Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caeb-1_14-ap-01056/USCOURTS-caeb-1_14-ap-01056-0/pdf.json

Parties Involved:
James E. Salven
Plaintiff
Aladino Joseph Galli
Defendant
Allen Joseph Galli
Defendant
Frances Elizabeth Pass
Defendant
Frances Elizabeth Galli
Defendant

Document Text:

- FILED 

1 OCT 14 2015 

2 POSTED ON WEB SITE 

UNrIED STATES BANKRUPTCY CO(JRT 

3 EASTERN DISTRICT OF CALIFORNIA 

4 NOT FOR PUBLICATION 

5 

UNITED STATES BANKRUPTCY COURT 

EASTERN DISTRECT OF CALIFORNIA 

FRESNO DIVISION 

In re CaseNo. 13-16171-13-7 

Frances Elizabeth Pass, 

Debtor. 

James E. Salven, Chapter 7 

Trustee, Adv. Proc. No. 14-1056 

Plaintiff, DC No. TGM-1 

V. 

Aladino Joseph Galli, aka Allen 

Joseph Galli and Frances 

Elizabeth Pass, fka Frances 

Elizabeth Galli, 

Defendants. 

MEMORANDUM DECISION REGARDING MOTION 

FOR SUMMARY JUDGMENT 

Trudi G. Manfredo, Esq., of The Law Office of Trudi G. Manfredo, 

appeared on behalf of the moving party and plaintiff, James E. Salven, 

chapter 7 trustee. 

The defendant, Aladino Joseph Galli, appeared in propria persona. 

This disposition is not appropriate for publication. Although it may be cited 

for whatever persuasive value it may have (see Fed. R. App. P. 32.1), it has 

no precedential value. See 9th Cir. BAP Rule 80 13-1. 

Before the court is a motion for summary judgment (the "Motion") 

brought by the plaintiff in this adversary proceeding, James E. Salven, 

chapter 7 trustee (the "Trustee"). This Motion is opposed by the defendant, 

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Case 14-01056 Filed 10/14/15 Doc 76
Aladino Joseph Galli ("Galli"). The Debtor in this case, Frances Elizabeth 

Pass ("Pass"), was originally a named co-defendant.' The Trustee seeks a 

declaration that (1) the residential property where Galli lives is property of 

the bankruptcy estate, and (2) that it may be sold free and clear of Galli's 

recorded homestead declaration. This decision turns entirely on the 

interpretation of California exemption law. There are no triable issues of 

material fact. For the reasons set forth below, the Motion will be granted in 

favor of the Trustee as to the "property of the estate" issue. However, it 

will be denied and judgment may be entered in favor of Galli as to the 

homestead exemption issue. 

The bankruptcy court has jurisdiction over this adversary proceeding 

pursuant to 28 U.S.C. § 1334, 11 U.S.C. §§ 541 and 522,2 and General 

Orders No. 182 and 330 of the U.S. District Court for the Eastern District of 

California. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A) 

BACKGROUND. 

Based on the parties' stipulated facts (Doc. #5 1), the Trustee's 

I separate statement of undisputed facts, and documents in the record to 

which the court has taken judicial notice, the following facts are found to be 

I undisputed: 

'Pass was named as a defendant and filed a responsive pleading, however, 

she does not appear to have an interest in the outcome of this dispute. On 

November 26, 2014, the court entered a civil minute order dismissing Pass from 

this adversary proceeding. Pass did not participate in this motion for summary 

judgment. 

2Unless otherwise indicated, all chapter, section and rule references are to 

the Bankruptcy Code, 11 U.S.C. § § 101-1330, and to the Federal Rules of 

Bankruptcy Procedure, Rules 1001-9036, as enacted and promulgated after 

October 17, 2005, the effective date of The Bankruptcy Abuse Prevention and 

Consumer Protection Act of 2005, Pub. L. 109-8, Apr. 20, 2005, 119 Stat. 23. 

