Court Opinion

ID: 4192801
Source: CourtListenerOpinion
Date Created: 2017-08-03 17:02:44.403254+00
Date Added: 2024-06-11T14:40:21.452531
License: Public Domain

FILED
                                                              DEC 15 2015
 1
                                                          SUSAN M. SPRAUL, CLERK
                                                            U.S. BKCY. APP. PANEL
 2                                                          OF THE NINTH CIRCUIT

 3                  UNITED STATES BANKRUPTCY APPELLATE PANEL
 4                            OF THE NINTH CIRCUIT
 5   In re:                        )       BAP No.      EC-15-1000-FDJu
                                   )
 6   RHONDA STIJAKOVICH-SANTILLI, )       Bk. No.    13-33804
                                   )
 7                  Debtor.        )
     ____________________________ )
 8                                 )
     DOUGLAS M. WHATLEY,           )
 9   Chapter 7 Trustee;            )
                                   )
10                  Appellant,     )
                                   )
11   v.                            )       OPINION
                                   )
12   RHONDA STIJAKOVICH-SANTILLI, )
                                   )
13                  Appellee.      )
     ______________________________)
14
15                  Argued and Submitted on November 19, 2015
                            at Sacramento, California
16
                            Filed – December 15, 2015
17
              Appeal from the United States Bankruptcy Court
18                for the Eastern District of California
19       Honorable Robert S. Bardwil, Bankruptcy Judge, Presiding
20
21   Appearances:     Barry H. Spitzer of the Law Office of Barry H.
                      Spitzer argued for appellant Douglas M. Whatley,
22                    Chapter 7 Trustee; Appellee Rhonda Stijakovich-
                      Santilli argued pro se.
23
24
25   Before: FARIS, DUNN, and JURY, Bankruptcy Judges.
26
27
28
 1   FARIS, Bankruptcy Judge:
 2
 3                               INTRODUCTION
 4        Appellant Douglas M. Whatley, Chapter 7 Trustee, appeals
 5   from the bankruptcy court’s order overruling his objection to
 6   Appellee Rhonda Stijakovich-Santilli’s claim of a homestead
 7   exemption.   The bankruptcy court held that the Trustee’s
 8   objection was untimely.    The Trustee argues that the Debtor
 9   fraudulently asserted the claim of exemption, so the deadline for
10   his objection was extended under Rule 4003(b)(2) of the Federal
11   Rules of Bankruptcy Procedure.1    We hold that the bankruptcy
12   court erred as a matter of law by ruling that (1) the Trustee was
13   not entitled to the extended objection period because he could
14   have discovered the Debtor’s misstatements earlier; and
15   (2) evidence of the Debtor’s subsequent false statements about
16   her exemption claim could not support a finding that she
17   fraudulently claimed the exemption in the first place.
18   Accordingly, we VACATE the bankruptcy court’s order and REMAND
19   this case to the bankruptcy court for further proceedings.
20                                   FACTS
21        The Debtor filed her chapter 7 petition on October 25, 2013.
22   She listed three single family homes in her Schedule A, including
23   real property located on Beckenham Drive in Granite Bay,
24   California (“Subject Property”).       Her Schedule I listed “Other
25
          1
26           Unless specified otherwise, all chapter and section
     references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, all
27   “Rule” references are to the Federal Rules of Bankruptcy
     Procedure, Rules 1001-9037, and all “Civil Rule” references are
28   to the Federal Rules of Civil Procedure, Rules 1-86.

                                        2
 1   monthly income” as $3,400 from a “Room Mate.”   Initially, the
 2   Debtor claimed a $75,000 homestead exemption2 on the Subject
 3
 4
 5
 6        2
              Under California law, a “homestead” is defined as
 7        the principal dwelling (1) in which the judgment
 8        debtor or the judgment debtor’s spouse resided on the
          date the judgment creditor’s lien attached to the
 9        dwelling, and (2) in which the judgment debtor or the
          judgment debtor’s spouse resided continuously
10        thereafter until the date of the court determination
          that the dwelling is a homestead.
11
12   Cal. Civ. Proc. Code § 704.710(c). The amount of exemption is
     codified in section 704.730(a) of the California Code of Civil
13   Procedure, which states, in relevant part:
14        The amount of the homestead exemption is one of the
15        following:

16              (1) Seventy-five thousand dollars ($75,000) unless
                the judgment debtor or spouse of the judgment
17              debtor who resides in the homestead is a person
                described in paragraph (2) or (3).
18
19              . . .

20              (3) One hundred seventy-five thousand dollars
                ($175,000) if the judgment debtor or spouse of the
21              judgment debtor who resides in the homestead is at
                the time of the attempted sale of the homestead
22
                any one of the following:
23
                    . . .
24
                    (B) A person physically or mentally disabled
25                  who as a result of that disability is unable
26                  to engage in substantial gainful
                    employment. . . .
27
28   Cal. Civ. Proc. Code § 704.730.

