Gottlieb, Chapter 7 Trustee v. Rose

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UNITED STATES BANKRUPTCY COURT
CENTRAL DISTRICT OF CALIFORNIA
SAN FERNANDO VALLEY DIVISION
In re:
Sie Khalil
Debtor(s).
CHAPTER 7
Case No.: 1:12-bk-11156-MT
Adv No: 1:13-ap-01234-MT
David K Gottlieb, Chapter 7 Trustee
Plaintiff(s),
v.
Lawrence D Rose
Defendant(s).
MEMORANDUM OF DECISION RE:
MOTION FOR SUMMARY JUDGMENT
Date: April 30, 2014
Time: 11:00 a.m.
Courtroom: 302
On or about late 2010, Sie Khalil (“Khalil” or “Debtor”) and Lawrence D. Rose (“Rose”
or “Defendant” or “Movant”) were involved in litigation in the Los Angeles Superior Court. As a
result of a compromise and settlement of the litigation between the parties, Khalil and Rose
entered into a real estate transaction together, purchasing real property located at 18431 Arminta
Ave., Reseda, CA 91335 (the "Property"). The parties purchased the Property for $375,000, with
Khalil allegedly contributing $75,000 to the purchase price and Rose allegedly contributing
$300,000.
FILED & ENTERED
MAY 01 2014
CLERK U.S. BANKRUPTCY COURT
Central District of California
BY DEPUTY CLERK	Gonzalez
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The parties applied for a loan together for purchase of the Property, which was secured
by Rose’s portfolio account with MorganStanley. The loan was approved and $300,000 was
wired from MorganStanley to escrow. On or about December 20, 2010, Khalil wired $69,065.99
to escrow. Khalil also provided an additional $11,250 deposit, and the parties split the closing
costs, closing escrow on or about December 21, 2010. The grant deed vested title in Rose and
Khalil as tenants in common.
On or about April 2011, Khalil and Rose entered into a settlement agreement (the
“Settlement Agreement”). The parties dispute whether this Settlement Agreement establishes
their respective interests in the Property based on: (1) their contributions to the purchase price of
the Property and; (2) its terms regarding how the proceeds of a sale of the Property would be
distributed between the parties.
On February 6, 2012, Khalil filed a chapter 7 voluntary petition. David Gottlieb was the
duly appointed trustee (the “trustee”). Debtor’s Schedule D listed the Property with a value of
$312,900 encumbered by a secured debt held by MorganStanley in the amount of $295,000.
Allegedly, on or about April 2012, Debtor stopped making interest payments on the loan,
and Rose needed to make the payments in order to protect his portfolio. On or about June 25,
2012, Rose paid off the $300,000 loan plus $1,256 in interest.
On October 16, 2013, Rose filed a motion for settling property value of co-owned
property (the “Valuation Motion”).1 The Motion sought to have the Court determine Debtor’s
and Rose’s respective interests in the Property. The Valuation Motion asserted that the Court
should find Debtor to have a 20% interest in the Property and Rose an 80% interest in the
Property based on their respective contributions to the purchase price.
On October 22, 2013, the trustee commenced an adversary proceeding under § 363(h) to
sell co-owned property (“Sale Adversary”). The complaint seeks to sell both the estate’s and
Rose’s interests in the Property.
On October 23, 2013, the trustee opposed the Valuation Motion, and Debtor filed a
declaration in opposition thereto. The trustee stated that Rose’s counsel had requested that he
stipulate and agree that Rose has an 80% interest in the Property based on an unexecuted
settlement agreement and unrecorded deed of trust. The trustee refused to agree to such a
stipulation. In opposition to the Valuation Motion, the trustee stated that the issues involved
required an adversary proceeding to be filed; Rose was estopped to deny a 50% interest in the
Property based on prior statements asserting a 50% interest and; that the Valuation Motion failed
to include several material terms regarding the Property. Among other reasons for estoppel, the
trustee pointed to two of Rose’s statements contained in a declaration wherein he stated he was a
half-owner of the Property with Debtor.
On October 29, 2013, Rose filed a reply to the trustee’s opposition.
On November 7, 2013, the Court held hearing on the Valuation Motion and issued a
“notice of tentative ruling re motion for setting property value of co-owned property interests.”
