Brown v. Barclay (In re Brown)
| Decision Date | 21 May 2018 |
| Docket Number | Adv. No. 15-90085-MM,BAP No. SC-17-1068-AKuS |
| Parties | In re: JASON SCOTT BROWN, Debtor. KENNETH BROWN, Appellant, v. CHRISTOPHER BARCLAY, Appellee. |
| Court | U.S. Bankruptcy Appellate Panel, Ninth Circuit |
NOT FOR PUBLICATION
MEMORANDUM*Argued and Submitted on November 30, 2017 at Pasadena, California
Appeal from the United States Bankruptcy Court for the Southern District of California
Appearances: Christopher Bush argued for appellant; Yosina Lissebeck argued for appellee.
Before: ALSTON,** KURTZ, and SPRAKER, Bankruptcy Judges.
After the bankruptcy court converted the bankruptcy case of the debtor, Jason Brown ("Jason"),1 from chapter 132 to chapter 7, the chapter 7 trustee, Christopher Barclay ("Barclay"), brought an adversary proceeding to recover post-petition transfers of inheritance proceeds made by Jason to his three brothers, Kenneth Brown ("Kenneth"), Christopher Brown ("Christopher"), and Curtis Brown ("Curtis"), prior to conversion. The bankruptcy court granted partial summary judgment to Barclay and ultimately entered judgment in favor of Barclay against the three brothers. Kenneth appealed, arguing that post-conversion the transferred inheritance proceeds no longer constituted property of the estate under sections 348(f)(1) and (2), preventing Barclay from avoiding the transfers under section 549(a). Because Jason's transfers to his brothers were not ordinary and necessary expenses, and therefore section 348(f)(1)(A) did not remove the inheritance proceeds from the estate, we AFFIRM.
Our prior decision affirming the bankruptcy court's conversion order set forth most of the pertinent facts.3 For ease of reference, we restate them here as necessary.
In 2012, Herbert P. Brown, the father of Jason, Kenneth,Christopher, and Curtis, died intestate as a resident of San Diego County, California. Kenneth, Christopher, and Curtis executed Assignments of Beneficial Interests, in which they assigned and abandoned to Jason their beneficial interests in their father's estate. Jason, as personal representative for his father's estate, filed these documents in the state court probate proceedings in 2013. The bankruptcy court found that Jason, as the filer of the assignments, was clearly aware of the documents.
The only asset of the probate estate was a single family residence in Oceanside, California. An inventory and appraisal filed in the state court probate proceeding in late 2013 valued this asset at $240,000. Jason, as personal representative of the probate estate, arranged to sell the asset. The bankruptcy court inferred Jason obtained a sale prior to commencing his bankruptcy case because escrow of the asset closed three days after he filed his bankruptcy petition. The property sold for $289,000.
Jason commenced his chapter 13 case on December 13, 2013, and filed his schedules and chapter 13 plan eleven days later. Jason scheduled an "anticipated inheritance" with a stated value of $2,500, which he exempted in full under California Code of Civil Procedure section 703.140(b)(5). His chapter 13 plan proposed monthly payments of $520, repayment of three secured creditors, and no distribution to non-priority unsecured creditors.
Shortly after Jason filed his chapter 13 case, the probate estate received net proceeds of $64,267.97 from the sale of the real property. In the state court probate proceeding, Jason filed aPetition for Waiver of Account, for Distribution, for Statutory Attorney's Fees and for Waiver of Statutory Personal Representative's Fee in early 2014. In this court filing, Jason maintained the probate estate owed only statutory attorney's fees of $8,780 and had no other liabilities. His petition specifically noted the assignments filed by his brothers and requested that the entire net proceeds be disbursed solely to him. On April 1, 2014, the Superior Court of San Diego County entered an order and decree approving the petition and ordering the distribution of the entirety of the net proceeds of the estate, $55,487.97 (the "Inheritance Proceeds"), solely to Jason. During his chapter 13 case, without notice or court authority, Jason distributed to each brother $12,372, one quarter shares of the net Inheritance Proceeds.
