In Re: Steve William Nolan

[7] 8 UNITED STATES DISTRICT COURT [9] CENTRAL DISTRICT OF CALIFORNIA [10] IN RE: STEVE WILLIAM NOLAN CASE NO. 5:20-cv-01496-MCS [11] 12 USBC Central District of CA at Riverside Division, 6:19-bk-17161-SC [13] 14 ORDER AFFIRMING BANKRUPTCY COURT’S ORDER OVERRULING [15] TRUSTEE’S OBJECTION TO 16 APPELLEE’S CLAIMED HOMESTEAD EXEMPTION [18] Before the Court is an appeal from the United States Bankruptcy Court (the [19] Honorable Scott C. Clarkson, United States Bankruptcy Judge). Appellant Karl T. [20] Anderson, Chapter 7 Trustee for Debtor Steve William Nolan’s estate, appeals from [21] the Bankruptcy Court’s Order Overruling Anderson’s Objection to Nolan’s claimed [22] homestead exemption. (Docket No. 28–29.) Having reviewed the Bankruptcy [23] Court’s reasons for overruling the Appellant’s objection, that court’s decision is [24] AFFIRMED for the reasons stated below. [25] I. BACKGROUND [26] On May 20, 1993, Appellee’s father, William B. Nolan, established a living [27] trust (“Trust”) in his name. (Appellant Anderson’s Opening Brief, Docket No. 28, 1 16.) The Trust was amended two more times, with the third and final amendment 2 occurring on April 28, 2012. (Id.) On December 6, 2016, William B. Nolan recorded 3 a quitclaim deed transferring title of his home located in Corona, California 4 (“Corona Property”) from himself to the Trust. (Id.) 5 William B. Nolan passed away on January 21, 2017, leaving behind two 6 surviving sons, Appellee and his brother Gregory Nolan. (Id.) In relevant part, the 7 Trust stated that its assets would be liquidated and distributed to the Trust 8 beneficiaries upon the death of the Trustor. (Id.); see also Notice of Bankruptcy 9 Appeal (“Notice”), Bankruptcy Court Order, Docket No. 1, 4–5.1 Steven Nolan was 10 the trustee at the time and, according to Appellant, “continued to reside at the 11 Property in breach of his fiduciary duty” to liquidate the Trust as instructed. 12 (Opening Brief 16.) 13 On July 1, 2019, Gregory Nolan filed a petition in the probate division of the 14 Riverside County state court. (Id.) In doing so, Gregory Nolan sought to compel an 15 accounting and to remove Steven Nolan as trustee (who had been serving in that 16 role) in favor of having the probate court appoint a new one. (Id.)2 17 On August 15, 2019, Steven Nolan filed a chapter 7 voluntary petition in the 18 U.S. Bankruptcy Court in Los Angeles, California. (Id.); Appellant’s U.S. 19 Bankruptcy Court Docket (“USBC Docket”), Docket No. 1-1, 1. In the petition, 20 Steven Nolan claimed the Corona Property as the address where he resided. 21 (Opening Brief 17); Appellee’s Bankruptcy Petition (“Appellee’s Petition”), 22 Opening Brief Appendix 1, Docket No. 21-1, 3. More specifically, he submitted a [23] 24 1 The Bankruptcy Court’s order included the full plain language of the Trust, which read: “The Trustee shall [] distribute the remaining trust estate as herein provided . . . the Trustee shall divide [25] the trust estate into as many equal shares as there are children of the Trustor . . . Any share 26 allocated to a living child of the Trustor shall be distributed to that child, free of trust.” 2 Appellant makes these allegations, but then later claims that the Property was “only in the 27 process of being administered to effectuate the Father’s intent that his assets be distributed equally to his son.” (Opening Brief 34.) 1 Schedule C form for “The Property [He] Claimed[ed] as Exempt,” seeking a 2 homestead exemption of $75,000 for the “Corona Property” under California Code 3 of Civil Procedure § 704.730. (Appellee’s Petition 18.) Title to the Corona Property 4 has remained in the Trust’s name since William B. Nolan quitclaimed it to the Trust. 5 (Opening Brief 17.) 6 On November 20, 2019, the Bankruptcy Court granted Gregory Nolan’s relief 7 from the automatic stay to proceed with the state court probate action. (Id. at 17– 8 18.) On December 18, 2019, the probate court issued an order removing Steven 9 Nolan as the trustee of the Trust and made Gregory Nolan the successor trustee. (Id. 10 at 18.) 11 On May 21, 2020, Appellant Trustee filed an objection to Appellee Steven 12 Nolan’s claimed homestead exemption in the Corona Property. (Id.); see also 13 Appendix 5 to Appellant’s Opening Brief, Notice of Motion and Motion Objecting 14 to Debtor’s Claimed Homestead Exemption (“Objection”), Docket No. 29-5, 2. 15 Steven Nolan opposed Trustee’s Objection on June 9, 2020. (Opening Brief 18.) 