Opinion
Bankruptcy No. 11-19790-LT7 Adversary No. 13-90063-LT
08-29-2016
In re: CHADWICK C. COLLINS, Debtors. NANCY L. WOLF, TRUSTEE, Plaintiff, v. CHARLES G. COLLINS, JANELLE L. COLLINS, AND CHADWICK C. COLLINS, Defendants.
WRITTEN DECISION - NOT FOR PUBLICATION
MEMORANDUM DECISION (Community Property Issue)
This opinion is intended only to resolve the dispute between these parties and is not intended for publication. --------
In this litigation regarding the former residence of Chadwick and Janelle Collins, Defendants took the position that title to the Property transferred to Charles Collins, Chadwick's father. Had the Court so found, the manner in which Chadwick and Janelle held title would have been of no import. Following the first phase of trial in this case, however, the Court ruled that title to the Property was never transferred to Charles but, rather, that it remained with Chadwick and Janelle. That ruling now necessitates a ruling on how title was held as between Chadwick and Janelle as of the date of the petition.
Background Relevant to the Community Property Issue
In 2000, Chadwick and Janelle Collins, husband and wife, purchased a residence at 1480 Beech Tree Road, San Marcos California ("Property") and took title as "Husband and Wife as Joint Tenants." Trial Exhibit 2. In 2002, Chadwick and Janelle decided to move into a larger house on Archer Road, San Marcos ("Archer Road Property"). In an effort to facilitate the move, Chadwick's father, Charles Collins, agreed to take possession of the Property. As noted above, the Court has found that title was never transferred to Charles, but remained with Chadwick and Janelle. The form of record title was never changed from "Husband and Wife as Joint Tenants."
There is no evidence that Chadwick or Janelle executed any other document purporting to alter or confirm the manner in which title was held.
Procedural History
On December 12, 2011, Debtor filed his petition. He did not schedule the Property nor did he schedule any claims relating to the Property.
On March 7, 2013, the Trustee filed a complaint commencing this Adversary Proceeding ("Complaint"). The Trustee sought a declaratory judgment that Charles had no interest in the Property; that the Property was property of the bankruptcy estate; and that the Property was the community property of Chadwick and Janelle. The Trustee also sought an order directing Charles to turn the Property over to the Trustee. Finally, the Trustee sought authority to sell the Property.
On March 10, 2014, Defendants moved for summary judgment. In their motion, Defendants argued that "[i]n California, property acquired during marriage is presumed to be community property, but this presumption is rebuttable and is specifically rebutted when, as here, title to real property is taken as joint tenants. Hanf v. Summers (In re Summers), 332 F.3d 1240, 1242-44 (9th Cir. 2003)." As noted above, when Chadwick and Janelle purchased the Property, they took title as "Husband and Wife as Joint Tenants." Based upon this fact and the Ninth Circuits ruling in Summers, on September 22, 2014, Judge Peter Bowie (ret.) granted, in part, Defendants' motion for summary judgment holding:
Defendants' Motion for Summary Adjudication that the Property was held by Debtor and his nonfiling spouse, Janelle Collins, at all relevant times in joint tenancy and not as community property is GRANTED.See Docket No. 33. This was followed by the Trustee's motion for summary judgment, in which no one raised the community property issue. See Docket Nos. 35, 37, and 38. That motion was denied. See Docket No. 40.
Then came second motions for summary judgment filed by both Plaintiff and Defendants. In her reply in support of her motion, the Plaintiff raised the community property argument again based upon the intervening case of In re Marriage of Valli, 58 Cal. 4th 1396 (2014). The Plaintiff, however, did not address Judge Bowie's September 22, 2014 order directly, nor did she move for reconsideration. See Docket No. 59. In the Tentative Ruling on the motions, this Court provided: "The Court is not inclined to reconsider Judge Bowie's ruling that the Property was held, pre-transfer to Charles, by Chadwick and Janelle as joint tenants as opposed to community property at this time. It may be entirely unnecessary to make this ruling if the Defendants prevail at trial."
Defendants did not prevail in phase one of the trial. Rather, the Court ruled that Chadwick and Janelle, not Charles, hold title to the Property. Therefore, the issue of how they own the Property is now ripe for reconsideration.
