FILED AUG 06 2018
SUSAN M. SPRAUL, CLERK NOT FOR PUBLICATION U.S. BKCY. APP. PANEL OF THE NINTH CIRCUIT
UNITED STATES BANKRUPTCY APPELLATE PANEL OF THE NINTH CIRCUIT
In re: BAP Nos. CC-17-1092-FSKu CC-17-1303-FSKu KATHLEEN KELLOGG-TAXE, (Consolidated)
Debtor. Bk. No. 2:12-bk-51208-RK
RICHARD TAXE, Adv. Pro. 2:13-ap-02019-RK
Appellant,
v. MEMORANDUM*
CAROLYN A. DYE, Chapter 7 Trustee,
Appellee.
Argued and Submitted on July 27, 2018 at Pasadena, California
Filed – August 6, 2018
Appeal from the United States Bankruptcy Court for the Central District of California
* This disposition is not appropriate for publication. Although it may be cited for whatever persuasive value it may have, see Fed. R. App. P. 32.1, it has no precedential value, see 9th Cir. BAP Rule 8024-1. Honorable Robert Kwan, Bankruptcy Judge, Presiding
Appearances: Appellant Richard Taxe argued pro se; Christian T. Kim of Dumas & Kim, APC argued on behalf of appellee Carolyn A. Dye, Chapter 7 Trustee.
Before: FARIS, SPRAKER, and KURTZ, Bankruptcy Judges.
INTRODUCTION
Richard Taxe, husband of chapter 71debtor Kathleen Kellogg-Taxe,
appeals the bankruptcy court’s judgment (1) determining that the shares of
Dwarfco Productions, Inc. (“Dwarfco”) and its assets, including a
promissory note and deed of trust owned by Dwarfco, were property of the
bankruptcy estate, (2) ordering Richard,2 his brother Ronald Taxe, and
Dwarfco to turn over those shares and assets to the bankruptcy trustee, and
(3) holding Richard liable to the chapter 7 trustee for $2,509, which the
court found was the value of gemstones that he failed to turn over to the
trustee pursuant to a prior order. Richard argues on appeal that the court
committed numerous errors of fact and law. Among other things, he
1 Unless specified otherwise, all chapter and section references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, all “Rule” references are to the Federal Rules of Bankruptcy Procedure, and all “Civil Rule” references are to the Federal Rules of Civil Procedure. 2 We refer to Richard, Kathleen, and Ronald by their first names for the sake of clarity and convenience. We intend no disrespect.
2 maintains that Dwarfco is owned by Ronald, and therefore its shares and
assets cannot be community property of Kathleen and Richard subject to
turnover. He also contends that the chapter 7 trustee’s complaint was
untimely and that the bankruptcy court and the trustee cannot reach
property located outside of California, where Kathleen filed her petition.
Richard’s contentions are meritless. We AFFIRM.
FACTUAL BACKGROUND
A. The Taxe parties
Richard has been married to Kathleen since 1984. They do not have
any written agreement regarding their interests in each other’s property.
Dwarfco was incorporated in the state of Nevada in 1990. Richard
claims that Ronald’s family trust is the actual owner of Dwarfco. Richard
maintains that he is an officer of Dwarfco but does not have an ownership
interest in Dwarfco.
Dwarfco’s sole asset is a $1.1 million promissory note made in 2007
by Carlton Global Resources, LLC,3 which is secured by a deed of trust
(“Deed of Trust”) encumbering real property located in Boron, California.
Ronald testified that all income from the Deed of Trust is paid to Richard,
not Dwarfco, and Richard testified that Kathleen also receives some of the
3 Carlton Global Resources was going through its own chapter 7 bankruptcy case. Richard repeatedly refers to the alleged fraud committed by the trustee in that case, but those arguments have no bearing on this appeal, and we will not address them.
3 proceeds.
Before she filed the present case, Kathleen filed for bankruptcy once
in 2009 and three times in 2012. All four cases were dismissed shortly after
their inception. In those cases, she stated in her schedules (under penalty of
perjury) that she had a one-half interest in Dwarfco and a one-half interest
in Massrock, Inc.4 In 2009, she stated that the combined value of those
interests was $4 million, and in 2012, she valued her interests at $2.5
million. She also represented that her shares in Dwarfco and the income
generated from the Deed of Trust were property of her chapter 13
bankruptcy estate. She further testified that her estate included original
paintings worth $50,000 and furs, jewelry, and gems valued at $40,000.
