In re Obedian
Pending before the court is the Motion to Avoid Lien under 11 U.S.C. § 522(f) (the “Motion”) of Debtor Paravaneh Obedi-an (“Debtor”). ECF 108. The Motion seeks to avoid the judgment lien of the California Department of Health Care Services (“DHCS”) against certain real property located at 9476 Hidden Valley Place, Beverly Hills, Los Angeles County, California 90210, Assessor’s Parcel Number 4388-002-021 (the “Real Property”).
After Debtor and her non-debtor spouse, Fred Obedian (“Mr.Obedian”), bought the Real Property in 2009, on February 3, 2011, a judgment was entered by the Superior Court of California, County of Sacramento, in favor of DHCS and against Mr. Obedian in the amount of $729,890.29. DHCS recorded an abstract of judgment on February 22, 2011 with the Recorder of Los Angeles County, California, to perfect its judgment lien against the Real Property. Motion at Exhibit D. Debtor now seeks to avoid DHCS’s judgment lien through the Motion.
Wesley H. Avery, the Chapter 7 Trustee (“Trustee”) of Debtor’s bankruptcy estate, filed an opposition to the Motion, ECF 111, and the United States of America, on behalf of its agency, the Internal Revenue Service (the “United States”), filed an objection to the Motion, ECF 114. Debtor filed a reply to Trustee’s opposition and the United States’ objection. ECF 120. DHCS also filed an opposition to the Motion. ECF 122.
The Motion initially came on for hearing before the undersigned United States Bankruptcy Judge on November 24, 2015. The court determined at this hearing that because the Motion raised disputed factual and legal issues regarding the nature of Debtor’s interest in the Real Property, and thus, whether DHCS’s judgment lien attached to Debtor’s interest in the Real Property, the Motion would be treated as a contested matter under Federal Rule of Bankruptcy Procedure 9014. Thereupon, the court set a schedule for further briefing and continued the hearing to January 5, 2016. Debtor filed a supplemental brief to its Motion, ECF 129, and Trustee filed a supplemental brief to its opposition, ECF 130. At the further hearing on the Motion on January 5, 2016, the court determined that the evidence attached to Debtor’s supplement raised a genuine issue of material fact regarding whether the Real Property is community property and set the Motion for an evidentiary hearing on January 12, 2016.
At the evidentiary hearing on January 12, 2016, M. Jonathan Hayes, of the law firm of Simon Resnik Hayes LLP, appeared on behalf of Debtor, and Robert A. Hessling, of the law firm of Robert A. Hessling, APC, appeared on behalf of Trustee. Following the evidentiary hearing, the court authorized the parties to file further supplemental briefing. On January 19, 2016, Debtor filed a supplemental brief styled Closing Argument of Movant Paravanah Obedian, ECF 133, and on January 26, 2016, Trustee filed his Second Supplemental Opposition to Motion of Debtor to Avoid Lien under 11 U.S.C. § 522(f), ECF 135. After Debtor and Trustee filed their supplemental briefing, the court took the matter under submission. On February 2, 2016, DHCS filed a joinder to Trustee’s Second Supplemental Opposition to Motion of Debtor to Avoid Lien Under 11 U.S.C. § 522(f). ECF 136.
