In re: Jack Sherman Jefferies

• Court: United States Bankruptcy Appellate Panel for the Ninth Circuit
• Decided: April 30, 2012
• Docket: WW-11-1484-HKiJu
• Status: Published

Opinion

FILED 1 APR 30 2012 SUSAN M SPRAUL, CLERK 2 ORDERED PUBLISHED U.S. BKCY. APP. PANEL O F TH E N IN TH C IR C U IT 3 UNITED STATES BANKRUPTCY APPELLATE PANEL 4 OF THE NINTH CIRCUIT 5 6 In re: ) BAP No. WW-11-1484-HKiJu ) 7 JACK SHERMAN JEFFERIES, ) Bk. No. 11-42206 ) 8 Debtor. ) ______________________________) 9 ) JACK SHERMAN JEFFERIES, ) 10 ) Appellant, ) 11 ) v. ) O P I N I O N 12 ) CHARLES D. CARLSON, Chapter 7 ) 13 Trustee, ) ) 14 ) Appellee. ) 15 ______________________________) 16 Argued and Submitted on March 23, 2012 17 at Seattle, Washington 18 Filed - April 30, 2012 19 Appeal from the United States Bankruptcy Court for the Western District of Washington 20 Honorable Brian D. Lynch, Bankruptcy Judge, Presiding 21 22 Appearances: Roger J. Sharp of Sharp Law Professional 23 Corporation argued for Appellant Jack Sherman Jefferies. Charles D. Carlson of Carlson & 24 Thacker, PLLC, argued for Appellee Charles D. Carlson, Chapter 7 Trustee. 25 26 Before: HOLLOWELL, KIRSCHER and JURY, Bankruptcy Judges. 27 28 1 HOLLOWELL, Bankruptcy Judge: 2 3 The debtor appeals the bankruptcy court’s order sustaining 4 the chapter 71 trustee’s objection to his homestead exemption 5 claim. The debtor contended that an equalizing judgment he 6 received in exchange for the transfer of his residence to his ex- 7 wife in a dissolution decree constituted proceeds of the 8 voluntary sale of his homestead, protected by the Washington 9 homestead exemption statutes. The bankruptcy court disagreed. 10 We AFFIRM. 11 I. FACTUAL BACKGROUND 12 Jack Jefferies (the Debtor) filed a chapter 7 bankruptcy 13 petition on March 22, 2011. Charles Carlson was appointed the 14 trustee (the Trustee). 15 Prior to filing bankruptcy, the Debtor and his now ex-wife 16 purchased and resided on real property in Ridgefield, Washington 17 (the Residence). After eight years of marriage, the Debtor moved 18 out of the Residence due to marital difficulties. He has not 19 lived at the Residence since April 2009; however, his ex-wife and 20 children continue to reside there. 21 In December 2010, the Washington state court entered a 22 Decree of Dissolution of Marriage (the Dissolution Decree). In 23 the Dissolution Decree, the Debtor was awarded an “equalizing 24 25 1 Unless otherwise indicated, all chapter and section 26 references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532. 27 All “Rule” references are to the Federal Rules of Bankruptcy Procedure, Rules 1001-9037. The Federal Rules of Civil Procedure 28 are referred to as “Civil Rules.”

-2- 1 Judgment for his interest in the real property awarded to his 2 wife” in the amount of $40,800 (Equalizing Judgment). The 3 Equalizing Judgment was secured by a promissory note and deed of 4 trust on the Residence. In February 2011, in furtherance of the 5 terms of the Dissolution Decree, the Debtor conveyed his interest 6 in the Residence to his ex-wife by quitclaim deed. 7 On Schedule C, the Debtor listed $47,000 as exempt “Proceeds 8 from sale of homestead” under WASH . REV . CODE (RCW) 6.13.0302 (the 9 Exemption). The Trustee objected to the Exemption. The Trustee 10 asserted that because the Debtor no longer lived at the Residence 11 and was divested of his interest in the Residence through the 12 Divorce Decree, he failed to meet the requirements of 13 Washington’s homestead exemption statutes and was unable to claim 14 the Exemption. 15 16 2 17 RCW 6.13.030 provides that: A homestead may consist of lands, as described in RCW 18 6.13.010, regardless of area, but the homestead 19 exemption amount shall not exceed the lesser of (1) the total net value of the lands, manufactured homes, 20 mobile home, improvements, and other personal property, as described in RCW 6.13.010, or (2) the sum of one 21 hundred twenty-five thousand dollars in the case of 22 lands, manufactured homes, mobile home, and improvements, or the sum of fifteen thousand dollars in 23 the case of other personal property described in RCW 6.13.010, except where the homestead is subject to 24 execution, attachment, or seizure by or under any legal 25 process whatever to satisfy a judgment in favor of any state for failure to pay that state's income tax on 26 benefits received while a resident of the state of 27 Washington from a pension or other retirement plan, in which event there shall be no dollar limit on the value 28 of the exemption.

