Opinion
BK. No. 15-04173-LT7
03-29-2016
In re: WILLIAM ERWIN WEST & LYDIA KAY WEST, Debtors.
WRITTEN DECISION - NOT FOR PUBLICATION
MEMORANDUM DECISION FOLLOWING TRIAL [RE: OBJECTION TO DEBTOR'S CLAIM OF EXEMPTIONS FILED BY RONALD E. STADTMUELLER, CHAPTER 7 TRUSTEE]
The Court held an evidentiary hearing on February 25, 2016. Appearances and witnesses were as set forth in the record. After considering all evidence and argument, the Court sustains the Trustee's objection to Debtor's claim of exemption under § 522(d)(1).
This opinion is intended only to resolve the dispute between these parties and is not intended for publication.
Unless otherwise indicated, all chapter, section, and rule references are to the Bankruptcy Code, 11 U.S.C. §§101-1532, and to the Federal Rules of Bankruptcy Procedure, Rules 1001-9037.
Procedural Background
The Court previously determined that Debtors William and Lydia West potentially were entitled to an exemption in a residence under 11 U.S.C. § 522(d)(l). The Court determined that the Debtors' Oklahoma property (the "Oklahoma Dwelling") might qualify as a residence under the statute. In so determining, the Court followed the majority of the Courts and found that the Oklahoma Dwelling qualifies for the exemption only ifit is the Debtors' homestead. In re Stoner, 487 B.R. 410, 416-21 (Bankr. D. N. J. 2013). The Court also determined that it looked to Oklahoma law in making this determination. Id. at 416. The Court, finally, decided that unresolved questions of fact existed and set this matter for trial.
The Court's analysis on this point is set forth at Dkt. ## 29 & 40 and in statements on the record at hearings held on October 8, 2015 and December 17, 2015. In short, Debtors recently relocated to California, so a California homestead exemption was not available as a result of § 522(b)(3)(A), and an Oklahoma homestead exemption was not available under Oklahoma law. left them with the federal exemption option.
The minority approach discussed and rejected by the bankruptcy court in Stoner, allows the exemption as to any property in which the debtor actually lives. Id. at 415-16. This approach is actually more generous in the typical case as it allows an exemption as to a vacation home, for example, notwithstanding that it is not the debtor's homestead under applicable law. The Trustee argued for this application of the law and then urged that there was no residence involved. Given the Court's ultimate conclusion, the Trustee has no complaint. But, given the facts as determined by the Court, it makes no difference. There was no evidence that the Debtors were actually living in the Oklahoma Dwelling on even a part time basis as of the petition date.
Legal Standard
No one disputes that the Oklahoma Dwelling was Debtors' homestead (and principal residence) prior to their relocation to California. Under Oklahoma law, "[o] nce homestead character attaches to the property, it continues to be the homestead until the owner voluntarily changes its character either by disposing of the property, abandoning it or performing some other act which relinquishes his right to the exemption." Jones, Givens, Gotcher & Bogan, P.C. v. Berger, 46 P.3d 698, 701 (2002). Abandonment occurs when the owner vacates the property and forms the intent never to return. Id. at 702. A party challenging an assertion ofhomestead bears the burden of establishing abandonment by clear and convincing evidence. Id. Thus, the Trustee was required to prove by clear and convincing evidence that Debtors had moved from the Oklahoma Dwelling and had formed the intent never to return.
Undisputed Facts
The following facts are undisputed.
• Debtors lived in the Oklahoma Dwelling prior to the petition date.
• Prior to the petition date, Debtors left Oklahoma; they currently live in a rented dwelling in San Diego County as a result of a change in debtor-husband's employment.
• Debtor-husband is the chief financial officer of an Indian casino.
• The Oklahoma Dwelling has never been insured and remained uninsured on a post-petition basis.
