Opinion
NOT FOR PUBLICATION
Argued and Submitted at Pasadena, California: September 23, 2010
Appeal from the United States Bankruptcy Court for the Central District of California. Bk. No. LA 08-13012-BR, Adv. No. LA 08-01994-BR. Honorable Barry Russell, Bankruptcy Judge, Presiding.
Glenn Ward Calsada appeared for Appellant Ramona G. Fontaine.
Edmundo Espinoza appeared for Appellant Cirilo G. Reyes.
Appellee Robert L. Conn appeared Pro se.
Before MARKELL, HOLLOWELL and KIRSCHER, Bankruptcy Judges.
This disposition is not appropriate for publication. Although it may be cited for whatever persuasive value it may have (see Fed. R. App. P. 32.1), it has no precedential value. See 9th Cir. BAP Rule 8013-1.
INTRODUCTION
Ramona Fontaine (" Ramona") and her spouse Cirilo Reyes (" Reyes") appeal from a summary judgment in favor of Robert Conn (" Conn"). The bankruptcy court determined that Conn legitimately purchased Ramona's former residence in Culver City, California (the " Property") at a sheriff's sale in March 2008, and that from the time of the purchase until it was sold to a third party in March 2009, Conn was the fee simple owner of the Property. Although Ramona claimed a homestead in the Property, the bankruptcy court further determined that neither Ramona nor her bankruptcy estate had a homestead or any other sort of ownership interest in the Property. Based on these determinations, the bankruptcy court determined that the chapter 7 trustee should pay Conn $150,000 in proceeds from the sale of the Property. We AFFIRM.
Unless specified otherwise, all chapter and section references are to the Bankruptcy Code, 11 U.S.C. § § 101-1532, and all " Rule" references are to the Federal Rules of Bankruptcy Procedure, Rules 1001-9037. All " Civil Rule" references are to the Federal Rules of Civil Procedure.
The undisputed facts are taken from our prior decision in Fontaine v. Conn (In re Fontaine), BAP Nos. CC- 07-1403-KPaMk and CC-07-1435-KPaMk (9th Cir. BAP Aug. 1, 2008) (hereinafter " Fontaine I"). In turn, Fontaine I derived most of its facts from the litigation history and real property transactions of the parties, largely drawn from court and other public records.
The controversy in this appeal centers on the parties' respective interests in the Property and how they acquired them. That history began in 1986, when Marcus Fontaine (" Marcus") purchased the Property in the names of his mother Ramona and his sister Barbara. In 1991, the Los Angeles County Superior Court (the " State Court") ruled that Marcus' 1986 purchase constituted a fraudulent transfer that Marcus had made with the actual intent to hinder and delay one of his creditors, Morris Fox (who was represented by Conn). The State Court entered a judgment for damages and costs in the aggregate amount of $65,417 in favor of Fox and against Marcus, Ramona and Barbara (the " 1991 Judgment").
In 1997, Fox assigned his 1991 Judgment to Conn. Conn recorded several abstracts of judgment in Los Angeles County, thereby creating a judgment lien against the Property. Between 1994 and 2002, however, a series of contested acknowledgment of satisfaction of judgment forms also were recorded, purportedly in Conn's name and purportedly under his signature (the " Acknowledgments").
On March 4, 2002, Ramona conveyed the Property to her niece Norma Ruiz (" Ruiz"), who immediately borrowed $200,000 against the Property from a commercial lender, SIB Mortgage Corporation. In addition to executing a deed of trust in favor of SIB Mortgage, Ruiz executed another deed of trust, this one in favor of another niece of Ramona's, Laura Ortiz (" Ortiz"), to secure an alleged debt of $425,000.
In 2003, Conn sued Ramona, Marcus, Ruiz and Ortiz (collectively, the " 2003 Defendants"), as well as SIB Mortgage, in the State Court for abuse of process, fraudulent conveyance, conspiracy, cancellation of instrument, quiet title and cloud on title. In relevant part, Conn alleged that the 2003 Defendants forged and fraudulently recorded the Acknowledgments in order to evade the legal effect of Conn's judgment lien and to realize the value of the Property without having to pay off the 1991 Judgment. By way of his First Amended Complaint, Conn sought: (1) compensatory and punitive damages; (2) avoidance of the Acknowledgments; (3) avoidance of the conveyance of the Property from Ramona to Ruiz; (4) a declaration that his judgment lien was of superior priority to any claim or interest of any of the defendants; and (5) a determination of the claims and interests in the Property of each of the defendants. Shortly after the commencement of his lawsuit, Conn recorded a notice of pending action, or lis pendens, which referred to the relief he sought against the defendants with respect to the Property.
Ramona and Marcus filed a verified answer to the complaint in which they admitted that ownership of the Property was transferred to Ruiz in 2002, and that Ruiz thereafter was the owner of the Property. In late 2003, the State Court entered an order striking their answer and entering defaults against Marcus and Ramona. Neither Ruiz nor Ortiz had ever responded to Conn's First Amended Complaint, and thus the court also entered their defaults. Meanwhile, SIB Mortgage and Conn agreed to a stipulation for entry of judgment. As a result, in 2004, the State Court entered an Amended Judgment worked out between Conn and SIB Mortgage (the " 2004 Judgment"), in which the State Court made the following rulings:
o That all of the Acknowledgments were forgeries and were void;
o That all of Conn's abstracts of judgment were valid and fully enforceable;
o That, on March 4, 2002, Ramona by grant deed conveyed fee simple title in the Property to Ruiz;
o That SIB Mortgage was a bona fide encumbrancer, and SIB Mortgage's deed of trust was senior to Conn's judgment lien;
o That Ruiz's purchase of the Property and her execution of the $425,000 deed of trust in favor of Ortiz, along with the recording of the forged Acknowledgments constituted fraudulent conveyances by the 2003 Defendants, which they made with the actual intent to hinder, delay and defraud Conn in his attempts to enforce and collect on the 1991 Judgment;
o That the $425,000 deed of trust in favor of Ortiz was void; and
o That the 2003 Defendants were jointly and severally liable to Conn for $185,000 in compensatory damages, and all but Ortiz were also liable for $100,000 in punitive damages.
