Brace v. Speier (In re Brace)

Decision Date08 November 2018
Docket NumberNo. 17-60032,17-60032
Citation908 F.3d 531
Parties IN RE Clifford Allen BRACE, Jr., Debtor, Clifford Allen Brace, Jr., Individually and as the Trustee of the Crescent Trust dated July 30, 2004; Ahn N. Brace, Individually and as the Trustee of the Crescent Trust dated July 30, 2004, Appellants, v. Steven M. Speier, Chapter 7 Trustee, Appellee.
CourtU.S. Court of Appeals — Ninth Circuit
ORDER

We respectfully ask the Supreme Court of California to exercise its discretion to decide the certified question set forth in Part II of this Order, below. See Cal. R. Ct. 8.548. The answer to this question of California law will be dispositive of the appeal before us, and no clear controlling California precedent exists. Id. Moreover, because the question that we certify is of great importance to many debtors and creditors in California, considerations of comity and federalism suggest that the court of last resort in California, rather than our court, should have the opportunity to answer the question in the first instance. See Kilby v. CVS Pharmacy, Inc. , 739 F.3d 1192, 1196–97 (9th Cir.2013) ; Klein v. United States , 537 F.3d 1027, 1028 (9th Cir.2008).

I. Administrative Information

We provide the following information as required by California Rule of Court 8.548(b)(1) :

The title of this case is: CLIFFORD ALLEN BRACE, Jr., individually and as the Trustee of the Crescent Trust dated July 30, 2004, and AHN N. BRACE, individually and as the Trustee of the Crescent Trust dated July 30, 2004, Appellants v. STEVEN M. SPEIER, Chapter 7 Trustee, Appellee (In re: CLIFFORD ALLEN BRACE, Jr.).

The case number in our court is: 17-60032.

The names and addresses of counsel are: for Appellants , William Derek May, Law Office of W. Derek May, 400 North Mountain Avenue, Suite 215b, Upland, CA 91786, and Stephen R. Wade, Law Offices of Stephen R. Wade, P.C., 350 W. 4th Street Claremont, CA 91711; for Appellee , Matthew W. Grimshaw, D. Edward Hays, and Judith E. Marshack, Marshack Hays LLP, 870 Roosevelt Avenue, Irvine, CA 92620; for Amicus Curiae the National Association of Consumer Bankruptcy Attorneys and the National Consumer Bankruptcy Rights Center, Tara Twomey, the National Consumer Bankruptcy Rights Center, 1501 The Alameda, Suite 200, San Jose, CA 95126, and Wayne A. Silver, Law Office of Wayne A. Silver, 643 Bair Island Rd., Suite 403, Redwood City, CA 94063.
II. Certified Question

We request a decision by the Supreme Court of California on the following question that is now before us:

Does the form of title presumption set forth in section 662 of the California Evidence Code overcome the community property presumption set forth in section 760 of the California Family Code in Chapter 7 bankruptcy cases where: (1) the debtor husband and non-debtor wife acquire property from a third party as joint tenants; (2) the deed to that property conveys the property at issue to the debtor husband and non-debtor wife as joint tenants; and (3) the interests of the debtor and non-debtor spouse are aligned against the trustee of the bankruptcy estate?

Our phrasing of the question should not restrict the Supreme Court of California’s consideration of the issues involved; that court may reformulate the question. Cal. R. Ct. 8.548(f)(5).

We agree to accept and to follow the decision of the Supreme Court of California, as we are required by both California Rule of Court 8.548(b)(2) and our own precedent. See Klein , 537 F.3d at 1029.

III. Statement of Facts

Appellants, Clifford and Ahn Brace, have been married since 1972. Around 1977 or 1978, Appellants acquired their residence located at 470 E. Crescent Avenue in Redlands, California (the "Redlands Property"). Sometime before bankruptcy, Appellants also acquired a rental property located at 4250 N. F Street in San Bernardino, California (the "San Bernardino Property") (collectively, the "Properties") and a parcel of land located in Mohave, Arizona (the "Mohave Property").1 Appellants took title to each property as "husband and wife as joint tenants."

On July 30, 2004, Mr. Brace ("Debtor") formed the Crescent Trust, an irrevocable trust, which designated Mrs. Brace as the sole beneficiary and Debtor as the sole trustee. The Crescent Trust document was never recorded. A few months later, in August 2004, Debtor executed and recorded trust transfer deeds that transferred his interests in the Redlands and San Bernardino Properties into the Crescent Trust for no consideration. At the time of the transfers, Debtor was a defendant in a civil action in state court. Two weeks after Debtor transferred the Properties into the Trust, a default judgment was entered against him.

On May 16, 2011, Debtor filed a voluntary petition under Chapter 7 of the Bankruptcy Code, and Robert L. Goodrich was appointed Chapter 7 Trustee.2 In December 2011, the Trustee filed an adversary proceeding against Appellants, individually and in their capacities as trustees of the Crescent Trust,3 seeking: (1) a declaration that the Properties were property of the bankruptcy estate; (2) a judgment quieting title to the Properties in the bankruptcy estate; (3) turnover of any of the Properties determined to be property of the bankruptcy estate; (4) avoidance and recovery of Debtor’s transfers of the Properties into the Crescent Trust as actually or constructively fraudulent transfers under the California Uniform Fraudulent Transfer Act (the "CUFTA"), Cal. Civ. Code § 3439.04(a) ; and (5) revocation of Debtor’s discharge under 11 U.S.C. § 727(d)(1) and (d)(2).

