Elliott v. Weil (In Re Elliott)
544 B.R. 421
| 9th Cir. BAP | 2016Background
- Edward Elliott filed chapter 7 in December 2011 and, under penalty of perjury, did not disclose his ownership interest in the Buckingham Property (held prepetition by his wholly owned corporation LWI), did not list related judgment creditors, and listed a different street address.
- After receiving a discharge and the case being closed, LWI quitclaimed the Buckingham Property to Elliott. Judgment creditors investigated title, the case was reopened, schedules were amended to list the Buckingham Property, and Elliott claimed a $175,000 California homestead exemption.
- The chapter 7 trustee sued in an adversary proceeding under § 542 for turnover and obtained a final Turnover Judgment requiring Elliott to deliver the Buckingham Property to the trustee; that judgment was not appealed.
- The trustee also objected to Elliott’s claimed homestead exemption; the bankruptcy court denied the exemption under 11 U.S.C. § 522(g)(1) on the ground Elliott had concealed the property and the trustee had recovered it under § 542.
- Elliott appealed, relying on Law v. Siegel to argue courts cannot deny exemptions on equitable bad-faith grounds; the Panel affirmed, holding Law v. Siegel does not preclude application of statutory limits like § 522(g)(1).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Law v. Siegel bars denial of Elliott’s homestead exemption here | Elliott: Siegel forbids denying exemptions for debtor misconduct in equity | Trustee: Siegel doesn’t override statutory limits like §522(g)(1) | Held: Siegel does not preclude applying §522(g)(1); denial permitted under statute |
| Whether §522(g)(1) applies to bar Elliott’s exemption | Trustee: §522(g)(1) applies because trustee "recovered" the property under §542 and Elliott concealed it | Elliott: §522(g)(1) inapplicable because turnover wasn’t a recovery of a transferred asset in the sense he contends | Held: §522(g)(1) applies—Elliott concealed the property, transfers were voluntary, trustee recovered property under §542 |
| Whether the Turnover Judgment constitutes a §542 “recovery” for §522(g) | Trustee: Turnover judgment is a recovery bringing §522(g) into play | Elliott: Disputes characterization of recovery as involving a transfer | Held: Panel treats the Turnover Judgment as a recovery under §542 for §522(g) purposes |
| Whether court needed to rule separately under California homestead law | Elliott: Court should have analyzed California automatic homestead residency requirement | Trustee: No need once federal §522(g)(1) resolved objection | Held: No need to address state-law exemption after resolving objection under §522(g)(1) |
Key Cases Cited
- Law v. Siegel, 134 S. Ct. 1188 (U.S. 2014) (Bankruptcy courts may not use general equitable powers to override explicit Code provisions; courts cannot deny exemptions on general bad-faith equity grounds)
- Lamie v. United States Trustee, 540 U.S. 526 (U.S. 2004) (statutory text is the starting point for discerning congressional intent)
- Glass v. Hitt (In re Glass), 60 F.3d 565 (9th Cir. 1995) (§522(g) prevents a debtor from claiming an exemption in property recovered by the trustee where transfer was voluntary or property was concealed)
- Marrama v. Citizens Bank of Mass., 549 U.S. 365 (U.S. 2007) (Bankruptcy Code’s fresh-start is for the honest but unfortunate debtor)
- Grogan v. Garner, 498 U.S. 279 (U.S. 1991) (bankruptcy principles regarding discharge and debtor honesty)