Source: https://danninggill.com/category/publications/
Timestamp: 2020-01-26 11:11:43
Document Index: 307622500

Matched Legal Cases: ['§ 541', '§ 760', '§ 850', '§ 660', '§ 606', '§ 605', '§ 541', '§ 521', '§ 1409', '§ 1409']

Publications – Danning, Gill, Israel & Krasnoff, LLP
Case Analysis: In Easley v. Collection Serv. of Nev., 910 F.3d 1286 (9th Cir. 2018), the United States Court of Appeals for the Ninth Circuit (the “Ninth Circuit”) expanded the holding in In re Schwartz-Tallard, 803 F. 3d 1095 (9th Cir. 2015)
an individual injured by any willful violation of a stay provided by this section shall recover actual damages, including costs and attorneys’ fees, and, in appropriate circumstances, may recover punitive damages
The court explained that prior to Schwartz-Tallard, the court interpreted section 362(k)(1) as “limiting attorneys’ fees and costs awards to those incurred in stopping a stay violation.” Sternberg v. Johnston, 595 F.3d 937, 947 (9th Cir. 2010) (emphasis added). In Schwartz-Tallard, the court overruled Sternberg. Schwartz-Tallard made it clear that attorneys’ fees for “prosecuting an action for damages” under section 362(k) are recoverable. While the district court found that the holding of Schwartz-Tallard was limited to awarding fees for defense of an appeal of attorneys’ fees, in its reversal the Ninth Circuit clarified that attorneys’ fees may also be awarded for debtors’ successful prosecution of an appeal of an award of damages under section 362(k). The court reiterated its reasoning in Schwartz-Tallard that the award of attorneys’ fees for prosecuting an action for damages is consistent with the intent of Congress to provide appropriate means and incentives for debtors to pursue actions for violations of the automatic stay. Further, the court found that its ruling is consistent with its prior decisions on other fee-shifting statutes granting awards of attorneys’ fees for successfully challenging an initial judgment. The Ninth Circuit also reasoned that section 362(k) is critically important to debtors in bankruptcy who typically do not have the resources to hire private counsel and, thus, section 362(k) should be interpreted as seeking to make debtors whole (as if the violation never occurred), if possible.
The decision in Easley serves as a reminder that the financial consequences for a violation of the automatic stay may be severe. Appellee appears to have been owed less than $4,000, caused less than $1,300 in actual damages, but might be required to pay tens of thousands of dollars to the Debtors because it did not act swiftly enough to stop the stay violation and, apparently, refused to return the money that was garnished. Prudent creditors should exercise caution with debtors who have filed for bankruptcy protection, seek relief from stay when in doubt, and quickly end any stay violations and reverse any adverse consequences that resulted from their actions. Otherwise, where creditors willfully violated the automatic stay, they should be prepared to settle and pay quickly to avoid incurring additional losses. Vigilant debtors and their attorneys should also take note that, under the combined precedents of Schwartz-Tallard and Easley, the law is increasingly on their side when it comes to recovering attorneys’ fees and costs incurred in successful appeals of rulings under section 362(k), whether they are defending or challenging the decision on appeal.
Dear constituency list members of the Insolvency Law Committee, the following is a recent case update.
On January 16, 2019, the California Supreme Court granted the request of the U.S. Court of Appeals for the Ninth Circuit to decide questions of California law relevant to the Ninth Circuit’s determination of Brace v. Speier (In re Brace), No. 17-60032 (9th Cir.). The question presented by the Ninth Circuit is whether the “form of title” presumption in California Evidence Code section 662 overcomes the presumption in California Family Code section 760 that all property acquired by a married person during marriage is community property.
To read the Ninth Circuit’s Order Certifying Question to the Supreme Court of California, click here.
Clifford and Ahn Brace were married in 1972. In the late 1970s, they purchased a home in Redlands. At some point they also purchased a rental property in San Bernardino. They took title to each property as “husband and wife as joint tenants.”
In 2011, Mr. Brace filed for bankruptcy. After some preliminary legal issues were resolved, the bankruptcy court needed to decide whether the bankruptcy estate owned 100%, or just 50%, of each property. In 2015, the bankruptcy court entered a judgment in favor of the chapter 7 trustee determining that the properties were community property and, therefore, entirely property of the bankruptcy estate. See 11 U.S.C. § 541(a)(2). In a published decision, the U.S. Bankruptcy Appellate Panel of the Ninth Circuit affirmed. Brace v. Speier (In re Brace), 566 B.R. 13 (9th Cir. BAP 2017). The BAP’s decision was the subject of an ILC e-Bulletin authored by Michael W. Davis and published on October 16, 2017.
