In re: Sie Khalil

Opinion

FILED MAY 11 2015

SUSAN M. SPRAUL, CLERK

1 NOT FOR PUBLICATION U.S. BKCY. APP. PANEL OF THE NINTH CIRCUIT

2 3 UNITED STATES BANKRUPTCY APPELLATE PANEL 4 OF THE NINTH CIRCUIT

5 In re: ) BAP No. CC-14-1253-KiKuD 6 )

SIE KHALIL, ) Bk. No. 1:12-bk-11156 7 )

Debtor. ) Adv. No. 1:13-ap-1234 8 )

)

9 LAWRENCE D. ROSE, )

)

10 Appellant, )

)

11 v. ) M E M O R A N D U M1 )

12 DAVID K. GOTTLIEB, Chapter 7 )

Trustee, )

13 )

Appellee. )

14 ______________________________) 15 Argued and Submitted on February 19, 2015, at Los Angeles, California 16 Filed - May 11, 2015

17 Appeal from the United States Bankruptcy Court 18 for the Central District of California 19 Honorable Maureen A. Tighe, Bankruptcy Judge, Presiding 20 Appearances: Michael F. Chekian argued for appellant Lawrence D.

21 Rose; Michael W. Davis of Ezra Brutzkus Gubner LLP argued for appellee David K. Gottlieb, Chapter 7 22 Trustee. 23 Before: KIRSCHER, KURTZ and DUNN, Bankruptcy Judges.

24 25 26

1

This disposition is not appropriate for publication.

27 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 28 Cir. BAP Rule 8024-1.

1 Appellant Lawrence D. Rose ("Rose") appeals an order denying 2 his motion for summary judgment and granting partial summary 3 judgment to appellee, chapter 72 trustee David K. Gottlieb 4 ("Trustee"). The bankruptcy court determined that Rose, a 5 co-owner of real property, was entitled to only 50% of the net 6 sale proceeds from Trustee's sale of the property under § 363(h) 7 and not the 80% he claimed. We AFFIRM. 8 I. FACTUAL BACKGROUND AND PROCEDURAL HISTORY 9 A. Prepetition events 10 In 2008, Rose and debtor Sie Khalil ("Khalil") entered into a 11 written agreement whereby Khalil agreed, as general contractor, to 12 construct a single family residence for Rose, who is a California 13 attorney. Ultimately, the parties ended up in litigation for what 14 Rose claims was a diversion of funds and materials by Khalil and 15 damages of $250,000. 16 As part of an attempt to settle the matter in December 2010, 17 Rose and Khalil entered into a real estate transaction together, 18 purchasing an investment property located in Reseda, California 19 ("Property"). Khalil was to refurbish the Property; then the men 20 would sell it and split the proceeds. Rose and Khalil purchased 21 the Property for $375,000, with Rose contributing $300,000 to the 22 purchase price and Khalil contributing $75,000. 23 The grant deed transferring title to the Property to Rose and 24 Khalil, recorded on December 21, 2010, reads as follows: 25 Donald R. Miller, Jr., as to an undivided 25.0000% 26

2

Unless specified otherwise, all chapter, code and rule 27 references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, and the Federal Rules of Bankruptcy Procedure, Rules 1001-9037. The 28 Federal Rules of Civil Procedure are referred to as “Civil Rules.”

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1 interest; Dina C. Miller, as to an undivided 25.0000% interest and Joy Rivellia [sic] Miller, Trustee of the 2 Joy Rivelli Miller Trust dated September 16, 2010, as to an undivided 50.0000% interest hereby GRANT(s) to: Sie 3 Khalil, a Single Man and Lawrence Rose, a Single Man as Tenants in Common.

