In re Sinclair

563 B.R. 554

IN RE Richard Carroll SINCLAIR, Debtor.

Case No. 14–91565–E–7

United States Bankruptcy Court, E.D. California.

Signed February 14, 2017

Richard Carroll Sinclair, pro se.

MEMORANDUM OPINION AND DECISION SUSTAINING BIFURCATED OBJECTION TO CLAIM OF EXEMPTION

Ronald H. Sargis, Judge, United States Bankruptcy Court

Gary Farrar, the Chapter 7 Trustee ("Trustee") filed an Amended Bifurcated Objection to Claim of Exemption ("Bifurcated Objection") pursuant to the order of this court on the first Objection to Claim of Exemption. Order, Dckt. 457; Civil Minutes Dckt. 455. The Trustee objects to the "Personal Injury" exemption claimed in a "malicious prosecution suit" under California Code of Civil Procedure § 704.140 filed by Richard Sinclair ("Debtor").¹

Trustee notes that Debtor now asserts that several claims (which are not listed on Schedules B and C) exist against Andrew Katakis, California Equity Management Group, Inc., New Century Townhomes (formerly Fox Hollow of Turlock Owner's Association), and their counsel exist. Such additional purported claims are property of the bankruptcy estate, assets in which Debtor now contends he had previously claimed an exemption on Schedule C. Those additional purported claims include: intentional infliction of emotional distress, stalking, elder abuse, violations of Due Process under the Constitution, and violations of Consumers Legal Remedies Act. Trustee believes that the "malicious prosecution suit" referred to on Debtor's Schedule C is Stanislaus County Superior Court Case No. 668157.

A settlement was reached between the Trustee and the persons against whom Debtor asserts that malicious prosecution claims (and now other purported claims) exist. That settlement (which includes the exchange of general releases, with specified exceptions) was approved by order of the court entered on the Docket on January 10, 2017. Dckt. 537. No appeal was taken from that order.

Upon consideration of the evidence, legal authorities, arguments, the Schedules in this case, the exemption claimed on Schedule C, and the files in this case, the court sustains the Bifurcated Objection and disallows the claim of exemption pursuant to California Civil Code § 704.140 in its entirety.

SUMMARY OF PROCEEDINGS LEADING UP TO THE JANUARY 26, 2017 HEARING ON THIS BIFURCATED OBJECTION TO CLAIM OF EXEMPTION

First Objection to Claims of Exemption

On June 6, 2016, the Trustee filed the first Objection to Debtor's Claim of Exemptions, Docket Control No. HSM–008 (the "First Objection"). Dckt. 445. In the First Objection, the Trustee objected to exemptions claimed in: (1) personal property claimed exempt under the 11 U.S.C. § 522(d) exemptions (which are not permitted under applicable law, discussed infra ), (2) a vehicle, (3) malicious prosecution claim pursuant to the wrongful death exemption, and (4) malicious prosecution claim pursuant to the personal injury exemption.

On August 31, 2016, this court filed an order sustaining the First Objection as to all exemptions identified, except for the one asserted as a personal injury claim exemption. Order, Dckt. 457. The court overruled that objection without prejudice, bifurcating that determination to an amended objection, if one was filed by the Trustee. Id. The court set a deadline for filing and serving an amended objection (which is the Bifurcated Objection now before the court) and set a status conference for December 1, 2016, for the amended objection, if filed.²

Debtor's November 16, 2016 Status Conference Statement

Debtor filed a Status Conference Statement on November 16, 2016. Dckt. 468.³ Debtor recounted the court's August 25, 2016 hearing on the prior objections to claims of exemption and that Debtor did not oppose the ruling sustaining those objections to exemptions. Debtor asserted in the November Status Report that determining what dollar amount to list as exempt pursuant to California Code of Civil Procedure § 704.140 was "too hard" at that time. Debtor further stated that he was seeking to recover $40 Million for the rights the Trustee was in the process of settling. To do so, Debtor intended to file a fourth amended state court complaint.

Trustee's Status Report

The Trustee filed a Status Report on November 17, 2016. Dckt. 472. The Trustee stated that the settlement referenced in his First Objection to Claim of Exemption had been documented and filed with the court. The hearing on approval of that settlement was set for December 15, 2016. See Notice of Hearing, Dckt. 477. Pursuant to the agreement, the settling parties (i.e. , the Katakis et al. cross-defendants in the malicious prosecution suit) shall pay $20,000.00 to the Estate in settlement of the cross-claims within ten days after entry of an Order from the Stanislaus Superior Court dismissing the malicious prosecution action in its entirety. Creditors CEMG/Fox Hollow HOA would also irrevocably withdraw Proof of Claim No. 7–1 in this bankruptcy case.

