Burke v. Larsen (In re Larsen)

In re: JASON ANDREW LARSEN and CAMI

CHERRIE LARSEN, Debtors.

CHRISTOPHER BURKE, Chapter 7 Trustee, Appellant, v. JASON ANDREW LARSEN;

CAMI CHERRIE LARSEN, Appellees.

BAP No. NV-20-1133-FBG

UNITED STATES BANKRUPTCY APPELLATE PANEL OF THE NINTH CIRCUIT

November 3, 2020

NOT FOR PUBLICATION

Bk. No. 3:20-bk-50069-BTB

CORRECTED MEMORANDUM^*

Appeal from the United States Bankruptcy Court for the District of Nevada

Bruce T. Beesley, Bankruptcy Judge, Presiding

Before: FARIS, BRAND, and GAN, Bankruptcy Judges.

INTRODUCTION

Chapter 7¹ debtors Jason Andrew Larsen and Cami Cherrie Larsenwere living in Nevada when they filed for bankruptcy protection and claimed the Nevada homestead exemption for their house located in Washington state. Chapter 7 trustee Christopher Burke ("Trustee") objected, arguing that the Nevada homestead exemption does not extend to extraterritorial property. He also argued that the Larsens' Washington property was not their homestead because they had not resided at the property for over six years while Mr. Larsen was stationed elsewhere in military service. The bankruptcy court overruled the objection, finding that the Larsens intended to return to their home in Washington and holding that they should not be denied a homestead exemption merely because the family was away due to Mr. Larsen's military service.

We hold that the Trustee argued for the correct result, although not for correct reasons. The Larsens were not entitled to any Nevada exemptions because they were domiciled in Washington. Accordingly, we VACATE and REMAND.

FACTUAL BACKGROUND

A. Prepetition events

Mrs. Larsen has owned a house in Oak Harbor, Washington (the "Washington Property") as her separate property since 2003. She and herhusband resided in the Washington Property until 2014.

Mr. Larsen has served in the U.S. Navy for over twenty-five years. He was stationed in Santa Rita, Guam between July 2014 and August 2017. In September 2017, he was transferred to a naval air station in Fallon, Nevada. In total, the Larsens lived outside of Washington for nearly six years prior to the petition date. During that period, they used the Washington Property as a rental property at times. It was occupied by a family member on the petition date.

B. The Larsens' chapter 7 bankruptcy petition

On January 18, 2020, the Larsens filed a chapter 7 petition in the District of Nevada. They listed their address as Fallon, Nevada and indicated that they filed the petition in the District of Nevada because they had lived there longer than any other district in the 180 days before the petition date.

The Larsens scheduled the Washington Property as Mrs. Larsen's separate property. They claimed a homestead exemption in the Washington Property under Nevada Revised Statutes ("NRS") sections 21.090(1)(l) and 115.050 for "100% of fair market value, up to any applicable statutory limit."

C. The Trustee's objection

The Trustee filed an objection to the homestead exemption (the "Objection"). First, he argued that, in order to claim a homesteadexemption under Nevada law, the debtor must actually reside at the property. However, the Larsens had not lived at the Washington Property for at least six years, and a family member was currently living at the property.

Second, he argued that the Nevada homestead exemption protects only real property within Nevada. Therefore, NRS sections 21.090(1)(l) and 115.050 cannot apply to the Washington Property.

The Trustee also argued that the Larsens' disclosures about the Washington Property were false. He said that the Washington Property was worth $280,000 (based on a Zillow valuation), not $252,600 as the Larsens listed on their schedules. He also stated that the Larsens only owed $110,000 on the mortgage, not $252,600.

In response to the Objection, the Larsens stated that they regarded the Washington Property as their permanent home. They asserted that their driver's licenses indicate that their residence is at the Washington Property and that Mr. Larsen's earnings statement lists his legal state of residence as "WA." They represented that they paid Washington real property taxes under the state's homestead laws. They also stated that they intended to return to the Washington Property when Mr. Larsen completed his service in June 2020 and that a family member was only "house-sitting" theproperty in their absence.²

They also relied on the Servicemembers Civil Relief Act ("SCRA"). They contended that a strict application of the homestead law in bankruptcy "violates the spirit if not the letter of the SCRA." They cited an SCRA section (50 U.S.C. § 4025) providing that a servicemember's residence shall not be changed "[f]or the purposes of voting." They argued that they were only living in Nevada "under orders of the U.S. Navy" and were "obligated to file in Nevada under the dictates of 28 U.S.C. § 1408."

The Larsens also argued that the Nevada homestead exemption can apply to properties in other states. They relied on Arrol v. Broach (In re Arrol), 170 F.3d 934 (9th Cir. 1999), where the Ninth Circuit allowed a Michigan debtor to file for bankruptcy protection in California and claim a California exemption for real property located in Michigan.

