In re: Patrick Heath Caldwell

FILED FEB 24 2016 [1] 2 SUSAN M. SPRAUL, CLERK U.S. BKCY. APP. PANEL OF THE NINTH CIRCUIT 3 UNITED STATES BANKRUPTCY APPELLATE PANEL 4 OF THE NINTH CIRCUIT [5] 6 In re: ) BAP No. NV-15-1074-JuKiD ) 7 PATRICK HEATH CALDWELL, ) Bk. No. 2:14-bk-16024-LED ) 8 Debtor. ) ______________________________) 9 ) PATRICK HEATH CALDWELL, ) 10 ) Appellant, ) 11 ) v. ) O P I N I O N 12 ) VICTORIA L. NELSON, Chapter 7 ) 13 Trustee, ) ) 14 Appellee. ) ______________________________) [15] Argued and Submitted on February 18, 2016 16 at Las Vegas, Nevada 17 Filed - February 24, 2016 18 Appeal from the United States Bankruptcy Court for the District of Nevada [19] Honorable Laurel E. Davis, Bankruptcy Judge, Presiding 20 _________________________ 21 Appearances: A.J. Kung, Kung & Brown, argued for appellant Patrick Heath Caldwell. Jacob L. Houmand, 22 Nelson & Houmand, P.C., argued for appellee Victoria L. Nelson, chapter 7 trustee. 23 ________________________ 24 Before: JURY, KIRSCHER, and DUNN, Bankruptcy Judges. [28] 1 JURY, Bankruptcy Judge: [2] 3 Chapter 71 trustee, Victoria L. Nelson (Trustee), objected 4 to the Nevada homestead exemption in the amount of $550,000 5 claimed by debtor Patrick Heath Caldwell (Debtor), seeking to 6 limit it to the statutory cap of $155,675 under § 522(p)(1). 7 Trustee argued that Debtor acquired an interest in the homestead 8 property within the meaning of § 522(p)(1) because the property 9 was conveyed by Caldwell Family Investments II, LLC (LLC) to 10 Debtor and his spouse as trustees of the Caldwell Family 1998 11 Trust (Trust) during the 1215-day period preceding the date of 12 the filing of Debtor’s petition. Debtor asserted that the 13 limitation under § 522(p)(1) was not triggered since he retained 14 a beneficial and equitable interest in the property at all times 15 despite transfers of the fee title to the property to and from 16 the Trust and the LLC. 17 The bankruptcy court sustained Trustee’s objection. 18 Looking first to the laws of Nevada and Delaware regarding 19 limited liability companies, the court found that Debtor did not 20 have an ownership interest in the property during the time when 21 the LLC was the record title holder. Next, the court relied 22 upon Nevada case law which required a debtor to have some form 23 of equity in the property in order to claim a homestead — the 24 court finding that this equity contemplated ownership. Finally, [1] 26 Unless otherwise indicated, all chapter and section references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532 . 27 “Rule” references are to the Federal Rules of Bankruptcy Procedure, and “Civil Rule” references are to the Federal Rules 28 of Civil Procedure. -2- 1 the bankruptcy court followed out-of-jurisdiction case law which 2 rejected a debtor’s attempt to claim a homestead exemption in 3 real property held in the name of an LLC. Debtor moved for 4 reconsideration which the bankruptcy court denied. This appeal 5 followed. For the reasons explained below, we REVERSE. 6 I. FACTS 7 A. Prepetition Transfers Of Debtor’s Property 8 The facts are undisputed. Debtor and his spouse 9 (Ms. Caldwell) purchased real property located on Eagle Hills 10 Drive, Las Vegas, Nevada (Property) in March 1994. The record 11 shows that Debtor and Ms. Caldwell have continuously resided in 12 the home on the Property since they purchased it and have made 13 all mortgage payments, paid taxes, maintained insurance and 14 assumed all other responsibilities of a real property owner. 15 Since 1994 they have transferred title to the Property seven 16 times to and from the Trust and the LCC. These transfers were 17 for no consideration and, per Debtor’s declaration, for estate 18 planning purposes. 