December 1, 2016 Hearing

The court issued a scheduling order for the hearing on this Bifurcated Objection, continued the matter to 10:30 a.m. on January 26, 2017. The court also established the following schedule for deadlines for the filing of pleadings in connection with this Bifurcated Objection:

A. December 29, 2016, for Debtor to file opposition to the Objection, including all supporting evidence, addressing only his alleged entitlement to the claimed exemption, and no other issues;

B. January 12, 2017, for the Trustee to file a reply to the Debtor's Opposition, as well as any evidence, if any; and

C. January 19, 2017, for Debtor to file a sur-reply, replying only to the issues raised in the Trustee's reply.

Dckt. 500. Additionally, the court set a status conference for the Bifurcated Objection at 2:00 p.m. on December 15, 2016, in conjunction with a hearing on the Trustee's Motion to Approve Compromise of the claims that are the subject of this Bifurcated Objection. That status conference was concluded and removed from the calendar. Dckt. 522.

Debtor's Opposition to Bifurcated Objection to Claim of Personal Injury Exemption

Debtor filed an Opposition on January 11, 2017, in violation of the court's scheduling order requiring that an opposition be filed by December 29, 2016. Dckt. 538. No leave to file an untimely opposition was requested by Debtor.

Though untimely, the court considers the merits of Debtor's Opposition and the exemption claimed. As this court has previously addressed, Debtor is an attorney who was formerly licensed to practice law in the State of California. The court has accepted Debtor's assertions that he is a highly educated attorney, with extensive business experience. See Memorandum and Decision Approving Settlement, pp. 13–14 and Appendix A thereto; Dckt. 535. To the extent that an opposition could be presented, the court is confident that Debtor has presented it to this Bifurcated Objection.

In Debtor's Opposition, he asserts that the court's authority does extend "to alter or interfere with the Debtor's validly claimed exemptions." For legal authority, Debtor first cites to Federal Rule of Bankruptcy Procedure 7052, which incorporates Federal Rule of Civil Procedure 52 in adversary proceedings.

Debtor also cites to a Rule 35 titled "Motion for Reconsideration, or for Decision by a Panel or Full Court." No identification of the source of this "Rule 35" is provided to the court.

The core of Debtor's Opposition is that the bankruptcy court cannot determine the validity and propriety of exemptions claimed by a debtor, citing to the Stern v. Marshall line of cases. As addressed herein, Debtor's contention is without merit.

Trustee's Reply to Debtor's Opposition

The Trustee filed a Reply on January 12, 2017. Dckt. 540. The Trustee notes that after the briefing schedule was set, the court granted on December 15, 2016, the Trustee's Motion for Approval of Compromise. See Dckts. 535 & 537. The Trustee asserts that adjudicating Debtor's Section 704.140 Malicious Prosecution Claims Exemption covering $20,000.00 of the settlement proceeds is now "front and center."

The Trustee asserts that Debtor bears the burden of proof for his claimed exemption, but notes that he has not made a single argument in support of the exemption. Instead, Debtor described all of his alleged damages as coming from business disputes and compensation for loss of property or property rights. The Trustee states that the court—due to Debtor's failure to meet the burden of proof—does not need to reach or determine the issue of what portion of the $20,000.00 in settlement proceeds is necessary to support Debtor, his estranged spouse, and his dependents. Even if the court were to address that issue, Debtor still has not met his burden of proof.

The Trustee requests that the Objection be sustained.

OVERVIEW OF APPLICABLE LAW RE EXEMPTIONS

California has a standard state law set of exemptions that apply to enforcement of a judgment, and a second set of exemptions for debtors in bankruptcy (having opted out of the exemption items and amounts listed in 11 U.S.C. § 522(d) ), which a debtor may elect in lieu of the standard exemptions otherwise available under California law. Diaz v. Kosmala (In re Diaz) , 547 B.R. 329, 334 (9th Cir. BAP 2016). Debtors in California are not permitted to claim exemptions using the federal scheme provided in 11 U.S.C. § 522(d). In re Pashenee , 531 B.R. 834, 837 (Bankr. E.D. Cal. 2015) ; Cal. C.C.P. § 703.130. The exemptions that may be claimed by a debtor in this bankruptcy case are specified in California Code of Civil Procedure § 704.140(a) and (b), which provide in pertinent part as follows:

§ 703.140. Election of exemptions if bankruptcy petition is filed

(a) In a case under Title 11 of the United States Code, all of the exemptions provided by this chapter [Cal. C.C.P. §§ 704.010 —704.995 ], including the homestead exemption, other than the provisions of subdivision (b) are applicable regardless of whether there is a money judgment against the

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