• Debtors listed the Oklahoma Dwelling on their schedules. After taking into consideration an estimated value, estimated costs of sale, estimated trustee's commission, and the maximum exemption arguably possible, there was equity in the Oklahoma Dwelling available for estate creditors. Debtors disclosed estimated available equity in their schedules; they even showed their math:
o Costs of Sale Analysis:
• $ 62,212.00: FMV
• $ 3,110.60: Trustee's Commission
• $ 3,732.72: 6% Fees
• $ 55,368.68: Net Equity
• Debtor's claimed exemptions in the Oklahoma Dwelling totaled $45,950.00, leaving equity for the bankruptcy estate of$9,418.68 based on the Debtor's own Costs of
Sale Analysis or approximately $8,473 if the Court used a slighter lower value for the Oklahoma Dwelling from other portions of the schedules.
• The Debtors continue to store personal property at the Oklahoma Dwelling.
• The Oklahoma Dwelling is boarded up and an elderly relative occasionally checks in on it.
• The Debtors visited the Oklahoma Dwelling once since the petition was filed. This visit was in November, and Debtors did not sleep in the Oklahoma Dwelling; they camped in the yard.
• On a post-petition basis, the Trustee sought approval to sell the Oklahoma Dwelling as a result of its uninsured status and obtained an order allowing the sale. Debtors did not oppose this motion. The Court is unaware of the status of the sale at this time.
• The Debtors will return to Oklahoma for a visit in a few months and, presumably if it has not sold, they may inhabit the Oklahoma Dwelling when they attend ceremonies related to the death of debtor-wife's sister.
• The Oklahoma Dwelling has long been in debtor-wife's family and is located close to relatives and debtor-wife's tribal land.
• At the § 34l(a) Meeting of Creditors the Trustee asked Ms. West whether she intended to return to Oklahoma. She replied "Well, I'm not for sure." Reporter's Transcript of 34l(a) meeting of July 23, 2015 at 8:8-10. The Debtors were given an opportunity at the evidentiary hearing to explain this statement, but failed to do so. Instead, Debtor-wife indicated that they might "have to" return to the Oklahoma Dwelling if her husband lost his job.
The Court acknowledges an inconsistency in the schedules. While the analysis uses "$62,212" as the value, the schedules use "$60,212" as the value in other places. This discrepancy does not alter the analysis, as equity in a material amount was available to creditors using either number.
The Court is unclear as to how Debtors calculated this amount. Section 326(a) applies to the commission calculation and requires a computation based on amounts paid to parties-in-interest other than the Debtors. Thus, the calculation should be based at its start on asset value ($62,212) less exempt proceeds allegedly payable to the Debtors ($45,950). Thus, under Debtors' best case scenario, the commission would be based on no more than $16,262. The § 326(a) formula then should be calculated as $1,250 (25% of the first $5,000) plus $1,126.20 (10% of the remaining amount as it is less than $45,000) or $2,376.
The Court acknowledges an inconsistency in the schedules. While the analysis uses "$62,212" as the value, the schedules use "$60,212" as the value in other places. This discrepancy does not alter the analysis, as equity in a material amount was available to creditors using either number.
The Court is unclear as to how Debtors calculated this amount. Section 326(a) applies to the commission calculation and requires a computation based on amounts paid to parties-in-interest other than the Debtors. Thus, the calculation should be based at its start on asset value ($62,212) less exempt proceeds allegedly payable to the Debtors ($45,950). Thus, under Debtors' best case scenario, the commission would be based on no more than $16,262. The § 326(a) formula then should be calculated as $1,250 (25% of the first $5,000) plus $1,126.20 (10% of the remaining amount as it is less than $45,000) or $2,376.
The Court acknowledges an inconsistency in the schedules. While the analysis uses "$62,212" as the value, the schedules use "$60,212" as the value in other places. This discrepancy does not alter the analysis, as equity in a material amount was available to creditors using either number.