[Compendium Exhibit 16]. On November 14, 2013, the Court entered an order denying the
Motion based on the reasons as outlined in the tentative ruling (“Valuation Order”).2
1 The Court takes judicial notice of the Valuation Motion filed at Docket 71 in the main bankruptcy case, as it is not
included as an exhibit to the MSJ. Fed.R.Evid. 201(b); United States v. Bernal–Obeso, 989 F.2d 331, 333 (9th
Cir.1993) (the Court may take judicial notice of court records).
2 The Court takes judicial notice of the Valuation Order as Docket 90 in the main bankruptcy case.
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On January 15, 2014, Rose filed a motion for summary judgment (“MSJ”) in the Sale
Adversary. The MSJ states that the sole issue before the Court is the ownership interests in the
Property of Debtor and Rose. Specifically, Movant argued that the extent of the interest of a
tenant in common in co-owned property is proportionate to the contributions of the co-owners
pursuant to California law. Motion at 2-6. As a result, Movant contended that he was 80% owner
and entitled to that proportion of the sale proceeds. Motion at 5.
On February 5, 2014, the trustee filed an opposition (the “Opposition”) to the MSJ and
evidentiary objections to the declarations filed in support of the MSJ. The trustee argues that
Rose is prevented from litigating ownership interests in the Property based on the Valuation
Order under claim and issue preclusion as well as judicial estoppel. In the alternative, the trustee
argues that Rose is not entitled to summary judgment, as genuine issues of material fact exist.
On February 12, 2014, Rose filed a reply to the Opposition (the “Reply”). The Reply
reiterates the same arguments about ownership interests based on purchase price contributions
and argues that the Court can reconsider the Valuation Order under FRCP 60(b). Rose contends
that no final judgment has been entered by the Court determining property interests for estoppel
to apply and judicial estoppel is inapplicable because there is no reliance.
The parties have both agreed to sale of the Property pursuant to a joint status report. The
parties have further agreed to allow the sale to move forward despite the dispute regarding
distribution of the sale proceeds.
On March 26, 2014, this Court held oral argument on Rose’s MSJ. Trustee’s counsel
appeared on behalf of the trustee and Defendant’s newly retained counsel appeared on behalf of
Rose. Defendant’s counsel made arguments during oral argument that were not explicitly
contained in Rose’s memorandum of points and authorities in support of the MSJ. In response,
trustee’s counsel made arguments not contained in his opposition. Based on these new
arguments, the Court took the matter under advisement to review the cases cited on the record
and consider the new arguments, which are explained below.
Movant argued that he is entitled to $300,000 reimbursement claim for his respective
contribution in the Property pursuant to California law regardless of the respective interests as
outlined in the grant deed (i.e., the 50% 50% ownership interests). The trustee disagreed with
Movant’s contentions because: (1) the sale of the property will be executed pursuant to the
Bankruptcy Code, which include the trustee’s strong arm powers under § 544(a)(3), giving the
trustee the power to avoid an unperfected security interest as a bona fide purchaser (“BFP”) and;
(2) the presumption under California law that tenants in common hold 50/50% interests in the
Property pursuant to the grant deed governs this dispute.
Evidentiary Objections
The Court has reviewed the trustee’s evidentiary objections, and the Court did not rely on
any of the objectionable evidence in reaching its ruling as outlined below.
Standard
Summary judgment should be granted “if the pleadings, depositions, answers to
interrogatories, and admissions on file, together with the affidavits, if any, show that there is no
genuine issue as to any material fact and that the moving party is entitled to a judgment as a
matter of law. FRCP 56(c) (incorporated by FRBP 7056).
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The moving party has the burden of establishing the absence of a genuine issue of
material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). If the moving party shows the
absence of a genuine issue of material fact, the nonmoving party must go beyond the pleadings
and identify facts that show a genuine issue for trial. Id. at 324. The court must view the
evidence in the light most favorable to the nonmoving party. Bell v. Cameron Meadows Land
Co., 669 F.2d 1278, 1284 (9th Cir.1982). All reasonable doubt as to the existence of a genuine
issue of fact should be resolved against the moving party. Hector v. Wiens, 533 F.2d 429, 432
(9th Cir.1976). The inference drawn from the underlying facts must be viewed in the light most
favorable to the party opposing the motion. Valadingham v. Bojorquez, 866 F.2d 1135, 1137
(9th Cir.1989). Where different ultimate inferences may be drawn, summary judgment is
inappropriate. Sankovich v. Insurance Co. of N. Am., 638 F.2d 136, 140 (9th Cir.1981).