B. Kathleen’s present bankruptcy case
On December 18, 2012, Kathleen filed a chapter 11 bankruptcy
petition. She did not respond to a creditor’s motion to convert her case to a
chapter 7 case, and the court granted the motion. Appellee Carolyn A. Dye
was appointed chapter 7 trustee (“Trustee”).
Kathleen failed to file the required schedules of assets and liabilities.
The Trustee requested that the court not dismiss the case on that basis and
instead permit the Trustee to file schedules based mostly on information
taken from the filings in Kathleen’s prior bankruptcy cases. The court
4 Massrock, Inc. was formed in 1996 and is at least partially owned and operated by Richard.
4 granted the Trustee’s request, and the Trustee filed schedules listing as an
asset shares of Dwarfco and Massrock valued at $2.5 million. The Trustee
also scheduled income from real property in the amount of $3,050 and a
monthly “Contribution from Ronald Taxe” of $1,050.
In May 2013, Kathleen filed amended schedules. Even though she
had claimed a substantial interest in Dwarfco in her prior four bankruptcy
proceedings, she omitted any mention of Dwarfco shares and checked the
box indicating that her interest in stocks was “None.” She also omitted any
income related to real property or Ronald.
In July 2013, the Trustee examined Richard under Rule 2004. Richard
testified that he was the owner of and in possession of a painting by
Wassily Kandinsky (“Kandinsky Painting”). He testified that he acquired
the painting in 2009 and that it was “worth a lot of money.” He also
testified that he owned valuable gemstones and diamonds. Kathleen had
not disclosed the existence of either the Kandinsky Painting or the
gemstones in her schedules.
The Trustee initiated an adversary proceeding against Richard,
Ronald, and Dwarfco (“Defendants”),5 seeking turnover of the Deed of
Trust, the Kandinsky Painting, and the gemstones under § 542(a). She
5 The Trustee also sued Massrock, alleging that it is a sham corporation whose bank account Richard and Kathleen used to pay their living expenses. Massrock filed its own bankruptcy petition in November 2013 and did not participate in the adversary proceeding or this appeal.
5 alleged that Dwarfco is a sham corporation and that Richard formed
Dwarfco for the purpose of evading his creditors. Because the state of
Nevada revoked Dwarfco’s charter in 2007, it no longer existed as a legal
entity. Therefore, according to the Trustee, Richard and Ronald were
successors in interest to any claim that Dwarfco may have under the Deed
of Trust, and Richard’s interest was shared with Kathleen as community
property. She therefore asserted that any assets of Dwarfco were property
of the estate in Kathleen’s case.
The Trustee filed a motion for a preliminary injunction, requesting
that the bankruptcy court: (1) enjoin Kathleen and the Defendants from
transferring any shares of Dwarfco or any interest in the Dwarfco Deed of
Trust and promissory note; (2) appoint a receiver to liquidate Dwarfco’s
assets; (3) require the parties to turn over the Kandinsky Painting; and
(4) require the parties to turn over the gemstones in Richard’s possession.
The court entered an interim order on December 6, 2013, prohibiting
Kathleen and the Defendants from transferring or disposing of any assets
that were the subject of the Trustee’s motion.
On April 21, 2014, the bankruptcy court issued a Memorandum of
Decision and an Order Granting, in Part, Denying, in Part, Trustee’s
Motion for Preliminary Injunction and Appointment of Receiver
(“Preliminary Injunction”). The court stated that the Trustee “has pled
sufficient evidence to prove that the Kandinsky Painting (acquired in or
6 about 2009) and Gemstones (acquired in or about 1993) are community
property and thus property of the Debtor’s estate. . . . Defendants do not
appear to contest this conclusion.” As for Dwarfco, the court stated that the
Trustee “proffered sufficient evidence that Debtor has an interest in
Dwarfco (formed in 1990), including any income received from the
Dwarfco Note and DOT. Debtor claimed a 50% interest in Dwarfco in her
prior bankruptcy schedules under penalty of perjury, and also claimed an
interest in the Dwarfco Note and DOT.”