QUESTIONS PRESENTED TO THE CALIFORNIA SUPREME COURT
In California, there is a statutory presumption that property acquired by a married person during the marriage while domiciled in California is community property. See Cal. Fam. Code § 760. By written agreement, spouses can “transmute” community property into separate property of either spouse. See Cal. Fam. Code §§ 850-853.
Separately, California’s Evidence Code contains a series of presumptions which dictate which party has the initial burden of providing evidence or proving certain facts. Evidence Code section 662 provides that “[t]he owner of the legal title to property is presumed to be the owner of the full beneficial title.” This is sometimes referred to as the “title presumption.”
In 2003, the Ninth Circuit held that the community property presumption is rebutted when spouses acquire real property from a third party as joint tenants, and that there is a rebuttable presumption that “‘where the deed names the spouses as joint tenants . . . the property [is] in fact held in joint tenancy.’” Hanf v. Summers (In re Summers), 332 F.3d 1240, 1243-44 (9th Cir. 2003) (quoting Hansen v. Hansen, 233 Cal.App.2d 575, 594 (1965)). The Ninth Circuit also held that California’s transmutation statutes do not apply to transactions in which spouses acquire property from third parties because there is “no interspousal transaction requiring satisfaction of the statutory formalities.” Id. at 1245.
The second holding of Summers was expressly rejected by the California Supreme Court in Marriage of Valli, 58 Cal.4th 1396 (2014). In that case, a husband used community property funds to purchase an insurance policy on his life, naming his wife as the policy’s owner and beneficiary. Later, in divorce proceedings, the husband asserted that the policy was community property. The California Supreme Court agreed, because the husband had not made, joined in, consented to, or accepted a written, express declaration that the character or ownership of the insurance policy was being changed from community property to the wife’s separate property. The court expressly stated that the title presumption “does not apply when it conflicts with the transmutation statutes.” Valli, 58 Cal.4th at 1406.
The ultimate issue in Brace is whether the debtor’s act of taking title to the real properties as a joint tenant with his spouse rebuts the community property presumption or qualifies as an effective transmutation. To assist in addressing this issue, the Ninth Circuit certified the following question to the California Supreme Court:
Does the form of title presumption set forth in section 662 of the California Evidence Code overcome the community property presumption set forth in section 760 of the California Family Code in Chapter 7 bankruptcy cases where: (1) the debtor husband and non-debtor wife acquire property from a third party as joint tenants; (2) the deed to that property conveys the property at issue to the debtor husband and non-debtor wife as joint tenants; and (3) the interests of the debtor and non-debtor spouse are aligned against the trustee of the bankruptcy estate?
On January 16, 2019, the California Supreme Court granted the Ninth Circuit’s request to decide the question presented. (The Ninth Circuit’s phrasing of the question does not restrict the California Supreme Court’s consideration of the issues involved; the court may restate the question. Cal. R. Ct. 8.548(f)(5).) Briefing in the California Supreme Court is ongoing.
When spouses purchase a home in California, they usually don’t give much thought as to how title should be held. Historically, spouses have taken title as joint tenants so that, when one spouse dies, the ownership interest of the deceased spouse automatically transfers to the surviving spouse. This “right of survivorship” is convenient because it avoids the need for a probate. But most people don’t realize that if the joint tenancy is given full effect each spouse separately owns a one-half interest in the property and has the power to transfer his or her one-half interest without the other spouse’s consent. Obviously, this is not what most spouses intend when they buy a family home. The Ninth Circuit’s certification reflects how difficult it is to apply Valli in this context.
Assuming that the California Supreme Court does not modify the question presented, I believe that it will rule that the “form of title presumption” does not overcome the “community property presumption.” Family Code section 760 provides that “[e]xcept otherwise provided by statute,” all property acquired by a married person during marriage while domiciled in California is community property. Sections 770 through 853 contain various exceptions to this rule.
Evidence Code section 662 establishes only an evidentiary presumption. “A presumption is not evidence.” Cal. Evid. Code § 660. A presumption affecting the burden of proof (such as section 662) imposes “upon the party against whom it operates the burden of proof as to the nonexistence of the presumed fact.” Cal. Evid. Code § 606. It does this to implement “some public policy other than to facilitate the determination of the particular action in which the presumption is applied . . . such as the policy in favor of . . . the stability of titles to property.” Cal. Evid. Code § 605. Evidence that property was acquired by spouses during marriage, thus implicating Family Code section 760, should be sufficient to overcome the evidentiary presumption. Also, in Valli, the California Supreme Court confirmed that the form of title presumption “does not apply when it conflicts with the transmutation statutes” in Family Code sections 850-853.