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1 1. This bankruptcy commenced on December 30, 2009. Galli and 

2 Pass were married at the time and they filed a joint petition under chapter 

3 13, case number 09-627 14 (the "Chapter 13 Bankruptcy"); 

4 2. The bankruptcy schedules listed an interest in two parcels of 

5 property. One was located on Manila Avenue in Fresno, California (the 

6 "Manila Ave. Property"). The Manila Ave. Property was described on 

7 Schedule A with the code letter "C" as "community property." It was 

8 valued at $149,490 against a mortgage of approximately $105,725. The 

9 Manila Ave. Property was originally exempted as the joint debtors' 

10 residence; 

11 3. The second property was located on Fresno Street in Coalinga, 

12 California (the "Coalinga Property"). The Coalinga Property was valued on 

13 Schedule A to be worth $38,640 against a mortgage of approximately 

14 $54,292; 

15 4. Galli and Pass had been living in the Manila Ave. Property. 

16 However, just prior to the bankruptcy, Pass moved to, and took up 

17 permanent residence in, the Coalinga Property; 

18 5. Several years prior to commencement of the Chapter 13 

19 Bankruptcy, on March 8, 2002, Galli and Pass recorded with the Fresno 

20 County Recorder's Office a Declaration of Homestead for the Manila Ave. 

21 Property (the "Declared Homestead"); 

22 6. At the commencement of the Chapter 13 Bankruptcy, Galli and 

23 Pass were in the process of separating and, on September 7, 2010, a 

24 judgment of legal separation (the "Separation Decree") was filed in the 

25 Fresno County Superior Court, case number 10-CEFL-03464 (the 

26 "Dissolution Action"); 

27 7. The Separation Decree describes the Manila Ave. Property as the 

28 I "community home." Pursuant to the Separation Decree, the Property was 

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Case 14-01056 Filed 10/14/15 Doc 76
awarded to Galli as his sole and separate property, along with 100% of its 

mortgage owed to Chase Bank. The parties did not obtain relief from the 

autdrnatic stay or approval from the bankruptcy court for this purported 

transmutation of title; 

On December 19, 2011, while still in bankruptcy, Galli executed 

andrecorded a grant deed purporting to transfer an undivided 50% joint 

tenancy interest in the Manila Ave. Property back to Pass (the "2011 Grant 

Dead"). Again, the parties did not obtain relief from the automatic stay or 

anyother approval from the bankruptcy court for this purported transfer of 

titk; 

On April 23, 2013, a Judgment of Marital Dissolution (the 

"Dissolution Judgment") was filed in the Dissolution Action. Pursuant to 

the erms of the Dissolution Judgment, Galli and Pass each retained a 50% 

interest in the Manila Ave. Property; 

On September 16, 2013, Pass converted her half of the Chapter 

13 3anksuptcy to chapter 7. Her case was assigned number 13-16171 (the 

"Chapter 7 Bankruptcy"). In amended schedules, Pass described her 

maritial status as "divorced." She also gave up her exemption in the Manila 

Ave. Property and claimed a homestead exemption in the Coalinga 

ProDerty; 

On October 12, 2013, Galli's Chapter 13 Bankruptcy was 

I dismissed on a motion of the chapter 13 trustee based on Galli's failure to 

cortinue the chapter 13 plan payments; and 

3 0n November 3, 2014, this court overruled the chapter 7 Trustee's 

objction to Pass' amended homestead exemption of the Coalinga Property. The 

court found that the Coalinga Property was Pass' permanent residence at the 

commencement of the Chapter 13 Bankruptcy. See Memorandum Decision 

Regarding Objection to Amended Exemptions (main case doc. no. 97 filed on 

Nov. 3, 2014). 

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1 12. On January 15, 2014, Galli recorded another homestead 

2 declaration for the Manila Ave. Property (the "Second Homestead 

3 Declaration"). 

4 ISSUE PRESENTED. 

5 In this adversary proceeding, the Trustee prays for (1) a declaration 

6 avoiding all post-petition transfers and transmutations of interest in the 

7 Manila Ave. Property; (2) a declaration that the Manila Ave. Property 

8 retained its character as community property for purpose of this bankruptcy; 

9 and(3) a declaration avoiding Galli's Declared Homestead interest in the 

10 Manila Ave. Property. The parties have subsequently stipulated that the 

11 Maiiila Ave. Property may be treated as community property for purposes of 

12 this bankruptcy which makes it property of the bankruptcy estate subject to 

13 administration by the chapter 7 trustee. 