The court enjoined the Defendants from transferring, disposing of, or
hypothecating Dwarfco’s shares, assets, inventory, and Deed of Trust, the
Kandinsky Painting, and the gemstones. The Preliminary Injunction also
instructed that “the Kandinsky painting and the gemstones shall be turned
over to the Trustee, forthwith, to be held in trust pending the resolution of
this adversary proceeding or further order of the court.”6
Over a year later, on or around June 3, 2015, Richard delivered a
collection of gemstones to the Trustee. However, it was substantially less
than what the Trustee expected: according to the Trustee, the surrendered
gemstones had an appraised value of only $2,491.25.
Richard did not surrender the Kandinsky Painting.
6 It also authorized the appointment of a receiver to take possession of and preserve Dwarfco’s assets and inventory, “pending the resolution of this adversary proceeding and further order of this Court.” So far as the record reveals, the court never appointed a receiver.
7 C. Trial
The bankruptcy court held a one-day trial on the Trustee’s complaint
on July 28, 2016.7 Richard appeared pro se; Ronald and Dwarfco did not
attend.
Richard’s testimony was confusing and scattershot, but he made a
number of important admissions. He testified that he ran his money
through Dwarfco’s bank accounts:
My brother told me if I wanted to run some checks through there or some business through there I can as long as I don’t make the company, you know, vulnerable to any debtor [sic] I think. All that money in the – all those deposits were my money. The checks were made out to me. I deposited them in there and I paid bills with them. And it didn’t hurt my brother, didn’t hurt Dwarfco, didn’t hurt anybody. I did it because . . . there were people before [Trustee’s counsel] trying to cause me trouble all the time . . . .
He also testified that he rarely received money from the interest on the
Deed of Trust, and that sometimes that money would go to Kathleen.8
7 Prior to trial, the parties submitted a joint pretrial order in which Richard agreed that many facts were undisputed. Despite his pretrial stipulation, Richard disputes many of those facts on appeal. 8 Richard testified:
THE COURT: [So] the money on the note went to you[r] wife?
THE WITNESS: No, no, no. I think that my brother said, “Give her (continued...)
8 The Trustee asked Richard about Kathleen’s prior statements that she
owned shares of Dwarfco. Richard brushed off those filings because the
cases were quickly terminated and did not result in any relief: “Let’s not
talk about all of those bankruptcies. Those were bankruptcies she never did
anything. . . . The whole thing - she bought herself about a month and a
half or two months’ time. That’s all.” He also asserted that Kathleen did not
“testify” to any facts in her schedules because the representations were not
made verbally or in a deposition.
He stated that the Kandinsky Painting was worthless because it was a
forgery. Because it was worthless, he had given it to a woman to sell for her
charity. The court inquired why he gave away the Kandinsky Painting
despite the bankruptcy court’s injunction against transferring the painting;
he responded, “Well, apparently . . . [I] didn’t read it right or something.”
When asked why he did not turn over the Kandinsky Painting pursuant to
the Preliminary Injunction, he said that “I’d already given it to that woman
8 (...continued) the money.” It wasn’t – it was like $5,000 or $6,000.
THE COURT: Oh, okay. So the money went to you and then you gave it to your wife?
THE WITNESS: If it came to me, I would have given it to my wife immediately, but I thought it went to her. . . . But it’s not community property.
9 back there. That’s what – it’s not worth anything. I don’t care.”
Regarding the gemstones, Richard testified that he had not sold or
acquired gemstones for at least fifteen years. He said that, at some point
after the court issued the Preliminary Injunction, they searched the house
and found some gems that had “fallen under the tables.”
D. The findings of fact and conclusions of law
The bankruptcy court issued findings of fact and conclusions of law
on March 10, 2017. It stated that community property of a married debtor
and her spouse is property of the bankruptcy estate under California law. It
noted that property acquired during marriage is presumptively community
property, but that presumption can be rebutted.
