Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca9-13-55773/USCOURTS-ca9-13-55773-0/pdf.json

Parties Involved:
Coventry First LLC
Appellant
Leslie T. Gladstone
Appellee
David M. Green
In Re
National Association of Bankruptcy Trustees
Amicus Curiae
U.S. Bancorp
Appellant
U.S. Bank N.A.
Appellant

Document Text:

FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

LESLIE T. GLADSTONE, Chapter 7

Trustee,

Plaintiff-Appellee,

v.

U.S. BANCORP, a Delaware

corporation; U.S. BANK N.A., a

banking subsidiary; and COVENTRY

FIRST LLC, a Delaware limited

liability company;

Defendants-Appellants,

DAVID M. GREEN,

Debtor-In Re.

No. 13-55773

D.C. No.

3:12-cv-00424-

CAB-BLM

OPINION

Appeal from the United States District Court

for the Southern District of California

Cathy Ann Bencivengo, District Judge, Presiding

Argued and Submitted

June 2, 2015—Pasadena, California

Filed January 8, 2016

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2 GLADSTONE V. U.S. BANCORP

Before: Sidney R. Thomas, Chief Judge, Consuelo M.

Callahan, Circuit Judge and James K. Singleton,* Senior

District Judge.

Opinion by Chief Judge Thomas

SUMMARY**

Bankruptcy

The panel affirmed the district court’s reversal of the

bankruptcycourt’s summary judgment in a chapter 7 trustee’s

adversary proceeding seeking to recover the market value of

life settlements under which the debtor’s unmatured term life

insurance policies were sold to defendants.

Defendants continued to pay the policy premiums and

collected the death benefits when the debtor died. The panel

held that the debtor’s interests in the insurance policies,

including the secondary market value of the policies and

resulting life settlements, constituted a recoverable “interest

of the debtor in property” pursuant to 11 U.S.C. § 548(a)(1). 

The panel concluded that the debtor had a legal and equitable

interest in the property within the meaning of 11 U.S.C.

§ 541(a), and the property was not excluded from the estate

under § 541(b).

* The Honorable James K. Singleton, Senior District Judge for the U.S.

District Court for the District of Alaska, sitting by designation.

** This summary constitutes no part of the opinion of the court. It has

been prepared by court staff for the convenience of the reader.

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GLADSTONE V. U.S. BANCORP 3

The panel held that the trustee’s avoidance action was not

time-barred under 11 U.S.C. § 546(a)(1) because the debtor’s

fraudulent concealment equitably tolled this statute of

limitations.

The panel also affirmed the district court’s conclusion

that the bankruptcy trustee should have been granted leave to

amend the complaint. The panel remanded the case for

further proceedings consistent with its opinion.

COUNSEL

Susan C. Stevenson (argued) and Jennifer E. Duty, Pyle Sims

Duncan & Stevenson, San Diego, California, for DefendantsAppellants.

Sean C. Coughlin (argued), Financial Law Group, La Jolla,

California, for Plaintiff-Appellee.

Roland R. Peterson and Angela M. Allen, Jenner & Block,

LLP, Chicago, Illinois; Carl N. Wedoff, Jenner & Block,

LLP, New York, New York, for Amicus Curiae National

Association of Bankruptcy Trustees.

OPINION

THOMAS, Chief Judge:

In recent years, a substantial market has developed for the

purchase of unmatured term life insurance policies. In these

“viatical settlement” or “life” settlement” transactions, the

policyholder receives a lump-sum settlement greater than the

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4 GLADSTONE V. U.S. BANCORP

cash surrender value of the policy, but less than the policy’s

death benefit. The purchaser continues to pay the policy

premiums, and collects the death benefit when the

policyholder dies. The purchaser then typically offers the life

insurance benefit of the policy to potential investors. See

Huskey v. Tolman (In re Tolman), 491 B.R. 138, 144 (Bankr.

D. Idaho 2013).

Viatical settlements often occur when the policyholder is

terminally ill and needs funds to pay for end-of-life care or

under other circumstances when the policyholder needs

“present cash more than the security of a death benefit.” 

Tolman, 491 B.R. at 144; see also Life Partners, Inc. v.