                                       3
 1   Property, pursuant to section 704.9503 of the California Code of
 2   Civil Procedure.4   The Debtor submitted her electronically signed
 3   Declaration Concerning Debtor’s Schedules with her petition, in
 4   which she attested that the schedules “are true and correct to
 5   the best of [her] knowledge, information, and belief.”   She later
 6   amended her exemption to $175,000 and again declared that the
 7   information in the amendments is “true and correct to the best of
 8   [her] information and belief.”
 9        The meeting of creditors concluded on January 21, 2014.
10   There is no transcript of the meeting, but the Trustee
11
12
          3
             Section 704.950 of the California Code of Civil Procedure
13   states, in relevant part:
14        (c) A judgment lien attaches to a declared homestead in
15        the amount of any surplus over the total of the
          following:
16
               (1) All liens and encumbrances on the declared
17             homestead at the time the abstract of judgment or
               certified copy of the judgment is recorded to
18
               create the judgment lien.
19
               (2) The homestead exemption set forth in Section
20             704.730.
21   Cal. Civ. Proc. Code § 704.950.
22        4
             The Debtor claimed the homestead exemption in her
23   Schedule C under section 704.950 of the California Code of Civil
     Procedure. However, this section does not create a homestead
24   exemption; rather, it concerns the interplay of the homestead
     exemption with judgment liens. The proper basis for the Debtor’s
25   claim of a homestead exemption would have been section 704.720,
26   which provides that “[a] homestead is exempt from sale under this
     division to the extent provided in Section 704.800.” Cal. Civ.
27   Proc. Code § 704.720. However, neither party discussed the
     import of the Debtor’s choice of and reliance on section 704.950,
28   and we do not address this issue further.

                                       4
 1   represented that the Debtor “confirmed her only income is the
 2   social security and from a contribution from a roommate.”
 3        The Debtor received a discharge on February 5, 2014.    The
 4   case remained open while the Trustee administered non-exempt
 5   assets.   On or around April 2, 2014, the bankruptcy court granted
 6   the Debtor’s motion to discharge her attorney, D. Randall
 7   Ensminger, and proceed in propria persona.
 8        The Debtor filed a motion to compel abandonment of three
 9   single family residences, including the Subject Property (“Motion
10   to Compel Abandonment”).   Essentially, the Debtor claimed that,
11   considering the liens on the properties and her exemption, there
12   was no equity in the three properties for the estate.   Regarding
13   the Subject Property, the Debtor stated that she claimed a
14   $175,000 homestead exemption due to a disability.
15        The Trustee did not oppose the Motion to Compel Abandonment
16   as it related to the Subject Property and a second property, but
17   opposed the motion as to a third property.   The court granted the
18   Motion to Compel Abandonment of the two properties, including the
19   Subject Property.
20        On August 18, 2014, the Trustee filed his Objection by
21   Chapter 7 Trustee to Debtor’s Claim of Exemption in Real Property
22   and Request for Relief from a Final Order on Abandonment of the
23   Real Property (“Objection”), arguing that the Debtor fraudulently
24   asserted the claim of exemption in the Subject Property.    He
25   contended that the Debtor did not reside at the Subject Property
26   on the date she filed her chapter 7 petition and did not reside
27   there at any time in 2013.   The Trustee relied on the fact that,
28   on her tax returns, the Debtor declared the Subject Property a

                                      5
 1   rental property for 365 days of the year, without any personal
 2   days.    The Trustee further sought relief from the abandonment of
 3   the Subject Property, because, if the homestead exemption were
 4   inapplicable, then the Subject Property would have substantial
 5   equity and could add value to the estate.
 6           In response, the Debtor argued that, although she received
 7   rental income from the Subject Property, she resided at the
 8   Subject Property during all of 2013: “Even though debtor has been
 9   receiving rental income with respect [to the Subject Property]
10   during 2013, debtor had resided at [the Subject Property] during
11   all of 2013.”    She represented that she “has been residing at
12   [the Subject Property], as her principle [sic] dwelling,
13   throughout 2012, 2013, and into 2014.    The Debtor has also been
14   renting to roommates at [the Subject Property] during 2012, 2013,
15   and into 2014, in order for debtor to meet her income needs.”
16   She argued that renting the Subject Property to “roommates” does
17   not prevent her “from claiming [the Subject Property] as her
18   principle [sic] dwelling.    Further, since debtor is renting to
19   roommates in [the Subject Property], even though she is also
20   residing at [the Subject Property], then debtor is correctly and
21   accurately declaring [the Subject Property] as rental property on
22   her Federal income tax returns . . . .”
23           In support of her position, the Debtor attached (1) a letter
24   from her CPA, who confirmed that he advised her that the Subject
25   Property “qualif[ies] as your primary residence partially based
26   on your declaration that you have occupied it as your primary
27   residence”; (2) a copy of a letter from the United States Social
28   Security Administration sent to the Subject Property’s address;

                                        6
 1   (3) a copy of her driver’s license information request reflecting
 2   the Subject Property’s address; and (4) copies of water bills for
 3   the Subject Property that are in the Debtor’s name.
 4        On September 24, 2014, the bankruptcy court heard arguments
 5   on the Trustee’s Objection.   The Debtor argued, “I just want to
 6   state that I do live at the house . . . .”
 7        The court ultimately overruled the Objection.    The court
 8   noted in its final ruling that, in the absence of fraud, the
 9   Trustee had until February 20, 2014 to object to the Debtor’s
10   claim of exemption.   However, if the Debtor had fraudulently
11   asserted the claim of homestead exemption, the Trustee’s
12   objection on August 18, 2014 would be timely under Rule
13   4003(b)(2).
14        The court stated that the problem with the Trustee’s theory
15        is that the question on this objection to exemption is
          not whether the debtor prepared her tax returns in
16        accordance with applicable tax law and rules. It is
          whether the debtor resided in the Property on the date
17        her petition was filed, October 25, 2013. . . .
          [P]resumably, she was living in one of the three
18        properties she owns; the trustee has given the court no
          reason to believe it was not the one in which she has
19        claimed the homestead exemption.
20        In other words, the bankruptcy court believed that the
21   Debtor resided on the Subject Property, but misreported its
22   status on her tax returns.    The court continued:
23             Here, the trustee’s evidence goes only to the
          question of whether the debtor properly prepared her
24        tax returns; the court finds that evidence to be
          insufficient to rebut the presumption that the debtor
25        resided in the Property on the petition date. However,
          even if the trustee’s evidence may be said to have
26        overcome that presumption, the debtor has met her
          burden to produce evidence that she was living in the
27        Property that day: she has testified unequivocally to
          that effect, thereby shifting the burden of proof back
28        to the trustee, who, as the objecting party, always has

