Charles Daff v. James Wallace

FILED
NOT FOR PUBLICATION MAY 11 2015
MOLLY C. DWYER, CLERK
UNITED STATES COURT OF APPEALS U.S. COURT OF APPEALS
FOR THE NINTH CIRCUIT
In re: CATHERINE Z. CASS, No. 13-60032
Debtor, BAP No. 12-1513
CHARLES W. DAFF, Chapter 7 Trustee, MEMORANDUM*
Appellant,
v.
JAMES WALLACE; REBECCA
WALLACE; GLORIA SUESS,
Appellees.
Appeal from the Ninth Circuit
Bankruptcy Appellate Panel
Kirscher, Pappas, and Taylor, Bankruptcy Judges, Presiding
Submitted May 5, 2015**
Pasadena, California
Before: PREGERSON, TALLMAN, and NGUYEN, Circuit Judges.
*
This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.
**
The panel unanimously concludes this case is suitable for decision
without oral argument. See Fed. R. App. P. 34(a)(2).
Appellant Charles W. Daff, Chapter 7 Trustee (“Trustee”) challenges the
bankruptcy court’s grant of summary judgment in favor of Appellees James Wallace,
Rebecca Wallace, and Gloria Suess (“Judgment Creditors”) on their counterclaims for
declaratory and injunctive relief. We have jurisdiction under 28 U.S.C. § 158(d), and
we affirm on the narrow basis that, despite her fraudulent transfer, Catherine Z. Cass
(“Debtor”) retained an equitable interest in the Residence to which Judgment
Creditors’ lien attached.
As an initial matter, the doctrines of claim preclusion (res judicata) or issue
preclusion (collateral estoppel) do not preclude Judgment Creditors from arguing that
Debtor retained an equitable interest in the Residence. Under either California or
federal preclusion law, a subsequent lawsuit must raise the same claim or issue as the
prior lawsuit. Compare Boeken v. Philip Morris USA, Inc., 48 Cal. 4th 788, 797
(2010) (discussing the elements of California claim preclusion and issue preclusion),
with Littlejohn v. United States, 321 F.3d 915, 919–20, 923 (9th Cir. 2003) (discussing
the elements of federal claim preclusion and issue preclusion). Whether applying the
California “primary rights” test or the federal “transactional nucleus of facts” test to
determine the similarity of claims and issues between the prior lawsuit and the current
lawsuit, Trustee’s arguments fail. See Brodheim v. Cry, 584 F.3d 1262, 1268 (9th Cir.
2009) (setting forth the California and federal tests).
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The bankruptcy court held that the Avoidance Judgment1 entered in the prior
lawsuit did not address “(1) whether the judgment lien from the recorded abstract of
judgment attached to the Debtor’s property,” or “(2) whether the judgment lien is
superior to Trustee’s interests,” which are at issue in this case. We must give
substantial deference to the bankruptcy court in its interpretation of its own order, i.e.,
what the Avoidance Judgment did and did not resolve, and we find that the
bankruptcy court did not abuse its discretion in making such a determination. See,
e.g., In re Marciano, 459 B.R. 27, 35 (B.A.P. 9th Cir. 2011) (“We owe substantial
deference to the bankruptcy court’s interpretation of its own orders and will not
overturn that interpretation unless we are convinced that it amounts to an abuse of
discretion.” (quoting In re Res. Tech. Corp., 624 F.3d 376, 385 (7th Cir. 2010))), aff’d,
708 F.3d 1123 (9th Cir. 2013). In addition—to the extent that there is any overlap in
the issues or claims—when the parties entered into a stipulation dismissing without
prejudice the non-adjudicated claims in the prior lawsuit, they expressly agreed that
“the remaining claims between the Trustee and the Judgment Creditors may be
1
Trustee did not raise in this appeal his previous argument that the
bankruptcy court’s “Homestead Exemption Order” precludes Judgment Creditors’
counterclaims. Even if this argument had not been waived, it would fail because
the bankruptcy court correctly found that “the issue of the perfection of [the]
judgment lien was not an issue decided in the prior litigation over the claimed
homestead exemption and was not actually and necessarily decided in the court’s
denial of the claimed homestead exemption.”
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adjudicated in the Declaratory Relief Adversary” and that the dismissal “shall not give
rise to any adverse legal or other effect on any party or issue to be determined in [the
Declaratory Relief] Adversary[.]”
Judgment Creditors are not judicially estopped from arguing that Debtor
retained an equitable interest in the Residence. The position taken by Judgment
Creditors in the prior litigation to avoid and set aside Debtor’s fraudulent transfer is
not inconsistent with their position in this case to seek to attach their lien to Debtor’s
equitable interest in the Residence. See Russell v. Rolfs, 893 F.2d 1033, 1037 (9th Cir.