Morrison, 484 F.3d 284, 287 (4th Cir. 2007). In this case, the

purchasers paid approximately $507,000 for life settlements

with the debtor and received $9,000,000 in death benefits

when he died shortly thereafter.

The bankruptcy trustee filed an adversary proceeding to

recover the market value of the life settlements. The question

presented in this case is whether the debtor’s interests in the

term life insurance policies, including the secondary market

value of the policies and resulting life settlements, constitute

a recoverable “interest of the debtor in property” pursuant to

11 U.S.C. § 548(a)(1). We conclude that they do, and we

affirm the judgment of the district court.

I

Facing financial difficulties, David Green filed a

voluntary Chapter 7 bankruptcy petition on September 12,

2007. Leslie Gladstone (the “Trustee”) was appointed

Chapter 7 trustee of the bankruptcy estate (the “Estate”). 

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GLADSTONE V. U.S. BANCORP 5

David Green died on February 22, 2008, about five months

after filing his Chapter 7 petition.

David Green failed to disclose a number of assets when

he filed his Chapter 7 petition. This appeal concerns three

undisclosed life settlements executed between David Green

and Coventry First, LLC (collectively with U.S. Bancorp and

U.S. Bank National Association, “Defendants”), which the

Trustee seeks to avoid and recover as fraudulent transfers.

In the months preceding the filing of his Chapter 7

petition, David Green took steps to transfer ownership of the

three policies to consummate the life settlements. David

Green did not disclose any of the life settlements on the

Statement of Financial Affairs he submitted with his Chapter

7 petition. Nor did he disclose the life settlements at his

§ 341 First Meeting of Creditors, when he was questioned

under oath by the Trustee. The life settlements were

negotiated in two sets of transactions, which were brokered

by Robert Hamzey, a friend of the Greens.

The first set of transactions involved two Transamerica

policies. Policy 3530 was issued to insure the life of David

Green for his own benefit, with a face value of $2,000,000. 

Policy 4528 was issued to insure the life of David Green for

his own benefit, with a face value of $4,000,000. David

Green transferred the beneficial interest in the Transamerica

policies to his wife, Eileen Green. Eileen Green subsequently

signed a life settlement agreement to sell Policy 3530 for

$5,000 and Policy 4528 for $188,000 to the Defendants. She

received $193,000 from the Defendants about one month

before David Green filed his bankruptcy petition. After his

death five months later, Defendants received $6,000,000, the

face value death benefits for the Transamerica policies.

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6 GLADSTONE V. U.S. BANCORP

The second set of transactions involved what became

Protective Policy 3280. That policy was issued to insure the

life of David Green for the benefit of Eileen Green, with a

face value of $3,000,000. A month before filing bankruptcy,

David and Eileen Green signed a life settlement agreement to

convert the term life policy to a universal policy and sell it to

Defendants for $280,000 plus $34,776.66 in premium

reimbursements. Eileen Green transferred the beneficial

interest of Protective 3280 to Defendants shortly before the

bankruptcy. However, Protective did not transfer the policy

to the Defendants until after the bankruptcy was filed,

whereupon Eileen Green was paid $314,776.66 per the life

settlement agreement. After David Green’s death,

Defendants received the $3,000,000 proceeds from the policy.

In sum, Defendants paid approximately $507,000 for the

life settlements and received $9,000,000 in death benefits

when Green died a few months after the viatical settlement

transactions. The following chart summarizes the three

policies and life settlements at issue:

Policy

Face

Value Settlement

Premium

Reimbursement

Transamerica 3530 $2,000,000 $5,000 none

Transamerica 4528 $4,000,000 $188,000 none

Protective 3280 $3,000,000 $280,000 $34,776.66

In addition to the life settlements at issue in this appeal,

other assets connected to the Estate changed hands in the

weeks and months leading up to David Green’s bankruptcy

filing. These assets include two other life insurance policies,

a condominium, and a mortgage note owned by the Greens. 

None of the life settlements with Defendants and none of the

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GLADSTONE V. U.S. BANCORP 7

foregoing other assets and transfers were disclosed when

David Green filed his Chapter 7 petition on September 12,

2007, nor were they disclosed on his Section 341(a)

questionnaire, or at the Section 341(a) meeting of creditors.