4 5 The grant deed was silent as to the mens' percentage ownership 6 interests in the Property. 7 Rose and Khalil entered into an agreement in April 2011 8 ("Settlement Agreement"). The Settlement Agreement provided that 9 Rose had loaned Khalil $300,000 to purchase the Property. Khalil 10 agreed to sign a promissory note in that amount. To secure 11 payment of the promissory note and the $250,000 debt from the 12 failed construction project, Khalil agreed to execute first and 13 second deeds of trust encumbering the Property in the total amount 14 of $550,000. In the event Khalil defaulted on his repayment 15 obligations, upon sale of the Property any remaining funds after 16 payment of the total indebtedness to Rose would be distributed to 17 Khalil.3 If no default occurred, any remaining funds after 18 payment of the total indebtedness would be distributed 50% to Rose 19 and 50% to Khalil. Rose and Khalil signed the Settlement 20 Agreement, failed to date it and the state court never approved 21 it. Khalil also signed a promissory note and deeds of trust in 22 favor of Rose, but did not date them or have his signature 23 acknowledged. No one recorded the deeds of trust. 24 25

3

In the original draft of the Settlement Agreement, Rose and 26 Khalil agreed in the event of default and upon the payment of all debt that they would distribute the remaining funds 80% to Rose 27 and 20% to Khalil. The parties later struck and initialed that distribution language, so it appears that any remaining funds 28 would now go to Khalil.

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1 B. Postpetition events 2 Khalil filed a chapter 7 bankruptcy case on February 6, 2012. 3 Khalil's Schedule A reflected a one-half interest in the Property. 4 1. Rose's adversary action against Khalil 5 Rose filed an adversary complaint against Khalil asserting 6 claims under § 523 and § 727. The parties ultimately settled on 7 November 4, 2014. In that litigation, Rose filed a motion for 8 turnover for one-half of the rents he claimed Khalil collected 9 from the Property and improperly withheld from Rose. In his brief 10 and attached declaration, Rose stated: "I am a half-owner of the 11 [Property]." "As a half-owner of the [Property], I am entitled to 12 half of the monthly rent received." "As Defendant's bankruptcy 13 estate owns the remaining one-half interest in the [Property], one 14 half of the rent received by Defendant belongs to the estate." 15 "Plaintiff/Movant herein is the co-owner of the [Property], 16 holding a one-half interest as Tenant in Common." The bankruptcy 17 court denied Rose's turnover motion for failing to file it in the 18 main case against Trustee, who currently collected the rents. 19 2. Rose's motion for determining ownership interests 20 Thereafter, Rose filed in the main case a "Motion by Co-Owner 21 Lawrence D. Rose for Order Determining Ownership of 18431 Arminta 22 St., Reseda, CA," which the bankruptcy court recast as a "Motion 23 for Setting Property Value of Co-Owned Property Interests," or the 24 "Valuation Motion." Rose sought a determination of the parties' 25 respective ownership interests in the Property. Rose argued that 26 an 80% ownership interest belonged to him and 20% belonged to 27 Khalil’s bankruptcy estate based on the mens’ respective 28 contributions to the purchase price. Rose argued that under

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1 California law, as a tenant in common, he was entitled to a 2 ratable distribution of any sale proceeds in proportion to his 3 ownership interest. Thus, argued Rose, he should receive 80% of 4 the net sale proceeds in accordance with § 363(j). 5 Trustee opposed the Valuation Motion, contending that Rose 6 needed to file an adversary proceeding for such relief, not a 7 motion, and that Rose's request contradicted his previous 8 testimony that he was "one-half" owner of the Property. 9 In the bankruptcy court’s ruling denying the Valuation 10 Motion, the court observed the grant deed's silence as to the 11 mens' ownership interest in the Property; no language evidenced a 12 different intent or demonstrated a fractional interest other than 13 50-50. Although Rose mentioned the Settlement Agreement in his 14 declaration, he failed to submit the document to the court. The 15 court also took judicial notice of Rose's prior admissions that he 16 held only a one-half interest in the Property. 17 The cases cited by Rose failed to persuade the court, because 18 they related to community property cases or to partition actions, 19 both of which the court deemed irrelevant. Thus, based on Rose's 20 prior admissions and absent any further documentary evidence 21 indicating otherwise, the court found that Rose held only a 22 one-half interest in the Property. The bankruptcy court entered 23 the Valuation Order on November 14, 2013. 24 3. Trustee's adversary action against Rose to sell the Property under § 363(h)

