Court Opinion

ID: 9686579
Source: CourtListenerOpinion
Date Created: 2023-08-24 15:56:30.232907+00
Date Added: 2024-06-11T18:18:20.440324
License: Public Domain

VOLINN, Bankruptcy Judge,
concurring.
While I agree with the result of Judge Hughes’ opinion, I do not agree with its reasoning. Consequently, I feel constrained to set forth, in some detail, my views as they relate to the foregoing opinion and also to the dissent. The Conclusion states my basic point of view.
I.
FACTS AND BACKGROUND
The debtor had initially claimed a homestead under the basic homestead statutes of California, Civ.Code § 2130 et seq. The debtor’s equity in the property did not exceed the statutory maximum. The trustee attacked this declaration for want of a proper legal description. The debtor then moved to amend his bankruptcy exemption schedule, contending that his residence was exempt pursuant to another homestead statute, the automatic “dwelling house” exemption provided by C.C.P. § 690.31. The trustee opposed the amendment, pursuant to § 690.31(b)(1), because the debtor “has an existing declared homestead.” The trial court ruled, first, that this exception to availability applied to an existing “valid homestead” (emph. supp.). Therefore, the trial court held § 690.31 was available to the debtor. However, it was further held that the trustee was vested, by virtue of 11 U.S.C. § 544, with the judgment lien of C.C.P. § 674(c) in the amount of the allowed claims in the estate. In so holding, the trial judge felt he should defer to the precedent set by a colleague in a similar case, In re Gale, No. S.A. 80-0082AP. (B.Ct.C.D.Cal.1980). He stated that a ruling to the contrary in a similar case in the Northern District of California, In re Moore, No. 4-79-2441 H.S. (B.Ct.N.D.Cal. 1980) was preferable, and would have been followed but for the precedent in his own district. Both Moore and Gale dealt with California law and the basic question as to whether the lien provided for by § 674 could attach to the dwelling house. Each decision focuses on interpretation of state law.
II.
ISSUE
The essential issue is whether the trustee may, pursuant to 11 U.S.C. § 544, invest himself with the right of a judgment lien creditor created by C.C.P. § 674(c). The issue turns on interpretation of the United States Bankruptcy Code. This is a federal question governed by the Code, and not state law. 4B Collier on Bankruptcy ¶ 70.49 at 602-03 and cases cited at n.5, n.7 (14th ed. 1978).
III.
THE PRINCIPAL OPINION
The principal opinion states that § 544 confines the trustee’s derivative lien to a “moment” in time which, in its statutory terms, exists at the commencement of the case. It appears to reason that the lien may not subsist or continue on so as to apply to property which is sought to be exempted from the estate. Such an argument disregards the nature of a lien. It is there to begin with and continues on to *52ripen upon the happening of events which bring about the need for its application. This is characteristic of security interests, generally, which lead a contingent existence with respect to collateral until needed. But the liens are existing and continuing interests until the debt is paid. While I do not agree that such a result obtains here, because of the reasons stated below, the lien of C.C.P. § 674(c) is not any less viable because it was designed to enforce payment when conditions permitting exemption under C.C.P. § 690 are inapplicable (e.g., excess equity), then a lien providing for recourse to collateral in the event the debt is not paid.
The opinion further states that not only are the trustee’s rights and powers restricted to a moment in time, but further the trustee does not receive a judicial lien by virtue of 11 U.S.C. § 544 but only the “rights and powers” of a judicial lien holder. This argument appears to give the trustee the power to avoid liens as if he were a judicial lien creditor but not the lien itself. The reasoning does not square with the language of § 544 nor the reasoning of Sampsell v. Straub, 194 F.2d 228 (9th Cir.) cert. denied, 348 U.S. 927, 72 S.Ct. 761, 96 L.Ed. 1338 (1952). The effort to distinguish Sampsell demonstrates that there was an interception of the right to declare a homestead by the filing of the bankruptcy and the trustee’s claim of precedence to the subject property. The court held that it was the trustee’s status or character as a judgment lien creditor which provided the rationale for depriving the debtor of the homestead. Functionally, the trustee was a judgment lien creditor.
Finally, it is stated 11 U.S.C. § 522(f) may be invoked to avoid the lien of C.C.P. § 674(c). The problem which arises in applying § 522(f) to C.C.P. § 674(c) is that it is structurally or organically part of § 690.-31: “the very same act by which section 690.31 was enacted added subdivision (c) to Code of Civil Procedure section 674... . ” Krause v. Superior Court, 78 Cal.App.3d 499, 507, 144 Cal.Rptr. 194, 198 (1978). Section 674(c) provides that as to the dwelling house, judicially determined to be exempt from levy of execution under § 690.31:
“A judgment lien created pursuant to subdivision (a) of this section shall attach to such real property notwithstanding the exemption provided by Section 690.31.”
It is contended that this is an impairment of the exemption and subject to avoidance under § 522(f). However, it is clear that, with respect to exemption, the California legislature gave the lien effect only when conditions supporting the exemption are inapplicable. To put it otherwise, the legislation does not allow the lien to impair the exemption.
