In re: Diane Ida Uriostegui

• Court: United States Bankruptcy Appellate Panel for the Ninth Circuit
• Decided: May 12, 2025
• Docket: 24-1174
• Status: Published

Opinion

FILED MAY 12 2025 ORDERED PUBLISHED SUSAN M. SPRAUL, CLERK U.S. BKCY. APP. PANEL OF THE NINTH CIRCUIT

UNITED STATES BANKRUPTCY APPELLATE PANEL OF THE NINTH CIRCUIT

In re: BAP No. CC-24-1174-GFS DIANE IDA URIOSTEGUI, Debtor. Bk. No. 2:23-bk-17721-DS

DIANE IDA URIOSTEGUI, Appellant, v. OPINION

GREGORY W. DOWLING, Appellee.

Appeal from the United States Bankruptcy Court for the Central District of California Deborah J. Saltzman, Bankruptcy Judge, Presiding

APPEARANCES:

Rob Uriostegui on brief for appellant; Michael Jay Berger argued for appellee.

Before: GAN, FARIS, and SPRAKER, Bankruptcy Judges.

GAN, Bankruptcy Judge:

INTRODUCTION

In 2018, the California Superior Court entered judgment against

Diane Ida Uriostegui for her financial elder abuse of Prescott Dowling. The

state court held that she fraudulently provided false information to Prescott 1 to convince him to disinherit his son Gregory, and other family

members, and make her the sole trustee and beneficiary of the Dowling

Family Survivor’s Trust.

After Ms. Uriostegui filed a chapter 72 petition, Gregory objected to

her homestead exemption claim under § 522(q)(1)(B)(ii), 3 which limits state

law exemptions to $189,050 if, as relevant here, the debtor owes a debt

arising from “fraud, deceit, or manipulation in a fiduciary capacity.” The

bankruptcy court interpreted this section to require the fraud to be in a

fiduciary capacity, and it determined that the state court judgment satisfied

this criterion because Ms. Uriostegui became trustee and beneficiary of the

trust through her fraudulent actions.

1 We refer to the Dowlings by their first names for ease of reference and to avoid confusion. No disrespect is intended. 2 Unless specified otherwise, all chapter and section references are to the

Bankruptcy Code, 11 U.S.C. §§ 101–1532. 3 Section 522(q)(1)(B)(ii) provides:

(q)(1) As a result of electing under subsection (b)(3)(A) to exempt property under State or local law, a debtor may not exempt any amount of an interest in property described in subparagraphs (A), (B), (C), and (D) of subsection (p)(1) which exceeds in the aggregate $189,050 [originally “$125,000,” adjusted effective April 1, 2022] if—. . .

(B) the debtor owes a debt arising from—. . .

(ii) fraud, deceit, or manipulation in a fiduciary capacity or in connection with the purchase or sale of any security registered under section 12 or 15(d) of the Securities Exchange Act of 1934 or under section 6 of the Securities Act of 1933. . . .

2 We agree that § 522(q)(1)(B)(ii) requires that a debt for fraud arise

from acts performed in a fiduciary capacity. But we disagree that the state

court judgment establishes fraud in a fiduciary capacity against

Ms. Uriostegui. Her fraudulent statements to Prescott occurred before she

was a trustee, and nothing in the record shows her fraudulent statements

were made in a fiduciary capacity. Accordingly, we REVERSE. We publish

to clarify that, for purposes of § 522(q)(1)(B)(ii), fraud must be in a fiduciary

capacity, which requires an express or technical trust imposed prior to the

wrongdoing that created the debt.

FACTS 4

Prescott and his wife Ellen established the Dowling Family Trust in

2005, and they amended and restated it in 2009. They named their eldest

son Gregory as successor trustee, and named Gregory, Gregory’s children,

and their youngest son Richard,5 as beneficiaries. The trust provided that

upon the death of either spouse, the trust estate would be split between the

Dowling Family Decedent’s Trust and the Dowling Family Survivor’s

Trust. Ellen died in 2011, and Richard died shortly after, leaving Prescott as

trustee of the Dowling Family Survivor’s Trust and Gregory and his

4 We exercise our discretion to take judicial notice of documents electronically filed in the main bankruptcy case and related adversary proceeding. See Atwood v. Chase Manhattan Mortg. Co. (In re Atwood), 293 B.R. 227, 233 n.9 (9th Cir. BAP 2003). 5 The record indicates that Ms. Uriostegui had a romantic relationship with

Richard sometime during the 1990s. She remained a friend to Ellen and Prescott thereafter. The Dowlings had a third son who predeceased them. 3 children as beneficiaries. In 2015, Prescott amended the Dowling Family

Survivor’s Trust to name Ms. Uriostegui as trustee and sole beneficiary.