                                       7
 1          the burden of persuasion.
 2          Thereafter, the Trustee conducted further investigation and
 3   gathered evidence that the Subject Property was not the Debtor’s
 4   primary residence at the time she claimed the homestead
 5   exemption.   The Trustee filed another objection on November 14,
 6   2014 (“Renewed Objection”) and presented further evidence,
 7   including: (1) gas utility records reflecting bills directed to
 8   Joseph A. Mendoza, Jr. and Joanna R. Mendoza; (2) Ms. Mendoza’s
 9   declaration that she was a tenant at the Subject Property with
10   her husband and two children from June 16, 2012 through June 29,
11   2014, and that, during that time, the Debtor did not reside at
12   the Subject Property; and (3) county records showing that the
13   Debtor did not file her homeowner’s tax exemption for the Subject
14   Property until March 3, 2014.
15          In response, the Debtor abandoned her argument that she was
16   living on the Subject Property with “roommates” and admitted that
17   she was living elsewhere.   Instead, she argued that she had kept
18   some of her personal belongings at the Subject Property.   She
19   claimed that her former attorney, Mr. Ensminger, had advised her
20   that
21          as long as she kept most of her personal belongings at
            [the Subject Property], and did not reside primarily at
22          any other home, then the court would consider [the
            Subject Property] as her primary residence. Debtor
23          based her decisions on her attorney’s advice that
            renting [the Subject Property] to roommates/tenants and
24          staying at various friends’ homes and traveling did not
            preclude [the Subject Property] from being her primary
25          residence. Accordingly, even though debtor had rented
            out [the Subject Property] to roommates/tenants, it was
26          the only home that reasonably could be considered to be
            her primary residence.
27
28          In his reply, the Trustee attached another declaration by

                                        8
 1   Ms. Mendoza, who testified that the only personal property that
 2   the Debtor had left at the Subject Property was a spa, outdoor
 3   furniture, garden hoses, a ladder, an ironing board, wine racks,
 4   outdoor brass deer, remote controls, and some maintenance items,
 5   such as paint and light bulbs.   The Trustee also pointed out that
 6   the Debtor mischaracterized the Mendozas as “roommates/tenants,”
 7   despite the fact that they were clearly tenants who had entered
 8   into formal leases.
 9        The bankruptcy court held a hearing on the Renewed Objection
10   on December 17, 2014.   The court focused on whether a false
11   statement made well after the claim of exemption meets the
12   requirements of Rule 4003(b)(2).       At the outset, the Trustee
13   agreed with the court that Rule 4003(b)(2) is to be read as
14   requiring the Trustee to show that the Debtor fraudulently
15   “asserted the exemption at the time the exemption was claimed.”
16   However, the Trustee argued that the Debtor, “from the very first
17   filing, set to out deceive the court, the trustee and her
18   creditors by stating she lived at” the Subject Property.
19        In its final ruling, the court again overruled the
20   objection, holding that the Debtor did not “fraudulently
21   assert[ ] the claim of exemption.”      The court stated:
22             Based on the declaration of Joanna Mendoza
          submitted by the trustee, it appears to be an accurate
23        statement that the debtor did not actually reside in
          the Property on October 25, 2013. However, that fact
24        alone – which is virtually the only fact the trustee
          relies on – is not sufficient to establish that the
25        debtor “fraudulently asserted the claim of exemption,”
          as required for a finding that the trustee’s objection
26        is timely under Rule 4003(b)(2).
27        The court said that the Trustee should have “taken more
28   concrete steps to determine whether the debtor was actually

                                        9
 1   living on the Property [after the meeting of creditors].”     The
 2   court found that “the debtor’s use of a post office box address
 3   . . . might reasonably have been expected to put the trustee on
 4   notice he should investigate the question of her actual residence
 5   further.”   The court said that
 6        the trustee was on notice from the debtor’s schedules
          that she was receiving $3,400 per month in rent from
 7        the Property, almost the amount of the rents on the
          other two properties combined. A quick Zillow search
 8        would have revealed that the Property is a four
          bedroom, three bath house. The amount of the rent
 9        alone might reasonably have been expected to trigger
          further inquiry into whether the debtor was residing at
10        the Property along with her tenants.
11   The court did not believe the Trustee’s assertion that he only
12   realized that the Debtor did not reside at the Subject Property
13   when he received her 2013 tax returns.     Rather, the Trustee had
14   the Debtor’s 2012 tax returns, which similarly claimed the
15   Subject Property as a rental property for the entire year.     It
16   stated that the Debtor’s 2012 tax returns, “on which the debtor
17   claimed all three of her properties, including the Property, as
18   rental properties for the entire year, might reasonably have been
19   expected to trigger further inquiry into her actual residence.”
20        The court further determined that the Debtor’s reasons for
21   claiming a homestead exemption in the Subject Property “also
22   weigh against a finding of fraud.      She states her attorney told
23   her that ‘as long as [she] kept most of [her] personal belongings
24   at [the Property], and did not reside primarily at any other
25   home, then the court would consider [the Property] as [her]
26   primary residence.’”   The court said that, “[i]n fact, given the
27   debtor’s two-year lease of the property to others, reserving no
28   right of occupancy for herself, the validity of her claim to a