16 Trustee replied to Steven Nolan’s opposition on June 16, 2020. (Id.) 17 The Bankruptcy Court held a hearing on the Trustee’s motion on June 23, 18 2020 and subsequently took the matter under submission. (Id.); Bankruptcy Court 19 Hearing Transcript (“Hearing Transcript”), Docket No. 29-10. The Bankruptcy 20 Court entered an order overruling the Objection on July 21, 2020. (Opening Brief 21 18.) The Bankruptcy Court designated its order for publication. (Id.) On July 27, 22 2020, Appellant Trustee filed a notice of appeal with the United States District 23 Court. (Id.) 24 II. QUESTIONS PRESENTED ON APPEAL3 25 1. Is the probate court exception applicable to this case? [26] 27 3 Appellant stated five issues on appeal, however the Court has found that the key issues can be distilled down to the following questions. [1] 2. Did the Bankruptcy Court err in granting the exemption? [2] 3 3. Did the Bankruptcy Court make improper factual findings before issuing its order granting Debtor’s homestead exemption? [5] III. STANDARD OF REVIEW [6] 7 “Pursuant to 28 U.S.C. section 158 (a), federal district courts have 8 jurisdiction to review appeals from Bankruptcy Court judgments and final 9 orders. A bankruptcy court’s order denying an exemption is a final, appealable 10 order.” , 2017 WL 8186670 , at *3 (C.D. Cal. August 15, 2017) 11 (citing , 181 F.3d 1048, 1056 (9th Cir. 1999)). 12 “The Court reviews a bankruptcy court’s interpretation of state exemption 13 laws de novo, considering a matter anew, as if no decision had been rendered 14 previously.” . (quoting , 507 B.R. 724, 728 (9th Cir. BAP 2014) 15 (internal quotations omitted)). A district court reviews a bankruptcy court’s 16 conclusions of law de novo and its findings of fact for clear error. 17 , 2020 WL 3965031 , at *1 (C.D. Cal. April 2, 2020) (citing 18 , 503 F.3d 933, 940 (9th Cir. 2007)). 19 Pertinent to this appeal, whether Steven Nolan was properly permitted to 20 claim the homestead exemption on the Corona Property is a question of law, 21 whereas whether he continuously resided at the Corona Property or intended to 22 use it as his permanent dwelling on the petition date is a question of fact. 23 , WL 8186670, at *3 (holding that this standard applies for these 24 particular issues); , 300 B.R. 11, 16 (9th Cir. B.A.P. 2003) 25 (“[Q]uestions regarding the right of a debtor to claim exemptions are questions of 26 law subject to de novo review, whereas the issue of a debtor’s intent is a question 27 to be reviewed under the clearly erroneous standard.”). Factual findings are 1 inferences that may be drawn from the record.” , WL 8186670, at *3. 2 Similarly, findings of fact are not clearly erroneous unless the reviewing court 3 has a definite and firm conviction that a mistake has been made. (citing 4 , 278 F.App’x 741, 742 (9th Cir. 2008)) (internal quotations and marks 5 omitted). 6 IV. DISCUSSION [7] “Substantive issues regarding the allowance or disallowance of the claimed [8] exemption at issue are governed by California Law.” Id. (citing In re Diener, 483 9 B.R. 196, 203 (9th Cir. B.A.P. 2012)). Furthermore, “[u]nder the California Code of [10] Civil Procedure, a debtor in bankruptcy’s interest in his dwelling may not be sold to [11] enforce a money judgment.” Id. (citing Cal. Civ. Proc. Code §§ 704.720 , [12] 704.740(a)). [13] A. Bankruptcy Filing and Claimed Homestead Exemption [14] “When a debtor files a bankruptcy petition, all of his assets become property [15] of the estate and may be used to pay creditors, subject to the debtor’s ability to [16] reclaim specified property as exempt.” In re Elliot, 523 B.R. 188, 192 (9th Cir. [17] B.A.P. 2014) (citing Schwab v. Reilly, 560 U.S. 770, 774 (2010)). “Under the [18] ‘snapshot’ rule, bankruptcy exemptions are fixed at the time of the bankruptcy [19] petition.” In re Jacobson, 676 F.3d 1193, 1199 (9th Cir. 2012). The “exemptions [20] must be determined in accordance with” 11 U.S.C. 522(b)(3)(A). Id. “Section [21] 522(b) permits a debtor to exempt either the property set forth in section 522(d) or, [22] alternatively, any property that is exempt under state law ‘that is applicable on the [23] date of the filing of the petition.’” In re Diener, 483 B.R. at 203 (quoting 11 U.S.C. [24] § 522 (e)(3)(A–B)). [25] “California has elected to ‘opt out’ of the federal exemption scheme, so [26] California residents filing for bankruptcy are limited to the exemptions afforded [27] under state law.” Id. “Therefore, substantive issues regarding the allowance or 1 disallowance of the claimed exemption at issue are governed by California law.” Id. 2 In California, there are two types of homesteads: declared and automatic. Amin v. 3 Khazindar, 112 Cal.App.4th 582, 588 (2003). The declared homestead, which may 4 be recorded, “protects the property from execution by certain creditors to the extent 5 of the amount of the homestead.” Id. (citing Code Civ. Proc. § 704.920). “Because 6 many California debtors used to fail to record these exemptions, the legislature in 7 1974 enacted laws creating an automatic homestead exemption. Id. (citing Code. 8 Civ. Proc. § 704.720). “The automatic homestead exemption is available when a 9 party has continuously resided in a dwelling from the time that a creditors’ lien 10 attaches until a court’s determination in the forced sale process that the exemption 11 does not apply.” Amin, 112 Cal.App. 4th, at 588 (quoting In re Mulch, 182 B.R. 569 , 12 572 (Bankr.N.D.Cal.1995); Webb v. Trippet 235 Cal.App.3d 647, 651 (1991)). 