Court Opinion

ID: 4514535
Source: CourtListenerOpinion
Date Created: 2020-03-11 00:00:58.818156+00
Date Added: 2024-06-11T08:00:02.607481
License: Public Domain

FILED
                                                                          DEC 17 2019
                          NOT FOR PUBLICATION
                                                                      SUSAN M. SPRAUL, CLERK
                                                                        U.S. BKCY. APP. PANEL
                                                                        OF THE NINTH CIRCUIT

             UNITED STATES BANKRUPTCY APPELLATE PANEL
                       OF THE NINTH CIRCUIT

In re:                                               BAP No. EC-18-1344-BGF

WILLIAM A. LANDES,                                   Bk. No. 17-22481

                    Debtor.

ESSEX BANK,

                    Appellant,

v.                                                           MEMORANDUM*

JOHN REGER, Chapter 7 Trustee;
WILLIAM A. LANDES; MARIE LANDES,

                    Appellees.

                    Argued and Submitted on October 25, 2019
                          at San Francisco, California

                              Filed – December 17, 2019

                Appeal from the United States Bankruptcy Court
                    for the Eastern District of California

         *
         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 8024-1.
              Honorable Michael S. McManus, Bankruptcy Judge, Presiding

Appearances:          Appellant Essex Bank did not appear; Michael Paul
                      Dacquisto argued for appellee John Reger, Chapter 7
                      Trustee.

Before:          BRAND, GAN and FARIS, Bankruptcy Judges.

                                  INTRODUCTION

       Appellant Essex Bank appeals an order approving the sale of certain

personal property of the estate to the debtor's ex-spouse under § 363(b).1 In

objecting to the sale, Essex Bank maintained that it held a security interest in

the property being sold and therefore was entitled to the proceeds. In

approving the sale, the bankruptcy court determined that Essex Bank did not

have a lien on the property at issue; thus, Essex Bank was entitled to nothing.

Appellees contend that the appeal is statutorily or equitably moot.

       We conclude that the appeal is not moot. Further, the bankruptcy court

misapplied California law with respect to Essex Bank's lien under Cal. Civ.

Code P. ("CCP") § 708.410. Accordingly, we REVERSE.

////

////

          1
         Unless specified otherwise, all chapter and section references are to the
 Bankruptcy Code, 11 U.S.C. §§ 101-1532, and all "Rule" references are to the Federal
 Rules of Bankruptcy Procedure.

                                            2
       I. FACTUAL BACKGROUND AND PROCEDURAL HISTORY

A.    The parties, Essex Bank's judgment and the bankruptcy filing

      William Landes filed a chapter 7 bankruptcy case on April 14, 2017.

John Reger ("Trustee") was appointed as the chapter 7 trustee. The case was

designated as an "asset case."

      In 2011, William's estranged wife, Marie,2 filed a petition for dissolution

of marriage in the California state court ("Divorce Case"). The Divorce Case is

still pending. Prior to the petition date, the divorce court had not approved an

agreement dividing the marital estate between William and Marie and had

not characterized any property as community or separate. Thus, all

community property in the Divorce Case at the time William filed his petition

was property of the bankruptcy estate and subject to administration by

Trustee.3 Marie is a priority unsecured creditor in William's chapter 7 case,

with a significant claim for domestic support obligations. She filed a proof of

claim for domestic support arrears of $186,000.

      At some point, Essex Bank loaned William money. On September 22,

2015, Essex Bank obtained a judgment from the California state court against

       2
         We refer to Mr. Landes as William and Ms. Landes as Marie for clarity. No
 disrespect is intended.
       3
          See Dumas v. Mantle (In re Mantle), 153 F.3d 1082, 1085 (9th Cir. 1998) ("For
 purposes of § 541(a)(2), all community property not yet divided by a state court at the
 time of the bankruptcy filing is property of the bankruptcy estate."). For this reason, we
 reject (as did the bankruptcy court) Essex Bank's argument that the sale of any personal
 property, including the guns and artwork, should have occurred in the Divorce Case.