DISCUSSION
In order to decide whether Debtor can avoid the judgment lien of DHCS under 11 U.S.C. § 522(f), the court must first determine as a preliminary matter the nature of Debtor’s interest in the Real Property because the DHCS judgment was entered against Mr. Obedian, and not against Debtor herself, raising the issue of whether the DHCS judgment lien attached to Debtor’s interest in the Real Property, which is property of the estate in this bankruptcy case under 11 U.S.C. § 541(a) as an interest of the Debtor as of the commencement of the case. That is, if Debtor’s interest in the Real Property, was community property, the judgment lien against Mr. Obedian would attach to both spouses’ interests in the Real Property, but if Debtor’s interest in the Real Property was separate property as indicated by record title of the Real Property in Debtor and Mr. Obedian in joint tenancy, then the judgment lien against Mr. Obedian would only attach to Mr. Obedian’s one-half joint tenancy interest, which would not be an asset of Debtor’s bankruptcy estate, and not Debtor’s one-half joint tenancy interest, thus making the judgment lien not avoidable by Debtor. Compare 2 Ahart, California Practice Guide: Enforcing Judgments and Debts, ¶ 6:166 at 6B-6 (2015) (“A judgment lien attaches to the interests of both spouses in community real property, since all community property interests are subject to enforcement of the judgment.”) (emphasis in original) citing California Code of Civil Procedure §§ 695.020 and 697.310, with id. at ¶ 6:167 at 6B-6 (“Only the interest of the debtor joint tenant is subject to a judgment lien”) citing Dang v. Smith,
The Real Property is located in California, and its characterization is governed by California law. In California, “[generally speaking, property characterization depends on three factors: (1) the time of acquisition; (2) the ‘operation of various presumptions, particularly those concerning the form of title’; and (3) the determination ‘whether the spouses have transmuted’ the property in question, thereby changing its character.” In re Marriage of Rossin,
I. AT THE TIME THE REAL PROPERTY WAS ACQUIRED BY DEBTOR AND MR. OBEDIAN, THE REAL PROPERTY WAS COMMUNITY PROPERTY
On one hand, under California Family Code § 770, property that one spouse owned before the marriage is deemed to be that spouse’s separate property. See In re Marriage of Valli, 58
Debtor and Mr. Obedian were married in 1972. Supplement to Debtor’s Motion to Avoid Lien Pursuant to Section 522(f), Declaration of Paravaneh Obedian in Support Thereof at 5; Testimony of Paravaneh Obedian, January 12, 2016, at 3:28 p.m.; Testimony of Fred Obedian, January 12, 2016, at 3:41 p.m. Debtor testified that in 1997, during their marriage, Debtor and Mr. Obedian purchased a parcel of real property in Tarzana, California as their prior residence with community property funds and subsequently made the mortgage payments on the Tarzana house with income from Debtor and Mr. Obedi-an’s medical supply business. Testimony of Paravaneh Obedian, January 12, 2016, at 3:29-3:30 p.m. After selling the Tarzana property, in 2009 during their marriage, Debtor and Mr. Obedian used the proceeds from the sale of the Tarzana house as a down payment to buy the Real Property, which they took record title to as joint tenants. Request for Judicial Notice in Support of California Department of Health Care Services’ Opposition to Debtor’s Motion to Avoid Lien Under 11 U.S.C. § 522(f), Exhibit A, ECF 123; Testimony of Fred Obedian, January 12, 2016, at 3:43 p.m. Debtor and Mr. Obedian testified at the evidentiary hearing that although they had taken title to the Real Property as joint tenants as indicated on the grant deed, 'they did not request this and said that taking title in joint tenancy was something the real estate agent did without their understanding. Testimony of Paravaneh Obedian, January 12, 2016, at 3:31-3:32 p.m.; Testimony of Fred Obe-dian, January 12, 2016, at 3:44-3:45 p.m. The grant deed transferring the Real Property to Debtor and Mr. Obedian stated that they were taking title as joint tenants, but there was no separate statement on the grant deed indicating that this was their express intention. Request for Judicial Notice in Support of California Department of Health Care Services ’s Opposition to Debtor’s Motion to Avoid Lien Under 11 U.S.C. § 522(f), Exhibit A, ECF 123. Debtor and Mr. Obedian testified at the evidentiary hearing that they paid the mortgage on the Real Property with their community property income from their medical supply business. Testimony of Paravaneh Obedian, January 12, 2016, at 3:29-3:30 p.m.; Testimony of Fred Obedi-an, January 12, 2016, at 3:43 p.m. Debtor testified that she did not receive any inheritance during their marriage. Testimony of Paravaneh Obedian, January 12, 2016,
Based on California Family Code § 760, the court preliminarily determines that the evidence admitted at the evidentiary hearing indicates that the Real Property should be presumed to be community property belonging to both Debtor and Mr. Obedian since the Real Property was acquired by both spouses during marriage and the exceptions of acquisition of property traceable to a separate property source, acquired by gift or bequest, or earned or accumulated while the spouses are living separate and apart, do not apply. In re Marriage of Valli,
II. BASED ON THE CALIFORNIA SUPREME COURT’S DECISION IN IN BE VALLI, CALIFORNIA’S MARITAL PROPERTY TRANSMUTATION STATUTES TRUMP CALIFORNIA’S GENERAL PRESUMPTION OF RECORD TITLE
Although time of acquisition generally controls the characterization of property, evidentiary presumptions and marital property transmutation transactions may also affect the analysis. See In re Marriage of Rossin,
Under California Family Code § 852(a), “[a] transmutation of real or personal property is not valid unless made in writing by an express declaration that is made, joined in, consented to, or accepted by the non-debtor spouse whose interest in the property is adversely affected.” At the evidentiary hearing and in her Closing Ar
The Ninth Circuit in In re Summers, construing California family law in the context of a bankruptcy case as opposed to a marital dissolution case and determining whether real property transferred by a third party to a husband, a wife and a daughter as joint tenants constituted property of the bankruptcy estate of one of the spouses, held that the marital property transmutation statute in California Family Code § 852(a) does not apply when a mar-' ried couple acquires real property from a third party as joint tenants.
