908 F.3d 531
9th Cir.2018Background
- Clifford (debtor) and Ahn Brace (non-debtor spouse) acquired two California properties during marriage and took title as "husband and wife as joint tenants."
- In 2004 Clifford created an irrevocable Crescent Trust and recorded deeds transferring his interests in the two properties to the trust; a default judgment against him followed shortly after.
- Clifford filed Chapter 7 in 2011; the Chapter 7 trustee sued to avoid the transfers under CUFTA and to declare the properties property of the bankruptcy estate.
- Bankruptcy court voided the transfers as actually fraudulent, returned the properties to the couple, and held they were community property subject to the estate in their entirety.
- The BAP affirmed; the Ninth Circuit panel then certified to the California Supreme Court the question whether California’s form‑of‑title presumption (Evid. Code § 662) overcomes the community property presumption (Fam. Code § 760/§ 2581) in Chapter 7 cases where spouses acquire property from a third party as joint tenants and their interests align against the trustee.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether a deed conveying property to married spouses as joint tenants rebuts California's community property presumption in a Chapter 7 case | Brace (wife/debtors) — deed form of title (Evid. Code § 662) rebuts the community presumption; Summers controls | Trustee — community presumption (Fam. Code §§ 760/2581) governs; Valli limits § 662 where it conflicts with transmutation statutes | Ninth Circuit certified the controlling question to the CA Supreme Court for resolution (case withdrawn pending that court's decision) |
| Whether Valli (California Supreme Court) abrogates Summers for disputes between a spouse and a third‑party creditor (bankruptcy context) | Brace — Valli applies to dissolution only and does not abrogate Summers for bankruptcy/creditor disputes | Trustee — Valli’s reasoning extends beyond dissolution and overrides Summers where § 662 conflicts with the transmutation/statutory scheme | Certified to CA Supreme Court as dispositive unresolved state‑law question |
| What standard or evidence suffices to rebut the community property presumption when title purports joint tenancy | Brace — deed language and form‑of‑title presumption (clear and convincing under § 662) suffice | Trustee — transmutation statute and Fam. Code presumptions require written express declaration; preponderance insufficient if statutory conflict exists | Certified question asks CA Supreme Court to decide interplay of § 662 and Fam. Code presumptions in this context |
| Effect on bankruptcy estate composition if property is characterized as joint tenancy vs. community property | Brace — joint tenancy means only debtor’s one‑half interest is estate property | Trustee — community property means entire property is estate property under 11 U.S.C. § 541(a)(2) | Court stayed appeal and sought state high‑court guidance because the answer is dispositive of estate rights |
Key Cases Cited
- In re Summers, 332 F.3d 1240 (9th Cir. 2003) (county: held deed form of title can overcome community property presumption where spouses acquire from third party as joint tenants)
- In re Valli, 324 P.3d 274 (Cal. 2014) (California Supreme Court: transmutation statutes apply and § 662 does not control where it conflicts with Family Code requirements in dissolution context)
- Butner v. United States, 440 U.S. 48 (1979) (federal courts look to state law to determine property rights in bankruptcy estates)
- In re Mantle, 153 F.3d 1082 (9th Cir. 1998) (state law governs existence and scope of debtor’s property interests for bankruptcy estate)
- In re Reed, 940 F.2d 1317 (9th Cir. 1991) (classification of property interests under state law determines scope of bankruptcy estate)