-3- 1 The Debtor responded by asserting that although he was 2 divested of his interest in the Residence, his ex-wife’s 3 obligation to pay the Equalizing Judgment constituted proceeds of 4 the voluntary sale of his homestead, for which an exemption is 5 allowed. In reply, the Trustee asserted that “the divorce court 6 awarded the home to [the Debtor’s wife]. The debtor did not sell 7 his interest in the home to his former wife as he alleges.” 8 A hearing on the Exemption took place on July 5, 2011. The 9 bankruptcy court considered the Exemption under RCW 6.13.070(1), 10 which allows a debtor to exempt the proceeds from a voluntary 11 sale of a homestead for the purpose of acquiring a new homestead. 12 The bankruptcy court determined that the Equalizing Judgment 13 constituted proceeds of the Debtor’s former homestead. However, 14 the bankruptcy court concluded that the criteria for the 15 Exemption under RCW 6.13.070(1) was not satisfied because the 16 transfer of the Residence to the debtor’s ex-wife was not a 17 voluntary sale. Therefore, the bankruptcy court determined that 18 although the Debtor may have intended to use the proceeds for the 19 purpose of acquiring a new homestead, the proceeds did not 20 qualify for a homestead exemption. The bankruptcy court 21 subsequently sustained the Trustee’s objection to the Exemption 22 by written order entered on July 28, 2011. 23 On August 9, 2011, the Debtor filed a motion for 24 reconsideration (Reconsideration Motion). In the Reconsideration 25 Motion, the Debtor argued that the bankruptcy court erred in its 26 determination that the transfer of the Residence was not 27 voluntary. The Debtor asserted that, through a consensual 28 agreement with his ex-wife, he voluntarily transferred his

-4- 1 interest in the Residence to her and the Equalizing Judgment 2 simply memorialized the consensual agreement to transfer the 3 Residence. In a written order, the bankruptcy court clarified 4 its analysis supporting its determination that the transfer of 5 the Residence did not constitute a voluntary sale and denied the 6 Reconsideration Motion. The Debtor timely appealed.3 7 II. JURISDICTION 8 The bankruptcy court had jurisdiction under 28 U.S.C. § 1334 9 and 28 U.S.C. § 157(b)(2)(B). We have jurisdiction under 28 10 U.S.C. § 158. 11 III. ISSUE 12 Did the bankruptcy court err in determining that the Debtor 13 could not claim a homestead exemption for the Equalizing 14 Judgment? 15 IV. STANDARDS OF REVIEW 16 The bankruptcy court’s conclusions of law are reviewed de 17 novo. Decker v. Tramiel (In re JTS Corp.), 617 F.3d 1102, 1109 18 (9th Cir. 2010). The scope of a statutory exemption is a 19 question of law subject to de novo review. Gonzalez v. Davis (In 20 re Davis), 323 B.R. 732, 734 (9th Cir. BAP 2005); Kelley v. Locke 21 (In re Kelley), 300 B.R. 11, 16 (9th Cir. BAP 2003). The 22 23 3 The Debtor filed the Reconsideration Motion within 14 days of the bankruptcy court’s order sustaining the Trustee’s 24 objection to the Exemption. Therefore, it tolled the time for 25 appeal until 14 days from the final order disposing of the Reconsideration Motion. Dicker v. Dye (In re Edelman), 237 B.R. 26 146, 151 (9th Cir. BAP 1999). Because the Debtor filed his 27 notice of appeal within 14 days of order denying the Reconsideration Motion, the Debtor’s appeal was timely. Rule 28 8002(b)(2).