25 26 Meanwhile, before the bankruptcy court had ruled on the 27 Valuation Motion, Trustee filed an adversary action against Rose 28 seeking to sell Rose's and the estate's interest in the Property

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1 under § 363(h).4 2 In his answer, filed after the bankruptcy court entered the 3 Valuation Order determining Rose had a 50% interest in the 4 Property, Rose disputed Trustee's contention that the estate had a 5 50% interest in the Property. Rose claimed he had purchased an 6 80% interest and the recorded grant deed "control[ed] the relative 7 interests of Mr. Rose and the Estate in the Property." Rose 8 agreed to the sale, but claimed he either had a right to purchase 9 the estate's 20% interest under § 363(i), or that Trustee had to 10 distribute 80% of the net sale proceeds to Rose in accordance with 11 § 363(j). 12 a. Rose's motion for summary judgment 13 Rose moved for summary judgment on Trustee's complaint (the 14 "MSJ"). He contended that the only disputed issue was "the extent 15 of [his] ownership interest in the [Property]." The arguments 16 supporting Rose's position that he owned an 80% interest in the 17 Property were virtually identical to those he raised in the 18 Valuation Motion, including his cited California cases. Rose 19 contended that because he and Khalil held title to the Property as 20

4

Under § 363(h), the trustee may sell both the estate's 21 interest and any co-owner's interest in property in which the debtor had, at the time of the commencement of the case, an 22 undivided interest as a tenant in common, if — 23 (1) partition in kind of such property among the estate and such co-owners is impracticable;

24 (2) sale of the estate’s undivided interest in such property would realize significantly less for the estate than sale of 25 such property free of the interests of such co-owners;

(3) the benefit to the estate of a sale of such property free 26 of the interests of co-owners outweighs the detriment, if any, to such co-owners; and 27 (4) such property is not used in the production, transmission, or distribution, for sale, of electric energy 28 or of natural or synthetic gas for heat, light, or power.

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1 tenants in common (and not as joint tenants which presumes an 2 equal ownership share), California law recognized upon a partition 3 sale the extent of the mens' interests to be proportionate to 4 their contributions to the Property, which included purchase price 5 and improvements. Thus, argued Rose, since he contributed 6 $300,000 of the Property's $375,000 purchase price, he owned an 7 80% interest in it and was entitled to 80% of the net sale 8 proceeds. Rose now included a copy of the signed but undated 9 Settlement Agreement, which set forth the terms of any sale 10 proceeds distribution between the men. 11 Trustee opposed the MSJ, contending that the parties' 12 respective ownership interests in the Property had been previously 13 litigated in the Valuation Motion and decided in the Valuation 14 Order, which Rose did not appeal. The Valuation Order determined 15 that each party owned a one-half interest in the Property and 16 entitled each to only 50% of the net sale proceeds. Accordingly, 17 Rose was precluded from relitigating that issue. 18 b. The MSJ hearing and the bankruptcy court's ruling on the MSJ

19 20 At the MSJ hearing, Rose conceded that he held only a 50% 21 interest in the Property. Nonetheless, he argued entitlement to 22 80% of the net sale proceeds based on his 80% contribution to the 23 purchase price. Rose believed his right to reimbursement under 24 California law applied to Trustee's sale under § 363(h). Trustee 25 disputed this, contending that Rose’s entitlement did not exceed 26 50% of the proceeds because: (1) the Bankruptcy Code, not 27 California law, controlled the sale and § 544(a)(3) gave Trustee 28 power as a bona fide purchaser ("BFP") to avoid any unperfected