19 In June 1998, they transferred the Property to the Trust 20 with Debtor and Ms. Caldwell as the sole trustees via a recorded 21 quitclaim deed. Over five years later, in October 2003, the 22 Property was transferred from the Trust back to Debtor and 23 Ms. Caldwell as joint tenants via a recorded quitclaim deed. In 24 February 2006, Debtor and Ms. Caldwell transferred the Property 25 back to the Trust via a recorded quitclaim deed. 26 On October 14, 2008, Debtor formed the LLC, a Delaware 27 limited liability company, by filing Articles of Organization 28 with the Delaware Secretary of State. Debtor and Ms. Caldwell -3- 1 are the sole members of the LLC. In November 2010, the Property 2 was transferred from the Trust to the LLC via a recorded 3 quitclaim deed. On April 26, 2011, a declaration of homestead 4 was recorded against the Property by the LLC. 5 On October 10, 2011, the Property was transferred from the 6 LLC to the Trust. On the same date, a declaration of homestead 7 was recorded against the Property, this time by the Trust, which 8 stated the following: “This declaration constitutes an 9 abandonment of the former declaration recorded on April 26, 10 2011.” 11 B. Bankruptcy Events 12 On September 5, 2014, 1061 days after the LLC transferred 13 title to the Property to the Trust, Debtor filed his chapter 7 14 petition (Petition Date). Ms. Nelson was appointed as the 15 chapter 7 trustee. 16 In his schedules, Debtor listed the Property value as 17 $1,065,000 and total liens of $516,802, leaving a net equity of 18 $548,198 in the Property. Debtor claimed the full $550,000 19 homestead exemption in the Property under Nevada Revised 20 Statutes (NRS) 21.090(1)(l) and 115.050. 21 Trustee objected to Debtor’s homestead exemption in the 22 amount of $550,000, seeking to limit it to $155,675 under 23 § 522(p)(1) due to the transfer from the LLC to the Trust within 24 the 1215-day period prior to the Petition Date. 25 In response, Debtor argued that the limitation under 26 § 522(p)(1) did not apply because he always retained a 27 beneficial and equitable interest in the Property despite the 28 numerous transfers of legal title to and from the Trust and the -4- 1 LLC. Debtor reasoned that such interests were retained since he 2 and his spouse were the sole trustees of the Trust and the sole 3 members of the LLC and thus Debtor was “merely transferring 4 title from himself to an entity owned by him.” He also asserted 5 that although the LLC held the title to the Property, his 6 continuing payment of taxes, the mortgage, and insurance 7 indicated that he and Ms. Caldwell continued to use and consider 8 the Property as their own. Debtor further maintained that 9 neither he nor Ms. Caldwell needed to be vested with legal title 10 to validly declare a homestead under NRS 115.020. For these 11 reasons, Debtor argued anew that he received no “interest” for 12 purposes of § 522(p)(1) or the homestead exemption under Nevada 13 law when the LLC transferred legal title to the Trust. Finally, 14 Debtor pointed out that the purpose behind § 522(p)(1) would not 15 be served under the facts of this case as he never attempted to 16 shield assets or liquidate nonexempt assets to artificially 17 increase the equity in his home. 18 In a supporting declaration, Debtor testified that the 19 transfers of title to the Property were “made for estate 20 planning purposes only, pursuant to advice from [his] financial 21 planners and/or counsel.” He also declared: 22 My wife and I have always been the sole trustee and members of the Family Trust and Family Investment LLC; 23 and the Family Trust and Family Investment LLC held legal title to the Eagle Hills Home at various times, 24 in trust for my wife and I. 25 After a hearing on January 27, 2015, the bankruptcy court 26 placed its findings of fact and conclusions of law on the record 27 on February 17, 2015. The court ruled that Debtor acquired an 28 interest in the Property on October 10, 2011, the date the LLC -5- 1 transferred the Property to the Trust, and because this date was 2 1061 days prior to the petition date, § 522(p)(1) limited 3 Debtor’s homestead exemption to $155,675. In reaching this 4 conclusion, the