Analysis
Judge Bowie's September 22 Order is interlocutory as it did not fully adjudicate the claims of the parties. FRCP 54(b), made applicable by FRBP 7054, states the general rule that, until a trial court enters a final judgment, any order that resolves fewer than all of the claims among all of the parties "is subject to revision at any time before the entry of judgment adjudicating all the claims and the rights and liabilities of all the parties." In other words, "interlocutory orders are not subject to the law of the case doctrine and may always be reconsidered prior to final adjudication." In re Akbari-Shahmirzadi, 2013 WL 1099794, at *3 (Bankr. D.N.M. Mar. 15, 2013) (citing Filebark v. U.S. Dep't of Transp., 555 F.3d 1009, 1013 (D.C. Cir. 2009). Accordingly, the Court can revisit the prior ruling at any time before it becomes final.
The Court made the September 22 ruling based upon the presumption of title under Evidence Code § 662 and the Ninth Circuit's ruling in Summer holding that the fact that Chadwick and Janelle held title as joint tenants carried the day. It did so, however, without the benefit of the California Supreme Court's ruling in In re Marriage of Valli, 58 Cal. 4th 1396 (2014), which was entered after Defendant's initial motion for summary judgment was fully briefed.
In Marriage of Valli, the Supreme Court of California held that the presumption of ownership based on title found in Evidence Code § 662 did not apply to overcome the presumption of community property provided in Family Code § 760 and the formal requirements for transmutation provided in Family Code §§ 850 and 852:
Referring to Evidence Code section 662, which states that '[t]he owner of the legal title to property is presumed to be the owner of the full beneficial title,' the Court of Appeal here asserted that 'because the form of title presumption applies ... a transmutation theory is not involved.' This reasoning by the Court of Appeal, we also conclude, is erroneous. We need not and do not decide here whether Evidence Code section 662's form of title presumption ever applies in marital dissolution proceedings. Assuming for the sake of argument that the title presumption may sometimes apply, it does not apply when it conflicts with the transmutation statutes.Id. at 1406. See also In re Marriage of Bonvino, 241 Cal. App. 4th 1411, 1430 (2015) ("We note the presumption of Evidence Code section 662 based on the form of title does not apply in this case, because it conflicts with the transmutation requirements.") The court in Valli specifically rejected the Ninth Circuit's approach in Summers. 58 Cal.4th at 1405. The situation in Valli is the situation we have here.
Property acquired during marriage is community property, unless it is: 1) traceable to a separate property source; 2) acquired by gift or bequest; or 3) earned or accumulated during the spouses' separation. Cal. Fam. Code§ 760; Cal. Civ. Code§ 687; Marriage of Valli, 58 Cal.4th at 1400. Money borrowed by either spouse on the credit of community property is community in character. In re Marriage of Fisher, 78 Cal.App.3d 556,551 (1976).
While married in 2000 Chadwick and Janelle purchased the Property using community assets - Chadwick testified that the down payment was made from a joint account into which Janelle had contributed. Trial Transcript: 43:3-16. They both signed the note. Trial Transcript: 43:17-20. Because Chadwick and Janelle acquired the Property during marriage and the source is not traceable to a separate property source, gift or bequest, or earnings during separation, it is community property. Valli, 58 Cal.4th at 1400.
Spouses can alter the form of title from community to separate, but only in accordance with Family Code §§ 850 & 852, which require an express declaration:
Married persons may, through a transfer or an agreement, transmute—that is, change—the character of property from community to separate or from separate to community. (Fam.Code, § 850.) A transmutation of property, however, "is not valid unless made in writing by an express declaration that is made, joined in, consented to, or accepted by the spouse whose interest in the property is adversely affected." (Id., § 852, subd. (a).) To satisfy the requirement of an "express declaration," a writing signed by the adversely affected spouse must expressly state that the character or ownership of the property at issue is being changed.Marriage of Valli, 58 Cal. 4th at 1400-01. Chadwick and Janelle took title to the Property as "Husband and Wife as Joint Tenants." However, the Court finds that this bare statement in the Grant Deed does not amount to a valid transmutation as there is no "express declaration that is made, joined in, consented to, or accepted by the spouse whose interest in the property is adversely affected." Thus, despite the form of title taken, Chadwick and Janelle took the Property as community property under Family Code § 760, and they took no steps to transmute that would satisfy the requirements of Family Code § 852. Under Valli, Evidence Code § 662 does not apply to change this.
Defendants have argued that the ruling in Valli does not apply beyond the confines of a marital dissolution action and does not apply when the rights of third parties are at issue. Rather, Defendants urge the Court to follow the Ninth Circuits decision in Summers. They argue:
The Ninth Circuit's holding in Hanf v. Summers (In re Summers), 332 F.3d 1240 (9th Cir. 2003) that real property titled in joint tenancy retains its character as such in a bankruptcy case was not altered by the decision in Valli since Valli, a marital dissolution case, did not address what property a third party creditor can attach and did not disapprove any of the many cases that have held the act of specifying the form of title on a deed to real property to be joint tenancy is sufficient to overcome the general community property presumption. Valli disapproved of Summers only to the extent Summers held there could never be a transmutation of property when a third party was in the transaction. (Summers stated that an interposal transfer was required for transmutation; Valli held it was not.)Defendants' Reply to Plaintiff's Brief at 2:10-13.