2004 Judgment at pp. 3-7.
In 2007, Ramona, Marcus and Ruiz filed a motion to vacate the 2004 Judgment. The State Court denied the motion and the movants appealed. The California Court of Appeal issued an opinion in 2008, affirming the State Court's order denying the motion to vacate, in which the Court of Appeal recounted and elaborated on the history of forgery and fraudulent conveyances which gave rise to the 2004 Judgment. See Conn v. Fontaine, 2008 WL 1932763 (Cal.Ct.App., May 5, 2008) (unpublished).
Meanwhile, Conn obtained a writ of execution, which he caused the Los Angeles County Sheriff to levy against the Property. The Sheriff set a sale date of August 1, 2007, but on July 30, 2007, Ramona filed a chapter 13 bankruptcy, which resulted in the postponement of the sale. In October 2007, Conn obtained from the bankruptcy court an order granting him relief from the co-debtor stay under § 1301 permitting him to proceed with his judgment enforcement efforts against Ramona's co-obligors under the 2004 Judgment. Additionally, in November 2007, the bankruptcy court entered an order dismissing Ramona's chapter 13 bankruptcy, with a 180-day bar to refiling absent Ramona's obtaining the prior permission of the court. On appeal to the BAP, we affirmed the order granting relief from stay and dismissed as moot the appeal from the case dismissal order.
Conn purchased Ruiz's interest in the Property at a sheriff's sale held on March 12, 2008 (the " Sheriff's Sale"). Two days before, however, on March 10, 2008, Ramona obtained permission from the bankruptcy court to file a chapter 7 bankruptcy, which she filed that same day. Ramona then sought by adversary proceeding and motion to have the Sheriff's Sale set aside as void in violation of the automatic stay in her bankruptcy case.
The bankruptcy court dismissed the adversary proceeding and denied the motion. The bankruptcy court ruled that the sale affected only Ruiz's interests, and thus any interest that Ramona might claim in the Property had not been affected. As a consequence, the court found that the Sheriff's sale did not violate Ramona's bankruptcy stay.
The bankruptcy court further noted that Ramona had admitted in open court that Marcus had signed her name on the motion and on the pleadings in the adversary proceeding.
On July 15, 2008, Ramona filed amended bankruptcy schedules, in which she claimed an interest in the Property. According to her Amended Schedule A, she and her husband Reyes held title to the Property " as joint tenants on behalf of the Cynthia Paola Pietro Mendez minor child trust" (the " Minor Child Trust"). According to her Amended Schedule C, she further claimed that her interest in the Property was the subject of a homestead exemption under Cal. Civ Proc. Code (" CCP") § § 704.710, 704.720 and 704.730. Neither the chapter 7 trustee nor Conn filed an objection to Ramona's homestead exemption claim.
Ramona's alleged ownership interest is explained in a declaration she later filed in the bankruptcy court. According to Ramona, her 2002 conveyance of the Property to Ruiz was a sham to obtain credit under false pretenses. Ramona asserted that it was always understood by Ruiz and SIB Mortgage that Ruiz would convey the Property back to Ramona as soon as the loan from SIB Mortgage closed. She then revealed that Ruiz reconveyed the Property by a Grant Deed dated August 27, 2002, which named " Ramona G. Fontaine and Cirilo G. Reyes, as Joint tenants, and on behalf of the [Minor Child Trust]" as grantees. See April 8, 2009, Sworn Declaration of Ramona G. Fontaine at ¶ ¶ 20-25.
The record does not specify when Ramona first revealed to the world Ruiz's 2002 deed allegedly conveying title back to Ramona (the " Ruiz Deed"). Ramona did not record the 2002 Ruiz Deed until December 2006, over four years after Ruiz allegedly executed the Ruiz Deed. What is clear, however, is that Ramona never asserted nor even mentioned her alleged continuing interest in the Property in Conn's 2003 lawsuit. To the contrary, as mentioned above, Ramona's verified answer admitted that Ramona conveyed the Property to Ruiz and that Ruiz owned the Property. While the State Court later struck Ramona's answer, we note that it appears impossible to reconcile Ramona's sworn statements regarding Ruiz's ownership of the Property contained in her verified 2003 answer with her later claims of ownership made in her declaration testimony in the bankruptcy court. In any event, Ramona never alleged in Conn's 2003 lawsuit a continuing interest in the Property, nor did she reveal the existence of the 2002 Ruiz Deed.
Compare June 20, 2003, Answer to Complaint (" . . . these answering defendants admit that Norma Ruiz is the owner of the [Property]" and " . . . these answering defendants admit that the [Property] was lawfully transferred to Norma Ruiz on or about March 4, 2002") with April 8, 2009, Sworn Declaration of Ramona G. Fontaine at ¶ 9 (" Norma Ruiz did not never own; never had; never aspired to have and never held any monetary interest; equitable interest; or any other interest whatsoever in [the Property] . . . .").