Regarding Dwarfco, the bankruptcy court held that Richard owned
Dwarfco by virtue of his control over it and that any asset Dwarfco owned
that is controlled and enjoyed by Richard is his property. Accordingly, the
court found that the shares of Dwarfco and the Deed of Trust are assets
owned by Kathleen and Richard as community property. It held that,
under Nevada law, Dwarfco was Richard’s alter ego because: (1) Richard
influenced and governed Dwarfco; (2) there was a unity of interest between
Dwarfco and Richard because Richard had control and enjoyment of
Dwarfco and used Dwarfco’s bank accounts to pay family expenses;
(3) Richard commingled his funds with those of Dwarfco and treated
Dwarfco’s bank account as his own; (4) Richard testified at trial that income
10 from the Dwarfco Deed of Trust went to Kathleen, rather than Ronald, the
purported owner of the Dwarfco shares; and (5) it would be unjust to treat
Dwarfco as a separate entity where Richard avoids claiming an interest in
businesses he controls “because of judgments,” yet uses those businesses to
pay personal and family expenses and to avoid exposure to creditors. The
court also relied on Kathleen’s bankruptcy schedules in her previous cases,
wherein she scheduled a fifty percent interest in Dwarfco and identified the
Deed of Trust as a source of her income.
As for the gemstones, the bankruptcy court found that they were
property of the estate and that Richard’s failure to turn over the gemstones
prevented the Trustee from ascertaining their value as of the petition date
and realizing their value for the benefit of the bankruptcy estate. The court
stated that, based on Richard’s delay in turning over the gemstones until
fourteen months after the Preliminary Injunction and over two and a half
years after the petition date, “the court draws a reasonable inference that
the gemstones he turned over in June 2015 were not all of the gemstones
that he had when the Debtor’s bankruptcy case was filed.” It accepted the
Trustee’s total valuation of the gemstones at $5,000.
Regarding the Kandinsky Painting, the court held that it was part of
the bankruptcy estate and that Richard wrongfully failed to turn over the
painting. It found his testimony “not credible” as to the painting’s value.
Nevertheless, it did not believe that Richard would now turn over the
11 painting and it held that the “Trustee has not produced sufficient evidence
to establish the value of the Kandinsky painting for the court to award its
value to the bankruptcy estate.”
The bankruptcy court issued its judgment (“Judgment”) holding that
the shares of Dwarfco and its assets, including the Deed of Trust, were
property of the bankruptcy estate and ordered the Defendants to turn over
the Dwarfco shares and the Deed of Trust. The court also ordered Richard
to pay $2,509 to the Trustee, representing the gemstones’ value. But it
entered judgment in favor of Richard as to the Kandinsky Painting.
E. The BAP appeals
Richard filed a timely notice of appeal from the Judgment. The BAP
consolidated that appeal with an untimely second appeal concerning
identical issues.
Ronald and Dwarfco also appealed the Judgment to the BAP.
According to Richard, Ronald and Dwarfco decided not to pursue their
appeal “to save thousands of dollars.” They failed to file an opening brief,
and the BAP motions panel dismissed their appeal for lack of prosecution.9
9 Subsequently, the Trustee requested court approval to sell the Deed of Trust. At oral argument, the parties represented to the Panel that the court granted the Trustee’s motion. The bankruptcy court entered an order approving the sale on August 3, 2018, but the sale has not closed, as far as we can tell. The completion of the sale might render this appeal partly moot, but that has not yet happened.
12 JURISDICTION
The bankruptcy court had jurisdiction pursuant to 28 U.S.C. §§ 1334
and 157(b)(2)(E).
The Trustee argues that we do not have jurisdiction over this appeal,
because Richard is asserting rights and arguments on behalf of Ronald and
Dwarfco, who chose not appeal. We agree that Richard is not entitled to
present arguments on behalf of Ronald or Dwarfco, so we will consider
only Richard’s arguments that concern his own rights. Accordingly, we
have jurisdiction over Richard’s appeal under 28 U.S.C. § 158.
ISSUES
(1) Whether the bankruptcy court clearly erred in its factual findings.
(2) Whether the bankruptcy court erred as a matter of law in
determining that the court could exercise jurisdiction over Dwarfco and its
assets, that the Dwarfco shares and Deed of Trust were community
property, and that the Trustee timely sought turnover.
STANDARDS OF REVIEW
We review the bankruptcy court’s legal conclusions de novo. Banks v.
Gill Distrib. Centers, Inc. (In re Banks), 263 F.3d 862, 867 (9th Cir. 2001).
Whether an asset is estate property is a conclusion of law reviewed de
novo. Groshong v. Sapp (In re MILA, Inc.), 423 B.R. 537, 542 (9th Cir. BAP
2010). De novo review is independent and gives no deference to the trial
court’s conclusions. Roth v. Educ. Credit Mgmt. Corp. (In re Roth), 490 B.R.
13 908, 915 (9th Cir. BAP 2013).
