Elliott v. Weil (In re Elliott)

• Decision Date: 28 January 2016
• Docket Number: BAP No. CC–15–1127–DKiG,Bk. No. SV 11–23855–VK
• Citation: 544 B.R. 421
• Parties: In re: Edward E. Elliott, Debtor. Edward E. Elliott, Appellant, v. Diane C. Weil, Chapter 7 Trustee, Appellee.
• Court: U.S. Bankruptcy Appellate Panel, Ninth Circuit

544 B.R. 421

In re: Edward E. Elliott, Debtor.Edward E. Elliott, Appellant,

v.Diane C. Weil, Chapter 7 Trustee, Appellee.

BAP No. CC–15–1127–DKiG

Bk. No. SV 11–23855–VK

United States Bankruptcy Appellate Panel of the Ninth Circuit.

Submitted on January 21, 2016 at Pasadena, California

Filed January 28, 2016

Andrew Edward Smyth argued for appellant.

John N Tedford, IV, Danning, Gill, Diamond & Kollitz, LLP argued for appellee.

Before: DUNN, KIRSCHER AND GAN,¹ Bankruptcy Judges.

OPINION

DUNN, Bankruptcy Judge:

The Debtor Edward E. Elliott ("Mr.Elliott") appeals the bankruptcy court's order following remand sustaining the chapter² trustee's ("Trustee") objection to his homestead exemption claim. We AFFIRM.

I. FACTUAL BACKGROUND AND PROCEDURAL HISTORY

This is Mr. Elliott's third appearance before this Panel. While detailed factual background information was included in our two published Opinions in Elliott v. Weil (In re Elliott), 523 B.R. 188 (9th Cir. BAP 2014) (" Elliott I "), and Elliott v. Weil (In re Elliott), 529 B.R. 747 (9th Cir. BAP 2015) (" Elliott II "), we include some of that factual background here to provide context for the current decision.³

1. Events in the Main Case through Elliott I

Mr. Elliott filed for relief in chapter 7 on December 1, 2011. In his petition and schedules, signed under penalty of perjury, he stated his address as Hiawatha Street in Granada Hills, California; he did not list any real property in which he had an interest or in which creditors held secured claims; he did not claim entitlement to a homestead exemption on Schedule C; he did not disclose any ownership interest in a corporation on Schedule B; and he did not list creditors ("Judgment Creditors") who had obtained a judgment against him in 2006 for fraud and negligent misrepresentation or any secured creditors.

At his § 341(a) meeting of creditors, Mr. Elliott confirmed his address as Hiawatha Street, and he testified under oath that he had read his bankruptcy papers before he had signed them and that they were true and complete to the best of his knowledge. He also testified that he had listed everything of value that he owned and that he had listed everyone he owed money to in his schedules. He further testified that he did not own any real property and that he had not sold, transferred or given away anything of value in the last four years.

Based on the information disclosed by Mr. Elliott in his schedules and in his testimony at the § 341(a) meeting, the Trustee filed a "No Distribution" report, Mr. Elliott received his discharge, and the case was closed on March 13, 2012. Less than two weeks later, Lee Wong Investments, Inc. ("LWI") transferred a residential real property in Los Angeles, California (the "Buckingham Property") to Mr. Elliott by quitclaim deed "as a gift." LWI is a Nevada corporation that Mr. Elliott does not dispute he organized prepetition and controls. Shortly thereafter, Mr. Elliott sent a letter to counsel for the Judgment Creditors stating that he had acquired the Buckingham Property after his bankruptcy and demanding that their judgment liens be removed. His letter caused the Judgment Creditors to investigate the history of title transactions with respect to the Buckingham Property.

As detailed in Elliott I, since 2006, Mr. Elliott had maintained a continuous interest in the Buckingham Property that was disguised through a series of transfers. On the date of his bankruptcy filing, Mr. Elliott owned the Buckingham Property through his wholly-owned corporation, LWI. However, as noted above, Mr. Elliott did not disclose any ownership interest in either the Buckingham Property or LWI in his schedules and did not even disclose his judgment debt to the Judgment Creditors. So, the title manipulations as to the Buckingham Property remained undetected until after Mr. Elliott received his discharge and his bankruptcy case was closed.

The Judgment Creditors moved to reopen Mr. Elliott's bankruptcy case, which motion was granted, and the Trustee was reappointed to serve in the reopened case. Mr. Elliott did not amend his schedules to disclose his interest in the Buckingham Property until nearly a year later. In his amended schedules, Mr. Elliott included the Buckingham Property in his amended Schedule A, valued at $360,000, and stated that Bank of America held a $120,826 secured claim against it. He also claimed a $175,000 homestead exemption in the Buckingham Property in his amended Schedule C under Cal.Code Civ. P. § 704.730(a)(3). He neglected to list over $100,000 in outstanding real property taxes assessed against the Buckingham Property. Based on Mr. Elliott's valuation of the Buckingham Property, if his homestead exemption claim were allowed, there would be nothing for his bankruptcy estate.

