NOT FOR PUBLICATION
FILED
NOV 05 2018
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. WW-18-1125-KuTaB
JOHN SULLIVAN GOOD and JANICE Bk. No. 2:16-bk-15265-MLB
BRODER GOOD,
Debtors.
MICHAEL P. KLEIN, Chapter 7 Trustee, MEMORANDUM*
Appellant,
v.
JOHN SULLIVAN GOOD; JANICE
BRODER GOOD,
Appellees.
Argued and Submitted on October 25, 2018
at Seattle, Washington
Filed – November 5, 2018
*
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.
Appeal from the United States Bankruptcy Court
for the Western District of Washington
Honorable Marc L. Barreca, Bankruptcy Judge, Presiding
Appearances: Appellant Michael P. Klein, chapter 7 trustee, argued pro
se; Ken Schneider, Law Office of Ken Schneider, P.S.,
argued for appellees John and Janice Good.
Before: KURTZ, TAYLOR, and BRAND, Bankruptcy Judges.
Chapter 71 trustee, Michael P. Klein (Trustee), appeals from the
bankruptcy court's order denying his objection to the homestead
exemption of debtors John and Janice Good (Debtors) and denying without
prejudice Trustee's motion for sanctions. We AFFIRM.
FACTS
Debtors filed a chapter 13 petition in October 2016. In Schedule C,
Debtors claimed a homestead exemption of $125,000.00 in residential
property located at 207th Avenue SE, Monroe, Washington (Property)2
under Wash. Rev. Code §§ 6.13.010, 6.13.020, 6.13.030. No party objected to
1
Unless specified otherwise, all chapter and section references are to the
Bankruptcy Code, 11 U.S.C. §§ 101-1532, all “Rule” references are to the Federal Rules
of Bankruptcy Procedure, and all “Civil Rule” references are to the Federal Rules of
Civil Procedure.
2
In Schedule C, Debtors showed the Property as being located in Snohomish,
Washington instead of Monroe, Washington.
2
their homestead exemption. The bankruptcy court confirmed Debtors' plan
on February 17, 2017.
A few months later, Debtors filed an ex parte motion to convert their
case to one under chapter 7, which the bankruptcy court granted on
June 15, 2017. On the same date, the clerk of the bankruptcy court issued an
Order to File Post-Conversion Schedules (Order). Consistent with local rule
(BLR) 1007-1(b), it required Debtors to file amended schedules, statements,
and documents or a declaration under penalty of perjury that there had
been no change in the schedules, statements, and documents. The Order
stated: "Debtors shall filed by: _____ [amended schedules, etc.]." Thus,
although the form contemplated and allowed for inclusion of a deadline,
the order did not include one. And BLR 1007-1(b) does not resolve the
deadline ambiguity; it requires action but does not establish a deadline.
Appellant was appointed the chapter 7 trustee.
In early July 2017, Debtors filed amended schedules but neither
included an amended Schedule C nor filed a declaration of no change to
their declared exemptions.
On July 11, 2017, Trustee conducted a meeting of creditors. Debtors
testified that they had not lived in the Property since April 2017. In
response, Trustee stated "So then you can't have a homestead if you're not
living there." Debtors' attorney responded: "If [Trustee] sells the property
and gets money out of it, you can't exempt that. That would go to
3
creditors." Mr. Good replied: "It is what it is." Debtors informed Trustee
that they were surrendering the Property and would not be claiming a
homestead exemption. They also promised to file an amended Schedule C
to reflect the change in circumstances. Trustee concluded the meeting of
creditors on July 12, 2017.
Thereafter, Trustee employed a realtor, actively marketed the
Property, accepted an offer, and sought approval of sale of the Property.
Debtors, through new counsel, filed a response and objected to the sale
based on, among other things, alleged entitlement to a homestead
exemption as indicated on the Schedule C filed in the chapter 13 case. The
bankruptcy court continued the sale hearing to allow the parties to
supplement the record and for Trustee to make additional motions.
Trustee responded with an objection to Debtors' homestead
exemption and moved for sanctions. Trustee argued that Debtors
(1) testified under oath at the meeting of creditors that they were not
residing in the home and had not resided there since April 2017; (2) told
Trustee to have a realtor look at the Property; (3) understood that they
could not have a homestead if they were not living at the Property;
(4) stated that they were surrendering the Property; (5) acknowledged that
they could not exempt the proceeds if Trustee sold the Property; and
(6) stated that they would amend Schedule C to reflect that they were no
longer claiming the homestead exemption. Trustee maintained that
4
Debtors' claim to a homestead exemption after the sale was contrary to
their testimony under oath and thus the doctrines of equitable estoppel and
judicial estoppel applied under the circumstances.
