In re Gilman

• Decision Date: 25 September 2019
• Docket Number: Case No.: 1:11-bk-11603-VK
• Citation: 608 B.R. 714
• Parties: IN RE: Kevan Harry GILMAN, Debtor.
• Court: U.S. Bankruptcy Court — Central District of California

608 B.R. 714

IN RE: Kevan Harry GILMAN, Debtor.

Case No.: 1:11-bk-11603-VK

United States Bankruptcy Court, C.D. California, San Fernando Valley Division.

Date: January 28-29, 2019

Signed September 25, 2019

Mark E. Ellis, Ellis Law Group LLP, Sacramento, CA, for Debtor.

MEMORANDUM OF DECISION

Victoria S. Kaufman, United States Bankruptcy Judge

I. INTRODUCTION

Creditors Tammy R. Phillips and Tammy R. Phillips, a Prof. Law Corp. ("Creditors") object to a claim of homestead exemption by debtor Kevan Harry Gilman ("Debtor"). Previously, the Court sustained Creditors' objection as to Debtor's claim of disability enhancement and overruled the objection as to Debtor's general right to a homestead exemption under California Code of Civil Procedure ("CCP") § 704.730.

The Ninth Circuit Court of Appeals issued an opinion remanding this Court's original decision, in part, for the Court to decide two remaining issues: whether Debtor intended to reside at his homestead as of the petition date, and whether any equitable theories under California law prevent Debtor from claiming a homestead exemption under CCP § 704.730. For the reasons set forth below, the Court holds that Debtor intended to reside at the subject property as of the petition date, and that the equitable theories proffered by Creditors do not prevent Debtor from claiming a homestead exemption under CCP § 704.730.

II. JURISDICTION

The Court has jurisdiction over this matter because the "allowance or disallowance of claims against the estate or exemptions from property of the estate" constitutes a "core proceeding" under Title 11. 28 U.S.C. § 157 ; see also In re Gilman , 887 F.3d 956, 961 (9th Cir. 2018).

III. BACKGROUND

A. Procedural History

On February 7, 2011, Debtor filed a voluntary chapter 7 petition. On February 21, 2011, Debtor filed his first set of schedules [doc. 12] and claimed an interest in real property located at 6553 Varna Avenue, Van Nuys, California 91401 (the "Varna Property") [doc. 12]. On August 4, 2011, Debtor filed an amended schedule C, in which he claimed an exemption in the Varna Property in the amount of $104,000 pursuant to CCP § 704.730 [doc. 35].

On July 17, 2012, Creditors filed a renewed motion objecting to Debtor's claim of a homestead exemption (the "Objection") [doc. 73]. On August 7, 2012, the Court held a hearing on the Objection. At that time, the Court issued a ruling overruling the Objection, except as to Debtor's claim of an enhanced homestead exemption [doc. 84].

On January 6, 2015, the Court entered an order overruling the Objection, except as to Creditors' objection to Debtor's claim of a disability enhancement to Debtor's homestead exemption (the "Homestead Exemption Order") [doc. 315]. The Court subsequently held an evidentiary hearing regarding Debtor's claim of a disability enhancement, after which time the Court sustained Creditors' objection to Debtor's claim of a disability enhancement. On January 20, 2015, Creditors filed a motion for new trial and/or a motion to vacate the Homestead Exemption Order (the "Motion for New Trial") [doc. 321]. On March 18, 2015, the Court held a hearing on the Motion for New Trial. On April 10, 2015, the Court entered an order denying the Motion for New Trial [doc. 368].

On April 1, 2015, Creditors appealed the Homestead Exemption Order [doc. 361]. On February 22, 2016, the district court affirmed the Homestead Exemption Order [doc. 495]. On August 22, 2016, Creditors appealed the district court's ruling to the Ninth Circuit Court of Appeals [doc. 496]. On April 13, 2018, the Ninth Circuit Court of Appeals issued its opinion (the "Court of Appeals Opinion"). In re Gilman , 887 F.3d 956 (9th Cir. 2018). In the Court of Appeals Opinion, the Court of Appeals stated that the only issues remaining for adjudication on remand are: (A) whether Debtor intended to reside at the Varna Property; and (B) whether California equitable law could be used to deny Debtor's claim of a homestead exemption (the "Issues on Remand"). Id. , at 966.

From January 28, 2019 through January 29, 2019, the Court held an evidentiary hearing on the Issues on Remand. For the reasons set forth below, the Court will enter an order overruling the Objection based upon the following findings of fact and conclusions of law made pursuant to Federal Rule of Civil Procedure 52(a), as incorporated into Federal Rules of Bankruptcy Procedure 7052 and 9014(c).