                                       10
 1   homestead exemption seems tenuous.”   However, the court stated
 2   that “it does not matter whether the debtor had a valid or even a
 3   colorable claim to the exemption.    It matters only whether she
 4   fraudulently asserted the exemption, such that the late objection
 5   should be allowed under Rule 4003(b)(2).”
 6        In sum, the court concluded that
 7        the debtor’s testimony in response to the trustee’s
          earlier objection to exemption that she “[has] been
 8        residing at [the Subject Property] . . . continuously
          for all of 2012, 2013 and all of 2014 through the date
 9        of this declaration” is quite troubling to this court.
          However, this testimony was given not at the time the
10        debtor asserted the claim of exemption, but almost 11
          months later, when she was defending against the
11        trustee’s objection, and long after the trustee’s time
          to object, in the absence of fraud, had run. Thus,
12        although this testimony appears to have been
          inaccurate, and possibly deliberately so, it does not
13        support a conclusion that the debtor fraudulently
          asserted the exemption at the time it was claimed.
14
15        The court issued its order overruling the Renewed Objection
16   on December 18, 2014.   The Trustee timely filed his notice of
17   appeal on December 30, 2014.
18        On March 18, 2015, the Trustee obtained a declaration from
19   Mr. Ensminger wherein he refuted certain of the Debtor’s
20   statements regarding his representation of the Debtor.   Mr.
21   Ensminger attested that the Debtor had not informed him that she
22   rented the Subject Property exclusively to others, but he recalls
23   that she had told him that she resided at the Subject Property
24   with roommates.   He stated that he would not have advised her
25   that the court would consider the Subject Property as her primary
26   residence if she left personal belongings at the Subject
27   Property.   Finally, he said that he had been in the hospital and
28   unable to respond to work-related e-mails until recently.   It is

                                     11
 1   undisputed that the bankruptcy court did not have the benefit of
 2   Mr. Ensminger’s declaration when it ruled on the Objection and
 3   Renewed Objection.
 4                                JURISDICTION
 5           The bankruptcy court had jurisdiction pursuant to 28 U.S.C.
 6   §§ 1334 and 157(b)(2)(B).    We have jurisdiction under 28 U.S.C.
 7   § 158.
 8                                    ISSUE
 9           Whether the bankruptcy court erred in overruling the
10   Trustee’s objection to the Debtor’s claim of a homestead
11   exemption in the Subject Property.
12                             STANDARD OF REVIEW
13           The bankruptcy court’s conclusions of law are reviewed de
14   novo.    Decker v. Tramiel (In re JTS Corp.), 617 F.3d 1102, 1109
15   (9th Cir. 2010).    We review exemption determinations de novo.
16   Goswami v. MTC Distrib. (In re Goswami), 304 B.R. 386, 389 (9th
17   Cir. BAP 2003); Kelley v. Locke (In re Kelley), 300 B.R. 11, 16
18   (9th Cir. BAP 2003).    De novo review requires that we consider a
19   matter anew, as if it had not been heard before, and as if no
20   decision had been rendered below.      Dawson v. Marshall, 561 F.3d
21   930, 933 (9th Cir. 2009).
22           The bankruptcy court’s factual findings, for purposes of
23   determining the validity of a homestead exemption claim, are
24   reviewed under the clearly erroneous standard.     In re Kelley, 300
25   B.R. at 16 (citation omitted).    A factual finding is clearly
26   erroneous only if we have a definite and firm conviction that a
27   mistake has been committed.    Banks v. Gill Distrib. Ctrs., Inc.
28   (In re Banks), 263 F.3d 862, 869 (9th Cir. 2001) (quoting

                                       12
 1   Anderson v. City of Bessemer City, N.C., 470 U.S. 564, 573
 2   (1985)).
 3                              DISCUSSION
 4   A.   Rule 4003(b)(2) extends the time for a trustee to object to
          a claim for exemption if a debtor fraudulently asserts the
 5        claim of exemption.
 6        A creditor or trustee must ordinarily “file an objection to
 7   the list of property claimed as exempt within 30 days after the
 8   meeting of creditors held under § 341(a) is concluded or within
 9   30 days after any amendment to the list or supplemental schedules
10   is filed, whichever is later.”   Rule 4003(b)(1).   Rule 4003(b)(2)
11   creates a limited exception to this rule.   It provides that
12   “[t]he trustee may file an objection to a claim of exemption at
13   any time prior to one year after the closing of the case if the
14   debtor fraudulently asserted the claim of exemption.”   Rule
15   4003(b)(2).5
16
17        5
             Rule 4003(b)(2) was enacted in 2008. The advisory
18   committee notes to the 2008 amendments state:

19        Subdivision (b)(2) is added to the rule to permit the
          trustee to object to an exemption at any time up to one
20        year after the closing of the case if the debtor
          fraudulently claimed the exemption. Extending the
21
          deadline for trustees to object to an exemption when
22        the exemption claim has been fraudulently made will
          permit the court to review and, in proper
23        circumstances, deny improperly claimed exemptions,
          thereby protecting the legitimate interests of
24        creditors and the bankruptcy estate. However, similar
25        to the deadline set in § 727(e) of the Code for
          revoking a discharge which was fraudulently obtained,
26        an objection to an exemption that was fraudulently
          claimed must be filed within one year after the closing
27        of the case. Subdivision (b)(2) extends the objection
          deadline only for trustees.
28
     Rule 4003(b) advisory committee’s notes to 2008 amendment.

