Dustin Wells v. Kathleen McAllister

• Court: Court of Appeals for the Ninth Circuit
• Decided: December 3, 2021
• Docket: 20-35984
• Status: Unpublished

Opinion

FILED NOT FOR PUBLICATION DEC 3 2021 UNITED STATES COURT OF APPEALS MOLLY C. DWYER, CLERK U.S. COURT OF APPEALS

FOR THE NINTH CIRCUIT

In re: DUSTIN JADE WELLS, No. 20-35984

Debtor, D.C. No. 4:20-cv-00086-BLW ______________________________

KATHLEEN A MCCALLISTER, MEMORANDUM*

Plaintiff-Appellee,

v.

DUSTIN JADE WELLS,

Defendant-Appellant.

Appeal from the United States District Court for the District of Idaho B. Lynn Winmill, Chief District Judge, Presiding

Argued and Submitted November 9, 2021 Portland, Oregon

Before: GRABER and CHRISTEN, Circuit Judges, and R. COLLINS,** District Judge.

* This disposition is not appropriate for publication and is not precedent except as provided by Ninth Circuit Rule 36-3. ** The Honorable Raner C. Collins, United States District Judge for the District of Arizona, sitting by designation. Debtor Dustin Jade Wells timely appeals the district court’s order holding

that the bankruptcy court erred by permitting Debtor to keep the proceeds from a

voluntary sale of his homestead. We review de novo the district court’s decision.

Phillips v. Gilman (In re Gilman), 887 F.3d 956, 963 (9th Cir. 2018). We review

de novo the bankruptcy court’s legal conclusions and for clear error its factual

findings. Id. Because the district court correctly applied binding precedent, we

affirm.

Debtors in Idaho must use Idaho’s exemptions. Idaho Code § 11-609; see

Owen v. Owen, 500 U.S. 305, 308 (1991) (noting that States may constrain debtors

to a State-created list of exemptions). Idaho permits a homestead exemption up to

$100,000 for an owner-occupied residence. Idaho Code §§ 55-1003, 55-1004(1),

55-1008(1).1 Idaho also grants a time-limited homestead exemption on proceeds

from the sale of a homestead: "The proceeds of the voluntary sale of the

homestead in good faith for the purpose of acquiring a new homestead, . . . up to

the amount specified in section 55-1003, Idaho Code, shall likewise be exempt for

one (1) year from receipt, and also such new homestead acquired with such

1 All citations are to the 2019 version of the Idaho Code. Effective this year, Idaho amended its provisions to allow a homestead exemption of up to $175,000. Idaho Code § 55-1003 (2021). But no statutory amendment affects the analysis of this case, which concerns an amount less than $100,000.

2 proceeds." Id. § 55-1008(1). Debtor filed for bankruptcy and, while his case was

pending, moved to sell his homestead. The bankruptcy court approved the sale, but

Debtor failed to purchase a new homestead within the year required by statute.

1. The district court correctly held that our decisions in Wolfe v. Jacobson

(In re Jacobson), 676 F.3d 1193 (9th Cir. 2012), and England v. Golden (In re

Golden), 789 F.2d 698 (9th Cir. 1986), control. In In re Jacobson, 676 F.3d at

1197, as here, a debtor owned a homestead, filed for bankruptcy in a State that

imposes a time-limited exemption on proceeds from a sale, and then sold the

homestead during bankruptcy. We held that, in order to retain the homestead

exemption, the debtor must comply with the State’s time limit for reinvesting the

sales proceeds in a new homestead. Id. at 1198–1200; see also In re Golden, 789

F.2d at 699–701 (holding that a debtor who filed for bankruptcy after selling a

homestead but during the State’s period for reinvesting the sales proceeds lost the

homestead exemption by failing to reinvest). Although those cases arose in

California, California’s homestead exemption is materially indistinguishable from

Idaho’s homestead exemption. Compare Cal. Civ. Proc. Code § 704.720(b) (2012)

("If a homestead is sold under this division . . . , the proceeds of sale . . . are

exempt in the amount of the homestead exemption . . . for a period of six months

3 after the time the proceeds are actually received by the judgment debtor . . . ."),

with Idaho Code § 55-1008(1) (quoted above).

2. The district court correctly held that the Trustee’s motion, which sought

an order declaring that the sales proceeds belonged to the bankruptcy estate, was

timely. Throughout the bankruptcy, "the estate held a contingent, reversionary

interest" in any eventual proceeds resulting from a sale of the homestead. Gaughan

v. Smith (In re Smith), 342 B.R. 801, 808 (B.A.P. 9th Cir. 2006). When Debtor

sold the homestead and failed to reinvest the proceeds within the period allowed by

statute, "the proceeds, stripped of their exempt status, transformed into nonexempt

property, i.e., property of the bankruptcy estate, by operation of law. At that point,

there was no need for the trustee to pursue an objection to the claimed exemption

because no such exemption existed." Id.; see also Schwab v. Reilly, 560 U.S. 770,

788–91 (2010) (holding that the trustee need not object within the time specified

by Bankruptcy Rule 4003 when the trustee seeks an order reclaiming value that has

always belonged to the bankruptcy estate). The Trustee’s motion was timely and

otherwise procedurally proper.

3. The district court correctly held that the rule that we announced in In re

Jacobson remains good law. Neither Harris v. Viegelahn, 575 U.S. 510 (2015), nor

Law v. Siegel, 571 U.S. 415 (2014), nor any other Supreme Court decision is

4 "clearly irreconcilable" with our decision. See Miller v. Gammie, 335 F.3d 889,

900 (9th Cir. 2003) (en banc).

