Arturo Gonzalez

• Court: United States Bankruptcy Court, C.D. California
• Decided: September 9, 2021
• Docket: 2:15-bk-25283
• Status: Unknown

Opinion

2 FILED & ENTERED

4 SEP 09 2021

5 C CL enE tR raK l U D. iS st. r B icA t N ofK CR aU liP foT rC nY ia COURT 6 BY b a k c h e l l DEPUTY CLERK

7 UNITED STATES BANKRUPTCY COURT 8 CENTRAL DISTRICT OF CALIFORNIA 9 LOS ANGELES DIVISION 10 In re: No. 2:15-bk-25283-RK 11

Chapter 7 12 ARTURO GONZALEZ, MEMORANDUM DECISION ON MOTION BY 13 Debtor. CHAPTER 7 TRUSTEE OBJECTING TO 14 THE DEBTOR’S AMENDED SCHEDULES FILED MAY 27, 2021 (DOCKET NO. 504) TO 15 CLAIM A HOMESTEAD EXEMPTION IN REAL PROPERTY AT 329 HAWAIIAN 16 AVENUE, WILMINGTON, CA AND TO 17 CLAIM A “TOOLS OF THE TRADE” EXEMPTION IN COMMISSIONS 18 19 Vacated Hearing Date: September 14, 2021 20 Time: 2:30 p.m.