13 These two exemptions are distinct protections. Id. 14 1. Burden of Proof: FRBP 4003 And CCP § 703.130 15 Under the Federal Rules of Bankruptcy Procedure (“Fed. Rules Bankr. 16 Proc.”) “the objecting party has the burden of proving that the exemptions are not 17 properly claimed.” Fed. Rules Bankr. Proc. Rule 4003(c). The bankruptcy code 18 authorizes a debtor to exempt certain assets. 11 U.S.C. § 522 (b). “A claimed 19 exemption is ‘presumptively valid.’” In re Green, 2017 WL 957151 , at *7 (9th Cir. 20 B.A.P. March 10, 2017) (quoting Carter v Anderson (In re Carter), 182 F.3d 1027 , 21 1029 n.3 (9th Cir. 1999)). However, “where the state law exemption statute 22 specifically allocates the burden of proof to the debtor, Rule 4003(c) does not 23 change that allocation.” Childs v. Gladstone, WL 4849170, at *4 (S.D. Cal. October 24 1, 2019) (quoting Diaz v. Kosmala (In re Diaz), 547 B.R. 329, 337 (B.A.P. 9th Cir. 25 2016) (distinguishing the presumption outlined in Carter from the Supreme Court’s 26 opinion in Raleigh v. Illinois Dep’t of Revenue, which was decided a year after 27 Carter). In Childs, the court cited the Diaz court’s comments on Raleigh, stating that 1 4849170, at *4 (quoting Diaz, 547 B.R. at 337 (citing Raleigh v. Illinois Dep’t of 2 Revenue, 530 U.S. 15 , 20–21 (2000))). Accordingly, Appellee holds the burden of 3 establishing the right to the exemption and, once alleged, Appellant has the burden 4 of rebutting that claim. 5 2. The Probate Exception 6 “The probate exception to federal jurisdiction reserves probate matters to state 7 probate courts and precludes federal courts from disposing of property in the 8 custody of a state court.” Goncalves By and Through Goncalves v. Rady Children’s 9 Hospital San Diego, 865 F.3d 1237, 1251 (9th Cir. 2017) (citing Marshall v. 10 Marshall, 547 U.S. 293, 311 (2006)). “But it does not bar federal courts from 11 adjudicating matters outside those confines and otherwise within federal 12 jurisdiction.” Id. “Federal courts have jurisdiction to entertain suits to determine the 13 rights of creditors, legatees, heirs, and other claimants against a decedent’s estate, so 14 long as the federal court does not interfere with the probate proceedings.’” Id. 15 (internal quotations omitted). 16 On appeal, Appellant argues that the Bankruptcy Court’s “decision was 17 premature and [that] the court should have deferred any ruling on the exemption 18 until the [p]robate [c]ourt completed its adjudication regarding the [t]rust and the 19 right of the parties in the Property[,]” because the probate exception applies. 20 (Opening Brief 33.) Appellant, however, has not sufficiently addressed this issue in 21 his briefing and it is unclear whether the probate exception applies here. During the 22 Bankruptcy proceedings Appellant claimed that, “due to Debtor’s willful failure to 23 faithfully carry out his duties as trustee of the Trust, [Gregory Nolan] filed a petition 24 in probate court to remove [Steven Nolan] as trustee[] and the probate court entered 25 judgment accordingly.” (Objection 9.) However, upon review, Appellant offers 26 many conflicting statements regarding this issue. 27 On one hand, Appellant claims that the probate proceedings were instituted 1 probate will be determining [whether Debtor is] entitled to [claim the exemption] 2 under the language of the trust.”). Appellant otherwise merely states that there is a 3 removal proceeding happening in state probate court (or that has happened since the 4 Objection). (Opening Brief 12, 16, 26); see also Hearing Transcript 5, 14, 17. 5 Namely, during the hearing, Appellee referred to the probate proceedings as a 6 removal action. (Hearing Transcript 17.) (“There was a removal action, and the 7 probate matter is ongoing.”) On another occasion, Appellee explained that the 8 probate action would have occurred because his brother was bringing an unlawful 9 detainer action against him and he “wanted that to get adjudicated before bringing 10 the objection.” (Hearing Transcript 14.) Due to COVID-19 related resource issues, 11 however Appellant was willing to continue the Objection matter until the matter 12 “pending on adjudication [regarding] whether the [Appellee’s] possession [of the 13 Property] was unlawful” was resolved. (Id.) Accordingly, if Appellee was deemed to 14 be detaining, he would have been ordered to vacate the property and it would be 15 sold. (Id.) Appellee countered that he intended to keep the house and buy out his 16 brother, which is evidenced by Appellee’s occupancy attestation in the Petition 17 forms. (Hearing Transcript 22.) 