This argument was recently considered and rejected by Judge Robert Kwan of the Central District in In re Obedian, 546 B.R. 409 (Bankr. C.D. Cal. 2016). In Obedian, the court, addressing the rights of third party California Department of Health Care Services (DHCS) to a debtor's marital property in a bankruptcy case, engaged in an extensive review of the law before Valli and the precedential weight of conflicting Circuit and state court rulings.
The Court in Obedian began by applying Family Code § 760, determining that the property was presumed to be community property and that the presumption could be rebutted by a preponderance of evidence:
Based on California Family Code § 760, the court preliminarily determines that the evidence admitted at the evidentiary hearing indicates that the Real Property should be presumed to be community property belonging to both Debtor and Mr. Obedian since the Real Property was acquired by both spouses during marriage and the exceptions of acquisition of property traceable to a separate property source, acquired by gift or bequest, or earned or accumulated while the spouses are living separate and apart, do not apply. In re Marriage of Valli, 58 Cal.4th at 1400, 171 Cal.Rptr.3d 454, 324 P.3d 274 (citations omitted).546 B.R. at 414.
The Court then considered whether to apply the strict transmutation requirements of Family Code § 852, as had the California Supreme Court in Valli, or the presumption in favor of title found in Evidence Code § 662, as had the Ninth Circuit in Summers:
Although time of acquisition generally controls the characterization of property, evidentiary presumptions and marital property transmutation transactions may also affect the analysis. Thus, the court also considers the applicability of California Family Code § 852(a), California's marital property transmutation statute, and California Evidence Code § 662, California's general presumption of record title.... Because application of both California Family Code § 852(a) and California Evidence Code § 662 as statutory exemptions to California Family Code § 760 yields conflicting characterizations of the Real Property, the court must thus determine which rule to apply.546 B.R. at 414-15.
The Court recognized that Summers was a bankruptcy case, not a marital dissolution case and that the case involved acquisition of property from a third party:
The Ninth Circuit in In re Summers, construing California family law in the context of a bankruptcy case as opposed to a marital dissolution case and determining whether real property transferred by a third party to a husband, a wife and a daughter as joint tenants constituted property of the bankruptcy estate of one of the spouses, held that the marital property transmutation statute in California Family Code § 852(a) does not apply when a married couple acquires real property from a third party as joint tenants.... The Ninth Circuit held that the general presumption under California law that property acquired by a married couple during marriage is community property was rebutted by a third party deed specifying record title in the property as joint tenants and that the statutory formalities of the California marital property transmutation statute were inapplicable to transactions where a spouse acquires property during marriage from a third party.546 B.R. at 415 (citations omitted). Nevertheless, in an extremely well-reasoned and well-stated opinion the Obedian court held that Summers, did not require a different result. The court first explained its decision not to follow Ninth Circuit precedence:
This court must determine whether it should follow the Ninth Circuit's decision in Summers or the California Supreme Court's decision in Valli in applying California law in determining the character of the Real Property as joint tenancy separate property as record title shows or community property based on application of the general community property presumption because these decisions conflict as to the applicability of the marital property transmutation statute in California Family Code § 852(a) to spousal property purchases from third parties. "In general, prior Ninth
Circuit published authority is binding within the Circuit to the same extent as is Supreme Court precedent." 2 Goelz, Watts and Batalden, Rutter Group Practice Guide: Federal Ninth Circuit Civil Appellate Practice, ¶ 8:154 at 8-22 (2015), citing inter alia, Hart v. Massanari, 266 F.3d 1155, 1171 (9th Cir.2001). "In resolving an issue of state law, a Ninth Circuit panel ordinarily should follow the holding of a prior panel on that issue. But if state courts subsequently disagreed with the prior panel, the later Ninth Circuit panel is not bound to follow the prior panel." 2 Goelz, Watts and Batalden, Rutter Group Practice Guide: Federal Ninth Circuit Civil Appellate Practice, ¶ 8:205.3 at 8-44, citing inter alia, F.D.I.C. v. McSweeney, 976 F.2d 532, 535-536 (9th Cir.1992). Moreover, in interpreting state law, the Ninth Circuit must follow the decisions of the state's highest court. 