These transactions frustrated the Trustee’s task to assemble

the bankruptcy estate.

The Trustee learned of David Green’s death a few weeks

after he died. Over a year later, by coincidence alone, she

found out about David Green’s undisclosed other assets and

transfers at a Section 341 meeting in another bankruptcy

proceeding to which she was appointed. Based on that

information, and after Eileen Green and Hamzey declined to

cooperate with her investigation that followed, the Trustee

sought and received approval to conduct examinations of and

document production by Eileen Green and Hamzey pursuant

to Federal Rule of BankruptcyProcedure 2004. At Hamzey’s

Rule 2004 examination, the Trustee gathered more

information about other assets and transfers not at issue in

this appeal. With this information in hand, the Trustee filed

an initial adversary complaint seeking recovery and

avoidance of the other assets and transfers and an emergency

motion for extension of the statute of limitations. The

bankruptcy court granted the motion, and the statute of

limitations was extended to December 11, 2009.

On August 9, 2010, David Green’s stepson Frank Ray

called the Trustee’s attorney and told him about the life

settlements at issue in this appeal. The next day, Ray

delivered copies of the relevant purchase agreements that

documented the two life settlement transactions. Based on

this information and documents subpoenaed from the

Defendants, the Trustee filed the first amended complaint,

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8 GLADSTONE V. U.S. BANCORP

which sought to avoid the transfer of the Transamerica and

Protective life insurance policies to Defendants.

The Trustee pursued the adversary proceeding against

Defendants in the months that followed, but was met with

requests to postpone depositions and other discovery until

after a hearing on Defendants’ anticipated motion for

summary judgment. The Trustee eventually received

interrogatory answers and moved the bankruptcy court for

leave to file a second amended complaint because discovery

showed that the Protective 3280 life settlement did not

become effective until after the bankruptcy was filed and to

make further allegations about the pre-petition transfers.

The bankruptcy court granted Defendants’ motion for

summary judgment and denied the Trustee’s motion for leave

to file the second amended complaint in a minute order. The

bankruptcy court did not issue findings of fact and

conclusions of law or otherwise state grounds upon which the

motions were adjudicated.

The Trustee appealed the judgment of dismissal to the

district court. The district court reversed the judgment

entered by the bankruptcy court and reversed the bankruptcy

court’s order denying the Trustee leave to file the second

amended complaint. This timely appeal followed.

II

The district court heard the initial appeal pursuant to

28 U.S.C. § 158(a) (2012). We have jurisdiction to review

the district court’s order pursuant to 28 U.S.C. § 158(d)(1). 

“The role of the district court and this court are basically the

same in the bankruptcy appellate process. Therefore, we

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GLADSTONE V. U.S. BANCORP 9

review the bankruptcy court decision directly. We review the

bankruptcy court’s findings of fact for clear error, and its

conclusions of law de novo.” Microsoft Corp. v. DAK Indus.,

Inc. (In re DAK Indus., Inc.), 66 F.3d 1091, 1094 (9th Cir.

1995) (citations omitted). In conducting de novo review of

the bankruptcy court’s grant of summary judgment, we “must

view the evidence in the light most favorable to the

non-moving party and ‘determine whether there are any

genuine issues of material fact and whether the bankruptcy

court correctly applied the substantive law.’” Caneva v. Sun

Cmtys. Operating Ltd. P’ship (In re Caneva), 550 F.3d 755,

760 (9th Cir. 2008) (quoting Parker v. Cmty. First Bank (In

re Bakersfield Westar Ambulance, Inc.), 123 F.3d 1243, 1245

(9th Cir. 1997)).

III

As we have noted, the question presented in this case is

whether the debtor’s interests in the term life insurance

policies, including the secondarymarket value of the policies

and resulting life settlements, constitute a recoverable

“interest of the debtor in property” pursuant to 11 U.S.C.

§ 548(a)(1). The district court correctly held that they were.