Jason's proposed chapter 13 plan drew objections from a secured creditor and the chapter 13 trustee. After learning of the unauthorized transfers to the brothers, the chapter 13 trustee moved for conversion of Jason's case to chapter 7 under section 1307(c), asserting Jason abused the bankruptcy system. At the hearing, Jason admitted that he had either spent or transferred to his brothers the entirety of the Inheritance Proceeds and was unable to give an accounting or a satisfactory explanation for his low valuation of the Inheritance Proceeds in his schedules. Jason argued the bankruptcy court should allow him to remain in chapter 13 in order to pursue a 100% plan, and alternatively requested dismissal of his case instead of conversion. The bankruptcy court, however, rejected Jason's requests, concluded Jason had abused the bankruptcy system, and converted the case to chapter 7 under section 1307(c) for cause. At the time of the hearing, the bankruptcy court declined to find thatJason had acted in bad faith, but the court later made that finding in its ruling on Jason's motion for reconsideration of the conversion. This Panel affirmed the ruling on Jason's appeal of the conversion. Brown v. Billingslea, supra.
Barclay was appointed as chapter 7 trustee. Jason filed post-conversion bankruptcy schedules, listing the full value of the Inheritance Proceeds and claiming an $18,725 exemption in them.
Barclay filed a complaint in May 2015 that he subsequently amended, asserting claims of conversion and avoidance of post-petition transfer under section 549 against Kenneth, Christopher, and Curtis. Barclay also asserted claims against Jason for conversion and denial of discharge under sections 727(a)(2)(A) and (B), 727(a)(3), 727(a)(4), 727(a)(5), and 727(c). Only the avoidance claims are at issue in this appeal.
Barclay filed a motion for summary judgment in May 2016. Jason opposed the motion arguing that section 348(f) excluded the Inheritance Proceeds from the chapter 7 estate upon conversion from chapter 13 because they had left his possession and control, preventing Barclay from seeking return of the Inheritance Proceeds. Jason's three brothers submitted their own response, joining in Jason's opposition and also asserting they received the transfers in good faith.
After a hearing, the bankruptcy court ruled that Barclay was entitled to summary judgment against Kenneth, Christopher, and Curtis on the avoidance claim. The court recognized that the parties did not dispute that the Inheritance Proceeds had been property of the chapter13 estate. The bankruptcy court then held that the Inheritance Proceeds became property of the chapter 7 estate under section 348(f)(2) because Jason's case was converted from chapter 13 to 7 as a result of his bad faith conduct. Alternatively, the bankruptcy court ruled that under section 348(f)(1), the Inheritance Proceeds remained in Jason's control because he held a claim against his brothers for return of the Inheritance Proceeds at the time of conversion. Under both subsections 348(f)(1) and (2) the bankruptcy court concluded that the Inheritance Proceeds remained property of the chapter 7 estate, allowing Barclay to pursue them under section 549.
The bankruptcy court denied summary judgment as to the conversion claim as an unnecessary cause of action.
Jason first appealed the bankruptcy court's order to this Panel in July 2016, which we dismissed as interlocutory. After dismissal of the first appeal, Barclay filed a motion for entry of partial judgment as to all claims in the complaint against Kenneth, Christopher, and Curtis. Over the objections of the defendants, the bankruptcy court granted the motion and entered partial judgment against Kenneth, Christopher, and Curtis for $12,372 each.
Kenneth and Jason then appealed both the order granting partial summary judgment and the partial judgment. Because Barclay's claims against Jason remained unresolved, this Panel again dismissed the appeal as interlocutory. Barclay and Jason then stipulated to the dismissal of the remaining claims against Jason, and the bankruptcy court entered an order dismissing Jason from the adversary proceeding on February 28, 2017. The order dismissing the claims against Jason thus fully resolved the adversary proceeding. Kenneth timely filed this appeal on March 6, 2017, appealing both the order grantingpartial summary judgment and the partial judgment.
The bankruptcy court had jurisdiction pursuant to 28 U.S.C. §§ 1334 and 157(b)(2)(A) and (E). This Panel has jurisdiction pursuant to 28 U.S.C. § 158(c).
Whether the bankruptcy court erred in determining that the Inheritance Proceeds were property of the estate post-conversion under section 348(f)(1) or (2) so that Barclay could avoid the transfers to Kenneth, Christopher, and Curtis under section 549.
This Panel reviews the bankruptcy court's conclusions of law de novo. Wyle v. Pac. Mar. Ass'n (In re Pac. Far East Line, Inc.), 713 F.2d 476, 478 (9th Cir. 1983). The parties agree that there are no disputed facts in this case. This Panel may affirm on any ground supported by the record. ASARCO, LLC, v. Union Pac. R. Co., 765 F.3d 999, 1004 (9th Cir. 2014).
Barclay first argues this Panel should dismiss this appeal because Kenneth...
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