Meanwhile, in Ramona's 2008 bankruptcy, Ramona, Marcus and Reyes (collectively, the " Fontaine Parties") all filed papers claiming various interests in the Property. Consequently, to determine the competing interests of the parties and to quiet title to the Property, the Trustee filed an adversary proceeding in December 2008, naming the Fontaine Parties and Conn as defendants (the " BK Quiet Title Action"). The first two causes of action sought a determination of who owned the Property, and the third cause of action, against Reyes only, sought to avoid and recover for the benefit of the estate the fraudulent transfer of an interest in the Property from Ruiz to Reyes.
The Trustee separately sought and obtained an order for possession of the Property. Pursuant to the bankruptcy court's order, the Fontaine Parties eventually were evicted from the Property.
In February 2009, with the BK Quiet Title Action still pending, the Trustee obtained the bankruptcy court's authorization to sell any interest that Ramona claimed in the Property. The Trustee acknowledged that Conn claimed to own the Property outright as a result of the 2004 Judgment and the 2008 Sheriff's Sale, but Conn separately entered into a settlement with the Trustee pursuant to which Conn consented to the bankruptcy sale, without prejudice to his rights as the alleged owner of the Property.
We have previously held that bankruptcy courts must resolve ownership disputes before authorizing sale of property on behalf of the bankruptcy estate. See Darby v. Zimmerman (In re Popp), 323 B.R. 260, 268-70 (9th Cir. BAP 2005). However, the settlement agreement explained that a foreclosure sale of the Property was imminent and that a bankruptcy sale needed to occur before the foreclosure in order to preserve any value to the estate that might be derived from the Property. For his part, Conn agreed to certain carve outs to pay the Trustee's administrative expenses, including the costs of preserving, marketing and selling the Property, and also agreed to the Trustee holding back $150,000 to cover Ramona's homestead exemption in the event she prevailed in the BK Quiet Title Action. Finally, Conn agreed to, and did, provide a quitclaim deed to the successful bidder at the bankruptcy sale, so that the bidder could receive clear title to the Property. The sale yielded proceeds of over $880,000.
The sale order states the amount of sale proceeds as both $843,500 and $883,000, but the record suggests that $883,000 is the correct number.
Pursuant to the sale order, the following claims and liens were prioritized for payment in the following order:
o $73,843 reimbursement to Conn on account of his payment of delinquent property taxes;
o $4,263 reimbursement to Conn on account of his payment of property insurance;
o $979 reimbursement to the Trustee on account of her payment of property insurance;
o $221,000 payment to the holder of the first deed of trust;
o $613,881 payment to Conn on account of his judgment liens.
Under the terms of the sale order and the Trustee's settlement with Conn, Conn's payment was subject to a $185,000 holdback. $35,000 of the holdback was an agreed-upon surcharge against the proceeds for administrative expenses already incurred, or to be incurred, by the estate. The remaining $150,000 of the holdback was reserved to pay Ramona's homestead exemption in the event she prevailed in the BK Quiet Title Action. Finally, Conn's share of the proceeds also was subject to payment by the Trustee of closing costs and a broker's commission. In a critical lapse for their case here, the Fontaine Parties did not timely appeal the sale order or the order approving the settlement between Conn and the Trustee.
Ramona and Reyes did file a petition for writ of Mandamus, which the BAP denied. See Fontaine, et al. V. Bankruptcy Court, BAP No. CC-09-1084 (9th Cir. BAP March 23, 2009).
In April 2009, Conn filed a motion for summary judgment in the BK Quiet Title Action. Conn asserted there could be no factual or legal dispute that he became the sole and absolute owner of the Property as result of the 2008 Sheriff's Sale. This assertion was based on the legal conclusion that the 2002 Ruiz Deed, purporting to convey title from Ruiz to Ramona and Reyes as joint tenants, was void under Cal. Civil Code § 1214 because neither Ramona nor Reyes recorded that deed until 2006, over three years after Conn recorded his lis pendens referencing his 2003 lawsuit. According to Conn, based on the effect of Cal. Civil Code § 1214 and the 2004 Judgment, Ruiz was the only individual with an ownership interest in the Property at the time of Ramona's 2008 bankruptcy filing. Since Conn acquired Ruiz's interest at the 2008 Sheriff's Sale, he thereby became the sole and absolute owner of the Property.
Cal. Civil Code § 1214 provides: Every conveyance of real property or an estate for years therein, other than a lease for a term not exceeding one year, is void as against any subsequent purchaser or mortgagee of the same property, or any part thereof, in good faith and for a valuable consideration, whose conveyance is first duly recorded, and as against any judgment affecting the title, unless the conveyance shall have been duly recorded prior to the record of notice of action. (Emphasis Added.)
The Trustee contemporaneously filed three separate summary judgment motions. One of the motions focused on the ownership claim asserted by Marcus, another focused on Reyes' ownership claim, and the third focused on the ownership claim of the Minor Child Trust.
The Fontaine Parties opposed the summary judgment motions. While they filed a host of opposition papers consisting of hundreds of pages of material, their responses to Conn's summary judgment motion boiled down to a few key points. Their responses primarily focused on the fact that no one timely objected to Ramona's homestead exemption claim. The Fontaine Parties argued that, under Rule 4003(b) and Taylor v. Freeland & Kronz, 503 U.S. 638, 112 S.Ct. 1644, 118 L.Ed.2d 280 (1992), all parties in interest had waived their right to object to Ramona's homestead exemption claim, and that the BK Quiet Title Action amounted to an impermissible attempt to belatedly object to Ramona's homestead exemption claim. The Fontaine Parties also argued that Ramona had an interest in the Property by virtue of the 2002 Ruiz Deed sufficient to support her homestead exemption, or alternatively, that even a disputed equitable or contingent interest in the Property was sufficient to support her homestead exemption.
