Warfield v. Nance

658 B.R. 152

Lawrence J. WARFIELD, Appellant, v. Johnie Lee NANCE, Appellee.

No. CV-23-00504-PHX-DWL

United States District Court, D. Arizona

Signed March 26, 2024

Terry A. Dake, Terry A. Dake Ltd, Phoenix, AZ, for Appellant.

April Maxwell, Maxwell Law Group, Mesa, AZ, Krystal Marie Ahart, James F. Kahn PC, Phoenix, AZ, Shawn Stone, Stone Law Group PLC, Phoenix, AZ, for Appellee.

ORDER

Dominic W. Lanza, United States District Judge

INTRODUCTION

Lawrence J. Warfield ("Appellant") is the trustee of the estate of Johnie Lee Nance ("Debtor"). In May 2022, Debtor filed for bankruptcy. In June 2022, Debtor filed a schedule in which he claimed exemptions for some of his assets, including a property located in Wellton, Arizona (the "Property") and a recreational vehicle located in Wellton, Arizona (the "RV"), under Arizona law. In September 2022, Appellant objected to those exemptions. Instead of responding directly, Debtor amended his schedule to claim exemptions under Washington law. Appellant later objected to those exemptions. The bankruptcy court eventually issued final orders sustaining both sets of objections and denying Debtor's claimed state-law exemptions.

Afterward, Debtor once again amended his schedule, this time claiming exemptions under federal law, including exemptions for the Property and RV under the federal homestead exemption. Appellant, in turn, objected on various grounds, including that the claimed federal exemptions were barred by principles of res judicata.

In March 2023, after full briefing and a hearing, the bankruptcy court overruled Appellant's objections. The court granted Debtor's exemption in the Property under the federal homestead exemption, 11 U.S.C. § 522(d)(1), and held sua sponte that Debtor could exempt the RV under the federal wildcard exemption, 11 U.S.C. § 522(d)(5).

In this appeal, Appellant raises two issues—(1) whether the bankruptcy court erred in overruling his res judicata-based objection to Debtor's federal exemptions in the Property and RV; and (2) whether the bankruptcy court erred in sua sponte granting Debtor an exemption in the RV under 11 U.S.C. § 522(d)(5). (Doc. 1.) For the following reasons, the Court agrees with Appellant on both points. Accordingly, the bankruptcy court's decision is reversed.

BACKGROUND

I. Relevant Factual Background

On May 31, 2022, Debtor filed a petition for bankruptcy in the United States Bankruptcy Court for the District of Arizona. (Doc. 4-1.)

On June 10, 2022, Debtor filed a form listing his assets, including the Property; a timeshare in Fife, Washington; a Dodge Ram vehicle; a Hyundai Tucson vehicle; a utility vehicle; the RV; household goods and electronics; clothing; jewelry; cash; savings accounts; checking accounts; an outdoor shed located in Wellton, Arizona; and a water softener. (Doc. 4-2 at 4-11.)

That same day, Debtor filed a schedule claiming exemptions for some of his assets under Arizona law (the "Arizona Schedule"). (Id. at 12-13.) On the Arizona Schedule, Debtor checked a box indicating that he was "claiming state and federal non-bankruptcy exemptions. 11 U.S.C. § 522(b)(3)." (Id. at 12.) Debtor then listed the assets, the relevant exemption under Arizona law, and amount of exemption for each asset: (1) the Property for $38,997.64 under A.R.S. § 33-1101(A); (2) the Hyundai Tucson for $6,000 under A.R.S. § 33-1125(8); (3) the RV for $250,000 under A.R.S. § 33-1101(A); (4) household goods for $1,000 under A.R.S. § 33-1123; (5) household electronics for $200 under A.R.S. § 33-1123; (6) clothing for $60 under A.R.S. § 33-1125(1); (7) a ring for $50 under A.R.S. § 33-1125(1); (8) a watch for $20 under A.R.S. § 33-1125(6); and (9) a checking account for $300 under A.R.S. § 33-1126(A)(9). (Id. at 12-13.) The provision that Debtor invoked with respect to the Property and RV, A.R.S. § 33-1101(A), is Arizona's homestead exemption.

On September 20, 2022, Appellant filed an objection to Debtor's exemptions in the Arizona Schedule. (Doc. 4-4.) Appellant argued, in relevant part:

[D]ebtor lived in the state of Washington from "2014" until "7/2020". Since this bankruptcy case was filed on May 31, 2022, the 730 day look back period of 11 U.S.C. § 522(b)(3)(A) extends to May 31, 2020, which is when [Debtor] still lived in Washington. And, since [Debtor] did not exclusively live in Arizona for the full 730 days prior to bankruptcy, then [Debtor's] exemptions are determined by the place where [Debtor] lived during the 180 days prior to the 730 days (approx. Nov. 2019 through May 2020) . . . . [Debtor] is not, therefore, entitled to the Arizona exemptions which [Debtor] has claimed.

(Id. at 2-3.) The objection notified Debtor that his "rights may be affected" by Appellant's objection and that:

If you do not want the court to sustain [Appellant's] objection to the claimed exemptions and disallow them or if you want the court to consider your views on [Appellant's] objection, then on or before October 13, 2022 you or your attorney must file with the Court a written response requesting a hearing on [Appellant's] objection . . . . If you or your attorney do not take these steps, the Court may decide that you do not oppose [Appellant's] objection and may enter an order that sustains [Appellant's] objection and disallows those exemptions to which [Appellant] has objected.