A

In determining the scope of an “interest of the debtor in

property” under § 548, we begin with the statutory language

of the Bankruptcy Code, employing the usual tools of

statutory construction. We look first at the plain language,

examining “not only the specific provision at issue, but also

the structure of the statute as a whole, including its object and

policy.” Hawkins v. Franchise Tax Bd. of Cal., 769 F.3d 662,

666 (9th Cir. 2014) (quoting Children’s Hosp. & Health Ctr.

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10 GLADSTONE V. U.S. BANCORP

v. Belshe, 188 F.3d 1090, 1096 (9th Cir. 1999)). If the

statutory language is unambiguous, our inquiry is at an end. 

Id. If the language is ambiguous, then we examine legislative

history, and “also look to similar provisions within the statute

as a whole and the language of related or similar statutes to

aid in interpretation.” Id. (quoting United States v. LKAV,

712 F.3d 436, 440 (9th Cir. 2013)).

The Bankruptcy Code does not define “an interest of the

debtor in property.” However, we have guidance from the

Supreme Court as to its meaning. The Court has explained

that the phrase “is best understood as that property that would

have been part of the estate had it not been transferred before

the commencement of bankruptcy proceedings.” Begier v.

I.R.S. 496 U.S. 53, 58 (1990). Therefore, the interest must be

analyzed under § 541, which defines the property of the

estate. Id. at 58–59; see also Taylor Assocs. v. Diamant (In

re Advent Mgmt. Corp.), 104 F.3d 293, 295 (9th Cir. 1997)

(confirming that “an interest of the debtor in property” under

§ 547 and § 548 is determined by whether the interest would

have been “property of the estate” under § 541).

Under the Bankruptcy Code, the filing of a bankruptcy

petition creates a bankruptcy estate. § 541(a). With certain

exceptions, the estate is comprised of the debtor’s legal or

equitable interests in property “wherever located and by

whomever held.” Id. As the Supreme Court has noted,

“Congress intended a broad range of property to be included

in the estate.” United States v. Whiting Pools, Inc., 462 U.S.

198, 204 (1983); see also Chappel v. Proctor (In re Chappel),

189 B.R. 489, 493 ( B.A.P. 9th Cir. 1995) (“The legislative

history of the Bankruptcy Code reveals that the concept of

property of the estate is to be interpreted broadly.”).

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GLADSTONE V. U.S. BANCORP 11

Indeed, the legislative history indicates that § 541(a)

would “bring anything of value that the debtors have into the

estate.” H.R. Rep. 95-595 (1977), at 176, reprinted in 1978

U.S.C.C.A.N. 5787, 5963, 6136. The scope of § 541(a) of the

Bankruptcy Code is much greater than that of the prior

Bankruptcy Act of 1898. Coben v. Lebrun (In re Golden

Plan of Cal., Inc.), 37 B.R. 167, 169 (Bankr. E.D. Cal. 1984).

The debtor held the ownership title to the life insurance

policies prior to their transfer. “[P]roperty of the estate”

includes all property in which the debtor has legal title except

“to the extent of an equitable interest in such property that the

debtor does not hold.” In re Advent Mgmt. Corp., 104 F.3d

at 295. As indicated by the life settlements in this case, the

term life insurance policies owned by the debtor had market

value to the debtor independent of the death benefit or

equitable beneficial interest. Therefore, because all of the

debtor’s legal and equitable interests became part of the

bankruptcy estate when the case was commenced, his interest

in the term life insurance policies and the life settlements

would have been part of the bankruptcy estate under § 541(a)

if he had not transferred them. Accordingly, the life

insurance policies constitute “an interest of the debtor in

property” within the meaning of § 548, except to the extent

that a third party had a beneficial or equitable interest.

B

Two sections of the Bankruptcy Code allow a debtor to

retain assets that would otherwise form part of the bankruptcy

estate under § 541(a) and be subject to creditors’ claims:

§ 541(b) and § 522. Section 541(b) identifies certain types of

property that are expressly excluded from the bankruptcy

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12 GLADSTONE V. U.S. BANCORP

estate from the outset. Section 522 provides an avenue for

the debtor to exempt certain property from the estate.