We review the bankruptcy court’s factual findings underlying its
legal conclusions for clear error. Bronitsky v. Bea (In re Bea), 533 B.R. 283, 285
(9th Cir. BAP 2015). A finding of fact is clearly erroneous if it is illogical,
implausible, or without support in the record. Retz v. Samson (In re Retz),
606 F.3d 1189, 1196 (9th Cir. 2010). The bankruptcy court’s choice among
multiple plausible views of the evidence cannot be clear error. United States
v. Elliott, 322 F.3d 710, 715 (9th Cir. 2003).
DISCUSSION
Richard’s briefs are rambling and his arguments are hard to parse.
For example, he objects to some of the court’s findings on the ground that
he does not remember giving the testimony on which the findings were
based, even though the trial transcript shows that he gave that testimony.
He makes legal arguments based solely on his “understanding” of or
“belief” regarding the law, without providing any supporting authority.
(As we will see, his legal understanding and beliefs are deficient.) He does
not understand the function of an appellate court: he offers to “prove
beyond a shadow of a doubt” his factual assertions, but the time for factual
development is long past. Even construing Richard’s arguments liberally,
see Ozenne v. Bendon (In re Ozenne), 337 B.R. 214, 218 (9th Cir. BAP 2006), we
14 AFFIRM.10
A. A trustee may seek turnover of property belonging to the bankruptcy estate.
“A turnover action ‘invokes the court’s most basic equitable powers
to gather and manage property of the estate.’” Bencomo v. Avery (In re
Bencomo), BAP No. CC-15-1442-DKuF, 2016 WL 4203918, at *5 (9th Cir. BAP
Aug. 8, 2016) (quoting Braunstein v. McCabe, 571 F.3d 108, 122 (1st Cir.
2009)). Section 542 of the Bankruptcy Code provides:
[A]n entity, other than a custodian, in possession, custody, or control, during the case, of property that the trustee may use, sell, or lease under section 363 of this title, or that the debtor may exempt under section 522 of this title, shall deliver to the trustee and account for, such property or the value of such property, unless such property is of inconsequential value or benefit to the estate.
§ 542(a). The term “entity” includes individuals and corporations.
§§ 101(15), (41).
The property to be turned over must be property of the bankruptcy
estate. §§ 363, 542(a); see White v. Brown (In re White), 389 B.R. 693, 699 (9th
Cir. 2008). The property of the estate includes:
10 Richard makes much of the court’s chastisement of the Trustee’s counsel for his trial filings and argues that the court bent over backwards to make the Trustee’s arguments. We reject this view. The court thought that the Trustee’s counsel could have made its job easier, but the court never assumed the role of an advocate or exceeded its proper bounds.
15 All interests of the debtor and the debtor’s spouse in community property as of the commencement of the case that is –
(A) under the sole, equal, or joint management and control of the debtor; or
(B) liable for an allowable claim against the debtor, or for both an allowable claim against the debtor and an allowable claim against the debtor’s spouse, to the extent that such interest is so liable.
§ 541(a)(2). The trustee has the burden of proving that the bankruptcy
estate is entitled to turnover. Wolfe v. Jacobson (In re Jacobson), 676 F.3d 1193,
1200-01 (9th Cir. 2012).
B. The bankruptcy court’s factual findings are not clearly erroneous.
Richard mostly argues that the bankruptcy court committed factual
errors.11 His arguments are of the “kitchen sink” variety. We divide them
into six categories. None has any merit.
1. The bankruptcy court ordered turnover.
Richard argues that the bankruptcy court did not order him to turn
over the gemstones. First, he argues that “during my research for this case I
learned that there was No Order for Turnover of anything to the Trustee
only an Injunction . . . .” Second, he contends that the injunction was
11 His brief also asserts that the Trustee’s complaint contained false allegations. We review only court decisions, and therefore we disregard his objections to the complaint (except those that duplicate his objections to the court’s findings of fact).
16 defective because it “was signed on the first page by Judge Neiter. There
was no signature on the second page.” Third, he argues that the
Preliminary Injunction did not require him to turn over any assets. He says
that “Judge Kwan is mistaken in thinking that Judge Neiter’s Preliminary
Injunction . . . called for the turnover of any Dwarfco asset. Injunctions
don’t require turnover of assets to Trustees.” Fourth, he contends that he
complied with the Preliminary Injunction because he did not sell or
transfer any of Dwarfco’s assets.
