Rund v. R.F.F. Family Partnership, LP et al

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UNITED STATES BANKRUPTCY COURT
CENTRAL DISTRICT OF CALIFORNIA
LOS ANGELES DIVISION
In re:
CHRISTOPHER EBERTS
Debtor.
____________________________________
JASON M. RUND, Chapter 7 Trustee,
Plaintiff,
v.
R.F.F. FAMILY PARTNERSHIP, LP and
RONALD TUTOR,
Defendants.
____________________________________
Case No. LA 09-12534 ER
Chapter 7
Adv. No. 10-01559 ER
MEMORANDUM OF DECISION UPON
REMAND
KRISTIN EBERTS,
Intervener and Counter-claimant,
v.
R.F.F. FAMILY PARTNERSHIP, LP and
JASON RUND, Chapter 7 Trustee,
Counter-defendants.
FILED & ENTERED
JAN 13 2014
CLERK U.S. BANKRUPTCY COURT
Central District of California
BY DEPUTY CLERK	gonzalez
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On July 10, 2013, the United States District Court entered an
Order Reversing and Remanding in Part and Affirming in Part the
Bankruptcy Court’s Memorandum of Decision and Judgment after trial
(“Remand Order”). On August 30, 2013, Kristin Eberts (“K. Eberts”)
filed a Motion for Determination and Resolution of Issues from
Appellate Order (“Motion”); oppositions and replies were subsequently
filed. On September 19, 2013, this Court ordered further briefing on
the remanded issues and took the matter under submission as of
November 15, 2013.
The facts underlying this dispute are set forth in the Court’s
Memorandum of Decision entered on July 11, 2013 and will not be
repeated here. After consideration of the issues upon remand, and
for the reasons set forth fully below, the Court finds that title to
the real property at issue located at 11496 Orum Road, Los Angeles,
CA (“Orum Property”) was held in joint tenancy as of October 10, 2007
under In re the Marriage of Marsden, 130 Cal.App.3d 426 (1982) and In
re the Marriage of Neal, 153 Cal.App.3d 117 (1984), reversed on other
grounds by In re Marriage of Buol, 39 Cal.3d 751 (1985). Moreover,
Ronald Tutor (“Tutor”) had no moral obligation to payoff the liens
senior to that of RFF Limited Partnership, LP (“RFF”); therefore,
equitable subrogation does not apply herein. Finally, K. Eberts has
no contribution rights impacting RFF’s lien.
//
//
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I
ISSUES ON REMAND
The District Court remanded this matter, in part, for this Court
“to make factual finding necessary to determine (1) the Eberts
marital community’s pro tanto interest in the Orum Property as of
October 10, 2007 under the Moore/Marsden rule, and (2) whether the
Orum Property was community property as of October 10, 2007, based on
the reasoning of In re Marriage of Neal.” Remand Order at 12. The
District Court further directed this Court to “determine whether
[Tutor] acted pursuant to a moral obligation and whether equitable
subrogation is appropriate under the ‘dictates of equity, good
conscience, and public policy[,]’” and to determine K. Ebert’s rights
of subrogation, contribution or reimbursement, if any. Remand Order
at 15-16.
II
DISCUSSION
A. The Orum Property was not community property under Neal as of
October 7, 2007.
The Court shall first address whether the Orum Property is
community property under Neal, since resolution of this issue could
alone dispose of the declaratory relief claims of the Trustee and K.
Eberts. The Court initially notes that by stating that “to the
extent [Neal] should apply in this case,” the District Court did not
definitively find that Neal governs herein. Remand Order at 12
(emphasis added). RFF contends that Neal is inapplicable because it
relies on a community property presumption set forth in Cal.Civ.C.
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4800.1 (now Cal.Fam.C. § 2581), which applies only to division of
property in dissolution of marriage or legal separation proceedings.
