Court Opinion

ID: 2757115
Source: CourtListenerOpinion
Date Created: 2014-12-03 19:08:32.02809+00
Date Added: 2024-06-11T11:26:53.806483
License: Public Domain

FILED
 1                                                               APR 30 2012
                                                           SUSAN M SPRAUL, CLERK
 2                         ORDERED PUBLISHED                  U.S. BKCY. APP. PANEL
                                                              O F TH E N IN TH C IR C U IT
 3                  UNITED STATES BANKRUPTCY APPELLATE PANEL
 4                            OF THE NINTH CIRCUIT
 5
 6   In re:                        )      BAP No.     WW-11-1484-HKiJu
                                   )
 7   JACK SHERMAN JEFFERIES,       )      Bk. No.     11-42206
                                   )
 8                  Debtor.        )
     ______________________________)
 9                                 )
     JACK SHERMAN JEFFERIES,       )
10                                 )
                    Appellant,     )
11                                 )
     v.                            )      O P I N I O N
12                                 )
     CHARLES D. CARLSON, Chapter 7 )
13   Trustee,                      )
                                   )
14                                 )
                    Appellee.      )
15   ______________________________)
16
                     Argued and Submitted on March 23, 2012
17                           at Seattle, Washington
18                           Filed - April 30, 2012
19             Appeal from the United States Bankruptcy Court
                   for the Western District of Washington
20
           Honorable Brian D. Lynch, Bankruptcy Judge, Presiding
21
22
     Appearances:     Roger J. Sharp of Sharp Law Professional
23                    Corporation argued for Appellant Jack Sherman
                      Jefferies. Charles D. Carlson of Carlson &
24                    Thacker, PLLC, argued for Appellee Charles D.
                      Carlson, Chapter 7 Trustee.
25
26
     Before:   HOLLOWELL, KIRSCHER and JURY, Bankruptcy Judges.
27
28
 1   HOLLOWELL, Bankruptcy Judge:
 2
 3        The debtor appeals the bankruptcy court’s order sustaining
 4   the chapter 71 trustee’s objection to his homestead exemption
 5   claim.   The debtor contended that an equalizing judgment he
 6   received in exchange for the transfer of his residence to his ex-
 7   wife in a dissolution decree constituted proceeds of the
 8   voluntary sale of his homestead, protected by the Washington
 9   homestead exemption statutes.    The bankruptcy court disagreed.
10   We AFFIRM.
11                         I.   FACTUAL BACKGROUND
12        Jack Jefferies (the Debtor) filed a chapter 7 bankruptcy
13   petition on March 22, 2011.    Charles Carlson was appointed the
14   trustee (the Trustee).
15        Prior to filing bankruptcy, the Debtor and his now ex-wife
16   purchased and resided on real property in Ridgefield, Washington
17   (the Residence).   After eight years of marriage, the Debtor moved
18   out of the Residence due to marital difficulties.    He has not
19   lived at the Residence since April 2009; however, his ex-wife and
20   children continue to reside there.
21        In December 2010, the Washington state court entered a
22   Decree of Dissolution of Marriage (the Dissolution Decree).     In
23   the Dissolution Decree, the Debtor was awarded an “equalizing
24
25
          1
            Unless otherwise indicated, all chapter and section
26   references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532.
27   All “Rule” references are to the Federal Rules of Bankruptcy
     Procedure, Rules 1001-9037. The Federal Rules of Civil Procedure
28   are referred to as “Civil Rules.”

                                      -2-
 1   Judgment for his interest in the real property awarded to his
 2   wife” in the amount of $40,800 (Equalizing Judgment).     The
 3   Equalizing Judgment was secured by a promissory note and deed of
 4   trust on the Residence.   In February 2011, in furtherance of the
 5   terms of the Dissolution Decree, the Debtor conveyed his interest
 6   in the Residence to his ex-wife by quitclaim deed.
 7        On Schedule C, the Debtor listed $47,000 as exempt “Proceeds
 8   from sale of homestead” under WASH . REV . CODE (RCW) 6.13.0302 (the
 9   Exemption).   The Trustee objected to the Exemption.    The Trustee
10   asserted that because the Debtor no longer lived at the Residence
11   and was divested of his interest in the Residence through the
12   Divorce Decree, he failed to meet the requirements of
13   Washington’s homestead exemption statutes and was unable to claim
14   the Exemption.
15
16
          2
17          RCW 6.13.030 provides that:
          A homestead may consist of lands, as described in RCW
18        6.13.010, regardless of area, but the homestead
19        exemption amount shall not exceed the lesser of (1) the
          total net value of the lands, manufactured homes,
20        mobile home, improvements, and other personal property,
          as described in RCW 6.13.010, or (2) the sum of one
21        hundred twenty-five thousand dollars in the case of
22        lands, manufactured homes, mobile home, and
          improvements, or the sum of fifteen thousand dollars in
23        the case of other personal property described in RCW
          6.13.010, except where the homestead is subject to
24
          execution, attachment, or seizure by or under any legal
25        process whatever to satisfy a judgment in favor of any
          state for failure to pay that state's income tax on
26        benefits received while a resident of the state of
27        Washington from a pension or other retirement plan, in
          which event there shall be no dollar limit on the value
28        of the exemption.