court noted that under either Nevada or Delaware 5 limited liability law, Debtor did not hold an interest in the 6 Property while it was titled in the name of the LLC because the 7 LLC was a separate legal entity and a member’s interest in a 8 limited liability company is personal property. The court 9 further noted that a requirement for exempting equity in a 10 homestead under Nevada law was an ownership interest rather than 11 a general or possessory interest in the Property, citing Savage 12 v. Pierson, 157 P.3d 697 (Nev. 2007). Finally, relying on out13 of-jurisdiction case law which interpreted exemption statutes in 14 other states, the bankruptcy court rejected Debtor’s contention 15 that he could claim a homestead exemption in real property held 16 in the name of an LLC. Based on all these authorities, the 17 court found that Debtor acquired his interest in the Property 18 within the meaning of § 522(p)(1)(A) on October 10, 2011, when 19 title to the Property was transferred by the LLC to the Trust. 20 On February 24, 2015, the bankruptcy court entered the 21 order sustaining Trustee’s objection (Exemption Order). On the 22 same day, Debtor filed a motion for reconsideration. There, 23 Debtor maintained that the LLC held the Property “in trust” for 24 Debtor and Ms. Caldwell. As a result of this trust-like 25 arrangement, Debtor asserted that he retained a beneficial or 26 equitable interest in the Property and, therefore, he could 27 claim a homestead exemption in the Property under Nevada 28 homestead law even though the LLC was the record titleholder of -6- 1 the Property. 2 On March 3, 2015, Debtor filed a notice of appeal (NOA) 3 from the Exemption Order. Subsequently, the bankruptcy court 4 rejected Debtor’s “in trust” theory on the ground that there was 5 no evidence of an express trust between Debtor and the LLC and 6 thus even if such a trust existed, it was a “secret” trust. The 7 court denied his motion for reconsideration by an order entered 8 on March 13, 2015 (Reconsideration Order). Debtor then filed an 9 amended NOA indicating that he was appealing both the Exemption 10 Order and the Reconsideration Order.2 11 II. JURISDICTION 12 The bankruptcy court had jurisdiction pursuant to 28 U.S.C. 13 §§ 1334 and 157(b)(2)(B). We have jurisdiction under 28 U.S.C. 14 § 158. 15 III. ISSUE 16 Whether the bankruptcy court erred by finding that [17] 18 2 Trustee subsequently entered into a compromise with U.S. 19 Bank, N.A. which held a stipulated judgment lien on the Property. The parties disputed whether such lien was perfected. 20 Pursuant to the compromise, the estate would receive 67% of the net proceeds from the sale of the Property and the bank would 21 receive 33% of the proceeds. Trustee then listed the Property for sale. Debtor moved for a stay pending appeal which the [22] bankruptcy court denied. On June 10, 2015, the Panel denied 23 Debtor’s request for an emergency stay. On September 4, 2015, the Panel granted Debtor’s renewed motion for an emergency stay 24 to prevent the sale of the Property pending resolution of this appeal, as the sale would not provide enough proceeds to satisfy 25 Debtor’s homestead exemption claimed in the amount of $550,000 26 should he prevail. In other words, if Debtor prevails, the estate will net no money after the homestead is paid, which 27 would make such sale of no benefit to the estate. The stay was conditioned upon Debtor’s continued payments on the secured debt 28 and maintenance of insurance on the Property. -7- 1 § 522(p)(1) applied under these circumstances. 2 IV. STANDARDS OF REVIEW 3 A bankruptcy court’s interpretation of the Bankruptcy Code 4 is a matter of law subject to de novo review. Predovich v. 5 Staffer (In re Staffer), 262 B.R. 80, 82 (9th Cir. BAP 2001), 6 aff’d, 306 F.3d 967 (9th Cir. 2002). 