In re: Rhonda Stijakovich-Santilli, 9th Cir. BAP (2015)

7/25/2019 In re: Rhonda Stijakovich-Santilli, 9th Cir. BAP (2015)

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UNITED STATES BANKRUPTCY APPELLATE PANEL

OF THE NINTH CIRCUIT

I n r e: ) BAP No. EC- 15- 1000- FDJ u)

RHONDA STI J AKOVI CH- SANTI LLI , ) Bk. No. 13- 33804)

Debt or . )____________________________ )

)DOUGLAS M. WHATLEY, )Chapt er 7 Tr ust ee; )

)Appel l ant , )

)v. ) OPINION)

RHONDA STI J AKOVI CH- SANTI LLI , ))

Appel l ee. )______________________________)

Ar gued and Submi t t ed on November 19, 2015at Sacr ament o, Cal i f or ni a

Fi l ed December 15, 2015

Appeal f r om t he Uni t ed St at es Bankrupt cy Cour tf or t he Easter n Di str i ct of Cal i f or ni a

Honor abl e Rober t S. Bar dwi l , Bankrupt cy J udge, Pr esi di ng

Appear ances: Bar r y H. Spi t zer of t he Law Of f i ce of Bar r y H.Spi t zer ar gued f or appel l ant Dougl as M. What l ey,Chapt er 7 Trust ee; Appel l ee Rhonda St i j akovi ch-Sant i l l i ar gued pr o se.

Bef ore: FARI S, DUNN, and J URY, Bankr upt cy J udges.

FILED

DEC 15 2015

SUSAN M. SPRAUL, CLERKU.S. BKCY. APP. PANELOF THE NINTH CIRCUIT


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FARI S, Bankr upt cy J udge:

INTRODUCTION

Appel l ant Dougl as M. What l ey, Chapt er 7 Tr ust ee, appeal sf r om t he bankr upt cy cour t s or der over r ul i ng hi s obj ect i on t o

Appel l ee Rhonda St i j akovi ch- Sant i l l i s cl ai m of a homest ead

exempt i on. The bankrupt cy cour t hel d t hat t he Tr ust ee s

obj ect i on was unt i mel y. The Tr ust ee ar gues t hat t he Debt or

f r audul ent l y asser t ed t he cl ai m of exempt i on, so t he deadl i ne f or

hi s obj ect i on was ext ended under Rul e 4003( b) ( 2) of t he Federal

Rul es of Bankr upt cy Pr ocedur e. 1 We hol d t hat t he bankr upt cy

cour t er r ed as a mat t er of l aw by rul i ng t hat ( 1) t he Tr ust ee was

not ent i t l ed t o t he extended obj ect i on per i od because he coul d

have di scover ed t he Debt or s mi sst at ement s ear l i er ; and

( 2) evi dence of t he Debt or s subsequent f al se st atement s about

her exempt i on cl ai m coul d not suppor t a f i ndi ng t hat she

f r audul ent l y cl ai med t he exempt i on i n t he f i r st pl ace.Accordi ngl y, we VACATE t he bankrupt cy cour t s or der and REMAND

t hi s case t o the bankrupt cy cour t f or f ur t her pr oceedi ngs.

FACTS

The Debt or f i l ed her chapter 7 pet i t i on on Oct ober 25, 2013.

She l i st ed t hr ee si ngl e f ami l y homes i n her Schedul e A, i ncl udi ng

r eal pr oper t y l ocat ed on Beckenham Dr i ve i n Gr ani t e Bay,

Cal i f or ni a ( Subj ect Pr oper t y) . Her Schedul e I l i st ed Ot her

1 Unl ess speci f i ed ot her wi se, al l chapt er and sect i onr ef er ences ar e t o t he Bankrupt cy Code, 11 U. S. C. 101- 1532, al lRul e r ef er ences ar e t o t he Feder al Rul es of Bankrupt cyPr ocedur e, Rul es 1001- 9037, and al l Ci vi l Rul e r ef er ences ar et o t he Feder al Rul es of Ci vi l Pr ocedur e, Rul es 1- 86.

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mont hl y i ncome as $3, 400 f r om a Room Mat e. I ni t i al l y, t he

Debt or cl ai med a $75, 000 homest ead exempt i on2 on t he Subj ect

2 Under Cal i f or ni a l aw, a homest ead i s def i ned as

t he pr i nci pal dwel l i ng ( 1) i n whi ch t he j udgmentdebt or or t he j udgment debt or s spouse resi ded on t hedat e the j udgment cr edi t or s l i en at t ached t o thedwel l i ng, and ( 2) i n whi ch t he j udgment debt or or t hej udgment debtor s spouse r esi ded cont i nuousl yt her eaf t er unt i l t he dat e of t he cour t det er mi nat i on

t hat t he dwel l i ng i s a homest ead.

Cal . Ci v. Proc. Code 704. 710( c) . The amount of exempt i on i scodi f i ed i n sect i on 704. 730( a) of t he Cal i f or ni a Code of Ci vi lPr ocedur e, whi ch st at es, i n r el evant par t :

The amount of t he homest ead exempt i on i s one of t hef ol l owi ng:

( 1) Sevent y- f i ve t housand dol l ar s ( $75, 000) unl esst he j udgment debtor or spouse of t he j udgment

debt or who resi des i n t he homest ead i s a persondescr i bed i n par agr aph ( 2) or ( 3) .

. . .

( 3) One hundr ed sevent y- f i ve t housand dol l ar s( $175, 000) i f t he j udgment debt or or spouse of t hej udgment debtor who r esi des i n t he homest ead i s att he t i me of t he at t empt ed sal e of t he homest eadany one of t he f ol l owi ng:

. . .

( B) A per son physi cal l y or ment al l y di sabl edwho as a r esul t of t hat di sabi l i t y i s unabl et o engage i n subst ant i al gai nf ulempl oyment . . . .

Cal . Ci v. Pr oc. Code 704. 730.

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Pr oper t y, pur suant t o sect i on 704. 9503 of t he Cal i f or ni a Code of

Ci vi l Pr ocedur e. 4 The Debt or submi t t ed her el ect r oni cal l y si gned

Decl ar at i on Concer ni ng Debt or s Schedul es wi t h her pet i t i on, i n

whi ch she at t est ed t hat t he schedul es ar e t r ue and cor r ect t ot he best of [ her ] knowl edge, i nf or mat i on, and bel i ef . She l at er

amended her exempt i on t o $175, 000 and agai n decl ar ed t hat t he

i nf or mat i on i n t he amendment s i s t r ue and cor r ect t o the best of

[ her ] i nf or mat i on and bel i ef .

The meet i ng of cr edi t or s concl uded on J anuary 21, 2014.

Ther e i s no t r anscr i pt of t he meet i ng, but t he Tr ust ee

3 Sect i on 704. 950 of t he Cal i f or ni a Code of Ci vi l Pr ocedur est at es, i n r el evant par t :

( c) A j udgment l i en at t aches t o a decl ar ed homest ead i nt he amount of any sur pl us over t he t ot al of t hef ol l owi ng:

( 1) Al l l i ens and encumbr ances on t he decl ar ed

homest ead at t he t i me the abst r act of j udgment orcer t i f i ed copy of t he j udgment i s r ecor ded t ocr eat e t he j udgment l i en.

( 2) The homest ead exempt i on set f or t h i n Sect i on704. 730.

Cal . Ci v. Pr oc. Code 704. 950.

4 The Debt or cl ai med t he homest ead exempt i on i n herSchedul e C under sect i on 704. 950 of t he Cal i f or ni a Code of Ci vi l

Procedur e. However , t hi s sect i on does not cr eat e a homest eadexempt i on; r at her , i t concer ns t he i nt er pl ay of t he homest eadexempt i on wi t h j udgment l i ens. The pr oper basi s f or t he Debt or scl ai m of a homest ead exempt i on woul d have been sect i on 704. 720,whi ch pr ovi des t hat [ a] homest ead i s exempt f r om sal e under t hi sdi vi si on t o t he ext ent provi ded i n Sect i on 704. 800. Cal . Ci v.Proc. Code 704. 720. However , nei t her par t y di scussed t hei mpor t of t he Debt or s choi ce of and r el i ance on sect i on 704. 950,and we do not addr ess t hi s i ssue f ur t her .