18 These numerous inconsistencies strongly damage Appellant’s argument on 19 appeal, particularly regarding the applicability of the probate exception. For the 20 probate exception to apply, and thereby prohibit the Bankruptcy court from hearing 21 the homestead exemption issues, the probate court must have exclusive jurisdiction 22 over the matter. See Goncalves, 865 F.3d at 1252 (“[U]nless a federal court is 23 endeavoring to (1) probate or annul a will, (2) administer a decedent’s estate, or (3) 24 assume in rem jurisdiction over property that is in custody of the probate court, the 25 probate exception does not apply.”). 26 Although these are nuanced issues which are related to, but distinct from, the 27 homestead exemption laws, both Appellee and Appellant have not fully alleged the 1 least shift the burden to Appellant. For example, during the hearing the judge asked 2 Appellee why he believes that § 704.910, the declared homestead exemption, 3 “excludes beneficiaries of [a] trust.” (Hearing Transcript 23.) In response, Appellee 4 relied on a case that identified the difference between the two types of homesteads 5 available in California, but neglected to describe those distinctions after mentioning 6 the case. (See Hearing Transcript 23–25) (“I think the more likely reason for that is 7 identified in the Amin v. Khazindar case, where they explain the reason for this law 8 to begin with.”). Instead, Appellee emphasized that, as trustee of the estate who was 9 living there at the time he filed Bankruptcy, Appellee had “full legal control of the 10 property” only because of his status as trustee (thereby forfeiting him the right to a 11 homestead exemption if he is removed as trustee). (Hearing Transcript 26–27.) 12 Earlier, however, Appellee stated that “we cited some authority in our response that 13 seems to make it clear that residency or dwelling analysis does not require 14 ownership.” (Hearing Transcript 17.) That statement is true as to the automatic 15 homestead exemption. Indeed, Appellee’s brief alleged that “it is not in dispute that 16 [Appellee] is presently, and has for many years, resided in the Property.” (Debtor’s 17 Reply to Trustee’s Objection (“Debtor’s Reply”), Docket No. 21-6, 6.) Appellee 18 also cited California law to establish that “[t]here is nothing that suggests 703.020 19 requires that a claimant owns the property subject to a claim of exemption rather 20 than merely possess it.” (Id.) (citing Broadway Foreclosure Investments, LLC v. 21 Tarlesson, 184 Cal.App.4th 931, 937 (2010)). Appellant, on the other hand, argues 22 that Appellee could not claim bare legal title to the house (because that belongs to 23 the estate) and that his equitable interest could not suffice because it “is not the 24 property itself.” (Id. at 27.) This response addresses why Appellee cannot claim a 25 declared homestead exemption (section 704.950), but it does not address the 26 automatic homestead (section 704.710–704.850). 27 / / / 1 A similar problem exists regarding Appellant’s response to Appellee’s 2 position. First, he cites no law to directly establish that Appellee does not own an 3 equitable interest in the property. Instead, he cites caselaw that highlights how a 4 debtor who holds legal title to a property solely for the benefit of another (i.e. like as 5 a trustee), has only bare legal title and therefore cannot be exempted in the debtor’s 6 estate. (See Appellee’s Reply to Debtor’s Reply (“Trustee’s Reply”), Docket No. 7 21-7, 7.) (citing a string of cases ranging mostly from 1986 to 1991). These 8 arguments only partially address the crux of the question presented before the court 9 (i.e. whether Appellee’s residence in the Property and his beneficiary interest in the 10 Trust allows him to claim the automatic homestead exemption). Further, Appellant’s 11 reply neglects to acknowledge the role that Appellee’s beneficiary interest in the 12 Trust may play in allowing him to claim the exemption. (See generally Trustee’s 13 Reply 9.) Although Appellant cites section 704.710, he does not address Appellee’s 14 potential interest in the Trust and does not cite any law to confirm that it may not be 15 considered an equitable interest. 16 These examples evidence both parties’ neglect to fully distinguish the probate 17 exception issues from the beneficiary interest issues. This negligence, however, 18 primarily hurts Appellant’s arguments because Appellee established that he could 19 potentially claim the automatic exemption, which shifted the burden to Appellant to 20 discredit that conclusion. 21 Ultimately, the Court finds that Appellant has waived the argument regarding 22 the probate exception here. Appellant did not sufficiently argue the point during the 23 Bankruptcy court proceedings, during his Objection pleadings, or during his 24 Opening Brief. Appellant’s objection to Appellee’s claimed exemption generally 25 references the relevant facts relating to the probate action that was ongoing at the 26 time of the Bankruptcy Court case. (See generally Objection.) Otherwise, the 27 Objection is completely silent on the applicability of the probate exception and 1 Appellant’s Reply does not provide legal analysis to support its applicability. 