Leslie Gladstone v. US Bancorp

FOR PUBLICATION

UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT

LESLIE T. GLADSTONE, Chapter 7 No. 13-55773
Trustee,
Plaintiff-Appellee, D.C. No.
3:12-cv-00424-
v. CAB-BLM

U.S. BANCORP, a Delaware
corporation; U.S. BANK N.A., a OPINION
banking subsidiary; and COVENTRY
FIRST LLC, a Delaware limited
liability company;
Defendants-Appellants,

DAVID M. GREEN,
Debtor-In Re.

Appeal from the United States District Court
for the Southern District of California
Cathy Ann Bencivengo, District Judge, Presiding

Argued and Submitted
June 2, 2015—Pasadena, California

Filed January 8, 2016
2 GLADSTONE V. U.S. BANCORP

Before: Sidney R. Thomas, Chief Judge, Consuelo M.
Callahan, Circuit Judge and James K. Singleton,* Senior
District Judge.

Opinion by Chief Judge Thomas

SUMMARY**

Bankruptcy

The panel affirmed the district court’s reversal of the
bankruptcy court’s summary judgment in a chapter 7 trustee’s
adversary proceeding seeking to recover the market value of
life settlements under which the debtor’s unmatured term life
insurance policies were sold to defendants.

Defendants continued to pay the policy premiums and
collected the death benefits when the debtor died. The panel
held that the debtor’s interests in the insurance policies,
including the secondary market value of the policies and
resulting life settlements, constituted a recoverable “interest
of the debtor in property” pursuant to 11 U.S.C. § 548(a)(1).
The panel concluded that the debtor had a legal and equitable
interest in the property within the meaning of 11 U.S.C.
§ 541(a), and the property was not excluded from the estate
under § 541(b).

*
The Honorable James K. Singleton, Senior District Judge for the U.S.
District Court for the District of Alaska, sitting by designation.
**
This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
 GLADSTONE V. U.S. BANCORP 3

The panel held that the trustee’s avoidance action was not
time-barred under 11 U.S.C. § 546(a)(1) because the debtor’s
fraudulent concealment equitably tolled this statute of
limitations.

The panel also affirmed the district court’s conclusion
that the bankruptcy trustee should have been granted leave to
amend the complaint. The panel remanded the case for
further proceedings consistent with its opinion.

COUNSEL

Susan C. Stevenson (argued) and Jennifer E. Duty, Pyle Sims
Duncan & Stevenson, San Diego, California, for Defendants-
Appellants.

Sean C. Coughlin (argued), Financial Law Group, La Jolla,
California, for Plaintiff-Appellee.

Roland R. Peterson and Angela M. Allen, Jenner & Block,
LLP, Chicago, Illinois; Carl N. Wedoff, Jenner & Block,
LLP, New York, New York, for Amicus Curiae National
Association of Bankruptcy Trustees.

OPINION

THOMAS, Chief Judge:

In recent years, a substantial market has developed for the
purchase of unmatured term life insurance policies. In these
“viatical settlement” or “life” settlement” transactions, the
policyholder receives a lump-sum settlement greater than the
4 GLADSTONE V. U.S. BANCORP

cash surrender value of the policy, but less than the policy’s
death benefit. The purchaser continues to pay the policy
premiums, and collects the death benefit when the
policyholder dies. The purchaser then typically offers the life
insurance benefit of the policy to potential investors. See
Huskey v. Tolman (In re Tolman), 491 B.R. 138, 144 (Bankr.
D. Idaho 2013).

Viatical settlements often occur when the policyholder is
terminally ill and needs funds to pay for end-of-life care or
under other circumstances when the policyholder needs
“present cash more than the security of a death benefit.”
Tolman, 491 B.R. at 144; see also Life Partners, Inc. v.
Morrison, 484 F.3d 284, 287 (4th Cir. 2007). In this case, the
purchasers paid approximately $507,000 for life settlements
with the debtor and received $9,000,000 in death benefits
when he died shortly thereafter.