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r epr esent ed t hat t he Debt or conf i r med her onl y i ncome i s t he

soci al secur i t y and f r om a cont r i but i on f r om a r oommat e.

The Debt or r ecei ved a di schar ge on Februar y 5, 2014. The

case r emai ned open whi l e t he Trust ee admi ni st ered non- exemptasset s. On or ar ound Apr i l 2, 2014, t he bankrupt cy cour t gr ant ed

t he Debt or s mot i on t o di schar ge her at t or ney, D. Randal l

Ensmi nger , and pr oceed i n pr opr i a persona.

The Debt or f i l ed a mot i on t o compel abandonment of t hree

si ngl e f ami l y resi dences, i ncl udi ng t he Subj ect Pr oper t y ( Mot i on

t o Compel Abandonment ) . Essent i al l y, t he Debt or cl ai med t hat ,

consi der i ng t he l i ens on t he pr oper t i es and her exempt i on, t her e

was no equi t y i n t he t hr ee pr oper t i es f or t he est at e. Regar di ng

t he Subj ect Pr oper t y, t he Debt or st at ed t hat she cl ai med a

$175, 000 homest ead exempt i on due to a di sabi l i t y.

The Tr ust ee di d not oppose t he Mot i on t o Compel Abandonment

as i t r el at ed t o t he Subj ect Pr oper t y and a second pr oper t y, but

opposed t he mot i on as t o a t hi r d pr oper t y. The cour t gr ant ed t heMot i on t o Compel Abandonment of t he two pr opert i es, i ncl udi ng t he

Subj ect Proper t y.

On August 18, 2014, t he Tr ust ee f i l ed hi s Obj ect i on by

Chapt er 7 Tr ust ee t o Debt or s Cl ai m of Exempt i on i n Real Pr oper t y

and Request f or Rel i ef f r om a Fi nal Or der on Abandonment of t he

Real Pr oper t y ( Obj ect i on) , ar gui ng t hat t he Debt or f r audul ent l y

asser t ed t he cl ai m of exempt i on i n t he Subj ect Pr oper t y. He

cont ended t hat t he Debt or di d not r esi de at t he Subj ect Proper t y

on t he dat e she f i l ed her chapt er 7 pet i t i on and di d not r esi de

t her e at any t i me i n 2013. The Tr ust ee r el i ed on t he f act t hat ,

on her t ax ret ur ns, t he Debt or decl ar ed t he Subj ect Pr oper t y a

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r ent al pr oper t y f or 365 days of t he year , wi t hout any per sonal

days. The Tr ust ee f ur t her sought r el i ef f r om t he abandonment of

t he Subj ect Propert y, because, i f t he homest ead exempt i on were

i nappl i cabl e, t hen t he Subj ect Pr oper t y woul d have subst ant i alequi t y and coul d add val ue to t he est at e.

I n r esponse, t he Debt or ar gued t hat , al t hough she r ecei ved

r ent al i ncome f r om t he Subj ect Pr oper t y, she r esi ded at t he

Subj ect Proper t y dur i ng al l of 2013: Even t hough debt or has been

r ecei vi ng rent al i ncome wi t h respect [ t o t he Subj ect Pr oper t y]

dur i ng 2013, debt or had r esi ded at [ t he Subj ect Proper t y] dur i ng

al l of 2013. She r epr esent ed t hat she has been r esi di ng at

[ t he Subj ect Pr oper t y] , as her pr i nci pl e [ si c] dwel l i ng,

t hr oughout 2012, 2013, and i nto 2014. The Debt or has al so been

r ent i ng t o roommat es at [ t he Subj ect Proper t y] dur i ng 2012, 2013,

and i nt o 2014, i n order f or debt or t o meet her i ncome needs.

She ar gued t hat r ent i ng the Subj ect Propert y t o r oommates does

not pr event her f r om cl ai mi ng [ t he Subj ect Pr oper t y] as herpr i nci pl e [ si c] dwel l i ng. Fur t her , si nce debt or i s r ent i ng t o

r oommat es i n [ t he Subj ect Proper t y] , even t hough she i s al so

r esi di ng at [ t he Subj ect Pr oper t y] , t hen debt or i s cor r ect l y and

accur at el y decl ar i ng [ t he Subj ect Pr oper t y] as r ent al pr oper t y on

her Feder al i ncome t ax retur ns . . . .

I n suppor t of her posi t i on, t he Debt or at t ached ( 1) a l et t er

f r om her CPA, who conf i r med t hat he advi sed her t hat t he Subj ect

Pr oper t y qual i f [ i es] as your pr i mar y resi dence par t i al l y based

on your decl ar at i on t hat you have occupi ed i t as your pr i mar y

r esi dence; ( 2) a copy of a l et t er f r om t he Uni t ed St at es Soci al

Secur i t y Admi ni st r at i on sent t o t he Subj ect Pr oper t y s addr ess;

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( 3) a copy of her dr i ver s l i cense i nf or mat i on r equest r ef l ect i ng

t he Subj ect Pr oper t y s addr ess; and ( 4) copi es of wat er bi l l s f or

t he Subj ect Proper t y t hat ar e i n t he Debt or s name.

On Sept ember 24, 2014, t he bankrupt cy cour t heard ar gument son t he Tr ust ee s Obj ect i on. The Debt or ar gued, I j ust want t o

st at e t hat I do l i ve at t he house . . . .

The cour t ul t i mat el y over r ul ed t he Obj ect i on. The cour t

not ed i n i t s f i nal r ul i ng t hat , i n t he absence of f r aud, t he

Tr ust ee had unt i l Februar y 20, 2014 t o obj ect t o t he Debt or s

cl ai m of exempt i on. However , i f t he Debt or had f r audul ent l y

asser t ed t he cl ai m of homest ead exempt i on, t he Tr ust ee s

obj ect i on on August 18, 2014 woul d be t i mel y under Rul e

4003( b) ( 2) .

The cour t st at ed t hat t he probl em wi t h t he Tr ust ee s t heor y

i s t hat t he quest i on on t hi s obj ect i on t o exempt i on i snot whet her t he debt or pr epar ed her t ax ret ur ns i naccor dance wi t h appl i cabl e t ax l aw and r ul es. I t i swhether t he debt or r esi ded i n t he Pr oper t y on t he dat e

her pet i t i on was f i l ed, October 25, 2013. . . .[ P] r esumabl y, she was l i vi ng i n one of t he t hr eepr oper t i es she owns; t he t r ust ee has gi ven t he cour t nor eason t o bel i eve i t was not t he one i n whi ch she hascl ai med t he homest ead exempt i on.

I n ot her wor ds, t he bankrupt cy cour t bel i eved t hat t he

Debt or r esi ded on t he Subj ect Pr oper t y, but mi sr epor t ed i t s

st at us on her t ax r et ur ns. The cour t cont i nued:

Her e, t he t r ust ee s evi dence goes onl y to t he

quest i on of whether t he debt or pr oper l y pr epared hert ax r et ur ns; t he cour t f i nds t hat evi dence t o bei nsuf f i ci ent t o r ebut t he pr esumpt i on t hat t he debt orr esi ded i n t he Pr oper t y on t he pet i t i on dat e. However ,even i f t he t r ust ee s evi dence may be sai d t o haveovercome t hat pr esumpt i on, t he debt or has met herbur den t o pr oduce evi dence that she was l i vi ng i n t hePr oper t y t hat day: she has t est i f i ed unequi vocal l y t ot hat ef f ect , t her eby shi f t i ng t he bur den of pr oof backt o t he t r ust ee, who, as t he obj ect i ng par t y, al ways has

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t he bur den of per suasi on.