The Ninth Circuit in Summers acknowledged that under California family law, there is a general evidentiary presumption under California Family Code § 760 that “ ‘property acquired during marriage by either spouse other than by gift or inheritance is community property unless traceable to a separate property source,’ ” but that this presumption is rebuttable. Id. at 1242-1243, quoting, In re Marriage of Haines,
In Summers, the Ninth Circuit quoted another California Court of Appeal in In re Marriage of Haines regarding what evidentiary showing would be needed to rebut the general community property presumption under California Family Code § 760:
[Vjirtually any credible evidence may be used to overcome [the general community property presumption], including ... showing an agreement or clear understanding between parties regarding ownership status ... For example, spouses can indicate their intent with respect to the character of the property initially by specifying the form of title in which it is held, or spouses can later transmute the character of the property as between each other.
The Ninth Circuit in Summers thus concluded that “California law supports the bankruptcy court’s and the BAP’s conclusion that the community property presumption is rebutted when a married couple acquires property from a third party as joint tenants.”
Having concluded that record title of joint tenancy in property acquired by a married couple during marriage rebuts the general community property presumption, the analysis is not completed according to the Ninth Circuit in Summers because then “[t]here is therefore a rebuttable presumption that ‘where the deed names the spouses as joint tenants ... the property was in fact held in joint tenancy....’”
In Summers, a party argued that the subject real property was community property because the requirements of California Family Code § 852(a), California’s marital property transmutation statute, were not satisfied.
Our reading of California law leads to the conclusion that the transmutation requisites had no relevance to the conveyance in this case. There simply was no interspousal transaction requiring satisfaction of statutory formalities____ Applying California law, we conclude that a third party conveyed joint tenancy interests to Eugene and Ann Marie Summers, a transaction to which the transmutation statute does not apply. The third-party deed specifying the joint tenancy character of the property rebutted the community property presumption, and rendered California’s transmutation statute inapplicable.
In re Summers,
In In re Marriage of Valli, the California Supreme Court subsequently held in a unanimous opinion by Justice Kennard that in a marital dissolution proceeding, acquisitions of property made by one or both spouses from a third party during marriage are not exempt from the marital property transmutation statutes for transmuting community property to separate property and unless the requirements of these statutes are met, property acquired during marriage is community property.
In reaching this conclusion, the California Supreme Court in Valli examined and gave recognition to the legislative history
The Legislature adopted the statutory transmutation requirements in 1984 upon a recommendation of the California Law Revision Commission. (Estate of Macdonald, [ (1990) ] 51 Cal.3d [262] at 268,272 Cal.Rptr. 153 ,794 P.2d 911 .) In its report to the Legislature, the commission observed that under then existing law it was “ ‘quite easy for spouses to transmute both real and personal property’ ” because a transmutation could be proved by evidence of an oral agreement between the spouses or by “ ‘implications from the conduct of the spouses.’ ” (Id. at p. 269,272 Cal.Rptr. 153 ,794 P.2d 911 .) This “ ‘rule of easy transmutation ... generated extensive litigation in dissolution proceedings’ ” where it encouraged spouses “ ‘to transform a passing comment into an “agreement” or even to commit perjury by manufacturing oral or implied transmutation.’ ” (Ibid.) As this court has concluded, therefore, in adopting the statutory transmutation requirements the Legislature intended to “to remedy problems which arose when courts found transmutations on the basis of evidence the Legislature considered unreliable.” (Ibid.; accord, In re Marriage of Benson, [(2005)] 36 Cal.4th [1096] at p. 1106,32 Cal.Rptr.3d 471 ,116 P.3d 1152 [the transmutation statute “blocks efforts to transmute marital property based on evidence—oral, behavioral, or documentary—that is easily manipulated or unreliable”].)