Finally, Trustee asserted that he was entitled to sanctions under
Taylor v. Freeland & Kronz, 503 U.S. 638 (1992). Trustee requested sanctions
of $5,000.00 based on his time responding to the unsubstantiated claim of
exemptions and attendance at two hearings and the uncertainty Debtors
caused surrounding the sale of the Property.
At the continued hearing, the bankruptcy court took the exemption
issue under advisement. The bankruptcy court approved the sale of the
Property "subject to further court order, including a decision regarding the
objection to the [D]ebtors' homestead exemption claim." Trustee
subsequently filed a Report on Sale and after payment of liens and sale
related expenses the sale netted $64,549.96.
At a later hearing, the bankruptcy court stated its findings of fact and
conclusions of law on the record and overruled Trustee's objection to
Debtors' homestead exemption. The court found Trustee's objection to
Debtors' homestead exemption untimely. The court also explained that
regardless of whether Debtors filed an amended Schedule C post-
conversion of their case from chapter 13 to chapter 7, the relevant date for
determining their eligibility for the homestead exemption was fixed on the
date of chapter 13 filing. The bankruptcy court observed that under the
5
"snapshot" rule Debtors did not lose their right to an otherwise valid
exemption postpetition if they no longer qualified for an exemption after
conversion. The court reasoned that revisiting state law qualifications for
the homestead exemption postpetition would ignore the federal "snapshot"
rule regarding the time to determine such qualification.
The bankruptcy court further decided that equitable estoppel did not
apply. It stated that in the Ninth Circuit, the elements for equitable
estoppel are: (1) the party to be estopped must know the facts; (2) he must
intend that his conduct shall be acted on or must so act that the party
asserting the estoppel has a right to believe it is so intended; (3) the latter
must be ignorant of the true facts; and (4) he must rely on the former's
conduct to his injury. FTC v. DirecTV, Case No. 15-cv-01129-HSG, 2015 WL
9268119, at *3 (N.D. Cal. Dec. 21, 2015) (citing United States v. Ruby Co., 588
F.2d 697, 703 (9th Cir. 1978)).
In applying these elements, the bankruptcy court reviewed the
transcript of the § 341(a) meeting and found that although Debtors
appeared to express a certain indifference regarding the Property,
Mr. Good's testimony was not sufficiently definite to appropriately apply
equitable estoppel. It noted that although Debtors' counsel indicated that
they planned to surrender the Property, Debtors never actually did so and
Trustee apparently did not follow up to determine why. The bankruptcy
court also found that Debtors' counsel's statements regarding surrender did
6
not clearly express an intent to amend Schedule C to delete their
homestead exemption in the Property. Moreover, Mr. Good's statements at
the § 341(a) meeting were "equivocal, at most. Mr. Good remarked that the
situation 'is what it is.'" Finally, the bankruptcy court found that to the
extent Trustee relied on Mr. Good's ambiguous statements at the § 341(a)
meeting, such reliance was not reasonable. The court concluded that there
was no indication that Mr. Good intended to mislead Trustee.
The bankruptcy court decided that judicial estoppel also did not
apply since the court had not relied on or accepted Debtors' position
regarding their exemptions for any purpose. See Whitworth v. Nat'l Enter.
Sys., Case No. 08-968-PK, 2009 WL 2948529, at *4 (D. Or. Sept. 9, 2009)
(judicial estoppel applies to cases where the court relied on or accepted the
party's previous inconsistent position).
In the end, the bankruptcy court held that Trustee failed to present
any evidence that Debtors were not entitled to their homestead on the
chapter 13 petition date and that they did not lose the exemption based on
their move from the Property prior to conversion. The court denied
Trustee's request for sanctions without prejudice.
Trustee filed a timely appeal from the court's order and subsequently
obtained a stay from the bankruptcy court authorizing him to hold the
exempt funds pending the outcome of this appeal.
7
JURISDICTION
The bankruptcy court had jurisdiction pursuant to 28 U.S.C. §§ 1334
and 157(b)(2)(B). We have jurisdiction under 28 U.S.C. § 158.
ISSUES
Did the bankruptcy court err by finding that Trustee's objection to
Debtors' homestead exemption was untimely?
Did the bankruptcy court abuse its discretion by deciding not to
apply equitable estoppel under the circumstances?
STANDARDS OF REVIEW
The right of a debtor to claim an exemption is a question of law that
we review de novo. Elliott v. Weil (In re Elliott), 523 B.R. 188, 191–92 (9th Cir.
BAP 2014); see also, Nadel v. Mayer (In re Mayer), 167 B.R. 186, 188 (9th Cir.
BAP 1994) ("The determination of a homestead exemption based on
undisputed facts is a legal conclusion interpreting statutory construction
which is reviewed de novo."). De novo review requires that "we consider a
matter anew, as if no decision had been rendered previously." Mele v. Mele
(In re Mele), 501 B.R. 357, 362 (9th Cir. BAP 2013).