The bankruptcy trustee filed an adversary proceeding to
recover the market value of the life settlements. The question
presented in this case is whether the debtor’s interests in the
term life insurance policies, including the secondary market
value of the policies and resulting life settlements, constitute
a recoverable “interest of the debtor in property” pursuant to
11 U.S.C. § 548(a)(1). We conclude that they do, and we
affirm the judgment of the district court.

I

Facing financial difficulties, David Green filed a
voluntary Chapter 7 bankruptcy petition on September 12,
2007. Leslie Gladstone (the “Trustee”) was appointed
Chapter 7 trustee of the bankruptcy estate (the “Estate”).
 GLADSTONE V. U.S. BANCORP 5

David Green died on February 22, 2008, about five months
after filing his Chapter 7 petition.

David Green failed to disclose a number of assets when
he filed his Chapter 7 petition. This appeal concerns three
undisclosed life settlements executed between David Green
and Coventry First, LLC (collectively with U.S. Bancorp and
U.S. Bank National Association, “Defendants”), which the
Trustee seeks to avoid and recover as fraudulent transfers.

In the months preceding the filing of his Chapter 7
petition, David Green took steps to transfer ownership of the
three policies to consummate the life settlements. David
Green did not disclose any of the life settlements on the
Statement of Financial Affairs he submitted with his Chapter
7 petition. Nor did he disclose the life settlements at his
§ 341 First Meeting of Creditors, when he was questioned
under oath by the Trustee. The life settlements were
negotiated in two sets of transactions, which were brokered
by Robert Hamzey, a friend of the Greens.

The first set of transactions involved two Transamerica
policies. Policy 3530 was issued to insure the life of David
Green for his own benefit, with a face value of $2,000,000.
Policy 4528 was issued to insure the life of David Green for
his own benefit, with a face value of $4,000,000. David
Green transferred the beneficial interest in the Transamerica
policies to his wife, Eileen Green. Eileen Green subsequently
signed a life settlement agreement to sell Policy 3530 for
$5,000 and Policy 4528 for $188,000 to the Defendants. She
received $193,000 from the Defendants about one month
before David Green filed his bankruptcy petition. After his
death five months later, Defendants received $6,000,000, the
face value death benefits for the Transamerica policies.
6 GLADSTONE V. U.S. BANCORP

The second set of transactions involved what became
Protective Policy 3280. That policy was issued to insure the
life of David Green for the benefit of Eileen Green, with a
face value of $3,000,000. A month before filing bankruptcy,
David and Eileen Green signed a life settlement agreement to
convert the term life policy to a universal policy and sell it to
Defendants for $280,000 plus $34,776.66 in premium
reimbursements. Eileen Green transferred the beneficial
interest of Protective 3280 to Defendants shortly before the
bankruptcy. However, Protective did not transfer the policy
to the Defendants until after the bankruptcy was filed,
whereupon Eileen Green was paid $314,776.66 per the life
settlement agreement. After David Green’s death,
Defendants received the $3,000,000 proceeds from the policy.

In sum, Defendants paid approximately $507,000 for the
life settlements and received $9,000,000 in death benefits
when Green died a few months after the viatical settlement
transactions. The following chart summarizes the three
policies and life settlements at issue:

Face Premium
Policy Value Settlement Reimbursement

Transamerica 3530 $2,000,000 $5,000 none

Transamerica 4528 $4,000,000 $188,000 none

Protective 3280 $3,000,000 $280,000 $34,776.66

In addition to the life settlements at issue in this appeal,
other assets connected to the Estate changed hands in the
weeks and months leading up to David Green’s bankruptcy
filing. These assets include two other life insurance policies,
a condominium, and a mortgage note owned by the Greens.
None of the life settlements with Defendants and none of the
 GLADSTONE V. U.S. BANCORP 7

foregoing other assets and transfers were disclosed when
David Green filed his Chapter 7 petition on September 12,
2007, nor were they disclosed on his Section 341(a)
questionnaire, or at the Section 341(a) meeting of creditors.
These transactions frustrated the Trustee’s task to assemble
the bankruptcy estate.

