Opinion
NOT FOR PUBLICATION
Argued and Submitted at Pasadena, California: September 28, 2005
Appeal from the United States Bankruptcy Court for the Central District of California. Honorable Ernest M. Robles, Bankruptcy Judge, Presiding. Bk. No. LA 94-16755-ER. Adv. No. LA 96-01580-ER.
Before: BRANDT, MARLAR and McMANUS, [ Bankruptcy Judges.
Hon. Michael S. McManus, Chief Bankruptcy Judge for the Eastern District of California, sitting by designation.
MEMORANDUM
Appellee chapter 7 trustee commenced an adversary proceeding against debtor's general partner, appellant Michael J. Welther, III (" Welther"), and obtained a $2.1 million judgment, which was not satisfied. Appellee, the receiver in aid of execution appointed by the bankruptcy court under the state statutes, moved to determine the state exemption rights Welther claimed in an independent retirement account.
Absent contrary indication, all chapter and section references are to the Bankruptcy Code, 11 U.S.C. § § 101-1330; all " Rule" references are to the Federal Rules of Bankruptcy Procedure. All " CCP" references are to the California Code of Civil Procedure.
The bankruptcy court denied Welther's exemption claim and ordered turnover of the funds to the estate.
Welther argues that the bankruptcy court clearly erred in denying his claimed exemption in the IRA by failing to properly apply the evidence and to consider his and his dependents' future needs, and seeks reversal and remand.
We AFFIRM.
I. FACTS
Oakmore Ranch Management (" debtor") filed chapter 11 bankruptcy in 1994. Appellee David Seror (" trustee") was appointed chapter 11 trustee, and upon conversion in June 1994, became chapter 7 trustee. In 1996, he commenced an adversary proceeding under § 547 et seq., and in March 1997 the bankruptcy court entered a judgment against Welther for $2,154,477 plus interest. The judgment was entered jointly against Welther and his partner, Harry Olivar. Although Welther made no payment on the judgment, the trustee took no action to execute on the judgment for several years.
In March 2004, the bankruptcy court appointed appellee James Donell as receiver in the adversary proceeding under CCP § § 564(b)(3) and (b)(4), and 708.620. Donell filed a motion to determine, inter alia, the extent of Welther's exemption in an IRA held at Morgan Stanley, Account #244-017887 (the " IRA"). The IRA was originally created in 2002, when Welther rolled over $171,000 into it, from two qualified pension plans which were created and maintained by two closely held corporations of which Welther had been president and director, though he had since retired. After the plans were terminated in 1990, Welther elected to distribute the proceeds, totaling $350,000, into an IRA rollover account at Orange National Bank; he deposited $171,000 of these funds into the IRA. In December 2003 and August 2004, Welther made withdrawals of $6700 and $2800, respectively, leaving a balance of $161,500. The current balance, with interest, is now approximately $164,000.
Welther argued that the IRA is entirely exempt as necessary for his and his dependents' present and future needs. At the time of the hearing, Welther was approximately 75 years old, retired, and had a " heart condition requiring three medications." He provided no other health-related testimony. He is unmarried but supports three minor children, ages 8, 8 and 11, and their mother, age 49, none of whom live with him. The children's mother, who is unemployed, receives social security of $800-900 monthly per child. There are no other facts or documentation in the record about the dependents' living or financial situation.
Welther claimed his debts total $5,758,000 (mostly judgments and legal fees), including the unsatisfied judgment. He owns two vehicles, worth at most $1500 each; business property in San Juan Capistrano, California, which has no equity; and has a (disputed) claim for a life estate interest in his condominium which, if recognized, is valued at $35,000. According to his declaration and supplemental declaration, his only income is social security of $1286 monthly and modest earnings from a temporary job of $600-800 per month. His monthly expenses total $8204, including combined rent of $4062 (his own rent and the dependents' rent, but there is no breakdown); children's school and childcare, $1020; food and supplies, $1000; utilities and telephone, $350; insurance premiums, $602; medical/dental, $400; transportation, $320; and laundry, $200. (There is no supporting documentation). Based on these figures, Welther has a monthly shortfall of $6918. He provided no evidence as to how this differential is made up.
The bankruptcy court tentatively denied the exemption claim, finding insufficient detail, but continued the hearing, ordering Welther to " file and serve a balance sheet as described in the tentative ruling and any further opposition to the Motion insofar as the Motion seeks a ruling on the extent, if any, to which the Morgan Stanley account is exempt." Welther filed a supplemental opposition and declaration but did not request an evidentiary hearing under Rule 9014.