The Court is unclear as to how Debtors calculated this amount. Section 326(a) applies to the commission calculation and requires a computation based on amounts paid to parties-in-interest other than the Debtors. Thus, the calculation should be based at its start on asset value ($62,212) less exempt proceeds allegedly payable to the Debtors ($45,950). Thus, under Debtors' best case scenario, the commission would be based on no more than $16,262. The § 326(a) formula then should be calculated as $1,250 (25% of the first $5,000) plus $1,126.20 (10% of the remaining amount as it is less than $45,000) or $2,376.
Again, this number might be $735 higher if the commission calculation is off.
$60,212: FMV
less 3,613: 6% COS
2,176: Trustee's Commission
45,950: Maximum Exemption
$8,473
The Court acknowledges an inconsistency in the schedules. While the analysis uses "$62,212" as the value, the schedules use "$60,212" as the value in other places. This discrepancy does not alter the analysis, as equity in a material amount was available to creditors using either number.
The Court is unclear as to how Debtors calculated this amount. Section 326(a) applies to the commission calculation and requires a computation based on amounts paid to parties-in-interest other than the Debtors. Thus, the calculation should be based at its start on asset value ($62,212) less exempt proceeds allegedly payable to the Debtors ($45,950). Thus, under Debtors' best case scenario, the commission would be based on no more than $16,262. The § 326(a) formula then should be calculated as $1,250 (25% of the first $5,000) plus $1,126.20 (10% of the remaining amount as it is less than $45,000) or $2,376.
Again, this number might be $735 higher if the commission calculation is off.
$60,212: FMV
less 3,613: 6% COS
2,176: Trustee's Commission
45,950: Maximum Exemption
$8,473
Analysis
As discussed above, once established, a homestead may be claimed until abandoned. Abandonment requires a physical move from the property and an intention never to return. The party challenging the claim of exemption bears the burden of establishing both factors by clear and convincing evidence.
Trustee's Evidence at Trial
First, the Trustee put into evidence § 34l(a) testimony wherein debtor-wife stated that she did not know if they would return to the property.
Trustee: Okay. And do you intend to go back there. Ms. West: Well, I'm not for sure.Reporter's Transcript of 34l(a) meeting of July 23, 2015 at 8:8-10. The Debtors were given an opportunity at the evidentiary hearing to explain this statement but failed to do so. Debtor-wife merely indicated that they might "have to" return to the property ifher husband lost his job.
Trustee also provided the schedules as evidence. As noted above, the Debtors' own schedules evidence their acknowledgment that there was equity in the Oklahoma Dwelling above their claimed exemptions and, thus, realizable by the Trustee. And the amount of equity available, on a worst case basis for creditors, was no less than $9,418 to $8,473 after costs of sale and trustee distributions ; this amount was not de minimus. Indeed, it would allow a more than 20% recovery on scheduled unsecured claims.
And, it would allow a more than 100% recovery on timely filed claims.
Both of Debtors signed the schedules. And Debtor-husband is the chief financial officer of an Indian casino. As a result, the Court reasonably assumes that he is not unsophisticated in financial matters. Further, the Court reasonably assumes, in the absence of evidence to the contrary, that the Debtors understood that asset value net of exemptions was available to their creditors and that a liquidation of the Oklahoma Dwelling to recover this value for their creditors was a natural consequence of its value and their bankruptcy. The Court did not allow expert testimony on this point, but the implication raised by the schedules was clear. This evidence strongly suggested abandonment; if Debtors wanted a bankruptcy discharge they needed to make this equity available to their creditors and, in the usual case, this requires a sale. Put another way, the schedules evidence that when Debtors filed bankruptcy they elected to allow sale of the Oklahoma Dwelling; and an election to allow sale equates to an intent not to return to the Oklahoma Dwelling.
The intention of a trustee - or even his general practice or that of trustees generally - is not the issue here. Rather, the issue is the Debtors' intent. --------
While the assumptions flowing from the schedules clearly lead to a loss of the right to claim a homestead, the Debtors were given an opportunity dispel the obvious implications. The Court, indeed, pointed out that the implication was not necessarily dispositive and that the Debtors, for example, might testify that they intended to purchase the equity shown in their schedules in order to avoid loss of the Oklahoma Dwelling. The Debtors, however, provided no testimony or other evidence on this point.