                                             3
William for $739,994.08 ("Judgment"). Prior to the petition date, Essex Bank

(1) recorded an Abstract of Judgment, (2) filed a Notice of Judgment Lien

("JL-1") with the California Secretary of State, and (3) filed a Notice of Lien in

the Divorce Case (Form EJ-185) ("Notice of Lien"). The proof of service for the

Notice of Lien indicates that Essex Bank served both William's and Marie's

divorce counsel with the Notice of Lien.

B.    Pertinent events in the bankruptcy case prior to the sale

      After the § 341(a) meeting of creditors, William filed an amended

Schedule A/B to include a "fine art collection" valued at $20,000 and

"firearms" valued at $10,000. He filed an amended Schedule C to include an

$8,000 exemption in the artwork under CCP § 704.040. No one objected to

William's claimed exemption.

      Essex Bank filed a $857,159.86 secured proof of claim for the Judgment.

Attached were copies of the Judgment, Abstract of Judgment, and the JL-1.

Essex Bank filed an amended proof of claim to include the previously missing

copy of the Notice of Lien. Trustee did not object to Essex Bank's claim.

C.    Trustee's sale motion

      Trustee moved to sell the estate's interest in the guns and artwork to

Marie for $20,000 ("Sale Motion"). He maintained that these items were

community property owned by both William and Marie. Trustee stated that

William did not schedule any liens against the personal property at issue and

that Trustee was not aware of any liens. William would receive his claimed

                                         4
exemption of $8,000 from the sale proceeds.

      Trustee asserted that the $20,000 "price [was] at or near the present

maximum obtainable price for the Property" based on information provided

by a potential auctioneer. He did not articulate how many guns or pieces of

art were involved in the sale, but a letter dated August 2, 2017, from Marie's

divorce attorney to Trustee and attached to the Sale Motion indicates that

there were approximately 46 guns and 36 pieces of art. The sale was subject to

overbids.

      Trustee submitted a brief declaration in support of the Sale Motion and

a copy of the parties' buy/sell agreement. The declaration was silent as to the

negotiation process with Marie, and Trustee did not request a § 363(m) good-

faith finding on her behalf. The buy/sell agreement stated that the sale was

"on an 'as is' and 'where is' basis with no representations or warranties of any

kind."

      Essex Bank opposed the Sale Motion. It argued that the Judgment was a

community debt for which both William and Marie were responsible, and

that it had a lien on the guns and artwork under several theories, including

the Notice of Lien filed in the Divorce Case. Essex Bank argued that the

Notice of Lien prevented William from selling community property to Marie

with the proceeds going to someone other than Essex Bank. Based on

William's claimed exemption and administrative expenses, Essex Bank

argued that it would receive nothing from the sale. Essex Bank also

                                        5
questioned whether the sale was negotiated at arms' length given that the

buyer was William's estranged wife.

      In reply, Trustee argued that Essex Bank failed to establish a lien on the

guns and artwork under its asserted theories. First, argued Trustee, the

Judgment was a money judgment only and did not create any lien rights in

favor of Essex Bank against the personal property being sold. Second, argued

Trustee, the Abstract of Judgment created a judgment lien on real property

only, not personal property. Third, argued Trustee, the JL-1 filed with the

California Secretary of State created a judgment lien on certain personal

property but not the guns and artwork being sold. Finally, the sale did not

fall within the meaning of CCP § 708.410;4 it was not a "cause of action" for

money or property that was the subject of the Divorce Case and was not part

of any judgment in the Divorce Case. Therefore, argued Trustee, the Notice of

Lien did not provide Essex Bank with a lien on the subject property either.

      No other bidders appeared at the sale hearing. Counsel for Trustee

conceded that Marie, as the highest priority unsecured creditor with her large

DSO claim, would receive whatever sale proceeds were left after Trustee paid

        4
         Specifically, CCP § 708.410 (a) provides that a judgment creditor who has a
 money judgment against a judgment debtor who is a party to a pending action or
 special proceeding may obtain a lien, to the extent required to satisfy the judgment
 creditor's money judgment, on either: (1) any cause of action of such judgment debtor
 for money or property that is the subject of the action or proceeding; or (2) the rights of
 such judgment debtor to money or property under any judgment subsequently
 procured in the action or proceeding.