                                      -3-
 1        The Debtor responded by asserting that although he was
 2   divested of his interest in the Residence, his ex-wife’s
 3   obligation to pay the Equalizing Judgment constituted proceeds of
 4   the voluntary sale of his homestead, for which an exemption is
 5   allowed.   In reply, the Trustee asserted that “the divorce court
 6   awarded the home to [the Debtor’s wife].    The debtor did not sell
 7   his interest in the home to his former wife as he alleges.”
 8        A hearing on the Exemption took place on July 5, 2011.    The
 9   bankruptcy court considered the Exemption under RCW 6.13.070(1),
10   which allows a debtor to exempt the proceeds from a voluntary
11   sale of a homestead for the purpose of acquiring a new homestead.
12   The bankruptcy court determined that the Equalizing Judgment
13   constituted proceeds of the Debtor’s former homestead.    However,
14   the bankruptcy court concluded that the criteria for the
15   Exemption under RCW 6.13.070(1) was not satisfied because the
16   transfer of the Residence to the debtor’s ex-wife was not a
17   voluntary sale.   Therefore, the bankruptcy court determined that
18   although the Debtor may have intended to use the proceeds for the
19   purpose of acquiring a new homestead, the proceeds did not
20   qualify for a homestead exemption.    The bankruptcy court
21   subsequently sustained the Trustee’s objection to the Exemption
22   by written order entered on July 28, 2011.
23        On August 9, 2011, the Debtor filed a motion for
24   reconsideration (Reconsideration Motion).    In the Reconsideration
25   Motion, the Debtor argued that the bankruptcy court erred in its
26   determination that the transfer of the Residence was not
27   voluntary.   The Debtor asserted that, through a consensual
28   agreement with his ex-wife, he voluntarily transferred his

                                     -4-
 1   interest in the Residence to her and the Equalizing Judgment
 2   simply memorialized the consensual agreement to transfer the
 3   Residence.       In a written order, the bankruptcy court clarified
 4   its analysis supporting its determination that the transfer of
 5   the Residence did not constitute a voluntary sale and denied the
 6   Reconsideration Motion.        The Debtor timely appealed.3
 7                                  II.   JURISDICTION
 8        The bankruptcy court had jurisdiction under 28 U.S.C. § 1334
 9   and 28 U.S.C. § 157(b)(2)(B).         We have jurisdiction under 28
10   U.S.C. § 158.
11                                     III.     ISSUE
12        Did the bankruptcy court err in determining that the Debtor
13   could not claim a homestead exemption for the Equalizing
14   Judgment?
15                            IV.    STANDARDS OF REVIEW
16        The bankruptcy court’s conclusions of law are reviewed de
17   novo.       Decker v. Tramiel (In re JTS Corp.), 617 F.3d 1102, 1109
18   (9th Cir. 2010).       The scope of a statutory exemption is a
19   question of law subject to de novo review.          Gonzalez v. Davis (In
20   re Davis), 323 B.R. 732, 734 (9th Cir. BAP 2005); Kelley v. Locke
21   (In re Kelley), 300 B.R. 11, 16 (9th Cir. BAP 2003).          The
22
23           3
            The Debtor filed the Reconsideration Motion within 14 days
     of the bankruptcy court’s order sustaining the Trustee’s
24
     objection to the Exemption. Therefore, it tolled the time for
25   appeal until 14 days from the final order disposing of the
     Reconsideration Motion. Dicker v. Dye (In re Edelman), 237 B.R.
26   146, 151 (9th Cir. BAP 1999). Because the Debtor filed his
27   notice of appeal within 14 days of order denying the
     Reconsideration Motion, the Debtor’s appeal was timely. Rule
28   8002(b)(2).