The bankruptcy court first considered all of the summary judgment motions at a hearing held on May 27, 2009. No transcript from that hearing has been provided. However, by order entered July 2, 2009, the bankruptcy court acknowledged in writing that it had orally granted the Trustee's summary judgment motions against Marcus and Reyes at the May 27, 2009, hearing and had scheduled further briefing and argument on Ramona's and Conn's ownership claims. In addition, the July 2, 2009, order denied the Fontaine Parties' motion for reconsideration of the court's May 27, 2009, rulings.
The Fontaine Parties attempted to immediately appeal the bankruptcy court's May 27, 2009, rulings, but the BAP denied leave for an interlocutory appeal and dismissed the appeal for lack of jurisdiction. See Fontaine v. Dye (In re Fontaine), BAP No. CC- 09-1186 (9th Cir. BAP July 20, 2009).
On December 17, 2009, the bankruptcy court entered judgment granting Conn's motion for summary judgment (the " 2009 Judgment"). The 2009 Judgment quieted title in favor of Conn by determining that between the date of the 2008 Sheriff's Sale and the 2009 bankruptcy sale, Conn was the fee simple owner of the Property. The 2009 Judgment also declared that none of the Fontaine Parties had any interest in the Property, and specifically that Ramona had no interest in the Property to which her claimed homestead exemption could attach. Based on the above, the judgment directed payment to Conn of the $150,000 held back by the Trustee. In its concurrent Memorandum of Decision, the bankruptcy court explained: (1) the 2004 Judgment determined that Ruiz was the fee simple owner of the Property, and (2) the 2002 Ruiz Deed purporting to convey title back to Ramona and Reyes was void pursuant to Cal. Civil Code § 1214. The court further explained that Ramona lost any declared homestead she previously recorded when she voluntarily conveyed the Property to Ruiz in 2002. Ramona and Reyes both filed timely appeals of the bankruptcy court's 2009 Judgment.
JURISDICTION
The bankruptcy court had jurisdiction under 28 U.S.C. § § 1334 and 157(b)(2)(O). We have jurisdiction under 28 U.S.C. § 158.
Civil Rule 54(b) (made applicable in adversary proceedings by Rule 7054) provides in relevant part that a judgment that disposes of less than all the claims for relief generally does not dispose of the action as to any of the claims for relief. Here, the BK Quiet Title Action stated three claims for relief. The 2009 Judgment fully disposed of the first and second claims for relief, but it did not expressly address the third and final claim for relief, for fraudulent conveyance against Reyes. However, the bankruptcy court's July 2, 2009 order manifested the court's intent to dispose of the third claim for relief against Reyes, and thus the 2009 Judgment, having disposed of the two remaining claims for relief, constituted a final judgment.
ISSUES
1. Was Conn barred from asserting in the BK Quiet Title Action that he was the sole and absolute owner of the Property, and that Ramona had no interest therein, because he did not file an objection to Ramona's homestead exemption claim?
2. Did the bankruptcy court err when it granted summary judgment in favor of Conn?
STANDARDS OF REVIEW
Construction of rules of procedure and the Bankruptcy Code present questions of law that we review de novo. Litton Loan Serv'g, LP v. Garvida (In re Garvida), 347 B.R. 697, 703 (9th Cir. BAP 2006); Ruvacalba v. Munoz (In re Munoz), 287 B.R. 546, 550 (9th Cir. BAP 2002). More specifically, the construction and application of Rule 4003(b), which governs procedure for objecting to exemption claims, is a question of law reviewed de novo. Spenler v. Siegel (In re Spenler), 212 B.R. 625, 628 (9th Cir. BAP 1997).
We also review de novo a bankruptcy court's order granting summary judgment. Wood v. Stratos Product Dev., LLC (In re Ahaza Sys., Inc.), 482 F.3d 1118 1123 (9th Cir. 2007) (stating that both Court of Appeals and BAP apply de novo standard of review to summary judgment ruling).
DISCUSSION
1. Conn did not waive the right to assert his sole and absolute ownership of the Property by not objecting to Ramona's homestead exemption claim.
Section 522(b) of the Bankruptcy Code enables a debtor to exempt property that otherwise would qualify as property of the estate. See § 522(b)(1); 4 Collier on Bankruptcy ¶ 522.04[3] (Alan N. Resnick & Henry J. Sommer, eds., 15th ed. rev. 2010) (stating that " [s]ection 522(b)(1) allows individual debtors to claim property as exempt from the bankruptcy estate."). A debtor makes exemption claims by listing in his or her schedules the property he or she claims as exempt; unless a party in interest timely objects, a debtor's listed exemption claims are deemed allowed. § 522(l); Rule 4003(b); Schwab v. Reilly, 130 S.Ct. 2652, 2658, 177 L.Ed.2d 234 (2010); Taylor v. Freeland & Kronz, 503 U.S. 638, 643-44, 112 S.Ct. 1644, 118 L.Ed.2d 280 (1992).
It is now settled that the absence of a timely objection does not necessarily resolve questions concerning the scope of an exemption claim. If a debtor later asserts a greater or different exemption entitlement than is apparent on the face of his or her Schedule C list of exemptions, then a party claiming a competing interest in the property is not barred from asserting its competing interest even if it did not file an exemption objection as prescribed in Rule 4003(b). Schwab, 130 S.Ct. at 2669; see also Preblich v. Battley, 181 F.3d 1048, 1052-54 (9th Cir. 1999); Klein v. Chappell (In re Chappell), 373 B.R. 73, 78-79 (9th Cir. BAP 2007) (holding that bankruptcy trustee was not time barred from asserting estate's interest in postpetition appreciation in debtors' residence, where appreciated value of debtor's residence exceeded value of exemption listed on debtors' schedules).