The Court agrees with RFF. The Law Revision Commission
Comments (“Comments”) to Cal.Fam.C. § 2581 provides that this
provision “continues former Civil Code Section 4800.1(b) without
substantive change.” Moreover, the Comments further state that the
“community property presumptions created by Section 2581 are
applicable only in dissolution and legal separation proceedings.”
Courts also have limited § 4800.1/2581’s community property
presumption to division of property disputes. See In re Marriage of
Brooks, 169 Ca.App.4th 176, 188 (2008) (“Family Code section 2581 (the
recodification of former Civ.Code, § 4800.1) applies only to the
‘division of property on dissolution of marriage or legal separation
of the parties.’” This case involves a dispute between a spouse and a
purchaser of the subject property.); Rhoads v. Jordan (In re Rhoads),
130 B.R. 565, 567 (Bankr. C.D.Cal. 1991) (“The language of § 4800.1
clearly limits its application to dissolution of marriage.”);
Schwaber v. Reed (“In re Reed”), 89 B.R. 100, 105 (Bankr. C.D.Cal.
1988), aff’d 940 F.2d 1317 (9th Cir. 1991)(Section 4800.1 “is, by its
terms, applicable only in division-of-property disputes that occur
upon dissolution of marriage or legal separation.”).
Consequently, since this action does not involve division of
property upon dissolution or legal separation, the presumption of
community property in § 2581 and Neal, which relied on this
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presumption, does not apply herein. Rather, as set forth in Hanf v.
Summers (In re Summers), 332 F.3d 1240, 1243 (9th Cir. 2003)
(citations omitted), which also did not involve a dissolution
proceeding or legal separation,
[w]here ‘[t]he grant deed specifically states the
property is joint tenancy property,’ this ‘rebuts the
community property presumption . . .’ ‘[T]he general
community property presumption is rebutted by the
affirmative act of specifying joint tenancy title in the
deed. Property taken in joint tenancy is presumed to be
held as joint tenancy property, with each spouse owning
an undivided one-half interest.’1
Id.
Consequently, the Orum Property did not become community property
when K. Eberts transferred title to herself and the Debtor using the
language “husband and wife, as joint tenants,” based on the
presumption relied upon in Neal. Trial Exhibit (“T.E.”) 57. The
Court, therefore, further finds that the Orum Property was not
community property on October 10, 2007 under Neal.
B. Even applying the Moore/Marsden rule, there was sufficient
equity in the Debtor’s one-half joint tenancy interest in the
Orum Property to support RFF’s $1 million lien.
Notwithstanding, the District Court instructs this Court to
apply the Moore/Marsden rule and make factual findings to determine
whether the marital community acquired an interest (partially or
1 The community property presumption referred to by the Ninth Circuit
in Hanf was the general presumption set forth in Fam.C. § 760. See
also, Reed, 89 B.R. at 105 (Because dispute regarding
characterization of property did not involve dissolution or legal
separation, the relevant provision was not § 4800.1, but Cal.Civ.C. §
5110 (now Fam.C. § 760).).
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wholly) in the Orum Property by making mortgage payments and capital
improvements. Under the Moore/Marsden rule,
’[w]here community funds are used to make payments on
property purchased by one of the spouses before marriage
‘the rule developed through decisions in California gives
to the community a pro tanto community property interest
in such property in the ratio that the payments on the
purchase price with community funds bear to the payments
made with separate funds.’
In re the Marriage of Marsden, 130 Cal.App.3d 426, 436 (1982)
(citations omitted).
Courts also apply the Moore/Marsden rule “with equal force to
capital improvements, as a matter of both logic and fairness.” Bono
v. Clark, 103 Cal.App.4th 1409, 1423 (2003); In re Marriage of Allen,
96 Cal.App.4th 497, 501 (2002). However, “care must be taken to
include only capital improvements, and then only to the extent that
those capital improvements enhance the property’s value.” Bono, 103
Cal.App. 4th at 1427. In addition, “in the case of community
improvements, which may not begin immediately upon marriage, equity
may dictate awarding the separate estate any market appreciation
occurring before the community improvements actually begin.” Id. at
426.