The Trustee filed a timely objection to Mr. Elliott's claimed homestead exemption in the Buckingham Property on the basis of bad faith, and the bankruptcy court sustained the objection. Mr. Elliott appealed the denial of his exemption claim to this Panel, and while the appeal was pending, the Supreme Court issued its decision in Law v. Siegel, 571 U.S. ––––, 134 S.Ct. 1188, 188 L.Ed.2d 146 (2014).

Based on our conclusion that Law v. Siegel precluded bankruptcy courts from denying claimed exemptions or amendments to claimed exemptions based on a debtor's bad faith as a matter of equity, the Panel vacated the bankruptcy court's order denying Mr. Elliott's homestead exemption claim as to the Buckingham Property but remanded for the bankruptcy court to determine if Mr. Elliott's homestead exemption claim could be denied on some other basis under federal bankruptcy or California state law. See Elliott I, 523 B.R. at 193–98.

2. Events in the Adversary Proceeding through Elliott II

Meanwhile, the Trustee had filed the Adversary Proceeding to revoke Mr. Elliott's discharge and to require that the Buckingham Property be turned over to the Trustee on behalf of the bankruptcy estate under § 542(a). The Trustee also conducted a continued § 341(a) meeting at which Mr. Elliott admitted that he lived at the Buckingham Property when he filed his bankruptcy petition, that he considered it to be his home, and that he had purchased it in 1989.

After filing a motion for an order setting aside his default, Mr. Elliott filed an answer to the Adversary Proceeding complaint in pro se that did not assert any affirmative defenses. After obtaining counsel, he filed an amended answer asserting as his only affirmative defense that any "mistakes on the schedules were the result of debtor's attorney's mistakes."

In January 2014, the Trustee filed a motion for summary judgment ("Summary Judgment Motion") in the Adversary Proceeding seeking revocation of Mr. Elliott's discharge under § 727(d)(1) and turnover of the Buckingham Property. Mr. Elliott opposed the Summary Judgment Motion. The bankruptcy court held a hearing on the Summary Judgment Motion on March 19, 2014, at which the parties appeared through counsel and argued their positions. On April 7, 2014, the bankruptcy court granted the Summary Judgment Motion and entered a "Judgment Vesting Property in Trustee and Revocation of Discharge." Mr. Elliott appealed.

On appeal, the Panel vacated the judgment. It concluded that the Trustee's discharge revocation claim was barred by the running of the limitations period in § 727(e)(1) and had to be remanded for dismissal. The turnover portion of the judgment likewise was vacated and remanded, in light of the Panel's prior determination in Elliott I that denial of Mr. Elliott's homestead exemption claim on bad faith grounds was inappropriate, for the bankruptcy court to make findings as to whether the Buckingham Property was "of inconsequential value or benefit to the estate," as required under § 542(a). See Elliott II, 529 B.R. at 754–55.

3. Events in the Adversary Proceeding Following Remand

Following remand of the Adversary Proceeding, the bankruptcy court dismissed the Trustee's claim to revoke Mr. Elliott's discharge and established a schedule for the parties to submit legal memoranda and evidence as to whether the estate's interest in the Buckingham Property was sufficiently consequential to warrant turnover.

The Trustee submitted a brief ("Valuation Brief") supported by the declarations of the Trustee, her counsel Aaron E. De Leest, and appraiser David S. Serber. The Trustee had obtained appraisals of the Buckingham Property as of April 7, 2014 ($580,000) and as of June 15, 2015 ($600,000). Unpaid real property taxes and associated penalties as of June 24, 2015, for 2006 through 2011 and 2013 through 2015 totaled $107,495.05.

The Community Development Department of the City of Los Angeles ("CDD") had a deed of trust recorded against the Buckingham Property on January 10, 1986, securing an indebtedness of $25,000. Bank of America, N.A. ("B of A") had a deed of trust recorded against the Buckingham Property on November 12, 2004, securing an indebtedness of $120,360.77 as of June 15, 2015. The Trustee did not contest the validity or priority of the CDD and B of A trust deed liens.

A deed of trust in favor of Hollywood Damage Control & Recovery ("HDCR") to secure an indebtedness in the amount of $800,000 was recorded on October 31, 2005. However, the Trustee had avoided and preserved the HDCR trust deed lien for the benefit of the estate. Los Angeles County (the "County") had recorded a personal property tax lien against the Buckingham Property in the amount of $1,449.75 on June 9, 2005. For purposes of the Adversary Proceeding, the Trustee assumed the validity of the County's lien.

A judgment in the amount of $127,134.00 in favor of the Inglewood Family Corporation ("IFC") had been entered on May 13, 2005, against Mr. Elliott and another entity and had been recorded as a judgment lien against the Buckingham Property. However, the judgment was not renewed by IFC within 10 years after it was entered. Accordingly, under Cal.Code Civ. P. § 683.020, the judgment was no...