Court Opinion

ID: 9919157
Source: CourtListenerOpinion
Date Created: 2024-01-17 17:00:48.293822+00
Date Added: 2024-06-11T08:05:40.831526
License: Public Domain

FOR PUBLICATION

     UNITED STATES COURT OF APPEALS
          FOR THE NINTH CIRCUIT

In re: MICHELE LYNN MCKEE,                      No. 22-60055

               Debtor,                             BAP No.
____________________________                       22-1042

MICHELE LYNN MCKEE,
                                                  OPINION
                    Appellant,
    v.

KARL T. ANDERSON, Chapter 7
Trustee; LAURA O'KANE;
CORRINE LONG,

                    Appellees.

                 Appeal from the Ninth Circuit
                  Bankruptcy Appellate Panel
    Gan, Taylor, and Spraker, Bankruptcy Judges, Presiding

                Submitted December 6, 2023 *
                   Pasadena, California

                    Filed January 17, 2024

*
 The panel unanimously concludes this case is suitable for decision
without oral argument. See Fed. R. App. P. 34(a)(2).
2                    IN RE: MCKEE V. ANDERSON

     Before: Milan D. Smith, Jr., Kenneth K. Lee, and
           Lawrence VanDyke, Circuit Judges.

                      Opinion by Judge Lee

                          SUMMARY **

                           Bankruptcy

    The panel affirmed the Bankruptcy Appellate Panel’s
decision affirming the bankruptcy court’s order denying
chapter 7 debtor Michele McKee a homestead exemption for
a Palm Springs property where she formerly lived with her
partner, Laura O’Kane.
    McKee claimed California’s “automatic” homestead
exemption, which exempts from a bankruptcy estate a
property in which a debtor resides on the date of her
bankruptcy petition. The panel held that McKee did not meet
her burden of proving that she either physically occupied the
property or intended to return to it. The panel rejected the
argument that, because O’Kane’s abuse made it impossible
for McKee to go back to the Palm Springs property, her
testimony that she desired to do so should be enough to
establish homestead. The panel affirmed the bankruptcy
court’s finding that McKee demonstrated no indicia of intent
to return, such as leaving her personal belongings at the
property or retaining its address on her driver’s license, and

**
  This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
                  IN RE: MCKEE V. ANDERSON                 3

therefore did not show entitlement to a homestead
exemption.

                        COUNSEL

Summer Shaw (argued), Shaw & Hanover PC, Palm Desert,
California, for Appellant.
W. Derek May (argued), Law Office of W. Derek May,
Upland, California; Leonard M. Shulman and Melissa D.
Lowe, Shulman Bastian Friedman & Bui LLP, Irvine,
California; for Appellees.

                        OPINION

LEE, Circuit Judge:

    Breaking up is hard to do—and a messy break-up led to
this bankruptcy dispute.
     Michele McKee bought a house in Palm Springs with her
long-time partner, Laura O’Kane.           But their rocky
relationship reached a tumultuous end after over a decade
together. McKee left their home and soldiered on with her
life. Her financial situation, however, turned for the worse,
leading to bankruptcy. She now argues that she should be
entitled to California’s homestead exemption, which
partially shields the debtor’s home from creditors. She
claims that she always intended to move back into the Palm
Springs home, and did not do so only because O’Kane still
lived there.
4                 IN RE: MCKEE V. ANDERSON

    But the overwhelming objective evidence suggests that
McKee did not intend to return to the Palm Springs home.
McKee responds that it was “impossible” to live there
because O’Kane was emotionally abusive. But California
does not recognize an “impossibility” carve-out to the
homestead exemption rule. And thus because McKee no
longer lived at and did not intend to return to the home, we
affirm the Bankruptcy Appellate Panel’s decision to deny her
the homestead exemption.
          Factual and Procedural Background
    Michele McKee met Laura O’Kane in late 2003 and they
started dating. They began living together in San Francisco.
Several years later, the two, along with O’Kane’s mother,
bought a lot in Palm Springs to build their new home.
    But as they were building their new home in Palm
Springs, their oft-troubled relationship began to crumble.
McKee testified that O’Kane inflicted “years of repeated and
extreme verbal abuse” on her. And after only about a year
at their new Palm Springs home, McKee broke up with
O’Kane around September 2016.
    McKee testified that she intended to keep living at the
Palm Springs home until it could be sold, but their
relationship had become so frayed by December 2016 that
McKee felt she had to leave. In October 2017, McKee and
O’Kane signed a settlement agreement that contemplated the
eventual buyout of McKee’s interest in the property. Under
that agreement, McKee would, among other things, remove
her personal effects and return her garage door opener and
keys. O’Kane, in turn, would take responsibility for the
payment of all property taxes, mortgage payments, and
insurance premiums due on the house after April 2017.
                  IN RE: MCKEE V. ANDERSON                  5