7 We review a bankruptcy court’s interpretation of state law 8 de novo in order to determine if it correctly applied the 9 substantive law. Kipperman v. Proulx (In re Burns), 291 B.R. 10 846, 849 (9th Cir. BAP 2003) (citing Astaire v. Best Film & 11 Video Corp., 116 F.3d 1297, 1300 (9th Cir. 1997) (issues of 12 state law are reviewed de novo). 13 Findings of fact are reviewed under a clearly erroneous 14 standard. A court’s factual determination is clearly erroneous 15 if it is illogical, implausible, or without support in the 16 record. United States v. Hinkson, 585 F.3d 1247 , 1261-62 & n.21 17 (9th Cir. 2009) (en banc). 18 V. DISCUSSION 19 Section 522(p)(1) imposes a limitation on the homestead 20 exemption a debtor can claim regardless of the applicable state 21 law exemptions. In re Kane, 336 B.R. 477, 481 (Bankr. D. Nev. 22 2006); In re Virissimo, 332 B.R. 201, 207 (Bankr. D. Nev. 2005). 23 Section 522(p)(1) provides in relevant part: 24 Except as provided in paragraph (2) of this subsection and sections 544 and 548, as a result of electing 25 under subsection (b)(3)(A) to exempt property under State or local law, a debtor may not exempt any amount 26 of interest that was acquired by the debtor during the 1215-day period preceding the date of the filing of 27 the petition that exceeds in the aggregate $155,675 in value in-- [28] -8- 1 (A) real or personal property that the debtor or a dependent of the debtor uses as a residence; . . . . [2] 3 To determine whether the statutory cap applies, we consider 4 whether Debtor “acquired an interest” within 1215 days of filing 5 for relief. 6 In this regard, Trustee submits that Debtor had no interest 7 in the Property prior to the October 10, 2011 transfer of legal 8 title from the LLC to the Trust because (1) the LLC held legal 9 title to the Property; (2) the LLC was the legal owner of the 10 Property under Delaware and Nevada limited liability laws; and 11 (3) Debtor could not have claimed a homestead exemption while 12 the Property was held in the name of the LLC. According to 13 Trustee, it follows that the upon the transfer of legal title 14 from the LLC to the Trust,3 Debtor “acquired an interest” in the 15 Property within the meaning of § 522(p)(1). 16 In response, Debtor asserts that he retained a beneficial 17 and equitable interest in the Property since 1994 despite the 18 transfers of title to and from the LLC and the Trust over the 19 years. To demonstrate his retained interest, he points out that 20 he and Ms. Caldwell have continuously resided in the dwelling on 21 the Property since 1994 and have paid the mortgage, taxes, and 22 insurance. Debtor further asserts that he could claim a 23 homestead exemption under Nevada law while title was held by the 24 LLC because of his use and continued possession of the Property 25 as a “householder,” and there is no requirement that he hold [3] 27 Trustee concedes that when title is in a revocable trust where a debtor is the settlor and beneficiary, the debtor may 28 claim a homestead. -9- 1 legal title to the Property for it to be a homestead under 2 Nevada law. According to Debtor, since he retained an interest 3 in the Property and it was always his homestead, the Property 4 was always an exempt asset under Nevada law despite the transfer 5 of title to the LLC. Based on these premises, Debtor contends 6 that he did not “acquire an interest” when the LLC transferred 7 title to the Property to the Trust within 1061 days before the 8 Petition Date, and thus the limitation of § 522(p)(1) is not 9 applicable. In short, Debtor’s position, for purposes of the 10 homestead exemption, is that he retained a sufficient interest 11 in the Property during all the multiple conveyances of legal 12 title to and from the LLC. For the reasons discussed below, 13 Debtor has the better argument. 