FILED DEC 17 2019 NOT FOR PUBLICATION SUSAN M. SPRAUL, CLERK U.S. BKCY.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. EC-18-1344-BGF
WILLIAM A. LANDES, Bk. No. 17-22481
Debtor.
ESSEX BANK,
Appellant,
v. MEMORANDUM*
JOHN REGER, Chapter 7 Trustee; WILLIAM A. LANDES; MARIE LANDES,
Appellees.
Argued and Submitted on October 25, 2019 at San Francisco, California
Filed – December 17, 2019
Appeal from the United States Bankruptcy Court for the Eastern 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 Michael S. McManus, Bankruptcy Judge, Presiding
Appearances: Appellant Essex Bank did not appear; Michael Paul Dacquisto argued for appellee John Reger, Chapter 7 Trustee.
Before: BRAND, GAN and FARIS, Bankruptcy Judges.
INTRODUCTION
Appellant Essex Bank appeals an order approving the sale of certain
personal property of the estate to the debtor's ex-spouse under § 363(b).1 In
objecting to the sale, Essex Bank maintained that it held a security interest in
the property being sold and therefore was entitled to the proceeds. In
approving the sale, the bankruptcy court determined that Essex Bank did not
have a lien on the property at issue; thus, Essex Bank was entitled to nothing.
Appellees contend that the appeal is statutorily or equitably moot.
We conclude that the appeal is not moot. Further, the bankruptcy court
misapplied California law with respect to Essex Bank's lien under Cal. Civ.
Code P. ("CCP") § 708.410. Accordingly, we REVERSE.
////
1 Unless specified otherwise, all chapter and section references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, and all "Rule" references are to the Federal Rules of Bankruptcy Procedure.
2 I. FACTUAL BACKGROUND AND PROCEDURAL HISTORY
A. The parties, Essex Bank's judgment and the bankruptcy filing
William Landes filed a chapter 7 bankruptcy case on April 14, 2017.
John Reger ("Trustee") was appointed as the chapter 7 trustee. The case was
designated as an "asset case."
In 2011, William's estranged wife, Marie,2 filed a petition for dissolution
of marriage in the California state court ("Divorce Case"). The Divorce Case is
still pending. Prior to the petition date, the divorce court had not approved an
agreement dividing the marital estate between William and Marie and had
not characterized any property as community or separate. Thus, all
community property in the Divorce Case at the time William filed his petition
was property of the bankruptcy estate and subject to administration by
Trustee.3 Marie is a priority unsecured creditor in William's chapter 7 case,
with a significant claim for domestic support obligations. She filed a proof of
claim for domestic support arrears of $186,000.
At some point, Essex Bank loaned William money. On September 22,
2015, Essex Bank obtained a judgment from the California state court against
2 We refer to Mr. Landes as William and Ms. Landes as Marie for clarity. No disrespect is intended. 3 See Dumas v. Mantle (In re Mantle), 153 F.3d 1082, 1085 (9th Cir. 1998) ("For purposes of § 541(a)(2), all community property not yet divided by a state court at the time of the bankruptcy filing is property of the bankruptcy estate."). For this reason, we reject (as did the bankruptcy court) Essex Bank's argument that the sale of any personal property, including the guns and artwork, should have occurred in the Divorce Case.
3 William for $739,994.08 ("Judgment"). Prior to the petition date, Essex Bank
(1) recorded an Abstract of Judgment, (2) filed a Notice of Judgment Lien
("JL-1") with the California Secretary of State, and (3) filed a Notice of Lien in
the Divorce Case (Form EJ-185) ("Notice of Lien"). The proof of service for the
Notice of Lien indicates that Essex Bank served both William's and Marie's
divorce counsel with the Notice of Lien.
B. Pertinent events in the bankruptcy case prior to the sale
After the § 341(a) meeting of creditors, William filed an amended
Schedule A/B to include a "fine art collection" valued at $20,000 and
"firearms" valued at $10,000. He filed an amended Schedule C to include an
$8,000 exemption in the artwork under CCP § 704.040. No one objected to
William's claimed exemption.