    McKee moved on. She rented a condominium and listed
that address on both her driver’s license and voter
registration. But her finances deteriorated, and she filed for
chapter 7 bankruptcy in February 2021. In her bankruptcy
petition, McKee claimed a $488,250 homestead exemption
over the Palm Springs property, which had not yet been sold.
O’Kane, her mother, and Karl T. Anderson—the chapter 7
trustee in McKee’s bankruptcy proceeding—objected
because McKee did not reside there at the time.
   The bankruptcy court sustained those objections.
McKee appealed the bankruptcy court’s order to the
Bankruptcy Appellate Panel (BAP), which affirmed. McKee
next appealed to this court. We have jurisdiction under 28
U.S.C. § 158(d).
                         Discussion
    The filing of a chapter 7 petition creates a bankruptcy
estate, which generally consists of all the debtor’s non-
exempt property. 11 U.S.C. §§ 541(a), 522. California has
opted out of the federal bankruptcy exemption scheme, so its
debtors claim exemptions under state law. Cal. Civ. Proc.
Code § 703.130. “[F]ederal courts decide the merits of state
exemptions” in bankruptcy actions, “but the validity of the
claimed state exemption is controlled by the applicable state
law.” In re LaFortune, 652 F.2d 842, 846 (9th Cir. 1981).
We review a bankruptcy court’s determination of the scope
of a statutory exemption de novo, and its factual findings for
clear error. In re Gilman, 887 F.3d 956, 964 (9th Cir. 2018).
   I. California’s homestead          exemption     partially
      shields debtors’ homes.
   McKee claims California’s “automatic” homestead
exemption. See Cal. Civ. Proc. Code § 704.730. That
6                 IN RE: MCKEE V. ANDERSON

exemption protects a debtor “who resides (or who is related
to one who resides) in the homestead property at the time of
a forced judicial sale of the dwelling.” In re Anderson, 824
F.2d 754, 757 (9th Cir. 1987); see Cal. Civ. Proc. Code
§ 704.720(a). The filing of a bankruptcy petition constitutes
a forced judicial sale for this exemption. See Gilman, 887
F.3d at 964. If the exemption applies, then the debtor’s
homestead cannot be sold unless the proceeds are enough to
pay out all encumbrances on the property and the debtor’s
homestead exemption in full. Cal. Civ. Proc. Code
§ 704.800. So, as a practical matter, the homestead
exemption can protect a debtor’s substantial assets in a
homestead from creditors.
    Relevant here, the statute defines a “homestead” as “the
principal dwelling (1) in which the judgment debtor or the
judgment debtor’s spouse resided on the date the judgment
creditor’s lien attached to the dwelling, and (2) in which the
judgment debtor or the judgment debtor’s spouse resided
continuously thereafter until the date of the court
determination that the dwelling is a homestead.” Cal. Civ.
Proc. Code § 704.710(c). A debtor’s exemptions are
“determined as of the date the bankruptcy petition is filed.”
Cal. Civ. Proc. Code § 703.140(c). McKee can thus only
claim the homestead exemption over the Palm Springs
property if she resided there on the date of her petition. She
bears the burden of proof.           Cal. Civ. Proc. Code
§ 703.580(b).
    “To determine whether a debtor resides in a property for
homestead purposes, courts consider the debtor’s physical
occupancy of the property and the intent to reside there.”
Gilman, 887 F.3d at 965 (citing Ellsworth v. Marshall, 196
Cal. App. 2d 471, 474 (1961)). But physical occupancy is
not strictly necessary—if a debtor does not live there, she
                   IN RE: MCKEE V. ANDERSON                   7

may still claim the homestead exemption if she “intend[s] to
return” to it. Michelman v. Frye, 238 Cal. App. 2d 698, 706
(1965). In other words, if the debtor still retains “a bona fide
intention to make the place his residence, his home,”
Ellsworth, 196 Cal. App. 2d at 475, his lack of physical
occupation is only a “temporary absence,” Michelman, 238
Cal. App. 2d at 706.
   II. McKee does not qualify for a homestead
       exemption because she no longer lived at the home
       and had no intention to do so.
    The parties agree that McKee did not physically occupy
the Palm Springs property when she filed her bankruptcy
petition. But they dispute whether she had the requisite
intent to return. The bankruptcy court determined that
McKee did not. The bankruptcy court acknowledged that
McKee initially moved out of the home only because her
relationship with O’Kane made it “impractical” for her to
stay. But it also found that, by the time of her petition,
McKee’s primary desire was not to live in the Palm Springs
home—it was to cash out her interest so that she could buy
a new home. The “only evidence” supporting McKee’s
claim of homestead was “just her testimony” that she
intended to return to the property should O’Kane ever
vacate. The rest of the record suggested that “she had no
intent to ever move back into the house.”
    McKee argues that the bankruptcy court failed to
recognize that California law distinguishes between
circumstances where the debtor “is not intending to return to
the residence versus it being impossible to return.” In
essence, McKee claims that because O’Kane’s abuse made
it impossible for her to return to the Palm Springs property,
8                 IN RE: MCKEE V. ANDERSON