After Prescott died in 2016, Gregory sued Ms. Uriostegui for elder

abuse and to set aside the amended trust. The state court held that the 2015

amendment was invalid based on Prescott’s lack of testamentary and

contractual capacity, and Ms. Uriostegui’s undue influence. The court

determined that Ms. Uriostegui acted with “malice, oppression, and fraud”

by providing inaccurate, false, or misleading information to Prescott to

persuade him to disinherit his family, and it found her liable for financial

elder abuse under California Welfare and Institutions Code § 15610.30. The

state court entered a monetary judgment, including punitive damages,

against Ms. Uriostegui, and it imposed a constructive trust on assets

distributed from the trust. The Court of Appeal affirmed the judgment

with a modification that allowed Ms. Uriostegui to retain ownership of her

home.

In 2023, Ms. Uriostegui filed a chapter 7 petition. She scheduled

assets having a total value of $952,080, of which $950,000 was attributed to

her residence. Ms. Uriostegui claimed the California homestead exemption,

which at the time of filing was $687,378.

Gregory filed a proof of claim for $2,076,124, secured by a judgment

lien against Ms. Uriostegui’s residence. He filed an objection seeking to

limit Ms. Uriostegui’s homestead exemption to $189,050 pursuant to

§ 522(q)(1)(B)(ii), and he argued that the state court judgment established

4 that Ms. Uriostegui owed a debt arising from fraud and manipulation in a

fiduciary capacity.6 Gregory argued that Ms. Uriostegui’s prior testimony

proved that she did not reasonably need more than $189,050 for her

support.

In response, Ms. Uriostegui claimed that her fraud was not in a

fiduciary capacity. She maintained that her undue influence occurred prior

to the 2015 amendment, while Prescott was trustee, and she did not become

a trustee until his death in 2016. According to Ms. Uriostegui, when she

became trustee upon Prescott’s death, she owed no fiduciary duties

because she was the sole beneficiary.

At the initial hearing, Gregory argued that the provision “in a

fiduciary capacity” applied only to “manipulation” and not to “fraud” or

“deceit.” The bankruptcy court disagreed and held that Ms. Uriostegui’s

fraud must be “in a fiduciary capacity.” The court requested further

briefing on whether the state court judgment included any findings to

support Gregory’s claim that the fraud occurred while Ms. Uriostegui was

acting as a fiduciary.

6 Gregory also filed an adversary complaint seeking to make the judgment debt nondischargeable and to deny Ms. Uriostegui’s discharge. The bankruptcy court granted Gregory’s motion for summary judgment, holding the debt nondischargeble under § 523(a)(2)(A) and (a)(6) and denying Ms. Uriostegui’s discharge under § 727(a)(3) based on her failure to provide an accounting of distributed assets, as required by the state court. 5 In his supplemental brief, Gregory argued that the court was not

bound by analogy to § 523(a)(4) in determining what constitutes “fiduciary

capacity,” and he contended that Ms. Uriostegui’s undue influence was

sufficient to render her a fiduciary. He noted that, as part of its

determination of undue influence, the state court relied on Prescott’s

execution of documents giving Ms. Uriostegui power of attorney and

authority to make decisions regarding his healthcare. Gregory argued that

under California Probate Code § 4266, “[t]he exercise of authority by an

attorney-in-fact is subject to the attorney-in-fact’s fiduciary duties.”

Ms. Uriostegui asserted that the state court never determined that she

was acting under a power of attorney when Prescott executed the 2015

amendment. She argued that the power of attorney document—which was

not attached to the objection and is not readily available on the docket—

took effect only upon Prescott’s incapacity, which did not occur prior to his

death. She maintained that “fiduciary” in the context of limiting a

homestead exemption should be construed congruently with the use of

that term for purposes of nondischargeability, and she cited Ragsdale v.

Haller, 780 F.2d 794, 796 (9th Cir. 1986), for the proposition that “fiduciary,”

as a matter of federal law, requires a trust giving rise to the fiduciary

relationship be imposed prior to any wrongdoing and for the debtor to be a

trustee “before the wrong and without reference to it.” Ms. Uriostegui also

argued that she should be entitled to an evidentiary hearing to establish

6 whether her homestead exemption was reasonably necessary for her

At the continued hearing, the bankruptcy court determined that

Ms. Uriostegui had been afforded due process and an evidentiary hearing

was unnecessary because the essential facts were undisputed. The court

held that the record was clear that Ms. Uriostegui committed fraud while

acting in a fiduciary capacity because she became a fiduciary through

fraud.

The bankruptcy court entered an order limiting the homestead

objection, and Ms. Uriostegui timely appealed.7

JURISDICTION

The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 and

157(b)(2)(B). We have jurisdiction under 28 U.S.C. § 158.

ISSUE

Did the bankruptcy court err by limiting Ms. Uriostegui’s homestead

exemption under § 522(q)(1)(B)(ii)?