Id. at 1401,
In the context of the statutory framework of the marital property transmutation statutes, the California Supreme Court in Valli then addressed some court decisions stating that a transmutation required an interspousal transaction, but that a spouse’s acquisition of an asset from a third party was not an interspousal transaction and thus was exempt from the transmutation requirements. Id. at 1404,
While the court in Valli acknowledged that it had also stated in a prior opinion that it had also defined a transmutation as an “interspousal transaction,” it “did not consider whether this definition excludes spousal purchases during the marriage from third parties with community funds.”
In discussing Summers, the California Supreme Court in Valli noted that it was “[t]he first decision to hold that a spousal purchase from a third party during a marriage was not subject to' the statutory transmutation requirements” and further noted that it “was a bankruptcy proceeding rather than a marital dissolution proceeding.” In re Marriage of Valli
Next, the California Supreme Court in Valli noted that “[t]he year 2008 saw the first decision by a California state appellate court exempting from the transmutation requirements a spousal purchase from a third party” in In re Marriage of Brooks & Robinson,
In analyzing the decisions in Summers and Brooks & Robinson, the California Supreme Court in Valli concluded that those decisions “are not persuasive insofar as they purport to exempt from the transmutation requirements purchases made by one or both spouses from a third party during marriage.” Id. The Valli court stated three reasons why Summers and Brooks & Robinson were unpersuasive:
Neither decision attempts to reconcile such an exemption with the legislative purposes in enacting those requirements, which was to reduce excessive litigation, introduction of unreliable evidence, and incentives for perjury in marital dissolutions proceedings involving disputes regarding characterization of property. Nor does either decision attempt to find a basis for the purported exemption in the language of the applicable transmutation statutes. Also, these decisions are inconsistent with three Court of Appeal decisions stating or holding that the transmutation requirements apply to one spouse’s purchases from a third party during the marriage.
In re Marriage of Valli,
Our examination of the statutory language leads us to reject the purported exemption for spousal purchases from third parties. As we have said, the transmutation statutes provide an express exemption for gifts of relatively inexpensive personal items. (Fam.Code, § 852(a), subd. (e)). Because spouses most often use community funds to purchase such gifts for each other, the statutory exemption necessarily implies that gifts not qualifying for the exemption (because they are “substantial in value” or because they are not items “of a personal nature) are transmutations subject to the express declaration requirement, notwithstanding that a great many, if not most, involve purchases from third parties.
Enactment of the transmutation statutes (Fam.Code, §§ 850-853) abrogated earlier judicial decisions that were inconsistent with statutory requirements. One such decision was In re Marriage of Lucas, supra,27 Cal. 808 ,166 Cal.Rptr. 853 ,614 P.2d 285 , in which this court upheld a trial court’s characterization of a motor home acquired during a marriage as entirely the wife’s separate property. From the husband’s failure to object when title was taken in the wife’s name alone the trial court inferred that the husband had made a gift to the wife of his interest in community funds used to purchase the motor home. (In re Marriage of Lucas, at pp. 817-818,166 Cal.Rptr. 853 ,614 P.2d 285 .) That portion of the decision is no longer good law.
