Court Opinion

ID: 2799900
Source: CourtListenerOpinion
Date Created: 2015-05-11 20:01:32.63621+00
Date Added: 2024-06-11T11:31:20.594118
License: Public Domain

FILED
                            NOT FOR PUBLICATION                               MAY 11 2015

                                                                          MOLLY C. DWYER, CLERK
                     UNITED STATES COURT OF APPEALS                         U.S. COURT OF APPEALS

                            FOR THE NINTH CIRCUIT

In re: CATHERINE Z. CASS,                        No. 13-60032

               Debtor,                           BAP No. 12-1513

CHARLES W. DAFF, Chapter 7 Trustee,              MEMORANDUM*

               Appellant,

  v.

JAMES WALLACE; REBECCA
WALLACE; GLORIA SUESS,

               Appellees.

                           Appeal from the Ninth Circuit
                            Bankruptcy Appellate Panel
             Kirscher, Pappas, and Taylor, Bankruptcy Judges, Presiding

                             Submitted May 5, 2015**
                               Pasadena, California

Before: PREGERSON, TALLMAN, and NGUYEN, Circuit Judges.

        *
             This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.
        **
             The panel unanimously concludes this case is suitable for decision
without oral argument. See Fed. R. App. P. 34(a)(2).
      Appellant Charles W. Daff, Chapter 7 Trustee (“Trustee”) challenges the

bankruptcy court’s grant of summary judgment in favor of Appellees James Wallace,

Rebecca Wallace, and Gloria Suess (“Judgment Creditors”) on their counterclaims for

declaratory and injunctive relief. We have jurisdiction under 28 U.S.C. § 158(d), and

we affirm on the narrow basis that, despite her fraudulent transfer, Catherine Z. Cass

(“Debtor”) retained an equitable interest in the Residence to which Judgment

Creditors’ lien attached.

      As an initial matter, the doctrines of claim preclusion (res judicata) or issue

preclusion (collateral estoppel) do not preclude Judgment Creditors from arguing that

Debtor retained an equitable interest in the Residence. Under either California or

federal preclusion law, a subsequent lawsuit must raise the same claim or issue as the

prior lawsuit. Compare Boeken v. Philip Morris USA, Inc., 48 Cal. 4th 788, 797

(2010) (discussing the elements of California claim preclusion and issue preclusion),

with Littlejohn v. United States, 321 F.3d 915, 919–20, 923 (9th Cir. 2003) (discussing

the elements of federal claim preclusion and issue preclusion). Whether applying the

California “primary rights” test or the federal “transactional nucleus of facts” test to

determine the similarity of claims and issues between the prior lawsuit and the current

lawsuit, Trustee’s arguments fail. See Brodheim v. Cry, 584 F.3d 1262, 1268 (9th Cir.

2009) (setting forth the California and federal tests).

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      The bankruptcy court held that the Avoidance Judgment1 entered in the prior

lawsuit did not address “(1) whether the judgment lien from the recorded abstract of

judgment attached to the Debtor’s property,” or “(2) whether the judgment lien is

superior to Trustee’s interests,” which are at issue in this case. We must give

substantial deference to the bankruptcy court in its interpretation of its own order, i.e.,

what the Avoidance Judgment did and did not resolve, and we find that the

bankruptcy court did not abuse its discretion in making such a determination. See,

e.g., In re Marciano, 459 B.R. 27, 35 (B.A.P. 9th Cir. 2011) (“We owe substantial

deference to the bankruptcy court’s interpretation of its own orders and will not

overturn that interpretation unless we are convinced that it amounts to an abuse of

discretion.” (quoting In re Res. Tech. Corp., 624 F.3d 376, 385 (7th Cir. 2010))), aff’d,

708 F.3d 1123 (9th Cir. 2013). In addition—to the extent that there is any overlap in

the issues or claims—when the parties entered into a stipulation dismissing without

prejudice the non-adjudicated claims in the prior lawsuit, they expressly agreed that

“the remaining claims between the Trustee and the Judgment Creditors may be

      1
        Trustee did not raise in this appeal his previous argument that the
bankruptcy court’s “Homestead Exemption Order” precludes Judgment Creditors’
counterclaims. Even if this argument had not been waived, it would fail because
the bankruptcy court correctly found that “the issue of the perfection of [the]
judgment lien was not an issue decided in the prior litigation over the claimed
homestead exemption and was not actually and necessarily decided in the court’s
denial of the claimed homestead exemption.”

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adjudicated in the Declaratory Relief Adversary” and that the dismissal “shall not give

rise to any adverse legal or other effect on any party or issue to be determined in [the

Declaratory Relief] Adversary[.]”