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1 security interest Rose may have had; and (2) California law 2 presumes that tenants in common hold a 50-50 interest in real 3 property when the deed is silent. 4 Because the bankruptcy court believed the parties had raised 5 these arguments for the first time at oral argument, it decided to 6 take the matter under advisement to review their cited cases and 7 to consider their new arguments. Before announcing its intent to 8 continue the MSJ, however, the court offered Rose the opportunity 9 for further briefing. Rose declined, contending that the court 10 had enough before it to rule on the legal issue of his right to 11 reimbursement from the net sale proceeds and his respective amount 12 of entitlement. 13 The bankruptcy court issued its Memorandum Decision on May 1, 14 2014, determining that Rose was entitled to only 50% of the net 15 sale proceeds. The court disagreed that Rose's right to 16 reimbursement involved a different issue from his ownership 17 interest in the Property. In the court's opinion, the terms of 18 the unambiguous grant deed controlled, which, under California 19 law, created the presumption that Rose and Khalil each owned an 20 equal, undivided one-half interest in the Property. While 21 recognizing California's allowance of extrinsic evidence to rebut 22 this presumption in certain cases, the court concluded that the 23 following precluded Rose from doing so here: (1) on the petition 24 date, the grant deed reflected that Rose and Khalil presumptively 25 owned the Property 50/50 as tenants in common; (2) Rose stipulated 26 at the MSJ hearing that he held a 50% ownership interest in it; 27 and (3) due to Trustee's status as a BFP under § 544(a)(3) and his 28 ability to rely on the face of the unambiguous grant deed, Rose

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1 could not introduce extrinsic evidence to vary its terms. 2 The bankruptcy court distinguished the California cases Rose 3 cited to support his argument for an unequal share of the sale 4 proceeds. Those cases involved partition actions or a division of 5 community property assets under state law, not a sale under the 6 Bankruptcy Code. And, they involved situations as between the 7 parties themselves, not the rights of third parties. 8 Although Trustee had not filed a cross-motion for summary 9 judgment but had also argued that no genuine issue of material 10 fact existed as to the parties' respective interests in the 11 Property, the bankruptcy court decided to grant Trustee partial 12 summary judgment on the discrete issue of Rose's reimbursement 13 right. The court denied Rose's MSJ because it believed certain 14 issues remained to be litigated regarding the sale under § 363(h). 15 He does not dispute that ruling on appeal. 16 The bankruptcy court entered an order denying Rose's MSJ and 17 granting Trustee partial summary judgment under Civil Rule 56(f) 18 (the “Order”). Rose timely appealed. The Panel granted leave to 19 appeal the Order to the extent it was interlocutory. 20 II. JURISDICTION 21 The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 22 and 157(b)(2)(A). We have jurisdiction under 28 U.S.C. § 158. 23 III. ISSUES 24 1. Did the bankruptcy court err in granting Trustee partial 25 summary judgment under Civil Rule 56(f)? 26 2. Did the bankruptcy court err in determining that Rose was 27 entitled to only 50% of the net sale proceeds?

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1 IV. STANDARD OF REVIEW 2 The bankruptcy court's order granting summary judgment is 3 reviewed de novo. Shahrestani v. Alazzeh (In re Alazzeh), 4 509 B.R. 689, 692-93 (9th Cir. BAP 2014). "Viewing the evidence 5 in the light most favorable to the non-moving party, we must 6 determine 'whether there are any genuine issues of material fact 7 and whether the trial court correctly applied relevant substantive 8 law.'" New Falls Corp. v. Boyajian (In re Boyajian), 367 B.R. 9 138, 141 (9th Cir. BAP 2007)(quoting Tobin v. San Souci Ltd. 10 P'ship (In re Tobin), 258 B.R. 199, 202 (9th Cir. BAP 2001)). 11 V. DISCUSSION 12 A. The bankruptcy court did not err in granting partial summary judgment to nonmovant Trustee.