                                              -5-
 1   validity of the claimed exemption is controlled by the applicable
 2   state law.    In re Kelley, 300 B.R. at 16.    Additionally, whether
 3   a sale is considered a forced or voluntary sale for purposes of a
 4   homestead exemption is a question of law reviewed de novo.             See
 5   generally, In re Cole, 93 B.R. 707, 708-09 (9th Cir. BAP 1988).
 6   De novo review requires that we consider the matter anew, as if
 7   it had not been heard before, and as if no decision had been
 8   rendered previously.    Dawson v. Marshall, 561 F.3d 930, 933 (9th
 9   Cir. 2009).
10        The bankruptcy court’s denial of a motion for
11   reconsideration is reviewed for an abuse of discretion.           Ta Chong
12   Bank Ltd. v. Hitachi High Techs. Am., Inc., 610 F.3d 1063, 1066
13   (9th Cir. 2010); Clinton v. Deutsche Bank Nat’l Trust Co. (In re
14   Clinton), 449 B.R. 79, 83 (9th Cir. BAP 2011).       A bankruptcy
15   court abuses its discretion if it bases a decision on an
16   incorrect legal rule, or if its application of the law was
17   illogical, implausible, or without support in inferences that may
18   be drawn from the facts in the record.       United States v. Hinkson,
19   585 F.3d 1247, 1262 (9th Cir. 2009) (en banc); Ellsworth v.
20   Lifescape Med. Assocs., P.C. (In re Ellsworth), 455 B.R. 904, 914
21   (9th Cir. BAP 2011).
22                              V.   DISCUSSION
23   A.   Eligibility For Exemption
24        Washington has not “opted out” of the federal exemption
25   scheme.   Thus, a debtor domiciled in Washington may select either
26   the exemptions afforded by Washington law, or the federal
27   exemption scheme.    11 U.S.C. § 522(b); 4 COLLIER   ON   BANKRUPTCY
28

                                       -6-
 1   ¶ 522.02 (Henry Somers & Alan Resnick eds., 15th ed. rev. 2009).
 2   The Debtor selected state law exemptions.
 3        In Washington, a “homestead consists of real or personal
 4   property that the owner uses as a residence” or “the dwelling
 5   house or the mobile home in which the owner resides or intends to
 6   reside . . . .   Property included in the homestead must be
 7   actually intended or used as the principal home for the owner.”
 8   RCW 6.13.010(1).4   Property occupied as a homestead is
 9   automatically protected by the exemption.    RCW 6.13.040.
10        Here, since the Debtor transferred his interest in the
11   Residence prior to filing bankruptcy, he was not eligible for an
12   automatic homestead exemption.    Wilson v. Arkison (In re Wilson),
13   341 B.R. 21, 27 (9th Cir. BAP 2006) (debtor not entitled to
14   homestead exemption because he did not live in the marital home
15   at the time he filed bankruptcy and could not reside there in the
16   future due to the divorce decree that divested him of his
17   property interest).    However, the Debtor based the Exemption on
18   RCW 6.13.070, which exempts a homestead from attachment,
19   execution, or forced sale for the debts of the owner up to
20   $125,000, as well as the same amount in proceeds from a voluntary
21   sale of the homestead, in good faith for the purpose of acquiring
22   a new homestead.    RCW 6.13.030, 6.13.070(1).   Proceeds from a
23
24        4
            Property described in RCW 6.13.010 constitutes a homestead
25   and is automatically protected by the homestead exemption of RCW
     6.13.070 from and after the time the property is occupied. If
26   the homestead is unimproved or improved land that is not yet
27   occupied as a homestead, the homestead is exempted from and after
     the time the declaration of homestead is recorded.
28   RCW 6.13.040(1), (2).