Ther eaf t er , t he Tr ust ee conduct ed f ur t her i nvest i gat i on and

gat her ed evi dence that t he Subj ect Proper t y was not t he Debt or s

pr i mary resi dence at t he t i me she cl ai med t he homest eadexempt i on. The Trust ee f i l ed another obj ect i on on November 14,

2014 ( Renewed Obj ect i on) and pr esent ed f ur t her evi dence,

i ncl udi ng: ( 1) gas ut i l i t y r ecor ds ref l ect i ng bi l l s di r ect ed t o

J oseph A. Mendoza, J r . and J oanna R. Mendoza; ( 2) Ms. Mendoza s

decl ar at i on t hat she was a t enant at t he Subj ect Pr oper t y wi t h

her husband and two chi l dr en f r om J une 16, 2012 thr ough J une 29,

2014, and t hat , dur i ng t hat t i me, t he Debt or di d not r esi de at

t he Subj ect Proper t y; and ( 3) count y r ecor ds showi ng t hat t he

Debt or di d not f i l e her homeowner s t ax exempt i on f or t he Subj ect

Proper t y unt i l Mar ch 3, 2014.

I n response, t he Debt or abandoned her argument t hat she was

l i vi ng on t he Subj ect Propert y wi t h r oommates and admi t t ed t hat

she was l i vi ng el sewher e. I nst ead, she ar gued t hat she had keptsome of her per sonal bel ongi ngs at t he Subj ect Proper t y. She

cl ai med that her f or mer at t or ney, Mr . Ensmi nger , had advi sed her

that

as l ong as she kept most of her personal bel ongi ngs at[ t he Subj ect Pr oper t y] , and di d not r esi de pr i mar i l y atany ot her home, t hen t he cour t woul d consi der [ t heSubj ect Proper t y] as her pr i mar y r esi dence. Debt orbased her deci si ons on her at t or ney s advi ce t hat

r ent i ng [ t he Subj ect Proper t y] t o r oommat es/ t enant s andst ayi ng at var i ous f r i ends homes and t r avel i ng di d notpr ecl ude [ t he Subj ect Pr oper t y] f r om bei ng her pr i mar yr esi dence. Accor di ngl y, even t hough debt or had r ent edout [ t he Subj ect Pr oper t y] t o roommat es/ t enant s, i t wast he onl y home t hat r easonabl y coul d be consi dered t o beher pr i mar y r esi dence.

I n hi s r epl y, t he Tr ust ee at t ached anot her decl ar at i on by

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Ms. Mendoza, who test i f i ed t hat t he onl y per sonal pr oper t y t hat

t he Debt or had l ef t at t he Subj ect Proper t y was a spa, out door

f ur ni t ur e, gar den hoses, a l adder , an i r oni ng boar d, wi ne r acks,

out door brass deer , r emote cont r ol s, and some mai nt enance i t ems,such as pai nt and l i ght bul bs. The Tr ust ee al so poi nt ed out t hat

t he Debt or mi schar acter i zed t he Mendozas as r oommates/ t enant s,

despi t e t he f act t hat t hey were cl ear l y tenant s who had ent er ed

i nt o f or mal l eases.

The bankrupt cy cour t hel d a hear i ng on t he Renewed Obj ect i on

on December 17, 2014. The cour t f ocused on whether a f al se

st at ement made wel l after t he cl ai m of exempt i on meet s t he

r equi r ement s of Rul e 4003( b) ( 2) . At t he out set , t he Tr ust ee

agr eed wi t h t he cour t t hat Rul e 4003( b) ( 2) i s t o be read as

r equi r i ng t he Tr ust ee t o show t hat t he Debt or f r audul ent l y

assert ed t he exempt i on at t he t i me t he exempt i on was cl ai med.

However , t he Tr ust ee ar gued t hat t he Debt or , f r om t he ver y f i r st

f i l i ng, set t o out decei ve t he cour t , t he t r ust ee and hercr edi t or s by st at i ng she l i ved at t he Subj ect Pr oper t y.

I n i t s f i nal r ul i ng, t he cour t agai n over r ul ed t he

obj ect i on, hol di ng t hat t he Debt or di d not f r audul ent l y

asser t [ ] t he cl ai m of exempt i on. The cour t st at ed:

Based on t he decl arat i on of J oanna Mendozasubmi t t ed by t he t r ust ee, i t appear s t o be an accur at est at ement t hat t he debt or di d not act ual l y resi de i n

t he Propert y on Oct ober 25, 2013. However , t hat f actal one whi ch i s vi r t ual l y t he onl y f act t he t r ust eer el i es on i s not suf f i ci ent t o est abl i sh t hat t hedebt or f r audul ent l y assert ed t he cl ai m of exempt i on, as r equi r ed f or a f i ndi ng t hat t he t r ust ee s obj ect i oni s t i mel y under Rul e 4003( b) ( 2) .

The cour t sai d t hat t he Tr ust ee shoul d have t aken mor e

concr et e st eps t o det er mi ne whet her t he debt or was actual l y

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l i vi ng on t he Pr oper t y [ af t er t he meet i ng of credi t or s] . The

cour t f ound t hat t he debt or s use of a post of f i ce box addr ess

. . . mi ght r easonabl y have been expect ed t o put t he t r ust ee on

not i ce he shoul d i nvest i gat e the quest i on of her act ual r esi dencef ur t her . The cour t sai d t hat

t he t r ust ee was on not i ce f r om t he debt or s schedul est hat she was r ecei vi ng $3, 400 per mont h i n r ent f r omt he Pr oper t y, al most t he amount of t he rent s on t heot her t wo pr oper t i es combi ned. A qui ck Zi l l ow sear chwoul d have r eveal ed t hat t he Proper t y i s a f ourbedroom, t hree bat h house. The amount of t he r ental one mi ght r easonabl y have been expected t o t r i ggerf ur t her i nqui r y i nt o whet her t he debt or was r esi di ng att he Proper t y al ong wi t h her t enant s.

The cour t di d not bel i eve t he Tr ust ee s asser t i on t hat he onl y

r eal i zed t hat t he Debt or di d not r esi de at t he Subj ect Pr oper t y

when he r ecei ved her 2013 t ax r etur ns. Rather , t he Trust ee had

t he Debt or s 2012 t ax r et ur ns, whi ch si mi l ar l y cl ai med t he

Subj ect Proper t y as a r ent al pr oper t y f or t he ent i r e year . I t

st at ed t hat t he Debt or s 2012 t ax ret ur ns, on whi ch t he debt or

cl ai med al l t hr ee of her pr oper t i es, i ncl udi ng t he Pr oper t y, asr ent al pr oper t i es f or t he ent i r e year , mi ght r easonabl y have been

expect ed t o t r i gger f ur t her i nqui r y i nt o her act ual r esi dence.

The cour t f ur t her det er mi ned t hat t he Debt or s r easons f or

cl ai mi ng a homest ead exempt i on i n t he Subj ect Propert y al so

wei gh agai nst a f i ndi ng of f r aud. She st at es her at t or ney t ol d

her t hat as l ong as [ she] kept most of [ her ] per sonal bel ongi ngs

at [ t he Pr oper t y] , and di d not r esi de pr i mar i l y at any ot her

home, t hen t he cour t woul d consi der [ t he Proper t y] as [ her ]

pr i mar y r esi dence. The cour t sai d t hat , [ i ] n f act , gi ven t he

debt or s t wo- year l ease of t he pr oper t y to ot her s, r eser vi ng no

r i ght of occupancy f or her sel f , t he val i di t y of her cl ai m t o a

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homest ead exempt i on seems tenuous. However , t he court st at ed

t hat i t does not mat t er whet her t he debt or had a val i d or even a

col or abl e cl ai m t o t he exempt i on. I t mat t er s onl y whet her she

f r audul ent l y asser t ed t he exempt i on, such t hat t he l at e obj ect i onshoul d be al l owed under Rul e 4003( b) ( 2) .