14 Galli's opposition is based on numerous evidentiary objections, all of 

15 which are overruled. This court may take judicial notice of documents in 

16 this court's record as well as documents filed in the county records and the 

17 state court's Dissolution Action. Galli does not seriously dispute the 

18 authenticity of any of the documents offered in support of this Motion. 

19 Galli also argues that a sale of the Manila Ave. Property would produce 

20 little or nothing for the unsecured creditors after payment of the various 

21 liens. While this may be true, it has no bearing on the issue before the 

22 court. 

23 1 The Trustee desires to sell the Manila Ave. Property for the benefit 

24 of the unsecured creditors. The question of "value" for the estate depends 

25 on the efficacy of Galli's Declared Homestead. The Trustee has 

26 acknowledged that sale of the Manila Ave. Property is not an option unless 

27 the Property can be sold free and clear of the Declared Homestead, meaning 

28 Galli would get nothing. Therein rests the ultimate issue which this court 

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Case 14-01056 Filed 10/14/15 Doc 76
1 must decide. 

2 SUMMARY JUDGMENT STANDARD. 

3 Summary judgment in favor of the moving party is appropriate "if 

4 the movant shows that there is no genuine dispute as to any material fact 

5 and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 

6 56(a), incorporated by Fed. R. Bankr. P. 7056. "[T]he mere existence of 

7 some alleged factual dispute between the parties will not defeat an 

8 otherwise properly supported motion for summary judgment; the 

9 requirement is that there be no genuine issue of material fact." Anderson v. 

10 Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986) (emphasis in original). 

11 "A fact is 'material' when, under the governing substantive law, it could 

12 affect the outcome of the case." Thrifty Oil Co. v. Bank ofAm. Nat '1 Trust 

13 & Say. Ass 'n, 322 F.3d 1039, 1046 (9th Cir. 2003). 

14 The parties may use summary judgment to dispose of all or part of 

15 the asserted claims for relief. See Fed. R. Civ. P. 56(a). Additionally, the 

16 court may sua sponte grant summary judgment in favor of the nonmoving 

17 party, as long as "the moving party against whom summary judgment [is] 

18 rendered had a full and fair opportunity to ventilate the issues involved in 

19 the motion." Cool Fuel, Inc. v. Connett, 685 F.2d 309, 312 (9th Cir. 1982). 

20 The filing of a formal cross-motion is not necessary. See Fed. R. Civ. P. 

21 56(f); Portsmouth Square, Inc. v. Shareholders Protective Comm., 770 F.2d 

22 866, 869 (9th Cir. 1985). 

23 As noted above, there are no disputed issues of material fact. All of 

24 the facts necessary to decide this dispute have been fully and fairly 

25 presented by the Trustee in the Motion and supporting papers. Therefore, 

26 this adversary proceeding appears to be ripe for resolution by summary 

27 judgment. 

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ANALYSIS AND CONCLUSIONS OF LAW. 

The Manila Ave. Property is Community Property. When Galli 

and Pass first commenced the Chapter 13 Bankruptcy they jointly owned 

the Manila Ave. Property and described it in their schedules as the 

"Debtor's [sic] Residence." They also identified it as "community 

property" on Schedule A and in the subsequent Separation Decree. Galli 

does not dispute that characterization in this Motion and even stipulated that 

Manila Ave. was community property at the commencement of this case. 

(Stipulated Fact No. 18, Doe. No 51.) As such, the Manila Ave. Property 

became property of this bankruptcy estate by operation of law. § 541(a)(2). 