                                      13
 1        In this case, the meeting of creditors concluded on January
 2   21, 2014.   Thus, in the absence of fraud, the Trustee had until
 3   February 20, 2014 to object to the Debtor’s claims of exemptions.
 4   The Trustee filed his Objection on August 18, 2014, nearly six
 5   months past the general deadline.     Therefore, the Trustee’s
 6   Objection is barred under Rule 4003(b)(1), unless the Debtor
 7   “fraudulently asserted a claim of exemption” under Rule
 8   4003(b)(2).
 9        As a general rule, a party who objects to a debtor’s claim
10   of exemption has the burden of proving that the exemption is not
11   properly claimed, according to Rule 4003(c).    If the objector can
12   produce evidence to rebut the presumption of validity, then the
13   burden of production shifts to the debtor to come forward with
14   unequivocal evidence to demonstrate that the exemption is
15   properly claimed.   In re Kelley, 300 B.R. at 16-17; Carter v.
16   Anderson (In re Carter), 182 F.3d 1027, 1029 (9th Cir. 1999).
17   The burden of persuasion remains, however, with the objecting
18   party.   The quantum of proof is a preponderance of the evidence.
19   In re Kelley, 300 B.R. at 17.6
20
21
22
          6
             In the present case, the bankruptcy court applied the
23   burden-shifting rule in Rule 4003(c). At least one California
     bankruptcy court has held that, if the debtor chooses a state law
24   exemption, then state law allocates the burden of proof
25   notwithstanding Rule 4003(c). See In re Tallerico, 532 B.R. 774,
     780, 787-89 (Bankr. E.D. Cal. 2015). The parties have not
26   briefed this issue, so we express no opinion and leave this issue
     to the bankruptcy court on remand.
27
                                      14
28
 1   B.   “Fraudulently asserted” under Rule 4003(b)(2) should be
          construed with regard to the common law definition of fraud
 2        and § 523(a)(2).
 3        The bankruptcy court did not offer a definition of the
 4   phrase “fraudulently asserted.”    Rule 4003(b)(2) does not define
 5   the term, and the case law is scant.   We begin with the standard
 6   rules of statutory interpretation, which apply equally to
 7   interpretation of the Rules.   See generally Rhodes v. Litig. Tr.
 8   of the Rhodes Cos., LLC (In re Rhodes Cos., LLC), 475 B.R. 733,
 9   738 (D. Nev. 2012) (“To determine the meaning of a Federal Rule
10   of Civil Procedure, courts apply rules of statutory
11   interpretation.”).   “[W]hen the statute’s language is plain, the
12   sole function of the courts — at least where the disposition
13   required by the text is not absurd — is to enforce it according
14   to its terms.”   In re Trejos, 352 B.R. 249, 255 (Bankr. D. Nev.
15   2006), aff’d, 374 B.R. 210 (9th Cir. BAP 2007) (quoting Lamie v.
16   U.S. Tr., 540 U.S. 526, 534 (2004)).    Words and phrases used in
17   statutes and rules should ordinarily be given their common
18   meaning.   See Williams v. Taylor, 529 U.S. 420, 431 (2000) (The
19   words of a statute are given their “ordinary, contemporary,
20   common meaning,” unless Congress intended to give them other
21   meaning.).   Words that have special legal definitions should
22   usually be given their common legal meaning.   See Henry v. United
23   States, 251 U.S. 393, 395 (1920) (“The law uses familiar legal
24   expressions in their familiar legal sense[.]”); In re LTV Steel
25   Co., Inc., 264 B.R. 455, 473 (Bankr. N.D. Ohio 2001) (“When
26   Congress uses a familiar legal expression and does not provide a
27   definition, that connotes Congress’ intent that the words be
28   given their usual legal meaning.” (citation omitted)).

                                       15
 1        At common law, the word “fraud” and its derivatives refer to
 2   (1) a representation (2) that the speaker knew was false when the
 3   speaker made the representation, (3) that the speaker made with
 4   the intent to deceive another, (4) on which the hearer
 5   justifiably relied, and (5) which caused damage to the hearer.
 6   See Rasidescu v. Midland Credit Mgmt., Inc., 435 F. Supp. 2d
 7   1090, 1099 (S.D. Cal. 2006) (“In California, the elements of
 8   common law fraud are: 1) misrepresentation of a material fact; 2)
 9   knowledge of falsity by defendant of the material fact; 3) intent
10   of defendant to defraud plaintiff; 4) justifiable reliance of
11   plaintiff on the material fact; and 5) damages.” (citing City of
12   Atascadero v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 68
13   Cal. App. 4th 445, 481 (1998))).       We have applied this common law
14   definition to the phrase “actual fraud” in § 523(a)(2).7      See
15   Britton v. Price (In re Britton), 950 F.2d 602, 604 (9th Cir.
16   1991) (employing the same five-part test); Tallant v. Kaufman (In
17   re Tallant), 218 B.R. 58, 64 (9th Cir. BAP 1998) (same); see also
18   In re Trejos, 352 B.R. at 255 (“In determining the appropriate
19
          7
              Section 523(a)(2) provides, in relevant part:
20
          (a) A discharge under section 727, 1141, 1228(a),
21
          1228(b), or 1328(b) of this title does not discharge an
22        individual debtor from any debt -

23              (2) for money, property, services, or an
                extension, renewal, or refinancing of credit, to
24              the extent obtained by -
25
                       (A) false pretenses, a false representation,
26                     or actual fraud, other than a statement
                       respecting the debtor’s or an insider’s
27                     financial condition[.]
28
     § 523(a)(2)(A).