The Trustee learned of David Green’s death a few weeks
after he died. Over a year later, by coincidence alone, she
found out about David Green’s undisclosed other assets and
transfers at a Section 341 meeting in another bankruptcy
proceeding to which she was appointed. Based on that
information, and after Eileen Green and Hamzey declined to
cooperate with her investigation that followed, the Trustee
sought and received approval to conduct examinations of and
document production by Eileen Green and Hamzey pursuant
to Federal Rule of Bankruptcy Procedure 2004. At Hamzey’s
Rule 2004 examination, the Trustee gathered more
information about other assets and transfers not at issue in
this appeal. With this information in hand, the Trustee filed
an initial adversary complaint seeking recovery and
avoidance of the other assets and transfers and an emergency
motion for extension of the statute of limitations. The
bankruptcy court granted the motion, and the statute of
limitations was extended to December 11, 2009.

On August 9, 2010, David Green’s stepson Frank Ray
called the Trustee’s attorney and told him about the life
settlements at issue in this appeal. The next day, Ray
delivered copies of the relevant purchase agreements that
documented the two life settlement transactions. Based on
this information and documents subpoenaed from the
Defendants, the Trustee filed the first amended complaint,
8 GLADSTONE V. U.S. BANCORP

which sought to avoid the transfer of the Transamerica and
Protective life insurance policies to Defendants.

The Trustee pursued the adversary proceeding against
Defendants in the months that followed, but was met with
requests to postpone depositions and other discovery until
after a hearing on Defendants’ anticipated motion for
summary judgment. The Trustee eventually received
interrogatory answers and moved the bankruptcy court for
leave to file a second amended complaint because discovery
showed that the Protective 3280 life settlement did not
become effective until after the bankruptcy was filed and to
make further allegations about the pre-petition transfers.

The bankruptcy court granted Defendants’ motion for
summary judgment and denied the Trustee’s motion for leave
to file the second amended complaint in a minute order. The
bankruptcy court did not issue findings of fact and
conclusions of law or otherwise state grounds upon which the
motions were adjudicated.

The Trustee appealed the judgment of dismissal to the
district court. The district court reversed the judgment
entered by the bankruptcy court and reversed the bankruptcy
court’s order denying the Trustee leave to file the second
amended complaint. This timely appeal followed.

II

The district court heard the initial appeal pursuant to
28 U.S.C. § 158(a) (2012). We have jurisdiction to review
the district court’s order pursuant to 28 U.S.C. § 158(d)(1).
“The role of the district court and this court are basically the
same in the bankruptcy appellate process. Therefore, we
 GLADSTONE V. U.S. BANCORP 9

review the bankruptcy court decision directly. We review the
bankruptcy court’s findings of fact for clear error, and its
conclusions of law de novo.” Microsoft Corp. v. DAK Indus.,
Inc. (In re DAK Indus., Inc.), 66 F.3d 1091, 1094 (9th Cir.
1995) (citations omitted). In conducting de novo review of
the bankruptcy court’s grant of summary judgment, we “must
view the evidence in the light most favorable to the
non-moving party and ‘determine whether there are any
genuine issues of material fact and whether the bankruptcy
court correctly applied the substantive law.’” Caneva v. Sun
Cmtys. Operating Ltd. P’ship (In re Caneva), 550 F.3d 755,
760 (9th Cir. 2008) (quoting Parker v. Cmty. First Bank (In
re Bakersfield Westar Ambulance, Inc.), 123 F.3d 1243, 1245
(9th Cir. 1997)).

III

As we have noted, the question presented in this case is
whether the debtor’s interests in the term life insurance
policies, including the secondary market value of the policies
and resulting life settlements, constitute a recoverable
“interest of the debtor in property” pursuant to 11 U.S.C.
§ 548(a)(1). The district court correctly held that they were.