Analysis
The question before the Court is whether a genuine issue of material exists on any of the
required elements of a § 363(h) claim such that judgment may be entered as a matter of law. This
statute reads in relevant part:
(h) Notwithstanding subsection (f) of this section, the trustee may
sell both the estate’s interest, under subsection (b) or (c) of this
section, and the interest of any co-owner in property in which the
debtor had, at the time of the commencement of the case, an
undivided interest as a tenant in common, joint tenant, or tenant by
the entirety, only if—
(1) partition in kind of such property among the estate and such co-
owners is impracticable;
(2) sale of the estate’s undivided interest in such property would
realize significantly less for the estate than sale of such property
free of the interests of such co-owners;
(3) the benefit to the estate of a sale of such property free of the
interests of co-owners outweighs the detriment, if any, to such co-
owners; and
(4) such property is not used in the production, transmission, or
distribution, for sale, of electric energy or of natural or synthetic
gas for heat, light, or power.
Upon review of the parties’ statements of undisputed and disputed material facts, the
parties both argue that the ownership interests of the Property are undisputed facts but for
different reasons. Rose argues that the interests are clearly 80% 20% based on their alleged
respective contributions to the purchase price of the Property as evidenced by the parties’
Settlement Agreement, and the trustee argues that the interests clearly are 50% 50% based on
judicial estoppel and preclusion as per the Valuation Order.
Specifically, Rose asserts that no genuine issue of material fact exists in this adversary as
to the estate’s and co-owner’s interest in the Property based on, inter alia, the Settlement
Agreement between the parties. [Compendium of Exhibits 11]. The trustee argues that genuine
issues of material fact exit as to the accuracy of the factual representations regarding this
agreement.
The trustee also argues, however, that no genuine issue of material fact exists as to the
estate’s and co-owner’s interest in the Property because preclusion applies based on the final
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Valuation Order and judicial estoppel prevents Rose from now asserting an inconsistent position.
The Court notes that there is no trustee cross-motion for summary judgment before the Court.
Moreover, while the parties both assert that there is no genuine issue of material fact as to
the estate’s and co-owner’s interest in the Property, the parties fail to address the other
requirements for sale under §363(h). In other words, a determination of the estate’s and co-
owner’s interests in the Property is merely one part of sale under § 363(h). In a §363(h) action
the plaintiff must also prove that: (1) partition in kind of such property among the estate and such
co-owners is impracticable; (2) sale of the estate’s undivided interest in such property would
realize significantly less for the estate than sale of such property free of the interests of such co-
owners; (3) the benefit to the estate of a sale of such property free of the interests of co-owners
outweighs the detriment, if any, to such co-owners; and (4) such property is not used in the
production, transmission, or distribution, for sale, of electric energy or of natural or synthetic gas
for heat, light, or power.
Here, Defendant has answered the Complaint [Compendium Exhibit 2] and: (1) admits
that partition of the Property is impracticable [¶ 11]; (2) denies the allegation that sale of the
estate’s undivided interest in such property would realize significantly less for the estate than
sale of such property free of the interests of such co-owner [¶12]; (3) denies the benefit to the
estate of a sale of such property free of the interests of co-owners outweighs the detriment, if
any, to such co-owners [¶ 13]; and (4) admits that such property is not used in the production,
transmission, or distribution, for sale, of electric energy or of natural or synthetic gas for heat,
light, or power [¶14]. Therefore, two issues remain that appear to be disputed genuine issues of
material fact as to the § 363(h) claim.
The Court, however, will consider the MSJ presently before it to be a motion for partial
summary judgment as to the issue of the estate’s and co-owner’s interests in the Property. Since
the trustee has not filed a cross-motion for summary judgment, but also argues that no genuine
issue of material fact exists as to this issue, the Court can consider granting partial summary
judgment on these grounds under Federal Rule of Civil Procedure 56(f) (“FRCP”) as made
applicable by Federal Rule of Bankruptcy Procedure 7056. FRCP 56(f) states in relevant part:
(f) Judgment Independent of the Motion. After giving notice and a
reasonable time to respond, the court may:
(1) grant summary judgment for a nonmovant;
(2) grant the motion on grounds not raised by a party; or
(3) consider summary judgment on its own after identifying for the
parties material facts that may not be genuinely in dispute.
Under Rule 56(f) a cross-motion need not be filed for entry of summary judgment in
favor of the opposing party. If there are no factual issues and the opposing party is entitled to
judgment as a matter of law, and the moving party had notice and an adequate opportunity to
address the issues, summary judgment may be granted forthwith. Gospel Missions of America v.