In other words, he claims that: there was no order; the order was
defective; the order did not say what the court thought it said; and he
complied with (a portion of) the order. Logically, not all of these arguments
can be correct. In this case, none of them is correct.
The facts are straightforward, and the bankruptcy court correctly
recounted them. On December 6, 2013, the bankruptcy court issued an
interim order that prevented Richard from selling, transferring, disposing
of, or hypothecating Dwarfco’s shares and assets, gemstones, and any
antiques or artwork within his possession. Despite this order, Richard
transferred the Kandinsky Painting and possibly disposed of some of the
gemstones.
On April 21, 2014, the bankruptcy court’s Preliminary Injunction
unequivocally ordered Richard to turn over the Kandinsky Painting and
gemstones: “The Kandinsky Painting and the Gemstones shall be turned
17 over to the Trustee, forthwith, to be held in trust pending the resolution of
this adversary proceeding or further order of the Court.”
These orders existed. They appear on the bankruptcy court’s docket
and in the excerpts of record.
These orders were effective. It is true that Judge Neiter’s electronic
signature appears on the second page of the three-page Preliminary
Injunction. But this clerical mistake does not invalidate the order.
The fact that the orders were styled as injunctions is of no moment.
The body of the Preliminary Injunction unambiguously required turnover
of the assets. The title did not negate the body of the order.
There is no serious ground for dispute that the Defendants violated
the interim order and the Preliminary Injunction. Richard admitted at trial
that, after the court entered the interim order, he gave away the Kandinsky
Painting.
The bankruptcy court therefore did not clearly err in finding that the
interim order and Preliminary Injunction barred Richard from transferring
the gemstones, the Kandinsky Painting, and the Dwarfco shares and assets,
that the Preliminary Injunction required Richard to turn over those assets
to the Trustee, and that Richard defied both orders.
2. Dwarfco was inactive on the petition date.
The bankruptcy court pierced the corporate veil between Richard and
18 Dwarfco,12 held that the shares and assets of Dwarfco are community
property of Richard and Kathleen, and therefore held that those assets are
property of Kathleen’s bankruptcy estate. The bankruptcy court based
these determinations partly on its finding that Dwarfco was an inactive
corporation.
Richard argues that Dwarfco is not inactive. He states repeatedly that
Dwarfco regained active status and points to documents purportedly
evidencing Dwarfco’s reinstatement in January 2014; he also maintains that
the bankruptcy court should have done its own investigation and searched
Nevada business registration websites. We reject this argument for
multiple reasons.
First, Dwarfco’s inactive status was only one reason why the
bankruptcy court found that Richard personally owned the corporate
assets. The court also relied on Richard’s complete control over and
dominance of Dwarfco. Richard does not challenge any of those other bases
12 The bankruptcy court said that Dwarfco was Richard’s alter ego. This may have been the wrong label. The Ninth Circuit has held that alter ego is a procedural mechanism to transfer liability: “In fact, there is no such thing as a substantive alter ego claim at all: ‘A claim against a defendant, based on the alter ego theory, is not itself a claim for substantive relief, e.g., breach of contract or to set aside a fraudulent conveyance, but rather, procedural . . . .’” Ahcom, Ltd. v. Smeding, 623 F.3d 1248, 1251 (9th Cir. 2010) (quoting Hennessey’s Tavern, Inc. v. Am. Air Filter Co., 204 Cal. App. 3d 1351, 1359 (1988)). But the use of the wrong label is not reversible error: the bankruptcy court properly found that Richard’s control and use of Dwarfco evidenced his ownership interest.
19 (other than to repeat ad nauseam that Dwarfco was owned by Ronald’s
family trust). Therefore, even if the finding about Dwarfco’s status was
wrong (and it wasn’t), the court’s result would stand.
Second, Richard offered no admissible evidence of Dwarfco’s status.
Richard’s Exhibit 9 is a document purportedly from the Nevada Secretary
of State website. This document is not authenticated or even dated, and we
cannot tell whether it was presented at trial or at any other time to the
bankruptcy court.
Third, the bankruptcy court had no obligation to conduct its own
independent investigation into Dwarfco’s status. See ABA Model Code of
Judicial Conduct R. 2.9(C) (“A judge shall not investigate facts in a matter
independently, and shall consider only the evidence presented and any
facts that may properly be judicially noticed.”).