                                              6
William his $8,000 exemption and administrative expenses.

      After the sale hearing, the bankruptcy court entered its Civil Minutes

granting the Sale Motion. The court ruled that Essex Bank had failed to

establish collusion or that William should not be paid on account of his

unchallenged claimed exemption. The court also found that Essex Bank had

failed to establish a security interest in the guns or artwork under any lien

theory it raised. Accordingly, as an unsecured creditor, Essex Bank would

receive nothing from the sale because Marie's DSO claim had to be paid

ahead of other unsecured claims under § 507. Essex Bank timely appealed the

court's later written order ("Sale Order").

D.    Post-appeal events

      Essex Bank did not seek a stay of the Sale Order pending appeal.

Although the sale has been consummated, counsel for Trustee confirmed that

he is holding the proceeds pending the outcome of the appeal.

                              II. JURISDICTION

      The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 and

157(b)(2)(K) and (N). Subject to our discussion of mootness below, we have

jurisdiction under 28 U.S.C. § 158.

                                   III. ISSUES

1.    Is the appeal moot?

2.    Did the bankruptcy court abuse its discretion in granting the Sale

Motion?

                                        7
                         IV. STANDARDS OF REVIEW

      We review de novo our own jurisdiction, including the question of

mootness. Suter v. Goedert, 504 F.3d 982, 985 (9th Cir. 2007); Ellis v. Yu (In re

Ellis), 523 B.R. 673, 677 (9th Cir. BAP 2014).

      The question whether a purchaser is a good faith purchaser under

§ 363(m) is a question of fact we review for clear error. Thomas v. Namba (In re

Thomas), 287 B.R. 782, 785 (9th Cir. BAP 2002).

      We review § 363 sale orders for an abuse of discretion. Fitzgerald v. Ninn

Worx Sr, Inc. (In re Fitzgerald), 428 B.R. 872, 880 (9th Cir. BAP 2010). A

bankruptcy court abuses its discretion if it applies the wrong legal standard,

misapplies the correct legal standard, or makes factual findings that are

illogical, implausible, or without support in inferences that may be drawn

from the facts in the record. See TrafficSchool.com, Inc. v. Edriver Inc., 653 F.3d

820, 832 (9th Cir. 2011) (citing United States v. Hinkson, 585 F.3d 1247, 1262 (9th

Cir. 2009) (en banc)).

                                 V. DISCUSSION

A.    The appeal is not moot.

      Trustee argues that the appeal is statutorily moot under § 363(m),

because Essex Bank failed to seek a stay pending appeal. Alternatively, he

argues that the appeal is equitably moot, because Essex Bank failed to seek a

stay, the sale has been consummated, and it would be "extremely difficult" to

unwind it. We conclude that the appeal is neither statutorily moot nor

                                          8
equitably moot.

      1.    The appeal is not statutorily moot.

      Section 363(b)(1) permits a bankruptcy trustee, after notice and a

hearing, to "use, sell, or lease, other than in the ordinary course of business,

property of the estate." Further, § 363(m) provides that

      reversal or modification on appeal of an authorization under
      [§ 363(b)] of a sale or lease of property does not affect the validity
      of a sale or lease under such authorization to an entity that
      purchased or leased such property in good faith . . . unless such
      authorization and such sale or lease were stayed pending appeal.

In short, § 363(m) protects the interests of good faith purchasers who buy

property pursuant to a sale authorized under § 363(b) when a party in

interest has failed to stay the sale pending appeal.

      However, "[e]ven though an appeal from an order approving a sale is

moot if the sale has not been stayed and is consummated, there are several

exceptions. One exception to the mootness rule is for appeals questioning

whether the purchaser purchased the property in good faith." In re Fitzgerald,

428 B.R. at 880 (citing Sw. Prods., Inc. v. Durkin (In re Sw. Prods., Inc.), 144 B.R.

100, 102-03 (9th Cir. BAP 1992)). A good faith purchaser is "one who buys 'in

good faith' and 'for value.'" Ewell v. Diebert (In re Ewell), 958 F.2d 276, 281 (9th

Cir. 1992). The Ninth Circuit has "defined lack of good faith as 'fraud,

collusion . . . or an attempt to take grossly unfair advantage of other bidders.'"

