining $50,000 due and owing under the turnover order. 13 B. When the sale proceeds are not timely reinvested in a homestead Debtor claims the proceeds exempt under the 14 wildcard exemption. 15 Debtor subsequently filed an amended Schedule C, now claiming 16 the homestead funds exempt in the amount of $26,925 under 17 CCP § 703.140(b)(5), the wildcard exemption. 18 In response, Trustee moved for an order to show cause why 19 Debtor should not be held in contempt for failing to comply with 20 the turnover order and sanctioned for $50,000. Trustee also filed 21 a timely objection to Debtor's amended wildcard exemption for the 22 sale proceeds in the amount of $26,925. Trustee characterized 23 Debtor's now-claimed wildcard exemption as nothing more than a 24 thinly-veiled attempt to decrease his culpability under the 25 pending OSC motion. Trustee contended that during the six-month 26 period in which Debtor was required to reinvest the homestead 27 funds, the bankruptcy estate held a reversionary, contingent 28 interest in them. Thus, argued Trustee, at the exact moment -51 Debtor failed to reinvest the funds by voluntarily transferring 2 them to pay for his personal expenses, the homestead funds lost 3 their exempt status and became property of the estate. 4 Trustee objected to Debtor's wildcard exemption on five 5 grounds: (1) § 522(g) barred Debtor's attempt to exempt property 6 Trustee had recovered for the bankruptcy estate via the turnover 7 order; (2) federal judicial estoppel; (3) federal equitable 8 estoppel; (4) state law judicial estoppel; and (5) state law 9 equitable estoppel. Trustee's objection to the amended wildcard 10 exemption was set for hearing on the same date as his OSC motion. 11 Debtor conceded that he used the homestead funds to support 12 himself and that he owed Trustee $23,075 [$75,000 - $26,925 13 (wildcard exemption) - $25,000 (already turned over to Trustee)]. 14 Debtor contended the appropriate remedy was to enter judgment 15 against him for the $23,075. Debtor argued that § 522(g) did not 16 apply because he never "transferred" the homestead funds to a 17 third party, which therefore never triggered Trustee having to 18 "recover" them. Debtor also disputed Trustee's estoppel theories, 19 contending that upon the sale of the residence he was entitled to 20 claim some of the sale proceeds exempt under either the homestead 21 exemption for $75,000 or the wildcard exemption for $26,925. By 22 later amending, argued Debtor, he was merely exercising his right 23 to claim some of the proceeds exempt under the wildcard exemption. 24 Further, his testimony at the Rule 2004 examination established 25 that he intended to reinvest the funds in a new homestead. Debtor 26 further contended that his use of the homestead funds to pay his 27 living expenses did not rise to the level of "bad faith" 28 sufficient to punish him with the denial of any exemption -61 whatsoever. He concluded his argument by asserting that, Law v. 2 Siegel, 134 S.Ct. 1188 (2014), precluded such equitable rule3 fashioning, and no statutory basis existed for denying him any 4 exemption in this case. 5 In reply, Trustee argued that Debtor's use of the sale 6 proceeds to pay for personal expenses constituted a "transfer" for 7 purposes of § 522(g) because Debtor voluntarily parted with 8 property. In addition, argued Trustee, California law was clear: 9 homestead exemption funds maintained their exempt status only if 10 the funds are reinvested in a new homestead within six months. 11 Debtor had not provided any legal authority creating an exception 12 to this rule and authorizing him to spend the funds on "personal 13 expenses." 14 Trustee contended that Debtor's argument against applying any 15 estoppel doctrine was also wrong because Debtor's conduct clearly 16 showed that he never intended to comply with California law; he 17 immediately began spending the homestead funds on other things. 18 Debtor even admitted to spending the money before he received it 19 from Trustee. Finally, Trustee argued that Debtor's reliance on 20 Law was misplaced. This case was not about surcharging an 21 exemption for administrative expenses as in Law, and Law did not 22 eliminate the court's authority to apply state law estoppel 23 doctrines. 