Harris ruled that post-petition wages held by the Chapter 13 trustee must be

returned to the debtor when the debtor converts the case to Chapter 7, but the

decision hinged on the particular statutory provisions applicable to conversion

cases, which do not apply here. 575 U.S. at 516–22. The Court also discussed the

general "fresh start" principle of bankruptcy law, id. at 513–14, 518, but its

discussion is fully consistent with our own discussion of that principle in In re

Jacobson, 676 F.3d at 1200.

A similar analysis applies to Siegel, 571 U.S. at 421, in which the Supreme

Court held that, whatever inherent powers a bankruptcy court has, "a bankruptcy

court may not contravene specific statutory provisions" of the Bankruptcy Code.

In particular, the Court rejected the creation of an equitable exception to the Code’s

list of exemptions: "The Code’s meticulous—not to say mind-numbingly

detailed—enumeration of exemptions and exceptions to those exemptions confirms

that courts are not authorized to create additional exceptions." Id. at 424. But the

Court expressly noted that States could create their own regimes of exemptions and

exceptions: "It is of course true that when a debtor claims a state-created

exemption, the exemption’s scope is determined by state law . . . . But federal law

5 provides no authority for bankruptcy courts to deny an exemption on a ground not

specified in the Code." Id. at 425. In re Jacobson neither purported to apply a

judicially created exception nor authorized an action otherwise prohibited by the

Bankruptcy Code; instead, it applied a state-created exemption. Siegel and In re

Jacobson are not clearly irreconcilable.

4. Although our precedents require that we affirm, we recognize, as did the

district court, that our decisions have been criticized, questioned, and rejected by

many. A pair of bankruptcy judges wrote separately in the wake of In re Golden to

question the validity of that court’s consideration of post-petition acts. Ford v.

Konnoff (In re Konnoff), 356 B.R. 201, 208 (B.A.P. 9th Cir. 2006) (Pappas, Bankr.

J., concurring); In re Smith, 342 B.R. at 809 (Klein, Bankr. J., concurring). The

Ninth Circuit Bankruptcy Appellate Panel ("BAP") distinguished In re Golden as

"based on a peculiar temporal exemption statute" and held that "its holding is thus

limited to its facts." Cisneros v. Kim (In re Kim), 257 B.R. 680, 686 (B.A.P. 9th

Cir. 2000). The year after we decided In re Jacobson, Bankruptcy Judge Ahart

published a point-by-point critique of the decision and explained his view that the

decision is both wrong and poor policy. See Hon. Alan M. Ahart, In re Jacobson:

The Ninth Circuit Court of Appeals Erred By Holding the Debtor Liable for Her

Exempt Homestead Sale Proceeds, 32 Cal. Bankr. J. 409 (2013). A prominent

6 bankruptcy practice guide calls In re Jacobson’s holding "questionable." 3 Norton

Bankr. L. & Prac. 3d § 56:9 n.6 (Oct. 2021); see also 13 Collier on Bankruptcy

CH. 02.[5] (Richard Levin & Henry J. Sommer eds., 16th ed. 2021) (noting the

general rule that post-petition acts are irrelevant and observing that, "despite this

principle," we considered post-petition acts in In re Jacobson). The First Circuit

recently rejected our rule, expressly disagreeing with our decision and labeling it

"unpersuasive." Rockwell v. Hull (In re Rockwell), 968 F.3d 12, 23 (1st Cir. 2020)

cert. denied, 141 S. Ct. 1372 (2021). For our part, earlier this year, we

distinguished In re Jacobson; characterized that decision as an "outlier"; and agreed

with the BAP that In re Golden’s holding is "limited to its facts." Klein v.

Anderson (In re Anderson), 988 F.3d 1210, 1214 n.4, 1216 (9th Cir. 2021) (per

curiam).

The Fifth Circuit has agreed with In re Jacobson—at least nominally—in a

case involving Texas’s homestead exemption. Viegelahn v. Frost (In re Frost), 744

F.3d 384, 388 n.2 (5th Cir. 2014). But the Fifth Circuit distinguished other cases

on the ground that Texas did not exempt an interest or specific amount of the

homestead—Texas exempts the full homestead, without limit. Id. at 388–89.

California and Idaho, by contrast, exempt only a specific amount of the homestead,

so the Fifth Circuit’s reasoning appears to contradict our rule in In re Jacobson.

7 We add only one observation. Applying In re Jacobson’s rule in a case like

this one leads to arguably peculiar results. The federal government and some

States allow a homestead exemption but allow no exemption whatsoever in sales

proceeds. 11 U.S.C. § 522(d)(1). In those jurisdictions, a debtor may claim the

full homestead exemption and, once the period for objecting to exemptions expires,

the debtor may sell the homestead and retain all proceeds. States like California

and Idaho grant debtors a more generous exemption by allowing debtors an

additional exemption, albeit a time-limited one, in sales proceeds. Yet our ruling

in In re Jacobson has the perverse result that debtors in those jurisdictions have

only a contingent homestead exemption such that, practically, they have fewer

rights during bankruptcy than debtors in other jurisdictions. We see no

justification in federal law, state law, or logic for that result.

The primary motivation of our earlier decisions appears to be that, under a

contrary rule, bankruptcy debtors would escape the State’s time limit and thus have

greater rights than those persons in the same state who do not file for bankruptcy.

We agree with Judge Pappas’ cogent response: "That . . . bankruptcy debtors

[receive] additional rights as compared to those not in bankruptcy is nothing new

given the remedial purposes of the bankruptcy laws. Bankruptcy is all about the

8 modification of creditors’ state law rights." In re Konnoff, 356 B.R. at 209–10

(Pappas, Bankr. J., concurring).

AFFIRMED.