Onouli-Kona Land Co. v. Estate of Richards (In re Onouli-Kona Land Co.), 846 F.2d

                                          9
1170, 1173 (9th Cir. 1988) (quoting Cmty. Thrift & Loan v. Suchy (In re Suchy),

786 F.2d 900, 902 (9th Cir. 1985)). Essex Bank argues that the sale here lacked

good faith, because the assets were subject to a lien that was readily apparent

to anyone doing a minimal amount of due diligence; the Notice of Lien filed

in the Divorce Case is a matter of public record.

      "Good faith" is a factual determination we review for clear error. In re

Thomas, 287 B.R. at 785. The bankruptcy court's factual finding must be

supported by evidence in the record. In re Fitzgerald, 428 B.R. at 880-81.

"[P]arties who desire the protection of section 363(m) [must] establish an

evidentiary record for the bankruptcy court to make the necessary findings of

fact and conclusions of law. Correlatively, the opponent of good faith does

not have the burden to demonstrate the absence of good faith." T.C. Inv'rs v.

Joseph (In re M Capital Corp.), 290 B.R. 743, 745 (9th Cir. BAP 2003).

      Trustee did not request, nor did he support with evidence in the record,

a finding that Marie was a "good faith" purchaser under § 363(m). And the

bankruptcy court made no such finding. Rather, the bankruptcy court found

that Essex Bank had failed to establish any collusion between the parties.

However, Trustee had the burden of proof on the issue of good faith as the

proponent of the sale. Id. at 747. While no bankruptcy judge would approve a

sale that does not appear to be in good faith, and an actual finding of "good

faith" is not an essential element of a sale under § 363(b), "[u]nless and until

'good faith' had been determined, the appeal is not moot under § 363(m)." In

                                        10
re Thomas, 287 B.R. at 785. The appellate court will not make a finding of good

faith (or lack thereof) in the first instance on appeal, "because determination

of section 363(m) good faith is the province of the trial court." In re M Capital

Corp., 290 B.R. at 747; see id. at 752 ("Without such affirmative findings, the

ramifications should be obvious; no safe harbor[.]").

      We therefore conclude that the appeal is not statutorily moot under

§ 363(m).

      2.    The appeal is not equitably moot.

      Equitable mootness applies when a comprehensive change of

circumstances has occurred so as to render it inequitable for a court to

consider the merits of the appeal. Motor Vehicle Cas. Co. v. Thorpe Insulation Co.

(In re Thorpe Insulation Co.), 677 F.3d 869, 880 (9th Cir. 2012). Equitable

mootness is particularly influential in bankruptcy proceedings "where public

policy values the finality of bankruptcy judgments because debtors, creditors,

and third parties are entitled to rely on a final bankruptcy court order." Id.

(citing In re Onouli-Kona Land Co., 846 F.2d at 1172). For an appeal to be

equitably moot, "[t]he question is whether the case presents transactions that

are so complex or difficult to unwind that the doctrine of equitable mootness

would apply." Id. (internal quotation marks and citation omitted). See Clear

Channel Outdoor, Inc. v. Knupfer (In re PW, LLC), 391 B.R. 25, 33 (9th Cir. BAP

2008) (courts examine "the consequences of the remedy and the number of

third parties who have changed their position in reliance on the order that is

                                         11
being appealed."). "'Ultimately, the decision whether to unscramble the eggs

turns on what is practical and equitable.'" Id. (citation omitted).

      The Ninth Circuit follows a four-step process to determine whether an

appeal is equitably moot:

      We will look first at whether a stay was sought, for absent that a
      party has not fully pursued its rights. If a stay was sought and not
      gained, we then will look to whether substantial consummation of
      the plan has occurred. Next, we will look to the effect a remedy
      may have on third parties not before the court. Finally, we will look
      at whether the bankruptcy court can fashion effective and equitable
      relief without completely knocking the props out from under the
      plan and thereby creating an uncontrollable situation for the
      bankruptcy court.

In re Thorpe Insulation Co., 677 F.3d at 881. Although Thorpe focused on plan

consummation, we believe the same general principles apply to any equitable

mootness analysis, including appeals of orders concerning sales under § 363.