K. Eberts contends that application of the Moore/Marsden rule
herein requires consideration of the $3 million payoff of the initial
mortgage on the Orum Property, $2 million spent by the marital
community on capital improvements and $700,000 in improvements from
Tutor’s gifts to the community. Motion at 16. However, the Court
disagrees that the marital community should be credited with the full
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amount of or any of the foregoing payments/contributions.
Specifically, with respect to the $3 million payoff, while the
marital community may have incurred the refinancing debt which paid
off the initial mortgage on the Orum Property, community funds were
not used to satisfy the new loan. Tutor ultimately paid this loan in
full on April 24, 2008 “with his own funds.” Pretrial Conference
Order (“PTO”) at ¶ 6(m). Even if this payment was considered a loan
to K. Eberts, (which as discussed below, it is not), it was made
after the Postnuptial Agreement which deemed this a loan to K. Eberts
and not to the marital community. At best, the community made
payments on the loan from the date of the refinancing (March 21,
2007) to the date of the Postnuptial Agreement (December 21, 2007),
and should be credited with those amounts only. However, there is no
evidence of the amounts paid by the marital community during that
period. Notwithstanding, as will be demonstrated below, even using
the entire $3 million figure, there was sufficient equity in Debtor’s
joint tenancy interest in the Orum Property to have given RFF a $ 1
million lien thereon.
With respect to the $2 million in capital improvements, RFF is
correct that “there has been no calculation as to the amount of
increase in the value of the Orum Property that may have occurred via
any amount of community funds used for improvements. In any case,
this Court cannot blindly consider ‘gross’ expenditures as requested
by Movants.” Supplemental Opposition to Motion at 8. While Exhibit
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202, admitted at trial, and the Debtor’s testimony establish that
improvements were made to the Orum Property with community funds,
there is no evidence that these improvements enhanced the value of
the Orum Property and/or by how much. Exhibit C to Supplemental
Request for Judicial Notice in Support of Motion (“Supplemental
RJN”). K. Eberts’ only response to this deficiency is that by using
the full increase in the fair market value of the Orum Property and
all community contributions, she assigned herself the lowest possible
separate interest in the Orum Property and attributed all of the
$950,000 appreciation to the community. Eberts’ and Ronald Tutor’s
Supplemental Reply to Opposition of RFF to Motion (“Supplemental
Reply”) at 7. This is not evidence of any enhancement to the Orum
Property’s value resulting from the improvements. Moreover, contrary
to K. Ebert’s contention, it may not be appropriate to attribute the
entire $950,000 appreciation to the improvements, since Exhibit 202
indicates that the improvements appear to have begun around April of
2006, approximately ten months after Debtor and K. Eberts were
married. Since K. Eberts has had an opportunity to provide evidence
of any enhancements and/or how much of the actual appreciation is
attributable to the improvements in her Reply and Supplemental Reply,
but has failed to do so, the Court cannot include capital
improvements in its Moore/Marsden calculations.
With respect to the $700,000 in stone provided by Tutor, the
record is replete with Tutor’s testimony that he gifted all of the
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stone to K. Eberts and Debtor. February 13, 2012 Trial Transcript
(“Transcript”) at 120-129. Consequently, since the stone was a gift
to the community, it was a community contribution to the Orum
Property. However, as with the capital improvements, K. Eberts had
an opportunity to provide evidence of the enhancement in the value of
the Orum Property, and/or of the portion, if any, of the actual
appreciation attributable to the stone contribution, but did not.
Consequently, the Court also cannot include this contribution in
determining the community’s interest in the Orum Property.