Assuming for purposes of analysis but without deciding that the IRA qualified under state law as a " rollover individual retirement account" under CCP § 704.115(a)(3), the court concluded:
3. Welther . . . failed to meet his burden of proof under CCP § 703.580(b) of establishing the " necessary for support" elements of CCP § 704.115(e). Based thereon, Welther's claim of exemption with respect to the Morgan Stanley Account is denied.
4. Since Welther does not have a sustainable claim of exemption to the Morgan Stanley Account, the bankruptcy estate is entitled to receive the funds in the Morgan Stanley Account to apply to the judgment in favor of the Trustee and against Welther.
Order Denying Claim of Exemption With Respect to Alleged IRA Rollover Account and Ordering Funds to be turned over to the Estate for Application of Judgment, 1 February 2005.
The bankruptcy court granted Welther's motion to stay the order pending appeal. Welther sought leave to appeal, which we granted on 14 April 2005.
II. ISSUE
Whether the bankruptcy court clearly erred in denying Welther's claim of exemption in the IRA under CCP § 704.115(e) as not necessary for support.
III. JURISDICTION
The bankruptcy court had jurisdiction via 28 U.S.C. § 1334 and § 157(a), (b)(1), and (b)(2)(B) and (E). We do under 28 U.S.C. § 158(c).
IV. STANDARDS OF REVIEW
We review the bankruptcy court's findings of facts regarding the necessity of an IRA for the judgment debtor's support under the clearly erroneous standard. See In re Bernard, 40 F.3d 1028, 1033 (9th Cir. 1994); Rule 8013. A factual finding is clearly erroneous if the appellate court, after reviewing the entire record, has a firm and definite conviction that a mistake has been committed. Anderson v. City of Bessemer City, N.C., 470 U.S. 564, 573, 105 S.Ct. 1504, 84 L.Ed.2d 518 (1985).
The bankruptcy court's application of California exemption law is a question of statutory construction which we review de novo. In re Spenler, 212 B.R. 625, 628 (9th Cir. BAP 1997); In re Toplitzky, 227 B.R. 300, 302 (9th Cir. BAP 1998).
We may affirm on any basis supported by the record, even where the issue was not expressly considered by the bankruptcy court. In re E.R. Fegert, Inc., 887 F.2d 955, 957 (9th Cir. 1989).
V. DISCUSSION
A. Procedure
Ordinarily, under California law, a written claim of exemption must be filed with the levying officer within ten days after the date of service of the notice of levy. The judgment debtor files a written claim of exemption with the levying officer, CCP § 703.520, and a creditor who wishes to contest the claim must notice his opposition within 10 days and set the matter for a hearing. Imperial Bank v. Pim Elec., Inc., 33 Cal.App.4th 540, 554-55, 39 Cal.Rptr.2d 432 (1995) (outlining statutory procedure); see also 2 C.E.B., Debt Collection Practice in California, § 9.56 et seq. (2d ed. 2005). While the proceedings here did not exactly track the statutory course, Welther did not raise this as an issue on appeal, nor has the receiver argued that Welther waived his exemption claim by failing to adhere strictly to the statutory procedure.
A disputed exemption claim in bankruptcy court is a contested matter, see In re Moffat, 107 B.R. 255, 256 (Bankr. C.D. Cal. 1989), aff'd, 959 F.2d 740 (9th Cir. 1992), governed by Rule 9014. Welther could have but did not request an evidentiary hearing. Nor did he brief it. Accordingly, Welther has waived any issue regarding the propriety of the procedure. In re Sedona Inst., 220 B.R. 74, 76 (9th Cir. BAP 1998), aff'd mem., 21 Fed.Appx. 723 (9th Cir. 2001) (issue not briefed is deemed waived).
B. IRA Exemption Claims in California
California law on enforcement of judgments against " private retirement plans" provides:
(b) All amounts held, controlled, or in process of distribution by a private retirement plan, for the payment of benefits as an annuity, pension, retirement allowance, disability payment, or death benefit from a private retirement plan are exempt.
. . .
(d) After payment, the amounts described in subdivision (b) and all contributions and interest thereon returned to any member of a private retirement plan are exempt.
(e) Notwithstanding subdivisions (b) and (d), except as provided in subdivision (f), the amounts described in paragraph (3) of subdivision (a) are exempt only to the extent necessary to provide for the support of the judgment debtor when the judgment debtor retires and for the support of the spouse and dependents of the judgment debtor, taking into account all resources that are likely to be available for the support of the judgment debtor when the judgment debtor retires. . . .