I n sum, t he cour t concl uded t hat

t he debt or s t est i mony i n r esponse t o the t r ust ee sear l i er obj ect i on t o exempt i on t hat she [ has] beenr esi di ng at [ t he Subj ect Pr oper t y] . . . cont i nuousl yf or al l of 2012, 2013 and al l of 2014 t hr ough t he dat eof t hi s decl ar at i on i s qui t e t r oubl i ng t o t hi s cour t .However , t hi s t est i mony was gi ven not at t he t i me t hedebt or asser t ed t he cl ai m of exempt i on, but al most 11

mont hs l ater , when she was def endi ng agai nst t het r ust ee s obj ect i on, and l ong af t er t he t r ust ee s t i met o obj ect , i n t he absence of f r aud, had r un. Thus,al t hough t hi s t est i mony appear s t o have beeni naccur at e, and possi bl y del i ber at el y so, i t does notsuppor t a concl usi on t hat t he debt or f r audul ent l yasser t ed t he exempt i on at t he t i me i t was cl ai med.

The cour t i ssued i t s or der over r ul i ng t he Renewed Obj ect i on

on December 18, 2014. The Tr ust ee t i mel y f i l ed hi s not i ce of

appeal on December 30, 2014.On Mar ch 18, 2015, t he Tr ust ee obt ai ned a decl ar at i on f r om

Mr . Ensmi nger wher ei n he r ef ut ed cer t ai n of t he Debt or s

st at ement s regar di ng hi s repr esent at i on of t he Debt or . Mr .

Ensmi nger at t est ed t hat t he Debt or had not i nf or med hi m t hat she

r ent ed t he Subj ect Pr oper t y excl usi vel y t o ot her s, but he r ecal l s

t hat she had t ol d hi m t hat she r esi ded at t he Subj ect Pr oper t y

wi t h r oommates. He st ated t hat he woul d not have advi sed her

t hat t he cour t woul d consi der t he Subj ect Proper t y as her pr i mar y

r esi dence i f she l ef t per sonal bel ongi ngs at t he Subj ect

Pr oper t y. Fi nal l y, he sai d t hat he had been i n t he hospi t al and

unabl e t o r espond t o wor k- r el at ed e- mai l s unt i l r ecent l y. I t i s

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undi sput ed t hat t he bankrupt cy cour t di d not have t he benef i t of

Mr . Ensmi nger s decl ar at i on when i t r ul ed on t he Obj ect i on and

Renewed Obj ect i on.

JURISDICTION

The bankrupt cy cour t had j ur i sdi ct i on pur suant t o 28 U. S. C.

1334 and 157( b) ( 2) ( B) . We have j ur i sdi ct i on under 28 U. S. C.

158.

ISSUE

Whether t he bankrupt cy cour t er r ed i n over r ul i ng t he

Tr ust ee s obj ect i on t o t he Debtor s cl ai m of a homest ead

exempt i on i n t he Subj ect Proper t y.

STANDARD OF REVIEW

The bankrupt cy cour t s concl usi ons of l aw ar e r evi ewed de

novo. Decker v. Tr ami el ( I n r e J TS Cor p. ) , 617 F. 3d 1102, 1109

( 9t h Ci r . 2010) . We r evi ew exempt i on determi nat i ons de novo.

Goswami v. MTC Di st r i b. ( I n r e Goswami ) , 304 B. R. 386, 389 ( 9t h

Ci r . BAP 2003) ;

Kel l ey v. Locke ( I n r e Kel l ey) , 300 B. R. 11, 16( 9t h Ci r . BAP 2003) . De novo r evi ew r equi r es t hat we consi der a

mat t er anew, as i f i t had not been hear d bef or e, and as i f no

deci si on had been r endered bel ow. Dawson v. Marshal l , 561 F. 3d

930, 933 ( 9t h Ci r . 2009) .

The bankrupt cy cour t s f act ual f i ndi ngs, f or pur poses of

det er mi ni ng t he val i di t y of a homest ead exempt i on cl ai m, ar e

r evi ewed under t he cl ear l y er r oneous st andar d. I n r e Kel l ey, 300

B. R. at 16 ( ci t at i on omi t t ed) . A f actual f i ndi ng i s cl ear l y

er r oneous onl y i f we have a def i ni t e and f i r m convi ct i on t hat a

mi st ake has been commi t t ed. Banks v. Gi l l Di st r i b. Ct r s. , I nc.

( I n r e Banks) , 263 F. 3d 862, 869 ( 9t h Ci r . 2001) ( quot i ng

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Ander son v. Ci t y of Bessemer Ci t y, N. C. , 470 U. S. 564, 573

( 1985) ) .

DISCUSSION

A. Rule 4003(b)(2) extends the time for a trustee to object toa claim for exemption if a debtor fraudulently asserts theclaim of exemption.

A credi t or or t r ust ee must or di nar i l y f i l e an obj ect i on t o

t he l i st of pr oper t y cl ai med as exempt wi t hi n 30 days af t er t he

meet i ng of cr edi t or s hel d under 341( a) i s concl uded or wi t hi n

30 days af t er any amendment t o t he l i st or suppl ement al schedul es

i s f i l ed, whi chever i s l at er . Rul e 4003( b) ( 1) . Rul e 4003( b) ( 2)

creat es a l i mi t ed except i on t o t hi s rul e. I t pr ovi des that

[ t ] he t r ust ee may f i l e an obj ect i on t o a cl ai m of exempt i on at

any t i me pr i or t o one year af t er t he cl osi ng of t he case i f t he

debt or f r audul ent l y asser t ed t he cl ai m of exempt i on. Rul e

4003( b) ( 2) . 5

5 Rul e 4003( b) ( 2) was enact ed i n 2008. The advi sor ycommi t t ee not es t o t he 2008 amendment s st at e:

Subdi vi si on ( b) ( 2) i s added t o t he r ul e t o per mi t t het r ust ee t o obj ect t o an exempt i on at any t i me up t o oneyear af t er t he cl osi ng of t he case i f t he debt orf r audul ent l y cl ai med t he exempt i on. Extendi ng t hedeadl i ne f or t r ust ees t o obj ect t o an exempt i on whent he exempt i on cl ai m has been f r audul ent l y made wi l lper mi t t he cour t t o r evi ew and, i n pr operci r cumst ances, deny i mpr oper l y cl ai med exempt i ons,

t her eby pr ot ect i ng t he l egi t i mat e i nt er est s ofcr edi t or s and t he bankrupt cy est at e. However , si mi l art o t he deadl i ne set i n 727( e) of t he Code f orr evoki ng a di schar ge whi ch was f r audul ent l y obt ai ned,an obj ect i on t o an exempt i on t hat was f r audul ent l ycl ai med must be f i l ed wi t hi n one year af t er t he cl osi ngof t he case. Subdi vi si on ( b) ( 2) ext ends t he obj ect i ondeadl i ne onl y f or t r ust ees.

Rul e 4003(b) advi sory commi t t ee s not es t o 2008 amendment .

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I n t hi s case, t he meet i ng of cr edi t or s concl uded on J anuar y

21, 2014. Thus, i n t he absence of f r aud, t he Tr ust ee had unt i l

Febr uar y 20, 2014 t o obj ect t o t he Debt or s cl ai ms of exempt i ons.

The Tr ust ee f i l ed hi s Obj ect i on on August 18, 2014, near l y si xmont hs past t he gener al deadl i ne. Ther ef or e, t he Tr ust ee s

Obj ect i on i s bar r ed under Rul e 4003( b) ( 1) , unl ess t he Debt or

f r audul ent l y asser t ed a cl ai m of exempt i on under Rul e

4003( b) ( 2) .