In short, all equitable and legal interests that the debtor

has when the bankruptcy petition is filed become property of

the estate, unless excluded by statute or properly exempted by

the debtor. If no exclusion or exemption applies, or if the

debtor has failed to claim qualifying property as exempt, then

the debtor’s interest in the property remains property of the

bankruptcy estate. Therefore, the property falls within the

reach of § 541(a), unless excluded by § 541(b) or properly

exempted under § 522.

1

The district court properly concluded that the life

settlements at issue were not excluded from the estate under

§ 541(b). In contrast to the broad scope of § 541(a), § 541(b)

sets forth “narrow exceptions to the interests of the debtor

which are not considered as property of the estate.” 

Southtrust Bank of Ala., N.A. v. Thomas (In re Thomas),

883 F.2d 991, 995 (11th Cir. 1989). Neither life insurance

policies, nor viatical settlements are listed among the

§ 541(b) exclusions. Therefore, under its plain terms, they

are not excluded from becoming property of the bankruptcy

estate pursuant to § 541(b). Wallace v. Crawford (In re

Meyers), 483 B.R. 89, 98 (Bankr. W.D.N.C. 2012).

Defendants argue that life insurance policies and life

settlements are excluded from the bankruptcy estate by a

judicially created exclusion. Based on a line of authority

tracing to Supreme Court decisions interpreting the

BankruptcyAct of 1898, Defendants contend that the Estate’s

interest is limited to the cash surrender value of the life

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GLADSTONE V. U.S. BANCORP 13

insurance policies. The policies at issue have no cash

surrender value, so if Defendants are correct, the Trustee’s

avoidance action fails as a matter of law.

However, Defendants’ argument is premised on a

provision of the Bankruptcy Act of 1898, which was

abrogated by the adoption of the Bankruptcy Code in 1978. 

Section 70(a) of the Bankruptcy Act of 1898 specified, in

relevant part:

That when any bankrupt shall have any

insurance policy, which has a cash surrender

value payable to himself, his estate, or

personal representatives, he may, within thirty

days after the cash surrender value has been

ascertained and stated to the trustee by the

company issuing the same, pay or secure to

the trustee the sum so ascertained and stated,

and continue to hold, own, and carry such

policy free from the claims of the creditors

participating in the distribution of his estate

under the bankruptcy proceedings; otherwise

the policy shall pass to the trustee as assets[.]

This section’s purpose was “construed . . . to vest the

surrender value in the trustee for the benefit of the creditors,

and not otherwise to limit the bankrupt in dealing with his

policy.” Burlingham v. Crouse, 228 U.S. 459, 473 (1913);

see also In re Holden, 114 F. 650, 652 (9th Cir. 1902). 

Defendants argue that this authority implies that life

settlements are excluded from a bankruptcy estate.

Burlingham, Holden, and their progeny, including Lekas

v. Mann (In re Lekas), 299 B.R. 597, 602 (Bankr. D. Ariz.

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14 GLADSTONE V. U.S. BANCORP

2003), do not state the rule defining the scope of a bankruptcy

estate under the Bankruptcy Code, which supplanted the

Bankruptcy Act of 1898. Rather, Burlingham interprets a

section of the Bankruptcy Act of 1898, which is no longer in

force. Because Green’s bankruptcy was filed after October

1, 1979, the Bankruptcy Code applies, not the prior

Bankruptcy Act of 1898. See Washburn & Roberts, Inc. v.

Park East (In re Washburn & Roberts, Inc.), 795 F.2d 870,

873 (9th Cir. 1986) (“Congress provided that in any

bankruptcy case commenced after October 1, 1979, the old

Bankruptcy Act of 1898 would not apply.”). The Court’s

construction of § 70(a) in Burlingham was accordingly

abrogated by statute when the Bankruptcy Reform Act of

1978 was enacted.

Indeed, Congress specifically eliminated the prior section

70(a) in adopting the § 541(b) exclusions. See Bankruptcy

Reform Act of 1978, Pub. L. No. 95-598, § 541, 92 Stat. 2549

(1978). Congress was well aware of not only the prior

statutory provision, but the case law interpreting it. In Re

Myers, 483 B.R. at 98. Because the prior exclusion was not

included among the exclusions listed in § 541(b) when the

BankruptcyCode was enacted, “the canon expressio unius est

exclusio alterius . . . has force” as “the items expressed are

members of an ‘associated group or series,’ justifying the

inference that items not mentioned were excluded by

deliberate choice, not inadvertence.” Barnhart v. Peabody

Coal Co., 537 U.S. 149, 168 (2003) (quoting United States v.