13 14 Civil Rule 56(f), incorporated by Rule 7056, provides that 15 after giving notice and a reasonable time to respond, the court 16 may: (1) grant summary judgment for a nonmovant; (2) grant the 17 motion on grounds not raised by a party; or (3) consider summary 18 judgment on its own after identifying for the parties material 19 facts that may not be genuinely in dispute. Rose contends the 20 bankruptcy court committed reversible error by failing to provide 21 sufficient notice that it was considering granting summary 22 judgment to Trustee. Rose assigns further error by the bankruptcy 23 court in raising arguments not contained in Trustee's opposition 24 to the MSJ. Rose's arguments lack merit. 25 Where the party moving for summary judgment has had a full 26 and fair opportunity to prove its case, but has not succeeded in 27 doing so, a court may enter summary judgment sua sponte for the 28 nonmoving party. Albino v. Baca, 747 F.3d 1162, 1176 (9th Cir.

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1 2014)(citing Gospel Missions of Am. v. City of L.A., 328 F.3d 548, 2 553 (9th Cir. 2003)("Even where there has been no cross-motion for 3 summary judgment, a district court may enter summary judgment sua 4 sponte against a moving party if the losing party has had a full 5 and fair opportunity to ventilate the issues involved in the 6 matter.")). 7 Rose moved for summary judgment on the narrow legal issue of 8 what percentage of net sale proceeds he was entitled to from 9 Trustee's sale of the Property under § 363(h). While Trustee did 10 not raise his defensive arguments regarding his BFP status or 11 California's presumption of equal ownership interests among 12 co-tenants in his opposition, instead focusing on issue and claim 13 preclusion, he did raise them at the MSJ hearing. Rose had an 14 opportunity to respond to these arguments and was even given the 15 opportunity to further brief the issues, which he declined. Thus, 16 Rose had a full and fair opportunity to prove his case. The 17 transcript reflects that Rose too had also raised new arguments, 18 which is why the bankruptcy court opted to continue the MSJ 19 hearing and take the matter under advisement. Even if Trustee had 20 not raised his arguments, the court could consider these legal 21 issues to determine whether Rose was entitled to his requested 22 relief. 23 Once the bankruptcy court decided the discrete legal issue of 24 whether Rose was entitled to 50% or 80% of the net sale proceeds 25 from the Property, it could not have erred in sua sponte granting 26 partial summary judgment to Trustee on that issue. By filing the 27 MSJ, Rose had conceded that no genuine issue of material fact 28 existed as to his portion of the proceeds. As a result, Trustee

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1 was entitled to judgment as a matter of law. Goldstein v. Fid. 2 and Guar. Ins. Underwriters, Inc., 86 F.3d 749, 750-51 (7th Cir. 3 1996)(court did not err in entering summary judgment sua sponte in 4 favor of nonmovant when no genuine issues of material fact 5 existed, as movant conceded in filing motion for summary judgment 6 in its favor). Rose's argument here is much ado about nothing. 7 Even if the bankruptcy court had not formally entered judgment in 8 favor of Trustee, the result would be the same; Rose will receive 9 only 50% of the net sale proceeds. 10 Notably, this case has not been a model of proper procedure. 11 Motions were filed when adversary proceedings should have been 12 filed, and motions were filed in the wrong proceeding or context. 13 Nonetheless, we see no error by the bankruptcy court in granting 14 partial summary judgment to nonmovant Trustee. 15 B. The bankruptcy court did not err in determining that Rose was entitled to only 50% of the net sale proceeds.

16 17 Rose contends the bankruptcy court erred by not acknowledging 18 his right of reimbursement under California law, which entitles 19 him to 80% of the net sale proceeds from Trustee's sale of the 20 Property because of his unequal contribution to the purchase 21 price. First, Rose contends that because he and Khalil were 22 tenants in common and not joint tenants, and because the grant 23 deed was silent as to their respective shares, it could not be 24 assumed they held an equal, undivided one-half interest in the 25 Property. Rose contends that the presumption of equal ownership 26 applies only in cases of joint tenancy, and the bankruptcy court 27 erred by confusing the legal affects of a joint tenancy with a 28 tenancy in common. We disagree.