City of Los Angeles, 328 F3d 548, 553 (9th Cir. 2003)(“Even when there has been no cross-
motion for summary judgment, a district court may enter summary judgment sua sponte against a
moving party if the losing party has had a “full and fair opportunity to ventilate the issues
involved in the matter. The salient issues upon which the district court granted summary
judgment were presented in the original motion.”)(citation omitted).
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Accordingly, there are three questions before the Court: (1) whether the evidence
provided by Rose establishes that there is no genuine issue of material fact as to his $300,000
reimbursement claim for an 80% contribution to the purchase price of the Property; (2) whether
Rose is precluded from relitigating the issue of the estate’s and co-owner’s interests in the
Property in this adversary based on the Valuation Order and; (3) whether Rose is estopped from
relitigating the issue of the estate’s and co-owner’s interests in the Property based on the doctrine
of judicial estoppel.
I. DOES THE EVIDENCE ESTABLISH THAT ROSE IS ENTITLED TO REIMBURSEMENT OF
$300,000 BASED ON A CONTRIBUTION OF 80% OF THE PURCHASE PRICE OF THE
PROPERTY?
The Court must first determine whether a genuine issue of material fact exists as to the
respective ownership interests in the Property. The MSJ contends that the Settlement Agreement
and accompanying exhibits establish that Rose contributed $300,000 of the purchase price and
Debtor contributed $75,000, resulting in an 80% interest for Rose and a 20% interest for Debtor.3
At oral argument, Movant’s counsel argued that Rose’s entitlement to $300,000 for
reimbursement for his contribution to the purchase price of the Property was a separate issue
from ownership interests in the Property. To the extent that Movant argues that the
reimbursement issue is a separate and distinct issue from the ownership interests in the Property,
the Court cannot determine how the two issues may be distinguished. Specifically, as discussed
at length below, since the grant deed is an unambiguous legal document, its terms control the
estate’s interest in the Property—and Rose’s reimbursement claim essentially seeks to modify
the terms of the grant deed by asserting a $300,000 claim that may exceed 50% of the sale
proceeds.
State law determines the existence and scope of a debtor’s interest in property. Butner v.
United States, 440 U.S. 48, 54, 99 S.Ct. 914, 917-18, 59 L.Ed.2d 136 (1979). That interest is
determined upon filing the bankruptcy petition and becomes part of the bankruptcy estate at that
time. 11 U.S.C. § 541(a). Accordingly, the Court must look to California law to determine the
existence and scope of Debtor’s interest in the Property.
Rose claims that under California law Debtor’s interest in the Property is proportionate to
the unequal contribution to the purchase price or to improvements to the property. Movant cites
several California cases for this proposition. See, e.g., Schuyler v. Broughton, 70 Cal. 282, 283-
84, 11 P. 719 (1886); Donnelly v. Wetzel, 37 Cal. App. 741, 174 P. 689 (1918); Yeoman v.
Sawyer, 99 Cal. App. 2d 43, 46, 221 P.2d 225 (1950); Demetris v. Demetris, 125 Cal. App. 2d
440, 445, 270 P.2d 891 (1954); Cosler v. Norwood, 97 Cal. App. 2d 665, 218 P.2d 800 (1950);
Kershman v. Kershman, 192 Cal. App. 2d 23, 26, 13 Cal. Rptr. 290 (1961). These cases,
however, do not directly address the issue presently before the Court. This Court is not
adjudicating a partition or reformation action, or a division of community property assets, which
are the subject of the aforementioned cases. This Court is charged with determining property
interests for purposes of a sale pursuant to the Bankruptcy Code.
///
///
3 The Court notes that the Settlement Agreement does not appear to be fully executed, as it is undated but signed.
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i. In re Henshaw; Estoppel by Deed & Parol Evidence
The bankruptcy court and district court in the District of Hawaii were recently faced with
the same issue presently before the Court in In re Henshaw, 485 B.R. 412, 414-15 (D. Haw.