Vonn, 535 U.S. 55, 65 (2002)). The legislative history of the

Bankruptcy Reform Act of 1978 demonstrates that Congress

considered the definition of estate property presented in

§ 70(a) of the Bankruptcy Act of 1898. See H.R. Rep. No.

95-595, at 367 (1977), reprinted in 1978 U.S.C.C.A.N. 5963,

6323–24. Therefore, “it is fair to suppose that Congress

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GLADSTONE V. U.S. BANCORP 15

considered the unnamed possibility and meant to say no to

it.” Barnhart, 537 U.S. at 168.1

The structure of the Bankruptcy Code buttresses our

conclusion. In dealing with the issue of life insurance,

Congress chose not to exclude it from the estate under

§ 541(b), but to provide an elective exemption under § 522,

which provided an exemption for “[a]ny unmatured life

insurance contract owned by the debtor, other than a credit

life insurance contract.” 11 U.S.C. § 522(d)(7).

Even if it were not inapposite due to statutory abrogation,

Burlingham and its progeny are not on point with the facts of

David Green’s bankruptcy. The district court correctly

observed that Burlinghamis not controlling because the Court

did not “specifically address the possibility of the policies

being sold on the secondary market[.]” This century-old

decision cannot be fairly read to state binding precedent as to

the treatment of life settlements by a bankruptcy trustee, as

1 This conclusion dispatches Defendants’ argument that Green’s trustee

lacked power to change the beneficiary named in Green’s policies after he

filed for bankruptcy. Defendants support that argument with decisions

interpreting theBankruptcyAct of 1898 and associated jurisprudence. See

In re Herrell, 210 B.R. 386, 390 (Bankr. N.D. Fla. 1997); Lekas, 299 B.R.

597, 603 (Bankr. D. Ariz. 2003). Because we hold that the 1978 Act

expanded a Trustee’s interest in the life insurance policy of a debtor, we

find unpersuasive those holdings that predicate a Trustee’s power to

change beneficiaries on surrender values. See Lekas, 299 B.R. at 602

(citing, inter alia, Herrell, 210 B.R. at 390); see also Meyers, 483 B.R. at

103 (“I therefore respectfully disagree with Herrell’s conclusion about

these Act decisions construing Section 70a(5). They, like Section 70a(5),

have been superseded by the BankruptcyCode.”). Each policy in this case

empowered Green to change the policy’s beneficiary. As a result, and for

reasons provided above, that power passed to the Trustee upon the filing

of Green’s petition. § 541(a)(1).

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16 GLADSTONE V. U.S. BANCORP

the secondary market for life insurance policies and the life

settlement industry developed only in the last 30 years. In

fact, shortly after it decided Burlingham, the Court in Cohen

presciently recognized that a rule categorically excluding a

life insurance policy from a bankruptcy estate would make

the policies a vehicle for subterfuge. Cohen v. Samuels,

245 U.S. 50, 53 (1917) (“[T]o hold that there was nothing of

property to vest in a trustee would be to make an insurance

policy a shelter for valuable assets and, it might be, a refuge

for fraud.”).

For all these reasons, the district court correctly

concluded that the debtor’s interests in life insurance policies

and life settlements were not excluded from the property of

the bankruptcy estate pursuant to § 541(b).2

2

The second method by which property may be removed

from the bankruptcy estate is by exemption under § 522. In

contrast to the operation of the prior Bankruptcy Act of 1898,

the property of the estate created at the commencement of a

case under the Bankruptcy Code includes even exempt

property. Taylor v. Freeland & Kronz, 503 U.S. 638, 642

(1992). However, the debtor may exempt certain property

from the bankruptcy estate by taking affirmative steps to

claim the property as exempt under § 522. Id.; see also

2 Defendants also suggest that § 541(d) is a basis to exclude the policies

from the bankruptcy estate. This claim is easily dispatched because that

section of the Bankruptcy Code “was adopted by Congress to address

bona fide secondary mortgage market transactions,” Chbat v. Tleel (In re

Tleel), 876 F.2d 769, 773 (9th Cir. 1989), and is therefore plainly

inapposite.