The legislative history to 11 U.S.C. § 522(f) states:
“[t]he debtor may avoid a judicial lien on any property to the extent that the property could have been exempted in the absence of the lien.... ” H.R.No.95-595, 95th Cong., 1st Sess. (1977) 362; S.R.No. 95-989, 95th Cong., 2d Sess. (1978) 76 under subsection (e)), U.S.Code Cong. & Admin.News 1978, pp. 5787, 5862, 6318.
Since the lien of C.C.P. § 674 does not intrude upon the exemption of C.C.P. § 690, there is nothing to avoid.
IV.
THE DISSENT
While there may be some question as to the nature and application of the C.C.P. § 674(c) lien in a non-bankruptcy setting, the threshold question here is whether a trustee in bankruptcy may be invested with such a lien by virtue of 11 U.S.C. § 544, the Bankruptcy Code descendant of § 70(c), the strong-arm clause of the prior Bankruptcy Act.
The dissent discusses § 70(c) in historical context stating that its purpose was to cut off” secret and undisclosed claims” against (the debtor’s property) and to equalize “distribution of assets to all unsecured creditors.” This is true. However, the fictional status of a judgment creditor with a lien or unsatisfied execution against the debtor’s property was created as a test with respect to the validity of various transfers of the *53debtor’s property as to particular creditors. In the event the transfer could be held invalid or inferior to the rights of the hypothetical creditor of § 544, it would be voidable by the trustee and could be automatically preserved for the benefit of the estate, 11 U.S.C. § 551.
It should be noted that the trustee does not seek to invoke his hypothetical status to test the validity of or set aside a pre-bank-ruptcy transfer to another creditor. He seeks instead to affect the debtor’s homestead property by claiming hypothetical status under § 544, with an inchoate lien which would lie dormant until the debtor’s post-bankruptcy circumstances would cause it to come to life. Use of the rights and powers given the trustee by § 544 for purposes other than avoiding transfers to creditors has been rare if not anomalous.1 4B Collier on Bankruptcy ¶ 70.54 at 642 et seq. (14th ed. 1978).
The dissent cites In re Martin, No. 80-1054 (BAP 9th Cir. 1982), and In re Sanford, 8 B.R. 761, 7 B.C.D. 729 (N.D.Cal.1981) as supporting the vesting of the § 674 lien in the trustee by virtue of 11 U.S.C. § 544. Those cases held the trustee may not use 11 U.S.C. § 544 to defeat the debtor’s claim of homestead under C.C.P. § 690. They provide no conceptual basis for the position of investing the trustee with the § 674 lien.
A bankruptcy estate consists of the debt- or’s property acquired by him prior to the date he files a petition in bankruptcy. Thereafter, the fundamental premise is that the debtor should be free to make a fresh start without having to apply future earnings or acquisitions (with limited exceptions) to pre-bankruptcy debt, 11 U.S.C. § 541(a)(6).2 The question is whether the trustee, by virtue of § 544, coupled with the C.C.P. § 674, can reach post-bankruptcy accruals of equity in property which the debt- or has declared exempt under California’s automatic dwelling house exemption.
There is an inherent contradiction in allowing discharged creditors, by virtue of invoking § 544, to have access to the debt- or’s future earnings, as they become equity, or to the homestead itself should the debtor, years later, desire to leave it.3 The stay provisions of § 362, and the character of discharge as an injunction, 11 U.S.C. § 524(a), in order to serve such a fresh start would be subverted. The debtor, instead of having a fresh start, would have a homestead subject to doubt and uncertainty during the lifetime of the C.C.P. § 674(c) lien. Moreover, such a result would violate the spirit, if not the letter, of 11 U.S.C. § 522(c) which provides that property exempted under § 522 is not liable during or after the case for pre-bankruptcy debts.
V.
CONCLUSION
Should the fiction of § 544 endow the claims of general creditors with the quality of a non-dischargeable debt? While fictions *54may be useful, they should not be employed to bring about a result which is so contrary to the fundamental fresh start policy of the Bankruptcy Code. There should be limits to literal application of language bringing about results so much at odds with the purpose and policy of rehabilitative legislation. As stated in Bank of Marin v. England, 385 U.S. 99, 103, 87 S.Ct. 274, 277, 17 L.Ed.2d 197 (1966)
(1966)
Yet we do not read these statutory words with the ease of a computer. There is an overriding consideration that equitable principles govern the exercise of bankruptcy jurisdiction.
See also Lewis v. Manufacturer’s Trust, 364 U.S. 603, 608, 81 S.Ct. 347, 350, 5 L.Ed.2d 323 (1961) which refused to allow the application of § 70(c) to a point anterior in time where no creditor could have existed, stating:
The construction of § 70c which petitioner urges would give the trustee the power to set aside transactions which no creditor could void and which injured no creditor. That construction would enrich unsecured creditors at the expense of secured creditors, creating a windfall merely by reason of the happenstance of bankruptcy.
The substance and spirit of this language should preclude the trustee from employing the fiction of 11 U.S.C. § 544 to deny or limit the homestead, thereby creating a windfall for discharged general creditors.
For the foregoing reasons I would hold that the trustee may not invoke or clothe himself with the judgment lien of C.C.P. § 674(c) and would therefore reverse.