2013). In Henshaw, the appellants and the debtors purchased property for $680,000, with title
vested in the appellants and the debtors as joint tenants. Although the deed vested title in the
appellants and the debtors as joint tenants, the appellant argued that he had paid essentially the
entire purchase price, providing $595,149.20 by refinancing his home in San Diego and $83,000
from funds obtained from his retirement accounts. In comparison, the debtors contributed only
$6,970.20 towards escrow costs. Appellant claimed that the debtors took title as joint tenants
solely for estate planning purposes, not as an indication of equal equitable ownership. The
bankruptcy court rejected the evidence offered by the appellants that sought to contradict the
plain terms of the grant deed. On appeal, the district court affirmed explaining:
The June 22, 2007 Deed provides that Debtors and
Appellants are “joint tenants,” which under Hawaii law
means that they have equal ownership of the subject
properties. See, e.g., Sawada v. Endo, 57 Haw. 608, 613,
561 P.2d 1291, 1295 (1977) (explaining that “a joint tenant
has a specific, albeit undivided, interest in the property, and
if he survives his cotenant he becomes the owner of a larger
interest than he had prior to the death of the other joint
tenant”); De Mello v. De Mello, 24 Haw. 675, 676 (1919)
(stating that “possession of one joint tenant, or tenant in
common, is the possession of all, and all are equally
entitled to the use and enjoyment of the property”). The
parties' dispute centers on whether extrinsic evidence is
admissible to vary the plain terms of the June 22, 2007
Deed. Trustee argues that this dispute is governed by
Midkiff v. Castle & Cooke, Inc., 45 Haw. 409, 368 P.2d 887
(1962), which adopted the parol evidence rule in construing
a deed. In comparison, Appellants argue that the court
should follow Fukunaga v. Fukunaga, 8 Haw.App. 273,
800 P.2d 618 (1990), which allowed extrinsic evidence as
to the joint tenants' true relationship. Although both these
cases are helpful, neither of them answers the question
presented in this action—i.e., whether a joint tenant of a
debtor may present evidence to contradict the plain
terms of the deed where the bankruptcy trustee seeks
the property for the benefit of the bankruptcy estate.
For example, Midkiff outlined basic rules of deed
interpretation in resolving a deed dispute between the
grantor and the successor-in-interest to the grantee. Midkiff
explained that a deed should be construed in accordance
with the intent of the parties, as determined from the
language of the deed and considering all provisions.
Midkiff, 45 Haw. at 415, 368 P.2d at 891. Midkiff further
explained that where there is no ambiguity in the language
used, “the parol evidence rule applies[, and] extrinsic
evidence of the surrounding facts and circumstances
existing prior to, contemporaneously with and subsequent
to the execution of the deed ... is not competent to
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contradict, defeat, modify or otherwise vary the meaning or
legal effect of the deed.” Id. at 421, 368 P.2d at 894
(citations omitted). Although these basic principles are
helpful for general deed interpretation, Midkiff does not
address any exceptions to the parol evidence rule and its
facts are not analogous to this case.
Nor is Fukunaga directly on point. Fukunaga involved a
partition action between two parties (and feuding family
members) that were listed on a deed as joint tenants.
Fukunaga authorized the defendant to present extrinsic
evidence establishing that the plaintiff was included on the
deed because he was a surety to help secure a mortgage and
that he otherwise had no real interest in the property.
Fukunaga, 8 Haw.App. at 275–77, 800 P.2d at 620–21. In
allowing this evidence, Fukunaga rejected the plaintiff's
argument that the parol evidence rule applied, reasoning
that the parol evidence rule “does not operate to exclude
evidence as to the true relationship between the parties on
one side of a written agreement [because] that relationship
is collateral to the written instrument.” Id. at 282, 800 P.2d
at 623 (quoting Lee v. Kimura, 2 Haw.App. 538, 542, 634
P.2d 1043, 1046 (1981)). Rather, this dispute was “between
two of the Grantees,” and any agreement between the
grantees as to “who are the true owners of the Property and
who has a security interest, despite being named a joint
tenant in the deed, does not affect the deed at all.” Id.
Fukunaga is certainly helpful in establishing that in
interpreting a deed, exceptions to the parol evidence rule
exist under appropriate circumstances. But the court rejects
Appellants' argument that Fukunaga is directly analogous
to this case. Specifically, Appellants argue that this case is
similar to Fukunaga because like Fukunaga, this case is
essentially between two joint tenants—Appellants and
Trustee, who under bankruptcy law stands in the shoes of
the Debtor. But in fact, this is not a dispute between two
joint tenants.
Although Appellants correctly state the general maxim of
bankruptcy law that a trustee stands in the shoes of a
debtor, see In re Maunakea, 448 B.R. 252, 266
(D.Haw.2011), the court does not apply such statement
literally to the relationship between Trustee and Debtors.
Rather, when Debtors filed for Chapter 7 bankruptcy,
all of their assets became the property of the
bankruptcy estate. See 11 U.S.C. § 541(a)(1). The
Chapter 7 trustee then administers that estate, not only
as a representative or “in the shoes” of Debtors, but as
both a legal representative and fiduciary of the estate.