14 We look to Nevada law to determine whether Debtor held an 15 interest in the Property which would support a claim of 16 homestead while the LLC was the sole titleholder. Butner v. 17 United States, 440 U.S. 48 , 54–55 (1979) (determination of 18 property rights is controlled by state law). NRS 21.090(1)(l) 19 exempts homestead property from execution “as provided for by 20 law.” Under NRS 115.005(2)(a), the “Homestead” is broadly 21 defined as “the property consisting of . . . [a] quantity of 22 land, together with the dwelling house thereon and its 23 appurtenances; . . . .” These statutes do not designate how 24 title to the property is to be held, and they do not limit the 25 estate that must be owned, i.e., fee simple or some lesser 26 interest. Nevada courts have held that the exemption should be 27 liberally and beneficially construed in favor of the debtor and 28 protecting the family home. See In re Norris, 203 B.R. 463 , 465 -10- 1 (Bankr. D. Nev. 1996) (citing Jackman v. Nance, 857 P.2d 7 (Nev. 2 1993)). 3 In Nevada, to secure the benefits of the statutory 4 provisions exempting the homestead from forced sale, it is 5 necessary that a declaration of homestead be filed for record.4 6 NRS 115.020; I.H. Kent Co. v. Busscher, 277 F.2d 901, 905 (9th 7 Cir. 1960). “The declaration must state: (a) When made by a 8 married person or persons, that they or either of them are 9 married, or if not married, that he or she is a householder.” 10 NRS 115.020(2)(a). The Nevada Supreme Court has “defined the 11 term householder as ‘one who keeps house,’ further stating that 12 a householder ‘must be in actual possession of the house’ and 13 must be ‘the occupier of a house.’” Van Meter v. Nilsson (In re 14 Nilsson), 315 P.3d 966, 969 (Nev. 2013) (quoting Goldfield 15 Mohawk Mining Co. v. Frances–Mohawk Mining & Leasing Co., 102 P. 16 963, 965 (Nev. 1909)). In Goldfield, the court stated that 17 “householder” referred “to the civil status of a person, not his 18 property, and a man may be a householder without owning real 19 estate.” 102 P. at 966. 20 Debtor maintains that he was the “householder” of the 21 Property since he and his family continuously occupied the 22 Property as their primary residence since 1994. We note that 23 the requirement of “householder” as used in the declaration 24 statute is directed at persons “not married.” NRS 25 115.020(2)(a). As we understand the record, Debtor was married. [4] The declaration may be filed at any time prior to an 28 execution sale. -11- 1 Nonetheless, the “householder” definition is useful for our 2 analysis. Based on the undisputed evidence that Debtor 3 continually resided on the Property since 1994 and was at all 4 times in actual possession of the house, we have no doubt that 5 Debtor meets the definition of a “householder” under Nevada law. 6 Debtor met the possession and occupancy requirements for a 7 “householder” and did not need to hold fee simple title to the 8 Property to achieve that status under Nevada law. Accordingly, 9 Debtor has established that the Property was protected as a 10 homestead even when the LLC was the titleholder. 11 Although Debtor was a “householder,” Nevada law requires 12 that a homestead claimant have some type of interest in the 13 property to claim the “equity” exemption up to $550,000 under 14 NRS 115.010. While Nevada law does not distinguish between the 15 types of interests in property that qualify for the homestead 16 exemption,5 the Nevada Supreme Court has held that a claimant 17 must have more than a general interest in or right to possession 18 of the property claimed to be exempt. Savage, 157 P.3d at 701 - 19 02. There, the court considered whether a security deposit in a 20 residential lease was exempt from execution under NRS 21 21.090(1)(l) or Nevada’s homestead law.6 The court first noted 22 that the homestead exemption extended only to the “equity” in 23 the property held by the claimant. “Equity” is defined in NRS [5] Likewise, it is not necessary for us to do so in the 25 context of this appeal. 