Id. at 1406,
The California Supreme Court in Valli then addressed the reliance of the Court of Appeal on the general evidentiary presumption of California Evidence Code § 662 that record title indicated full beneficial ownership in holding that the California marital property transmutation statute in California Family Code § 852(a) did not apply:
As mentioned, the Court of Appeal here concluded that the transmutation statutes were ‘not relevant to this case’ because the disputed life insurance policy “was acquired from a third party and not through an interspousal transaction.’ After stating that conclusion, which we have determined to be erroneous, the court added: ‘Moreover, [wife] did not contend in the trial court, and does not contend on appeal, that the policy is her separate property through transmutation. Instead, [wife] contends that the policy is her separate property by operation of the form of title presumption.’ Referring to Evidence Code section 662, which states that ‘[t]he owner of the legal title to property is presumed to be the owner of the full beneficial title,’ the Court of Appeal here asserted that ‘because the form of title presumption applies ... a transmutation theory is not involved.’ This reasoning by the Court of Appeal, we also conclude, is erroneous. We need not and do not decide here whether Evidence Code section 662’s form of title presumption ever applies in marital dissolution proceedings. Assuming for the sake of argument thatthe title presumption may sometimes apply, it does not apply when it conflicts with the transmutation statutes.
Id. at 1405-1406,
This court must determine whether it should follow the Ninth Circuit’s decision in Summers or the California Supreme Court’s decision in Valli in applying California law in determining the character of the Real Property as joint tenancy separate property as record title shows or community property based on application of the general community property presumption because these decisions conflict as to the applicability of the marital property transmutation statute in California Family Code § 852(a)' to spousal property purchases from third parties. “In general, prior Ninth Circuit published authority is binding within the Circuit to the same extent as is Supreme Court precedent.” 2 Goelz, Watts and Batalden, Rutter Group Practice Guide: Federal Ninth Circuit Civil Appellate Practice, ¶ 8:154 at 8-22 (2015), citing inter alia, Hart v. Massanari,
“The line between dictum and precedent in a judicial opinion ‘is not always easy to draw.’ ” 2 Goelz, Watts and Batalden, Rutter Group Practice Guide: Federal Ninth Circuit Civil Appellate Practice, ¶ 8:176.1 at 8-31, quoting Cetacean Community v. Bush,
Accordingly, in this case, the court applies the community property presumption in California Family Code § 760 and the marital property transmutation statute in California Family Code § 852(a) as indicated by the California Supreme Court in Valli rather than applying the general record title presumption in California Evidence Code § 662 and not applying the marital property transmutation statute as indicated by the Ninth Circuit in Summers. Thus, the court determines that the Real Property is community property unless Trustee can rebut the evidentiary presumption under California Family Code § 760 by proving by a preponderance of the evidence that Debtor and Mr. Obedian transmuted the Real Property from community property pursuant to the requirements of California Family Code § 852(a).
III. TRUSTEE HAS FAILED TO PROVE BY A PREPONDERANCE OF THE EVIDENCE THAT DEBTOR AND MR. OBE-DIAN TRANSMUTED THE REAL PROPERTY FROM COMMUNITY PROPERTY TO SEPARATE PROPERTY
As discussed herein, after receiving evidence at the evidentiary hearing, the court finds that Trustee failed to show by a preponderance of the evidence that Debtor and Mr. Obedian transmuted the character of the Real Property from community property to separate property in order to rebut the California Family Code § 760 presumption that the Real Property acquired by Debtor and Mr. Obedian during marriage in 2009 was community property. At the evidentiary hearing, Debtor and Mr. Obedian testified that they purchased the Real Property in 2009 during their marriage, that record title they took in the Real Property as joint tenants was not something they intentionally chose, but was something that the real estate agents put down, that their understanding was that the Real Property was community property as property acquired during their marriage, that they made no contemporaneous agreement among themselves to specify that title was to be taken as joint tenants and treated as separate property, that they used their community property funds from the proceeds from the sale of their Tarzana house acquired during marriage to make the down payment on the Real Property, that they used their community property funds from the income from Mr. Obedian’s community property business generated during marriage to make the mortgage payments on the Real Property, and that at no time did they intend to transmute the Real Property from community property to separate property through any written agreements with each other (i.e., the community funds used to purchase the Real Property were not transmuted into separate property) in accordance with the statutory formalities of California Family Code § 852(a). Testimony of Paravaneh Obedian, January 12,, 2016, at 3:29-3:32 p.m.; Testimony of Fred Obedian, January 12, 2016, at 3:45-3:46 p.m. The court finds Debtor’s and Mr. Obedian’s testimony on these points at the evidentiary hearing credible.