      Judgment Creditors are not judicially estopped from arguing that Debtor

retained an equitable interest in the Residence. The position taken by Judgment

Creditors in the prior litigation to avoid and set aside Debtor’s fraudulent transfer is

not inconsistent with their position in this case to seek to attach their lien to Debtor’s

equitable interest in the Residence. See Russell v. Rolfs, 893 F.2d 1033, 1037 (9th Cir.

1990) (“The doctrine of judicial estoppel . . . is invoked to prevent a party from

changing its position over the course of judicial proceedings when such positional

changes have an adverse impact on the judicial process.” (quotation omitted)). In

pursuing their positions, Judgment Creditors have not made inconsistent factual

assertions. See id. (“Judicial estoppel is most commonly applied to bar a party from

making a factual assertion in a legal proceeding which directly contradicts an earlier

assertion made in the same proceeding or a prior one.” (citation omitted)).

      Turning to the merits of the appeal, there is no dispute that Debtor fraudulently

transferred the Residence to her daughter. Debtor transferred the Residence without

receiving any consideration, continued to live in the Residence after the transfer, and

obtained a written promise that her daughter would return the Residence upon request.

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Debtor therefore retained an equitable interest in the Residence even though her

daughter held legal title to it. See Alhambra Bldg. & Loan Ass’n v. DeCelle, 47 Cal.

App. 2d 409, 411–12 (1941) (affirming that by holding the property in “secret trust”

for the transferor, the transferee had “mere naked legal title” to the fraudulently

conveyed property, whereas the transferor “was and at all times had been the

beneficial owner”); 30 Cal. Jur. 3d Enforcement of Judgments § 118 (2015) (“Where

only nominal title is conveyed to a third party by the judgment debtor, the debtor’s

beneficial interest in the property is liable for the debts of subsequent creditors as well

as those existing at the time of the transfer.”).

       After Debtor’s conveyance but before she filed for Chapter 7 bankruptcy,

Judgment Creditors obtained a judgment lien against Debtor by recording an abstract

of a tort judgment for $320,000 with the Orange County Clerk-Recorder. Cal. Civ.

Proc. Code § 697.310(a). Judgment Creditors’ lien attached to Debtor’s equitable

interest in the Residence. Id. § 697.340(a) (“A judgment lien on real property attaches

to all interests in real property in the county where the lien is created (whether present

or future, vested or contingent, legal or equitable) that are subject to enforcement of

the money judgment against the judgment debtor . . . .”); Fid. Nat’l Title Ins. Co. v.

Schroeder, 179 Cal. App. 4th 834, 849 (2009) (“California law provides that a

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judgment lien attaches to all interests in real property, including equitable interests.”

(emphasis in original)).

      That Trustee successfully avoided Debtor’s fraudulent transfer under California

Civil Code §§ 3439.04 and 3439.07 does not thereby extinguish Judgment Creditors’

secured claim. Trustee points to 11 U.S.C. §§ 550 and 551—allowing a trustee to

recover and preserve, “for the benefit of the estate,” a property whose transfer was

avoided—neither of which provide support for the notion that a perfected judgment

lien is eliminated by an avoidance action. Cf. Cal. Civ. Proc. Code § 697.400

(perfected judgment liens are extinguished by the recording of an acknowledgment

of satisfaction of the underlying judgment or by the judgment creditor’s release of the

lien). In a case factually similar to our own, a Minnesota bankruptcy court noted:

      11 U.S.C. § 551 does not operate to somehow make [the judgment
      creditor’s] perfected lien disappear upon the Trustee’s later avoidance of
      the transfer. Section 551 preserves an avoided transfer only with respect
      to property of the estate. It is intended to prevent junior lienors from
      improving their position at the expense of the estate when a senior lien
      is avoided. It is not intended to strip from recovered property, interests
      equal or senior to the transfer avoided. [The judgment creditor’s]
      general judgment lien attached to the property upon docketing of the
      judgment, and, from the filing of the bankruptcy case, it remained at all
      times an interest senior to the bankruptcy estate’s interest in the property.
      The lien was not extinguished or subordinated to the bankruptcy estate’s
      interest by § 551, as it was at all times senior to the transfer avoided and
      recovered, namely—the Debtors’ interest.

                                        6
In re Mathiason, 129 B.R. 173, 177 (Bankr. D. Minn. 1991), aff’d, 16 F.3d 234 (8th

Cir. 1994) (citations omitted). By contrast, Trustee’s reliance on In re Saylor, 178

B.R. 209 (B.A.P. 9th Cir. 1995), aff’d, 108 F.3d 219 (9th Cir. 1997), is unavailing

because that case did not address a judgment creditor’s lien rights.

      Trustee’s reliance on the language in the Avoidance Judgment that the estate

recovered “all legal title to, and beneficial interest in, the real property” is similarly

unavailing. The estate’s recovery of beneficial interest in the Residence does not

prevent it from satisfying Judgment Creditors’ previously secured, senior interest.

       AFFIRMED.

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