The Fontaine Parties argue that Conn, by not objecting to Ramona's homestead exemption claim, was barred from asserting his competing ownership interest in the BK Quiet Title Action to the extent it undermined her homestead exemption claim. In other words, according to the Fontaine Parties, Conn forfeited his ownership interest in the Property (at least up to the amount of Ramona's homestead exemption) by not following the objection procedure set forth in Rule 4003(b).
We disagree. The Fontaine Parties' interpretations of Taylor, § 522(l) and Rule 4003(b) are overbroad. Before bankruptcy exemption statutes and rules can be applied, the bankruptcy court must first determine whether the subject property is property of the estate. See Cogliano v. Anderson (In re Cogliano), 355 B.R. 792, 802 (9th Cir. BAP 2006) (citing Ehrenberg v. S. Cal. Permanente Med. Group (In re Moses), 167 F.3d 470, 474 (9th Cir. 1999) and Spirtos v. Moreno ( In re Spirtos, 992 F.2d 1004, 1007 (9th Cir. 1993)).
In other words, whether a debtor or the bankruptcy estate has any interest in property claimed as exempt is one of several threshold issues that are not subject to the time limitation imposed by § 522(l) and Rule 4003(b). See, e.g., Herrans v. Mender (In re Barroso-Herrans), 524 F.3d 341, 344 (1st Cir. 2008) (citing Mercer v. Monzack, 53 F.3d 1, 3-4 (1st Cir. 1995)) (holding that issue of whether debtor actually scheduled as exempt property claimed by both debtor and trustee was a threshold issue not subject to time limitation under Rule 4003(b)); Preblich, 181 F.3d 1048, 1052-54 (same); Hovis v. Wiggins (In re Wiggins), 220 B.R. 262, 270 (Bankr. D. S.C. 1998) (" [a] determination of whether property [claimed as exempt] is property of the estate or not is the logical first step, but it is one which has no time limit.").
In short, an exemption objection is not a prerequisite to asserting a competing ownership interest in property that the debtor has claimed as exempt. Rule 7001(2) unequivocally provides that " a proceeding to determine the validity, priority, or extent of a lien or other interest in property, " is to be determined by adversary proceeding. The Ninth Circuit, furthermore, has held that it is error for the bankruptcy court to determine a party's interest in property without an adversary proceeding. See Brady v. Commercial W. Fin. Corp. (In re Commercial W. Fin. Corp.), 761 F.2d 1329, 1339 (9th Cir. 1985) (reversing order confirming chapter 11 plan because plan proponent attempted to invalidate liens through plan confirmation process, rather than by filing required adversary proceeding); see also In re Cogliano, 355 B.R. at 805 (holding that bankruptcy court lacked authority to determine whether estate had interest in property as part of contested matter concerning debtor's exemption claim); GMAC Mortgage Corp. Salisbury (In re Loloee), 241 B.R. 655, (9th Cir. BAP 1999) (holding that sale order was void to the extent it purported to determine the priority of creditor's lien because that determination violated Rule 7001(2) and the creditor's due process rights).
Our application of Rule 7001(2) is not at odds with § 522(l). On its face, § 522(b)(1) only applies to " property that the debtor claims as exempt under subsection (b) . . . ." Section 522(b)(1), in turn, only concerns property of the estate. As noted above, whether the debtor or the estate have any interest in the subject property is a threshold issue. Here, the bankruptcy court determined that Ramona had no interest in the Property at the time of her bankruptcy filing. Thus, the Property could not have been property of the bankruptcy estate subject to sections 522(b)(1) and 522(l). See § 541. Simply put, we hold that § 522(l) does not apply when the court determines that neither the estate nor the debtor have any interest in the subject property.
We examine below and uphold this determination of the bankruptcy court.
To hold otherwise could lead to harsh and bizarre results. Debtors could create and establish ownership of property actually owned by others simply by listing that property in their bankruptcy schedules. Nothing in the Code or Rules indicates that Congress intended to give such power to debtors.
In sum, the absence of an exemption objection cannot immunize property claimed as exempt from an assertion that neither the debtor nor the estate own the subject property. To hold otherwise would undermine Rule 7001(2) and binding Ninth Circuit authority.
2. The bankruptcy court did not err in granting summary judgment in favor of Conn.
Rule 7056 makes summary judgment available in adversary proceedings. Rule 7056 incorporates Civil Rule 56(c), which states that summary judgment " should be rendered if the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law."
The bankruptcy court ruled that Conn was entitled to summary judgment. The bankruptcy court determined that, as a matter of law, the 2008 Sheriff's Sale conveyed fee simple ownership of the Property from Ruiz to Conn. The bankruptcy court further determined that none of the Fontaine Parties had any interest in the Property, and specifically that Ramona had no interest in the Property to which her claimed homestead exemption could attach.
a. The bankruptcy court's application of Cal. Civil Code § 1214.
In granting summary judgment, the bankruptcy court primarily relied on the 2004 Judgment, Conn's 2003 notice of pending action, and Cal. Civil Code § 1214. The bankruptcy court reasoned that Ramona's asserted interest in the Property depended on the 2002 Ruiz Deed, but the court pointed out that Ramona did not record that deed until 2006, and that Conn's 2003 lis pendens was recorded first. According to the bankruptcy court, the above-referenced undisputed facts established that the 2002 Ruiz Deed was void pursuant to Cal. Civil Code § 1214. Thus, the bankruptcy court concluded that Ramona had no interest in the Property to support her exemption claim, and that the $150,000 in bankruptcy sale proceeds held back by the Trustee should be paid to Conn.