-5- 1 validity of the claimed exemption is controlled by the applicable 2 state law. In re Kelley, 300 B.R. at 16. Additionally, whether 3 a sale is considered a forced or voluntary sale for purposes of a 4 homestead exemption is a question of law reviewed de novo. See 5 generally, In re Cole, 93 B.R. 707, 708-09 (9th Cir. BAP 1988). 6 De novo review requires that we consider the matter anew, as if 7 it had not been heard before, and as if no decision had been 8 rendered previously. Dawson v. Marshall, 561 F.3d 930, 933 (9th 9 Cir. 2009). 10 The bankruptcy court’s denial of a motion for 11 reconsideration is reviewed for an abuse of discretion. Ta Chong 12 Bank Ltd. v. Hitachi High Techs. Am., Inc., 610 F.3d 1063, 1066 13 (9th Cir. 2010); Clinton v. Deutsche Bank Nat’l Trust Co. (In re 14 Clinton), 449 B.R. 79, 83 (9th Cir. BAP 2011). A bankruptcy 15 court abuses its discretion if it bases a decision on an 16 incorrect legal rule, or if its application of the law was 17 illogical, implausible, or without support in inferences that may 18 be drawn from the facts in the record. United States v. Hinkson, 19 585 F.3d 1247, 1262 (9th Cir. 2009) (en banc); Ellsworth v. 20 Lifescape Med. Assocs., P.C. (In re Ellsworth), 455 B.R. 904, 914 21 (9th Cir. BAP 2011). 22 V. DISCUSSION 23 A. Eligibility For Exemption 24 Washington has not “opted out” of the federal exemption 25 scheme. Thus, a debtor domiciled in Washington may select either 26 the exemptions afforded by Washington law, or the federal 27 exemption scheme. 11 U.S.C. § 522(b); 4 COLLIER ON BANKRUPTCY 28

-6- 1 ¶ 522.02 (Henry Somers & Alan Resnick eds., 15th ed. rev. 2009). 2 The Debtor selected state law exemptions. 3 In Washington, a “homestead consists of real or personal 4 property that the owner uses as a residence” or “the dwelling 5 house or the mobile home in which the owner resides or intends to 6 reside . . . . Property included in the homestead must be 7 actually intended or used as the principal home for the owner.” 8 RCW 6.13.010(1).4 Property occupied as a homestead is 9 automatically protected by the exemption. RCW 6.13.040. 10 Here, since the Debtor transferred his interest in the 11 Residence prior to filing bankruptcy, he was not eligible for an 12 automatic homestead exemption. Wilson v. Arkison (In re Wilson), 13 341 B.R. 21, 27 (9th Cir. BAP 2006) (debtor not entitled to 14 homestead exemption because he did not live in the marital home 15 at the time he filed bankruptcy and could not reside there in the 16 future due to the divorce decree that divested him of his 17 property interest). However, the Debtor based the Exemption on 18 RCW 6.13.070, which exempts a homestead from attachment, 19 execution, or forced sale for the debts of the owner up to 20 $125,000, as well as the same amount in proceeds from a voluntary 21 sale of the homestead, in good faith for the purpose of acquiring 22 a new homestead. RCW 6.13.030, 6.13.070(1). Proceeds from a 23 24 4 Property described in RCW 6.13.010 constitutes a homestead 25 and is automatically protected by the homestead exemption of RCW 6.13.070 from and after the time the property is occupied. If 26 the homestead is unimproved or improved land that is not yet 27 occupied as a homestead, the homestead is exempted from and after the time the declaration of homestead is recorded. 28 RCW 6.13.040(1), (2).