2 Further, Appellant merely mentioned the probate exception during the hearing 3 without supporting any argument with caselaw authority. (Hearing Transcript 10.) 4 (“I think this is an instance where, you know, it’s rare, but the probate exception 5 probably applies.”). 6 “We apply a ‘general rule’ against entertaining arguments on appeal that were 7 not presented or developed before appeal.” In re Mercury Interactive Corp. Sec. 8 Litig., 618 F.3d 988, 992 (9th Cir. 2010) (citing Peterson v. Highland Music, Inc., [9] 140 F.3d 1313, 1321 (9th Cir. 1998)). “Ordinarily, ‘an appellate court will not hear 10 an issue raised for the first time on appeal.’” Kaas Law v. Wells Fargo Bank, N.A., [11] 799 F.3d 1290, 1293 (9th Cir. 2015) (quoting Cornhusker Cas. Ins. Co. v. Kachman, [12] 553 F.3d 1187, 1191 (9th Cir. 2009)). “Although no bright line rule exists to 13 determine whether a matter has been properly raised below, an issue will generally 14 be deemed waived on appeal if the argument was not raised sufficiently for the trial 15 court to rule on it.” In re Mercury Interactive Corp. Sec. Litig., 618 F.3d 988 , 992 16 (9th Cir. 2010) (internal quotations and citations omitted). “Such a waiver is a 17 discretionary, not jurisdictional, determination.” Id. Courts “exercise . . . discretion 18 to reach waived issues only in three circumstances: [1] in the exceptional case in 19 which review is necessary to prevent a miscarriage of justice or to preserve the 20 integrity of the judicial process, [2] when a new issue arises while appeal is pending 21 because of a change in the law, and [3] when the issue presented is purely one of 22 law and either does not depend on the factual record developed below, or the 23 pertinent record has been fully developed.” Id. (internal quotations and citations 24 omitted). Here, there are no facts to suggest that a miscarriage of justice or a change 25 in the relevant law has occurred or will occur. Likewise, the beneficiary interest and 26 related probate exception issues are not purely questions of law because, as stated 27 above, whether the homestead exemption’s section 704.710 dwelling requirement is 1 3. California Automatic Homestead Exemption and the Bankruptcy 2 Court’s Findings 3 Appellee has claimed that the “automatic” homestead exemption applies here, 4 and that “the two necessary components” of the exemption have been met here as 5 required under Cal. Civ. Proc. Code § 704.730 . (Appellee’s Reply Brief 7.) “The 6 automatic homestead exemption protects a debtor from a forced sale and requires 7 that the debtor reside in the homestead property at the time of a forced sale.” In re 8 Diaz, 547 B.R. at 334 . “The filing of a bankruptcy petition constitutes a forced sale 9 for purposes of the automatic homestead exemption.” Id. “The automatic homestead 10 exemption ‘is not an absolute right to retain the homestead itself.’” In re Fuentes, [11] 687 Fed.Appx. 542, 544 (9th Cir. 2017). “Rather, it is a debtor’s right to retain a 12 certain sum of money when the court orders sale of a homestead in order to enforce 13 a money judgment.” Id. “California Civil Procedure Code section 704.730 provides 14 the monetary value of a debtor’s homestead exemption, based on the debtor’s family 15 status” and other factors. Id. “However, a judgment debtor’s homestead can only be 16 sold if a ‘bid is received at a sale of [the] homestead pursuant to a court order for 17 sale that exceeds the amount of the homestead exemption plus any additional 18 amount necessary to satisfy all liens and encumbrances on the property.’” Id. (citing [19] Cal. Civ. Proc. Code § 704.800 (a)). 20 Here, Appellant argues that the Bankruptcy Court “hypothesized” when it 21 determined that “in certain circumstances, a judgment creditor could attach a lien to 22 a judgment debtor’s beneficial interest in property held by a trust. Property, because 23 no jurisdiction existed for the court to do so. (Opening Brief 29.) Further, he argues 24 that Appellee’s assumptions “that a hypothetical judgment creditor could attach a 25 lien to Appellee’s assumed interest in the Property itself in the probate proceedings” 26 are “not supported by the evidence and the viability of these unadjudicated claims 27 has yet to be resolved.” (Appellant’s Reply Brief 18.) He also argues that the Court 1 the property and distribute the proceeds to each 50% beneficiary.” (Opening Brief 2 14.) 3 The Ninth Circuit BAP has long held that “the filing of the [bankruptcy] 4 petition serves as both a hypothetical levy and as the operative date of the 5 exemption.” In re Diaz, 547 B.R. at 335 ; see also Nadal v. Mayer (In re Mayer), [6] 176 B.R. 186, 189 (9th Cir. B.A.P. 1994) (“[t]he filing of the petition constitutes an 7 attempt by the trustee to levy on the property. It is this hypothetical levy the court 8 must focus on in analyzing [the debtor’s] entitlement to a homestead exemption.”). 