CCP § 704.115(b), (d) and (e) (emphasis added).
The Legislative Committee's Official Comment to CCP § 704.115(e) provides, in part:
Subdivision (e) requires that the court consider all resources--such as social security payments and other income assets--that are likely to be available to the judgment debtor when the judgment debtor retires. Accordingly, where it will be a number of years before the judgment debtor will retire, the court will take into account not only all the assets of the judgment debtor at the time the exemption claim is determined but also all the assets and income (including pension rights) that the judgment debtor is likely to acquire prior to retirement.
16 Cal. Law Revision Commission Report on 1982 Creditors' Remedies Legislation, 1413 (1981-82).
The time for determining an exemption is at the earliest of: the time of the levy; the time of the commencement of court proceedings for application of the property to satisfaction of the judgment; or the time a lien is created under the Enforcement of Judgments Law or the Attachment Law. CCP § 703.100(a); see also Imperial Bank, 33 Cal.App.4th at 552. In this case, the date is 19 October 2004, when the receiver filed his motion in bankruptcy court.
Since Welther's right to claim an exemption lies in California state law, the state law burden of proof applies. In contrast to the determination of a bankruptcy debtor's claim of exemption under § 522, the burden of proof in establishing the claim of exemption under California law is on the judgment debtor claiming it. CCP § 703.580(b); Schwartzman v. Wilshinsky, 50 Cal.App.4th 619, 626, 57 Cal.Rptr. 2d. 790, 795 (1996); In re Davis, 323 B.R. 732, 741 (9th Cir. BAP 2005) (Klein, B.J., concurring) (burden of proof is substantive, so state law should provide the rule of decision regarding the burden on each state exemption).
C. Extent Necessary for Support
The question is what, if any, portion of the IRA is necessary for support of the judgment debtor and his dependents? The bankruptcy court has wide discretion in deciding what amounts are reasonably necessary, taking into account the judgment debtor's present and future circumstances. Spenler, 212 B.R. at 631. Courts have considered various factors including income, employment situation and prospects, retirement status, age, life expectancy, health, certainty of future financial status, budget, ability to regenerate retirement assets, tax obligations, and dependents' needs. Id; In re Moffat, 119 B.R. 201, 206 (9th Cir. BAP 1990), aff'd, 959 F.2d 740 (9th Cir. 1992); In re Switzer, 146 B.R. 1, 5-6 (Bankr. C.D. Cal. 1992). " The California exemption statutes are liberally construed, for their manifest purpose is to protect income and property needed for the subsistence of the judgment debtor." In re Payne, 323 B.R. 723, 727 (9th Cir. BAP 2005) (citation omitted); see also Schwartzman, 50 Cal.App.4th at 630 (California exemption statutes should be construed to benefit the judgment debtor).
Four factors would seem to favor exemption: Welther's age, his retirement status, his dependents' ages, and the amount of the judgment, given that Welther can never hope to pay the principal. Even if he could replenish the IRA, the replenished funds could also be subject to levy.
It is appropriate that, as an elderly retiree, the bankruptcy court consider Welther's future financial needs, see Legislative Committee's Official Comment, supra, and Welther seems to imply that future financial needs will be at least as great or greater than present.
Nevertheless, Welther offered virtually no evidence on these issues, and the bankruptcy court was left largely to speculation, as are we. The bankruptcy court expressly directed Welther to supplement his testimony. Welther's declarations were superficial and sketchy respecting his and his dependents' current and future needs and living situation. He provided neither a financial statement nor copies of retirement plans, account statements, banking records, title and asset valuations, agreements regarding the children's support, education or living arrangements, tax returns (which would reflect 1099-R distributions), nor documentation on the rollover of funds. He has never expressly stated how much IRA money he needs now or will need in the future, nor explained why he has made only two IRA withdrawals in 2003 and 2004, totaling less than $10,000, although he retired in 1996.
Welther has not even argued, much less shown, how the bankruptcy court's decision was clear error. Welther simply did not carry his burden of proof to show the IRA necessary for his support.
Because we affirm on the merits, we need not remand for determination of whether the IRA qualifies as a private retirement plan under CCP § 704.115(a)(3).
VI. CONCLUSION
Welther failed to meet his state law burden of proof that the IRA was necessary for his support. As he did not carry his burden of proof, and there was evidence from which the court could infer the IRA was not necessary for his support, there was no error in denying Welther's claim of exemption.
We AFFIRM.