In re: Myrna Jacobson, et al v. Myrna Jacobson, et al

Filing

FILED OPINION (JEROME FARRIS, WILLIAM A. FLETCHER and ALVIN K. HELLERSTEIN) REVERSED in part, AFFIRMED in part, and REMANDED. Each party shall bear its own costs on appeal. Judge: JF Authoring, FILED AND ENTERED JUDGMENT. [8148982]

Case: 10-60040

04/23/2012

ID: 8148982

DktEntry: 23-1

Page: 1 of 12

FOR PUBLICATION

UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT



In re: MYRNA JACOBSON,
Debtor,
JOHN M. WOLFE, Chapter 7
Trustee,
Appellant,
v.
MYRNA JACOBSON; DONALD
JACOBSON,
Appellees.



No. 10-60040
BAP No.
10-1036
OPINION



Appeal from the Ninth Circuit
Bankruptcy Appellate Panel
Kirscher, Pappas, and Taylor, Bankruptcy Judges, Presiding
Argued and Submitted
February 16, 2012—Pasadena, California
Filed April 23, 2012
Before: Jerome Farris and William A. Fletcher,
Circuit Judges, and Alvin K. Hellerstein,
Senior District Judge.*
Opinion by Judge Farris

*The Honorable Alvin K. Hellerstein, Senior United States District
Judge for the Southern District of New York, sitting by designation.

4335

Case: 10-60040

04/23/2012

ID: 8148982

IN RE JACOBSON

DktEntry: 23-1

Page: 2 of 12

4337

COUNSEL
Sidney Lanier and Brent Ayscough, Ayscough & Marar, Torrance, California, for the appellant.
Jeffrey T. Vanderveen, Law Offices of Jeffrey T. Vanderveen,
Vista, California, for the appellees.

OPINION
FARRIS, Circuit Judge:
This appeal grows out of an adversary proceeding in Myrna
Jacobson’s Chapter 7 bankruptcy proceedings. The bankruptcy trustee filed a complaint against Myrna and her husband, Donald Jacobson, claiming that certain money and
property belonged to Myrna’s bankruptcy estate. The trustee
sought turnover to the bankruptcy estate of certain proceeds
from the sale of the Jacobsons’ homestead, a rental property

Case: 10-60040

4338

04/23/2012

ID: 8148982

DktEntry: 23-1

Page: 3 of 12

IN RE JACOBSON

held in Donald’s name, and income earned from the rental
property. The bankruptcy court rejected all of the trustee’s
claims. The Bankruptcy Appellate Panel affirmed. We have
jurisdiction under 28 U.S.C. § 158(d)(1).
We reverse in part and affirm in part. The proceeds from
the homestead sale belong to Myrna’s bankruptcy estate. The
rental property held in Donald’s name and the income from
it do not.
I.
This case arises from nearly three decades of litigation
between the Jacobsons and Myrna’s principal creditor, Larry
Cunningham. In 1985, Cunningham sued the Jacobsons and
their business partners in California state court for torts
related to the construction and sale of a beach home in Orange
County. The litigation dragged on for 10 years. In 1995, as a
re-trial neared, the Jacobsons filed a Chapter 7 bankruptcy
petition. The bankruptcy petition automatically stayed the
state court litigation under 11 U.S.C. § 362(a)(1).
In 1997, Cunningham filed an adversary complaint in the
bankruptcy court objecting to discharge of the Jacobsons’
debts, alleging the Jacobsons had fraudulently concealed
assets. After a trial, the bankruptcy court concluded that
Myrna had fraudulently hidden assets from the bankruptcy
court and denied her a discharge under 11 U.S.C. § 727(a).
The bankruptcy court concluded, however, that Donald could
not have formed the intent to commit fraud due to his mental
disabilities and dependence on Myrna to run his affairs. The
bankruptcy court thus granted Donald a discharge.
The bankruptcy court’s ruling left Cunningham free to pursue his tort claims against Myrna in California state court. In
2000, a jury awarded Cunningham over $800,000.
By early 2006, Cunningham’s judgment had increased in
value to $1.3 million due to interest. Cunningham applied in