A

In determining the scope of an “interest of the debtor in
property” under § 548, we begin with the statutory language
of the Bankruptcy Code, employing the usual tools of
statutory construction. We look first at the plain language,
examining “not only the specific provision at issue, but also
the structure of the statute as a whole, including its object and
policy.” Hawkins v. Franchise Tax Bd. of Cal., 769 F.3d 662,
666 (9th Cir. 2014) (quoting Children’s Hosp. & Health Ctr.
10 GLADSTONE V. U.S. BANCORP

v. Belshe, 188 F.3d 1090, 1096 (9th Cir. 1999)). If the
statutory language is unambiguous, our inquiry is at an end.
Id. If the language is ambiguous, then we examine legislative
history, and “also look to similar provisions within the statute
as a whole and the language of related or similar statutes to
aid in interpretation.” Id. (quoting United States v. LKAV,
712 F.3d 436, 440 (9th Cir. 2013)).

The Bankruptcy Code does not define “an interest of the
debtor in property.” However, we have guidance from the
Supreme Court as to its meaning. The Court has explained
that the phrase “is best understood as that property that would
have been part of the estate had it not been transferred before
the commencement of bankruptcy proceedings.” Begier v.
I.R.S. 496 U.S. 53, 58 (1990). Therefore, the interest must be
analyzed under § 541, which defines the property of the
estate. Id. at 58–59; see also Taylor Assocs. v. Diamant (In
re Advent Mgmt. Corp.), 104 F.3d 293, 295 (9th Cir. 1997)
(confirming that “an interest of the debtor in property” under
§ 547 and § 548 is determined by whether the interest would
have been “property of the estate” under § 541).

Under the Bankruptcy Code, the filing of a bankruptcy
petition creates a bankruptcy estate. § 541(a). With certain
exceptions, the estate is comprised of the debtor’s legal or
equitable interests in property “wherever located and by
whomever held.” Id. As the Supreme Court has noted,
“Congress intended a broad range of property to be included
in the estate.” United States v. Whiting Pools, Inc., 462 U.S.
198, 204 (1983); see also Chappel v. Proctor (In re Chappel),
189 B.R. 489, 493 ( B.A.P. 9th Cir. 1995) (“The legislative
history of the Bankruptcy Code reveals that the concept of
property of the estate is to be interpreted broadly.”).
 GLADSTONE V. U.S. BANCORP 11

Indeed, the legislative history indicates that § 541(a)
would “bring anything of value that the debtors have into the
estate.” H.R. Rep. 95-595 (1977), at 176, reprinted in 1978
U.S.C.C.A.N. 5787, 5963, 6136. The scope of § 541(a) of the
Bankruptcy Code is much greater than that of the prior
Bankruptcy Act of 1898. Coben v. Lebrun (In re Golden
Plan of Cal., Inc.), 37 B.R. 167, 169 (Bankr. E.D. Cal. 1984).

The debtor held the ownership title to the life insurance
policies prior to their transfer. “[P]roperty of the estate”
includes all property in which the debtor has legal title except
“to the extent of an equitable interest in such property that the
debtor does not hold.” In re Advent Mgmt. Corp., 104 F.3d
at 295. As indicated by the life settlements in this case, the
term life insurance policies owned by the debtor had market
value to the debtor independent of the death benefit or
equitable beneficial interest. Therefore, because all of the
debtor’s legal and equitable interests became part of the
bankruptcy estate when the case was commenced, his interest
in the term life insurance policies and the life settlements
would have been part of the bankruptcy estate under § 541(a)
if he had not transferred them. Accordingly, the life
insurance policies constitute “an interest of the debtor in
property” within the meaning of § 548, except to the extent
that a third party had a beneficial or equitable interest.

B

Two sections of the Bankruptcy Code allow a debtor to
retain assets that would otherwise form part of the bankruptcy
estate under § 541(a) and be subject to creditors’ claims:
§ 541(b) and § 522. Section 541(b) identifies certain types of
property that are expressly excluded from the bankruptcy
12 GLADSTONE V. U.S. BANCORP

estate from the outset. Section 522 provides an avenue for
the debtor to exempt certain property from the estate.

In short, all equitable and legal interests that the debtor
has when the bankruptcy petition is filed become property of
the estate, unless excluded by statute or properly exempted by
the debtor. If no exclusion or exemption applies, or if the
debtor has failed to claim qualifying property as exempt, then
the debtor’s interest in the property remains property of the
bankruptcy estate. Therefore, the property falls within the
reach of § 541(a), unless excluded by § 541(b) or properly
exempted under § 522.

