In re Rolland
| Decision Date | 02 November 2004 |
| Docket Number | No. RS 03-15510 PC.,RS 03-15510 PC. |
| Citation | 317 B.R. 402 |
| Parties | In re Tony Buddy ROLLAND and Pamela Diane Rolland, Debtors. |
| Court | U.S. Bankruptcy Court — Central District of California |
Robert E. Huttenhoff, Marshack, Shulman, Hodges & Bastian, LLP, Foothill Ranch, CA, Harry M. Barth, Barth, Berus & Trella, LLP, Orange, CA, for Debtor.
Steven M. Lawrence, Sunny K. Hur, Alvarado, Smith & Sanchez, Santa Ana, CA, for Steven M. Speier, Chapter 7 Trustee.
Debtors, Tony Buddy Rolland and Pamela Diane Rolland amended Schedule C to increase their homestead exemption from $75,000 to $125,000 on the eve of a sale of their residence by the trustee. Steven M. Speier, Chapter 7 Trustee ("Speier") filed an objection to the Debtors' amendment asserting that the Debtors did not qualify for the increased homestead exemption. Speier further asserted that the amendment was filed in bad faith and is prejudicial to creditors. At the hearing, Steven M. Lawrence and Sunny K. Hur appeared for Speier, and Robert E. Huttenhoff appeared for the Debtors. The court, having considered the pleadings, evidentiary record,1 and arguments of counsel, makes the following findings of fact and conclusions of law2 pursuant to Fed.R.Civ.P. 52, as incorporated into Fed. R. Bankr.P. 7052 which is applicable to contested matters.
Prior to bankruptcy, Debtors operated several Burger King and Del Taco franchises in the Inland Empire. On April 10, 2003, Debtors filed their voluntary petition under chapter 7 of the Bankruptcy Code3 to liquidate their assets and to discharge mounting business and personal debt.4 Speier was appointed as trustee. In their schedules, Debtors disclosed ownership of a single family residence located at 23350 Modoc Court, Perris, California ("Perris Property"). Debtors valued the Perris Property at $512,000 in Schedule A, and disclosed in Schedule D that the property was subject to a first deed of trust lien in favor of Countrywide Home Loans securing a $401,433 debt and a second deed of trust lien held by HomeEq securing a debt of $98,754.5 Debtors listed the Perris Property in Schedule C claiming a value of $11,813 as exempt pursuant to California Code of Civil Procedure section 704.730(a)(2).6
On May 12, 2003, Debtors appeared at a meeting of creditors conducted pursuant to section 341(a).7 Speier examined the Debtors at the initial creditors' meeting,8 and then continued the meeting several times to investigate the validity of the Debtors' claimed exemptions and to obtain further documentation from the Debtors concerning their assets, liabilities and financial condition.9
On September 2, 2003, Speier sought to employ Richard A. Halderman, Jr. ("Halderman"), a licensed independent realtor and broker, pursuant to section 327(a)10 to sell the Perris Property for the sum of $825,000. Debtors objected to the necessity of Halderman's employment, asserting that the Perris Property was worth not more than $592,000 and that there would be no equity remaining for the estate upon a sale of the property after payment of existing encumbrances, costs of sale, and the Debtors' exemption. Debtors amended their Schedule C on October 20, 2003, to claim a $75,000 exemption in the Perris Property pursuant to California Code of Civil Procedure section 704.730(a)(2), and moved to compel Speier to abandon the estate's interest in the Perris Property under section 554(b),11 alleging that the asset was of inconsequential value and benefit to the estate.12
At a hearing on November 10, 2003, the court overruled the Debtors' objection to Speier's application to employ Halderman and denied, in part, the Debtors' motion to compel abandonment of the Perris Property. On November 26, 2003, the court entered an order on Debtors' motion to compel abandonment which granted Speier "through and including April 30, 2004, to market and sell the [Perris] Property for the benefit of the estate" and provided that "[a]bsent further order of the Court, the Property shall be deemed abandoned on May 1, 2004 for all purposes under 11 U.S.C. § 554...."13 A separate order authorizing Speier to employ Halderman as a realtor to sell the Perris Property was entered on November 26, 2003.
On March 24, 2004, Speier filed a motion seeking an extension of the April 30th deadline to sell the Perris Property for cause, alleging that the Debtors had engaged in a pattern of conduct calculated to frustrate his efforts to market and sell the property for the estate. Specifically, Speier alleged, in pertinent part, that:
2. The Debtors have placed a 17-page Uniform Residential Appraisal Report prepared by one "Daniel J. Marshall, CRA" in the front door area of the Property, listing the fair market value of the Property as of September 9, 2003, at $553,000.00....