                                      -7-
 1   voluntary sale of a homestead are exempt under RCW 6.13.070(1)
 2   for up to one year.   Any new homestead acquired with the proceeds
 3   during that time may also be exempted.   Id.
 4        The Debtor claimed that the Equalizing Judgment constituted
 5   the proceeds of a voluntary sale of his Residence for the purpose
 6   of acquiring a new homestead.   We agree that any property taken
 7   in exchange for the transfer of a homestead is considered to be
 8   “proceeds” as contemplated by the homestead exemption statute.
 9   Vojta v. Buhre, 165 Wash. 384, 387 (1931).     Accordingly, the
10   Equalizing Judgment, secured by the note and deed of trust,
11   constitutes proceeds for purposes of RCW 6.13.070(1).
12   Additionally, the Debtor submitted an uncontroverted declaration
13   stating that he intended to use the proceeds to purchase a new
14   homestead.   Therefore, in order to meet the remaining criterion
15   entitling the Debtor to the Exemption, the Debtor’s transfer of
16   the Residence to his ex-wife must have been a voluntary sale.
17        The legal authority guiding our analysis on this issue is
18   scant.   However, the Washington Supreme Court has provided an
19   explanation of the difference between a forced and voluntary
20   sale:
21        [A forced sale is] a transaction in which there is an
          element of compulsion on the part of either the seller
22        or the buyer. If the element of compulsion is based
          upon purely economic reasons, the sale is generally
23        considered voluntary . . . . Where, however, a seller
          or buyer is forced to act under a decree, execution or
24        something more than mere inability to maintain the
          property, the element of compulsion is based upon
25        legal, not economic factors . . . .
26   Felton v. Citizens Fed. Sav. & Loan Ass’n of Seattle, 101 Wash.
27   2d 416, 422 (1984) (quoting State v. Lacey, 8 Wash. App. 542, 549
28   (1973)).

                                     -8-
 1        In Felton, the court concluded that a nonjudicial trustee’s
 2   sale was a voluntary sale because the debtors indirectly
 3   consented to the sale through the power of sale granted the
 4   trustee in the loan documents.5    Id. at 422-23.   The court
 5   determined that when a property owner consents, either directly
 6   or indirectly, to a sale under execution or other legal process,
 7   the sale is not a forced sale for purposes of the homestead
 8   statutes.   The Debtor seizes on this language and contends that
 9   “[t]here is no reason [his] consent to this legal process [of
10   dissolution] should be treated as any less consensual or
11   voluntary than the consent of one signing a mortgage or deed of
12   trust.”
13        However, in Felton, it was the debtors’ inability to
14   maintain the property that led to the trustee’s sale.     The sale
15   was therefore compelled due to economic factors.     Thus, it fell
16   squarely within the court’s definition of a voluntary sale.
17   Here, the Debtor transferred the Residence to his ex-wife, not
18   because of purely economic reasons or an inability to maintain
19   the Residence.   He transferred the Residence to his ex-wife as
20   part of a state court dissolution process and allocation of
21   marital property.
22        The Debtor asserts that because there was a voluntary pre-
23   decree agreement with his ex-wife to transfer the homestead, the
24
25
          5
            The court in Felton was construing what is now RCW
26   6.13.080, which provides that the homestead is not available
27   against an execution or forced sale in satisfaction of judgments
     obtained on, among other things, debts secured by a vendor’s lien
28   on the property or debts secured by mortgages on the property.

                                       -9-
 1   Dissolution Decree did not transform that voluntary agreement
 2   into a forced sale.   The Debtor’s assertion might have more merit
 3   if the Debtor had quitclaimed the Residence prior to the entry of
 4   the Dissolution Decree.   But even if there was some agreement,
 5   cooperation, and consent between the Debtor and his ex-wife as to
 6   who would retain the Residence, there remained an element of
 7   legal compulsion in the property division.
 8        For example, the Debtor stated that the agreement did not
 9   come quickly (“We eventually agreed that the family home should
10   be awarded to her so she could continue to reside there with our
11   children.”), and that he and his ex-wife disagreed about the
12   amount that he would be paid for transferring his interest.
13   Ultimately, it was the state court who decided, after a trial,
14   the amount of the payment.   Thus, the Equalizing Judgment was
15   made through the Dissolution Decree as part of the state court’s
16   fair allocation of the marital property.
17        The Debtor, however, argues that the Dissolution Decree was
18   not the operative document that divested him of his interest in
19   the Residence.   Nevertheless, it was the state court’s final
20   decisions on the allocation and distribution of the marital
21   property that triggered the Debtor’s obligation to transfer the
22   Residence.   Indeed, the Debtor admits he was “disappointed by
23   [the state court judge’s] decision and contemplated an appeal.”
24   However, since he did not appeal the Dissolution Decree, he was
25   obligated by its terms to transfer the Residence, which resulted
26   in the quitclaim deed to his ex-wife in exchange for the note and
27   deed of trust.
28