                                       16
 1   sense, investigation into ways in which the Bankruptcy Code uses
 2   the same or similar words is appropriate, especially when that
 3   usage comports with common usage.” (citing Rousey v. Jacoway, 544
 4   U.S. 320, 326–27 (2005))).
 5           Thus, we hold that, to determine whether a debtor
 6   “fraudulently asserted” an exemption claim within the meaning of
 7   Rule 4003(b)(2), the bankruptcy court should apply the usual
 8   definition of fraud, except the damages requirement, which has no
 9   bearing on the question of exemptions.
10           The court must first identify the relevant “representation.”
11   Whenever a debtor asserts a claim of exemption, the debtor
12   implicitly represents that the facts support that claim.    When a
13   debtor completes her schedules, she signs a declaration attesting
14   to the accuracy of the information and expressly certifies under
15   the penalty of perjury that all statements contained therein are
16   true.    See Suter v. Goedert, 396 B.R. 535, 541 (D. Nev. 2008)
17   (“Statements made in bankruptcy schedules are executed under
18   penalty of perjury and, when offered against the debtor, ‘are
19   eligible for treatment as [evidentiary] admissions.’” (quoting In
20   re Bohrer, 266 B.R. 200, 201 (Bankr. C.D. Cal. 2001))).     By
21   extension, the debtor is also certifying that the factual
22   predicates to each statement are true.    For example, when a
23   California debtor claims a homestead exemption, she implicitly
24   attests that the property for which she is claiming an exemption
25   is “the principal dwelling (1) in which the judgment debtor or
26   the judgment debtor’s spouse resided on the date the judgment
27   creditor’s lien attached to the dwelling, and (2) in which the
28   judgment debtor or the judgment debtor’s spouse resided

                                       17
 1   continuously thereafter until the date of the court determination
 2   that the dwelling is a homestead[.]”   See Cal. Civ. Proc. Code
 3   § 704.710(c).   In other words, a debtor making that claim
 4   represents that the underlying facts support the claim of
 5   exemption, including the facts that the alleged homestead was her
 6   “principal dwelling” and that she resided there at the relevant
 7   times.
 8        In order to establish that the debtor fraudulently asserted
 9   the exemption, the objector must do more than show that the facts
10   do not support the claim of exemption.   The objector must also
11   show that the debtor knew, at the time she claimed the exemption,
12   that the facts did not support that claim, and that she intended
13   to deceive the trustee and creditors who read the schedules.
14   C.   The bankruptcy court erred as a matter of law in construing
          Rule 4003(b)(2).
15
          The bankruptcy court overruled the Trustee’s objections to
16
     the Debtor’s homestead exemption on the basis that (1) the
17
     Trustee had been put on notice of possible fraud and failed to
18
     investigate in a timely manner; and (2) the Debtor’s later false
19
     statements and changing story regarding her place of residence
20
     did not prove that she fraudulently asserted the exemption at the
21
     time she claimed it.   We conclude that the bankruptcy court
22
     misinterpreted Rule 4003(b)(2).
23
          1.   The bankruptcy court erred by imposing a duty to
24             investigate upon the Trustee.
25        First, the bankruptcy court faulted the Trustee for not
26   taking steps earlier to inquire into the Debtor’s situation and
27   object within the thirty-day time period.   We hold that the
28   bankruptcy court erred in imposing a duty to investigate on the

                                       18
 1   Trustee.   The question under Rule 4003(b)(2) is whether the
 2   debtor “fraudulently asserted” the exemption.   As we explain
 3   above, the word “fraudulently” should be given its common law
 4   meaning.   At common law (and under § 523(a)(2)(A), which
 5   incorporates the common law standard), the perpetrator of an
 6   alleged fraud cannot avoid liability by showing that the victim
 7   could have uncovered the fraud had the victim investigated more
 8   carefully.   See Merchants Bank of Cal. v. Oh (In re Oh), 278 B.R.
 9   844, 855 (Bankr. C.D. Cal. 2002) (“A person is justified in
10   relying upon a misrepresentation even if he might have
11   ascertained the falsity of the information through investigation.
12   Although one cannot close his eyes and rely blindly, mere
13   negligence in failing to discover an intentional
14   misrepresentation is no defense to fraud.” (citing Citibank
15   (South Dakota), N.A. v. Eashai (In re Eashai), 87 F.3d 1082,
16   1090–91 (9th Cir. 1996)); see also La Trattoria, Inc. v. Lansford
17   (In re Lansford), 822 F.2d 902, 904 (9th Cir. 1987) (“Having
18   intentionally misled the sellers in an area he knew was important
19   to them, it is unseemly for Lansford now to argue that he should
20   be excused from section 523 because the sellers believed him.”);
21   Salehsari v. Aalam (In re Aalam), 538 B.R. 812, 822 (Bankr. C.D.
22   Cal. 2015) (“a plaintiff does not have a duty to investigate”).
23        For purposes of fraud, the victim’s behavior is only
24   relevant to the issue of the victim’s reliance.    The victim need
25   not show that he could not have discovered the fraud; rather, he
26   must only show that he justifiably relied on the perpetrator’s
27   false representations.
28        Nothing in Rule 4003(b)(2) suggests that the drafters

                                     19
 1   intended to impose a duty on objectors to investigate promptly.
 2   If anything, the language of the rule points in the opposite
 3   direction: if the debtor fraudulently claimed an exemption, the
 4   trustee may object “at any time” up to the cutoff date.
 5        In this case, the Debtor asserted a claim of exemption based
 6   on false predicates and later continued to mislead the Trustee
 7   and the court with further false statements.   It would be
 8   inappropriate for the Debtor to benefit from the fact that the
 9   Trustee believed her false statements.   Therefore, we hold that
10   the bankruptcy court erred when it ruled that the Trustee failed
11   to timely investigate the Debtor’s claim of exemption.
12        The bankruptcy court relied heavily on In re James, 498 B.R.
13   813 (Bankr. E.D. Tenn. 2013), but we hold that James is
14   distinguishable.   In James, the court found, as a matter of fact,
15   that “no actual fraud was committed by” the debtor.   In re James,
16   498 B.R. at 816.   The court expressed concern about the debtor’s
17   apparent overstatement of the amount he was entitled to exempt,
18   but found that “the single overstatement of the value of the
19   claimed exemption [does not rise] to the level of a fraudulent
20   assertion of an exemption.”   Id. at 823.   In this case, there is
21   evidence which could support a finding of fraudulent assertion by
22   the Debtor.
23        Taylor v. Freeland & Kronz, 503 U.S. 638, 643-44 (1992), is
24   also inapposite.   That decision stands for the proposition that,
25   if a party in interest does not object to an exemption within the
26   thirty-day time period in Rule 4003(b)(1), it cannot contest the
27   exemption, regardless as to whether the debtor had a colorable
28   statutory basis for claiming the exemption.    Taylor provides no