The fact that the interests of the debtor and non-debtor spouse are aligned against the trustee should not have any bearing on the outcome. The Ninth Circuit included this fact within the certified question because the appellants seized on a comment in Justice Chin’s concurrence in Valli that language in Family Code section 2581 (which applies in the context of divorce and separate proceedings) “suggests that rules that apply to an action between the spouses to characterize property acquired during the marriage do not necessarily apply to a dispute between a spouse and a third party.” However, since the estate’s rights in property derive directly from the rights held by the debtor on the petition date, the trustee is not truly a third party. See 11 U.S.C. § 541(a). Further, query whether the debtor even has standing to appeal (and thus align himself with his wife against the trustee) given his argument that he has no legal or beneficial interest in his wife’s allegedly separate ownership interest in the property. Indeed, by involving himself in the dispute, the debtor is arguably violating his duty to cooperate with the trustee to enable the trustee to expeditiously administer property of the estate. See 11 U.S.C. §§ 521(a)(3), 704(a).
Regardless of how it answers the Ninth Circuit’s question, the California Supreme Court’s answer will have a significant impact on cases in which only one spouse files for bankruptcy. If the California Supreme Court’s decision formally abrogates the Ninth Circuit’s first holding in Summers, it will confirm that trustees may sell properties held by spouses as joint tenants and, subject to debtors’ exemptions, distribute all of the sale proceeds to creditors. In some cases, the answer will determine whether creditors receive anything at all.
These materials were written by John N. Tedford, IV, of Danning, Gill, Diamond & Kollitz, LLP, in Los Angeles (jtedford@dgdk.com). Editorial contributions were provided by the Hon. Judge Meredith A. Jury (ret.).
In Klein v. ODS Technologies, LP (In re J & J Chemical, Inc.), Adv. No. 18-08029-JDP (Bankr. D. Idaho Jan. 11, 2019), a U.S. Bankruptcy Court for the District of Idaho (the “Court”) held that the court in which a bankruptcy case is pending is a proper venue for a fraudulent transfer action brought under sections 544(b) or 548 of the Bankruptcy Code, regardless of the amount at issue or the residence of the defendant. The Court also held that even if 28 U.S.C. § 1409(b) applies to such an action, the court is a proper venue if the value of the property to be recovered is at least $1,300, and the higher $12,850 threshold for actions against a non-insider to recover “a debt” does not apply. If the Court’s analysis is correct, either (a) there is no monetary threshold for filing preference actions in the plaintiff’s home court against non-resident defendants, or (b) the monetary threshold is only $1,300. To read the full unpublished decision, click here.
From April 2013 to May 2016, the president of J & J Chemical, Inc. (the “Debtor”) transferred $11,100 from the Debtor’s bank account to ODS Technologies, LP (“ODS”). ODS operates an online horse race wagering service. ODS is a Delaware limited partnership, its corporate headquarters and principal place of business is in Los Angeles, and it is authorized to conduct business in Idaho under the name “TVG Network.”
In 2017, the Debtor filed a chapter 11 petition in Idaho. Under the Debtor’s confirmed plan, R. Wayne Klein was appointed as the plan administrator (the “Administrator”) and granted authority to pursue avoidance actions.
The Administrator filed a complaint to avoid and recover the transfers made by the Debtor to ODS. For the transfers that occurred within two years prior to the petition date, the Administrator sought to avoid the transfers under section 548(a) of the Bankruptcy Code. Invoking section 544(b), the Administrator sought to avoid all of the transfers in accordance with Idaho state law.
Section 1409 of Title 28 of the United States Code provides, in relevant part, as follows (emphasis added):
(b) Except as provided in subjection (d) of this section, a trustee in a case under title 11 may commence a proceeding arising in or related to such case to recover a money judgment of or property worth less than $1,300 . . . or a debt (excluding a consumer debt) against a noninsider of less than $12,850, only in the district court for the district in which the defendant resides.
ODS filed a motion to dismiss for improper venue. It argued that because the Administrator sought to recover less than $12,850, the adversary proceeding should have been filed in the bankruptcy court in the Central District of California.
The Administrator responded with three arguments. First, venue was proper under section 1409(a) because the proceeding arose “under” title 11 and was not merely “in or related to” a case under title 11. Second, even if section 1409(b) applied, venue was proper because the Administrator was seeking “to recover a money judgment of or property worth” at least $1,300 and was not seeking to recover “a debt . . . of less than $12,850.” Third, venue was proper because, under applicable federal law, ODS was a “resident” of Idaho.
In reply, ODS urged the Court to follow a line of cases holding that Congress intended section 1409(b) to apply to claims “arising under” the Bankruptcy Code, as well as to those “arising in” and “related to” a bankruptcy case. ODS also urged the Court to follow Muskin, Inc. v. Strippit Inc. (In re Little Lake Indus., Inc.), 158 B.R. 478 (9th Cir. BAP 1993), in which the Bankruptcy Appellate Panel of the Ninth Circuit (the “BAP”) concluded that the terms “arising under” and “arising in” cannot be interpreted as mutually exclusive, and that “[a]ll proceedings arising under title 11 arise in the bankruptcy case for purposes of § 1409(b).” Little Lake Indus., 158 B.R. at 484.