1990) (“The doctrine of judicial estoppel . . . is invoked to prevent a party from
changing its position over the course of judicial proceedings when such positional
changes have an adverse impact on the judicial process.” (quotation omitted)). In
pursuing their positions, Judgment Creditors have not made inconsistent factual
assertions. See id. (“Judicial estoppel is most commonly applied to bar a party from
making a factual assertion in a legal proceeding which directly contradicts an earlier
assertion made in the same proceeding or a prior one.” (citation omitted)).
Turning to the merits of the appeal, there is no dispute that Debtor fraudulently
transferred the Residence to her daughter. Debtor transferred the Residence without
receiving any consideration, continued to live in the Residence after the transfer, and
obtained a written promise that her daughter would return the Residence upon request.
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Debtor therefore retained an equitable interest in the Residence even though her
daughter held legal title to it. See Alhambra Bldg. & Loan Ass’n v. DeCelle, 47 Cal.
App. 2d 409, 411–12 (1941) (affirming that by holding the property in “secret trust”
for the transferor, the transferee had “mere naked legal title” to the fraudulently
conveyed property, whereas the transferor “was and at all times had been the
beneficial owner”); 30 Cal. Jur. 3d Enforcement of Judgments § 118 (2015) (“Where
only nominal title is conveyed to a third party by the judgment debtor, the debtor’s
beneficial interest in the property is liable for the debts of subsequent creditors as well
as those existing at the time of the transfer.”).
After Debtor’s conveyance but before she filed for Chapter 7 bankruptcy,
Judgment Creditors obtained a judgment lien against Debtor by recording an abstract
of a tort judgment for $320,000 with the Orange County Clerk-Recorder. Cal. Civ.
Proc. Code § 697.310(a). Judgment Creditors’ lien attached to Debtor’s equitable
interest in the Residence. Id. § 697.340(a) (“A judgment lien on real property attaches
to all interests in real property in the county where the lien is created (whether present
or future, vested or contingent, legal or equitable) that are subject to enforcement of
the money judgment against the judgment debtor . . . .”); Fid. Nat’l Title Ins. Co. v.
Schroeder, 179 Cal. App. 4th 834, 849 (2009) (“California law provides that a
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judgment lien attaches to all interests in real property, including equitable interests.”
(emphasis in original)).
That Trustee successfully avoided Debtor’s fraudulent transfer under California
Civil Code §§ 3439.04 and 3439.07 does not thereby extinguish Judgment Creditors’
secured claim. Trustee points to 11 U.S.C. §§ 550 and 551—allowing a trustee to
recover and preserve, “for the benefit of the estate,” a property whose transfer was
avoided—neither of which provide support for the notion that a perfected judgment
lien is eliminated by an avoidance action. Cf. Cal. Civ. Proc. Code § 697.400(perfected judgment liens are extinguished by the recording of an acknowledgment
of satisfaction of the underlying judgment or by the judgment creditor’s release of the
lien). In a case factually similar to our own, a Minnesota bankruptcy court noted:
11 U.S.C. § 551 does not operate to somehow make [the judgment
creditor’s] perfected lien disappear upon the Trustee’s later avoidance of
the transfer. Section 551 preserves an avoided transfer only with respect
to property of the estate. It is intended to prevent junior lienors from
improving their position at the expense of the estate when a senior lien
is avoided. It is not intended to strip from recovered property, interests
equal or senior to the transfer avoided. [The judgment creditor’s]
general judgment lien attached to the property upon docketing of the
judgment, and, from the filing of the bankruptcy case, it remained at all
times an interest senior to the bankruptcy estate’s interest in the property.
The lien was not extinguished or subordinated to the bankruptcy estate’s
interest by § 551, as it was at all times senior to the transfer avoided and
recovered, namely—the Debtors’ interest.
6
In re Mathiason, 129 B.R. 173, 177 (Bankr. D. Minn. 1991), aff’d, 16 F.3d 234 (8th
Cir. 1994) (citations omitted). By contrast, Trustee’s reliance on In re Saylor, 178
B.R. 209 (B.A.P. 9th Cir. 1995), aff’d, 108 F.3d 219 (9th Cir. 1997), is unavailing
because that case did not address a judgment creditor’s lien rights.
Trustee’s reliance on the language in the Avoidance Judgment that the estate
recovered “all legal title to, and beneficial interest in, the real property” is similarly
unavailing. The estate’s recovery of beneficial interest in the Residence does not
prevent it from satisfying Judgment Creditors’ previously secured, senior interest.
AFFIRMED.
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