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GLADSTONE V. U.S. BANCORP 17

Woodson v. Fireman’s Fund Ins. Co. (In re Woodson),

839 F.2d 610, 616 n.8 (9th Cir. 1988).

Section 522(d) enumerates federal exemptions available

to the debtor. However, under § 522(b)(2), “[t]his exemption

scheme can be supplanted by states that choose to provide

their own menu of exemptions.” Orange Cnty.’s Credit

Union v. Garcia (In re Garcia), 709 F.3d 861, 864 (9th Cir.

2013). California has elected to opt-out of the federal

exemptions, so California state law exemptions apply. Id.;

see also Cal. Code Civ. Proc. § 703.130.

The Defendants claim, in the alternative to their § 541(b)

argument, that the life insurance settlements are exempt under

§ 522 because California has opted out of the federal

exemption schedule, and California provides an exemption

pursuant to Cal. Code Civ. Proc. § 704.100.

This proposition is dubious, at best.3 However, it is

unnecessary for us to reach the merits of it for three

independent reasons: the debtor did not claim the property as

exempt; the Defendants lack standing to raise the argument;

and the Defendants failed to present the argument to the

district court.

First, the debtor did not claim the settlements or insurance

policies as exempt within the required period. Section 522(l)

requires the debtor to file a list of property to be claimed as

exempt. Federal Rule of Bankruptcy Procedure 4003(a)

3 Cal. Code Civ. Proc. § 704.100(a) provides that unmatured life

insurance policies are exempt without making a claim. However, it

specifically excludes the policy loan value, which represents the

policyholder's equitable interest.

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18 GLADSTONE V. U.S. BANCORP

requires the debtor to list exempt property on the schedule of

assets, and Rule 1007(c) requires the debtor to file the

schedule with the voluntary bankruptcy petition. A debtor

may, pursuant to Rule 1009(a), seek to amend an exemption

claim before the case is closed. The debtor did not claim the

property as exempt within the period specified by the Rules

and did not seek to amend the schedules. In short, there is no

exemption claim pending as to the relevant assets.

Second, the Defendants lack standing to raise this issue. 

“[A]n exemption is provided only for the benefit of the

debtor,” Fox v. Smoker (In re Noblit), 72 F.3d 757, 758 (9th

Cir. 1995). “If the exempt property is transferred, the debtor

has in essence waived the exemption, and the transferee

cannot avail herself of the exemption in a subsequent

avoidance action.” Id. Here, David Green waived his

exemption when he shifted the beneficial interest of his

insurance policies to Defendants, via his wife. Defendants,

removed third parties, lack standing to now claim his

exemption as a defense to the Trustee’s avoidance action. Id.

at 758–59.

Third, the Defendants did not present this argument either

to the bankruptcy or district courts. We decline to exercise

our discretion to consider arguments raised for the first time

on appeal. See Robinson v. Jewell, 790 F.3d 910, 915 (9th

Cir. 2015).

Therefore, without reaching the merits and unnecessarily

opining on an issue of state law, we reject Defendants’

argument that the property is exempt under § 522.

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GLADSTONE V. U.S. BANCORP 19

C

Because the debtor had a legal and equitable interest in

the property at issue within the meaning of § 541(a), the

property was not excluded from the estate under § 541(b),

and the property was not the subject of a proper exemption in

this case, we agree with the district court that it constituted

“an interest of the debtor in property” within the meaning of

§ 548.

IV

The district court also properly held that the Trustee’s

avoidance action was not time-barred because the debtor’s

fraudulent concealment equitably tolled the statute of

limitations from commencing. The trustee’s avoidance action

was subject to the two-year limitations period in

§ 546(a)(1)(A). The statute of limitations in § 546(a)(1) may

be subject to equitable tolling. Ernst & Young v. Matsumoto

(In re United Ins. Mgmt., Inc.), 14 F.3d 1380, 1387 (9th Cir.