See Bonnett v. Gillespie (In re Irish Pub-Arrowhead, LLC), BAP No. AZ-13-1024-

PaKuD, 2014 WL 486955, at *5 (9th Cir. BAP Feb. 6, 2014) (applying Thorpe to

a § 363(f) sale order).

      Trustee argues that the appeal is equitably moot because (1) Essex Bank

failed to seek a stay of the Sale Order and (2) the sale has been consummated

and would be "extremely difficult" to unwind. Trustee has not met his

burden.

      While it is undisputed that Essex Bank failed to seek a stay of the Sale

Order, which weighs in favor of mootness, this is not necessarily fatal to its

                                        12
appeal. Ninth Circuit authority on this issue demonstrates that while an

appellant's failure to seek a stay pending appeal, at least without an adequate

excuse, may render an appeal equitably moot and require dismissal, "there

must also be some subsequent event that would render consideration of the

issues on appeal inequitable, and thereby trigger an equitable mootness

analysis." The Zuercher Tr. of 1999 v. Kravitz (In re Zuercher Tr. of 1999), BAP

No. NC-13-1299-PaJuKu, 2014 WL 7191348, at *7 (9th Cir. BAP Dec. 17, 2014)

(string citation omitted). See also Yang Jin Co. v. Miller (In re Kong), BAP No.

CC-15-1371-KiTaL, 2016 WL 3267588, at *6 (9th Cir. BAP June 6, 2016)

(discussing Rev Op Grp. v. ML Manager LLC (In re Mortgs., Ltd.), 771 F.3d 1211,

1214 (9th Cir. 2014) and reasoning that it does not stand for the proposition

that an appeal is always equitably moot if the appellant fails to seek a stay).

      While Essex Bank offers no excuse for failing to seek a stay, no

subsequent event has occurred here that would render consideration of the

issues on appeal inequitable. Even though the sale has been completed,

Trustee has not distributed the proceeds. Further, there are no third parties

who would have received any proceeds if distributed, and the parties that

could conceivably be affected by any modification to the Sale Order are

before the Panel. Marie, as the largest priority unsecured creditor, would be

the only creditor paid out of the proceeds after administrative expenses.

Finally, the transaction at issue here — the exchange of money for guns and

artwork — is not complex or difficult to unwind, much less "extremely

                                         13
difficult" as Trustee contends. Marie could return the guns and artwork to the

bankruptcy estate, and Trustee could return the $20,000 to Marie. In short, no

comprehensive change of circumstances has occurred in this case to render

reversing the Sale Order inequitable.

      Accordingly, we conclude that the appeal is not equitably moot.

B.    The bankruptcy court abused its discretion in granting the Sale
      Motion.

      Essex Bank opposed the Sale Motion based on its purported lien on the

guns and artwork being sold. The bankruptcy court began its ruling by

noting that the Sale Motion did not ask for a sale free and clear of liens, but it

then proceeded to find that Essex Bank did not have a lien on the subject

personal property under any of its alleged theories.

      We agree with the bankruptcy court that the Abstract of Judgment did

not give Essex Bank a lien on any personal property of the estate. See CCP

§ 697.310(a) ("Except as otherwise provided by statute, a judgment lien on real

property is created under this section by recording an abstract of a money

judgment with the county recorder.") (emphasis added). Essex Bank argues

that some of the guns or artwork might be "fixtures" attached to the real

property, thus making the items real property. Essex Bank failed to raise that

argument before the bankruptcy court and therefore has waived it on appeal.

See Orr v. Plumb, 884 F.3d 923, 932 (9th Cir. 2018) (usual rule is that arguments

raised for the first time on appeal are deemed forfeited). Further, whether the

guns or artwork are "fixtures" is a factual issue, and the record is insufficient

                                        14
to make that finding. See Briggs v. Kent (In re Prof’l Inv. Props. of Am.), 955 F.2d

623, 625 (9th Cir. 1992) (appellate court may consider an issue raised for first

time on appeal where "the issue presented is purely one of law and either

does not depend on the factual record developed below, or the pertinent

record has been fully developed").