Following the trial, the bankruptcy court ruled in favor of the Trustee on the actual fraudulent transfer claims, voided the transfer of the Properties, and held that the Properties were part of the bankruptcy estate in their entireties. In so ruling, the bankruptcy court rejected Appellants’ defense that, many years earlier, they had orally transmuted the property from community property to separate property.

After judgment was entered, Appellants timely moved for reconsideration and to amend the judgment, arguing that the Properties, as recovered, were not part of the bankruptcy estate in their entireties. Rather, because Appellants held the Properties as joint tenants before the transfer, Appellants argued that they held the Properties as tenants in common post-transfer.4 Thus, as separate property, only Debtor’s one-half interest in each of the Properties should be included as part of the estate.

The bankruptcy court disagreed. At the hearing on Appellantsmotion for reconsideration and to amend the judgment,5 the bankruptcy court explained that Appellants acquired the Properties during their marriage and took title "as husband and wife, as joint tenants"; thus, post-avoidance of the transfer to the Crescent Trust, Appellants once again held the Properties as joint tenants. The bankruptcy court further explained that, under sections 7606 and 2581 7

of the California Family Code, the characterization of property in the deed is irrelevant. Accordingly, it determined that the Properties were community property and therefore property of the bankruptcy estate in their entireties.

In the interest of clarity, the bankruptcy court amended the judgment, finding that:

although these properties are returned to joint tenancy between the Debtor and Defendant Ahn Brace, the properties were acquired by the Debtor and Ahn Brace during the marriage with community assets and they presumptively constitute community property under applicable law. Defendants failed to establish that the Redlands Property, San Bernardino Property, or [Mohave] Property were not community in nature and, therefore they constitute property of the Estate pursuant to 11 U.S.C. § 541 and are subject to administration by the Estate.

Appellants timely appealed the bankruptcy court’s amended judgment to the Ninth Circuit Bankruptcy Appellate Panel (the "BAP"). In an unpublished memorandum disposition, the BAP affirmed the bankruptcy court’s decision on the CUFTA claims and avoidance of the Crescent Trust. This issue is not on appeal. In a separate published opinion, the BAP affirmed the bankruptcy court’s amended judgment that the Properties were part of the bankruptcy estate in their entireties. Specifically, the BAP determined that the community property presumption applied in the bankruptcy context, Appellants had failed to overcome the presumption that the Properties were community property, and therefore the Properties, in their entireties, were part of the bankruptcy estate. Appellants timely appealed to this court.

The primary issue on appeal is whether the bankruptcy court erred in characterizing the Properties as community property, irrespective of the fact that Appellants held title to the Properties as joint tenants, and therefore erred in determining the Properties were part of the bankruptcy estate. Resolution of this issue turns on whether, in a bankruptcy proceeding, the community property presumption can be overcome with evidence that the debtor and non-debtor spouse hold title to the property at issue as joint tenants where there is no underlying marital dissolution proceeding and the interests of the debtor and non-debtor spouse are not opposed.

IV. Explanation for Request for Decision

A Chapter 7 bankruptcy petition creates an estate to satisfy creditors’ claims. Under the Bankruptcy Code, the bankruptcy estate generally includes "[a]ll interests of the debtor and the debtor’s spouse in community property" at the time the bankruptcy case is filed. 11 U.S.C. § 541(a)(2). While the Bankruptcy Code specifies that community property is part of the bankruptcy estate, it does not address "the threshold questions of the existence and scope of the debtor’s interest in a given asset." In re Mantle , 153 F.3d 1082, 1084 (9th Cir.1998) (quoting In re Farmers Markets, Inc. , 792 F.2d 1400, 1402 (9th Cir.1986) ). Instead, bankruptcy courts are required to look to state law—in this case, California law—to determine whether property is...

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    ...both properties with community funds and took title to each property as " ‘husband and wife as joint tenants.’ " ( In re Brace (9th Cir. 2018) 908 F.3d 531, 534.) A Chapter 7 bankruptcy petition creates an estate to satisfy creditors’ claims. The estate generally includes "[a]ll interests o......
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    ...4 “California is a community property state, which characterizes marital property as either community or separate property.” In re Brace, 908 F.3d 531, 536 (9th Cir. 2018) (citing Cal. Fam. Code § 760)). In California, “classification of property as community or separate property depends on......
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    • U.S. Court of Appeals — Ninth Circuit
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    ...history in this case were laid out in our previous order certifying a question to the Supreme Court of California. See In re Brace , 908 F.3d 531, 534–36 (9th Cir. 2018). We repeat only the relevant facts.Appellants married in 1972. The record before us shows that Appellants acquired both p......
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