After a hearing, the bankruptcy court overruled the Objection. It held that "Debtors' homestead exemption on [the Washington Property] is allowed because Debtor, Jason Andrew Larson [sic], is in the military[.]"

The Trustee timely filed a notice of appeal.

JURISDICTION

The bankruptcy court had jurisdiction pursuant to 28 U.S.C. §§ 1334and 157(b)(2)(B). We have jurisdiction under 28 U.S.C. § 158.

ISSUE

Whether the bankruptcy court erred in overruling the Trustee's Objection to the Larsens' homestead exemption.

STANDARDS OF REVIEW

We review de novo the bankruptcy court's construction and application of state exemption laws. Klein v. Anderson (In re Anderson), 613 B.R. 279, 281 (9th Cir. BAP 2020) (citing Cisneros v. Kim (In re Kim), 257 B.R. 680, 684 (9th Cir. BAP 2000)); see also Kelley v. Locke (In re Kelley), 300 B.R. 11, 16 (9th Cir. BAP 2003) ("[Q]uestions regarding the right of a debtor to claim exemptions are questions of law subject to de novo review, whereas the issue of a debtor's intent is a question of fact to be reviewed under the clearly erroneous standard.") (citing Coughlin v. Cataldo (In re Cataldo), 224 B.R. 426, 428-29 (9th Cir. BAP 1998))). "De novo review requires that we consider a matter anew, as if no decision had been made previously." Francis v. Wallace (In re Francis), 505 B.R. 914, 917 (9th Cir. BAP 2014).

"[A]n appellate court can review an issue not raised nor objected to prior to appeal if necessary to prevent manifest injustice." Retail Flooring Dealers of Am., Inc. v. Beaulieu of Am., LLC, 339 F.3d 1146, 1150 n.5 (9th Cir. 2003) (citing Alexopulos v. Riles, 784 F.2d 1408, 1411 (9th Cir. 1986)); see Washington v. Real Time Resolution, Inc. (In re Washington), 602 B.R. 710, 716 (9th Cir. BAP 2019) ("While we generally do not consider arguments notmade to the bankruptcy court, there is an exception to that rule when the issue is purely one of law, and the opposing party will suffer no prejudice as a result of the failure to address the issue in the bankruptcy court." (citing Enewally v. Wash. Mut. Bank (In re Enewally), 368 F.3d 1165, 1173 (9th Cir. 2004))); Barry v. BA Props., Inc. (In re Barry), 201 B.R. 820, 825 (C.D. Cal. 1996) (holding that district court would consider issue not raised in the bankruptcy court where "a plain error has occurred and injustice might result if the appellate court does not address it").

DISCUSSION

Both the Trustee and the Larsens assume that the Larsens may employ the Nevada exemptions. Their arguments focus on whether the Nevada exemptions can apply to property outside of Nevada and whether, under Van Meter v. Nilsson (In re Nilsson), 315 P.3d 966 (Nev. 2013), a debtor may claim a Nevada homestead exemption in property which the debtor does not currently occupy. These arguments present challenging questions. The Nevada statutes do not directly address whether the Nevada homestead exemption can be applied outside of Nevada, and it is unclear whether the broad language of Nilsson would control given the different facts of this case.

Federal courts hesitate to decide questions of first impression under state law. See, e.g., Keown v. Tudor Ins. Co., 621 F. Supp. 2d 1025, 1031-32 (D. Haw. 2008) ("When state law is unclear, '[a]bsent a strong countervailingfederal interest, the federal court should not elbow its way . . . to render what may be an "uncertain" and "ephemeral" interpretation of state law.'" (quoting Mitcheson v. Harris, 955 F.2d 235, 238 (4th Cir. 1992))); Millar v. Bay Area Rapid Transit Dist., 236 F. Supp. 2d 1110, 1120 (N.D. Cal. 2002) (declining to decide "issues of first impression, . . . [because] if such issues are to work their way up through the appellate courts, comity dictates that it should be California appellate courts, not federal courts, that resolve such issues"); Forsberg v. Pac. Nw. Bell Tel. Co., 623 F. Supp. 117, 127-28 (D. Or. 1985), aff'd, 840 F.2d 1409 (9th Cir. 1988) (declining to rule on "issues of first impression more appropriately settled in the state courts"). Considerations of federalism mean that federal courts should generally give state courts the first opportunity to address novel issues of state law. In this case, we need not answer these questions, because the parties' shared assumption is incorrect: the Larsens may not employ any of the Nevada exemptions.

Section 522 provides for two sets of exemptions. The first set consists of the exemptions provided under non-bankruptcy federal law and under state or local law of the place of the debtor's "domicile."³ The second set is listed in § 522(d); but this set is not available if the debtor's domiciliarystate has "opted out" of the federal exemptions. Drummond v. Urban (In re Urban), 375 B.R. 882, 888 (9th Cir. BAP 2007).

Thus, under § 522(b), the...