The Court agreed with all three of the Administrator’s arguments and denied ODS’ motion to dismiss.
First, the Court held that section 1409(b) does not apply to proceedings “arising under” the Bankruptcy Code. Section 1409(a) states that venue is proper in the district in which the underlying bankruptcy case is pending if the proceeding (a) “arises under” the Bankruptcy Code, (b) “arises in” the bankruptcy case, or (c) is “related to” the bankruptcy case. However, section 1409(b) imposes monetary thresholds only if the proceeding “arises in” or is “related to” the bankruptcy case. Noticeably, section 1409(b) omits proceedings that “arise under” the Bankruptcy Code.
Based on the plain language of these provisions, the Court concluded that proceedings that “arise under” the Bankruptcy Code are not subject to section 1409(b)’s monetary thresholds. The Court rejected Little Lake Industries’ holding that, for purposes of section 1409(b), all claims that “arise under” the Bankruptcy Code also “arise in” a bankruptcy case. Instead, it relied on Ninth Circuit precedent interpreting the terms as referring to separate, distinct categories of proceedings. See Maitland v. Mitchell (In re Harris Pine Mills), 44 F.3d 1431, 1435 (9th Cir. 1995). It further held that because the parties agreed that the claims asserted by the Administrator “arise under” the Bankruptcy Code, section 1409(a) rendered the Court a proper venue for the adversary proceeding.
Second, the Court held that an adversary proceeding seeking to avoid and recover a transfer is a proceeding to “recover a money judgment . . . or property,” not a proceeding to recover “a debt.” The Court stated that the Administrator’s adversary proceeding was, in effect, a proceeding to recover a money judgment or property. Since the amount sought was at least $1,300, the threshold for actions “to recover a money judgment of or property worth” at least $1,300 was satisfied. The $12,850 threshold for actions to recover “a debt” against a non-insider did not apply.
Third, the Court determined that, under section 1391(c)(2) of Title 28, ODS was a resident of Idaho. That section provides that an entity “shall be deemed to reside, if a defendant, in any judicial district in which such defendant is subject to the court’s personal jurisdiction with respect to the civil action in question.” The Court determined that ODS had sufficient minimum contacts with Idaho to render it subject to the personal jurisdiction of the Court. Thus, even if section 1409(b) applied, and even if the $12,850 threshold for proceedings to recover “a debt” applied, venue was still proper because, for venue purposes, ODS qualified as a resident of Idaho.
Prior to BAPCPA, section 1409(b) provided that a defendant could be sued only in the district in which it resided if the trustee sought to recover (a) a money judgment of or property worth less than $1,000, or (b) a consumer debt of less than $5,000. BAPCPA added the third category at issue in this case: “a debt (excluding a consumer debt) against a noninsider of less than $10,000.” (The dollar amounts adjust every three years.)
The final report of the National Bankruptcy Review Commission recommended that section 1409 “be amended to require that a preference recovery action against a noninsider seeking less than $10,000 must be brought in the bankruptcy court in the district where the creditor has its principal place of business.” The stated purpose of the proposal was “to protect parties from ‘noneconomic’ actions brought by trustees seeking to take advantage of the likelihood that it will cost the creditors more to litigate the action than the action itself seeks to recover.” When introduced in 1998, H.R. 3150 proposed to add “or a nonconsumer debt against a noninsider of less than $10,000” to section 1409(b). And in 2003, the House Judiciary Committee’s report expressly stated that section 1409(b) was being amended “to provide that a preferential transfer action in the amount of $10,000 or less pertaining to a nonconsumer debt against a noninsider defendant must be filed in the district where such defendant resides.” Not surprisingly, when BAPCPA was enacted, commentators recognized that Congress was trying to stop the practice of filing small preference actions against defendants who have no connection to the district in which the bankruptcy case is pending.
From the start, it was unclear that the amendment to section 1409(b) would actually accomplish this goal since an action under sections 547 and 550 seeks to avoid a transfer and recover the property transferred (or the value thereof), not necessarily “a debt.” J & J Chemical demonstrates that it’s not even clear that section 1409(b) applies in the first place.
These materials were written by jtedford@dgdk.com, of Danning, Gill, Diamond & Kollitz, LLP, in Los Angeles (jtedford@dgdk.com). Editorial contributions were provided by ILC member Michael J. Gomez of Frandzel Robins Bloom & Csato, L.C. in Fresno, California (mgomez@frandzel.com).