24 C. The bankruptcy court's ruling on Trustee's objection to Debtor's amended wildcard exemption — 25 — 26 At the hearing, the bankruptcy court noted that Debtor had 27 acknowledged at a prior hearing that he knew he was not supposed 28 to spend the money. The court then stated that because Debtor did -71 not reinvest the sale proceeds in a new homestead, as he was 2 required to do under state law, that money should have come back 3 to the estate and been distributed to creditors. By Debtor 4 spending the funds on something other than a homestead, his 5 creditors lost out. 6 After hearing argument from the parties, the bankruptcy court 7 announced it was sustaining Trustee's objection and disallowing 8 Debtor's wildcard exemption: 9 On the objection to the wild -- amended wildcard, I am going to grant that. I think it's inappropriate for us to 10 be talking about the homestead for as long as we have and then for the Debtor to now say I don't want the homestead, 11 I want to take the wildcard instead, there's just no -- I see no authority for that. — 12 — 13 Hr'g Tr. (June 30, 2015) 23:14-19. 14 The bankruptcy court entered an order sustaining Trustee's 15 objection and disallowing Debtor's amended wildcard exemption on 16 July 2, 2015. No additional findings were provided in the order. 17 Debtor timely appealed. 18 II. JURISDICTION 19 The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 20 and 157(b)(2)(B). We have jurisdiction under 28 U.S.C. § 158 (b). 21 III. ISSUE 22 Did the bankruptcy court err in sustaining Trustee's 23 objection and disallowing Debtor's amended wildcard exemption for 24 the homestead sale proceeds? 25 IV. STANDARDS OF REVIEW 26 We review questions regarding a debtor's right to claim an 27 exemption de novo, whereas the issue of a debtor's intent is a 28 question of fact reviewed under the clearly erroneous standard. -81 Kelley v. Locke (In re Kelley), 300 B.R. 11, 16 (9th Cir. BAP 2 2003). The bankruptcy court's factual findings, for purposes of 3 determining the validity of a claimed exemption, are reviewed 4 under the clearly erroneous standard. Id. Factual findings are 5 clearly erroneous if they are illogical, implausible or without 6 support in the record. Retz v. Samson (In re Retz), 606 F.3d 7 1189, 1196 (9th Cir. 2010). 8 We may affirm on any ground supported by the record, 9 regardless of whether the bankruptcy court relied upon, rejected 10 or even considered that ground. Fresno Motors, LLC v. Mercedes11 Benz USA, LLC, 771 F.3d 1119, 1125 (9th Cir. 2014); Arnot v. 12 Endresen (In re Endresen), 548 B.R. 258, 268 (9th Cir. BAP 2016). 13 V. DISCUSSION 14 A. Rule 4003 15 Under Rule 4003(b)(1), "a party in interest may file an 16 objection to the list of property claimed as exempt within 30 days 17 after the meeting of creditors held under § 341(a) is concluded or 18 within 30 days after any amendment to the list or supplemental 19 schedules is filed, whichever is later." It is undisputed that 20 Trustee's objection to Debtor's amended wildcard exemption was 21 timely filed. 22 Generally, a claimed exemption is presumptively valid. 23 Diener v. McBeth (In re Diener), 483 B.R. 196, 203 (9th Cir. BAP 24 2012). If a party in interest timely objects, "the objecting 25 party has the burden of proving that the exemptions are not 26 properly claimed." Id. (quoting Rule 4003(c)). See also Carter 27 v. Anderson (In re Carter), 182 F.3d 1027 , 1029 n.3 (9th Cir. 28 1999). If the objecting party can produce evidence to rebut the -91 presumption of validity, then the burden of production shifts to 2 the debtor to provide unequivocal evidence demonstrating the 3 exemption is proper. Id. The burden of persuasion, however, 4 always remains with the objecting party. Id. 5 Despite this general rule, we recently held in Diaz v. 6 Kosmala (In re Diaz), 547 B.R. 329, 337 (9th Cir. BAP 2016), that 7 Raleigh v. Ill. Dep't of Revenue, 530 U.S. 15 (2000), requires 8 that courts apply the state law burden of proof for state law 9 exemptions. Thus, in cases where state exemption law specifically 10 allocates the burden of proof to the debtor, Rule 4003(c) does not 11 