As a gener al r ul e, a par t y who obj ect s t o a debt or s cl ai m

of exempt i on has t he bur den of pr ovi ng t hat t he exempt i on i s not

pr oper l y cl ai med, accor di ng t o Rul e 4003( c) . I f t he obj ect or can

pr oduce evi dence t o rebut t he pr esumpt i on of val i di t y, t hen t he

bur den of pr oduct i on shi f t s t o t he debt or t o come f or war d wi t h

unequi vocal evi dence t o demonst r ate that t he exempt i on i s

pr oper l y cl ai med. I n r e Kel l ey, 300 B. R. at 16- 17; Car t er v.

Ander son ( I n r e Car t er ) , 182 F. 3d 1027, 1029 ( 9t h Ci r . 1999) .

The bur den of per suasi on r emai ns, however , wi t h t he obj ect i ngpar t y. The quant um of pr oof i s a pr eponder ance of t he evi dence.

I n r e Kel l ey, 300 B. R. at 17. 6

6 I n t he pr esent case, t he bankrupt cy cour t appl i ed t hebur den- shi f t i ng r ul e i n Rul e 4003( c) . At l east one Cal i f or ni a

bankrupt cy cour t has hel d t hat , i f t he debt or chooses a st at e l awexempt i on, t hen st at e l aw al l ocat es t he bur den of pr oofnot wi t hst andi ng Rul e 4003( c) . See I n r e Tal l er i co, 532 B. R. 774,780, 787- 89 ( Bankr . E. D. Cal . 2015) . The par t i es have notbr i ef ed t hi s i ssue, so we expr ess no opi ni on and l eave t hi s i ssuet o t he bankr upt cy cour t on r emand.

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B. Fraudulently asserted under Rule 4003(b)(2) should beconstrued with regard to the common law definition of fraudand 523(a)(2).

The bankrupt cy cour t di d not of f er a def i ni t i on of t he

phr ase f r audul ent l y asser t ed. Rul e 4003( b) ( 2) does not def i net he t er m, and t he case l aw i s scant . We begi n wi t h t he st andar d

r ul es of st at ut or y i nt er pr et at i on, whi ch appl y equal l y t o

i nt er pr et at i on of t he Rul es. See gener al l y Rhodes v. Li t i g. Tr .

of t he Rhodes Cos. , LLC ( I n r e Rhodes Cos. , LLC) , 475 B. R. 733,

738 ( D. Nev. 2012) ( To determi ne the meani ng of a Federal Rul e

of Ci vi l Pr ocedur e, cour t s appl y r ul es of st at ut or y

i nt er pr et at i on. ) . [ W] hen t he st at ut e s l anguage i s pl ai n, t he

sol e f unct i on of t he cour t s at l east wher e t he di sposi t i on

r equi r ed by the t ext i s not absur d i s t o enf or ce i t accor di ng

t o i t s t er ms. I n r e Tr ej os, 352 B. R. 249, 255 ( Bankr. D. Nev.

2006) , af f d, 374 B. R. 210 ( 9t h Ci r . BAP 2007) ( quot i ng Lami e v.

U. S. Tr . , 540 U. S. 526, 534 ( 2004) ) . Wor ds and phr ases used i n

st at ut es and r ul es shoul d or di nar i l y be gi ven t hei r commonmeani ng. See Wi l l i ams v. Tayl or , 529 U. S. 420, 431 ( 2000) ( The

wor ds of a st at ut e ar e gi ven t hei r ordi nar y, cont empor ar y,

common meani ng, unl ess Congr ess i nt ended t o gi ve t hem other

meani ng. ) . Wor ds that have speci al l egal def i ni t i ons shoul d

usual l y be gi ven t hei r common l egal meani ng. See Henr y v. Uni t ed

St at es, 251 U. S. 393, 395 ( 1920) ( The l aw uses f ami l i ar l egal

expr essi ons i n t hei r f ami l i ar l egal sense[ . ] ) ; I n r e LTV St eel

Co. , I nc. , 264 B. R. 455, 473 ( Bankr . N. D. Ohi o 2001) ( When

Congr ess uses a f ami l i ar l egal expr essi on and does not pr ovi de a

def i ni t i on, t hat connot es Congr ess i nt ent t hat t he wor ds be

gi ven t hei r usual l egal meani ng. ( ci t at i on omi t t ed) ) .

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At common l aw, t he wor d f r aud and i t s der i vat i ves r ef er t o

( 1) a repr esent at i on ( 2) t hat t he speaker knew was f al se when t he

speaker made the repr esent at i on, ( 3) t hat t he speaker made wi t h

t he i nt ent t o decei ve anot her , ( 4) on whi ch t he hear erj ust i f i abl y r el i ed, and ( 5) whi ch caused damage t o t he hear er .

See Rasi descu v. Mi dl and Cr edi t Mgmt . , I nc. , 435 F. Supp. 2d

1090, 1099 ( S. D. Cal . 2006) ( I n Cal i f or ni a, t he el ement s of

common l aw f r aud ar e: 1) mi sr epr esent at i on of a mat er i al f act ; 2)

knowl edge of f al si t y by def endant of t he mat er i al f act ; 3) i nt ent

of def endant t o def r aud pl ai nt i f f ; 4) j ust i f i abl e r el i ance of

pl ai nt i f f on t he mat er i al f act ; and 5) damages. ( ci t i ng Ci t y of

At ascader o v. Mer r i l l Lynch, Pi er ce, Fenner & Smi t h, I nc. , 68

Cal . App. 4t h 445, 481 ( 1998) ) ) . We have appl i ed t hi s common l aw

def i ni t i on t o t he phr ase act ual f r aud i n 523( a) ( 2) . 7 See

Br i t t on v. Pr i ce ( I n r e Br i t t on) , 950 F. 2d 602, 604 ( 9t h Ci r .

1991) ( empl oyi ng t he same f i ve- par t t est ) ; Tal l ant v. Kauf man ( I n

r e Tal l ant ) , 218 B. R. 58, 64 ( 9t h Ci r . BAP 1998) ( same) ; see al soI n r e Tr ej os, 352 B. R. at 255 ( I n det er mi ni ng t he appr opr i at e

7 Sect i on 523( a) ( 2) pr ovi des, i n r el evant par t :

( a) A di schar ge under sect i on 727, 1141, 1228( a) ,1228( b) , or 1328( b) of t hi s t i t l e does not di schar ge ani ndi vi dual debt or f r om any debt -

( 2) f or money, pr oper t y, ser vi ces, or an

ext ensi on, r enewal , or r ef i nanci ng of credi t , t ot he ext ent obt ai ned by -

( A) f al se pr et enses, a f al se r epr esent at i on,or act ual f r aud, ot her t han a st at ementr espect i ng t he debt or s or an i nsi der sf i nanci al condi t i on[ . ]

523( a) ( 2) ( A) .

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sense, i nvest i gat i on i nt o ways i n whi ch t he Bankr upt cy Code uses

t he same or si mi l ar wor ds i s appr opr i at e, especi al l y when t hat

usage comport s wi t h common usage. ( ci t i ng Rousey v. J acoway, 544

U. S. 320, 32627 ( 2005) ) ) .Thus, we hol d t hat , t o det er mi ne whet her a debtor

f r audul ent l y asser t ed an exempt i on cl ai m wi t hi n t he meani ng of

Rul e 4003( b) ( 2) , t he bankrupt cy cour t shoul d appl y t he usual

def i ni t i on of f r aud, except t he damages r equi r ement , whi ch has no

bear i ng on t he quest i on of exempt i ons.

The cour t must f i r st i dent i f y t he r el evant r epr esent at i on.