1

The district court properly concluded that the life
settlements at issue were not excluded from the estate under
§ 541(b). In contrast to the broad scope of § 541(a), § 541(b)
sets forth “narrow exceptions to the interests of the debtor
which are not considered as property of the estate.”
Southtrust Bank of Ala., N.A. v. Thomas (In re Thomas),
883 F.2d 991, 995 (11th Cir. 1989). Neither life insurance
policies, nor viatical settlements are listed among the
§ 541(b) exclusions. Therefore, under its plain terms, they
are not excluded from becoming property of the bankruptcy
estate pursuant to § 541(b). Wallace v. Crawford (In re
Meyers), 483 B.R. 89, 98 (Bankr. W.D.N.C. 2012).

Defendants argue that life insurance policies and life
settlements are excluded from the bankruptcy estate by a
judicially created exclusion. Based on a line of authority
tracing to Supreme Court decisions interpreting the
Bankruptcy Act of 1898, Defendants contend that the Estate’s
interest is limited to the cash surrender value of the life
 GLADSTONE V. U.S. BANCORP 13

insurance policies. The policies at issue have no cash
surrender value, so if Defendants are correct, the Trustee’s
avoidance action fails as a matter of law.

However, Defendants’ argument is premised on a
provision of the Bankruptcy Act of 1898, which was
abrogated by the adoption of the Bankruptcy Code in 1978.
Section 70(a) of the Bankruptcy Act of 1898 specified, in
relevant part:

That when any bankrupt shall have any
insurance policy, which has a cash surrender
value payable to himself, his estate, or
personal representatives, he may, within thirty
days after the cash surrender value has been
ascertained and stated to the trustee by the
company issuing the same, pay or secure to
the trustee the sum so ascertained and stated,
and continue to hold, own, and carry such
policy free from the claims of the creditors
participating in the distribution of his estate
under the bankruptcy proceedings; otherwise
the policy shall pass to the trustee as assets[.]

This section’s purpose was “construed . . . to vest the
surrender value in the trustee for the benefit of the creditors,
and not otherwise to limit the bankrupt in dealing with his
policy.” Burlingham v. Crouse, 228 U.S. 459, 473 (1913);
see also In re Holden, 114 F. 650, 652 (9th Cir. 1902).
Defendants argue that this authority implies that life
settlements are excluded from a bankruptcy estate.

Burlingham, Holden, and their progeny, including Lekas
v. Mann (In re Lekas), 299 B.R. 597, 602 (Bankr. D. Ariz.
14 GLADSTONE V. U.S. BANCORP

2003), do not state the rule defining the scope of a bankruptcy
estate under the Bankruptcy Code, which supplanted the
Bankruptcy Act of 1898. Rather, Burlingham interprets a
section of the Bankruptcy Act of 1898, which is no longer in
force. Because Green’s bankruptcy was filed after October
1, 1979, the Bankruptcy Code applies, not the prior
Bankruptcy Act of 1898. See Washburn & Roberts, Inc. v.
Park East (In re Washburn & Roberts, Inc.), 795 F.2d 870,
873 (9th Cir. 1986) (“Congress provided that in any
bankruptcy case commenced after October 1, 1979, the old
Bankruptcy Act of 1898 would not apply.”). The Court’s
construction of § 70(a) in Burlingham was accordingly
abrogated by statute when the Bankruptcy Reform Act of
1978 was enacted.