Essex Bank filed a $857,159.86 secured proof of claim for the Judgment.
Attached were copies of the Judgment, Abstract of Judgment, and the JL-1.
Essex Bank filed an amended proof of claim to include the previously missing
copy of the Notice of Lien. Trustee did not object to Essex Bank's claim.
C. Trustee's sale motion
Trustee moved to sell the estate's interest in the guns and artwork to
Marie for $20,000 ("Sale Motion"). He maintained that these items were
community property owned by both William and Marie. Trustee stated that
William did not schedule any liens against the personal property at issue and
that Trustee was not aware of any liens. William would receive his claimed
4 exemption of $8,000 from the sale proceeds.
Trustee asserted that the $20,000 "price [was] at or near the present
maximum obtainable price for the Property" based on information provided
by a potential auctioneer. He did not articulate how many guns or pieces of
art were involved in the sale, but a letter dated August 2, 2017, from Marie's
divorce attorney to Trustee and attached to the Sale Motion indicates that
there were approximately 46 guns and 36 pieces of art. The sale was subject to
overbids.
Trustee submitted a brief declaration in support of the Sale Motion and
a copy of the parties' buy/sell agreement. The declaration was silent as to the
negotiation process with Marie, and Trustee did not request a § 363(m) good-
faith finding on her behalf. The buy/sell agreement stated that the sale was
"on an 'as is' and 'where is' basis with no representations or warranties of any
kind."
Essex Bank opposed the Sale Motion. It argued that the Judgment was a
community debt for which both William and Marie were responsible, and
that it had a lien on the guns and artwork under several theories, including
the Notice of Lien filed in the Divorce Case. Essex Bank argued that the
Notice of Lien prevented William from selling community property to Marie
with the proceeds going to someone other than Essex Bank. Based on
William's claimed exemption and administrative expenses, Essex Bank
argued that it would receive nothing from the sale. Essex Bank also
5 questioned whether the sale was negotiated at arms' length given that the
buyer was William's estranged wife.
In reply, Trustee argued that Essex Bank failed to establish a lien on the
guns and artwork under its asserted theories. First, argued Trustee, the
Judgment was a money judgment only and did not create any lien rights in
favor of Essex Bank against the personal property being sold. Second, argued
Trustee, the Abstract of Judgment created a judgment lien on real property
only, not personal property. Third, argued Trustee, the JL-1 filed with the
California Secretary of State created a judgment lien on certain personal
property but not the guns and artwork being sold. Finally, the sale did not
fall within the meaning of CCP § 708.410;4 it was not a "cause of action" for
money or property that was the subject of the Divorce Case and was not part
of any judgment in the Divorce Case. Therefore, argued Trustee, the Notice of
Lien did not provide Essex Bank with a lien on the subject property either.
No other bidders appeared at the sale hearing. Counsel for Trustee
conceded that Marie, as the highest priority unsecured creditor with her large
DSO claim, would receive whatever sale proceeds were left after Trustee paid
4 Specifically, CCP § 708.410 (a) provides that a judgment creditor who has a money judgment against a judgment debtor who is a party to a pending action or special proceeding may obtain a lien, to the extent required to satisfy the judgment creditor's money judgment, on either: (1) any cause of action of such judgment debtor for money or property that is the subject of the action or proceeding; or (2) the rights of such judgment debtor to money or property under any judgment subsequently procured in the action or proceeding.
6 William his $8,000 exemption and administrative expenses.
After the sale hearing, the bankruptcy court entered its Civil Minutes
granting the Sale Motion. The court ruled that Essex Bank had failed to
establish collusion or that William should not be paid on account of his
unchallenged claimed exemption. The court also found that Essex Bank had
failed to establish a security interest in the guns or artwork under any lien
theory it raised. Accordingly, as an unsecured creditor, Essex Bank would
receive nothing from the sale because Marie's DSO claim had to be paid
ahead of other unsecured claims under § 507. Essex Bank timely appealed the
court's later written order ("Sale Order").