26 6 The court also considered the exempt status of the 27 security deposit under NRS 21.090(1)(m) - Nevada’s dwelling exemption. In that analysis, the court came to the same 28 conclusion that it was not exempt. -12- 1 115.005(1) as “the amount that is determined by subtracting from 2 the fair market value of the property the value of any liens 3 excepted from the homestead exemption pursuant to subsection 3 4 of NRS 115.010 or NRS 115.090.” In interpreting the statutory 5 language, the court concluded that “the statutory definition of 6 ‘equity’ [under NRS 115.005(1)] contemplates more than a general 7 ‘interest’ in the property or the right to possession, it 8 contemplates ownership.” 157 P.3d at 701 . Since the security 9 deposit did not qualify as “equity,” the court decided that the 10 debtor could not claim it exempt under Nevada’s homestead law. 11 Although Savage is factually distinguishable from this 12 case, the Nevada court’s interpretation of “equity” in the 13 context of the homestead exemption provides some guidance for 14 our review in this appeal. In contrast to Trustee’s position, 15 the holding in Savage does not say that a debtor has to have an 16 ownership interest in the property equivalent to fee simple 17 ownership in order to claim a homestead exemption. Although the 18 court found that the definition of “equity” contemplated 19 “ownership,” it did not limit the estate that must be owned 20 beyond saying that the interest had to be more than a “general 21 interest” or right to possession. Read in the context of the 22 definition of a “householder” and the case law we cited above, 23 the “ownership” required by Savage cannot be limited to only fee 24 simple title. 25 The record shows that the interest Debtor retained in the 26 Property after the transfer of legal title to the LLC was more 27 than a general interest or the mere right to exclusive 28 possession. According to the record, he retained all the -13- 1 indicia of ownership by his possession and use of the Property 2 along with the payment of the mortgage, taxes, and insurance. 3 Plainly, the “equity” in the Property which is subject to the 4 exemption was the result of payments made by Debtor over the 5 years. Trustee did not present any evidence to controvert these 6 facts. We thus conclude that Debtor was not divested of all 7 interests in the Property by the transfer of legal title to the 8 Property to the LLC. Accordingly, Debtor’s homestead rights in 9 the Property before and after the transfers of title remained 10 unchanged. 11 Finally, it does not matter that a declaration of homestead 12 with respect to the Property was filed on October 10, 2011, 13 within 1061 days of the filing of the petition. The filing of a 14 homestead declaration does not trigger the statutory cap under 15 § 522(p)(1). Greene v. Savage (In re Greene), 583 F.3d 614 , 620 16 (9th Cir. 2009). Like the debtor in Greene, Debtor acquired his 17 exemptible interest in the Property in 1994, well outside the 18 statutory period contained in § 522(p)(1), and, as discussed 19 above, that exemptible interest never changed. 20 In enacting § 522(p)(1), we do not believe that Congress 21 envisioned limiting a debtor’s homestead exemption where as here 22 (1) debtor purchased the property in 1994, well before the start 23 of the 1215-day period, (2) continuously possessed and occupied 24 the Property as his homestead, and (3) accumulated the “equity” 25 by making regular mortgage payments throughout his occupancy. 26 In sum, we conclude that the transfer of title from the LLC 27 to the Trust did not constitute an “interest” that was 28 “acquired” by Debtor to limit his homestead claim, within the -14- 1 meaning of § 522(p)(1). As discussed above, Nevada law 2 protected Debtor’s homestead rights in the Property throughout 3 the various transfers of title. Therefore, the statutory cap 4 does not apply.7 5 VI. CONCLUSION 6 We REVERSE the bankruptcy court’s order limiting Debtor’s 7 homestead exemption pursuant to § 522(p)(1). [7] 27 Because we reverse on other grounds, it is not necessary for us to address Debtor’s other argument that the LLC held the 28 Property “in trust.” -15-