STANDARD OF REVIEW

We review de novo a bankruptcy court’s interpretation of the

Bankruptcy Code, including the scope of a statutory exemption or its

limitation. See Valdellon v. PHH Mortg. Corp. (In re Valdellon), 665 B.R. 420,

7 We subsequently granted a stay pending appeal requiring the chapter 7 trustee, in the event the property was sold, to hold the portion of proceeds Ms. Uriostegui claimed as the homestead exemption. 7 429 (9th Cir. BAP 2024); Klein v. Chappell (In re Chappell), 373 B.R. 73, 76 (9th

Cir. BAP 2007), aff’d sub nom. Gebhart v. Gaughan (In re Gebhart), 621 F.3d

1206 (9th Cir. 2010). Under de novo review, “we consider a matter anew, as

if no decision had been made previously.” Francis v. Wallace (In re Francis),

505 B.R. 914, 917 (9th Cir. BAP 2014).

DISCUSSION

Ms. Uriostegui argues that the bankruptcy court erred because her

fraud did not occur while she was acting in a fiduciary capacity. Gregory

contends that we are not bound by the Ninth Circuit’s construction of

“fiduciary” under § 523(a)(4), and we should affirm because

Ms. Uriostegui’s authority under the power of attorney was sufficient to

make her fraudulent acts “in a fiduciary capacity.”

A. Interpretation of § 522(q)(1)(B)(ii)

1. Fraud must be in a fiduciary capacity.

The parties do not dispute the bankruptcy court’s holding that fraud,

for purposes of § 522(q)(1)(B)(ii), must be in a fiduciary capacity. Neither

this Panel nor the Ninth Circuit has interpreted this section, but we agree

with the bankruptcy court and the Texas bankruptcy court’s decision, In re

Presto, 376 B.R. 554, 593 (Bankr. S.D. Tex. 2007), that “in a fiduciary

capacity” modifies “fraud,” “deceit,” and “manipulation.”

The Presto court noted that similar language appears in

§ 523(a)(19)(A)(ii), which excepts from discharge debts for “common law

fraud, deceit, or manipulation in connection with the purchase or sale of 8 any security.” Id. at 592. Section 523(a)(19) was designed to prevent debtors

convicted of securities fraud or other securities violations from obtaining a

discharge of those debts. Id. (citing Smith v. Gibbons (In re Gibbons), 289 B.R.

588, 592 (Bankr. S.D.N.Y. 2003), aff’d, 311 B.R. 402 (S.D.N.Y. 2004), aff’d, 155

F. App’x 534 (2d Cir. 2005)). Thus, the purpose of § 523(a)(19) is to prevent

discharge of debtors for securities-related fraud, not debts arising from any

common law fraud. Id.

The Presto court further reasoned that “Congress has consistently

linked the phrase ‘fraud, deceit, or manipulation’ to securities violations,”

and “[n]othing about the addition of ‘in a fiduciary capacity’ warrants a

severance of this connection.”8 Id.; see also id. at n.41. And, if we interpret

“fiduciary capacity” to modify only “manipulation,” then any type of fraud

or deceit would trigger the exemption limitation. Id. at 591-92.

We hold that § 522(q)(1)(B)(ii) requires a debt arising from “fraud,

deceit, or manipulation” which occurred while the debtor was acting either

in a fiduciary capacity or in connection with the purchase or sale of

registered securities.

8 The phrase “fraud, deceit, or manipulation” also appears in § 548(e)(2)(B). This section includes as avoidable transfers, any transfer of property by a debtor made within ten years of the petition date “made in anticipation of a judgment, settlement, civil penalty, equitable order, or criminal fine incurred by, or which the debtor believed would be incurred by— . . . (B) fraud, deceit, or manipulation in a fiduciary capacity or in connection with the purchase or sale of any security registered under section 12 or 15(d) of the Securities Exchange Act of 1934 or under section 6 of the Securities Act of 1933.” 9 2. We interpret “fiduciary capacity” in § 522(q)(1)(B)(ii) consistently with that term’s use in § 523(a)(4).

Gregory argues that we are not bound by the Ninth Circuit’s

construction of “fiduciary” under § 523(a)(4), and we should construe

§ 522(q) more broadly. We disagree.

The Supreme Court has held that “fiduciary” for purposes of

nondischargeability is an issue of federal law. Davis v. Aetna Acceptance Co.,

293 U.S. 328, 333 (1934); see also Ragsdale, 780 F.2d at 796. “The broad,

general definition of fiduciary—a relationship involving confidence, trust

and good faith—is inapplicable in the dischargeability context.” Ragsdale,

780 F.2d at 796. Instead, the fiduciary relationship must “arise from an

express or technical trust that was imposed prior to the wrongdoing that

caused the debt.” Plyam v. Precision Dev. (In re Plyam), 530 B.R. 456, 471 (9th

Cir. BAP 2015) (citations omitted). In other words, the fiduciary

relationship must exist “before the wrong and without reference to it.”