D. Post-appeal events
Essex Bank did not seek a stay of the Sale Order pending appeal.
Although the sale has been consummated, counsel for Trustee confirmed that
he is holding the proceeds pending the outcome of the appeal.
II. JURISDICTION
The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 and
157(b)(2)(K) and (N). Subject to our discussion of mootness below, we have
jurisdiction under 28 U.S.C. § 158.
III. ISSUES
1. Is the appeal moot?
2. Did the bankruptcy court abuse its discretion in granting the Sale
Motion?
7 IV. STANDARDS OF REVIEW
We review de novo our own jurisdiction, including the question of
mootness. Suter v. Goedert, 504 F.3d 982, 985 (9th Cir. 2007); Ellis v. Yu (In re
Ellis), 523 B.R. 673, 677 (9th Cir. BAP 2014).
The question whether a purchaser is a good faith purchaser under
§ 363(m) is a question of fact we review for clear error. Thomas v. Namba (In re
Thomas), 287 B.R. 782, 785 (9th Cir. BAP 2002).
We review § 363 sale orders for an abuse of discretion. Fitzgerald v. Ninn
Worx Sr, Inc. (In re Fitzgerald), 428 B.R. 872, 880 (9th Cir. BAP 2010). A
bankruptcy court abuses its discretion if it applies the wrong legal standard,
misapplies the correct legal standard, or makes factual findings that are
illogical, implausible, or without support in inferences that may be drawn
from the facts in the record. See TrafficSchool.com, Inc. v. Edriver Inc., 653 F.3d
820, 832 (9th Cir. 2011) (citing United States v. Hinkson, 585 F.3d 1247, 1262 (9th
Cir. 2009) (en banc)).
V. DISCUSSION
A. The appeal is not moot.
Trustee argues that the appeal is statutorily moot under § 363(m),
because Essex Bank failed to seek a stay pending appeal. Alternatively, he
argues that the appeal is equitably moot, because Essex Bank failed to seek a
stay, the sale has been consummated, and it would be "extremely difficult" to
unwind it. We conclude that the appeal is neither statutorily moot nor
8 equitably moot.
1. The appeal is not statutorily moot.
Section 363(b)(1) permits a bankruptcy trustee, after notice and a
hearing, to "use, sell, or lease, other than in the ordinary course of business,
property of the estate." Further, § 363(m) provides that
reversal or modification on appeal of an authorization under [§ 363(b)] of a sale or lease of property does not affect the validity of a sale or lease under such authorization to an entity that purchased or leased such property in good faith . . . unless such authorization and such sale or lease were stayed pending appeal.
In short, § 363(m) protects the interests of good faith purchasers who buy
property pursuant to a sale authorized under § 363(b) when a party in
interest has failed to stay the sale pending appeal.
However, "[e]ven though an appeal from an order approving a sale is
moot if the sale has not been stayed and is consummated, there are several
exceptions. One exception to the mootness rule is for appeals questioning
whether the purchaser purchased the property in good faith." In re Fitzgerald,
428 B.R. at 880 (citing Sw. Prods., Inc. v. Durkin (In re Sw. Prods., Inc.), 144 B.R.
100, 102-03 (9th Cir. BAP 1992)). A good faith purchaser is "one who buys 'in
good faith' and 'for value.'" Ewell v. Diebert (In re Ewell), 958 F.2d 276, 281 (9th
Cir. 1992). The Ninth Circuit has "defined lack of good faith as 'fraud,
collusion . . . or an attempt to take grossly unfair advantage of other bidders.'"