9 Appellant’s arguments during the hearing and in his Objection also emphasize 10 that the Appellee’s only beneficial interest in the trust is personal property, which 11 also is inaccurate based on his supporting evidence. The Bankruptcy Court pointed 12 out that the plain language of the trust does not expressly require a sale or direct the 13 trustee to liquidate the real property and divide the proceeds, instead stating that the 14 beneficiaries will obtain “distributions.” (Notice 18.) It qualified that the personal 15 versus real property interest distinction is pertinent to the declared homestead 16 exemption, but “absent a clear directive from the California Supreme Court, Trustee 17 does not show that this distinction is relevant to the automatic homestead statute.” 18 (Id. at 9.) It further clarified that the distinction between personal and real property 19 interests would be controlling if the court was focused on the declared homestead 20 exemption, noting instead that it is examining the automatic exemption. (Notice 9 n. 21 13.) 22 B. The Merits of the Bankruptcy Court’s Homestead Exemption Grant [23] The Court agrees with the Bankruptcy Court’s distillation of the issues and [24] the fact that automatic homestead exemption discourse is what guides the question [25] of whether Appellant’s Objection was properly denied. The Bankruptcy Court [26] properly highlighted the importance of distinguishing the two type of homestead [27] exemptions and held that the automatic exemption is the relevant one here (even 1 though both parties neglected to draw the distinction). The Trustee’s Objection itself 2 supports the conclusion that the automatic homestead exemption is the type of 3 homestead exemption that applied here. Likewise, his Objection states that “a search 4 of the county recorder’s records through its online recorder’s services shows that 5 there is no recorded declaration of homestead.” (Objection 8.) This therefore 6 suggests that the homestead at issue must have been an automatic one. See Salameh 7 v. Hotel, 2017 WL 87046 , at *2 (S.D. Cal. January 10, 2017) (citing Cal. Code Civ. 8 Proc. § 704.950) (“In order to obtain the protection under a declared homestead, the 9 homestead declaration must be recorded prior to the date of recording of the abstract 10 of judgment.). 11 In discussing the automatic homestead exemption, the Ninth Circuit has 12 historically described it as Cal. Civ. Proc. Code sections 704.710–704.810, stating 13 that the automatic exemption “protects a debtor from a forced sale and requires that 14 the debtor reside in the homestead property at the time of a forced sale.” (Diaz, 547 15 B.R. at 334); see also In re Anderson, 824 F.2d 754, 756 (9th Cir. 1987) (“The 16 statutory provisions affecting homesteads are primarily located in Article 4 (§§ 17 704.710–704.850) and Article 5 (§§ 704.910–704.995) of Title 5, Division 2, 18 Chapter 4 of the California Code of Civil Procedure. Article 4 provides for an 19 ‘automatic’ homestead, for which no recording is necessary. Article 5 provides for 20 recorded declarations of homestead.”). Meanwhile, California courts have likewise 21 recognized 704.710–704.730 as the automatic exemption by conducting statutory 22 interpretation issues as required by California law. See Wells Fargo Financial 23 Leasing, Inc. v. D & M Cabinets, 177 Cal.App.4th 59 , 66–68 (2009) (“The issue . . . 24 is one of statutory interpretation”) (citations and quotations omitted)(adding 25 references to section 704.710–704.850 while explaining how “[s]ection 704.740 is 26 part of the homestead laws.”); see also Amin, 112 Cal.App.4th at 588 (listing the 27 declared exemption as Cal. Code Civ. Proc. section 704.920 and the automatic 1 Further, California common law has recognized that “[t]here is no 2 requirement in section 704.710 that the judgment debtor continuously own the 3 property, and we do not read section 703.020 to impose such a requirement.” 4 Broadway, 184 Cal.App.4th at 937 ; see also Cal. Civ. Proc. § 703.020 (The statute 5 is titled “Persons who may claim exemptions[.]”). Relatedly, “there is nothing that 6 suggests 703.020 requires that a claimant own the property subject to a claim of 7 exemption rather than merely possess it.” Id. at 322–23. “Several California cases 8 recognize that judgment debtors who continuously reside in their dwellings retain a 9 sufficient equitable interest in the property to claim a homestead exemption even 10 when they have conveyed title to another.” Id. (citing a string of California cases 11 ranging from 1952 to 2001). “Such a result is consistent with the purpose of 12 California’s homestead exemption to protect one’s dwelling against creditors.” Id. 13 Accordingly, section 704.710(c) “requires only that the judgment debtor reside in 14 the property as his or her own dwelling at the time the judgment creditor’s lien 15 attaches and continuously thereafter until the court determines the dwelling is a 16 homestead.” In re Gilman, 887 F.3d 956, 965 (2018) (quoting Tarlesson, 184 17 Cal.App.4th at 937). “It does not require that the debtor continuously own the 18 property.” Id. at 965–966. (“California law rejects [the] argument that title to [] 19 property is necessary to claim a homestead exemption.”) (citing Tarlesson, 184 20 Cal.App.4th at 937). “[A] third party does not defeat a debtor’s right to an automatic 21 exemption, ‘because continuous residency, rather than continuous ownership, 22 controls the analysis. Id. (citing Elliot, 523 B.R. at 196 ). 