The bankruptcy sale is discussed below, near the conclusion of this memorandum.
Whether Ramona, or the bankruptcy estate, had any interest in the Property is governed by state law. See Butner v. United States, 440 U.S. 48, 55-57, 99 S.Ct. 914, 59 L.Ed.2d 136 (1979); Gaughan v. Edward Dittlof Revocable Trust (In re Costas), 555 F.3d 790, 793-94 (9th Cir. 2009). Here, state law dictates the treatment of the 2002 Ruiz Deed. Cal. Civil Code § 1214 provides that a conveyance of real property is void " as against a judgment affecting title" when a lis pendens is recorded before the conveyance is recorded. See 5 Harry D. Miller and Melvin B. Starr, Cal. Real Estate § § 11:148, 11:152 (3d ed. 2009).
The Fontaine Parties argue that Cal. Civil Code § 1214 does not apply here because the 2004 Judgment did not affect title. According to the Fontaine Parties, a judgment only affects title within the meaning of the statute if it results in a determination or change of title in plaintiff's favor.
Their argument lacks merit. No California cases interpret Cal. Civil Code § 1214 that narrowly. Furthermore, their narrow interpretation is at odds with the plain meaning of " judgment affecting title" as used in the statute.
Two cases that the Fontaine Parties cite generally support their contention that Cal. Civil Code § 1214 should be interpreted narrowly. See Torrez v. Gough, 137 Cal.App.2d 62, 289 P.2d 840 (1955); Taylor v. Chapman, 17 Cal.App.2d 31, 61 P.2d 476 (1936). However, neither Torrez nor Chapman limit Cal. Civil Code § 1214 to the extent sought by the Fontaine Parties, and both cases are factually distinguishable.
In Torrez, the plaintiffs, who voluntarily sold certain real property, sought reformation of their deed based on fraud or mistake. According to the Torrez plaintiffs, the defendant purchasers prepared the deed and either intentionally or unintentionally increased the scope of property conveyed beyond what the parties had agreed. Id . at 63-66. Before the Torrez plaintiffs brought suit or recorded their lis pendens, the defendant purchasers sold the property to a third party who qualified as a bona fide purchaser. Id . Torrez ruled that plaintiffs could not invoke Cal. Civil Code § 1214 against the third party bona fide purchaser, and that the conveyance to that purchaser was not void. Torrez explained that Cal. Civil Code § 1214 does not apply when the plaintiff:
" . . . has by deed conveyed certain real property to another, and his said grantee has conveyed said property to a bona fide purchaser for value, and the [plaintiff], with knowledge of the conveyance to said second grantee, commences an action against his grantees and the grantees of his grantees seeking to reform his deed upon the ground that it described more property than was intended . . . ."
Id . at 71. Further, Torrez held that Cal. Civil Code § 1214 " has no application to a judgment which creates a new title in the judgment holder which before judgment he did not have; or which merely adjudicates good a title which he got after the unrecorded conveyance." Id .
By contrast, Conn, here, as the party asserting Cal. Civil Code § 1214, did not voluntarily convey any interest in the Property, and the alleged grantee under the deed sought to be declared void, Ramona was not a bona fide purchaser. Furthermore, the 2004 Judgment quieted title in Ruiz, who was the owner of record of the Property when Conn filed his 2003 lawsuit and when he recorded his lis pendens. Finally, there was no evidence here that Conn had any notice or actual knowledge of the 2002 Ruiz Deed at any time before entry of the 2004 Judgment; to the contrary, the uncontroverted evidence in the record establishes that the Fontaine Parties kept secret the 2002 Ruiz Deed during the pendency of Conn's 2003 lawsuit.
In Chapman, a businessman asserted that he purchased the subject real property at a tax sale conducted by the city treasurer based on two minor delinquent lighting assessments. Meanwhile, a single housemaid had purchased the property several years before from the prior owner and had made a number of tax payments on the property. Id . at 32-32. However, the housemaid through ignorance had overlooked the delinquent tax payments, and had neglected to record her deed until after plaintiff had filed his quiet title action and recorded his lis pendens. Id . Even though the businessman had notice of the housemaid's claimed interest in the property, he never made the housemaid a party to his quiet title action, but rather only named the prior owner as defendant. After entry of a stipulated judgment in favor of the businessman in his quiet title action, the housemaid brought her own quiet title action. Id . Chapman held that, under the facts presented there, Cal. Civil Code § 1214 did not void the housemaid's deed, and the businessman's quiet title action did not control the result in the housemaid's quiet title action. The Chapman court explained its reasoning as follows:
We are unable to believe that it was the intention of the legislature to make section 1214 applicable to such a situation as that here presented where the grantee in the unrecorded conveyance was not a party to the action referred to in the notice of lis pendens, and where the party securing the judgment obtained any rights he has through a tax sale, and not through the affirmative acts of the grantee in the unrecorded conveyance or of any of his predecessors.
Id . at 35-36.
Once again, the circumstances in the case before us differ greatly. Here, Ramona and Marcus were parties to Conn's 2003 quiet title lawsuit. Additionally, Conn had no notice or knowledge that either Ramona or Reyes claimed any interest in the Property. Moreover, Conn ultimately obtained ownership of the Property from Ruiz, and Ruiz's interest in the Property resulted from Ramona's affirmative, voluntary act of conveying the Property to Ruiz.