Whenever a debt or asser t s a cl ai m of exempt i on, t he debt or

i mpl i ci t l y r epr esent s t hat t he f act s suppor t t hat cl ai m. When a

debt or compl et es her schedul es, she si gns a decl ar at i on at t est i ng

t o t he accur acy of t he i nf or mat i on and expr essl y cer t i f i es under

t he penal t y of per j ur y that al l st at ement s cont ai ned t her ei n ar e

t r ue. See Sut er v. Goeder t , 396 B. R. 535, 541 ( D. Nev. 2008)

( St atement s made i n bankr upt cy schedul es ar e execut ed underpenal t y of per j ur y and, when of f er ed agai nst t he debt or , ar e

el i gi bl e f or t r eat ment as [ evi dent i ar y] admi ssi ons. ( quot i ng I n

r e Bohr er , 266 B. R. 200, 201 ( Bankr . C. D. Cal . 2001) ) ) . By

ext ensi on, t he debt or i s al so cer t i f yi ng t hat t he f act ual

pr edi cates t o each st atement are t r ue. For exampl e, when a

Cal i f or ni a debt or cl ai ms a homest ead exempt i on, she i mpl i ci t l y

at t est s t hat t he pr oper t y f or whi ch she i s cl ai mi ng an exempt i on

i s t he pr i nci pal dwel l i ng ( 1) i n whi ch t he j udgment debt or or

t he j udgment debt or s spouse r esi ded on t he date t he j udgment

credi t or s l i en at t ached t o t he dwel l i ng, and ( 2) i n whi ch t he

j udgment debtor or t he j udgment debtor s spouse r esi ded

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cont i nuousl y t her eaf t er unt i l t he dat e of t he cour t det er mi nat i on

t hat t he dwel l i ng i s a homest ead[ . ] See Cal . Ci v. Pr oc. Code

704. 710( c) . I n ot her wor ds, a debt or maki ng t hat cl ai m

r epr esent s t hat t he under l yi ng f act s suppor t t he cl ai m ofexempt i on, i ncl udi ng the f act s t hat t he al l eged homest ead was her

pr i nci pal dwel l i ng and t hat she r esi ded t her e at t he r el evant

t i mes.

I n or der t o est abl i sh t hat t he debt or f r audul ent l y asser t ed

t he exempt i on, t he obj ector must do more t han show t hat t he f act s

do not suppor t t he cl ai m of exempt i on. The obj ect or must al so

show t hat t he debt or knew, at t he t i me she cl ai med t he exempt i on,

t hat t he f act s di d not suppor t t hat cl ai m, and t hat she i nt ended

t o decei ve t he t r ust ee and cr edi t or s who r ead t he schedul es.

C. The bankruptcy court erred as a matter of law in construingRule 4003(b)(2).

The bankrupt cy cour t over r ul ed t he Tr ust ee s obj ect i ons t o

t he Debt or s homest ead exempt i on on t he basi s t hat ( 1) t he

Tr ust ee had been put on not i ce of possi bl e f r aud and f ai l ed t o

i nvest i gat e i n a t i mel y manner ; and ( 2) t he Debt or s l at er f al se

st at ement s and changi ng st or y r egar di ng her pl ace of r esi dence

di d not pr ove t hat she f r audul ent l y asser t ed t he exempt i on at the

time she claimed it. We concl ude t hat t he bankr upt cy cour t

mi si nt er pr et ed Rul e 4003( b) ( 2) .

1. The bankruptcy court erred by imposing a duty toinvestigate upon the Trustee.

Fi r st , t he bankrupt cy cour t f aul t ed t he Tr ust ee f or not

t aki ng st eps ear l i er t o i nqui r e i nt o t he Debt or s si t uat i on and

obj ect wi t hi n t he t hi r t y- day t i me per i od. We hol d t hat t he

bankrupt cy cour t er r ed i n i mposi ng a dut y t o i nvest i gat e on t he

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Tr ust ee. The quest i on under Rul e 4003( b) ( 2) i s whet her t he

debt or f r audul ent l y asser t ed t he exempt i on. As we expl ai n

above, t he word f r audul ent l y shoul d be gi ven i t s common l aw

meani ng. At common l aw ( and under 523( a) ( 2) ( A) , whi chi ncor por ates t he common l aw st andar d) , t he per pet r at or of an

al l eged f r aud cannot avoi d l i abi l i t y by showi ng t hat t he vi ct i m

coul d have uncover ed t he f r aud had t he vi ct i m i nvest i gat ed mor e

car ef ul l y. See Mer chant s Bank of Cal . v. Oh ( I n r e Oh) , 278 B. R.

844, 855 ( Bankr . C. D. Cal . 2002) ( A per son i s j ust i f i ed i n

r el yi ng upon a mi sr epr esent at i on even i f he mi ght have

ascer t ai ned t he f al si t y of t he i nf or mat i on t hr ough i nvest i gat i on.

Al t hough one cannot cl ose hi s eyes and r el y bl i ndl y, mer e

negl i gence i n f ai l i ng t o di scover an i nt ent i onal

mi sr epr esent at i on i s no def ense t o f r aud. ( ci t i ng Ci t i bank

( Sout h Dakot a) , N. A. v. Eashai ( I n r e Eashai ) , 87 F. 3d 1082,

109091 ( 9t h Ci r . 1996) ) ; see al so La Tr at t or i a, I nc. v. Lansf or d

( I n r e Lansf or d) , 822 F. 2d 902, 904 ( 9t h Ci r . 1987) ( Havi ngi nt ent i onal l y mi sl ed t he sel l er s i n an ar ea he knew was i mpor t ant

t o t hem, i t i s unseeml y f or Lansf or d now t o ar gue that he shoul d

be excused f r om sect i on 523 because t he sel l er s bel i eved hi m. ) ;

Sal ehsar i v. Aal am ( I n r e Aal am) , 538 B. R. 812, 822 ( Bankr . C. D.

Cal . 2015) ( a pl ai nt i f f does not have a dut y t o i nvest i gat e) .

For pur poses of f r aud, t he vi ct i m s behavi or i s onl y

r el evant t o t he i ssue of t he vi ct i m s rel i ance. The vi ct i m need

not show t hat he coul d not have di scover ed t he f r aud; r at her , he

must onl y show t hat he j ust i f i abl y r el i ed on t he per pet r at or s

f al se r epr esent at i ons.

Not hi ng i n Rul e 4003( b) ( 2) suggest s t hat t he dr af t er s

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i nt ended to i mpose a dut y on obj ect or s t o i nvest i gat e pr ompt l y.

I f anyt hi ng, t he l anguage of t he r ul e poi nt s i n t he opposi t e

di r ect i on: i f t he debt or f r audul ent l y cl ai med an exempt i on, t he

t r ust ee may obj ect at any t i me up t o t he cut of f dat e.I n t hi s case, t he Debt or asser t ed a cl ai m of exempt i on based

on f al se pr edi cat es and l at er cont i nued t o mi sl ead t he Tr ust ee

and t he cour t wi t h f ur t her f al se st at ement s. I t woul d be

i nappr opr i at e f or t he Debt or t o benef i t f r om t he f act t hat t he

Tr ust ee bel i eved her f al se st at ement s. Ther ef or e, we hol d t hat

t he bankrupt cy cour t er r ed when i t r ul ed t hat t he Tr ust ee f ai l ed

t o t i mel y i nvest i gat e t he Debt or s cl ai m of exempt i on.

The bankrupt cy cour t r el i ed heavi l y on I n r e J ames, 498 B. R.

813 ( Bankr . E. D. Tenn. 2013) , but we hol d t hat J ames i s

di st i ngui shabl e. I n J ames, t he cour t f ound, as a mat t er of f act ,

t hat no actual f r aud was commi t t ed by the debt or . I n r e J ames,

498 B. R. at 816. The cour t expr essed concern about t he debt or s

apparent overst atement of t he amount he was ent i t l ed t o exempt ,but f ound t hat t he si ngl e over st at ement of t he val ue of t he

cl ai med exempt i on [ does not r i se] t o t he l evel of a f r audul ent

asser t i on of an exempt i on. I d. at 823. I n t hi s case, t her e i s

evi dence whi ch coul d suppor t a f i ndi ng of f r audul ent asser t i on by

t he Debt or .