23 Here, Appellee claimed an “Equitable interest” in the Property when he filed 24 his Bankruptcy petition and explained that title is held in a Trust to which he and his 25 brother share equal halves of equity therein. (Bankruptcy Petition 12.) Appellee 26 claimed the Property as exempt, cited C.C.P. section 704.730 and described the 27 same beneficiary allocation as stated in the Trust language. (Bankruptcy Petition 1 and likewise the Bankruptcy Court stated during the hearing that it did not have any 2 law on this point. (Hearing Transcript 30) (“I don’t have any California or Ninth 3 Circuit law on point on this.”) That point is the specific question of whether 4 Appellee’s beneficiary interest in the Trust can allow him to claim a homestead 5 exemption in the Property. 6 Likewise, the Court has not found any California Supreme Court cases that 7 explicitly state that Appellee’s beneficiary interest in the Trust allow him the right to 8 claim the automatic homestead exemption in the Property (which is an asset of the 9 Trust). Nonetheless, “when, as here, the state’s highest court has not interpreted the 10 dispositive state law, we do our best to predict how that state’s highest court would 11 decide the issue.” In re Calderon, 507 B.R. 724, 729 (9th Cir. B.A.P. 2014) 12 (citations omitted). It is clear here that California has a long common law history of 13 applying a liberal standard to the automatic homestead laws. See In re Reaves, 256 14 B.R. 306, 310 (9th Cir. B.A.P. 2000) (quoting In re Crosby’s Estate, 2 Cal.2d 470 , 15 473 (1935) (“The exemption statutes are to be construed liberally, ‘for their manifest 16 purpose is that of saving debtors and their families from want by reason of 17 misfortune or improvidence.’”) (internal quotations omitted). Further, the record 18 clearly shows that Appellee possessed a beneficiary interest in the trust, and that he 19 was residing in the Property during and after the Bankruptcy proceedings. 20 Altogether, the Court holds that these factors support a finding that he was able to 21 claim the automatic homestead exemption. 22 C. Appellant Did Not Satisfy His Burden to Prove that Appellee was not 23 Entitled to the Automatic Homestead Exemption 24 “‘Generally, a debtor’s claimed exemption is presumptively valid, and the 25 party objecting to a debtor’s exemption has the burden of proving that the 26 exemption is proper’ under Federal Rule of Bankruptcy Procedure 4003(c).” In re 27 Simon, 2019 WL 3781599 , *4 (C.D. Cal. August 12, 2019) (quoting In re Diaz, 547 1 burden of proof to the debtor, Rule 4003(c) does not change that allocation.’” Id. 2 “California law places the burden of proof on ‘the party claiming the exemption.’” [3] Id. “To determine whether a debtor resides in the property for homestead purposes, 4 courts consider the debtor’s physical occupancy of the property and the intent to 5 reside there.” In re Gilman, 887 F.3d at 965 (citing Diaz, 547 B.R. at 335 and 6 Ellsworth v. Marshall, 196 Cal.App. 2d 471, 474 (1961)). 7 Appellee asserts that he had an equitable interest in the property and 8 continuously resided there, primarily for the reasons discussed above. (Appellee’s 9 Reply 18–19.) Appellant responds by arguing that Appellee assumed certain facts 10 about the extent of his interest in the Property, namely that he had an interest in the 11 Property itself and not just a right to receive a monetary distribution from the Trust. 12 (Appellant’s Reply 18.) 13 As stated above, the Bankruptcy Court correctly concluded that Steven 14 Nolan’s petition triggered the automatic homestead exemption. (Notice 7.) (“The 15 automatic homestead exemption is what is at issue in this case.”). Likewise, the 16 Bankruptcy Court correctly found that “Trustee does not refute that Debtor resides 17 or intended to reside on the property, or address that a bankruptcy trustee, as a 18 hypothetical creditor, may reach the Property being held in the Trust by virtue of 19 Debtor’s beneficiary interest in the Trust.” (Notice 21.) 20 Likewise, on appeal, Appellant admitted that Appellee resided in the Property 21 at all relevant times and still appears to be there until further notice. (Opening Brief 22 16.) (“Upon the death of the trustor, appellee continued to reside at the property.”) 