Case: 10-60040

04/23/2012

ID: 8148982

IN RE JACOBSON

DktEntry: 23-1

Page: 4 of 12

4339

California state court for a judicial sale of the Jacobsons’
house on Kensington Road in Los Alamitos, California (the
“Kensington property”). In response, Myrna filed the current
Chapter 7 bankruptcy petition, which automatically stayed the
foreclosure sale under 11 U.S.C. § 362(a)(2). Myrna claimed
the Kensington property was her principal residence and
therefore qualified for a homestead exemption from creditors’
claims under California law. See Cal. Civ. Proc. Code
§ 704.720.
On Cunningham’s motion, the bankruptcy court lifted the
stay on the sale of the Kensington property. The Orange
County Sheriff sold the Kensington property at auction and
paid the Jacobsons a portion of the proceeds as required by
the California homestead exemption. Cal. Civ. Proc. Code
§ 704.730(a)(3). The homestead exemption provides that the
debtor’s portion of the proceeds loses its exempt status if not
reinvested in a new homestead within six months. Cal. Civ.
Proc. Code § 704.720(b). The Jacobsons did not reinvest their
portion of the proceeds within that window.
In 2007, the trustee filed this adversary proceeding against
Donald and Myrna. The trustee raised three claims. First, he
sought turnover to the bankruptcy estate of the Jacobsons’
share of the Kensington property proceeds. Second, he sought
turnover of a rental property on Enterprise Drive in Los
Alamitos (the “Enterprise property”) to which Donald alone
held title. Third, the trustee sought turnover of refinancing
proceeds and rental income earned from the Enterprise property.
The bankruptcy court denied all of the trustee’s claims. The
bankruptcy court ruled the Kensington property proceeds
were exempt, despite the Jacobsons’ failure to reinvest them.
The bankruptcy court reasoned that bankruptcy exemptions
are fixed at the time of the bankruptcy petition and cannot be
changed by post-petition events. The bankruptcy court viewed
the homestead exemption as covering the Kensington prop-

Case: 10-60040

4340

04/23/2012

ID: 8148982

DktEntry: 23-1

Page: 5 of 12

IN RE JACOBSON

erty itself and concluded that post-petition conversion of the
Kensington property into sale proceeds could not change its
exempt status.
The bankruptcy court further held that Myrna had no interest in the Enterprise property or its income. The bankruptcy
court found that documentary evidence established a presumption under California law that Donald was the sole
owner. The bankruptcy court also deemed credible the Jacobsons’ testimony that Donald had made the down payment on
the Enterprise property with an inheritance that was his separate property. The bankruptcy court rejected the trustee’s
argument that judicial and collateral estoppel precluded the
Jacobsons from arguing the Enterprise property was Donald’s
separate property.
The Bankruptcy Appellate Panel affirmed, and the trustee
timely appealed.
II.
We review decisions of the Bankruptcy Appellate Panel de
novo and apply the same standard of review that the Bankruptcy Appellate Panel applied to the bankruptcy court’s ruling. In re Penrod, 611 F.3d 1158, 1160 (9th Cir. 2010). We
review conclusions of law de novo and findings of fact for
clear error. In re Hoopai, 581 F.3d 1090, 1095 (9th Cir.
2009). The decision whether to invoke judicial estoppel is
reviewed for abuse of discretion. United States v. Ruiz, 73
F.3d 949, 953 (9th Cir. 1996). We review the determination
whether collateral estoppel is available de novo. Dias v.
Elique, 436 F.3d 1125, 1128 (9th Cir. 2006).
III.
[1] We begin with the Kensington property proceeds. A
Chapter 7 bankruptcy petition creates an estate to satisfy creditors’ claims. The estate consists of “all legal or equitable