Onouli-Kona Land Co. v. Estate of Richards (In re Onouli-Kona Land Co.), 846 F.2d
9 1170, 1173 (9th Cir. 1988) (quoting Cmty. Thrift & Loan v. Suchy (In re Suchy),
786 F.2d 900, 902 (9th Cir. 1985)). Essex Bank argues that the sale here lacked
good faith, because the assets were subject to a lien that was readily apparent
to anyone doing a minimal amount of due diligence; the Notice of Lien filed
in the Divorce Case is a matter of public record.
"Good faith" is a factual determination we review for clear error. In re
Thomas, 287 B.R. at 785. The bankruptcy court's factual finding must be
supported by evidence in the record. In re Fitzgerald, 428 B.R. at 880-81.
"[P]arties who desire the protection of section 363(m) [must] establish an
evidentiary record for the bankruptcy court to make the necessary findings of
fact and conclusions of law. Correlatively, the opponent of good faith does
not have the burden to demonstrate the absence of good faith." T.C. Inv'rs v.
Joseph (In re M Capital Corp.), 290 B.R. 743, 745 (9th Cir. BAP 2003).
Trustee did not request, nor did he support with evidence in the record,
a finding that Marie was a "good faith" purchaser under § 363(m). And the
bankruptcy court made no such finding. Rather, the bankruptcy court found
that Essex Bank had failed to establish any collusion between the parties.
However, Trustee had the burden of proof on the issue of good faith as the
proponent of the sale. Id. at 747. While no bankruptcy judge would approve a
sale that does not appear to be in good faith, and an actual finding of "good
faith" is not an essential element of a sale under § 363(b), "[u]nless and until
'good faith' had been determined, the appeal is not moot under § 363(m)." In
10 re Thomas, 287 B.R. at 785. The appellate court will not make a finding of good
faith (or lack thereof) in the first instance on appeal, "because determination
of section 363(m) good faith is the province of the trial court." In re M Capital
Corp., 290 B.R. at 747; see id. at 752 ("Without such affirmative findings, the
ramifications should be obvious; no safe harbor[.]").
We therefore conclude that the appeal is not statutorily moot under
§ 363(m).
2. The appeal is not equitably moot.
Equitable mootness applies when a comprehensive change of
circumstances has occurred so as to render it inequitable for a court to
consider the merits of the appeal. Motor Vehicle Cas. Co. v. Thorpe Insulation Co.
(In re Thorpe Insulation Co.), 677 F.3d 869, 880 (9th Cir. 2012). Equitable
mootness is particularly influential in bankruptcy proceedings "where public
policy values the finality of bankruptcy judgments because debtors, creditors,
and third parties are entitled to rely on a final bankruptcy court order." Id.
(citing In re Onouli-Kona Land Co., 846 F.2d at 1172). For an appeal to be
equitably moot, "[t]he question is whether the case presents transactions that
are so complex or difficult to unwind that the doctrine of equitable mootness
would apply." Id. (internal quotation marks and citation omitted). See Clear
Channel Outdoor, Inc. v. Knupfer (In re PW, LLC), 391 B.R. 25, 33 (9th Cir. BAP
2008) (courts examine "the consequences of the remedy and the number of
third parties who have changed their position in reliance on the order that is
11 being appealed."). "'Ultimately, the decision whether to unscramble the eggs
turns on what is practical and equitable.'" Id. (citation omitted).
The Ninth Circuit follows a four-step process to determine whether an
appeal is equitably moot:
We will look first at whether a stay was sought, for absent that a party has not fully pursued its rights. If a stay was sought and not gained, we then will look to whether substantial consummation of the plan has occurred. Next, we will look to the effect a remedy may have on third parties not before the court. Finally, we will look at whether the bankruptcy court can fashion effective and equitable relief without completely knocking the props out from under the plan and thereby creating an uncontrollable situation for the bankruptcy court.
In re Thorpe Insulation Co., 677 F.3d at 881. Although Thorpe focused on plan
consummation, we believe the same general principles apply to any equitable
mootness analysis, including appeals of orders concerning sales under § 363.