Ragsdale, 780 F.2d at 796. To determine whether this narrow definition of

fiduciary is satisfied, courts should look to state law. Id.

Gregory does not provide any cogent reason why the meaning of

“fiduciary capacity” should be different under § 522(q)(1)(B)(ii), and

nothing in the language of the statute indicates a contrary intent. The

narrow definition of “fiduciary” in the nondischargeability context

comports with the long-standing principle that “[e]xceptions to discharge

are meant to be narrowly construed.” Wike v. State Bar of Nev. (In re Wike),

10 660 B.R. 683, 705 (9th Cir. BAP 2024). Similarly, narrowly construing a

limitation to an exemption comports with the “strong policy . . . to interpret

exemption statutes liberally in favor of the debtor.” Arrol v. Broach (In re

Arrol), 170 F.3d 934, 937 (9th Cir. 1999).

The range of debts listed in § 522(q) further supports a narrow

construction of “fiduciary capacity.” Rather than limiting state law

exemptions in every bankruptcy case involving nondischargeable debts,

Congress designated a narrow set of circumstances that trigger the

limitation. In addition to the provision at issue in this case, § 522(q) applies

where a debtor convicted of a felony files a bankruptcy case in abuse of the

Bankruptcy Code and where a debtor owes a debt arising from:

(1) violations of state or federal securities laws, orders, or regulations;

(2) civil remedies under 18 U.S.C. § 1964 of the Racketeer Influenced and

Corrupt Organizations Act; or (3) criminal acts, intentional torts, and

willful or reckless misconduct that caused serious physical injury or death

to another within five years of the petition date. § 522(q)(1)(A)-(B).

Congress’s deliberate choice to limit state law exemptions under only

these specific circumstances reinforces a narrow construction of “fiduciary

capacity.” Thus, we interpret “fiduciary capacity” under § 522(q)(1)(B)(ii)

to have the same meaning as under § 523(a)(4): the fiduciary relationship

must be based on an express or technical trust and must be imposed prior

to the wrongdoing that caused the debt.

11 B. The judgment does not evidence fraud in a fiduciary capacity.

To sustain his objection under § 522(q)(1)(B)(ii), Gregory must prove

that: (1) Ms. Uriostegui owes a debt arising from “fraud, deceit, or

manipulation,” and (2) that her wrongful actions occurred while she was

acting in a fiduciary capacity. See In re Oliver, 649 B.R. 206, 215 (Bankr. E.D.

Cal. 2023) (discussing burdens in objections to exemptions in California

bankruptcy cases). Gregory asserts that the state court judgment satisfies

these elements.

It is undisputed that the judgment debt arose from Ms. Uriostegui’s

fraud. But the judgment does not establish that she was acting in a

fiduciary capacity when she made the fraudulent statements to Prescott.

Ms. Uriostegui committed fraud to induce Prescott to amend the trust, but

that occurred prior to the amendment, while Prescott was trustee.

Gregory argues that Prescott signed a document granting

Ms. Uriostegui power of attorney, and thus, her fraudulent statements

were made in a fiduciary capacity. It is true that state law imposes

fiduciary obligations on a person acting through a power of attorney. But it

is not clear that a power of attorney necessarily creates an “express or

technical trust” as required by § 522(q)(1)(B)(ii). We need not address this

issue, however, because the record does not evidence that Ms. Uriostegui

used the power of attorney when she defrauded Prescott.

Ms. Uriostegui disputes that she had power of attorney, and because

the document is not in the record, we cannot determine whether the

12 purported grant of authority was effective, whether it was conditional, or

whether Ms. Uriostegui accepted it. The state court referenced the

document signed by Prescott, but it did not rely on the validity of the

document in determining Ms. Uriostegui’s undue influence.

Nothing in the state court judgment indicates that Ms. Uriostegui

acted through a power of attorney in perpetuating her undue influence.

She made false and fraudulent statements to Prescott in her capacity as a

family friend, not through a power of attorney. And Prescott directed his

attorney to make the trust amendment, and he signed the document.

Because the state court judgment does not establish that

Ms. Uriostegui committed fraud, deceit, or manipulation while acting in a

fiduciary capacity, the bankruptcy court erred by limiting her homestead

exemption under § 522(q)(1)(B)(ii).

CONCLUSION

Based on the foregoing, we REVERSE the order of the bankruptcy

court limiting Ms. Uriostegui’s homestead exemption. Because the relevant

debt arose from the judgment—and Gregory fully briefed the bankruptcy

court of state court findings in support of his claim that Ms. Uriostegui

acted in a fiduciary capacity—further proceedings are not necessary.