At oral argument, Conn asserted that Reyes was a party to the 2003 lawsuit, but we have found nothing in the record to support that assertion. In any event, even if Conn did not name Reyes as a party to the 2003 lawsuit, Cal. Civil Code § 1214 applies to Reyes' alleged interest in the Property, arising from the 2002 Ruiz Deed, the same as it applies to Ramona's interest. Cal. Civil Code § 1214 applies to conveyances - not litigants. On its face, the statute voids a formerly unrecorded conveyance (like the Ruiz Deed) regardless of whether the litigant asserting that conveyance was a party to the judgment affecting title. See generally Cal. Real Estate, at § § 11:148, 11:152. (explaining legal effect of Cal. Civil Code § 1214). Similarly, Cal. Civil Procedure Code § 764.030 renders the 2004 Judgment equally binding and conclusive against Reyes as it is against Ramona. Furthermore, the circumstances surrounding Reyes' alleged acquisition of an interest in the Property are sufficient to persuade us that the California courts would not extend Chapman's holding to Reyes' benefit.
We further note that extending either Torrez's or Chapman's holding to the instant case would undermine the relevant portion of Cal. Civil Code § 1214 to the point where it would be rendered virtually meaningless. Indeed, it is hard to imagine a set of circumstances where application of Cal. Civil Code § 1214 would be more apt and appropriate than here.
In short, none of the California cases that the Fontaine Parties cite persuade us that Cal. Civil Code § 1214 is inapplicable here. To the contrary, we concur with the bankruptcy court's conclusion that the statute applies.
Our confidence that the California courts would apply Cal. Civil Code § 1214 under the facts presented here is bolstered by California law applying the principles of res judicata, or claim preclusion. When a litigant fails to challenge an interest in property in an action concerning that interest, that litigant is precluded from later challenging that interest in a second action. See, e.g., Mattz v. Superior Court, 46 Cal.3d 355, 371-72, 250 Cal.Rptr. 278, 758 P.2d 606 (1988) (holding that state was barred from raising challenge to native american fishing rights because state should have pursued that challenge in prior litigation concerning those rights); Zaccaria v. Bank of America Nat. Trust and Sav. Ass'n, 164 Cal.App.2d 715, 718-19, 331 P.2d 198 (1958) (holding that judgment in ejectment action conclusively established title to property, and that defendants in ejectment action could not later bring their own suit challenging title); Smith v. Schuler-Knox Co., 85 Cal.App.2d 96, 101, 192 P.2d 34 (1948) (holding that judgment in quiet title action precluded former owners of property from later filing suit claiming an equitable right of redemption in the same property).
Accordingly, the bankruptcy court did not err by declaring the 2002 Ruiz Deed void under Cal. Civil Code § 1214.
b. Interest requirement for homestead exemptions.
Without any legal or equitable interest in the Property, Ramona was not entitled to a homestead exemption. A legal or equitable interest in the property must exist for a homestead exemption to attach to that property. See Alan M. Ahart, California Practice Guide: Enforcing Judgments & Debts ¶ 6:1021.1 (The Rutter Group 2010). The Fontaine Parties argue that Ramona retained sufficient interest in the Property to claim a homestead, citing, among other cases: Tarlesson v. Broadway Foreclosure Invs., LLC, 184 Cal.App.4th 931, 936-38, 109 Cal.Rptr.3d 319 (2010); Fisch, Spiegler, Ginsburg & Ladner v. Appel, 10 Cal.App.4th 1810, 1812-13, 13 Cal.Rptr.2d 471 (1992); Putnam Sand & Gravel Co., Inc. v. Albers 14 Cal.App.3d 722, 726, 92 Cal.Rptr. 636 (1971); Breeden v. Smith 120 Cal.App.2d 62, 65-66, 260 P.2d 185 (1953); see also Ohanian v. Irwin (In re Irwin), 338 B.R. 839, 852-53 (E.D.Cal. 2006); In re Donaldson, 156 B.R. 51, 52 (Bankr. N.D. Cal. 1993); In re Moffat, 107 B.R. 255, 259-60 (Bankr.C.D. Cal. 1989), aff'd, 119 B.R. 201 (9th Cir. BAP 1990).
At oral argument, Ramona emphasized her reliance on Tarlesson and asserted that, under Tarlesson, a judgment debtor may claim a homestead exemption based on mere possession, even if the judgment debtor has no legal or equitable interest in the subject property. See also In re Donaldson, 156 B.R. at 52 (suggesting that so long as the debtor has possession and a colorable claim to ownership at the time of the bankruptcy filing, the debtor may assert a homestead exemption).
However, the facts in Tarlesson are markedly different than ours. In Tarlesson, the judgment debtor Tarlesson only transferred legal title to the subject real property to her cousin Peola Lane in order to refinance the property, but at all times Tarlesson retained the beneficial interest in the real property. 184 Cal.App.4th at 935, 938. Further, Lane successfully deeded back the property to Tarlesson several months later. Id . In contrast, here, the 2004 Judgment conclusively established that Ruiz was the fee simple owner of the Property, and the 2002 Ruiz Deed was void. Consequently, unlike the judgment creditor in Tarlesson, Conn was able to obtain sole and absolute ownership of the Property through a sheriff's sale of Ruiz's interest, against whom Conn also held a judgment. In Tarlesson, by contrast, the judgment creditor could not and did not attempt to levy on Lane's interest in the subject real property because the judgment creditor did not hold a judgment against Lane; rather, the judgment creditor's attempts to levy on the real property depended on Tarlesonn having retained an interest in the property.
See subsection 2.a., supra.
Thus, in the cases the Fontaine Parties cite, it either was undisputed or the court determined that the exemption holder held some sort of legal or equitable interest in the property claimed as exempt. Here, Ramona held no such interest. Unlike the cited cases, the State Court's 2004 Judgment conclusively determined that Ruiz was the fee simple owner of the Property.