See Bonnett v. Gillespie (In re Irish Pub-Arrowhead, LLC), BAP No. AZ-13-1024-
PaKuD, 2014 WL 486955, at *5 (9th Cir. BAP Feb. 6, 2014) (applying Thorpe to
a § 363(f) sale order).
Trustee argues that the appeal is equitably moot because (1) Essex Bank
failed to seek a stay of the Sale Order and (2) the sale has been consummated
and would be "extremely difficult" to unwind. Trustee has not met his
burden.
While it is undisputed that Essex Bank failed to seek a stay of the Sale
Order, which weighs in favor of mootness, this is not necessarily fatal to its
12 appeal. Ninth Circuit authority on this issue demonstrates that while an
appellant's failure to seek a stay pending appeal, at least without an adequate
excuse, may render an appeal equitably moot and require dismissal, "there
must also be some subsequent event that would render consideration of the
issues on appeal inequitable, and thereby trigger an equitable mootness
analysis." The Zuercher Tr. of 1999 v. Kravitz (In re Zuercher Tr. of 1999), BAP
No. NC-13-1299-PaJuKu, 2014 WL 7191348, at *7 (9th Cir. BAP Dec. 17, 2014)
(string citation omitted). See also Yang Jin Co. v. Miller (In re Kong), BAP No.
CC-15-1371-KiTaL, 2016 WL 3267588, at *6 (9th Cir. BAP June 6, 2016)
(discussing Rev Op Grp. v. ML Manager LLC (In re Mortgs., Ltd.), 771 F.3d 1211,
1214 (9th Cir. 2014) and reasoning that it does not stand for the proposition
that an appeal is always equitably moot if the appellant fails to seek a stay).
While Essex Bank offers no excuse for failing to seek a stay, no
subsequent event has occurred here that would render consideration of the
issues on appeal inequitable. Even though the sale has been completed,
Trustee has not distributed the proceeds. Further, there are no third parties
who would have received any proceeds if distributed, and the parties that
could conceivably be affected by any modification to the Sale Order are
before the Panel. Marie, as the largest priority unsecured creditor, would be
the only creditor paid out of the proceeds after administrative expenses.
Finally, the transaction at issue here — the exchange of money for guns and
artwork — is not complex or difficult to unwind, much less "extremely
13 difficult" as Trustee contends. Marie could return the guns and artwork to the
bankruptcy estate, and Trustee could return the $20,000 to Marie. In short, no
comprehensive change of circumstances has occurred in this case to render
reversing the Sale Order inequitable.
Accordingly, we conclude that the appeal is not equitably moot.
B. The bankruptcy court abused its discretion in granting the Sale Motion.
Essex Bank opposed the Sale Motion based on its purported lien on the
guns and artwork being sold. The bankruptcy court began its ruling by
noting that the Sale Motion did not ask for a sale free and clear of liens, but it
then proceeded to find that Essex Bank did not have a lien on the subject
personal property under any of its alleged theories.
We agree with the bankruptcy court that the Abstract of Judgment did
not give Essex Bank a lien on any personal property of the estate. See CCP
§ 697.310(a) ("Except as otherwise provided by statute, a judgment lien on real
property is created under this section by recording an abstract of a money
judgment with the county recorder.") (emphasis added). Essex Bank argues
that some of the guns or artwork might be "fixtures" attached to the real
property, thus making the items real property. Essex Bank failed to raise that
argument before the bankruptcy court and therefore has waived it on appeal.
See Orr v. Plumb, 884 F.3d 923, 932 (9th Cir. 2018) (usual rule is that arguments
raised for the first time on appeal are deemed forfeited). Further, whether the
guns or artwork are "fixtures" is a factual issue, and the record is insufficient
14 to make that finding. See Briggs v. Kent (In re Prof’l Inv. Props. of Am.), 955 F.2d
623, 625 (9th Cir. 1992) (appellate court may consider an issue raised for first
time on appeal where "the issue presented is purely one of law and either
does not depend on the factual record developed below, or the pertinent
record has been fully developed").