                                     20
 1   guidance because it construed Rule 4003(b)(1), not Rule
 2   4003(b)(2).   Indeed, the Supreme Court rendered its decision in
 3   1992, long before Rule 4003(b)(2) was promulgated.
 4        Further, the Taylor rule is not as absolute as some might
 5   suggest.   In this circuit, if the debtor makes a vague assertion
 6   of an exemption, the bankruptcy court can determine the extent to
 7   which the exemption claim is valid, even after the thirty-day
 8   deadline has run.
 9        In Hyman v. Plotkin (In re Hyman), 967 F.2d 1316 (9th Cir.
10   1992), the debtors claimed a homestead exemption, but contended
11   that their description of the exemption as merely “homestead,”
12   rather than “homestead exemption,” indicated that they were
13   claiming as exempt the entire homestead, rather than the limited
14   dollar amount allowed by California law.   The debtors argued that
15   the trustee’s failure to object timely to the claim of exemption
16   rendered the real property fully exempt.   The Ninth Circuit
17   disagreed, stating that, because the debtors’ schedules were
18   vague and did not inform the trustee that the debtors were
19   claiming an exemption on the full value of the property, “the
20   trustee had no basis for objecting, and could well have suffered
21   the bankruptcy judge’s ire had he objected to the $45,000
22   exemption to which the Hymans were clearly entitled.”   In re
23   Hyman, 967 F.2d at 1319.
24        We followed Hyman in Slates v. Reger (In re Slates), BAP No.
25   EC-12-1168-KiDJu, 2012 WL 5359489 (9th Cir. BAP Oct. 31, 2012)
26   (unpublished disposition).   In Slates, the debtor claimed as
27   exempt “possible disability benefits.”   The debtor did not
28   disclose a pending administrative proceeding and a later lawsuit

                                     21
 1   concerning those benefits.   The trustee found out about the
 2   action when the former employer contacted the trustee to attempt
 3   a settlement.   The trustee moved for approval of the settlement
 4   of the bankruptcy estate’s claims against the employer and for
 5   the sale of the estate’s interest in the lawsuit.     The trustee
 6   argued that, because the lawsuit had not been scheduled or
 7   exempted, or described in any way to give the trustee notice of
 8   the claims, it was property of the estate.   The bankruptcy court
 9   agreed and (1) held that the lawsuit was properly a part of the
10   estate and not exempt; and (2) approved the settlement and sale
11   of the estate’s interest.    On appeal, the debtor argued that the
12   lawsuit was exempt because (1) he had listed it in good faith on
13   his Amended Schedule C; (2) he had described it sufficiently to
14   put the trustee on notice; (3) the trustee had a duty to
15   investigate the matter and failed to do so; and (4) the trustee
16   had failed to object to the exemption.   Id. at *6.    The Panel
17   noted the strict standard set forth in Taylor.    Id. at *7.
18   However, it stated “that neither this Panel nor the Ninth Circuit
19   has interpreted Taylor as holding that failure by the trustee to
20   object to a claim of exemption will always result in the debtor
21   being entitled to a full exemption in the subject property.    For
22   example, the property may not be exempt if the debtor’s schedules
23   are ambiguous.”   Id. at *8 (citing In re Hyman, 967 F.2d 1316).
24        The Panel held that any ambiguity in the schedules should be
25   construed against the debtor and that the debtor’s schedules were
26   not sufficient to put the trustee on notice of the lawsuit.    It
27   noted that the trustee “could have been more diligent in his
28   investigation of this case,” but disagreed that the trustee

                                      22
 1   should be equitably estopped from claiming ownership of the
 2   lawsuit.   Id. at *10.     It concluded that, because the trustee was
 3   not able to determine from reading the schedules that the debtor
 4   was claiming the lawsuit as exempt, the debtor failed to assert a
 5   valid exemption, and the trustee was not required to object to it
 6   under Rule 4003(b).   Id. at *11.
 7        Slates and Hyman are not controlling, because they dealt
 8   with exemption claims that were merely vague, as opposed to
 9   fraudulent.   But both cases are instructive in two respects.
10   First, they rejected the notion that, under Taylor, “failure by
11   the trustee to object to a claim of exemption will always result
12   in the debtor being entitled to a full exemption in the subject
13   property.”    Id. at *8.    Rather, the Ninth Circuit in Hyman held
14   that any ambiguity in a debtor’s schedules must be construed
15   against her and may be the basis for an objection outside of the
16   thirty-day period.    Second, they also held that a trustee is
17   entitled to rely on, and need not investigate, the information
18   the debtor chooses to include in the schedules.
19        In this case, by claiming a homestead exemption in the
20   Subject Property and attesting to the accuracy of the information
21   contained in the schedules, the Debtor implicitly represented
22   that she resided at the Subject Property and that it was her
23   principal dwelling.   Nothing in the schedules suggested
24   otherwise.    In addition, the Debtor unequivocally stated at the
25   meeting of creditors that she resided on the Subject Property.
26   Given this evidence, “the trustee had no basis for objecting, and
27   could well have suffered the bankruptcy judge’s ire had he
28   objected” to the claim of exemption.     See In re Hyman, 967 F.2d