3. The Debtors have placed a 16-page appraisal prepared by one "Glenn Pierce" in the front door area of the Property, listing the fair market value of the Property as of September 17, 2003, at $570,000.00....
4. The Debtors have placed a 2-page document entitled "* * * DISCLOSURES * * *" (which is centered on the top of the document and typed in what appears to be in 26 inch font) in the front door area of the Property, which lists thirty-five (35) line item entries with regard to problems related to the Property....
5. The Debtors have placed a 1-page copy of an article from the local newspaper, The Press-Enterprise. The article, which contains the handwritten date in the top right corner of "10-1-03", is entitled "Perris worries about ex-cons"....
6. On two (2) separate occasions, the first time on February 21, 2004 and the second time on March 3, 2004, the RICHARD A. HALDERMAN, JR. visited the Property to show it to potential buyers and found that his sign marketing the Property, which had been hammered into the lawn, was pulled out and laid face down on the lawn. The Realtor also identified that his brochures had been pulled out from the clear acrylic brochure box on the sign.
7. On several occasions, RICHARD A. HALDERMAN, JR. has been to the Property and has found the Property in a disorderly state, including but not limited to, boxes piled up in the living room and dining room, unmade beds, piles of clothes in each of the bedrooms, dirty pastures and dirty pool and spa.14
Speier sought an extension of the deadline to sell the Perris Property to August 31, 2004, permission to place a lock-box on the property, and an order compelling the Debtors to cooperate with Speier and Halderman in the sale of the property. In response, Debtors objected to an extension of the April 30th deadline, denied interfering with Speier's efforts to sell the property, and argued that the property had not sold simply because it was not worth the trustee's asking price of $825,000. At a hearing on April 12, 2004, the court granted Speier's motion, extended the deadline to sell the Perris Property to July 31, 2004, and ordered that the property would be deemed abandoned on August 1, 2004, for all purposes under section 554 absent further order of the court. The court further ordered the Debtors to cooperate fully with Speier and Halderman in their efforts to sell the Perris Property, and to refrain from conduct, such as posting appraisals and crime statistics, calculated to obstruct the sale process.15
Less than two months later, Speier received an offer from a qualified buyer to purchase the Perris Property for $755,000 cash. On June 16, 2004, Speier filed a motion seeking authority to sell the Perris Property for the sum of $755,000 cash, subject to overbids, pursuant to sections 363(b) & (f). Debtors immediately responded with a second amendment to Schedule C filed on June 21, 2004, increasing their claim of exemption in the Perris Property from $75,000 to $125,000 pursuant to California Code of Civil Procedure section 704.730(a)(3)(B).16 Eight days later, Debtors objected to the proposed sale of the Perris Property on the grounds that Speier's motion did not recite that a distribution would be made on account of the Debtors' newly-amended homestead exemption. In their objection, Debtors dismiss any question regarding the timing of their amendment, stating:
Mr. and Mrs. Rolland initially listed a homestead exemption in the amount of $75,000. No objection was filed. Recently, the Rollands amended their homestead exemption to $125,000 after they learned that they were eligible for this exemption due to Mrs. Rolland's pre-existing mental disability. After discussing these issues with Mrs. Rolland's medical professionals, the Rollands determined that it would be in their family's best interest to amend the exemption and seek their full rights under state law.17
Debtors sought payment of the entire $125,000 claimed exemption out of escrow. On July 20, 2004, Speier filed a timely objection to the Debtors' second amended claim of exemption, alleging that the Debtors did not qualify for a $125,000 exemption under California Code of Civil Procedure section 704.730(a)(3)(B). Speier further alleged that Debtors' amendment to Schedule C was filed in bad faith and was prejudicial to creditors.
On July 22, 2004, the court entered an order authorizing the sale of the Perris Property for the sum of $755,000. In its order, the court directed Speier to distribute $75,000 to the Debtors on account of their claimed homestead exemption of $125,000, and to deposit the remaining $102,990 net sale proceeds in a separate interest-bearing account pending resolution of Speier's objection to the remaining $50,000 claimed by the Debtors as exempt. The hearing on Speier's objection, originally set for August 16, 2004, was continued to October 7, 2004, to allow the parties an opportunity to conduct limited discovery. After oral argument at the continued hearing on October...
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