We also agree with the bankruptcy court that the JL-1 did not create a
lien on the guns and artwork. In California, a JL-1 lien is similar to a UCC-1
lien and provides a judgment lien on a variety of personal property. See CCP
§ 697.530.5 Essex Bank argued at the sale hearing that the buy/sell agreement
constituted an "accounts receivable" to William, which was covered by its JL-
1 lien. The court disagreed, finding that the postpetition contract between
Trustee on behalf of the bankruptcy estate and Marie was not a contract or
receivable of William. And even if it was, the JL-1 lien did not encumber
5 CCP § 697.530 provides:
(a) A judgment lien on personal property is a lien on all interests in the following personal property that are subject to enforcement of the money judgment against the judgment debtor pursuant to Article 1 (commencing with Section 695.010) of Chapter 1 at the time when the lien is created if the personal property is, at that time, any of the following: (1) Accounts receivable, and the judgment debtor is located in this state. (2) Tangible chattel paper, as defined in paragraph (79) of subdivision (a) of Section 9102 of the Commercial Code, and the judgment debtor is located in this state. (3) Equipment, located within this state. (4) Farm products, located within this state. (5) Inventory, located within this state. (6) Negotiable documents of title, located within this state.
15 postpetition assets. § 552(a).
However, we disagree with the bankruptcy court's ruling that the
Notice of Lien did not create a lien on the guns and artwork and that Essex
Bank was a general unsecured creditor and not entitled to any of the sale
proceeds. The bankruptcy court concluded that CCP § 708.410 liens do not
apply to marital dissolution proceedings, and therefore Essex Bank could not
have had a lien on the subject property. We review this question of law de
novo. We begin by discussing this type of California lien.
If a judgment creditor has a money judgment against a judgment debtor
who is a party to a pending action or special proceeding, the creditor may
acquire a lien to the extent necessary to satisfy the judgment on (a) any cause
of action of the debtor for money or property that is the subject of the action
or proceeding, and (b) the rights of the debtor to money or property under
any judgment subsequently procured in the action or proceeding. CCP §
708.410(a); 8 Witkin, Cal. Proc., Enforcement of Judgment § 297 (5th ed. 2008).
The judgment debtor can be the plaintiff or the defendant. Fleet Credit Corp. v.
TML Bus. Sales, Inc., 65 F.3d 119, 121 (9th Cir. 1995). An action or proceeding
remains "pending" until the time for appeal expires or an appeal is finally
determined. CCP § 708.410(d).
To obtain this type of lien, the judgment creditor files in the pending
action or proceeding a notice of lien and an abstract or certified copy of the
judgment creditor's money judgment. CCP § 708.410(b). The judgment
16 creditor must also serve a copy of the filed notice of lien on all of the parties
to the "action or special proceeding. . . . " CCP § 708.410(a). The notice of lien
must contain certain language, which serves as a notice to the judgment
debtor of his or her rights. CCP § 708.420.6
6 CCP § 708.420 provides:
The notice of lien under Section 708.410 shall contain all of the following:
(a) A statement that a lien has been created under this article and the title of the court and the cause and number of the pending action or proceeding in which the notice of lien is filed. (b) The name and last known address of the judgment debtor. (c) The name and address of the judgment creditor. (d) The title of the court where the judgment creditor's money judgment is entered and the cause and number of the action, the date of entry of the judgment, and the date of any subsequent renewals, and where entered in the records of the court. (e) The amount required to satisfy the judgment creditor's money judgment at the time the notice of lien is filed in the action or proceeding. (f) A statement that the lien attaches to any cause of action of the judgment debtor that is the subject of the action or proceeding and to the judgment debtor's rights to money or property under any judgment subsequently procured in the action or proceeding. (g) A statement that no compromise, dismissal, settlement, or satisfaction of the pending action or proceeding or any of the judgment debtor's rights to money or property under any judgment procured therein may be entered into by or on behalf of the judgment debtor, and that the judgment debtor may not enforce the judgment debtor's rights to money or property under any judgment procured in the action or proceeding by a writ or otherwise, unless one of the following requirements is satisfied: (1) The prior approval by order of the court in which the action or proceeding is pending has been obtained. (2) The written consent of the judgment creditor has been obtained or the judgment creditor has released the lien. (continued...)
