Roosevelt, In re

Decision Date20 June 1996
Docket NumberNo. 95-55160,95-55160
PartiesBankr. L. Rep. P 76,998, 96 Cal. Daily Op. Serv. 4447, 96 Daily Journal D.A.R. 7202 In re Theodore Steven ROOSEVELT, Debtor. FINALCO, INC., Appellant, v. Theodore Steven ROOSEVELT, Appellee.
CourtU.S. Court of Appeals — Ninth Circuit

Russell H. Rapoport, Plotkin, Rapoport & Nahmias, Encino, California, for appellant.

Philip Holmsey, Knapp, Petersen & Clarke, Glendale, California, for appellee.

Appeal from the Ninth Circuit Bankruptcy Appellate Panel, Brandt, Hagan, and Volinn, Judges, Presiding. BAP No. CC-93-02221-VhB.

Before: HALL, O'SCANNLAIN, and KLEINFELD, Circuit Judges.


We are asked to decide when a transfer is to be deemed "made" for the purposes of 11 U.S.C. § 727(a)(2), which denies discharge to a debtor who transfers property with the "intent to hinder, delay, or defraud" within one year of filing his petition in Bankruptcy Court. We hold that a transfer is "made" once it is effective as between the parties to the transfer.


Steven and Judy Roosevelt, a married couple, purchased a house on Green Oak Lane in Glendora, California (hereinafter "Glendora property") on August 9, 1984, and took title as joint tenants. On June 10, 1989, when the Roosevelts were having marital difficulties, they signed and executed a Marital Agreement. The Agreement divided all of the couple's community property and specifically provided that the Glendora property would be transmuted into Judy's separate property. The Bankruptcy Appellate Panel determined that Steven made this transfer with the "intent to hinder, delay, or defraud" his creditors.

Notwithstanding Steven's June 1989 transfer of his interest in the Glendora property, he joined Judy in executing two deeds of trust on the property on December 18, 1989-the first in favor of Frances Miles in exchange for $56,000 and the second in favor of Raymond Jensen in exchange for $56,000. On March 13, 1990, Steven and Judy filed a homestead declaration, thereby protecting a portion of their equity in the Glendora property from creditors. 1 On April 14, 1990, Steven quitclaimed his interest in the Glendora property to Judy and she immediately recorded the quitclaim deed.

In March 1990, Finalco Corp. sued Judy and Steven in an unrelated action and was awarded a $150,000 judgment against Steven. Steven filed for Chapter 7 bankruptcy on November 9, 1990. Finalco instituted an adversary proceeding contesting Steven's discharge under § 727(a)(2) on the ground that he transferred the Glendora property within one year of his petition for bankruptcy with the "intent to hinder, delay, or defraud" his creditors. Specifically, Finalco argued that: (1) the June 1989 Marital Agreement was ineffective under California law (so that Steven did not actually transfer any interest in the Glendora property until he executed the December 1989 deeds of trust); (2) even if the Marital Agreement was a valid transfer, such a transfer is not deemed "made" under § 727(a)(2) until it is recorded (so that the transfer of the property under the Marital Agreement was not "made" until Judy recorded the quitclaim deed in April 1990); and (3) even if § 727(a)(2) deemed a transfer "made" once the Marital Agreement was executed, Steven nevertheless retained an interest in the Glendora property which he subsequently transferred within § 727(a)(2)'s one-year reach-back period.

On October 11, 1993, the Bankruptcy Court rejected Finalco's arguments, denied its motion, and discharged Steven. It ruled that although Steven had the requisite intent to defraud, he had transferred the property to Judy on June 10, 1989--more than one year before he filed his November 9, 1990 Chapter 7 petition. The Bankruptcy Appellate Panel of the Ninth Circuit affirmed. This timely appeal followed.

We have jurisdiction over an appeal from the Bankruptcy Appellate Panel under 28 U.S.C. § 158(d). On such appeals, we conduct an independent review of the Bankruptcy Court's decision. In re Pace, 67 F.3d 187, 191 (9th Cir.1995). We review a denial of discharge for "gross abuse of discretion." See In re Cox, 904 F.2d 1399, 1401 (9th Cir.1990) (citations and internal quotations omitted) ("In the context of discharges we have applied a more deferential standard.... [W]e disturb [discharge decisions] only if we find a gross abuse of discretion."); Shaver v. Shaver, 736 F.2d 1314, 1316 (9th Cir.1984) (same). 2


Finalco first argues that the 1989 Marital Agreement did not transfer the Glendora property from Steven to Judy. If this were true, our review would end and we would be compelled to reverse because Steven would not have transferred the property until he executed the deeds of trust in December 1989-a transfer well within § 727(a)(2)'s one-year reach-back period.