23 (internal quotations and citations omitted). Appellee had the burden to prove his 24 entitlement to claim the exemption. However, Appellant also had the burden to 25 prove that the exemption should not be claimed. Since the record shows that it is 26 uncontested that Appellee satisfied the dwelling and intention requirements, the 27 Bankruptcy Court did not err in making such a factual finding here. 1 D. The Bankruptcy Court’s Findings Were Not Clearly Erroneous 2 Factual findings are clearly erroneous if they are “illogical, implausible, or 3 without support in inferences that may be drawn from the record.” , WL 4 8186670 at *3. “Similarly, findings of fact are not clearly erroneous unless the 5 reviewing court has a definite and firm conviction that a mistake has been 6 made.” (citing , 278 F.App’x 741, 742 (9th Cir. 2008)). 7 Here, the Court finds that the Bankruptcy Court made sufficiently logical 8 factual and evidentiary findings to support its order. As outlined above, the 9 Bankruptcy Court made several findings after reviewing the record, including 10 reviewing the parties’ briefs, holding a hearing on the Appellant’s objection to 11 Appellee’s claimed homestead objection, asking questions where additional context 12 was required, and listening to the arguments made by both parties. After these 13 efforts, the Bankruptcy Court ultimately concluded that “[t]here is no express 14 limitation on the interests of the beneficiary of a trust in the automatic homestead, 15 which, as set forth below, is problematic for [Appellant’s] position.” (Notice 8.) 16 Citing the Legislative Committee Comments to the automatic homestead exemption 17 statute, Cal. Civ. Proc. Code section 704.720, it reasoned that interests of the 18 beneficiary of a trust are included in the scope of the exemption. (Notice 8–9); see 19 also Legislative Committee Comment to Amended Cal. Civ. Proc. Code section 20 704.720 (West) (“[A]ny interest sought to be reached by the judgment creditor in the 21 homestead is subject to the exemption.”). Accordingly, “a judgment creditor of a 22 beneficiary to a trust may attach an enforcement lien to real property trust res.” 23 (Notice 9.) 24 The Ninth Circuit has not directly ruled on this specific issue, but the 25 Bankruptcy Court’s statutory interpretation analysis was logically supported with 26 reference to the legislative history and related case precedent. Further, the hearing 27 transcripts confirm that a robust discussion of these issues occurred and the 1 (saying instead that it is a “rare” instance where the exception “probably” applies). 2 (Hearing Transcript 10.) 3 In sum, Appellant has not offered enough evidence to give the Court a 4 “definite and firm conviction” that a mistake has been made, as required by the 5 Ninth Circuit and its progeny. See Karr, 278 F.App’x at 742. If a party timely 6 objects to a claimed exemption, it has the burden of proving that the exemptions are 7 not properly claimed and must produce evidence to rebut the presumptively valid 8 exemption. In re Deiner, 483 B.R. 196, 203 (9th Cir. B.A.P. 2012); see also In re 9 Ziegler, 2016 WL 3267387 , at *4 (9th Cir. B.A.P. June 6, 2016) (“California has 10 mandated the use of state exemptions and has placed the burden of proof on the 11 party claiming the objection.”). “If the residency requirements are satisfied, a 12 judgment debtor can claim a homestead exemption in the interest he or she has in 13 the property, ‘regardless of whether the judgment debtor’s interest is a fee, 14 leasehold, or lesser interest.’” In re Fuentes, 687 Fed.Appx. 542, 544 (9th Cir. 2017) 15 (quoting Cal. Civ. Proc. Code section 704.820 Law Revision Commission 16 Comments to 1982 Addition and citing In re Elliot, 523 B.R. 188 at 196 ). Appellant 17 has not satisfied his burden on these critical points. The Bankruptcy Court followed 18 logical steps of analysis using the evidence available on the record. Thus, the 19 Bankruptcy Court’s factual filings were not clearly erroneous. 20 V. CONCLUSION [21] The Court will not speculate as to the probate court’s application with respect [22] to the Bankruptcy Court’s decision to grant Appellee the automatic homestead [23] exemption claimed in his Bankruptcy petition. Although it is apparent that the [24] probate exception could have a decisive impact under a rare circumstance, Appellant [25] has not fully established that the circumstance is present here. Indeed, Appellant has [26] instead waived his probate exception theory by not sufficiently addressing the [27] nuances during the Bankruptcy proceedings and in his appellate briefings. Further, 1 the Court has independently come to the same conclusion as the Bankruptcy Court’s 2 for the remaining parts of the analysis. Lastly, the Bankruptcy Court did not make 3 any clearly erroneous factual findings. 4 Because of these reasons, the decision to grant the claimed exemption is 5 AFFIRMED. The Clerk is directed to close this case. [6] 7 IT IS SO ORDERED. 8 DATED: February 12, 2021 [9] MARK C. SCARSI 10 UNITED STATES DISTRICT JUDGE [11] 12 cc: Bankruptcy Court