Case: 10-60040

04/23/2012

ID: 8148982

IN RE JACOBSON

DktEntry: 23-1

Page: 6 of 12

4341

interests of the debtor in property” when the petition is filed.
11 U.S.C. § 541(a)(1). A debtor may, however, exclude property from the estate through various exemptions. Section 522
of the Bankruptcy Code provides a default list of exemptions
but allows states to opt out and define their own exemptions.
11 U.S.C. §§ 522(b)(2), 522(b)(3)(A), 522(d). California has
opted out of the federal exemption scheme and limited Chapter 7 petitioners to the exemptions debtors may claim in nonbankruptcy cases. Cal. Civ. Proc. Code §§ 703.010(a),
703.130.
[2] When Myrna filed the current bankruptcy petition, she
claimed a homestead exemption for the Kensington property.
California, like many states, gives debtors an exemption for
their “principal dwelling” or “homestead.” Cal. Civ. Proc.
Code §§ 704.710(c), 704.720(a). The California homestead
exemption does not, however, prevent a judgment creditor
from forcing a judicial sale of the homestead. See Cal. Civ.
Proc. Code § 704.740. Such a sale will go forward so long as
there are enough proceeds to satisfy all liens and encumbrances on the property and provide the debtor with a statutorily prescribed exemption amount. Cal. Civ. Proc. Code
§§ 704.730, 704.800(a). When the Kensington property was
sold, the California homestead exemption entitled the Jacobsons to $150,000 of the proceeds. Cal. Civ. Proc. Code
§ 704.730(a)(3) (2007).
[3] The debtor’s share of the proceeds are not fully exempt
either. If the debtor does not reinvest his proceeds in a new
homestead within six months of receipt, they lose their
exempt status. Cal. Civ. Proc. Code § 704.720(b). The Jacobsons did not reinvest the $150,000 they received. The trustee
argues—and we agree—that these proceeds lost their exempt
status as a result.
[4] Under the so-called “snapshot” rule, bankruptcy
exemptions are fixed at the time of the bankruptcy petition.
See White v. Stump, 266 U.S. 310, 313 (1924). Those exemp-

Case: 10-60040

4342

04/23/2012

ID: 8148982

DktEntry: 23-1

Page: 7 of 12

IN RE JACOBSON

tions must be determined in accordance with the state law
“applicable on the date of filing.” 11 U.S.C. § 522(b)(3)(A).
And “it is the entire state law applicable on the filing date that
is determinative” of whether an exemption applies. In re Zibman, 268 F.3d 298, 304 (5th Cir. 2001) (emphasis in original). In this case, the entire state law includes a reinvestment
requirement for the debtor’s share of the homestead sale proceeds. Cal. Civ. Proc. Code § 704.720(b).
Myers v. Matley, 318 U.S. 622 (1943), illustrates the proper
approach. Myers centered on a Nevada law that allowed a
debtor to claim a homestead exemption by filing a homestead
declaration with a county recorder. The debtor’s wife filed the
declaration after bankruptcy proceedings began. Id. at 623.
Nonetheless, the Supreme Court held the homestead was
exempt from the bankruptcy estate. The Supreme Court
looked at the whole Nevada homestead exemption, which
provided that a debtor could file a homestead declaration at
any time before a judicial sale. Id. at 626-28. Thus, it did not
matter that the homestead was not exempt when the bankruptcy petition was filed. “[T]he right to make and record the
necessary declaration of homestead existed in the bankrupt at
the date of filing the petition[,] . . . [and] [t]he assertion of that
right before actual sale in accordance with State law did not
change the relative status of the claimant and the trustee subsequent to the filing of the petition.” Id. at 628.
Similarly, we analyze the California homestead exemption
in terms of the exact scope of the rights it confers at the time
of the bankruptcy petition. In In re Golden, 789 F.2d 698 (9th
Cir. 1986), the debtor had filed for bankruptcy after selling his
California homestead and had then let the reinvestment period
lapse without investing his exempt share of the proceeds. Id.
at 699. The debtor argued the proceeds were nonetheless
exempt because they had been exempt when he filed for bankruptcy. Id. at 700. We rejected that argument and held the
debtor had received the proceeds subject to the reinvestment