                                     -10-
 1        Homestead and exemption statutes are favored in the law and
 2   should be liberally construed.     In re Dependency of Schermer, 161
 3   Wash. 2d 927, 953 (2007); Pinebrook Homeowners Ass’n v. Owen, 48
 4   Wash. App. 424, 427 (1987).   Nevertheless, in applying the
 5   definitions of voluntary and forced sales set forth in Felton, we
 6   agree with the bankruptcy court that the sale or transfer by the
 7   Debtor of the Residence to his ex-wife was made with an element
 8   of legal, not purely economic, compulsion and was, therefore, not
 9   a voluntary sale.   Consequently, the Debtor cannot claim the
10   Exemption under RCW 6.13.070(1).6
11   B.   Reconsideration Motion
12        The Debtor sought reconsideration pursuant to Rule 9023,
13   incorporating Civil Rule 59(e).     He asserted that the issue of
14   whether the transfer of the Residence to his ex-wife was
15   considered a voluntary or a forced sale was not fully briefed
16   before the bankruptcy court because it was raised by the Trustee
17   for the first time at the hearing on the objection to the
18   Exemption.   The Debtor asserted that the bankruptcy court erred
19   in its determination that the sale was a forced sale, which
20
21
          6
22          The Debtor’s reliance on In re Marriage of Foley, 84 Wash.
     App. 839 (1997) to support his argument is off-point. There, Mr.
23   Foley was awarded the family home and ordered through a
     dissolution decree to pay Mrs. Foley an equalization award that
24
     was to be paid by refinancing or selling the home. Mr. Foley
25   argued that the forced sale violated his homestead rights but the
     court held that “[a] judgment in owelty is an equitable lien on
26   the property specified in the nature of a vendor’s lien. It
27   prevails over a homestead exemption.” Id. at 845; see also RCW
     6.13.080 (cannot claim homestead exemption against a forced sale
28   in satisfaction of vendor’s lien).

                                       -11-
 1   resulted in the Debtor’s ineligibility to claim a homestead
 2   exemption under RCW 6.13.070(1).
 3        Although Civil Rule 59(e) permits a court to reconsider and
 4   amend a previous order, “the rule offers an ‘extraordinary
 5   remedy, to be used sparingly in the interests of finality and
 6   conservation of judicial resources.’”7     Kona Enters., Inc. v.
 7   Estate of Bishop, 229 F.3d 877, 890 (9th Cir. 2000) (internal
 8   citation omitted).   Thus, a motion for reconsideration should not
 9   be granted absent “highly unusual circumstances,” unless the
10   court is presented with: (1) newly discovered evidence, (2)
11   committed clear error, or (3) there is an intervening change in
12   the controlling law.   Marlyn Nutraceuticals, Inc. v. Mucos Pharma
13   GmbH & Co., 571 F.3d 873, 880 (9th Cir. 2009).     A Civil Rule
14   59(e) motion may not be used to raise arguments or present
15   evidence for the first time when they could reasonably have been
16   raised earlier in the litigation.      Kona Enters., Inc., 229 F.3d
17   at 890.
18        The Debtor presented no new evidence or intervening change
19   in the law that required the alteration of the bankruptcy court’s
20   order sustaining the Trustee’s objection to the Exemption.     For
21   the reasons discussed above, the bankruptcy court did not err in
22   determining that the Debtor’s transfer of the Residence to his
23
24        7
            Additionally, under Local Bankruptcy Rule 9013-1(h), which
25   incorporates Local Civil Rule for the U.S. District Court for the
     Western District of Washington (Local Civil Rule) 7(h), motions
26   for reconsideration are disfavored and not granted unless there
27   is a showing of manifest error, or, new facts or legal authority
     that could not have been brought to the court’s attention earlier
28   with reasonable diligence.

                                     -12-
 1   ex-wife, in exchange for an Equalizing Judgment through the
 2   Dissolution Decree, was a forced sale.   Thus, the bankruptcy
 3   court did not err in concluding that the Debtor was ineligible
 4   for the Exemption.   Consequently, there was no basis for the
 5   Debtor to prevail on his Reconsideration Motion.   As a result, we
 6   conclude that the bankruptcy court did not abuse its discretion
 7   when it denied the Reconsideration Motion.
 8                             VI.   CONCLUSION
 9        For the reasons stated, we AFFIRM the bankruptcy court’s
10   order sustaining the Trustee’s objection to the Exemption.
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                                      -13-