Because the validity of the Marital Agreement determines the extent of Steven's rights in the Glendora property, and because we look to state law in determining property rights, we must use state law to evaluate the validity of the Agreement. See Butner v. United States, 440 U.S. 48, 55, 99 S.Ct. 914, 918, 59 L.Ed.2d 136 (1979); In re Harrell, 73 F.3d 218, 219 (9th Cir.1996) (citation omitted) ("Since the Bankruptcy Code itself does not determine the existence and scope of a debtor's interest in property, these threshold issues are properly resolved by reference to state law."). Under California law, a married person may by agreement transmute an asset in which he has a community property interest into the separate property of his spouse. Cal. Fam.Code § 850(a). 3 The transmutation is valid between the spouses as long as it is "made in writing by an express declaration that is made, joined in, consented to, or accepted by the spouse whose interest in the property is adversely affected." Cal. Fam.Code § 852(a) (formerly Cal. Civ.Code § 5110.370). 4 An "express declaration" is one which "contains language which expressly states that the characterization or ownership of the property is being changed." In re Estate of MacDonald, 51 Cal.3d 262, 272, 272 Cal.Rptr. 153, 160, 794 P.2d 911, 918 (1990). The agreement need not use the word "transmutation" or "separate property" or "community property." Id. at 273, 272 Cal.Rptr. at 161, 794 P.2d at 919.

Under these standards, the Marital Agreement was a valid transmutation. 5 Paragraphs 5(a) and 5(b) of the Agreement stated that both Steven and Judy had an interest in the Glendora property. Section 7(b) then provided:

STEVEN and JUDY agree that all property set forth in Exhibit D and any property hereafter acquired by JUDY during the marriage by any means including but not limited to purchase, gift, bequest, devise, or descent shall be and remain her separate property.

Marital Agreement, p 7(b) (emphasis added). Exhibit D listed the Glendora property. Thus, the Agreement acknowledged that Steven had an interest in the Glendora property and then declared the property to be Judy's separate property. The Agreement "contains language expressly stating that the ownership of the property is being changed" and was therefore a valid transfer of the Glendora property as between Steven and Judy. 6


Finalco contends that, even if the Marital Agreement was valid between Steven and Judy, that discharge was still improperly denied because § 727(a)(2) does not deem a transfer "made" until it is recorded--which in this case was within one year of when Steven filed his bankruptcy petition. The question of when a transfer is "made" is a question of federal law, subject to our de novo review. In re Schuman, 81 B.R. 583, 585 (9th Cir.BAP1987) (citation omitted) ("When a transfer occurs within the meaning of the Bankruptcy Code is a question of law and subject to de novo review."); see In re MacQuown, 717 F.2d 859, 862-63 (3d Cir.1983) (deciding this issue as a matter of federal law before turning to state law to examine when a transfer is valid under state law); In re Roy, 42 B.R. 102, 104-05 (Bankr.S.D.Fla.1984) (same). 7

We start, as always, with the plain language of the statute. Section 727(a)(2) provides that:

The court shall grant the debtor a discharge, unless ... the debtor, with intent to hinder, delay, or defraud a creditor or an officer of the estate charged with custody of property under this title, has transferred, removed, destroyed, mutilated, or concealed, or has permitted to be transferred, removed, destroyed, mutilated, or concealed ... property of the debtor, within one year before the date of the filing of the petition....

11 U.S.C. § 727(a)(2)(A). Nowhere does the statute define when a transfer is "made." See Matter of Kock, 20 B.R. 453, 454 (Bankr.D.Neb.1982) ("No definition of when a transfer is deemed to have occurred is contained in § 727."). Compare 11 U.S.C. § 548(d)(1) (stating that a transfer is "made" when it is valid against a bona fide purchaser for purposes of the fraudulent transfer provision).

Nor does § 727(a)(2)'s legislative history clarify the statute's silence. While Congress has expressly specified when a transfer is to be deemed "made" for other provisions of the Bankruptcy Code, 8 it failed to do so for the provision governing the denial of discharge. See Amendments to Bankruptcy Act of 1898, ch. 487, § 4, 32 Stat. at 798 (designating as a new ground for denying discharge the transfer of property with the intent to hinder, delay, or defraud--in § 14(c)(4)--without defining when a transfer was deemed "made"). 9 Both the text and legislative history of this statute indicate that Congress left this decision to the courts. In this absence of Congressional guidance, courts have responded with two different timing rules. The first rule, which Finalco urges us to adopt, deems a transfer "made" under § 727(a)(2) only when it is valid as against bona fide purchasers ("BFPs"). See In re MacQuown, 717 F.2d at 863 (footnote omitted) ("[A] transfer is complete for...

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