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1 As a general principle, a debtor's property rights that 2 become part of the bankruptcy estate under § 541 are determined by 3 applicable nonbankruptcy law. Thus, unless overridden by specific 4 provisions of the Bankruptcy Code, the property rights belonging 5 to Khalil on the petition date arose under state law. See Butner 6 v. United States, 440 U.S. 48, 54 (1979). Here, we begin by 7 looking to California law to determine the existence and scope of 8 Khalil's interest in the Property prior to the petition date. 9 Contrary to Rose's argument, "[w]hen two or more persons take 10 as tenants in common under an instrument silent as to their 11 respective shares[,] [a] presumption arises their shares are 12 equal." Caito v. United Cal. Bank, 20 Cal.3d 694, 705 (1978) 13 (citing Anderson v. Broadwell, 119 Cal.App 150, 153 (1931)(where 14 several grantees are named in a deed and their respective 15 interests are not set forth therein, it will be presumed that each 16 takes an equal interest)); In re Marriage of Rico, 10 Cal.App.4th 17 706, 710 (1992)(tenancy in common raises presumption of equal 18 ownership)(citing Caito). Further, under California's "form of 19 title" presumption, the description in a deed as to how title is 20 held presumptively reflects the actual ownership status of the 21 property. In re Marriage of Fossum, 192 Cal.App.4th 336, 344 22 (2011). This common law presumption is codified in CAL. EVID. CODE 23 § 662, which states that "[t]he owner of the legal title to 24 property is presumed to be the owner of the full beneficial 25 title." "Accordingly, absent a showing to the contrary, the 26 status declared by the instrument through which a party acquired 27 title will control." Fossum, 192 Cal.App.4th at 344. 28 Here, the grant deed to the Property lists the owners as "Sie

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1 Khalil, a Single Man and Lawrence Rose, a Single Man as Tenants in 2 Common." The deed does not contain any other statements regarding 3 the mens' ownership interests. Thus, prior to the petition date, 4 California law created the presumption that Rose and Khalil each 5 held an undivided one-half interest in the Property. Had they 6 intended something other than equal ownership, Rose and Khalil 7 could have stated so in the grant deed as did the grantors of the 8 Property, which reflected their unequal ownership percentages. 9 However, as Rose correctly argues, California law allows the 10 presumption of equal ownership to be rebutted by clear and 11 convincing proof. See CAL. EVID. CODE § 662; Fossum, 192 12 Cal.App.4th at 344. And, in actions like partition or a partition 13 sale, California law provides that a cotenant who has paid more 14 than his portion of the purchase price for the property is 15 entitled to an accounting. 5 Miller & Starr, Cal. Real Estate 16 § 12:19 (3d ed. 2006); Demetris v. Demetris, 125 Cal.App.2d 440, 17 445 (1954). 18 It is undisputed that Rose paid 80% of the purchase price for 19 the Property. It is also undisputed that Rose did not seek a 20 partition action in state court against Khalil prior to Khalil's 21 bankruptcy. Had the sale at issue here been a partition sale 22 under California law, Rose would perhaps have a good argument. 23 However, once Khalil filed for bankruptcy, governing bankruptcy 24 law created new rights, particularly the "strong arm" powers of a 25 trustee under § 544(a). And Trustee's action to sell the Property 26 was not a partition sale under state law; it was a sale under the 27 Bankruptcy Code. 28 A partition action or sale "addresses only the rights inter

