In re Casserino

• Decision Date: 16 August 2004
• Docket Number: No. 03-35257.,03-35257.
• Citation: 379 F.3d 1069
• Parties: In re Matthew J. CASSERINO; In re Joani M. Casserino, Debtors, Ronald R. Sticka, Appellant, v. Matthew J. Casserino; In re Joani M. Casserino, Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

379 F.3d 1069

In re Matthew J. CASSERINO; In re Joani M. Casserino, Debtors Ronald R. Sticka, Appellant, v. Matthew J. Casserino; In re Joani M. Casserino, Appellees.

No. 03-35257.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted July 12, 2004.

Filed August 16, 2004.

Ronald R. Sticka, Eugene, OR, appellant pro se.

Gregory J. Christensen, Corvallis, OR, for the appellees.

Appeal from the Ninth Circuit Bankruptcy Appellate Panel, Brandt, Ryan, and Montali, Bankruptcy Judges, Presiding.

Before: GOODWIN, W. FLETCHER, and TALLMAN, Circuit Judges.

WILLIAM A. FLETCHER, Circuit Judge:

Appellant-trustee Ronald R. Sticka appeals the judgment of the Bankruptcy Appellate Panel ("BAP") holding that a debtor's prepaid rent and security deposit is included in the homestead exemption under Oregon law. We agree with the BAP in all respects and affirm.

I. Background

On November 22, 1999, appellee-debtor Matthew J. Casserino filed a joint Chapter 7 petition with his then-wife. At the time, Casserino was separated from his wife (from whom he is now divorced) and living in an apartment that he leased on a month-to-month basis. Pursuant to the rental agreement, Casserino had paid his landlord $2,000 prior to occupancy: $750 for the first month's rent, $750 for the last month's rent, and $500 as a security deposit ($100 of which was a nonrefundable cleaning fee). Thus, at the time Casserino filed for bankruptcy, his landlord retained $1,150 of this original sum: a $400 refundable security deposit and a $750 deposit to be applied toward future rent obligations. Casserino claims an exemption for this $1,150.

The trustee, Ronald R. Sticka, sent a letter to Casserino's landlord, demanding that she remit to him Casserino's deposit and prepaid rent. When the landlord refused, Sticka filed an adversary proceeding against her (and, later, against her estate), seeking turnover of the deposit and sanctions for her refusal to cooperate. A few months later, the parties reached a settlement under which the landlord's estate would deposit $1,150 with Sticka, and Sticka would return the funds if they were deemed exempt.

Casserino argued before the bankruptcy court that the prepaid rent and security deposit were part of Oregon's homestead exemption pursuant to Or.Rev.Stat. §§ 23.240 and 23.250.¹ The Bankruptcy Court held that Casserino was entitled to exempt the prepaid rent and deposit. Noting that "the homestead statute ... is to be construed liberally to advance its purpose," the court found that "[u]nder Oregon law, a homestead may be claimed in any interest in property that carries with it the right of possession," including a tenancy. It further concluded that the deposit and prepaid rent, as "rights attendant [to]" the leasehold, were subject to the exemption.

On appeal, the BAP affirmed, finding that because a residential lessee owned a possessory interest in the leased property, the lease fell within the definition of "homestead" under Oregon law. The BAP also concluded that the exemption included Casserino's deposit and prepaid rent:

Payment of the rent and deposit was a condition precedent to Debtor's right to obtain possession of the property under the lease agreement. It is as simple as that: no deposit, no lease. The rent and deposit represented integral rights and responsibilities accruing under the lease.

The trustee timely appealed to this court. On appeal, he argues that under Oregon law, a residential leasehold interest is not a "homestead" and therefore does not qualify for the exemption. He argues further that even if the leasehold qualifies for the exemption, the deposit is not part of the lease for purposes of the homestead exemption. Finally, the trustee argues that under 11 U.S.C. § 365(d)(1), the lease ceased to exist by operation of law, and therefore the debtor was not permitted to take an exemption for the deposit.

II. Standard of Review

On appeal from the BAP, we independently review a bankruptcy court's ruling, "reviewing the bankruptcy court's conclusions of law de novo and its factual findings for clear error." In re Rodeo Canon Dev. Corp., 362 F.3d 603, 607 (9th Cir.2004) (internal quotation marks and citation omitted).