Even if the Court were to credit the marital community
with the entire $3 million payoff, which is not appropriate as
discussed above, the value of Debtor’s joint tenancy interest
would have been sufficient to allow Debtor to give RFF a $1
million lien on the Orum Property based on the foregoing
Moore/Marsden calculation, even if the cases were applicable:
Purchase price on April 22, 2005 $4,750,000
Less community payments $3,000,000 (62%)
(Assuming payoff of first lien from
refinance by marital community)
Joint tenancy interest $1,800,000 (38%)
($900,000 each down payment from
K. Eberts and Debtor)
FMV as of 1/31/08 $5,700,0002
Less purchase price $4,750,000
Appreciation during marriage $ 950,000
Joint tenancy interest:
Down payments $1,800,000
2 This is the fair market value as of January 31, 2008, which is approximately
three and one-half months after RFF’s October 10, 2007 deed. RFF has not objected
to the use of this value.
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38% of appreciation aft. Marriage $ 361,0003
$2,161,000
Community property interest:
Loan payments $3,000,000
62% of appreciation aft. Marriage $ 589,000
$3,589,000
See Marsden, 130 Cal.App.3d at 439-440.
Based on the foregoing, even considering the full amount of
the $3 million payoff (the entirety of which, as discussed above,
should not be considered), the value of the joint tenancy interest in
the Orum Property around the time of RFF’s October 10, 2007 deed was
$2,161,00 under the Moore/Marsden rule. Consequently, Debtor’s joint
tenancy interest was approximately $1,080,500 ($2,161,000/2), and
Debtor could, therefore, encumber the Orum Property with RFF’s $1
million deed of trust acting alone, even though the marital community
may have had an interest in the property. The Court finds that RFF’s
lien is not nullified by the application of the Moore/Marsden rule.
C. As a threshold matter, K. Eberts did not preserve any equitable
subrogation claim. Notwithstanding, Tutor is not entitled to
equitable subrogation based on a moral obligation.
1. Although referred to in the Pretrial Conference Order
(“PTO”), K. Eberts did not pursue an equitable subrogation
claim at trial or otherwise, and therefore, did not
preserve this claim.
As noted in the Remand Order, both Tutor and K. Eberts are
claiming to have a lien prior to RFF’s lien under a theory of
equitable subrogation. Specifically, Tutor gave/loaned K. Eberts
3 The Marsden court further credited the spouse who owned the subject property
prior to marriage with the appreciation which accrued from the time of purchase up
to the date of marriage, because that spouse had owned the property for nine years
prior to marriage. Id. The Court shall not include this credit since K. Eberts and
Debtor were married approximately six weeks after the Orum Property was purchased.
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monies to pay off the liens of Washington Mutual (“WAMU”) and
judgment creditors, all of which were prior to RFF’s lien. In sum,
both are claiming equitable subrogation based on the same repayment
monies. However, both Tutor and K. Eberts cannot be entitled to
equitable subrogation. Remand Order at 16 (“Indeed, this Court does
not see how both [Tutor](loans) and K. Eberts (payments from those
loans) could be equitably subrogated to the senior position of WAMU
and [judgment] liens.”).
The Remand Order notes that “the record demonstrates that K.
Eberts did not advance [an equitable subrogation argument] at trial.”
Id. Consequently, the District Court has instructed this Court to
determine as a threshold matter whether K. Eberts preserved this
claim in this case. Remand Order at 17. K. Eberts argues:
[she] preserved her claim for equitable subrogation
because she asserted it in her initial filings in this
lawsuit, she raised it in the [PTO], presented the
relevant evidence at trial, and argued essentially the
same issue in her Post-Trial Brief.
Motion at 23.
K. Eberts notes, however, that the relevant facts for her equitable
subrogation claim were “discussed in the context of contribution” in
her Post-Trial brief. Id. The Ninth Circuit Bankruptcy Appellate
Panel has held that where an issue is referenced in a joint pretrial
order, but is not raised in the lower court or addressed at trial,
such issue cannot be asserted on appeal. Fox v. Karlin (In re
Karlin), 112 B.R. 319, 322 (9th Cir. BAP 1990). Consequently, this
Court finds that because K. Eberts admittedly did not expressly
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pursue an equitable subrogation claim before this Court at trial or
otherwise, she did not preserve this claim and cannot now raise it.