21 22 On June 24, 2021, Wesley H. Avery, the Chapter 7 Trustee in this bankruptcy 23 case (“Chapter 7 Trustee”) filed his Motion by the Chapter 7 Trustee Objecting to the 24 Debtor’s Amended Schedules filed May 27, 2021 (Docket No. 504) to Claim a 25 Homestead Exemption in Real Property at 329 Hawaiian Avenue, Wilmington, CA and 26 to Claim a “Tools of the Trade” Exemption in Commissions (“motion”) (Docket No. 505). 27 Chapter 7 Trustee filed a request for judicial notice in support of the motion (Docket No. 28 508). Chapter 7 Trustee filed a notice of motion which noticed a hearing on the motion 1 before the court for August 10, 2021 at 2:30 p.m. 2 On July 28, 2021, Arturo Gonzalez, the debtor in this bankruptcy case (“Debtor”), 3 filed his Debtor’s Response to Trustee’s Objecting to the Debtor’s Amended Schedules 4 (Docket No. 512). On August 2, 2021, Chapter 7 Trustee filed a Reply to Response to 5 Motion by the Chapter 7 Trustee Objecting to the Debtor’s Amended Schedules filed 6 May 27, 2021 (Docket No. 504) to Claim a Homestead Exemption in the Real Property 7 at 329 Hawaiian Avenue, Wilmington, CA and to Claim a “Tools of the Trade” 8 Exemption in Commissions (“reply”) (Docket No. 513). 9 On August 4, 2021, Debtor filed an Ex Parte Application to Continue Hearing in 10 Order to Elaborate on Debtor’s Response to Trustee’s Change of Exemption, Due to 11 Debtor Needing to Elaborate on the Response an[d] Pointing to a Second Scenario 12 (Docket No. 514). The court granted Debtor’s ex parte application and issued an order 13 continuing the hearing on Chapter 7 Trustee’s motion from August 10, 2021 to 14 September 14, 2021 at 2:30 p.m. The court ordered Debtor to file his “elaboration” 15 response to the motion not later than August 31, 2021. On September 1, 2021, Debtor 16 filed his response called “Elaboration on the Amended Schedules”. Docket No. 517. A 17 reply to the Debtor’s Elaboration was due September 7, 2021, but Chapter 7 Trustee did 18 not file a reply. 19 Having considered the Chapter 7 Trustee’s motion and the Debtor’s responses 20 thereto, the court determines that oral argument on the motion is not necessary, takes 21 the motion under submission, vacates the hearing on the motion on September 14, 22 2021 which is taken off calendar and rules on the motion on the papers pursuant to 23 Local Bankruptcy Rule 9013-1(j)(3) for the reasons set forth in this memorandum 24 decision and as reflected in its separate final order being filed and entered concurrently 25 herewith. 26 On May 27, 2021, Debtor filed his amended bankruptcy schedules (Docket No. 27 504), including an amended Schedule C, Property Claimed as Exempt, in which Debtor 28 stated: “Debtor does not claim any exemptions, see Schedule F” and listed the value of 1 each exemption as “$0.” In his motion, Chapter 7 trustee objects to the Debtor’s newly 2 amended schedules based on the doctrines of the law of the case and issue preclusion 3 that on May 21, 2019, debtor had previously filed amended bankruptcy schedules and 4 did not claim any exemptions, and the court had ruled on Chapter 7 Trustee’s objection 5 to these amended schedules that the law of the case prevented Debtor from amending 6 his schedules to claim a homestead exemption or exemptions in real estate sales 7 commissions different from what previously decided by the court in its prior orders on 8 Debtor’s claimed exemptions. See Memorandum Decision and Order Granting in Part 9 and Denying in Part Chapter 7 Trustee’s Motion Objecting to Exemptions Claimed in 10 Debtor’s Amended Schedule[s] Filed on May 21, 2019, Docket Nos. 443 and 444, 11 entered August 21, 2019. In its August 21, 2019 order, the court ruled: “To the extent 12 that Debtor’s Schedule C in his amended schedules, filed on May 21, 2019, purports to 13 amend to claim a homestead exemption or exemptions in real estate sales commissions 14 different from what previously decided by the court in its orders on Debtor’s claimed 15 exemptions, filed and entered on July 12, 2016 and April 26, 2019, such exemptions are 16 disallowed.” Docket No. 444 at ¶ 2. The court further stated in this order: “The court 17 determines that Debtor’s expressions of his views regarding his claimed exemptions are 18 only expressions of his views and do not affect the law of the case previously 19 established in these orders.” Id. at ¶ 3. 