The Trustee contends that the subsequent efforts to transmute and 

transfer the debtors' respective interests in the Manila Ave. Property, the 

Separation Decree, the 2011 Grant Deed, the Dissolution Judgement, and 

the Second Homestead Declaration, are all void and have no effect on the 

Trustee's right to administer the Manila Ave. Property. For the reasons 

argued in support of the Trustee's Motion, the court agrees. Further 

analysis is unnecessary here because, as noted above, the "community 

property" question does not appear to be in dispute. For purposes of this 

bankruptcy, the Manila Ave. Property may still be treated as community 

property subject to administration by the trustee. 4 

The Declared Homestead is an Interest in Property Which 

I Cannot be Avoided. The homestead exemptions currently available under 

I California law were enacted as part of the Enforcement of Judgments Act 

4Pursuant to the 2011 Grant Deed and the Dissolution Judgment, the 

Manila Ave. Property is currently vested in Galli and Pass as joint tenants. It is 

not necessary to actua1l' change the title in the County records unless the Trustee 

decides to administer the Property for the benefit of the estate; the status of the 

title has no effect on the administration of this case. If the Trustee abandons the 

Manila Ave. Property, it can retain the title as agreed to by Galli and Pass. 

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Case 14-01056 Filed 10/14/15 Doc 76
which became effective on July 1, 1983. (Calif. Code of Civ. Proc. 

("CCP") § 680.010 et seq.) They fall into two categories; the Article 4, or 

"automatic" homestead exemption found in CCP §§ 704.7 10-704.850 and 

the Article 5, or "declared" homestead exemption found in CCP 

§§ 704.9 10-704.995. In California, "the homestead statutes are to be 

contrued liberally on behalf of the homesteader." Redwood Empire 

Production Credit Assoc. v. Anderson (In re Anderson), 824 F.2d 754, 759 

(9th Circuit 1987). 

"Article 4 and Article 5 each confer different rights on the debtor, 

and!there is no overlap between these rights. A debtor may thus have 

Article 4 rights, or Article 5 rights, or both or neither." Id. at 756. 

When Galli and Pass originally exempted their interest in the Manila 

Ave. Property, they claimed the Article 4 "automatic" homestead exemption 

available under CCP § 704.730, which entitled them to a joint exemption of 

the Property's equity up to $100,000.6 This was more than sufficient to 

exernpt the full amount of equity in the Manila Ave. Property. When Pass 

subsequently converted her case to chapter 7, and shifted her homestead 

exemption to the Coalinga Property, she again relied upon CCP § 704.730 

which entitled her to an exemption in a lesser amount. However, Galli is 

not!a debtor in this bankruptcy and the exemption at issue here, Galli's 

Article 5 Declared 1-lomestead, is rooted in California law under CCP 

§ 704.910 et seq. 

The amount of homestead exemption available under both Article 4 

and Article 5 is the same. When both spouses are entitled to a homestead 

under California law, . . . "the homestead shall be apportioned between the 

5The Article 4 and 5 exemption statutes are found in Title 9, Division 2, 

Chapter 4 of the California Code of Civil Procedure. 

6Amended Schedule C, Chapter 13 Bankruptcy, Doe. No. 18. 

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spouses on the basis of their proportionate interests in the homestead." 

CCP § 704.730(b). Since Galli only held a 50% undivided "community" 

interest in the Manila Ave. Property at the commencement of the Chapter 

13 Bankruptcy, it follows that Galli's exemption rights, if any, in the Manila 

Ave. Property must be apportioned to reflect that fact. The court need not 

decide at this time how Galli's homestead interest should be aportioned, 

such determination was not requested in the adversary proceeding and that 

issue can be determined when and if the Trustee sells the Manila Ave. 

Property. Even if Galli's exemption is limited to $50,000 (50% of the joint 

exemption limit), there appears to be little or nothing left for the Trustee to 

recover for the unsecured creditors. 

The Trustee does not dispute the fact that the Manila Ave. Property 

is Galli's homestead, or that Galli and Pass met the statutory requirements 

for the Declared Homestead at the time it was recorded in 2002. However, 

the Trustee challenges Galli's right to exempt any interest in the Manila 

Ave. Property because Pass has been allowed a separate Article 4 

homestead exemption in the Coalinga Property. The Trustee contends that 

Galli's exemption rights were somehow lost when Pass exempted the 

Coalinga Property. The Trustee's argument is summarized in the points and 

authorities as follows: 

Here, at the time of the filing of the bankruptcy petition, Pass 

and Galli occupied separate homesteads. Pass's amended 

claim of exemption [after the judgment of separation was 

filed] wherein she exempted the equity in her Coalinga house 

has been upheld by this Court. Since only one homestead of 

one of the spouse 's can be exempt, Gaul may not exempt the 

equity in the Manila house. 