III. Discussion

A. Exemption of Residential Leaseholds under Or.Rev.Stat. § 18.395

Oregon has chosen to opt out of the federal bankruptcy exemption scheme and define its own exemptions from the bankruptcy estate. See 11 U.S.C. § 522(b)(1); Or.Rev.Stat. § 18.300 (2003). Or.Rev.Stat. § 18.395 establishes an exemption for a debtor's homestead:

A homestead shall be exempt from sale on execution, from the lien of every judgment and from liability in any form for the debts of the owner to the amount in value of $25,000, except as otherwise provided by law. The exemption shall be effective without the necessity of a claim thereof by the judgment debtor. When two or more members of a household are debtors whose interests in the homestead are subject to sale on execution, the lien of a judgment or liability in any form, their combined exemptions under this section shall not exceed $33,000. The homestead must be the actual abode of and occupied by the owner, or the owner's spouse, parent, or child ....

(Emphasis added.) There is no dispute that under the terms of the statute Casserino's apartment was his "actual abode." The only question is whether a residential lessee can be an "owner" under this section.

[2] While Oregon courts have never addressed whether a residential leasehold qualifies as a homestead, they have held that the homestead exemption should be liberally interpreted in light of its goal to "assure to the unfortunate debtor ... the shelter and influence of home." In re Banfield's Estate, 137 Or. 167, 298 P. 905, 907 (1931). In furtherance of this goal, Oregon courts "employ the most liberal and humane rules of interpretation" to guide their understanding of the statutory text. Id.

In analyzing whether Oregon's homestead exemption applies to a given property, courts have found the existence of a current possessory interest, not the particular form in which the debtor holds the property, to be determinative. "[The] homestead right does not depend upon the character or extent of the estate owned by [the debtor], provided he is not a mere intruder." Marvin & Co. v. Piazza, 129 Or. 128, 276 P. 680, 681 (1929). Instead, the proper focus is whether the claimed property "is occupied by [the debtor] as his actual abode and place of residence." Id. Thus, courts have generally held that a debtor in current possession of property may claim a homestead exemption under Oregon law, while a debtor who lacks a present possessory interest may not.

For example, in Troutman v. Erlandson, 44 Or.App. 239, 605 P.2d 1200 (1980), the debtor owned his mobile home outright but leased the property underneath it. Although the debtor had an option to purchase the underlying land, he had not yet exercised it. Id. at 1204. The Oregon Court of Appeals concluded that, since the debtor had a right of possession until the option expired, he could claim a homestead exemption in the land regardless of whether or not he exercised the option. Id.

Courts have allowed debtors to claim the Oregon homestead exemption for other property interests that include a present right of possession, including a tenancy by the entirety, a life estate, and a tenancy in common. See Breneman v. Corrigan, 4 F.2d 225, 226 (9th Cir.1925) (tenancy by the entirety qualified for homestead exemption); Banfield, 298 P. at 907 (1931) (in light of the homestead statute's purposes "not ... to deprive any person of the protection and comfort of a homestead," the statute should be interpreted to include a life estate); Marvin, 276 P. at 681 (tenancy in common qualified for exemption because "defendants were in the several possession and occupancy of the parts allotted to them as actual abodes [and] .... [s]uch possession and occupancy was sufficient to make the premises so possessed and occupied a homestead"). By contrast, where courts have held that a given property did not qualify as a homestead under Oregon law, they have stressed the absence of a present possessory right. See White v. White, 727 F.2d 884, 886 (9th Cir.1984) (finding that "[n]o Oregon case has held that a non-possessory interest may be the basis of a homestead exemption" and that a judgment lien on the home of debtor's ex-wife was therefore not exempt).

The courts' focus on the presence of a possessory interest is consistent with the legislative purposes of Or.Rev.Stat. § 18.395. Oregon courts have found that, in establishing the homestead exemption, the legislature sought to "preserve a roof over [the debtor's] head," White, 727 F.2d at 887, and to "protect the general economic welfare of all citizens ... by promoting the stability and security of our society." Wilkinson v. Carpenter, 277 Or. 557, 561 P.2d 607, 611 (1977). Construing Or.Rev.Stat. § 18.395 to protect the debtor's possessory interest in property, regardless of the form in which it is held, furthers both of these aims. In this case, for example, permitting Casserino to exempt his residential leasehold spares him the possibility of immediate eviction and his landlord the disruptive effects of a broken lease.

Most courts that have interpreted homestead statutes similar to Oregon's have concluded that a residential leaseholder is an "owner" for purposes of claiming a homestead exemption. For example, Wisconsin's homestead statute, which served as the model for Oregon's, refers to the "owner" of a homestead-exempt property. See Wis. Stat. Ann. § 815.20; Fleischhauer v. Bilstad, 233 Or. 578, 379 P.2d 880, 883 (1963). The Wisconsin Supreme Court has held that under the homestead statute, "there can be no doubt but that a homestead may be secured in premises held under a lease." Beranek v. Beranek, 113 Wis. 272, 89 N.W. 146, 146-47 (1902). Courts applying the homestead statutes of many...