The decision whether to invoke equitable estoppel is reviewed for
abuse of discretion. Wolfe v. Jacobson (In re Jacobson), 676 F.3d 1193, 1199 (9th
Cir. 2012). Under the abuse of discretion standard, we may reverse only if
"we have a definite and firm conviction that the [bankruptcy] court
committed a clear error of judgment in the conclusion it reached upon
8
weighing the relevant factors." S.E.C. v. Coldicutt, 258 F.3d 939, 941 (9th Cir.
2001). A bankruptcy court abuses its discretion if it applies the wrong legal
standard, misapplies the correct legal standard, or if it 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)).
DISCUSSION
A. The bankruptcy court did not err by finding that Trustee's
objection to Debtors' homestead exemption was untimely.
Rule 4003(b)(1) provides, in relevant part, that, "a party in interest
may file an objection to the list of property claimed as exempt within
30 days after the meeting of creditors held under § 341(a) is concluded or
within 30 days after any amendment to the list or supplemental schedules
is filed, whichever is later." See Rule 4003(b)(1).
Rule 1019(2)(B) provides, in relevant part, that in cases converted to
chapter 7 from chapter 13 "[a] new time period for filing an objection to a
claim of exemptions shall commence under Rule 4003(b) after conversion
of a case to chapter 7 unless . . . the case was converted to chapter 7 more
than one year after the entry of the first order confirming a plan under
chapter . . . 13 . . . ." See Rule 1019(2)(B). Debtors' case was converted on
June 15, 2017, which was less than one year after the entry of the first order
9
confirming their chapter 13 plan on February 17, 2017. Accordingly, a new
time period for objecting to a claim of exemptions commenced under
Rule 4003(b) after conversion of Debtors' case to chapter 7.
The post-conversion meeting of creditors took place on July 11, 2017,
and was concluded on the following day. Trustee did not file his objection
to Debtors' exemption until January 29, 2018, which was well past the
30-day deadline period set forth in Rule 4003. Trustee nevertheless
contends that his objection should be considered timely; he asserts that the
new 30-day time period did not commence as Debtors failed to obey the
Order to comply with BLR 1007-1(b).3
Trustee is mistaken. Neither the Order nor BLR 1007-1(b) set a filing
deadline for Debtors' amended schedules or their declaration of no change.
Thus, as long as their case remains open, Debtors retain the ability to
comply with the letter of the Order and related local rule.
And absent more definite language in the Order or BLR 1007-1(b)
Trustee was required to object to the homestead exemption within 30 days
of the concluded § 341(a) meeting. Debtors' original Schedule C was
3
BLR 1007-1(b) entitled "Schedules Required in Converted Cases" provides:
Where a . . . chapter 13 case is converted to another chapter, the debtor
shall be required to file amended schedules, statements, and documents
required by Rule 1007(b)(1), (4), (5), and (6), or a declaration under penalty
of perjury that there has been no change in the schedules, statements, and
documents.
10
deemed filed in the converted case under Rule 1007(c) ("Lists, schedules,
statements, and other documents filed prior to the conversion of a case to
another chapter shall be deemed filed in the converted case unless the court
directs otherwise."). Neither the Order nor BLR 1007-1(b) state otherwise.
So, in the absence of amendment, Debtors retained their claim of a
homestead in the Property through the time period established for
objection.
Thus, Trustee was in possession of all facts necessary to make a
timely objection within 30 days after the meeting of creditors in the
chapter 7 case if he believed there were grounds to do so. Compare Renteria
v. Abele (In re Renteria), BAP No. AZ-05-1077, 2006 WL 6811009 (9th Cir.
BAP June 8, 2006) (aware of pre-conversion exemption waiver, chapter 7
trustee requested in form of objection that Debtors clarify the basis of their
claimed homestead when Schedule C was not amended but others were).
And he cannot rely on the Order and BLR 1007-1(b) where neither required
action before the deadline for objection.
In short, the Order did not put the validity of Debtors' previously
claimed exemption at issue, and it did not affect the time period for
objecting to the validity of that exemption, which is controlled by Rules
4003(b)(1) and 1019(2)(B). Trustee had the opportunity to file a timely
objection to Debtors' claim of homestead. As he did not do so within the
time allowed by Rule 4003(b), Debtors' Property is exempt. See § 522(l)
11
("Unless a party in interest objects, the property claimed as exempt on [the
filed] list is exempt."); Taylor, 503 U.S. 643. Because the Property is exempt,
it is unnecessary to discuss issues raised by Trustee concerning Debtors'
move from the Property post-petition and their presumed abandonment of
their homestead under Washington law.