P. & A. Mot. Summ. J., 12:3-8., Dec. 22, 2014, emphasis added. 

The statutory basis for this argument is CCP § 704.720(c), which 

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(c) If the judgment debtor and spouse of the judgment debtor 

reside in separate homesteads, only the homestead of one of 

the spouses is exempt and only the proceeds of the exempt 

homestead are exempt. 

CCP § 704.720(c) (emphasis added). 

Therein lies the conundrum. If Galli and Pass were both in 

banruptcy, then the limitation in § 704.720(c) would be the end of the 

inquiry. But Galli is no longer in bankruptcy so technically, he is not the 

"judgement debtor" and he is no longer the spouse of a "judgment debtor." 

CCP § 704.7 10(d). When read in context with the entire statutory scheme, 

the application of subsection 704.720(c) is unclear. For example, why 

would CCP § 704.73 0(b) call for the apportionment of separate homestead 

exemptions if only one homestead exemption may be enforced? To resolve 

this'issue, the court must look closely at the nature of the Article 5 

homestead exemption, and the interest it creates in the underlying property. 

The Declared Homestead arises under CCP § 704.930 upon the 

recrding of a proper form. The Trustee takes no issue with the form of 

Galli's Declared Homestead. Perhaps the most important factor in this 

anal: ysis is the mandate that a judgment lien does not attach to a prior 

recorded homestead. With some exceptions not applicable here, a judgment 

lien can only attach to the equity, if any, in excess of the allowed 

homestead. CCP § 704.950. This is particularly relevant because the 

Trustee's powers to liquidate estate assets are derived from those of a 

creditor who holds a judgment lien § 544. 

Other qualities of an Article 5 homestead illustrate its durability. For 

example, the recording of a homestead declaration does not restrict or limit 

the owner's right to convey or encumber the declared homestead. CCP 

§ 704.940. The proceeds of a declared homestead remain exempt for a 

period of six months after a voluntary sale of the homestead property. CCP 

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1 § 704.960. The benefit of a declared homestead continues after the death of 

2 the homesteader if the dwelling is still the principal dwelling of a family 

3 member. CCP § 704.995. Further, the protection of a declared homestead 

4 continues even though the homestead declarant gets divorced. See 

5 Calfornia Bank v. Schlesinger, 159 Cal.App.2nd Supp. 854 (1958) 

6 A valid Article 5 homestead remains effective until it is abandoned 

7 by the party claiming the homestead. In this regard, the rights conferred by 

8 an Article 5 homestead exemption are significantly different than those 

9 conferred under Article 4. Anderson, 824 F.2d at 757. The statutes define 

10 when and how an Article 5 homestead may be terminated. It may be 

11 abandoned by the recording of a declaration of abandonment. CCP 

12 § 704.980. It may be abandoned by operation of law if a homestead 

13 declaration is subsequently recorded against a different property, but only as 

14 to the interest of the declarant. CCP § 704.990. Conversely, the Article 5 

15 horiestead is not abandoned simply because the holder of the homestead 

16 moves to a different property. CCP § 704.720. Here, the Trustee makes no 

17 shoving that Galli has done anything to trigger an "abandonment" of his 

18 Declared Homestead. 

19 The Nature of a Sale in Bankruptcy Does Not Terminate the 

20 Declared Homestead. The Trustee also argues that a sale by the Trustee in 

21 this bankruptcy would be an involuntary or "forced" sale, suggesting that 

22 only the Article 4 automatic homestead exemption, and not the Article 5 

23 Declared Homestead, is protected in a bankruptcy. 7 

24 The Trustee contends that the Article 5 Declared Homestead is only 

25 applicable if Galli voluntarily sells the Manila Ave. Property. In support of 

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27 7The court makes no determination here whether Galli might also be 

28 eligible for the "automatic" Article 4 exemption which is generally recognized as 

applicable in the bankruptcy "forced sale" context. 