Indeed, Congress specifically eliminated the prior section
70(a) in adopting the § 541(b) exclusions. See Bankruptcy
Reform Act of 1978, Pub. L. No. 95-598, § 541, 92 Stat. 2549
(1978). Congress was well aware of not only the prior
statutory provision, but the case law interpreting it. In Re
Myers, 483 B.R. at 98. Because the prior exclusion was not
included among the exclusions listed in § 541(b) when the
Bankruptcy Code was enacted, “the canon expressio unius est
exclusio alterius . . . has force” as “the items expressed are
members of an ‘associated group or series,’ justifying the
inference that items not mentioned were excluded by
deliberate choice, not inadvertence.” Barnhart v. Peabody
Coal Co., 537 U.S. 149, 168 (2003) (quoting United States v.
Vonn, 535 U.S. 55, 65 (2002)). The legislative history of the
Bankruptcy Reform Act of 1978 demonstrates that Congress
considered the definition of estate property presented in
§ 70(a) of the Bankruptcy Act of 1898. See H.R. Rep. No.
95-595, at 367 (1977), reprinted in 1978 U.S.C.C.A.N. 5963,
6323–24. Therefore, “it is fair to suppose that Congress
 GLADSTONE V. U.S. BANCORP 15

considered the unnamed possibility and meant to say no to
it.” Barnhart, 537 U.S. at 168.1

The structure of the Bankruptcy Code buttresses our
conclusion. In dealing with the issue of life insurance,
Congress chose not to exclude it from the estate under
§ 541(b), but to provide an elective exemption under § 522,
which provided an exemption for “[a]ny unmatured life
insurance contract owned by the debtor, other than a credit
life insurance contract.” 11 U.S.C. § 522(d)(7).

Even if it were not inapposite due to statutory abrogation,
Burlingham and its progeny are not on point with the facts of
David Green’s bankruptcy. The district court correctly
observed that Burlingham is not controlling because the Court
did not “specifically address the possibility of the policies
being sold on the secondary market[.]” This century-old
decision cannot be fairly read to state binding precedent as to
the treatment of life settlements by a bankruptcy trustee, as

1
This conclusion dispatches Defendants’ argument that Green’s trustee
lacked power to change the beneficiary named in Green’s policies after he
filed for bankruptcy. Defendants support that argument with decisions
interpreting the Bankruptcy Act of 1898 and associated jurisprudence. See
In re Herrell, 210 B.R. 386, 390 (Bankr. N.D. Fla. 1997); Lekas, 299 B.R.
597, 603 (Bankr. D. Ariz. 2003). Because we hold that the 1978 Act
expanded a Trustee’s interest in the life insurance policy of a debtor, we
find unpersuasive those holdings that predicate a Trustee’s power to
change beneficiaries on surrender values. See Lekas, 299 B.R. at 602
(citing, inter alia, Herrell, 210 B.R. at 390); see also Meyers, 483 B.R. at
103 (“I therefore respectfully disagree with Herrell’s conclusion about
these Act decisions construing Section 70a(5). They, like Section 70a(5),
have been superseded by the Bankruptcy Code.”). Each policy in this case
empowered Green to change the policy’s beneficiary. As a result, and for
reasons provided above, that power passed to the Trustee upon the filing
of Green’s petition. § 541(a)(1).
16 GLADSTONE V. U.S. BANCORP

the secondary market for life insurance policies and the life
settlement industry developed only in the last 30 years. In
fact, shortly after it decided Burlingham, the Court in Cohen
presciently recognized that a rule categorically excluding a
life insurance policy from a bankruptcy estate would make
the policies a vehicle for subterfuge. Cohen v. Samuels,
245 U.S. 50, 53 (1917) (“[T]o hold that there was nothing of
property to vest in a trustee would be to make an insurance
policy a shelter for valuable assets and, it might be, a refuge
for fraud.”).

For all these reasons, the district court correctly
concluded that the debtor’s interests in life insurance policies
and life settlements were not excluded from the property of
the bankruptcy estate pursuant to § 541(b).2

2

The second method by which property may be removed
from the bankruptcy estate is by exemption under § 522. In
contrast to the operation of the prior Bankruptcy Act of 1898,
the property of the estate created at the commencement of a
case under the Bankruptcy Code includes even exempt
property. Taylor v. Freeland & Kronz, 503 U.S. 638, 642
(1992). However, the debtor may exempt certain property
from the bankruptcy estate by taking affirmative steps to
claim the property as exempt under § 522. Id.; see also

2
Defendants also suggest that § 541(d) is a basis to exclude the policies
from the bankruptcy estate. This claim is easily dispatched because that
section of the Bankruptcy Code “was adopted by Congress to address
bona fide secondary mortgage market transactions,” Chbat v. Tleel (In re
Tleel), 876 F.2d 769, 773 (9th Cir. 1989), and is therefore plainly
inapposite.
 GLADSTONE V. U.S. BANCORP 17

Woodson v. Fireman’s Fund Ins. Co. (In re Woodson),
839 F.2d 610, 616 n.8 (9th Cir. 1988).