To the extent that either Tarlesson or Donaldson suggest that a judgment debtor is entitled to assert a homestead exemption based on mere possession, we disagree based on the facts presented here. Under California's statutory scheme of exemptions, we do not understand how someone who is essentially a squatter can acquire a valuable homestead exemption, or how that exemption right can attach to property in which they have no legal or equitable interest. Further, interpreting homestead exemption rights so broadly would seem to undermine California's definition of property interests as a " right" to possess and use the subject property " to the exclusion of others, " Cal.Civ.Code § 654, and undermine California law that mere possession without any established right to possession does not constitute an interest in property. See, e.g., People v. McKinney, 9 Cal.App.2d 523, 524, 50 P.2d 827 (1935) (stating that " possession may exist entirely apart from ownership.").
When an individual voluntarily conveys all of his or her interest in property to another entity or individual, he or she typically loses any entitlement to claim an exemption in the property conveyed. See, e.g., Amin v. Khazindar, 112 Cal.App.4th 582, 588-89, 5 Cal.Rptr.3d 224 (2003); see also Cal. Coastal Com'n v. Allen, 167 Cal.App.4th 322, 328-29, 83 Cal.Rptr.3d 906 (2008) (holding that individual who conveyed his interest in his residence to a corporation that he owned lost his homestead exemption). But see Putnam Sand & Gravel Co., 14 Cal.App.3d at 726 (1971) (holding that fraudulent conveyance of property does not amount to an abandonment of a homestead exemption, so long as the effect of the fraudulent conveyance is subject to being unwound). Here, the State Court entered a final judgment upholding Ramona's conveyance of the Property in fee simple to Ruiz. This effectively ended any homestead exemption Ramona held on the Property.
Ramona's amended schedules indicate that she was claiming a residential or dwelling exemption in the Property (under C.C.P. 704.710 et seq.) rather than a declared homestead exemption (under C.C.P. 704.920), but regardless of which she intended to claim the result is the same. We acknowledge that there are significant differences in treatment and effect of dwelling exemptions and declared homestead exemptions. For instance, a declared homestead exemption will continue in proceeds after a voluntary sale for up to six months, and a residence purchased within that time period with the proceeds will be subject to the same declared homestead exemption. See Amin, 112 Cal.App.4th at 588-89. However, neither type of exemption continues in property that is voluntarily conveyed after the conveyance is completed. See id.
In sum, the bankruptcy court did not err when it ruled that Ramona had no interest in the Property at the time of her bankruptcy filing to which her exemption claim could attach, that Conn obtained fee simple ownership of the Property from Ruiz as a result of the 2008 Sheriff's Sale, and that Conn was entitled to the $150,000 in bankruptcy sale proceeds held back by the Trustee.
3. The Fontaine Parties' remaining arguments are either irrelevant, unpersuasive or meritless.
In hundreds of pages of briefing on appeal, the Fontaine Parties make numerous arguments why they should prevail. Above, we have addressed a handful of their contentions and have concluded that they are either unpersuasive or meritless. Their remaining arguments are equally unpersuasive and/or meritless, or are irrelevant because they do not overcome the bankruptcy court's correct application of Cal. Civil Code § 1214 or the bankruptcy court's correct conclusion that Ramona had no interest in the Property at the time of her bankruptcy filing.
For example, the Fontaine Parties complain about the bankruptcy sale of the Property in early 2009. They first argue that the sale was in error because the bankruptcy court should have first determined the parties' respective interests in the Property. At the time of sale, ownership of the Property had not yet been addressed by the bankruptcy court, but the court later determined in its resolution of the BK Quiet Title Action that Conn acquired from Ruiz sole and absolute ownership of the Property and that neither Ramona nor her bankruptcy estate had any interest in the Property at the time of her bankruptcy filing. It is quite possible that the court erred in authorizing the sale before it addressed ownership of the Property. See In re Popp, 323 B.R. at 268-70. However, the bankruptcy court's sale order is beyond the scope of this appeal, as no party timely appealed the sale order. Therefore, it is beyond our jurisdiction to address it here. See generally United Student Aid Funds, Inc. v. Espinosa (In re Espinosa), 130 S.Ct. 1367, 1380, 176 L.Ed.2d 158 (2010) (holding that appellant's failure to timely oppose in bankruptcy court, or to timely appeal, objectionable provision of chapter 13 plan barred appellant's later challenge to that plan provision).
Even if we were to determine that the sale order was jurisdictionally defective because the estate had no interest in the Property at the time of the bankruptcy sale, this would not help the Fontaine Parties' cause. If the bankruptcy court lacked jurisdiction to issue the sale order, it is because Conn was the sole and absolute owner of the Property. If Conn was the sole and absolute owner of the Property, then there is no effective relief that this court could grant to the Fontaine Parties, and thus these appeals would be moot.
The Fontaine Parties alternately contend that, by virtue of the bankruptcy sale, the Trustee and Conn are estopped or otherwise precluded from attacking either Ramona's or the estate's interest in the Property. We disagree. The bankruptcy court did not purport to address ownership of the Property by way of the sale order. Moreover, the Trustee's moving papers, and Conn's response to the sale motion, made clear that Conn claimed sole and absolute ownership of the Property. Thus, we perceive no basis for any estoppel or preclusion against Conn arising from the sale order.
Simply put, we reject the remainder of the Fontaine Parties' arguments as unpersuasive, meritless or irrelevant.
CONCLUSION
For all of the foregoing reasons, we AFFIRM the bankruptcy court's order granting summary judgment in favor of Conn. To the extent either Ramona or Reyes also challenge the bankruptcy court's summary judgment rulings in favor of the Trustee, that portion of their appeals is DISMISSED as moot.