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this argument, the Trustee relies on a statement made by the Ninth Circuit 

Bankruptcy Appellant Panel in the case of Kelley v. Locke (In re Kelley), 

300 B.R. 11(9th Cir. 2003); 

"In the context of bankruptcy; however, Debtor's 

declaration of homestead helps him not at all, as the 

additional benefits conferred in [CCP] Article 5 would 

benefit him only in the situation of a voluntary sale." 

300 B.R. at 21 (emphasis added). 

Based on this statement in Kelly, the Trustee suggests that the Article 

5 Declared Homestead is meaningless or somehow void. However, the 

"voluntary" versus "involuntary" nature of what the Trustee might decide to 

do with the Manila Ave. Property appears to be a distinction without a 

difference. While CCP § 704.960(a) clearly protects for six months the 

proceeds of a voluntary sale, it also operates to protect the proceeds of an 

execution, or involuntary, sale: 

If the proceeds of a declared homestead are invested in a new 

dwelling within six months after the date of a voluntary sale 

or within six months after proceeds of an execution sale or of 

insurance or other indemnification for damage or destruction 

are received, the new dwelling may be selected as a declared 

homestead by recording a homestead declaration within the 

applicable six-month period. In such case, the homestead 

declaration has the same effect as if it had been recorded at 

the time the prior homestead declaration was recorded. 

CCP § 704.960(b) (emphasis added). 

Further, the Trustee's argument here appears to be inconsistent with 

the language in CCP § 703.140(c) which makes the Article 5 homestead 

exemption applicable in a bankruptcy case "regardless of whether there is a 

money judgment against the debtor or whether a money judgment is being 

enforced by execution sale or other procedure." 

If the Trustee's power to sell the Manila Ave. Property lies in the 

fact that "community property" is property of the estate over which the 

Trustee is effectively the owner, then arguably his sale of the "estate" 

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1 pro3erty is a voluntary sale and his argument fails. If the Trustee's power 

2 to "force" a sale of the Manila Ave. Property derives from his status as a 

3 hypothetical judgment lien creditor (§ 544), then by virtue of CCP 

4 § 704.950, the Trustee's "hypothetical" lien does not attach to the Declared 

5 Homestead. Either way, if the Trustee sells Manila Ave., the Trustee will 

6 have to pay Galli the value of his Declared Homestead, along with all other 

7 liens against the Property, before he will have anything to distribute to 

8 unsecured creditors. 

9 CONCLUSION. 

10 Based on the foregoing, the court finds and concludes Galli's 

11 Declared Homestead created an interest in the Manila Ave. Property which 

12 has not been abandoned and for which Galli is entitled to compensation if 

13 the Manila Ave. Property is sold by the Trustee. Accordingly, the Trustee's 

14 Motion for summary judgment will be granted in so far as the Trustee seeks 

15 a declaration that the Manila Ave. Property is still community property of 

16 the Galli/Pass marriage and still property of this bankruptcy estate. 

17 However, the Motion will denied with respect to the Trustee's request that 

18 the Manila Ave. Property may be sold free and clear of Galli's homestead 

19 interest with no compensation for Galli. The Trustee shall submit a 

20 proposed judgment consistent herewith. 

21 Dated: October / , 2015 

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24 W. Richard Lee 

United States Bankruptcy Judge 

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Instructions to Clerk of Court 

Service List - Not Part of Order/Judgment 

The Clerk of Court is instructed to send the Order/Judgment or other 

court generated document transmitted herewith to the parties below. The 

Clerk of Court will send the Order via the BNC or, if checked , via the 

U.S. mail. 

Debtor(s), Attorney for the Debtor(s), Bankruptcy Trustee (if 

appointed in the case), and X Other Persons Specified Below: 

Trudi G. Manfredo, Esq. 

Attorney at Law 

377 W. Falibrook Ave., Ste. 102 

Fresno, CA 93711 

Peter L. Fear, Esq. 

Attorney at Law 

7750 N. Fresno St., #101 

Fresno, CA 93720-1 145 

Aladino Joseph Galli 

4245 N. Manila Ave. 

Fresno, CA 93727 

Office of the U.S. Trustee 

U.S. Courthouse 

2500 Tulare Street, Suite 1401 

Fresno, CA 93721 

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