Tayl or v. Fr eel and & Kr onz, 503 U. S. 638, 643- 44 ( 1992) , i s

al so i napposi t e. That deci si on st ands f or t he pr oposi t i on t hat ,

i f a par t y i n i nt er est does not obj ect t o an exempt i on wi t hi n t he

t hi r t y- day t i me per i od i n Rul e 4003( b) ( 1) , i t cannot cont est t he

exempt i on, r egar dl ess as t o whet her t he debt or had a col or abl e

st at ut or y basi s f or cl ai mi ng t he exempt i on. Tayl or pr ovi des no

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gui dance because i t const r ued Rul e 4003( b) ( 1) , not Rul e

4003( b) ( 2) . I ndeed, t he Supr eme Cour t r ender ed i t s deci si on i n

1992, l ong bef ore Rul e 4003( b) ( 2) was pr omul gated.

Fur t her , t he Tayl or r ul e i s not as absol ut e as some mi ghtsuggest . I n t hi s ci r cui t , i f t he debt or makes a vague asser t i on

of an exempt i on, t he bankr upt cy cour t can determi ne t he ext ent t o

whi ch t he exempt i on cl ai m i s val i d, even af t er t he t hi r t y- day

deadl i ne has r un.

I n Hyman v. Pl ot ki n ( I n re Hyman) , 967 F. 2d 1316 ( 9t h Ci r .

1992) , t he debt ors cl ai med a homest ead exempt i on, but cont ended

t hat t hei r descr i pt i on of t he exempt i on as mer el y homest ead,

r ather t han homest ead exempt i on, i ndi cated t hat t hey were

cl ai mi ng as exempt t he ent i r e homest ead, r at her t han t he l i mi t ed

dol l ar amount al l owed by Cal i f or ni a l aw. The debt or s ar gued t hat

t he t r ust ee s f ai l ur e t o obj ect t i mel y t o t he cl ai m of exempt i on

r ender ed t he r eal pr oper t y f ul l y exempt . The Ni nt h Ci r cui t

di sagr eed, st at i ng t hat , because the debt or s schedul es wer evague and di d not i nf or m t he t r ust ee that t he debt or s wer e

cl ai mi ng an exempt i on on t he f ul l val ue of t he pr oper t y, t he

t r ust ee had no basi s f or obj ect i ng, and coul d wel l have suf f er ed

t he bankr upt cy j udge s i r e had he obj ect ed t o t he $45, 000

exempt i on t o whi ch t he Hymans wer e cl ear l y ent i t l ed. I n r e

Hyman, 967 F. 2d at 1319.

We f ol l owed Hyman i n Sl ates v. Reger ( I n r e Sl ates) , BAP No.

EC- 12- 1168- Ki DJ u, 2012 WL 5359489 ( 9t h Ci r . BAP Oct . 31, 2012)

( unpubl i shed di sposi t i on) . I n Sl at es, t he debt or cl ai med as

exempt possi bl e di sabi l i t y benef i t s. The debt or di d not

di scl ose a pendi ng admi ni st r at i ve pr oceedi ng and a l at er l awsui t

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concer ni ng t hose benef i t s. The t r ust ee f ound out about t he

act i on when t he f ormer empl oyer cont acted t he t r ust ee t o at t empt

a set t l ement . The t r ust ee moved f or appr oval of t he set t l ement

of t he bankrupt cy est at e s cl ai ms agai nst t he empl oyer and f ort he sal e of t he est at e s i nt er est i n t he l awsui t . The t r ust ee

argued t hat , because t he l awsui t had not been schedul ed or

exempt ed, or descr i bed i n any way t o gi ve t he t r ust ee not i ce of

t he cl ai ms, i t was pr oper t y of t he est at e. The bankrupt cy cour t

agr eed and ( 1) hel d t hat t he l awsui t was proper l y a par t of t he

est ate and not exempt ; and (2) appr oved t he set t l ement and sal e

of t he est at e s i nt er est . On appeal , t he debt or ar gued t hat t he

l awsui t was exempt because (1) he had l i st ed i t i n good f ai t h on

hi s Amended Schedul e C; ( 2) he had descr i bed i t suf f i ci ent l y to

put t he t r ust ee on not i ce; ( 3) t he t r ust ee had a dut y t o

i nvest i gat e t he mat t er and f ai l ed t o do so; and ( 4) t he t r ust ee

had f ai l ed t o obj ect t o t he exempt i on. I d. at *6. The Panel

not ed t he st r i ct st andar d set f or t h i n Tayl or . I d. at *7.However , i t st at ed t hat nei t her t hi s Panel nor t he Ni nt h Ci r cui t

has i nt er pr et ed Tayl or as hol di ng t hat f ai l ur e by the t r ust ee t o

obj ect t o a cl ai m of exempt i on wi l l al ways r esul t i n t he debt or

bei ng ent i t l ed t o a f ul l exempt i on i n t he subj ect pr oper t y. For

exampl e, t he pr opert y may not be exempt i f t he debt or s schedul es

ar e ambi guous. I d. at *8 ( ci t i ng I n r e Hyman, 967 F. 2d 1316) .

The Panel hel d t hat any ambi gui t y i n t he schedul es shoul d be

const r ued agai nst t he debt or and t hat t he debt or s schedul es wer e

not suf f i ci ent t o put t he t r ust ee on not i ce of t he l awsui t . I t

not ed t hat t he t r ust ee coul d have been mor e di l i gent i n hi s

i nvest i gat i on of t hi s case, but di sagr eed t hat t he t r ust ee

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shoul d be equi t abl y est opped f r om cl ai mi ng owner shi p of t he

l awsui t . I d. at *10. I t concl uded t hat , because t he t r ust ee was

not abl e t o det er mi ne f r om r eadi ng t he schedul es t hat t he debt or

was cl ai mi ng t he l awsui t as exempt , t he debt or f ai l ed t o asser t aval i d exempt i on, and t he t r ust ee was not r equi r ed t o obj ect t o i t

under Rul e 4003( b) . I d. at *11.

Sl ates and Hyman ar e not cont r ol l i ng, because t hey deal t

wi t h exempt i on cl ai ms t hat were merel y vague, as opposed t o

f r audul ent . But bot h cases ar e i nst r uct i ve i n t wo r espect s.

Fi r st , t hey r ej ected t he not i on t hat , under Tayl or , f ai l ur e by

t he t r ust ee t o obj ect t o a cl ai m of exempt i on wi l l al ways r esul t

i n t he debt or bei ng ent i t l ed t o a f ul l exempt i on i n t he subj ect

pr oper t y. I d. at *8. Rat her , t he Ni nt h Ci r cui t i n Hyman hel d

t hat any ambi gui t y i n a debt or s schedul es must be const r ued

agai nst her and may be t he basi s f or an obj ect i on out si de of t he

t hi r t y- day per i od. Second, t hey al so hel d t hat a t r ust ee i s

ent i t l ed t o r el y on, and need not i nvest i gat e, t he i nf or mat i ont he debt or chooses t o i ncl ude i n t he schedul es.

I n t hi s case, by cl ai mi ng a homest ead exempt i on i n the

Subj ect Proper t y and at t est i ng t o t he accur acy of t he i nf or mat i on

cont ai ned i n t he schedul es, t he Debt or i mpl i ci t l y repr esent ed

t hat she resi ded at t he Subj ect Pr oper t y and t hat i t was her

pr i nci pal dwel l i ng. Not hi ng i n t he schedul es suggest ed

ot her wi se. I n addi t i on, t he Debt or unequi vocal l y st at ed at t he

meet i ng of cr edi t or s t hat she r esi ded on t he Subj ect Pr oper t y.