B. The bankruptcy court did not abuse its discretion in finding that
the elements for equitable estoppel were not met under these
circumstances.
When a debtor claims an exemption created under state law, the
scope of the exemption is determined under state law which "may provide
that certain types of debtor misconduct warrant denial of the exemption."
Gray v. Warfield (In re Gray), 523 B.R. 170, 175 (9th Cir. BAP 2014) (citing
Law v. Siegel, 134 S.Ct. 1188, 1196–97 (2014) and remanding case to
bankruptcy court to determine whether under Arizona law equitable
considerations may be used to disallow exemptions); see also Phillips v.
Gilman (In re Gilman), 887 F.3d 956 (9th Cir. 2018) (vacating and remanding
the matter to the bankruptcy court and noting that the parties were free to
argue anew, and the bankruptcy court may consider, any additional issues
related to the homestead exemption, such as whether under California law
equitable estoppel could apply to preclude the exemption.).
Under Washington law, the doctrine of equitable estoppel may
provide a basis for denial of a homestead exemption. Code v. London, 178
P.2d 293, 295 (Wash. 1947). To constitute estoppel, three things must occur:
12
(1) An admission, statement, or act, inconsistent with the claim afterwards
asserted; (2) action by another party in reliance on the first party's act,
statement or admission; and (3) injury to such other party resulting from
allowing the first party to contradict or repudiate the prior act, statement or
admission. Id. at 296; Kramarevcky v. Dept. of Social and Health Servs., 863
P.2d 535, 538 (Wash. 1993).
Here, the bankruptcy court applied the elements for federal common
law estoppel.4 However, the elements are substantially the same under
both Washington law and federal common law. Therefore, the court's use
of the federal common law elements did not affect the outcome and thus
was harmless error which we ignore. Van Zandt v. Mbunda (In re Mbunda),
484 B.R. 344, 355 (9th Cir. BAP 2012); see also Civil Rule 61, applicable via
Rule 9005 ("At every stage of the proceeding, the court must disregard all
errors and defects that do not affect any party's substantial rights.").
As noted above, when reviewing for abuse of discretion, we will
reverse the bankruptcy court's decision to not apply equitable estoppel
only if we have a definite and firm conviction that the court committed a
clear error of judgment in the conclusion it reached upon a weighing of the
relevant factors. Here, the bankruptcy court did not abuse its discretion.
4
The elements are: (1) the party to be estopped must know the facts; (2) he must
intend that his conduct shall be acted on or must so act that the party asserting the
estoppel has a right to believe it is so intended; (3) the latter must be ignorant of the true
facts; and (4) he must rely on the former's conduct to his injury.
13
In applying the elements for equitable estoppel, the bankruptcy court
was not convinced that Mr. Good's testimony or his counsel's statements,
made during the § 341(a) meeting, were sufficiently definite to reasonably
and foreseeably induce Trustee's reliance on the testimony or statements.
As the bankruptcy court noted, Debtors' counsel indicated that Debtors
planned to surrender the Property but Debtors never actually did so. The
court also found that Debtors' counsel's statements regarding surrender did
not clearly express an intent to amend their Schedule C to delete their
homestead exemption in the Property. Indeed, the record shows that
Trustee never forced the issues regarding surrender or amendment to
Debtors' Schedule C to conform to Mr. Good's testimony or counsel's
statements at the § 341(a) meeting. Cf. In re Fetner, 218 B.R. 262 (Bankr.
D.D.C. 1997) (oral claim of exemptions does not suffice to constitute the
written schedule of exemptions, prepared under Rule 1007(b)(1), and
required procedurally by Rule 4003(a) to claim exemptions and thus to
trigger Rule 4003(b)).
Moreover, the bankruptcy court found Debtors' statements at the
§ 341(a) meeting were "equivocal, at most. Mr. Good remarked that the
situation 'is what it is.'" The bankruptcy court concluded that to the extent
Trustee relied on Debtors' ambiguous statements at the § 341(a) meeting,
such reliance was not reasonable. In other words, in light of the equivocal
nature of Mr. Good's testimony, Trustee should have made some inquiry.
14
Last, the court found that there was no indication that Mr. Good intended
to mislead Trustee and there is no evidence in the record to the contrary.
While we are sympathetic to Trustee's position, the bankruptcy
court's decision to apply equitable estoppel is discretionary. Because the
court's findings are plausible and supported by inferences drawn from the
facts in the record, we discern no abuse of discretion in the bankruptcy
court's decision not to apply equitable estoppel.
CONCLUSION
For the reasons explained above, we AFFIRM the court's order
denying Trustee's objection to Debtors' homestead exemption. Because the
bankruptcy court denied Trustee's motion for sanctions without prejudice,
we express no opinion as to whether Trustee's motion for sanctions should
be granted or denied should he renew his request.
15