The impartial trustee must act in the best interests of
the creditors and the bankruptcy estate, not solely
Debtors. Thus, his “primary job is to marshal and sell
assets, so that those assets can be distributed to the
estate's creditors and then close the estate.” In re AFI
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Holding, Inc., 530 F.3d 832, 845 (9th Cir.2008) (citing In
re Joseph, 208 B.R. 55, 60 (9th Cir. BAP 1997)). Thus,
unlike Fukunaga where at issue was a collateral
agreement between two joint tenants, Appellants seek to
present evidence to change the plain terms of the June
22, 2007 Deed as against Trustee, who was not a party
to the June 22, 2007 Deed or Debtors' subsequent
transfer of their interests to Appellants.
Although Midkiff and Fukunaga do not resolve the parties'
dispute, In re Teranis, 128 F.3d 469 (7th Cir.1997),
addressed the same basic issue presented before this court.
At issue in In re Teranis was whether the debtor (Teranis)
had an interest in a condominium she held in joint tenancy
with her mother (Zarins) such that the bankruptcy trustee
had authority to sell the condominium. In opposing the
sale, Zarins argued that despite the language of the deed
stating that the condominium was held as a joint tenancy,
she was the sole owner and that the applicable state law
(Wisconsin) allowed her to rebut the presumption of equal
ownership. Id. at 471–72. Rejecting this argument, In re
Teranis explained that the cases relied upon by Zarins—
Jezo v. Jezo, 23 Wis.2d 399, 127 N.W.2d 246 (1964) (“Jezo
I”), and Jezo v. Jezo, 23 Wis.2d 399, 129 N.W.2d 195
(1964) (“Jezo II”)—“address only the rights inter sese of
cotenants. They do not deal with the rights of creditors of
one or more of the cotenants.” Id. at 472. Rather, In re
Teranis reasoned that third parties such as creditors
and the bankruptcy trustee must be allowed to rely on
the plain terms of a deed:
We agree with the district court that, if Jezo I were applied
in voluntary bankruptcy cases, “debtors could shield from
creditors assets received as gifts because they did not
contribute to their acquisition.” Memo. Op. at 4. This is
exactly what Teranis attempts to do with the condominium.
Even though her name is on the deed as owner, Teranis
wants to claim that the property is a gift, and, moreover, a
future gift, so that it cannot be taken by her creditors.
Despite Zarins' argument to the contrary, it does not matter
whether she did or did not intend to give one half of the
condominium to Teranis at the signing of the deed or all of
it at her, Zarins', death; the fact remains that Teranis' name
is on the deed now.
Third parties, be they prospective buyers or creditors,
cannot be expected to investigate the possibility of unequal
ownership, as Jezo II made clear; they can rely upon the
face of the deed indicating that each joint tenant has an
equal interest in the property. [The bankruptcy trustee]
relied on the deed to ascertain Teranis' ownership of the
condominium. The district court did not err in finding that
Teranis is a coequal owner of the condominium.
Id.; see also In re Kasparek, 426 B.R. 332, 343–44 (10th
Cir. BAP 2010) (holding that even if the non-
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debtor/joint tenant owned the entire equitable interest
in the property at issue, the trustee stood in the shoes of
a hypothetical bona fide purchaser such that the plain
terms of the deed stating that debtor was a joint tenant
controlled); In re Crawford, 454 B.R. 262, 272
(Bankr.D.Mass.2011) (rejecting argument that joint
tenancy was anything other than equal ownership of
real property).
The court finds In re Teranis persuasive—if third parties
such as creditors cannot rely on the face of a deed, then
any assets held in joint tenancy will require
investigation. It is for this very reason that “creditors
are entitled to rely ‘on the face of the deed,’ ” regardless
of whatever the equitable interests may be between the
joint tenants. See In re Risler, 443 B.R. 508, 510
(Bankr.W.D.Wis.2010) (quoting In re Teranis, 128 F.3d at
472). Indeed, especially in the bankruptcy context, allowing
extrinsic evidence would open the door to collusion given
that joint tenants' interests will often be aligned to shield
assets from the bankruptcy trustee and/or creditors. The
parol evidence rule is designed to prevent this type of
possible fraud—the “rule discourages interested witnesses
to a contract from committing fraud, perjury, or
unintentional invention by making statements that the
contract did not actually represent the agreement of the
parties.” Brinderson–Newberg Joint Venture v. Pac.
