Edwin Elliott v. Pacific Western Bank, 969 F.3d 1006

Background

On December 2, 2016 the San Mateo County Sheriff levied $28,870.19 from Edwin Elliott’s IRA to satisfy a state-court money judgment; Elliott filed a state-court exemption claim, which was denied.
The Sheriff released the levied funds to Pacific Western Bank on or about February 15, 2017.
Elliott filed a Chapter 7 petition on March 13, 2017 and claimed his IRA funds exempt under California law and § 522(b)(3)(C). The Bank did not object, asserting the funds had been taken prepetition and were not property of the estate.
Elliott then commenced an adversary proceeding seeking to avoid the transfer under 11 U.S.C. §§ 522(h) and 522(f) (and arguing a § 547 preferential-transfer basis).
The bankruptcy court dismissed for failure to state a claim, concluding the judicial lien/levy had been satisfied prepetition and thus was not avoidable under § 522(f) (dooming §§ 547 and 522(h) theories); the district court summarily affirmed.
The Ninth Circuit affirmed, holding the lien was satisfied before the petition date so it did not impair an exemption as of the petition date and therefore was not avoidable.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether a judicial execution lien satisfied prepetition is avoidable under 11 U.S.C. § 522(f)	Elliott: lien can be avoided and thus impaired an exemption as of the petition date	Bank: lien was satisfied prepetition (funds released to Bank) so no lien existed on petition date and § 522(f) cannot apply	Court: Lien was satisfied before the petition date and is not voidable under § 522(f)
Whether the prepetition transfer was a § 547 preferential transfer enabling § 522(h) avoidance	Elliott: bank received more than it would in liquidation because lien could be avoided under § 522(f)	Bank: because the lien was satisfied prepetition, creditor did not receive more than in chapter 7 liquidation	Court: Elliott failed § 547(b)(5) greater-amount test because the lien was not voidable; no preference established
Whether the bankruptcy court had jurisdiction to consider avoiding the state-court judgment/levy	Elliott: bankruptcy court may adjudicate avoidance claims under the Bankruptcy Code	Bank: Rooker–Feldman or related doctrines could bar federal review of state-court determinations	Court: Bankruptcy court had core jurisdiction to hear avoidance claims; Rooker–Feldman not dispositive here
Whether § 550(f) time limits or reopening the case barred recovery	Elliott: reopening might restart § 550(f) deadlines (argued below)	Bank: § 550(f) may bar the action because avoidance/recovery deadlines passed	Court: Did not decide § 550(f) issue because case resolved on substantive § 522(f)/§ 547 grounds

Key Cases Cited

In re DeMarah, 62 F.3d 1248 (9th Cir. 1995) (articulates five-factor test for a debtor proceeding under § 522(h))
In re Tenderloin Health, 849 F.3d 1231 (9th Cir. 2017) (explains greater-amount test under § 547(b)(5))
In re LCO Enters., 12 F.3d 938 (9th Cir. 1993) (framework for hypothetical chapter 7 analysis in preference context)
Palmer Clay Prods. Co. v. Brown, 297 U.S. 227 (U.S. 1936) (classic statement on constructing hypothetical chapter 7 for preference analysis)
In re Wilding, 475 F.3d 428 (1st Cir. 2007) (§ 522(f) requires lien to impair exemption as of petition date)
In re Hernandez, 483 B.R. 713 (B.A.P. 9th Cir. 2012) (California-law principles govern nature/extent of debtor’s property interest for avoidance)
In re Gruntz, 202 F.3d 1074 (9th Cir. 2000) (bankruptcy courts’ authority to avoid or modify state-court judgments)
Worldwide Church of God v. McNair, 805 F.2d 888 (9th Cir. 1986) (limits of Rooker–Feldman doctrine)
In re Smith’s Home Furnishings, Inc., 265 F.3d 959 (9th Cir. 2001) (standard of review for appeals from bankruptcy court decisions)
In re Ricke, 84 B.R. 408 (Bankr. W.D. Pa. 1988) (§ 522(f) does not allow avoidance of liens extinguished before petition)