Fourth, even by Richard’s and Ronald’s own account, Dwarfco was
only reactivated as of January 2014, over a year after Kathleen filed her
bankruptcy petition. The Trustee provided proof that Dwarfco was inactive
in the state of Nevada on the petition date. The contents of the estate are
ascertained as of the petition date. § 541. Richard and Ronald lacked power
to remove assets from the estate by reactivating Dwarfco.
Therefore, the bankruptcy court did not clearly err in finding that
Dwarfco was an inactive corporation and, more importantly, did not err in
deciding that Dwarfco’s assets were property of Kathleen’s bankruptcy
20 estate.
3. Kathleen’s prior statements under oath were “testimony.”
Richard repeatedly insisted at trial and in this appeal that Kathleen’s
statements in her earlier bankruptcy cases cannot be used against her
because she did not “testify” to any facts. He states that “[t]estified means
questioned under oath etc.[,]” and “she never ‘testified’ in the prior
Chapter 13 bankruptcies.” He is wrong.
A party’s statements in her bankruptcy schedules are made under
oath. See Khalil v. Developers Sur. & Indem. Co. (In re Khalil), 379 B.R. 163, 172
(9th BAP Cir. 2007), aff’d, 578 F.3d 1167 (9th Cir. 2009) (“A false statement
or an omission in the debtor’s bankruptcy schedules or statement of
financial affairs can constitute a false oath.”); Olympic Coast Inv., Inc. v.
Wright (In re Wright), 364 B.R. 51, 71-72 (Bankr. D. Mont. 2007), aff’d, 2008
WL 160828 (D. Mont. Jan. 16, 2008), aff’d, 340 F. App’x 422 (9th Cir. 2009)
(“A false oath or statement is made when it occurs (1) in the debtor’s
schedules or (2) at an examination during the course of the proceedings.”).
When Kathleen signed her schedules, she declared under penalty of
perjury that the information she provided was true and correct. Such
statements are “testimony.”
Moreover, in the joint pretrial order, Richard agreed that Kathleen
had previously testified to those facts in her prior bankruptcy cases:
2. . . . In the schedules submitted in each of the subject prior
21 bankruptcies, the Debtor testified that she had a one-half interest in Massrock, Inc. and Dwarfco. . . .
3. In the subject prior bankruptcies, the Debtor testified that the income from the Dwarfco Deed of Trust was property of her Chapter 13 bankruptcy estate.
4. The Debtor testified in a prior bankruptcy that her estate included original paintings having a value of $50,000 and “furs and jewelry,” including “gems” having a value of $40,000.
(Emphases added.)
Therefore, the bankruptcy court did not clearly err in relying on
Kathleen’s prior statements.
4. Richard and Kathleen received money from the Dwarfco Deed of Trust.
Richard contends that he did not have any shares in Dwarfco and did
not receive any income from Dwarfco.
As for the shares, Richard misapprehends the bankruptcy court’s
findings. The court largely repeated Richard’s contentions that he did not
own Dwarfco shares. But it found that he nevertheless had an ownership
interest in Dwarfco by virtue of his control of the company and his use of
the company’s accounts as his personal piggy bank.
The bankruptcy court also found that Richard received income from
Dwarfco’s Deed of Trust. Both Ronald and Richard stated in their
declarations that Richard was entitled to receive any proceeds from the
22 Deed of Trust. Moreover, Richard testified at trial that both he and
Kathleen occasionally received income from the Deed of Trust.
The bankruptcy court did not clearly err in determining that Richard
had an ownership interest in Dwarfco and received income from the Deed
of Trust.
5. The trial transcript confirms Richard’s testimony under oath.
Richard disputes certain findings because he says that he does not
remember making such statements at trial. Fortunately, we need not rely
on Richard’s memory, because we have a verbatim transcript.
He states that he does not remember testifying that he took $98,000
from Massrock’s bank account, but “I had every right to spend it.” The
transcript shows that, at trial, the Trustee represented that there was
$98,623 in Massrock’s bank account on the petition date; Richard stated
that “I remember there was a lot of money but we were spending it[,]” and
that “if it was in there, I’m sure we spent it.”