Erectors, Inc., 971 F.2d 272, 277 (9th Cir.1992); see, e.g.,
In re Uni–Rty Corp., 191 B.R. 595, 597
(Bankr.S.D.N.Y.1996) (explaining that the parol evidence
rule is “based upon an assumed intention of the parties,
evidenced by an unambiguous written contract, to protect
themselves from the uncertainties of oral testimony,
infirmity of the memory and death of witnesses and to
prevent fraud and perjury”).
. . .
In sum, the court finds that the parol evidence rule applies
to the June 22, 2007 Deed to prevent admission of extrinsic
evidence suggesting that the subject properties were held in
anything other than a joint tenancy. Application of this rule
in this action makes common sense—third parties,
including the Trustee, must be able to rely on the terms
of a recorded deed. Further, the caselaw cited by
Appellants suggests no exception to the parol evidence rule
that would apply under these circumstances. Although, as
the bankruptcy court stated, this may be a “sad and painful”
situation, the court AFFIRMS the bankruptcy court's
summary judgment determination that the June 22, 2007
Deed created a joint tenancy between Debtors and
Appellants such that Debtors were fifty percent owners of
the subject properties.
In re Henshaw, 485 B.R. 412, 417-21 (D. Haw. 2013)(emphasis added).
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Thereafter, the trustee commenced another adversary proceeding to sell the property
pursuant to § 363(h), which the appellants again opposed and appealed. In this related appeal, the
district court again affirmed that the bankruptcy court was correct in applying the parol evidence
rule to prevent appellants from varing the terms of the unambiguous grant deed. In re Henshaw,
CIV. 13-00388 DKW, 2014 WL 185782 (D. Haw. Jan. 13, 2014).
ii. California Law on Estoppel by Deed & Parol Evidence
As the trustee pointed out at oral argument, there is a presumption under California law
that the grant deed properly reflects ownership interests in the property. According to the “form
of title” presumption, the description in a deed as to how title is held is presumed to reflect the
actual ownership interests in the property. In re Marriage of Brooks, 169 Cal. App. 4th 176, 184-
85, 86 Cal. Rptr. 3d 624, 630-31 (2008)(citing In re Marriage of Haines, 33 Cal.App.4th 277,
292, 39 Cal.Rptr.2d 673 (1995); In re Marriage of Broderick, 209 Cal.App.3d 489, 496, 257
Cal.Rptr. 397 (1989)). This common law presumption is codified in Evidence Code section 662,
which provides: The 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. Id.
(quotations omitted). The presumption is based on promoting the public policy in favor of the
stability of titles to property. Allegations ... that legal title does not represent beneficial
ownership have ... been historically disfavored because society and the courts have a reluctance
to tamper with duly executed instruments and documents of legal title. Id. (quotations omitted).
Thus, in the absence of any showing to the contrary, the status declared by the instrument
through which the parties acquired title is controlling. Id. (citations and quotations omitted).
Here, Debtor is presumed to be 50% owner of the subject property under California law
as per the grant deed. The question is whether Rose may admit extrinsic evidence to rebut this
presumption.
As an executed contract, a deed is subject to the rules of interpretation applicable to
contracts in general. When the language of the instrument is clear and explicit, parol evidence
cannot be relied on to show the nature and extent of the rights transferred or acquired. Union
Pacific Railroad Co., 101 Cal. App. 4th 1209, 1214, 125 Cal. Rptr. 2d 100 (2d Dist. 2002). As a
general rule, when any ambiguity is not evident from the face of the instrument (i.e., a “latent”
ambiguity), the deed must be construed solely from an analysis of the plain meaning of the
document itself, and extrinsic evidence is not admissible. Baker v. Ramirez, 190 Cal. App. 3d
1123, 1132, 235 Cal. Rptr. 857, 862 (Ct. App. 1987). This general rule has sometimes been
disregarded in favor of the more modern principle allowing the introduction of extrinsic evidence
to prove a meaning of which the language is reasonably susceptible even when the ambiguity is
not patent, but the latter rule has been criticized when the rights of third parties may be affected.