                                        23
 1   at 1319.   The Trustee took the Debtor at her word and justifiably
 2   relied on the schedules and her declaration as to their accuracy.
 3        Thus, the bankruptcy court erred when it held that the
 4   Trustee was not entitled to the extended objection period because
 5   he failed to investigate earlier.
 6        2.    The bankruptcy court erred by discounting the Debtor’s
                subsequent actions and statements as evidence of a
 7              fraudulent assertion of a claim of exemption.
 8        The bankruptcy court determined that, while the Debtor’s
 9   statements regarding her residence may have been “inaccurate, and
10   possibly deliberately so,” it could not conclude that the Debtor
11   fraudulently asserted the claim of exemption.   It stated that the
12   Debtor’s prior false testimony that she resided at the Subject
13   Property was “quite troubling to this court[,]” but “does not
14   support a conclusion that the debtor fraudulently asserted the
15   exemption at the time it was claimed.”
16        We agree with the bankruptcy court that, to determine
17   whether the debtor fraudulently asserted an exemption, one must
18   look to the circumstances existing at the time of the assertion.
19   We do not agree, however, with the court’s decision that a
20   debtor’s later statements cannot help to establish that the
21   debtor fraudulently asserted the claim of exemption in her
22   initial filings.
23        It is hard to imagine a case in which the debtor’s
24   schedules, standing alone, prove that the debtor fraudulently
25   asserted an exemption.   To prove (for example) the debtor’s
26   knowledge of the schedules’ falsity and intent to deceive, the
27   objector will almost certainly have to offer extrinsic evidence.
28   In an appropriate case, this extrinsic evidence may include the

                                     24
 1   debtor’s subsequent statements and conduct.
 2           The bankruptcy court’s decision implies that a debtor’s
 3   false testimony after the debtor files the schedules cannot
 4   establish that the debtor’s exemption claims were fraudulent when
 5   made.    But this cannot be correct.   To choose the most extreme
 6   example, suppose that the debtor claimed an exemption, and later
 7   admitted her fraudulent knowledge and intent.    Such a statement
 8   would undoubtedly be admissible to prove that the exemption claim
 9   was fraudulently asserted, even though the admission came after
10   the initial assertion.
11           Therefore, we hold that the bankruptcy court applied an
12   incorrect legal standard when it ruled that subsequent statements
13   were not evidence of a fraudulent assertion of an exemption
14   claim.    Therefore, we remand this case to permit the bankruptcy
15   court to apply the correct legal definition of the phrase
16   “fraudulently asserted” and to consider whether the evidence
17   shows that the Debtor fraudulently asserted the claim of
18   exemption.
19   D.      The Panel will not consider new evidence not in the record
             before the bankruptcy court.
20
21           Finally, the Trustee requests that the Panel consider Mr.
22   Ensminger’s declaration or remand this case to the bankruptcy
23   court for consideration of the new evidence that he claims “was
24   not available due to the medical issues of Mr. Ensminger at the
25   time the Debtor first brought up the argument of following [the]
26   advice of Mr. Ensminger in regard to the homestead
27   exemption . . . .”    The Debtor argues that the Trustee should
28   have brought a Civil Rule 60(b) request before the bankruptcy

                                       25
 1   court and that he has waived his right to seek admission of the
 2   declaration on appeal.
 3        Except in rare cases where “‘the interests of justice demand
 4   it,’ an appellate court will not consider evidence not presented
 5   to the trial court[.]”   Graves v. Myrvang (In re Myrvang), 232
 6   F.3d 1116, 1119 n.1 (9th Cir. 2000) (quoting Dakota Indus., Inc.
 7   v. Dakota Sportswear, Inc., 988 F.2d 61, 63 (8th Cir. 1993);
 8   citing Kirshner v. Uniden Corp. of Am., 842 F.2d 1074, 1077 (9th
 9   Cir. 1988)); see 16A Charles Alan Wright & Arthur R. Miller, Fed.
10   Prac. & Proc. § 3956.1 (4th ed.) (“[A]s a general matter, the
11   court of appeals will not consider [a] matter that is not part of
12   the record on appeal.    A litigant who wishes that newly
13   discovered evidence had been considered by the district court
14   should investigate the possibility of seeking relief from the
15   judgment in the district court.”).
16        In the present case, it is undisputed that the Trustee did
17   not present Mr. Ensminger’s declaration to the bankruptcy court,
18   as he obtained the declaration over two months after he filed his
19   notice of appeal.   We do not think that this case presents such
20   exceptional circumstances as to warrant the Panel’s consideration
21   of this new evidence in “the interests of justice.”   The Trustee
22   could have sought a continuance of the hearing on the Renewed
23   Objection while he attempted to obtain Mr. Ensminger’s
24   declaration; he could also have moved under Civil Rule 60(b)(2)
25   or (3) to have the bankruptcy court consider the new evidence.
26   In any event, the Panel declines to consider Mr. Ensminger’s
27   declaration in the first instance on appeal.   The bankruptcy
28   court is in the best position to consider all of the evidence and

                                      26
 1   make appropriate factual findings.   We thus leave it to the
 2   Trustee to present the declaration or testimony of Mr. Ensminger
 3   to the bankruptcy court in the appropriate manner on remand.
 4                              CONCLUSION
 5        For the reasons set forth above, we VACATE the bankruptcy
 6   court’s orders overruling the Trustee’s objections to the
 7   Debtor’s homestead exemption and REMAND this case to the
 8   bankruptcy court for further proceedings consistent with our
 9   ruling.
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

                                    27