In re: Clifford Allen Brace, Jr.
566 B.R. 13
| 9th Cir. BAP | 2017Background
- Debtor and spouse acquired three properties during marriage titled "husband and wife as joint tenants." Debtor later formed the Crescent Trust and recorded deeds transferring his interests in two California properties to the trust; transfers occurred shortly before a creditor judgment against Debtor.
- Debtor filed chapter 7; trustee sued to avoid the transfers as actually fraudulent and to quiet title, seeking recovery of the properties for the estate.
- The bankruptcy court found the transfers actually fraudulent and avoided them, restoring title to the spouses as joint tenants, and held the properties were community property recoverable in full by the estate.
- Appellants (Debtor and spouse) argued the estate should only recover Debtor’s separate one-half interest because record title (Cal. Evid. Code § 662) or their joint‑tenancy form rebutted the community presumption.
- The panel considered whether California’s community property presumption (Cal. Fam. Code § 760) and the transmutation statutes (Cal. Fam. Code § 852) apply in bankruptcy disputes with third parties, especially after the California Supreme Court’s decision in Valli v. Valli.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether, after avoidance of transfers, property acquired during marriage should be characterized as community property in bankruptcy | Trustee: community property presumption applies; estate can recover full property | Appellants: the record‑title presumption (Evid. Code § 662) or joint‑tenancy form rebuts community presumption; community presumption limited to dissolution proceedings | Court held community property presumption applies in bankruptcy disputes with third parties; estate may recover the entire properties |
| Whether taking title as joint tenants rebuts community presumption without written transmutation | Appellants: joint tenancy shows intent to hold separately, so no transmutation formalities needed | Trustee: Valli requires written/recorded evidence to rebut community presumption in non‑dissolution disputes | Court held Valli abrogated Summers; taking title as joint tenants alone did not rebut presumption absent credible, written transmutation evidence |
| Whether Ninth Circuit precedent (Summers) binds the panel despite Valli | Appellants: Summers controls and supports applying title presumption | Trustee: Valli, as state high‑court authority, controls California law and supersedes Summers | Court followed Valli over Summers, citing Miller v. Gammie; bound to California Supreme Court interpretation |
| Whether public‑policy reasons (title stability vs. protection from undue influence) favor applying Evid. Code § 662 in bankruptcy | Appellants: title stability justifies applying title presumption against trustee | Trustee: family‑law presumptions and transmutation rules protect spouses and are applicable against third‑party creditors/trustees | Court held family‑law presumptions better serve predictable results and protection of spouses; they apply in bankruptcy disputes |
Key Cases Cited
- Valli v. Valli, 58 Cal. 4th 1396 (Cal. 2014) (California Supreme Court holds transmutation statutes apply to purchases from third parties and displaces Evid. Code § 662 when in conflict)
- Hanf v. Summers (In re Summers), 332 F.3d 1240 (9th Cir. 2003) (prior Ninth Circuit holding that joint‑tenancy acquisition could rebut community presumption; superseded by Valli)
- Miller v. Gammie, 335 F.3d 889 (9th Cir. 2003) (circuit panels should follow state supreme court rulings that undercut prior circuit precedent)
- Butner v. United States, 440 U.S. 48 (1979) (federal courts look to state law to determine property interests in bankruptcy)
- Anderson v. City of Bessemer City, 470 U.S. 564 (1985) (standard for clear‑error review of factual findings)