B. Debtor's History with the Varna Property

In approximately 1961, when Debtor was a child, Debtor's family moved into the Varna Property.¹ Debtor grew up in the Varna Property and resided there until moving away to college. Although Debtor intermittently lived elsewhere, in around 1998, Debtor permanently moved back into the Varna Property. According to Kwei-Shiang Gilman, Debtor's former spouse, Debtor was attached to the Varna Property and had sentimental feelings towards the house. The Varna Property belonged to Debtor's parents and Debtor's father had made improvements to the home.

In around 2002 or 2003, Debtor and Ms. Gilman took title to the Varna Property.² Debtor has resided in the Varna Property since that time. In fact, Debtor not only resided in the Varna Property as of the petition date, but continued to reside in the Varna Property as of the date of trial, approximately eight years after the petition date.

C. The Litigation with Creditors

Starting in 2003, Creditors and Debtor became entrenched in state court litigation. Eventually, the parties' dispute resulted in a judgment in favor of Creditors (the "State Court Judgment"). In 2010, when Creditors' continued efforts to collect on the State Court Judgment began to strain Debtor's marriage, Debtor decided to sell both his office property (the "Office") and the Varna Property to satisfy his debt to Creditors. Although Debtor had already consulted with a bankruptcy attorney at this time, Debtor elected to attempt a satisfaction of the State Court Judgment through a sale of his properties prior to exercising bankruptcy as an option.

To this end, Debtor, his attorneys, the escrow company and the buyers' representatives attempted to obtain a payoff demand from Creditors. Exhibits 1-10, 13. Between December 2010 and the petition date, the involved parties sent multiple emails or letters to Creditors regarding the need for a payoff demand prior to closing escrow. Id. Creditors either refused to provide a payoff demand or stated they might consider a solution that did not involve providing an acknowledgment of satisfaction of the judgment owed by Debtor. Id. Either way, Creditors did not provide an amount. In fact, at trial, Creditors' counsel testified that, to date, Creditors have not estimated the amount of their claim against Debtor.

Being unable to obtain a payoff demand by Creditors, Debtor decided to cancel the sale of the Varna Property and opt for bankruptcy protection. According to Debtor, as of the petition date, Debtor had decided to stay in the Varna Property for the rest of his life and discharge his debt to Creditors through bankruptcy. As such, Debtor and his family continued to reside in the Varna Property. The pending sale of the Varna Property took several weeks to unwind; however, by February 24, 2011, approximately three weeks after the petition date, the pending sale had been completely canceled.

D. Debtor's Postpetition Activity

Postpetition, Debtor rented both the Varna Property and the Office to various tenants. The tenants made monthly payments to either Debtor or Ms. Gilman in varying amounts, from $600 to $1,100. Debtor himself continued to reside at the Varna Property, but did not pay rent to the estate for his use of the Varna Property.

In addition to the payments from tenants of these properties, Debtor and/or Ms. Gilman received, postpetition, a tax refund check and a refund check from Debtor's former attorneys. According to Ms. Gilman, the tax refund and the rent money from the Office were used to pay expenses related to the Office.

Postpetition, Debtor also withdrew funds from accounts considered property of the estate. See Court's Ruling [1:11-ap-01389-VK, doc. 668]. For this conduct, the Court denied Debtor his discharge under 11 U.S.C. § 727(a)(2)(B). Id.

E. Creditors' Arguments

In their trial briefs filed in preparation for trial [docs. 652, 653, 656], Creditors argued that the Court should sustain their objection to Debtor's claim of a homestead exemption on the following bases: (A) Debtor did not intend to reside at the Varna Property because Debtor attempted to sell the Varna Property; (B) Debtor used funds generated from property of the estate postpetition; (C) Debtor claimed the homestead exemption in bad faith; (D) Debtor has unclean hands based on his postpetition conduct; (E) Debtor's use of estate funds constitutes unjust enrichment; (F) Debtor should be equitably estopped from claiming a homestead exemption because he listed the Varna Property for sale; (G) the doctrine of laches prevents Debtor from claiming a homestead exemption because Debtor did not timely indicate in his schedules that the Varna Property was in escrow; and (H) that 11 U.S.C. § 365 preempts California's exemption statutes.³

IV. ANALYSIS

A. Burden of Proof

Pursuant California Code of Civil Procedure § 703.580(b), "[a]t a hearing under this section, the exemption claimant has the burden of proof." "[W]here a state law exemption statute specifically allocates the burden of proof to the debtor, Rule 4003(c) does not change that allocation." In re Diaz , 547 B.R. 329, 337 (9th Cir. BAP 2016) ; see also Raleigh v. Ill. Dep't of Revenue , 530 U.S. 15, 120 S.Ct. 1951, 147 L.Ed.2d 13 (2000) (holding that the burden of proof is a substantive element of state law applicable when federal courts apply state law). As such, Debtor has the burden of proving he intended to reside at the Varna Property as of the petition date.

B. Debtor's Intent to Reside at the Varna Property

Under California Code of Civil Procedure § 704.710(c), a "h...