City of Manhattan Beach v. Superior Court, 13 Cal. 4th 232, 246, 914 P.2d 160, 169
(1996)(permitting extrinsic evidence); but see Abers v. Rounsavell, 189 Cal. App. 4th 348, 358,
116 Cal. Rptr. 3d 860 (4th Dist. 2010)(not permitting extrinsic evidence to vary deed’s terms).
If the original parties are not the only persons with an interest, then a different result may
follow from the application of the doctrines of bona fide purchaser and constructive notice. See
Caito v. United California Bank, 20 Cal. 3d 694, 701-702, 144 Cal. Rptr. 751, 576 P.2d 466
(1978). If there is no ambiguity on the face of the document, and no reference to
information or terms in the recorded document or from the circumstances of the
conveyance that would lead a bona fide purchaser to inquire as to the intent and meaning
of the instrument, then the bona fide purchaser is entitled to rely on the written record and
is not charged with or bound by unstated meanings or by secret or collateral agreements
that add to or alter the written record. Id. (emphasis added). If the ambiguity is apparent on
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the face of the instrument, or there are references in the document that would lead a bona fide
purchaser to inquire, then the successor purchaser or encumbrancer is charged with notice of
what would result by such inquiry; this includes the meaning attached to the language by the
parties as well as any other matters that may affect title. Buehler v. Oregon-Washington Plywood
Corp., 17 Cal. 3d 520, 529, 131 Cal. Rptr. 394, 551 P.2d 1226 (1976). In such cases, extrinsic
evidence of the intent of the parties is admissible to prove the actual intent and meaning of the
instrument. Murphy Slough Assn. v. Avila, 27 Cal. App. 3d 649, 655-656, 104 Cal. Rptr. 136 (5th
Dist. 1972).
The trustee has the status of a bona fide purchaser of real estate and is only subject to
those matters that a bona fide purchaser would take subject to on the petition date. 11 U.S.C. §
544(a). Rose has not presented any evidence showing that the terms of the grant deed were
ambiguous as of the petition date. In fact, during oral argument, Movant’s counsel stated that
Rose would stipulate to a 50% interest in the Property. Accordingly, the introduction of extrinsic
evidence against the trustee as a BFP, as per § 544(a)(3), would be inadmissible to vary the terms
of the grant deed, which is what Rose seeks to do.
As the Henshaw court noted, in the bankruptcy context, allowing extrinsic evidence
where there is no ambiguity on the face of the grant deed would open the door to collusion given
that tenants' interests will often be aligned to shield assets from the bankruptcy trustee and/or
creditors; and application of the parol evidence rule in this action makes common sense—third
parties, including the trustee and the estate’s creditors, must be able to rely on the terms of a
recorded deed.
Although Movant cites to cases where California courts have determined ownership
interests to be proportionate to the tenant’s contributing share of the purchase price of the
property, those cases do not take a bankruptcy case into account, nor do they address the rights
of a BFP in that context. Those cases deal with the parties to the original transaction, where the
rights of third parties are not affected. In those instances, California law would generally permit
parol evidence to determine the true intent of the parties. The trustee’s status as a BFP could be
considered the dispositive factor here, as the trustee and estate creditors should be permitted to
rely on the face of the unambiguous grant deed showing Debtor’s interest in the Property to be a
50% tenant in common.
As a result, Movant is not entitled to partial summary judgment on the issue of
entitlement to reimbursement for his $300,000 contribution to the purchase price because it does
not appear that he is entitled to a judgment as a matter of California law. In fact, the Court grants
partial summary judgment for the non-moving party under FRCP 56(f)(1) since the California
law estops Rose from asserting an interest contrary to that as stated on the face of the
unambiguous grant deed against a BFP trustee.
Based on this ruling, the Court need not address the prior two issues raised in the
Trustee’s Opposition, whether Rose is precluded from relitigating the issue of the estate’s and
co-owner’s interests in the Property in this adversary based on the Valuation Order and; whether
Rose is estopped from relitigating the issue of the estate’s and co-owner’s interests in the
Property based on the doctrine of judicial estoppel. Those issues are moot given that Rose is
estopped from litigating the estate’s interest in the Property based on the unambiguous grant
deed vesting title in Debtor as a 50% owner of the Property as a tenant in common.
///
///
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Defendant’s Motion is DENIED. Partial summary judgment is GRANTED for Plaintiff
under FRCP 56(f) as to the estate’s interest in the Property under §363(h). The remaining issues
to be litigation appear to be: (1) whether the sale of the estate’s undivided interest in such
property would realize significantly less for the estate than sale of such property free of the
interests of such co-owner and; (2) whether the benefit to the estate of a sale of such property
free of the interests of co-owners outweighs the detriment, if any, to such co-owners.
IT IS SO ORDERED.
###
Date: May 1, 2014
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