(Id. at 3-4, emphases omitted.)

That same day, Debtor amended the Arizona Schedule by adding assets, removing references to Arizona's statutory scheme, and claiming exemptions in his assets under Washington law. (Doc. 4-5 [hereinafter the "Washington Schedule"].) On the Washington Schedule, Debtor checked a box indicating that he was "claiming state and federal nonbankruptcy exemptions. 11 U.S.C. § 522(b)(3)." (Id. at 2.) Then Debtor listed the assets, the relevant exemption under Washington law, and amount he claimed as exempt for each asset: (1) the Property for $38,997.64 under RCW §§ 6.13.010, 6.13.020, 6.13.030; (2) the Hyundai Tucson for $3,250 under RCW § 6.15.010(1)(d)(iii); (3) the RV for $250,000 under RCW §§ 6.13.010, 6.13.020, 6.13.030; (4) household goods for $1,000 under RCW § 6.15.010(1)(d)(i); (5) household electronics for $200 under RCW § 6.15.010(1)(d)(i); (6) clothing for $60 under RCW § 6.15.010(1)(a); (7) a ring for $50 under RCW § 6.15.010(1)(a); (8) a watch for $20 under RCW § 6.15.010(1)(a); (9) cash for $3 under RCW § 6.15.010(1)(d)(ii); (10) a savings account for $4.07 under RCW § 6.15.010(1)(d)(ii); (11) a checking account for $300 under RCW § 6.15.010(1)(d)(ii); (12) an outdoor shed for $0 under RCW §§ 6.13.010, 6.13.020, 6.13.030; and (13) a water softener for 100% of its unspecified value under RCW §§ 6.13.010, 6.13.020, 6.13.030, 6.15.010(1)(d)(ii). (Id. at 2-4.)

On October 14, 2022, Debtor responded to Appellant's objection to his exemptions in the Arizona Schedule. (Doc. 4-6.) Debtor argued that the Washington Schedule should serve as his response to Appellant's objection and that "[i]n light of [the Washington Schedule], Trustee's Objection should be overruled as moot." (Id. at 2.)

Later that day, Appellant filed a reply. (Doc. 4-7.) Appellant argued that Debtor's response "should be stricken and/or disregarded" because it was "untimely"—the deadline to respond was October 13, 2022—and that Appellant's objection to the Arizona Schedule should be sustained. (Id. at 3-4.) Appellant argued that his "objection is not moot as [Debtor] asserts" because "absent an order sustaining [Appellant's] pending objection, there is nothing to prevent [Debtor] from reverting to the prior [Arizona] exemptions later in the case" which would lead to "a never ending change in exemptions." (Id. at 3.)

On October 17, 2022, the bankruptcy court issued a final order sustaining Appellant's objection to Debtor's exemptions under Arizona law in the Arizona Schedule. (Doc. 1 at 21 [bankruptcy court docket entry 57].)¹

On October 19, 2022, Appellant filed an objection to Debtor's exemptions in the Property and RV under Washington law in the Washington Schedule. (Doc. 4-9.) Appellant argued that, as recognized in In re Wieber, 182 Wash.2d 919, 347 P.3d 41 (2015), "Washington's homestead exemption only applies to property located in Washington," and because the Property and RV were located in Arizona, "the homestead exemption claimed by [Debtor] in his Arizona real estate, and in his RV which is located upon his Arizona real estate, cannot be allowed." (Id. at 3.)² The objection notified Debtor that he must file a written response by November 14, 2022, otherwise "the Court may decide that you do not oppose [Appellant's] objection and may enter an order that sustains [his] objection and disallows those exemptions to which [he] has objected." (Id. at 4-5.)

On November 23, 2022, after Debtor failed to respond, the bankruptcy court issued a final order sustaining Appellant's objection and denying Debtor's asserted exemptions in the Property and RV under Washington law in the Washington Schedule: "No response or opposition thereto having been filed and served; and [g]ood cause appearing. It is ordered that [Appellant's] objection . . . is sustained. The homestead exemptions asserted by [Debtor]" in the Property and RV "are denied." (Doc. 4-10 at 2, cleaned up.)

On December 19, 2022, Debtor amended the Washington Schedule by adding an asset, removing references to Washington law, and claiming exemptions under federal bankruptcy law (the "Federal Schedule"). (Doc. 4-11.) On the Federal Schedule, Debtor checked a box indicating that he was "claiming federal exemptions. 11 U.S.C. § 522(b)(2)." (Id. at 2.) Then Debtor listed the assets, the relevant federal exemption statute, and amount he claimed as exempt for each asset: (1) the Property for $5,000 under 11 U.S.C. § 522(d)(1); (2) the Hyundai Tucson for $1,210 under 11 U.S.C. § 522(d)(2); (3) the RV for $5,000 under 11 U.S.C. § 522(d)(1); (4) household goods for $1,000 under 11 U.S.C. § 522(d)(3); (5) household electronics for $200 under 11...