1994). “Under the equitable tolling doctrine, where a party

‘remains in ignorance of [a wrong] without any fault or want

of diligence or care on his part, the bar of the statute does not

begin to run until the fraud is discovered, though there be no

special circumstances or efforts on the part of the party

committing the fraud to conceal it from the knowledge of the

other party.’” Id. at 1384 (brackets in original) (quoting

Lampf, Pleva, Lipkind, Prupis & Petigrow v. Gilbertson,

501 U.S. 350, 363 (1991)).

There is no serious dispute that David Green or his agents

took steps to conceal the life settlement transactions with

Defendants by transferring the beneficial interest in the

policies to his wife before the sale to Defendants was

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20 GLADSTONE V. U.S. BANCORP

completed. Nor is there any serious dispute that other assets

of the estate were concealed. The record shows that the

trustee diligently pursued collection of assets, but was

prevented from discovering the existence of the life

settlement transactions because of the debtor’s actions to

conceal them. The district court properly concluded, based

on the undisputed facts, that application of equitable tolling

was appropriate.

Defendants argue that equitable tolling is inapplicable

because they are innocent third parties who did not

intentionally conceal facts from the Trustee. This argument

is foreclosed by In re Olsen, in which we applied equitable

tolling to cut off a third party’s limitations claim where the

debtors—not the third party—concealed a conveyance from

the Trustee. Olsen v. Zerbetz (In re Olsen), 36 F.3d 71,

72–73 (9th Cir. 1994); see also Holmberg v. Armbrecht,

327 U.S. 392, 396 (1946) (“Equity will not lend itself to . . .

fraud [that prevents the plaintiff from being diligent] and

historically has relieved from it.”).

Furthermore, the record shows that the Defendants

necessarilyknew that the debtor had transferred the beneficial

interests in the life insurance policy to his wife. It further

shows that the Trustee went to great lengths to discover the

multiple undisclosed life insurance policies held by the

debtor, and that many of the delays documented in the record

were due to the Defendants’ requests or the actions of

Defendants’ counsel.

Under the principles established in Lampf, 501 U.S. at

363, the statute of limitations was tolled until the fraudulent

transfers were revealed to the Trustee’s attorney by David

Green’s stepson on August 10, 2010. The first amended

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GLADSTONE V. U.S. BANCORP 21

complaint, filed on February 1, 2011, was therefore filed

within the two-year § 546(a)(1)(A) limitations period.

V

Finally, the district court correctly concluded that the

bankruptcy court should have granted the Trustee leave to

amend her avoidance action. The Trustee sought to add

allegations regarding the post-petition transfer of the

Protective policy and to allege that the policies were

transferred directly by David Green to Defendants in April

2007. The bankruptcy court denied leave to amend but

provided no reasons for the denial. We “strictly review[]” the

bankruptcy court’s denial of leave to amend “in light of the

strong policy permitting amendment.” Plumeau v. Sch. Dist.

No. 40 Cnty. of Yamhill, 130 F.3d 432, 439 (9th Cir. 1997)

(internal quotation omitted).

The Trustee sought leave to amend because she

discovered new evidence: an executed copy of the Protective

beneficiary transfer form. Defendants did not initially

produce that form in response to the Trustee’s subpoena. 

Any delay associated with the Trustee’s motion therefore

stems in part from Defendants.

Amendment under these circumstances would not have

been futile. The Protective form supports the Trustee’s § 549

avoidance claim. Taken with the policyfavoring amendment,

these factors outweigh the fact that the Trustee previously

amended the complaint. Cf. Allen v. City of Beverly Hills,

911 F.2d 367, 373 (9th Cir. 1990). The district court properly

held that the Trustee should have been granted leave to

amend.

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22 GLADSTONE V. U.S. BANCORP

VI

The district court properly concluded that summary

judgment was not appropriate, and that the Trustee should

have been granted leave to amend. We affirm the district

court and remand for further proceedings consistent with this

opinion. We need not, and do not, reach any other issues

urged by the parties.

AFFIRMED.

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