20 Chapter 7 Trustee argues that in his amended schedules, Debtor reduced his 21 homestead and tool of the trade exemptions to $0 to recover the proceeds of the sale of 22 the Hawaiian Avenue Property and the real estate commission and therefore, Debtor 23 could argue that Chapter 7 Trustee should not have proceeded to recover these assets. 24 Docket No. 505 at 4 (internal citation page 3). Additionally, Chapter 7 Trustee argues 25 that Debtor’s amended schedules are an attempt to keep this case open. Id. at 6 26 (internal citation page 5). Further, Chapter 7 Trustee seeks an order barring Debtor 27 from further amending his schedules pertaining to exemptions related to the homestead, 28 tools of the trade and real estate commissions, which the court has already ruled upon. 1 Id. 2 Debtor’s responses to the motion do not assert any legal cognizable reasons for 3 denial of Chapter 7 Trustee’s motion. Docket Nos. 512 and 517. The gist of Debtor’s 4 arguments is that he now believes that he did not need to originally claim any 5 exemptions because in his view, there were sufficient funds to pay the unsecured 6 creditors in this case, and there was no need to proceed with the bankruptcy case. 7 See, Elaboration Response, Docket No. 517. However, Debtor cannot rewrite the 8 history of the litigation in his bankruptcy case as the parties have conducted extensive 9 litigation regarding their rights in this bankruptcy case, including several adversary 10 proceedings, resulting in final orders of the court, for which appeals have been taken 11 and been determined, as the case dockets for the main bankruptcy case and the related 12 adversary proceedings reflect. See Case Dockets, Main Bankruptcy Case and Related 13 Adversary Proceedings. 14 By the motion, Chapter 7 Trustee seeks to disallow Debtor’s May 27, 2021 15 amended bankruptcy schedules pertaining to exemptions based on the doctrine of the 16 law of the case. “For the doctrine to apply, the issue in question must have been 17 ‘decided explicitly or by necessary implication in [the] previous disposition.’” United 18 States v. Lummi Indian Tribe, 235 F.3d 443, 452 (9th Cir. 2000), quoting Liberty Mutual 19 Ins. Co. v. EEOC, 691 F.2d 438, 441 (9th Cir. 1982). “Application of the doctrine is 20 discretionary.” Id., citing United States v. Mills, 810 F.2d, 909 (9th Cir. 1987); see also, 21 Mirchandani v. United States, 836 F.2d 1223, 1225 (9th Cir. 1988) (the law-of-the-case 22 doctrine does not apply where the previous court did not reach their decision based on 23 the merits). 24 Chapter 7 Trustee also seeks to disallow Debtor’s amended schedules of May 25 27, 2021 pertaining to exemptions on grounds of issue preclusion. In this regard, 26 Chapter 7 Trustee relies upon the recent Ninth Circuit decision in In re Albert, 998 F.3d 27 1088 (9th Cir. 2021) to support his argument that Debtor is not allowed to amend his 28 schedules regarding exemptions on the grounds of issue preclusion because Debtor 1 previously claimed exemptions which the court ruled upon. In Albert, the Ninth Circuit 2 held that the debtor, Albert, may not amend her exemptions if the bankruptcy court 3 previously denied her claimed exemptions in the same assets and under the same 4 California exemption statutes, due to the preclusive effect of the bankruptcy court’s prior 5 order denying such exemptions. Id. When Albert initiated her bankruptcy case by filing 6 her Chapter 13 bankruptcy petition, she claimed exemptions in counterclaims that she 7 filed in state court against Ford Motor Credit Company as well as accounts receivable 8 from her former clients. Id. at 1090. She claimed these assets as exempt under 9 California Code of Civile Procedure §§ 704.140 and 704.210. Id. The bankruptcy court 10 sustained the objections to these exemptions. Id. The bankruptcy court converted 11 Albert’s bankruptcy case from Chapter 13 to Chapter 7, and Albert claimed the same 12 exemptions when the case was in Chapter 7 that the court previously denied when the 13 case was in Chapter 13. Id. Since the bankruptcy court had previously denied Albert’s 14 claimed exemptions on the same assets under the same California statutes, the 15 bankruptcy court held that she is not allowed to amend her schedules to claim the same 16 exemptions due to issue preclusion. Id. The Ninth Circuit affirmed the bankruptcy 17 court’s disallowance of Albert’s claiming these exemptions again after the bankruptcy 18 court disallowed them, stating:

19 To hold otherwise would not only undermine the finality of exemption orders, In 20 re Gilman, 887 F.3d [956] at 961-64 [(9th Cir. 2018)], but would considerably frustrate the trustee's duty to expeditiously close the debtor's estate, see In re 21 Riverside-Linden Invest. Co., 925 F.2d 320, 322 (9th Cir. 1991). Debtors can amend their exemptions as a matter of course, Fed. R. Bankr. P. 1009(a), so if 22 orders denying exemptions carry no preclusive weight, debtors could delay 23 matters by claiming the same property as exempt time and time again. Debtors could also decline to meaningfully press their claims, and creditors would bear 24 the brunt of such behavior, as the relitigation of resolved issues would drain estate—not to mention judicial—resources. Those burdens are precisely what 25 the preclusion doctrines were designed to avoid, see Taylor v. Sturgell, 553 U.S. 26 880, 892, 128 S.Ct. 2161, 171 L.Ed.2d 155 (2008), and they remain available to the bankruptcy courts when ruling on previously denied claims. 27 28 Id. at 1092. In Albert, the Ninth Circuit observed that the doctrine of issue preclusion 1 “bars successive litigation of an issue of fact or law that was actually litigated and 2 resolved in a valid court determination.” Id. at 1093, citing and quoting, Taylor v. 3 Sturgell, 553 U.S. at 892 (internal quotation marks omitted). As the Ninth Circuit further 4 stated, to prevail under issue preclusion, “the party asserting preclusion must show that 5 the earlier issue is ‘identical to the one which is sought to be relitigated,’ that the ‘first 6 proceeding ended with a final judgment on the merits,’ and that ‘the party against whom 7 [issue preclusion] is asserted was a party’ to the first proceeding.” Id. (citations 8 omitted). 9 In determining whether Chapter 7 Trustee’s motion should be granted based on 10 the law of the case and issue preclusion, the court first reviews the procedural history of 11 Debtor’s amended schedules, filed on May 21, 2019 and on May 27, 2021. On May 21, 12 2019, Debtor filed an amended Schedule C in which he did not claim any exemptions. 13 Amended Schedules, Docket No. 393. That is, on this Amended Schedule C, no 14 exemption amounts were claimed, no assets were claimed as exempt and no statutes 15 were cited as the basis for any exemptions. Id. Instead, Debtor wrote a long 16 explanatory note in the description of property section on the amended Schedule C with 17 argumentative statements about why he could not claim any exemptions, why the 18 administration of this bankruptcy case was not needed and why he was damaged by 19 such administration. Id. Chapter 7 Trustee filed a Motion Objecting to Exemptions 20 Claimed in Debtor’s Amended Schedules filed on May 21, 2019. Docket No. 395. On 21 August 21, 2019, this court ruled on this motion, entering an Order Granting in Part and 22 Denying in Part Chapter 7 Trustee’s Motion Objecting to Exemptions Claimed in 23 Debtor’s Amended Schedules filed on May 21, 2019. Docket No. 444. In the court’s 24 order on Chapter 7 Trustee’s motion objecting to Debtor’s May 21, 2019 amended 25 schedules (Docket No. 393, filed on May 25, 2019), the court ruled that to the extent 26 that the amended schedules purported to amend to claim a homestead exemption or 27 exemptions in real estate sales commissions different from what this court previously 28 decided in its orders on Debtor’s claimed exemptions, filed and entered on July 12, 1 2016 and April 26, 2019, such exemptions were disallowed. See Docket No. 444 at ¶ 2. 2 The court determined that Debtor’s views stated in his amended schedules of May 19, 3 2019 regarding his claimed exemptions do not affect the law of the case previously 4 established in the case. See id. at ¶ 3. 5 Currently before the court is Debtor’s Amended Schedule C, filed on May 27, 6 2021, in which he does not claim any specific exemptions. Docket No. 504. Unlike the 7 May 21, 2019 amended schedules, Debtor lists various assets in the property 8 descriptions on the Amended Schedule C, states that he is not claiming any exemptions 9 as to these listed assets, states that the amounts of the exemptions are “$0,” but cites 10 no statutes to claim any exemptions. Id. 11 Chapter 7 Trustee argues that since Debtor previously tried to not claim any 12 exemption in his May 2019 amended schedules, which the court disallowed in part, the 13 doctrine of the law of the case applies, and Debtor’s amended schedules should not be 14 allowed. It is correct as Chapter 7 Trustee contends that Debtor previously tried to not 15 claim any exemption on his May 21, 2019 amended schedules as no exemption 16 amounts were claimed, no assets were claimed as exempt and no statutes were cited 17 as the basis for any exemptions. The court’s ruling on Chapter 7 Trustee’s objection to 18 Debtor’s May 21, 2019 amended schedules was that to the extent that Debtor’s 19 Schedule C, filed on May 27, 2021, purports to amend to claim a homestead exemption 20 or exemptions in real estate sales commissions different from what previously decided 21 by the court in its orders on Debtor’s claimed exemptions, filed and entered on July 12, 22 2016 and April 26, 2019, such exemptions are disallowed. In retrospect, the court now 23 observes that Debtor on his May 21, 2019 amended schedules was not claiming any 24 exemptions, and not that he was claiming different ones. 25 Now before the court are Debtor’s May 27, 2021 amended schedules in which he 26 listed various assets on the Amended Schedule C, stated: “Debtor does not claim any 27 exemptions, see Schedule F” and listed the value of each exemption as “$0.” The 2019 28 and 2021 amended schedules seems to be the same in practical effect because in 2019 1 Debtor attempted to amend his schedules and did not claim any exemptions and in 2 2021 Debtor amended his Schedule C to claim $0.00 exemptions, essentially not 3 claiming any exemptions. However, claiming no exemptions in 2019 and claiming 4 exemptions of “$0” in 2021 appear to be different as on the 2021 amended schedules, 5 Debtor listed specific assets with a claimed exemption of “$0”, some of which involved 6 claimed monetary exemptions in excess of $0, which