      We also agree with the bankruptcy court that the JL-1 did not create a

lien on the guns and artwork. In California, a JL-1 lien is similar to a UCC-1

lien and provides a judgment lien on a variety of personal property. See CCP

§ 697.530.5 Essex Bank argued at the sale hearing that the buy/sell agreement

constituted an "accounts receivable" to William, which was covered by its JL-

1 lien. The court disagreed, finding that the postpetition contract between

Trustee on behalf of the bankruptcy estate and Marie was not a contract or

receivable of William. And even if it was, the JL-1 lien did not encumber

       5
           CCP § 697.530 provides:

       (a) A judgment lien on personal property is a lien on all interests in the
       following personal property that are subject to enforcement of the money
       judgment against the judgment debtor pursuant to Article 1 (commencing
       with Section 695.010) of Chapter 1 at the time when the lien is created if the
       personal property is, at that time, any of the following:
       (1) Accounts receivable, and the judgment debtor is located in this state.
       (2) Tangible chattel paper, as defined in paragraph (79) of subdivision (a) of
        Section 9102 of the Commercial Code, and the judgment debtor is located
        in this state.
       (3) Equipment, located within this state.
       (4) Farm products, located within this state.
       (5) Inventory, located within this state.
       (6) Negotiable documents of title, located within this state.

                                            15
postpetition assets. § 552(a).

      However, we disagree with the bankruptcy court's ruling that the

Notice of Lien did not create a lien on the guns and artwork and that Essex

Bank was a general unsecured creditor and not entitled to any of the sale

proceeds. The bankruptcy court concluded that CCP § 708.410 liens do not

apply to marital dissolution proceedings, and therefore Essex Bank could not

have had a lien on the subject property. We review this question of law de

novo. We begin by discussing this type of California lien.

      If a judgment creditor has a money judgment against a judgment debtor

who is a party to a pending action or special proceeding, the creditor may

acquire a lien to the extent necessary to satisfy the judgment on (a) any cause

of action of the debtor for money or property that is the subject of the action

or proceeding, and (b) the rights of the debtor to money or property under

any judgment subsequently procured in the action or proceeding. CCP §

708.410(a); 8 Witkin, Cal. Proc., Enforcement of Judgment § 297 (5th ed. 2008).

The judgment debtor can be the plaintiff or the defendant. Fleet Credit Corp. v.

TML Bus. Sales, Inc., 65 F.3d 119, 121 (9th Cir. 1995). An action or proceeding

remains "pending" until the time for appeal expires or an appeal is finally

determined. CCP § 708.410(d).

      To obtain this type of lien, the judgment creditor files in the pending

action or proceeding a notice of lien and an abstract or certified copy of the

judgment creditor's money judgment. CCP § 708.410(b). The judgment

                                        16
creditor must also serve a copy of the filed notice of lien on all of the parties

to the "action or special proceeding. . . . " CCP § 708.410(a). The notice of lien

must contain certain language, which serves as a notice to the judgment

debtor of his or her rights. CCP § 708.420.6

       6
           CCP § 708.420 provides:

       The notice of lien under Section 708.410 shall contain all of the following:

       (a) A statement that a lien has been created under this article and the title of
       the court and the cause and number of the pending action or proceeding in
       which the notice of lien is filed.
       (b) The name and last known address of the judgment debtor.
       (c) The name and address of the judgment creditor.
       (d) The title of the court where the judgment creditor's money judgment is
       entered and the cause and number of the action, the date of entry of the
       judgment, and the date of any subsequent renewals, and where entered in
       the records of the court.
       (e) The amount required to satisfy the judgment creditor's money judgment
       at the time the notice of lien is filed in the action or proceeding.
       (f) A statement that the lien attaches to any cause of action of the judgment
       debtor that is the subject of the action or proceeding and to the judgment
       debtor's rights to money or property under any judgment subsequently
       procured in the action or proceeding.
       (g) A statement that no compromise, dismissal, settlement, or satisfaction of
       the pending action or proceeding or any of the judgment debtor's rights to
       money or property under any judgment procured therein may be entered
       into by or on behalf of the judgment debtor, and that the judgment debtor
       may not enforce the judgment debtor's rights to money or property under
       any judgment procured in the action or proceeding by a writ or otherwise,
       unless one of the following requirements is satisfied:
               (1) The prior approval by order of the court in which the action or
               proceeding is pending has been obtained.
               (2) The written consent of the judgment creditor has been obtained or
               the judgment creditor has released the lien.
                                                                                 (continued...)

