Daff v. Wallace (In re Cass)

Summarized by Thomas Phinney , Felderstein Fitzgerald Willoughby Pascuzzi & Rios LLP
12 years 10 months ago

Citation:

9th Cir. BAP, April 11, 2013 (BAP No. CC-12-1513-KiPaTa) (unpublished)

Tag(s):

Ruling:

Chapter 7 Trustee, who avoided fraudulent transfer of the Debtor's Residence, took property subject to judgment lien, even though at the time the abstract of judgment was recorded, the Debtor had previously (fraudulently) transferred title. "The Debtor held an equitable interest in the Residence at the time the Judgment Creditors recorded their abstract, and that equitable interest was subject to attachment by her creditors. Because their perfected judgment lien attached to [the Debtor's] equitable interest in the Residence pursuant to CCP § 697.340(a), Trustee took the Residence subject to the Judgment Creditors’ senior interest when he avoided and recovered it, . . . and [thus] Trustee must apply the sale proceeds from the Residence to satisfy the Judgment Creditors’ claims against [the Debtor]. The Trustee had previously been permitted to pay administrative expenses from the sale proceeds.

Procedural context:

BAP affirmed bankruptcy court judgment following trial in favor of Judgment Creditors and against Chapter 7 Trustee.

Facts:

Creditors sued Debtor for nuisance and defamation. During the litigation, the Debtor transferred her Residence to her daughter for no consideration, reserving a life estate, and with her daughter's agreement that the Residence would be transferred back upon request of the Debtor. Creditors then also filed a fraudulent transfer action against the Debtor and her daughter. Creditors obtained a judgment in the nuisance lawsuit, including punitive damages, which the Debtor appealed. Judgment Creditors recorded an abstract of judgment against the Debtor, although the Debtor had already transferred title to her Residence. After Debtor filed a chapter 7 petition, the chapter 7 trustee substituted into the fraudulent transfer action and removed it to bankruptcy court, and obtained a stipulated judgment avoiding the transfer of the Residence. The Debtor then died, which resulted in a dismissal of the then pending appeal of the state court judgment. The Trustee then filed a declaratory relief action that Judgment Creditors did not have a lien on the Residence. The Trustee sold the Residence, with the disputed lien attaching to the sale proceeds, and paid administrative expenses out of the sale proceeds. The bankruptcy held a trial and ruled that the Debtor held equitable ownership of the Residence at the time of the recording of the abstract, such that when the Trustee avoided the transfer, the Residence came into the estate subject to the judgment lien. This was true notwithstanding the fact that that the Judgment Creditors had not expressly argued that a constructive trust or resulting trust should be imposed on the Residence. The BAP also affirmed the rulings of the bankruptcy court that issue preclusion and judicial estoppel did not prevent the Judgment Creditors from enjoying the status of perfected secured creditor as to the sale proceeds of the Residence.

Judge(s):

Kirscher, Pappas, and Taylor affirmed the judgment of Robert Kwan.

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