Case: 10-60040

04/23/2012

ID: 8148982

IN RE JACOBSON

DktEntry: 23-1

Page: 8 of 12

4343

condition. Id. Those proceeds could thus lose their exempt
status once the reinvestment period lapsed. Id.
[5] There is no material difference between Golden and
this case. The homestead exemption gave the Jacobsons
clearly defined rights with respect to the Kensington property.
The Jacobsons had a right to $150,000 in proceeds. Cal. Civ.
Proc. Code § 704.730(a)(3) (2007). That right was contingent
on their reinvesting the proceeds in a new homestead within
six months of receipt. Cal. Civ. Proc. Code § 704.720(b). The
Jacobsons did not abide by that condition and thus forfeited
the exemption.
The Jacobsons argue Golden is inapposite because Myrna
filed for bankruptcy before the homestead was sold and thus
claimed an exemption in the Kensington property, not the proceeds. We reject the argument. The homestead exemption
merely gave the Jacobsons a conditional right to a portion of
the proceeds from the sale of the Kensington property. There
was no exemption in the Kensington property itself. To the
contrary, the exemption explicitly allowed Cunningham to
force a judicial sale of the Kensington property. Cal. Civ.
Proc. Code § 704.740. The Jacobsons could thus expect no
more than $150,000 in proceeds that were subject to a reinvestment requirement.
In trying to distinguish Golden, the Jacobsons essentially
ask us to read out the reinvestment requirement from the
homestead exemption. However, “[n]othing in [11 U.S.C.
§ 522(b)] limits [California’s] power to restrict the scope of
its exemptions; indeed, it could theoretically accord no
exemptions at all.” Owen v. Owen, 500 U.S. 305, 308 (1991).
The Bankruptcy Code does not allow the Jacobsons to invoke
one part of the homestead exemption and ignore another part.
We note that at least two courts have determined that the
debtor’s share of the proceeds from the post-petition sale of
his homestead should be permanently exempt. See In re Her-

Case: 10-60040

4344

04/23/2012

ID: 8148982

DktEntry: 23-1

Page: 9 of 12

IN RE JACOBSON

man, 120 B.R. 127, 130 (B.A.P. 9th Cir. 1990) (analyzing
California homestead exemption); In re Lane, 364 B.R. 760,
762-64 (Bankr. D. Or. 2007) (analyzing Oregon homestead
exemption). To the extent these cases add anything to the
Jacobsons’ argument, they rely on policy arguments we find
unpersuasive.
Herman found that permanently exempting proceeds from
post-petition homestead sales served the Bankruptcy Code’s
goal of giving debtors a “fresh start.” 120 B.R. at 130. This
focus on a “fresh start” tells only half the story. By giving
states the opportunity to define exemptions for the purposes
of federal bankruptcy law, the Bankruptcy Code demands
respect for the ways in which states balance the rights of debtors and creditors. See Owen, 500 U.S. at 308. California
enacted the homestead exemption to ensure that debtors and
their families do not become homeless. Webb v. Trippet, 235
Cal. App. 3d 647, 650 (Cal. Ct. App. 1991). To that end, it
“requires reinvestment in order to prevent the debtor from
squandering the proceeds for nonexempt purposes.” Golden,
789 F.2d at 700. California has thus determined that if a
debtor does not put his proceeds to proper use, they ought to
be used to satisfy creditors’ claims. Ignoring the reinvestment
requirement “would frustrate the objective of the California
homestead exemption and the bankruptcy act itself, which
limits exemptions to [those] provided by state or federal law.”
Id. at 700.
[6] Lane expressed concern that allowing the proceeds
from post-petition homestead sales to lose their exempt status
would “undermine[ ] finality and foster[ ] inefficiency” as
well as “place[ ] a debtor’s rights in limbo.” 364 B.R. at 764.
The trustee’s rule, however, does not strike us as any less fair
or efficient than what Golden already allows. The reinvestment period under the California homestead exemption lasts
six months regardless of when a debtor sells his homestead.
Lane theorized that if the proceeds from post-petition homestead sales could lose their exempt status, trustees might