-7- 1 voluntary sale of a homestead are exempt under RCW 6.13.070(1) 2 for up to one year. Any new homestead acquired with the proceeds 3 during that time may also be exempted. Id. 4 The Debtor claimed that the Equalizing Judgment constituted 5 the proceeds of a voluntary sale of his Residence for the purpose 6 of acquiring a new homestead. We agree that any property taken 7 in exchange for the transfer of a homestead is considered to be 8 “proceeds” as contemplated by the homestead exemption statute. 9 Vojta v. Buhre, 165 Wash. 384, 387 (1931). Accordingly, the 10 Equalizing Judgment, secured by the note and deed of trust, 11 constitutes proceeds for purposes of RCW 6.13.070(1). 12 Additionally, the Debtor submitted an uncontroverted declaration 13 stating that he intended to use the proceeds to purchase a new 14 homestead. Therefore, in order to meet the remaining criterion 15 entitling the Debtor to the Exemption, the Debtor’s transfer of 16 the Residence to his ex-wife must have been a voluntary sale. 17 The legal authority guiding our analysis on this issue is 18 scant. However, the Washington Supreme Court has provided an 19 explanation of the difference between a forced and voluntary 20 sale: 21 [A forced sale is] a transaction in which there is an element of compulsion on the part of either the seller 22 or the buyer. If the element of compulsion is based upon purely economic reasons, the sale is generally 23 considered voluntary . . . . Where, however, a seller or buyer is forced to act under a decree, execution or 24 something more than mere inability to maintain the property, the element of compulsion is based upon 25 legal, not economic factors . . . . 26 Felton v. Citizens Fed. Sav. & Loan Ass’n of Seattle, 101 Wash. 27 2d 416, 422 (1984) (quoting State v. Lacey, 8 Wash. App. 542, 549 28 (1973)).

-8- 1 In Felton, the court concluded that a nonjudicial trustee’s 2 sale was a voluntary sale because the debtors indirectly 3 consented to the sale through the power of sale granted the 4 trustee in the loan documents.5 Id. at 422-23. The court 5 determined that when a property owner consents, either directly 6 or indirectly, to a sale under execution or other legal process, 7 the sale is not a forced sale for purposes of the homestead 8 statutes. The Debtor seizes on this language and contends that 9 “[t]here is no reason [his] consent to this legal process [of 10 dissolution] should be treated as any less consensual or 11 voluntary than the consent of one signing a mortgage or deed of 12 trust.” 13 However, in Felton, it was the debtors’ inability to 14 maintain the property that led to the trustee’s sale. The sale 15 was therefore compelled due to economic factors. Thus, it fell 16 squarely within the court’s definition of a voluntary sale. 17 Here, the Debtor transferred the Residence to his ex-wife, not 18 because of purely economic reasons or an inability to maintain 19 the Residence. He transferred the Residence to his ex-wife as 20 part of a state court dissolution process and allocation of 21 marital property. 22 The Debtor asserts that because there was a voluntary pre- 23 decree agreement with his ex-wife to transfer the homestead, the 24 25 5 The court in Felton was construing what is now RCW 26 6.13.080, which provides that the homestead is not available 27 against an execution or forced sale in satisfaction of judgments obtained on, among other things, debts secured by a vendor’s lien 28 on the property or debts secured by mortgages on the property.

-9- 1 Dissolution Decree did not transform that voluntary agreement 2 into a forced sale. The Debtor’s assertion might have more merit 3 if the Debtor had quitclaimed the Residence prior to the entry of 4 the Dissolution Decree. But even if there was some agreement, 5 cooperation, and consent between the Debtor and his ex-wife as to 6 who would retain the Residence, there remained an element of 7 legal compulsion in the property division. 8 For example, the Debtor stated that the agreement did not 9 come quickly (“We eventually agreed that the family home should 10 be awarded to her so she could continue to reside there with our 11 children.”), and that he and his ex-wife disagreed about the 12 amount that he would be paid for transferring his interest. 13 Ultimately, it was the state court who decided, after a trial, 14 the amount of the payment. Thus, the Equalizing Judgment was 15 made through the Dissolution Decree as part of the state court’s 16 fair allocation of the marital property. 17 The Debtor, however, argues that the Dissolution Decree was 18 not the operative document that divested him of his interest in 19 the Residence. Nevertheless, it was the state court’s final 20 decisions on the allocation and distribution of the marital 21 property that triggered the Debtor’s obligation to transfer the 22 Residence. Indeed, the Debtor admits he was “disappointed by 23 [the state court judge’s] decision and contemplated an appeal.” 24 However, since he did not appeal the Dissolution Decree, he was 25 obligated by its terms to transfer the Residence, which resulted 26 in the quitclaim deed to his ex-wife in exchange for the note and 27 deed of trust. 28