                                             17
      Assuming the judgment creditor has complied with the necessary

requirements to obtain and perfect the lien, and the lien has not been

terminated for any reason, "no compromise, dismissal, settlement, or

satisfaction" of the action or proceeding may be entered into by or on behalf

of the debtor, unless (a) the court in which the action or proceeding is

pending has given prior approval, (b) the creditor has consented in writing or

has released the lien, or (c) the creditor's money judgment has been satisfied.

CCP § 708.440(a), (b). If the court determines that a party (other than the

debtor) with notice of the lien has transferred property subject to the lien or

paid an amount to the debtor that was subject to the lien, the court must

render judgment against the party equal to the lesser of (a) the value of the

debtor's interest in the property or the amount paid, or (b) the amount of the

creditor's lien. CCP § 708.470(c).

      It is undisputed, and the record establishes, that Essex Bank did

everything required to obtain and perfect a lien under CCP § 708.410. It filed

the Notice of Lien, which contained the necessary language under CCP

§ 708.420, and a copy of the Abstract of Judgment in the Divorce Case. It also

served the Notice of Lien on the parties to the Divorce Case, including Marie

      6
          (...continued)
                   (3) The money judgment of the judgment creditor has been satisfied.
           (h) A statement that the judgment debtor may claim an exemption for all or
           any portion of the money or property within 30 days after the judgment
           debtor has notice of the creation of the lien and a statement that, if the
           exemption is not claimed within the time allowed, the exemption is waived.

                                               18
and her divorce counsel. No one has asserted that William sought or obtained

an exemption from the lien in accordance with CCP § 708.450.7 Thus, the lien

appears to be prima facie valid.

      Trustee proceeded under the belief that no liens existed on the personal

property at issue in the sale. When he learned of one through Essex Bank's

opposition to the Sale Motion, he made no attempt to sell the property free

and clear of liens under § 363(f), or to file an adversary proceeding to

determine the validity and extent of the lien, or both; he simply argued that

the lien did not exist. Trustee's counsel maintained at oral argument before us

that this was not a "free and clear" sale, and that if Essex Bank had a lien, it

remains attached to the property.

      The bankruptcy court could have ordered that the sale was subject to

Essex Bank's lien. However, it went further and ruled, without citing any

authority, that Essex Bank did not have a CCP § 708.410 lien on the guns and

artwork being sold, because the Divorce Case was not a "cause of action . . .

for money or property" as contemplated by the statute; it was "an action for

the dissolution of marriage." That was the only basis for the court's ruling,

and it was erroneous.

      While a marital dissolution proceeding might not seem like a "cause of

action" that would fall under the statute, California courts have ruled that

       7
          The judgment debtor can claim all or a portion of the money or property subject
 to the lien exempt, but must do so within 30 days of receiving notice of creation of the
 lien. CCP § 708.450.

                                           19
CCP § 708.410 liens do apply in such proceedings. See In re Marriage of Katz,

234 Cal. App. 3d 1711, 1719-21 (1991) (ruling that CCP § 708.410 liens and the

associated remedies apply in marital dissolution proceedings and that wife's

transfer to husband of more than one-half of community property interest

during dissolution proceeding gave rise to liability to judgment creditor

under CCP § 708.470(c)); In re Marriage of Kerr, 185 Cal. App. 3d. 130 (1986)

(applying CCP § 708.410 in marital dissolution).

      The bankruptcy court erred, and thus abused its discretion, in ruling as

a matter of law that Essex Bank did not have a CCP § 708.410 lien on the guns

and artwork simply because the Notice of Lien was filed in a marital

dissolution proceeding. Accordingly, we must REVERSE the Sale Order.

                              VI. CONCLUSION

      For the reasons stated above, we REVERSE.

                                       20