United States Bankruptcy Appellate Panel of the Ninth Circuit
In re: CLIFFORD ALLEN BRACE, JR., Debtor.
STEVEN M. SPEIER, Chapter 7 Trustee, Appellee. CLIFFORD ALLEN BRACE, JR., INDIVIDUALLY AND AS THE TRUSTEE OF THE CRESCENT TRUST DATED JULY 30, 2004; ANH N. BRACE, INDIVIDUALLY AND AS THE TRUSTEE OF THE CRESCENT TRUST DATED JULY 30, 2004, Appellants, Bk. No. 6:11-26154-SY Adv. No. 6:11-02053-SY
and Submitted on January 19, 2017 at Pasadena, California
from the United States Bankruptcy Court for the Central
District of California Honorable Scott Ho Yun, Bankruptcy
Stephen R. Wade argued for appellants;
Matthew W. Grimshaw of Marshack Hays LLP, argued for
LAFFERTY, TAYLOR, and NOVACK, [*] Bankruptcy Judges.
LAFFERTY, BANKRUPTCY JUDGE.
bankruptcy court found that Debtor's transfers of marital
property into a trust for the benefit of his non-debtor
spouse were avoidable as actually fraudulent conveyances. In
a separate unpublished memorandum decision, we affirmed that
aspect of the bankruptcy court's ruling.
on a recent California Supreme Court decision, Valli v.
Valli (In re Marriage of Valli), 58 Cal.4th 1396, 1400
(2014), the bankruptcy court also determined that while
avoidance of the transfers restored title to the couple as
joint tenants, under California's community property
presumption, the entirety of each property was recoverable by
contend that, notwithstanding Valli, the community
property presumption applies only in the context of property
division in a marital dissolution or legal separation. They
assert that the bankruptcy court should have applied the
record title presumption of Cal. Evid. Code § 662,
rather than the community property presumption of Cal. Fam.
Code § 760, to find that the real properties were held
separately by the spouses and to conclude that only
Debtor's separate interest in the properties was
recoverable by the estate.
reasons set forth below, we AFFIRM the bankruptcy court's
determination that the community property presumption applies
in this context.
their marriage, Debtor and his non-debtor spouse, Anh N.
Brace, acquired their residence in Redlands, California, a
rental property in San Bernardino, California, and a parcel
of real property in Mohave, Arizona (collectively, the
"Properties"). Appellants took title to each of the
Properties as "husband and wife as joint tenants."
30, 2004, Debtor formed the Crescent Trust. The instrument
creating the Crescent Trust states that it is an irrevocable
trust and that Debtor is the sole trustee; Ms. Brace is the
beneficiary of the trust. The trust instrument was not
recorded. Shortly thereafter, Debtor executed and had
recorded trust transfer deeds transferring his interests in
the Redlands and San Bernardino properties into the Crescent
Trust for no consideration. At the time of the transfers,
Debtor was a defendant in litigation in San Bernardino County
Superior Court, and a judgment in that litigation was entered
a few weeks after the transfers occurred.
filed a chapter 7 petition on May 16, 2011, and Robert L.
Goodrich was appointed chapter 7 trustee
("Trustee").In December 2011 Trustee filed an adversary
proceeding against Appellants, individually and in their
capacities as trustees of the Crescent Trust,  seeking: a
declaration that the Properties were property of the
bankruptcy estate; a judgment quieting title to the
Properties in the bankruptcy estate; turnover of any of the
Properties determined to be property of the estate; avoidance
and recovery of Debtor's transfers of the Redlands and
San Bernardino properties into the Crescent Trust as actually
and/or constructively fraudulent transfers under Cal. Civ.
Code § 3439.04(a) (collectively, the "Fraudulent
Transfer Claims"); and revocation of Debtor's
discharge under §§ 727(d)(1) and (d)(2).
trial on the Fraudulent Transfer Claims, the bankruptcy court
ruled in favor of Trustee on the actually fraudulent transfer
and alter ego claims, finding, among other things, that the
transfers of the Redlands and San Bernardino properties into
the Crescent Trust were avoidable and that all three
Properties were recoverable in their entirety by the estate.
The bankruptcy court found not credible Appellants'
testimony that they had intended the Properties to be held
separately and that the transfers were done for estate
the bankruptcy court entered judgment on the Fraudulent
Transfer Claims, Appellants timely moved to amend the
judgment, arguing that the judgment should have provided that
the Properties, as recovered, were owned one half by Debtor
and one half by Ms. Brace as tenants in common and that only
Debtor's interests in the Properties, but not Ms.