the court had previously 7 determined in contested litigation. The court had not determined exemptions in the 8 amount of $0 in ruling upon the 2019 amended schedules. As previously observed, the 9 Ninth Circuit stated about the doctrine of the law of the case: “For the doctrine to apply, 10 the issue in question must have been ‘decided explicitly or by necessary implication in 11 [the] previous disposition.’” United States v. Lummi Indian Tribe, 235 F.3d at 452 12 (citation omitted). The doctrine of the law of the case does not generally apply here 13 because the court did not previously decide explicitly or implicitly exemptions valued at 14 $0. Moreover, it seems to the court that if Debtor wanted to amend his bankruptcy 15 schedules to reduce his exemptions to $0, or claim lesser exemption amounts than 16 allowed by the court, there is no legal reason to preclude him from doing that. In this 17 regard, this situation is different from Albert where the debtor was trying to claim 18 exemptions that were previously disallowed by the court. In this situation, Debtor is not 19 claiming exemptions that were previously disallowed by the court. 20 However, the doctrine of the law of the case does apply to Debtor’s Amended 21 Schedule C filed on May 27, 2021 to a limited extent, that is, as the court previously 22 ruled, to the extent that Debtor’s Amended Schedule C purports to amend to claim a 23 homestead exemption or exemptions in real estate sales commissions different from 24 what this court previously decided in its orders on Debtor’s claimed exemptions, filed 25 and entered on July 12, 2016 and April 26, 2019, such exemptions are disallowed as 26 established by the court’s decisions on Debtor’s exemptions in these orders as well as 27 the court’s August 21, 2019 order. But it appears that this is not the situation with the 28 May 27, 2021 amended schedules. Accordingly, the court will grant the motion in part 1 and deny it in part as to the law of the case. 2 Regarding issue preclusion, as previously observed, the Ninth Circuit in In re 3 Albert, to prevail under the doctrine, “the party asserting preclusion must show that the 4 earlier issue is ‘identical to the one which is sought to be relitigated,’ that the ‘first 5 proceeding ended with a final judgment on the merits,’ and that ‘the party against whom 6 [issue preclusion] is asserted was a party’ to the first proceeding.” 998 F.3d at 1093. 7 In this situation, the second and third elements of issue preclusion are met, that is, the 8 court’s ruling on the 2021 amended schedules is a final judgment on the merits, the 9 parties to the prior dispute over the 2019 amended schedules and the current dispute 10 over the 2021 amended schedules are the same, Debtor and Chapter 7 Trustee. 11 However, the first element of issue preclusion that the issue to be litigated is not the 12 same as the one previously litigated. In 2019, Debtor amended his schedules without 13 listing specific assets on Schedule C and did not claim any exemptions, and in 2021, 14 Debtor amended his schedules listing specific assets on Schedule C, stating that he 15 was claiming no exemptions for these specific assets, and stating the values of the 16 exemptions of these assets as “$0.” By stating the values of the exemptions as $0. 17 Debtor was changing the value of the exemptions from what values were previously 18 determined to zero, which is an issue not previously decided regarding the 2019 19 amended schedules. The issue then is Debtor precluded by issue preclusion from 20 amending his schedules to take exemptions less than the court previously determined. 21 To be sure, Debtor cannot claim exemptions disallowed by the court and cannot claim 22 them in amounts above what was allowed by the court. However, there does not seem 23 to be any legal reason to disallow Debtor’s amendment of schedules to claim 24 exemptions in lesser amounts than allowed by the court. Because Debtor did not claim 25 any exemptions in the May 2019 amended schedules and the court has not made a 26 substantive determination regarding the $0 exemptions on any amended schedules, the 27 court determines that issue preclusion does not apply here and will deny the motion in 28 part as to issue preclusion. 1 Regarding Chapter 7 Trustee’s request to bar Debtor from amending his 2 || schedules in the future, Federal Rule of Bankruptcy Procedure 1009 provides that: “A 3 || voluntary petition, list, schedule, or statement may be amended by the debtor as a 4 || matter of course at any time before the case is closed.” As recognized by the Ninth 5 || Circuit Bankruptcy Appellate Panel in In re Goswami, 304 B.R. 386 (9th Cir. BAP 2003), 6 || the Ninth Circuit has a liberal policy of “allowing debtors to amend their exemptions 7 ||schedules so as to enhance their fresh start.” /d. at 394, citing, In re Michael, 163 F.3d 8 || 526, 529 (9th Cir. 1998). As the Bankruptcy Appellate Panel further noted in Goswami, 9 || “The liberal rule governing amendments reflects the Ninth Circuit's ‘preference for 10 ||resolution on the merits, as against strict adherence to formalities.” /d., citing and 11 || quoting, In re Anderson—Walker Indus., Inc., 798 F.2d 1285, 1287 (9th Cir.1986). In 12 of the policy of liberality of amendment of bankruptcy petition documents, expressly 13 including bankruptcy schedules, as stated in Rule 1009 and as recognized in the case 14 || law, there does not appear to be any legal authority to allow this court to bar any further 15 || amendments by the Debtor of his schedules at this time as requested by Chapter 7 16 || Trustee. Accordingly, the court will deny Chapter 7 Trustee’s request to prevent Debtor 17 || from filing further amended schedules. 18 For the foregoing reasons, the court will grant the motion in part and deny the 19 || motion in part. Since the court has ruled on the motion by this order, the court will 20 || vacate the hearing on the motion scheduled for September 14, 2021 at 2:30 p.m. A 21 || separate final order ruling on the motion will be filed and entered concurrently herewith. 22 IT |S SO ORDERED. 23 HH 2 25 Date: September 9, 2021 Robert Kwan 6 United States Bankruptcy Judge 27 28