Richard further professes “surprise” to learn that he testified at trial
that Ronald told him that he could run checks and business through
Dwarfco. He tries to explain how that could not be the case, since Dwarfco
has not had a bank account since 2008. Regardless, he concedes that he
made the statement at trial under oath, as the transcript shows.
Richard also states that he does not “remember receiving any income
from Dwarfco unless Ronald Taxe gave it to me but that had to be more
23 than 8 years ago.” But, as the bankruptcy court accurately pointed out,
Ronald and Richard stated in declarations that Richard is entitled to receive
interest payments on the Dwarfco Deed of Trust. Additionally, Richard
testified at trial that income from the Deed of Trust went to him or
Kathleen on a few occasions.
The bankruptcy court did not clearly err in recounting and relying on
Richard’s testimony.
6. The findings regarding joint bank accounts and assets are not clearly erroneous.
Richard also takes issue with the court’s findings regarding his
property. He appears to agree with the court’s finding that he has no
marital agreement with Kathleen with respect to their property interests,
but nevertheless argues that they did not have any joint bank accounts. He
does not appear to assert any error with the finding in this respect.
He also argues that he has owned assets “in the past” and has only
one judgment against him. But the court did not make any finding to the
contrary; it only found that “he avoids claiming an interest in any
corporations and business entities that he controls, or whose assets he
controls, ‘because of judgments.’” This is consistent with Richard’s trial
testimony.
Accordingly, we discern no clear error with any of the bankruptcy
court’s factual findings.
24 C. The bankruptcy court did not commit any errors of law.
Richard briefly raises a few purported errors of law. He provides no
legal authority in support of his contentions and argues in conclusory
fashion. Even construing his arguments liberally, we discern no error.
First, Richard argues that a California bankruptcy court cannot
exercise any power over the assets of a Nevada corporation. He is wrong.
The bankruptcy court has “exclusive jurisdiction . . . of all the property,
wherever located, of the debtor as of the commencement of such case, and
of property of the estate.” 28 U.S.C. § 1334(e).13 Section 542(a) allows the
trustee to seek turnover of property of the estate. Section 541(a) specifies
that a debtor’s bankruptcy estate is comprised of certain types of property,
“wherever located and by whomever held[.]” There is no territorial
limitation on the assets pulled into the bankruptcy estate. See Official
Committee of Creditors of Arcapita Bank B.S.C.(c) v. Bahrain Islamic Bank (In re
Arcapita Bank B.S.C.(c)), 575 B.R. 229, 251 (Bankr. S.D.N.Y. 2017) (“[T]he
addition of the ‘wherever located’ language to the statute ‘ma[de] clear that
a trustee in bankruptcy is vested with the title of the bankrupt in property
which is located without, as well as within, the United States.’” (quoting
13 28 U.S.C. § 1334 confers jurisdiction on the district court. 28 U.S.C. § 157 (in effect) authorizes each district court to delegate its bankruptcy jurisdiction to the bankruptcy court. The district court for the Central District of California has done so. See U.S. Dist. Ct. C.D. Cal. Gen. Order 13-05 (July 1, 2013), https://www.cacd.uscourts.gov/court-procedures/general-orders?field_gocategory_tid= 102&=Apply.
25 H.R. Rep. No. 82-2320, at 15 (1952), reprinted in 1952 U.S.C.C.A.N. 1960,
1976)).
Second, he argues that the property at issue is not community
property. His understanding is wrong. Under California law, there is a
presumption that all property acquired during a marriage is community
property. Cal. Fam. Code § 760. This presumption may be rebutted, such as
in instances where property is traceable to one spouse’s separate property.
See In re Jacobson, 676 F.3d at 1201; Cal. Fam. Code § 770(a). However,
Richard provided no evidence at trial to rebut the initial presumption. On
the contrary, the Trustee provided evidence (largely through Richard’s
own testimony) that Richard and Kathleen received income from the
Dwarfco Deed of Trust and that he controlled Dwarfco. The bankruptcy
court did not err in concluding that the Dwarfco shares and Deed of Trust
were community property.
Third, he contends that a trustee may only seize property within a
year after her appointment to a case. No such time limit exists. Section 546
imposes a time limit, but that section applies only to the Trustee’s avoiding
powers. In any event, the Trustee commenced the adversary proceeding on
October 11, 2013, within one year of the December 18, 2012 petition date.
CONCLUSION
The bankruptcy court did not err. We AFFIRM.