-10- 1 Homestead and exemption statutes are favored in the law and 2 should be liberally construed. In re Dependency of Schermer, 161 3 Wash. 2d 927, 953 (2007); Pinebrook Homeowners Ass’n v. Owen, 48 4 Wash. App. 424, 427 (1987). Nevertheless, in applying the 5 definitions of voluntary and forced sales set forth in Felton, we 6 agree with the bankruptcy court that the sale or transfer by the 7 Debtor of the Residence to his ex-wife was made with an element 8 of legal, not purely economic, compulsion and was, therefore, not 9 a voluntary sale. Consequently, the Debtor cannot claim the 10 Exemption under RCW 6.13.070(1).6 11 B. Reconsideration Motion 12 The Debtor sought reconsideration pursuant to Rule 9023, 13 incorporating Civil Rule 59(e). He asserted that the issue of 14 whether the transfer of the Residence to his ex-wife was 15 considered a voluntary or a forced sale was not fully briefed 16 before the bankruptcy court because it was raised by the Trustee 17 for the first time at the hearing on the objection to the 18 Exemption. The Debtor asserted that the bankruptcy court erred 19 in its determination that the sale was a forced sale, which 20 21 6 22 The Debtor’s reliance on In re Marriage of Foley, 84 Wash. App. 839 (1997) to support his argument is off-point. There, Mr. 23 Foley was awarded the family home and ordered through a dissolution decree to pay Mrs. Foley an equalization award that 24 was to be paid by refinancing or selling the home. Mr. Foley 25 argued that the forced sale violated his homestead rights but the court held that “[a] judgment in owelty is an equitable lien on 26 the property specified in the nature of a vendor’s lien. It 27 prevails over a homestead exemption.” Id. at 845; see also RCW 6.13.080 (cannot claim homestead exemption against a forced sale 28 in satisfaction of vendor’s lien).

-11- 1 resulted in the Debtor’s ineligibility to claim a homestead 2 exemption under RCW 6.13.070(1). 3 Although Civil Rule 59(e) permits a court to reconsider and 4 amend a previous order, “the rule offers an ‘extraordinary 5 remedy, to be used sparingly in the interests of finality and 6 conservation of judicial resources.’”7 Kona Enters., Inc. v. 7 Estate of Bishop, 229 F.3d 877, 890 (9th Cir. 2000) (internal 8 citation omitted). Thus, a motion for reconsideration should not 9 be granted absent “highly unusual circumstances,” unless the 10 court is presented with: (1) newly discovered evidence, (2) 11 committed clear error, or (3) there is an intervening change in 12 the controlling law. Marlyn Nutraceuticals, Inc. v. Mucos Pharma 13 GmbH & Co., 571 F.3d 873, 880 (9th Cir. 2009). A Civil Rule 14 59(e) motion may not be used to raise arguments or present 15 evidence for the first time when they could reasonably have been 16 raised earlier in the litigation. Kona Enters., Inc., 229 F.3d 17 at 890. 18 The Debtor presented no new evidence or intervening change 19 in the law that required the alteration of the bankruptcy court’s 20 order sustaining the Trustee’s objection to the Exemption. For 21 the reasons discussed above, the bankruptcy court did not err in 22 determining that the Debtor’s transfer of the Residence to his 23 24 7 Additionally, under Local Bankruptcy Rule 9013-1(h), which 25 incorporates Local Civil Rule for the U.S. District Court for the Western District of Washington (Local Civil Rule) 7(h), motions 26 for reconsideration are disfavored and not granted unless there 27 is a showing of manifest error, or, new facts or legal authority that could not have been brought to the court’s attention earlier 28 with reasonable diligence.

-12- 1 ex-wife, in exchange for an Equalizing Judgment through the 2 Dissolution Decree, was a forced sale. Thus, the bankruptcy 3 court did not err in concluding that the Debtor was ineligible 4 for the Exemption. Consequently, there was no basis for the 5 Debtor to prevail on his Reconsideration Motion. As a result, we 6 conclude that the bankruptcy court did not abuse its discretion 7 when it denied the Reconsideration Motion. 8 VI. CONCLUSION 9 For the reasons stated, we AFFIRM the bankruptcy court’s 10 order sustaining the Trustee’s objection to the Exemption. 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

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