Section 522(d) enumerates federal exemptions available
to the debtor. However, under § 522(b)(2), “[t]his exemption
scheme can be supplanted by states that choose to provide
their own menu of exemptions.” Orange Cnty.’s Credit
Union v. Garcia (In re Garcia), 709 F.3d 861, 864 (9th Cir.
2013). California has elected to opt-out of the federal
exemptions, so California state law exemptions apply. Id.;
see also Cal. Code Civ. Proc. § 703.130.

The Defendants claim, in the alternative to their § 541(b)
argument, that the life insurance settlements are exempt under
§ 522 because California has opted out of the federal
exemption schedule, and California provides an exemption
pursuant to Cal. Code Civ. Proc. § 704.100.

This proposition is dubious, at best.3 However, it is
unnecessary for us to reach the merits of it for three
independent reasons: the debtor did not claim the property as
exempt; the Defendants lack standing to raise the argument;
and the Defendants failed to present the argument to the
district court.

First, the debtor did not claim the settlements or insurance
policies as exempt within the required period. Section 522(l)
requires the debtor to file a list of property to be claimed as
exempt. Federal Rule of Bankruptcy Procedure 4003(a)

3
Cal. Code Civ. Proc. § 704.100(a) provides that unmatured life
insurance policies are exempt without making a claim. However, it
specifically excludes the policy loan value, which represents the
policyholder's equitable interest.
18 GLADSTONE V. U.S. BANCORP

requires the debtor to list exempt property on the schedule of
assets, and Rule 1007(c) requires the debtor to file the
schedule with the voluntary bankruptcy petition. A debtor
may, pursuant to Rule 1009(a), seek to amend an exemption
claim before the case is closed. The debtor did not claim the
property as exempt within the period specified by the Rules
and did not seek to amend the schedules. In short, there is no
exemption claim pending as to the relevant assets.

Second, the Defendants lack standing to raise this issue.
“[A]n exemption is provided only for the benefit of the
debtor,” Fox v. Smoker (In re Noblit), 72 F.3d 757, 758 (9th
Cir. 1995). “If the exempt property is transferred, the debtor
has in essence waived the exemption, and the transferee
cannot avail herself of the exemption in a subsequent
avoidance action.” Id. Here, David Green waived his
exemption when he shifted the beneficial interest of his
insurance policies to Defendants, via his wife. Defendants,
removed third parties, lack standing to now claim his
exemption as a defense to the Trustee’s avoidance action. Id.
at 758–59.

Third, the Defendants did not present this argument either
to the bankruptcy or district courts. We decline to exercise
our discretion to consider arguments raised for the first time
on appeal. See Robinson v. Jewell, 790 F.3d 910, 915 (9th
Cir. 2015).

Therefore, without reaching the merits and unnecessarily
opining on an issue of state law, we reject Defendants’
argument that the property is exempt under § 522.
 GLADSTONE V. U.S. BANCORP 19

C

Because the debtor had a legal and equitable interest in
the property at issue within the meaning of § 541(a), the
property was not excluded from the estate under § 541(b),
and the property was not the subject of a proper exemption in
this case, we agree with the district court that it constituted
“an interest of the debtor in property” within the meaning of
§ 548.