change that allocation. See also In re Jacobsen, 676 F.3d at 1199 12 (when exemptions are determined by state law, "it is the entire 13 state law applicable on the filing date that is determinative of 14 whether an exemption applies."). California has mandated the use 15 of state exemptions and has placed the burden of proof on the 16 party claiming the objection. In re Diaz, 547 B.R. at 337 (citing 17 CCP §§ 703.580(b) ("the exemption claimant has the burden of 18 proof") and 704.780(a)); In re Tallerico, 532 B.R. 774 , 788 19 (Bankr. E.D. Cal. 2015) (burden of proof proscribed by California 20 statute regarding contested claims of exemption is substantive and 21 must be applied by bankruptcy courts). Thus, the burden was on 22 Debtor to show that his amended wildcard exemption for the sale 23 proceeds was proper. 24 B. The turnover order precluded Debtor from claiming the homestead sale proceeds exempt under wildcard exemption. — 25 — 26 Debtor asserts very interesting policy arguments for why a 27 debtor should be able to exempt proceeds from the sale of his or 28 her home under the wildcard exemption, if for whatever reason the -101 debtor is unable to reinvest those proceeds in a new homestead 2 within the six month period required under California law, as 3 opposed to forfeiting those funds entirely. Debtor also offers 4 some interesting arguments for why the Ninth Circuit case of 5 In re Jacobson should be overruled. In Jacobson, the Ninth 6 Circuit held that under California law exempt homestead funds lose 7 their exempt status and the debtor loses the ability to exempt 8 those funds, if they are not reinvested in a new homestead within 9 six months. 676 F.3d at 1199-1200 . Jacobson, however, did not 10 discuss whether a debtor could alternatively claim non-reinvested 11 homestead sale proceeds exempt under the wildcard exemption after 12 the six-month period has expired. 13 Noticeably absent from Debtor's brief is precisely how the 14 bankruptcy court erred in sustaining Trustee's objection to 15 Debtor's amended wildcard exemption, other than his assertion 16 that, in violation of Law, the court read into the Code an 17 inherent "equitable" power to prohibit a debtor from claiming any 18 exemption whatsoever if the debtor has exceeded the six-month 19 reinvestment term for homestead sale proceeds, but yet is unable 20 to return the funds in excess of the wildcard due to having spent 21 the funds for his own support. 22 With the scant findings and conclusions before us, we cannot 23 determine on what basis the bankruptcy court sustained Trustee's 24 objection and disallowed Debtor's amended wildcard exemption. 25 Despite the bankruptcy court's lack of findings, however, our 26 review of whether Debtor had a right to claim the non-reinvested 27 homestead sale proceeds exempt under the wildcard exemption is de 28 novo. In re Kelley, 300 B.R. at 16 . We conclude that the -111 turnover order entered on February 20, 2015, precluded Debtor from 2 thereafter claiming any portion of the proceeds exempt. 3 The turnover order directed Debtor to tender the $75,000 in 4 homestead sale proceeds to Trustee. It was not appealed and is a 5 final order, which has the status of a money judgment under Civil 6 Rule 58. White v. Brown (In re White), 389 B.R. 693, 698-99 (9th 7 Cir. BAP 2008). Clearly, that order determined Debtor could not 8 subsequently claim the non-reinvested homestead sale proceeds 9 exempt under the wildcard (or any other) exemption under state 10 law; it necessarily subsumed a determination that the $75,000 was 11 nonexempt property of the estate. Id. at 699 . Thus, Debtor's 12 amended claimed exemption, or, in our opinion, his new claimed 13 exemption, for a portion of the non-reinvested homestead sale 14 proceeds under the wildcard exemption constituted nothing more 15 than an improper collateral attack on the turnover order. 16 Accordingly, we AFFIRM the exemption order on that basis.5 17 VI. CONCLUSION 18 For the foregoing reasons, we AFFIRM. — 19 — — 20 — — 21 — — 22 — — 23 — — 24 — — 25 — — 26 — — 27 — — 5 — We take no position on the merits of Debtor's arguments 28 and save our opinions on this important issue for another day. -12-