2 Goelz, Watts and Batalden, Rutter Group Practice Guide: Federal Ninth Circuit Civil Appellate Practice, ¶ 8:204 at 841, citing inter alia, Johnson v. Fankell, 520 U.S. 911, 916, 117 S.Ct. 1800, 138 L.Ed.2d 108 (1997) ("Neither this Court nor any other federal tribunal has any authority to place a construction on a state statute different from the one rendered by the highest court of the State.") and Muniz v. United Parcel Service, Inc., 738 F.3d 214, 219 (9th Cir.2013), In Muniz v. United Parcel Service, Inc., the Ninth Circuit stated that "[d]ecisions of the California Supreme Court, including reasoned dicta, are binding on us as to California law." 738 F.3d at 219.546 B.R. at 421. The court went on to provide the statutory analysis under Valli:
Accordingly, in this case, the court applies the community property presumption in California Family Code § 760 and the marital property transmutation statute in California Family Code § 852(a) as indicated by the California Supreme Court in Valli rather than applying the general record title presumption in California Evidence Code § 662 and not applying the marital property transmutation statute as indicated by the Ninth Circuit in Summers. Thus, the court determines that the Real Property is community property unless Trustee can rebut the evidentiary presumption under California Family Code § 760 by proving by a preponderance of the evidence that Debtor and Mr. Obedian transmuted the Real Property from community property pursuant to the requirements of California Family Code § 852(a).546 B.R. at 422. The Court agrees with the analysis of Judge Kwan. In a footnote Defendants argue that Obedian was incorrectly decided on this point. The Court disagrees. The Court has thoroughly read and considered the ruling in Obedian and finds it persuasive.
Defendants also argue that in Obedian there was substantial evidence that the parties had no intention to hold their property in joint tenancy. First, the Court finds that the ruling in Obedian was not based upon the weight of the evidence, but rather upon a finding that the strict transmutation requirements of Family Code § 852(a) were not met in that case. Further, in the case at hand there is evidence that Janelle had no specific intent to hold the Property in any particular manner. In her deposition, which was admitted at trial, Janelle was asked why she and Chadwick took title as joint tenants. She explained that "Chad made all the decisions for that, and I just - you know, I just went along." Depo.Trans. 17:12-25. She also explained that she "knew somewhat" what joint tenants meant. Id. at 18:1-3. She only discussed the fact that they held title as joint tenants with Chadwick. Id. at 18-8-10. The Court also notes that at a prior hearing, all parties agreed that there was no need for additional evidence in relation to the determination reached here.
Having considered the arguments and having thoroughly reviewed the statutory and case law, the Court has concluded that the September 22 ruling must be revisited and revised to conform to Valli. The Court holds that as of the petition date, the Property was held by Chadwick and Janelle as community property.
Conclusion and Moving On
In Phase One the Court ruled that as of the petition date Chadwick had an ownership interest in the Property. To that ruling the Court now adds the ruling that as of the petition date Chadwick and Janelle owned the Property as community property.
At the status conference the Court and the parties will establish procedures for moving on to Phase Two, in which the Court will address the remaining issues including the Trustee's request for authority to sell the Property and any claim(s) Charles may have against the estate. Because this decision does not resolve all of the issues in this matter, it is not a final order for the purposes of appeal - it is, like Judge Bowie's prior ruling, interlocutory. DATED: August 29, 2016
/s/_________
LAURA S. TAYLOR, Chief Judge
United States Bankruptcy Court
CERTIFICATE OF MAILING
The undersigned, a regularly appointed and qualified employee in the office of the United States Bankruptcy Court for the Southern District of California, at San Diego, hereby certifies that a true copy of the attached document, to wit:
MEMORANDUM DECISION
was enclosed in a sealed envelope bearing the lawful frank of the bankruptcy judges and mailed via first class mail to the party at their respective address listed below: Nancy L. Wolf, Trustee
P.O. Box 420448
San Diego, CA 92142 Kevin J. Hoyt, Esq.
Estes & Hoyt, A.P.C.
550 West C Street, Suite 530
San Diego, CA 92101 Jennifer E. Duty, Esq.
Gordon Rees LLP
101 West Broadway, Ste 2000
San Diego, CA 92101 Susan C. Stevenson, Esq.
PYLE SIMS DUNCAN & STEVENSON
A Professional Corporation
401 B Street, Suite 1500
San Diego, CA 92101
Said envelope(s) containing such document was deposited by me in the City of San Diego, in said District on August 29, 2016-.
/s/ Regina S. Fabre
Regina A. Fabre, Judicial Assistant