Gi ven t hi s evi dence, t he t r ust ee had no basi s f or obj ect i ng, and

coul d wel l have suf f er ed t he bankrupt cy j udge s i r e had he

obj ect ed t o t he cl ai m of exempt i on. See I n r e Hyman, 967 F. 2d

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at 1319. The Tr ust ee t ook t he Debt or at her wor d and j ust i f i abl y

r el i ed on t he schedul es and her decl ar at i on as t o t hei r accur acy.

Thus, t he bankrupt cy cour t er r ed when i t hel d t hat t he

Tr ust ee was not ent i t l ed t o t he ext ended obj ect i on per i od becausehe f ai l ed t o i nvest i gat e ear l i er .

2. The bankruptcy court erred by discounting the Debtorssubsequent actions and statements as evidence of afraudulent assertion of a claim of exemption.

The bankrupt cy cour t deter mi ned t hat , whi l e t he Debt or s

st atement s r egardi ng her r esi dence may have been i naccur ate, and

possi bl y del i ber at el y so, i t coul d not concl ude t hat t he Debt or

f r audul ent l y asser t ed t he cl ai m of exempt i on. I t st at ed t hat t he

Debt or s pr i or f al se test i mony that she r esi ded at t he Subj ect

Pr oper t y was qui t e t r oubl i ng t o t hi s cour t [ , ] but does not

suppor t a concl usi on t hat t he debt or f r audul ent l y asser t ed t he

exempt i on at t he t i me i t was cl ai med.

We agr ee wi t h t he bankr upt cy cour t t hat , t o determi ne

whether t he debt or f r audul ent l y assert ed an exempt i on, one mustl ook to t he ci r cumst ances exi st i ng at t he t i me of t he asser t i on.

We do not agr ee, however , wi t h t he cour t s deci si on t hat a

debt or s l at er st at ement s cannot hel p t o est abl i sh t hat t he

debt or f r audul ent l y asser t ed t he cl ai m of exempt i on i n her

i ni t i al f i l i ngs.

I t i s har d t o i magi ne a case i n whi ch t he debt or s

schedul es, st andi ng al one, pr ove that t he debt or f r audul ent l y

asser t ed an exempt i on. To pr ove ( f or exampl e) t he debt or s

knowl edge of t he schedul es f al si t y and i nt ent t o decei ve, t he

obj ector wi l l al most cer t ai nl y have t o of f er ext r i nsi c evi dence.

I n an appr opr i at e case, t hi s ext r i nsi c evi dence may i ncl ude the

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debt or s subsequent st atement s and conduct .

The bankrupt cy cour t s deci si on i mpl i es t hat a debtor s

f al se test i mony af t er t he debt or f i l es t he schedul es cannot

est abl i sh that t he debt or s exempt i on cl ai ms wer e f r audul ent whenmade. But t hi s cannot be cor r ect . To choose t he most ext r eme

exampl e, suppose t hat t he debt or cl ai med an exempt i on, and l ater

admi t t ed her f r audul ent knowl edge and i nt ent . Such a st atement

woul d undoubt edl y be admi ss i bl e t o pr ove t hat t he exempt i on cl ai m

was f r audul ent l y assert ed, even t hough t he admi ss i on came af t er

t he i ni t i al assert i on.

Ther ef or e, we hol d t hat t he bankrupt cy cour t appl i ed an

i ncor r ect l egal st andar d when i t r ul ed t hat subsequent st at ement s

wer e not evi dence of a f r audul ent asser t i on of an exempt i on

cl ai m. Ther ef or e, we r emand t hi s case t o per mi t t he bankrupt cy

cour t t o appl y t he cor r ect l egal def i ni t i on of t he phr ase

f r audul ent l y asser t ed and t o consi der whet her t he evi dence

shows t hat t he Debt or f r audul ent l y asser t ed t he cl ai m ofexempt i on.

D. The Panel will not consider new evidence not in the recordbefore the bankruptcy court.

Fi nal l y, t he Tr ust ee r equest s t hat t he Panel consi der Mr .

Ensmi nger s decl ar at i on or r emand t hi s case t o the bankrupt cy

cour t f or consi der at i on of t he new evi dence t hat he cl ai ms was

not avai l abl e due to the medi cal i ssues of Mr . Ensmi nger at t he

t i me the Debt or f i r st br ought up t he ar gument of f ol l owi ng [ t he]

advi ce of Mr . Ensmi nger i n r egard t o t he homest ead

exempt i on . . . . The Debt or ar gues t hat t he Tr ust ee shoul d

have br ought a Ci vi l Rul e 60( b) r equest bef or e t he bankrupt cy

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cour t and t hat he has wai ved hi s r i ght t o seek admi ssi on of t he

decl ar at i on on appeal .

Except i n r ar e cases wher e t he i nt er est s of j ust i ce demand

i t , an appel l at e cour t wi l l not consi der evi dence not pr esent edt o t he t r i al cour t [ . ] Gr aves v. Myr vang ( I n r e Myr vang) , 232

F. 3d 1116, 1119 n. 1 ( 9t h Ci r . 2000) ( quot i ng Dakot a I ndus. , I nc.

v. Dakot a Spor t swear , I nc. , 988 F. 2d 61, 63 ( 8t h Ci r . 1993) ;

ci t i ng Ki r shner v. Uni den Cor p. of Am. , 842 F. 2d 1074, 1077 ( 9t h

Ci r . 1988) ) ; see 16A Char l es Al an Wr i ght & Ar t hur R. Mi l l er , Fed.

Pr ac. & Pr oc. 3956. 1 ( 4t h ed. ) ( [ A] s a gener al mat t er , t he

cour t of appeal s wi l l not consi der [ a] mat t er t hat i s not par t of

t he r ecor d on appeal . A l i t i gant who wi shes t hat newl y

di scover ed evi dence had been consi der ed by the di st r i ct cour t

shoul d i nvest i gat e t he possi bi l i t y of seeki ng r el i ef f r om t he

j udgment i n t he di st r i ct cour t . ) .

I n t he pr esent case, i t i s undi sput ed t hat t he Tr ust ee di d

not pr esent Mr . Ensmi nger s decl ar at i on t o t he bankrupt cy cour t ,as he obt ai ned t he decl ar at i on over t wo mont hs af t er he f i l ed hi s

not i ce of appeal . We do not t hi nk t hat t hi s case pr esent s such

except i onal ci r cumst ances as t o war r ant t he Panel s consi der at i on

of t hi s new evi dence i n t he i nt er est s of j ust i ce. The Tr ust ee

coul d have sought a cont i nuance of t he hear i ng on t he Renewed

Obj ect i on whi l e he at t empt ed to obt ai n Mr . Ensmi nger s

decl ar at i on; he coul d al so have moved under Ci vi l Rul e 60( b) ( 2)

or ( 3) t o have t he bankrupt cy cour t consi der t he new evi dence.

I n any event , t he Panel decl i nes t o consi der Mr . Ensmi nger s

decl ar at i on i n t he f i r st i nst ance on appeal . The bankrupt cy

cour t i s i n t he best posi t i on t o consi der al l of t he evi dence and

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make appr opr i at e f act ual f i ndi ngs. We t hus l eave i t t o t he

Tr ust ee t o present t he decl ar at i on or t est i mony of Mr . Ensmi nger

t o the bankr upt cy cour t i n t he appr opr i ate manner on r emand.

CONCLUSIONFor t he r easons set f or t h above, we VACATE t he bankr upt cy

cour t s or der s over r ul i ng t he Tr ust ee s obj ect i ons t o t he

Debt or s homest ead exempt i on and REMAND t hi s case t o t he

bankrupt cy cour t f or f ur t her pr oceedi ngs consi st ent wi t h our

r ul i ng.

Documents

In re: Rhonda Stijakovich-Santilli, 9th Cir. BAP (2015)