Case: 10-60040

04/23/2012

ID: 8148982

IN RE JACOBSON

DktEntry: 23-1

Page: 10 of 12

4345

“claim an interest in the homestead and postpone closing a
case so long as there is any possibility the debtor’s circumstances might change.” Id. at 765. We find this concern too
speculative. We doubt a trustee would delay liquidating an
estate because (1) the debtor’s homestead might be sold at
some point in the future and (2) the debtor might fail to reinvest his share of the proceeds six months after the sale.
IV.
[7] We turn to the trustee’s claims for turnover of the
Enterprise property and its income to Myrna’s bankruptcy
estate. Because these claims turn on questions of fact, we
must consider the appropriate burden and standard of proof.
The trustee has the burden of proving the estate is entitled to
a turnover. 5 Collier on Bankruptcy ¶ 542.02 (16th ed. 2011).
The bankruptcy court assumed—although the Supreme Court
has not conclusively held—that the standard of proof is a preponderance of the evidence. See id. at n.15. Because we agree
with the bankruptcy court that the trustee has not proven his
claim under this relatively forgiving standard, we need not
decide whether the Bankruptcy Code requires a higher one.
[8] First, title documents show Donald is the sole owner of
the Enterprise property. In California, record title is presumptively correct. Cal. Evid. Code § 662. Second, the presumption under California law that property acquired during
marriage is community property does not apply here. See Cal.
Fam. Code § 760. There is no community property presumption where a spouse acquires property in his name alone with
the other spouse’s consent. In re Marriage of Brooks, 169
Cal. App. 4th 176, 186-87 (Cal. Ct. App. 2008). The Enterprise property sale documents list Donald as the sole buyer,
and before the closing Myrna executed an interspousal transfer deed confirming the Enterprise property was Donald’s
separate property. The community property presumption also
does not apply to property traceable to one spouse’s separate
property. See In re Marriage of Haines, 33 Cal. App. 4th 277,

Case: 10-60040

4346

04/23/2012

ID: 8148982

DktEntry: 23-1

Page: 11 of 12

IN RE JACOBSON

289-90 (Cal. Ct. App. 1995). The Jacobsons testified that
Donald used part of a 1996 inheritance to make the down payment on the Enterprise property.
The trustee points to the absence of documentary proof that
Donald’s inheritance was kept separate from the Jacobsons’
community property. But the bankruptcy court determined
that the inheritance remained separate property after hearing
testimony from the Jacobsons. “When factual findings are
based on determinations regarding the credibility of witnesses, we give great deference to [those] findings.” In re
Retz, 606 F.3d 1189, 1196 (9th Cir. 2010).
Next, the trustee argues that Donald’s inheritance belonged
to the bankruptcy estate from the 1990s bankruptcy proceedings rather than Donald. The trustee lacks standing to raise
this claim. Article III standing requires, among other things,
a “concrete and particularized injury.” Friends of the Earth,
Inc. v. Laidlaw Envtl. Servs. (TOC), Inc., 528 U.S. 167, 180
(2000). The alleged injury affected the earlier bankruptcy
estate, not the current one.
Last, the trustee argues that judicial and collateral estoppel
require turnover of the Enterprise property. The trustee contends the Jacobsons cannot claim Donald depends on Myrna
to run his affairs and then claim she has no interest in the
Enterprise property. This argument fails. “Judicial estoppel is
an equitable doctrine that precludes a party from gaining an
advantage by asserting one position, and then later seeking an
advantage by taking a clearly inconsistent position.” Hamilton
v. State Farm Fire & Cas. Co., 270 F.3d 778, 782 (9th Cir.
2001). It is not inconsistent for Donald to own separate property and let Myrna run his affairs. Collateral estoppel “forecloses relitigation of those issues of fact or law that were
actually litigated and necessarily decided by a valid and final
judgment in a prior action between the parties.” In re Duncan,
713 F.2d 538, 541 (9th Cir. 1983). The finding from the
1990s bankruptcy proceedings that Myrna ran Donald’s

Case: 10-60040

04/23/2012

ID: 8148982

DktEntry: 23-1

IN RE JACOBSON

Page: 12 of 12

4347

affairs did not decide whether Myrna has an interest in Donald’s property.
REVERSED
REMANDED.

in

part,

AFFIRMED

in

Each party shall bear its own costs on appeal.

part,

and