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1 sese of cotenants. They do not deal with the rights of creditors 2 of one or more of the cotenants." Dubis v. Zarins 3 (In re Teranis), 128 F.3d 469, 472 (7th Cir. 1997)(emphasis in 4 original). In Teranis, the debtor's elderly mother purchased a 5 condominium and titled it in both of their names. Id. at 470. 6 Although the mother requested the property be titled jointly in 7 her name and debtor's with right of survivorship (i.e., as joint 8 tenants), the deed issued was one for tenancy in common. The 9 debtor never lived at the condo and paid nothing for its upkeep. 10 Upon debtor's bankruptcy filing, the chapter 7 trustee filed suit 11 against the mother to sell the condo. The mother opposed the 12 sale, contending that debtor had no ownership interest in it, even 13 though both were listed on the deed. Id. at 470-71. 14 On appeal, the mother contended the district court erred in 15 determining that debtor was a 50% owner of the condo, because she 16 had provided sufficient proof to rebut the presumption of equal 17 ownership under Wisconsin law, which included evidence that she 18 paid the entire purchase price. Id. at 471-72. In rejecting the 19 mother's arguments, which she supported with cases involving 20 partition actions, the Seventh Circuit held that third parties, be 21 they prospective buyers or creditors, cannot be expected to 22 investigate the possibility of unequal ownership; they can rely 23 upon the face of the deed indicating that each cotenant has an 24 equal interest in the property. Id. at 472. Accord Henshaw v. 25 Field (In re Henshaw), 485 B.R. 412, 419-20 (D. Haw. 2013)(citing 26 Teranis and holding that creditors must be able to rely on the 27 face of the deed, regardless of whatever equitable interests may 28 exist between the joint tenants); Osberg v. Risler (In re Risler),

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1 443 B.R. 508, 510 (Bankr. W.D. Wisc. 2010); Seaback v. Barth 2 (In re Barth), 2008 WL 5170558, at *11 (Bankr. E.D. Wisc. Nov. 7, 3 2008). Accordingly, the Seventh Circuit affirmed the district 4 court's ruling that the trustee could rely on the deed to 5 ascertain debtor's ownership of the condo, which reflected an 6 equal, undivided ownership interest.5 7 Once Khalil filed for bankruptcy, his equal, undivided 8 one-half interest in the Property became property of the estate 9 under § 541(a). Likewise, § 544(a)(3) vested Trustee with the 10 rights of a BFP of Khalil's real property and allowed him to avoid 11 Rose's unrecorded equitable interest in the Property, even though 12 no transfer had occurred. Huber v. Danning (In re Thomas), 13 147 B.R. 526, 529 (9th Cir. BAP 1992). Section 544(a)(3) allows a 14 trustee to avoid all obligations and transfers that would be 15 avoidable by "a bona fide purchaser of real property . . . that 16 obtains the status of a bona fide purchaser . . . at the time of 17 the commencement of the case, whether or not such purchaser 18 exists." Thus, at the time of petition, Trustee had all the 19 rights and powers that a BFP of Khalil's undivided one-half 20 interest would have. 21 22 5 In Teranis, the mother tried to make a distinction much as Rose does here between joint tenancy and tenancy in common. Rose 23 contends that joint tenants are always presumed to be equal owners under California law and can never rebut that presumption, whereas 24 the rules are different for cotenants, and the presumption of equal ownership may be rebutted by proof that the parties'

25 interests are unequal.

In its sidebar discussion of joint tenancy and tenancy in 26 common, the Teranis court noted that the differences between the two legal concepts cease to exist for the purpose of division of 27 sale proceeds, because the joint tenancy terminates upon the sale.

128 F.3d at 471 n.1. Thus, the court felt it unnecessary to 28 distinguish between tenancy in common and joint tenancy. Id.