IV

The district court also properly held that the Trustee’s
avoidance action was not time-barred because the debtor’s
fraudulent concealment equitably tolled the statute of
limitations from commencing. The trustee’s avoidance action
was subject to the two-year limitations period in
§ 546(a)(1)(A). The statute of limitations in § 546(a)(1) may
be subject to equitable tolling. Ernst & Young v. Matsumoto
(In re United Ins. Mgmt., Inc.), 14 F.3d 1380, 1387 (9th Cir.
1994). “Under the equitable tolling doctrine, where a party
‘remains in ignorance of [a wrong] without any fault or want
of diligence or care on his part, the bar of the statute does not
begin to run until the fraud is discovered, though there be no
special circumstances or efforts on the part of the party
committing the fraud to conceal it from the knowledge of the
other party.’” Id. at 1384 (brackets in original) (quoting
Lampf, Pleva, Lipkind, Prupis & Petigrow v. Gilbertson,
501 U.S. 350, 363 (1991)).

There is no serious dispute that David Green or his agents
took steps to conceal the life settlement transactions with
Defendants by transferring the beneficial interest in the
policies to his wife before the sale to Defendants was
20 GLADSTONE V. U.S. BANCORP

completed. Nor is there any serious dispute that other assets
of the estate were concealed. The record shows that the
trustee diligently pursued collection of assets, but was
prevented from discovering the existence of the life
settlement transactions because of the debtor’s actions to
conceal them. The district court properly concluded, based
on the undisputed facts, that application of equitable tolling
was appropriate.

Defendants argue that equitable tolling is inapplicable
because they are innocent third parties who did not
intentionally conceal facts from the Trustee. This argument
is foreclosed by In re Olsen, in which we applied equitable
tolling to cut off a third party’s limitations claim where the
debtors—not the third party—concealed a conveyance from
the Trustee. Olsen v. Zerbetz (In re Olsen), 36 F.3d 71,
72–73 (9th Cir. 1994); see also Holmberg v. Armbrecht,
327 U.S. 392, 396 (1946) (“Equity will not lend itself to . . .
fraud [that prevents the plaintiff from being diligent] and
historically has relieved from it.”).

Furthermore, the record shows that the Defendants
necessarily knew that the debtor had transferred the beneficial
interests in the life insurance policy to his wife. It further
shows that the Trustee went to great lengths to discover the
multiple undisclosed life insurance policies held by the
debtor, and that many of the delays documented in the record
were due to the Defendants’ requests or the actions of
Defendants’ counsel.

Under the principles established in Lampf, 501 U.S. at
363, the statute of limitations was tolled until the fraudulent
transfers were revealed to the Trustee’s attorney by David
Green’s stepson on August 10, 2010. The first amended
 GLADSTONE V. U.S. BANCORP 21

complaint, filed on February 1, 2011, was therefore filed
within the two-year § 546(a)(1)(A) limitations period.

V

Finally, the district court correctly concluded that the
bankruptcy court should have granted the Trustee leave to
amend her avoidance action. The Trustee sought to add
allegations regarding the post-petition transfer of the
Protective policy and to allege that the policies were
transferred directly by David Green to Defendants in April
2007. The bankruptcy court denied leave to amend but
provided no reasons for the denial. We “strictly review[]” the
bankruptcy court’s denial of leave to amend “in light of the
strong policy permitting amendment.” Plumeau v. Sch. Dist.
No. 40 Cnty. of Yamhill, 130 F.3d 432, 439 (9th Cir. 1997)
(internal quotation omitted).

The Trustee sought leave to amend because she
discovered new evidence: an executed copy of the Protective
beneficiary transfer form. Defendants did not initially
produce that form in response to the Trustee’s subpoena.
Any delay associated with the Trustee’s motion therefore
stems in part from Defendants.

Amendment under these circumstances would not have
been futile. The Protective form supports the Trustee’s § 549
avoidance claim. Taken with the policy favoring amendment,
these factors outweigh the fact that the Trustee previously
amended the complaint. Cf. Allen v. City of Beverly Hills,
911 F.2d 367, 373 (9th Cir. 1990). The district court properly
held that the Trustee should have been granted leave to
amend.
22 GLADSTONE V. U.S. BANCORP

VI

The district court properly concluded that summary
judgment was not appropriate, and that the Trustee should
have been granted leave to amend. We affirm the district
court and remand for further proceedings consistent with this
opinion. We need not, and do not, reach any other issues
urged by the parties.

AFFIRMED.