her testimony that she desired to do so should be enough to
establish homestead.
    McKee hooks her argument onto two California cases—
Moss and Michelman—but neither provides much support
for her position. In Moss, the Warner family in mid-19th
century California fled their homestead “on account of the
hostility of the Indians of the vicinity.” 10 Cal. 296, 297
(1858). Mrs. Warner and her children spent the next three
and a half years with “different families of her acquaintance
in San Diego,” as “during this period it was unsafe for her
and her children” to return home. Id. The California
Supreme Court held that the Warners had not abandoned the
homestead but were instead “merely sojourners,” who were
entitled to the exemption. Id. at 298. And in Michelman, her
husband’s domestic violence drove Mrs. Frye and her
children from the home. She then demanded her husband to
vacate the property—which he did, on court order, in March
1964. 238 Cal. App. 2d at 700–01. Mrs. Frye promptly
returned to the property with her children. Id. The
California court of appeal concluded that Mrs. Frye’s
“forced removal” from the home did not “deprive[] her of
her right to declare a homestead” because she had “intended
to and later did return” to the home. Id. at 704.
    Moss and Michelman merely stand for the unremarkable
proposition that a debtor may claim California’s homestead
exemption even when it is impossible for her to return home.
But neither case shows that “impossibility” alone entitles her
to the exemption, regardless of intent to return to the home.
In contrast, both Moss and Michelman noted objective
evidence reflecting the claimant’s intent to return to the
homestead. Mrs. Warner established “no permanent place of
residence,” and instead lived an itinerant lifestyle, drifting
through San Diego. Moss, 10 Cal. at 297–98. Mrs. Frye
                   IN RE: MCKEE V. ANDERSON                    9

“left most of her clothing and furnishings and all of the
furniture at the family home” and “at no time changed her
voting address.” Michelman, 238 Cal. App. 2d at 700. These
are the same indicia that courts have looked to in other cases
to determine the debtor’s entitlement to homestead: for
example, whether the debtor (1) left his personal belongings
at the homestead, see In re Karr, 2006 WL 6810996, at *3
(9th Cir. BAP Oct. 2, 2006); (2) retained the homestead’s
address on his driver’s license, see In re Bruton, 167 B.R.
923, 925–26 (Bankr. S.D. Cal. 1994); or (3) regularly visited
the property, see In re Pham, 177 B.R. 914, 919 (Bankr. C.D.
Cal. 1994). In short, whenever debtors claim California’s
automatic homestead exemption—in circumstances of
“impossibility” or not—we assess “whether the debtors
demonstrated, rather than merely claimed, their intent to
return to their home after the absence.” Karr, 2006 WL
6810996, at *5 (citation omitted).
    Here, the bankruptcy court correctly found that McKee
demonstrated none of these indicia. She changed her
driver’s license and her voter registration to her new rental
address. She removed all of her personal effects from the
home. And she sought to cash out her interest in the Palm
Springs property. McKee’s post hoc testimony that she
would have returned—had O’Kane ever vacated—does not
save her claim. A debtor’s testimony about her own
intentions may be probative. But where, as here, “other facts
to which she testified were inconsistent with such intention,”
a court is “not bound to accept her statement that she
intended to reside [at the homestead] as conclusive[.]”
Tromans v. Mahlman, 111 Cal. 646, 647 (1896). 1

1
  McKee also invokes § 704.720(d), the spousal exception to the
residence requirement of the homestead exemption. Cal. Civ. Proc.
10                    IN RE: MCKEE V. ANDERSON

    We AFFIRM the BAP’s decision affirming the
bankruptcy court’s order sustaining objections to McKee’s
claimed homestead exemption.

Code § 704.720(d). McKee argues that: (1) because § 704.720(d)
applies to former spouses (who are no longer married), it should also
apply to her and O’Kane, even though they were never married; and
(2) because legislative history suggests § 704.720(d) was in part enacted
to protect domestic violence victims, we should recognize McKee’s
“impossibility” exception. We reject both. Neither the plain language
of the statute nor the caselaw supports McKee’s first argument. And
McKee’s second argument impermissibly requires us to extend
California law—which we cannot and do not do. See Klingebiel v.
Lockheed Aircraft Corp., 494 F.2d 345, 346 (9th Cir. 1974) (“[T]he duty
of the federal court is to ascertain and apply the existing California law,
not to predict that California may change its law and then to apply the
federal court’s notion of what that change might or ought to be.”).