The uninsured status of the Oklahoma Dwelling and its boarded up status are factors slightly supportive of the Trustee's position. The fact that Debtors have returned only once and then camped in the yard, again, is another factor slightly in Trustee's favor.
After considering all evidence, the Court finds that the Trustee met his burden of establishing by clear and convincing evidence that Debtors left the Oklahoma Dwelling and formed the intent never to return. The Oklahoma Dwelling was boarded up. It was not insured. While Debtors did return once, they did not stay inside the Oklahoma Dwelling. Further, Ms. West testified that she was not sure they would ever return, and at trial stated only that they might have to if Mr. West lost his job. Most importantly, Debtors knew that there was equity in the Oklahoma Dwelling, and, by filing for chapter 7, they made the Oklahoma Dwelling available for sale to pay creditors.
The Court acknowledges that the Debtors provided declaratory evidence stating an intention to retain the Oklahoma Dwelling and that they adopted and, to a limited extent, supplemented this testimony at trial. But their broad assertions are more than overcome by the Trustee's evidence. The Court has no doubt that Debtors, like any debtor, would love to keep all their assets while also obtaining a bankruptcy discharge. But by electing bankruptcy while owning an easily liquidated asset with significant equity, this desire becomes nothing but a wish - instead, the evidence establishes that they elected and agreed to asset sale.
As a result, the Court concludes that an exemption under § 522(d)(l) is not available. The evidence before the Court, notwithstanding that the Trustee has the burden ofproof, establishes that as of the petition date, the Debtors were not living in the Oklahoma Dwelling and had no expectation or intention of returning to live in the Oklahoma Dwelling. Debtors' self-serving statements in the declarations do not overcome the Trustee's evidence, including, the §341(a) admission, the equivocal testimony at trial, and the fact that a sale by the chapter 7 trustee had to be anticipated as Debtors pointed out in their schedules that there was equity available in the Oklahoma Dwelling even ifthe claimed exemption was appropriate.
The Court finally notes that the Debtors' intentions must be measured as of the petition date, so the failure to oppose sale of the Oklahoma Dwelling is not dispositive. Indeed, it is not even particularly relevant; but it certainly does not suggest a different result. DATED: March 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 FOLLOWING TRIAL
[RE: OBJECTION TO DEBTOR'S CLAIM OF EXEMPTIONS FILED BY RONALD E. STADTMUELLER, CHAPTER 7 TRUSTEE] 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: William Erwin West
Lydia Kay West
PO Box 1465
Alpine, CA 91903 Mark Miller, Esq.
Larissa L. Lazarus, Esq.
Law Offices of Mark L. Miller
2341 Jefferson Street, Suite 100
San Diego, CA 92110 Davis & Stadtmueller, LLP
Ronald E. Stadtmueller
Kathryn M. Otto
10755 Scripps Poway Pkwy., #370
San Diego, CA 92131 Office of the U.S. Trustee
402 West Broadway, Suite 600
San Diego, CA 92101-8511
Said envelope(s) containing such document was deposited by me in the City of San Diego, in said District on March 29, 2016.
/s/_________
Regina A. Fabre, Judicial Assistant
Notice Recipients
| District/Off: 0974-3 | User: Admin. | Date Created: 3/29/2016 |
| Case: 15-04173-LT7 | Form ID: pdfO1 | Total: 6 |
tr Ronald E. Stadtmueller ecfstadt@aol.com
aty Larissa L. Lazarus Larissa@millerlegalcenter.com
aty Ronald E. Stadtmueller ecfstadt@aol.com
aty Ronald E. Stadtmueller ronstadtmueller@aol.com
TOTAL: 4 Recipients submitted to the BNC (Bankruptcy Noticing Center):
db William Erwin West PO Box 1465 Alpine, CA 91903
jdb Lydia Kay West PO Box 1465 Alpine, CA 91903
TOTAL: 2