17 Assuming the judgment creditor has complied with the necessary
requirements to obtain and perfect the lien, and the lien has not been
terminated for any reason, "no compromise, dismissal, settlement, or
satisfaction" of the action or proceeding may be entered into by or on behalf
of the debtor, unless (a) the court in which the action or proceeding is
pending has given prior approval, (b) the creditor has consented in writing or
has released the lien, or (c) the creditor's money judgment has been satisfied.
CCP § 708.440(a), (b). If the court determines that a party (other than the
debtor) with notice of the lien has transferred property subject to the lien or
paid an amount to the debtor that was subject to the lien, the court must
render judgment against the party equal to the lesser of (a) the value of the
debtor's interest in the property or the amount paid, or (b) the amount of the
creditor's lien. CCP § 708.470(c).
It is undisputed, and the record establishes, that Essex Bank did
everything required to obtain and perfect a lien under CCP § 708.410. It filed
the Notice of Lien, which contained the necessary language under CCP
§ 708.420, and a copy of the Abstract of Judgment in the Divorce Case. It also
served the Notice of Lien on the parties to the Divorce Case, including Marie
6 (...continued) (3) The money judgment of the judgment creditor has been satisfied. (h) A statement that the judgment debtor may claim an exemption for all or any portion of the money or property within 30 days after the judgment debtor has notice of the creation of the lien and a statement that, if the exemption is not claimed within the time allowed, the exemption is waived.
18 and her divorce counsel. No one has asserted that William sought or obtained
an exemption from the lien in accordance with CCP § 708.450.7 Thus, the lien
appears to be prima facie valid.
Trustee proceeded under the belief that no liens existed on the personal
property at issue in the sale. When he learned of one through Essex Bank's
opposition to the Sale Motion, he made no attempt to sell the property free
and clear of liens under § 363(f), or to file an adversary proceeding to
determine the validity and extent of the lien, or both; he simply argued that
the lien did not exist. Trustee's counsel maintained at oral argument before us
that this was not a "free and clear" sale, and that if Essex Bank had a lien, it
remains attached to the property.
The bankruptcy court could have ordered that the sale was subject to
Essex Bank's lien. However, it went further and ruled, without citing any
authority, that Essex Bank did not have a CCP § 708.410 lien on the guns and
artwork being sold, because the Divorce Case was not a "cause of action . . .
for money or property" as contemplated by the statute; it was "an action for
the dissolution of marriage." That was the only basis for the court's ruling,
and it was erroneous.
While a marital dissolution proceeding might not seem like a "cause of
action" that would fall under the statute, California courts have ruled that
7 The judgment debtor can claim all or a portion of the money or property subject to the lien exempt, but must do so within 30 days of receiving notice of creation of the lien. CCP § 708.450.
19 CCP § 708.410 liens do apply in such proceedings. See In re Marriage of Katz,
234 Cal. App. 3d 1711, 1719-21 (1991) (ruling that CCP § 708.410 liens and the
associated remedies apply in marital dissolution proceedings and that wife's
transfer to husband of more than one-half of community property interest
during dissolution proceeding gave rise to liability to judgment creditor
under CCP § 708.470(c)); In re Marriage of Kerr, 185 Cal. App. 3d. 130 (1986)
(applying CCP § 708.410 in marital dissolution).
The bankruptcy court erred, and thus abused its discretion, in ruling as
a matter of law that Essex Bank did not have a CCP § 708.410 lien on the guns
and artwork simply because the Notice of Lien was filed in a marital
dissolution proceeding. Accordingly, we must REVERSE the Sale Order.
VI. CONCLUSION
For the reasons stated above, we REVERSE.