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1 The powers of a BFP for purposes of § 544(a) are defined by 2 state law. Placer Sav. & Loan Ass'n v. Walsh (In re Marino), 3 813 F.2d 1562, 1565 (9th Cir. 1987). Under California law, a BFP 4 without actual or constructive notice takes free of a prior 5 equitable interest or constructive trust interest. In re Thomas, 6 147 B.R. at 529 (citing Rafftery v. Kirkpatrick, 29 Cal.App.2d 7 503, 507-08 (1938)). Section 544(a)(3) makes a trustee's actual 8 knowledge irrelevant. Id. However, constructive or inquiry 9 notice will preclude a trustee's BFP status. In re Marino, 10 813 F.2d at 1555. "A party has constructive or inquiry notice of 11 another's interest in property when he or she has knowledge of 12 circumstances or a condition of the property that would prompt a 13 prudent person to inquire about the other's interest and the 14 prosecution of the inquiry would have revealed the other's 15 interest." In re Thomas, 147 B.R. at 530. 16 In reviewing the grant deed, a BFP would have been put on 17 notice that Khalil co-owned the Property with Rose. However, 18 nothing in that deed, or in any other public document, would have 19 put a BFP on notice that Rose had paid 80% of the purchase price, 20 which might entitle him to reimbursement in a partition action. 21 Joint ownership of property in and of itself does not impose a 22 duty to inquire whether unrecorded interests or agreements exist 23 between the co-owners. Caito, 20 Cal.3d at 702. Thus, as a BFP, 24 Trustee took title to Khalil's one-half interest in the Property 25 without liability for Rose's latent reimbursement claim. See RNT 26 Holdings, LLC v. United Gen. Title Ins. Co., 230 Cal.App.4th 1289, 27 1296 (2014)(a BFP in California takes the property free of such 28 unknown rights). Trustee could rely on the grant deed, which

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1 indicated that each co-tenant held an equal, undivided one-half 2 interest in the Property. In re Teranis, 128 F.3d at 472; 3 In re Henshaw, 485 B.R. at 419-20; In re Risler, 443 B.R. at 510; 4 In re Barth, 2008 WL 5170558, at *11. 5 Rose's evidence attempting to rebut the presumption of equal 6 ownership came too late. When Khalil filed his bankruptcy 7 petition, Trustee's rights as a BFP of Khalil's interest in the 8 Property were created, because at that moment the presumption of 9 equal, undivided ownership stood unrebutted. In re Barth, 2008 WL 10 5170558, at *12. A BFP who purchased Khalil's interest in the 11 Property at that moment would have presumed, based on the recorded 12 grant deed and California's "form of title" rule, he was 13 purchasing an undivided, one-half interest in the Property. Id.; 14 see also In re Teranis, 128 F.3d at 472. 15 Rose contends that the grant deed's silence as to the mens' 16 ownership interests created an ambiguity, putting Trustee either 17 on constructive or inquiry notice that their ownership interests 18 were not equal, thereby destroying his BFP status under § 544. 19 First, as we determined above, the grant deed was not ambiguous as 20 to the mens' ownership interests on the petition date, the date 21 that is relevant here. Further, this same argument was rejected 22 by the bankruptcy court in the well-reasoned decision of 23 In re Barth, 2008 WL 5170558, at *10-12. There, the co-owner 24 argued that the deed's silence as to the co-tenants' interests was 25 deliberate and this silence required any future BFP to look beyond 26 the deed for evidence about the percentages of ownership that each 27 of them held. The co-owner's argument was in part that Wisconsin 28 law allows the presumption of equal ownership to be rebutted in

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1 cases of tenancy in common deeds silent as to ownership 2 percentages. The bankruptcy court disagreed, reasoning that 3 Wisconsin law did not require a BFP to look beyond a silent deed; 4 if the deed is silent, the presumption under state law is that the 5 co-tenants share an equal, undivided interest in the property. 6 The same is true in California; we reject Rose's argument that 7 Trustee was required to inquire beyond the grant deed as to the 8 mens' ownership interests. He had no such duty. Caito, 20 Cal.3d 9 at 702. 10 VI. CONCLUSION 11 Because Rose was entitled to only 50% of the net sale 12 proceeds as a matter of law, and because there were no genuine 13 issues of material fact in dispute as to this issue, we conclude 14 the bankruptcy court did not err in granting Trustee partial 15 summary judgment. We AFFIRM. 16 17 18 19 20 21 22 23 24 25 26