Brace's, were property of the estate. The bankruptcy
court disagreed, finding
that although these properties are returned to joint tenancy
between the Debtor and Defendant Anh Brace, the properties
were acquired by the Debtor and Anh Brace during the marriage
with community assets and they presumptively constitute
community property under applicable law. Defendants failed to
establish that the Redlands Property, San Bernardino
Property, or [Mohave] Property were not community in nature
and, therefore, they constitute property of the Estate
pursuant to 11 U.S.C. § 541 and are subject to
administration by the Estate.
Second Amended Judgment, ¶ 6. Thereafter the bankruptcy
court entered an amended judgment clarifying that although
the Properties were restored to joint tenancy as a matter of
title, they were community property under California law and
were thus property of the estate.
timely appealed the amended judgment.
bankruptcy court had jurisdiction pursuant to 28 U.S.C.
§§ 1334 and 157(b)(2)(E), (H), and (J). We have
jurisdiction under 28 U.S.C. § 158.
the bankruptcy court erred in determining that, upon
avoidance of the transfers of the Properties, those
properties were held by Appellants as community property and
were thus property of the estate.
review the bankruptcy court's findings of fact for clear
error, and its conclusions of law de novo. Carrillo v. Su
(In re Su), 290 F.3d 1140, 1142 (9th Cir. 2002). A
finding is clearly erroneous "when although there is
evidence to support it, the reviewing court on the entire
evidence is left with the definite and firm conviction that a
mistake has been committed." Anderson v. City of
Bessemer City, N.C. , 470 U.S. 564, 573 (1985) (citation
review de novo the bankruptcy court's interpretation of
state law. Salven v. Galli (In re Pass), 553 B.R.
749, 756 (9th Cir. BAP 2016). In interpreting California law,
we are bound by decisions of the California Supreme Court,
including reasoned dicta. See Muniz v. United Parcel
Serv., Inc., 738 F.3d 214, 219 (9th Cir. 2013);
Johnson v. Fankell, 520 U.S. 911, 916 (1997) (a
federal tribunal has no authority to place a construction on
a state statute different from the one rendered by the
highest court of the State). And, as we discuss more fully at
Subsection C.3. below, though we are ordinarily bound by
prior decisions of the Ninth Circuit on all matters, if,
subsequent to a Ninth Circuit decision interpreting state
law, the highest court of the state has issued a decision
disagreeing with the Ninth Circuit's interpretation, we
are not bound to follow the Ninth Circuit's
interpretation of that state law any more than a subsequent
Ninth Circuit panel would be. See Miller v. Gammie,
335 F.3d 889, 900 (9th Cir. 2003) (noting that the Circuit is
not bound by its prior decisions when a "relevant court
of last resort has undercut the reasoning underlying the
prior circuit precedent in such a way that the cases are
clearly irreconcilable."); Cf. F.D.I.C. v.
McSweeney, 976 F.2d 532, 535-36 (9th Cir. 1992) (in the
absence of intervening controlling authority, a three-judge
Ninth Circuit panel is bound by its prior decisions
interpreting state and federal law).
to relevant non-bankruptcy law to determine the nature and
extent of a debtor's interest in property. Butner v.
United States, 440 U.S. 48, 55 (1979); Hanf v.
Summers (In re Summers), 332 F.3d 1240, 1242 (9th Cir.
2003). Here the relevant law is California state law. Whether
restoration of the Properties to the transferor(s) on
avoidance of the transfers warranted, in this case, a finding
that the Properties were community assets subject to
administration by the estate in their entirety requires an
analysis of the presumptions found in California statutes,
the application of those presumptions by California courts,
and their application to the facts presented here.
California Presumptions Affecting Property Ownership
appeal, we are concerned with two California presumptions
affecting determinations of the ownership of property. The
first is Cal. Evid. Code § 662 (the "record title
presumption"), which provides generally that "[t]he
owner of the legal title to property is presumed to be the
owner of the full beneficial title. This presumption may be
rebutted only by clear and convincing proof."
second is CFC § 760 (the "community property
presumption"), which provides, "except as otherwise
provided by statute, all property, real or personal, wherever
situated, acquired by a married person during the marriage
while domiciled in this state is community property."
community property presumption applies to property acquired
during marriage unless it is: (1) traceable to a separate
property source; (2) acquired by gift or bequest; or (3)
earned or accumulated while the spouses are living separate
and apart. Valli, 58 Cal.4th at 1400. The community
property presumption may be rebutted by evidence that the
spouses agreed to recharacterize, or "transmute"
the property from community to some other form of ownership.
A transmutation is not valid unless "made in writing by
an express declaration that is made, joined in, consented to,
or accepted by the spouse whose interest in the property is
adversely affected." CFC § 852(a).
record title presumption promotes California's public
policy in favor of the stability of titles to property.
In re Marriage of Haines, 33 Cal.App.4th 277, 294
(1995). And there can be no question that, as a general rule,