At the evidentiary hearing, Trustee presented evidence that after the Real Property was acquired, both Debtor and Mr. Obedian made separate statements that
IV. BECAUSE THE DHCS LIEN IMPAIRS DEBTOR’S EXEMPTION UNDER 11 U.S.C. § 522(f)(2)(A), THE DHCS LIEN MAY BE AVOIDED UNDER 11 U.S.C. § 522(f)(1)
11 U.S.C. § 522(f)(1) provides that “the debtor may avoid the fixing of a lien on an interest of the debtor in property to the extent that such lien impairs an exemption to which the debtor would have been entitled under subsection (b) of this section, if such lien is—(A) a judicial lien ...” or “(B) a nonpossessory, nonpurchase-money security interest....” It is undisputed that the DHCS judgment lien
In determining whether a judicial lien impairs an exemption, under 11 U.S.C. § 522(f)(2)(A):
a lien shall be considered to impair an exemption to the extent that the sum of—(i) the lien; (ii) all other liens on the property; and (in) the amount of the exemption that the debtor could claim if there were no liens on the property; exceeds the value that the debtor’s interest in the property would have in the absence of any liens.
As determined herein, the Real Property is the community property of Debtor and Mr. Obedian, and each of them has a 50 percent ownership interest in the Real Property. California Family Code § 751; see also, 2 Hogoboom and King, California Practice Guide; Family Law, ¶ 8:15 at 8-5 (2015). Thus, Debtor has a fractional interest in the Real Property, which requires a specific formula under 11 U.S.C. § 522(f) in determining whether a judicial lien impairs a claimed homestead exemption by first deducting the full amount of all consensual liens from the property’s total value, then deducting the amount of the homestead exemption from the debtor’s equity interest and then evaluating the attachment and impairment of judgment liens. 4 March, Ahart and Shapiro, California Practice Guide: Bankruptcy, ¶ 21:1450 at 21-165, citing inter alia, In re Meyer,
Debtor in her Motion asserts that the value of the Real Property was $1,150,000.00 based on an appraisal by a licensed real property appraiser. Declaration of Paravaneh Obedian in Support of Motion to Avoid Lien under 11 U.S.C. § 522(f) Real Property, ECF 108 at 5, and Exhibit I attached thereto. There is no dispute over valuation of the Real Property as there is no evidence from Trustee to contradict Debtor’s valuation evidence, and the court finds that the total value of the Real Property is $1,150,000.00. The undisputed evidence also indicates that the amount of a senior consensual lien of Bank of America in a first deed of trust on the Real Property was $969,942.00 based on the bank’s stay relief motion. Declaration of Paravaneh Obedian in Support of Motion to Avoid Lien under 11 U.S.C. § 522(f) Real Property, ECF 108 at 5, and Exhibit B attached thereto. Deducting the amount of this consensual lien of $969,942.00 from the total value of the Real Property of $1,150,000.00 leaves a total net equity of Debtor and Mr. Obedian in the Real Property of $180,057.60. Thus, Debtor’s net equity from her 50 percent community property interest in the Real Property is $90,028.80 ($180,057.60 -s- 2 = $90,028.80). On her Amended Schedule C, Debtor declared a homestead exemption of $175,000.00 in the Real Property pursuant to California Code of Civil Procedure § 704.730. ECF 64. Deducting Debtor’s claimed homestead exemption of $175,000.00 from her net equity in the Real Property of $90,028.80 leaves negative value. Such negative value indicates impairment of Debtor’s exemption on the Real Property from any judgment lien such as the DHCS lien. In re Meyer, 373 B.R. at
Therefore, the court determines that based on. this evidence, the DHCS judgment lien impairs Debtor’s homestead exemption under 11 U.S.C. § 522(f)(2)(A) and may be avoided under 11 U.S.C. § 522(f)(1). For the foregoing reasons, the court should grant Debtor’s Motion to Avoid the DHCS Lien. A separate order granting the Motion is being entered concurrently.
IT IS SO ORDERED.