. Sampsell v. Straub, supra, permitted such a result. That case held that the trustee, standing as a judgment creditor under § 70(c), defeated the debtor’s homestead since the debtor filed his declaration of homestead after he filed his bankruptcy petition. The effect of Samp-sell in California is considerably attenuated under the Bankruptcy Code since a claim, directly impairing the exemption, is subject to avoidance by virtue of 11 U.S.C. § 522(f). In re Baxter, 19 B.R. 674 (Bkrtcy.App. 9th Cir. 1982).

. Section 541(a)(6) states what is in the estate, with an exception:
“(6) Proceeds, product, offspring, rents, and profits of or from property of the estate, except such as are earnings from services performed by an individual debtor añer the commencement of the case.” (Emph. supp.) While the dissent professes to preclude access by the trustee to post-bankruptcy accruals in equity, its water bottle analogy suggests a contrary result. It would hold that the post-bankruptcy equity accruals would cause the frozen exemption to rise and spill over into the hands of the waiting trustee.

.The primary purpose of § 674 was to provide creditors with automatic access to surplus equity (over the homestead) in contradistinction to Calif.Civ.Code, § 1260, which does not allow such access. The unlikely availability of the entire homestead through abandonment or waiver would hardly warrant legislative concern since the most logical event which occurs over the ten year life of the lien v/ould be equity build-up.