Tutor, therefore, is the only party entitled to advance an equitable
subrogation claim.
2. The Court finds that Tutor had no moral obligation to pay
the WAMU and judgment liens which were prior to the RFF lien.
Consequently, he is not entitled to equitable subrogation
based on a moral obligation.
With respect to Tutor’s equitable subrogation claim, the
Remand Order directs this Court “to determine whether [Tutor] acted
pursuant to a moral obligation and whether equitable subrogation is
appropriate under the ‘dictates of equity, good conscience, and
public policy.’” Remand Order at 15. Tutor asserts that he had a
moral family obligation to pay the WAMU and judgment liens, and
relies on excerpts from his trial testimony that he did it for his
daughter, K. Eberts, and because he felt he had to bail Debtor out
whenever Debtor did something wrong. Motion at 19. Tutor further
contends that RFF will “reap a massive and unwarranted benefit
because [he] loaned money to pay off the preexisting WAMU mortgages
totaling $5,340,580.53 and $575,000 to pay off the . . . judgment
liens, which would have reduced RFF’s recovery in the event it sought
to enforce its judgments . . . .” Motion at 21.
The Court first notes that whether RFF reaps a windfall from
Tutor’s payment of senior liens does not go to the issue of moral
obligation, which is the only issue the District Court ordered this
Court to consider. In deciding whether Tutor had a moral obligation
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to pay K. Eberts’ loans, the issue before the Court is whether a
parent has a moral obligation to pay the debts of his/her competent,
adult child. While the Court understands a parent’s strong need and
desire to help his/her children whenever possible, the Court does not
believe that this need and desire translates into a moral obligation
to fix all problems, including paying debts. While it was
unquestionably helpful to K. Eberts for Tutor to satisfy the
foregoing liens, the Court finds that he was under no moral
obligation to do so, and therefore, Tutor is not entitled to a lien
senior to that of RFF based on equitable subrogation.
D. K. Eberts did not make any payments entitling her to
contribution.
1. K. Eberts has no contribution rights with respect to the
payoff of the WAMU and judgment liens.
With respect to K. Ebert’s contribution claim, the Remand
Order directs this Court to “make the predicate determination whether
K. Eberts actually made any payment(s) that would entitle her to
[contribution]. Specifically, did [Tutor] make payments to satisfy
the WAMU and [judgment] liens, or did K. Eberts make these payments
with funds borrowed from [Tutor]?” Remand Order at 17. Based on the
record, it is undisputed that Tutor was the source of the payments to
WAMU and judgment lienors. However, he claims to have loaned these
funds to K. Eberts. Transcript at 137-138. The terms of this “loan”
are that K. Eberts shall repay it from the sale of stocks held in
trust created for her by Tutor, and such payment is due in 2016. Id.
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at 138 and 148, lines 19-25. As of the trial date, the stocks were
worth between $16 and $17 per share, but Tutor expected/hoped they
would increase by the time of payment. Id. at 159, lines 22-24, 160,
lines 5-9. Approximately three years ago, the stocks were worth
between $55 and $60 per share. Id. at 160, lines 14-16.
Notwithstanding the foregoing testimony, the Court finds that
Tutor, not K. Eberts, made the payments for which K. Eberts seeks
contribution. First of all, the note evidencing this “loan” was
executed in February 3, 2009, approximately ten months after Tutor
had already satisfied the WAMU and judgment liens, and two days
before Debtor filed bankruptcy. Transcript at 147. K. Eberts is not
obligated to make any payments until 2016, eight years after Tutor
paid the liens, with stocks expected to at least triple in value by
the due date. There is no evidence that even at $60 per share the
stocks will be sufficient in value to repay the “loan.”
Moreover, Tutor testified that he has previously “loaned” K.
Eberts funds to buy a house. Id. at 146. When asked about this
transaction, Tutor first stated that he “bought” this house for K.
Eberts, but within the same statement, corrected himself and stated
that he “lent her the money” to make the purchase. Id. at lines 7-9.
Based on Tutor’s testimony, it does not appear that K. Eberts repaid
this “loan,” or that Tutor had any concern whether he would be
repaid. Specifically, K. Eberts did not sign a note for this loan,
and Tutor did not need a note because he trusted her. In addition,
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they had an understanding that she would repay him from her trust,
and “it was not a great deal of money to [him].” Id. at lines 15-25.
When asked if he intends to do anything to collect the amounts due
from K. Eberts if he is not repaid from the trust fund, Tutor
responded that he would “cross that bridge when [he] get[s] to it,
and that he believed in his company and the value of its stock. Id.
at 160, lines 10-13.
Moreover, when K. Eberts sold her first house for about $1.2
million, Tutor allowed her to use these proceeds for her part of the
down payment on the Orum Property and he made no demand for repayment
of the first “loan” from these funds. Transcript at 147 and 177,
lines 3-10. There is no testimony that K. Eberts used any of those
proceeds to make even a partial payment to her father for this first
“loan.” In addition, K. Eberts has not repaid any of the $900,000
“loan” for the down payment on the Orum Property. Id. at 155, lines
8-10. Tutor further testified that it was correct that the “only
amount that any family member has repaid to [him] from the sums
[raised at trial] is the sum of less than $100,000 that [he] received
from Tracy Maltas . . . .”4 Id. at 158.
Although not classified as a “loan,” Tutor also gave K. Eberts
a monthly stipend of $52,000, and approximately $100,000 per year for
five years for K. Eberts’ business, the Aura Boutique. Id. at 155-
157. Tutor gave her the latter funds even though he believed the
4 Tracy Maltas is Tutor’s daughter. Id. at 153, lines 20-22.
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business would not be successful. Id. at 157, lines 2-5. Tutor also
loaned $3.5 million to his other daughter, Tracy Maltas, to purchase
property. Id. at 154, lines 7-13. As noted above, Ms. Maltas has
repaid less than $100,000 of this loan and the remainder is
outstanding. Id. lines 14-18.
Consequently, the record indicates that Tutor has given K.
Eberts large sums of money on several occasions and classified some
as loans, some as gifts and some as a monthly stipend. The Court
finds that the “loan” terms between Tutor and K. Eberts are loose at
best, and these transactions are really based on familial trust. In
addition, K. Eberts has not made any payments with respect to any of
these “loans” from Tutor, and if she fails to do so in 2016, there
are no default provisions in place; rather, Tutor’s only plan is to
cross that bridge when and if he comes to it. There is also no
evidence that K. Eberts’ shares in her trust fund will have
sufficient value to make the payment due in 2016. Tutor has made at
least one generous loan to his other daughter, of which she has
repaid approximately 3%. Based on the foregoing, despite attempting
to couch the payments as “loans” to K. Eberts, the Court finds that
Tutor paid off the WAMU and judgment liens for which K. Eberts seeks
contribution, and these payments were not loans to K. Eberts.
Consequently, K. Eberts cannot seek contribution for the payoff of
the WAMU and judgment liens, since she has made no such payments.
//
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2. Although not raised in the Remand Order, K. Eberts has
no contribution rights with respect to her payment of
property taxes and property preservation costs incurred
between January 2008 and January 2012.
Although not expressly addressed in the Remand Order, K.
Eberts also seeks contribution rights for her payment of property
taxes for the period between January 2008 and January 2012 and
property preservation costs during this same four year period.
Motion at 28, footnote 13. However, these payments were made after
the Postnuptial Agreement was entered into on December 21, 2007. K.
Eberts testified that the purpose of this agreement was to separate
the community property and her finances from Debtor, so that she and
Debtor would not share anything in that way anymore. Transcript at
34, lines 16-20, 44, lines 3-7. Specifically, pursuant to the
Postnuptial Agreement, K. Eberts received title to the Orum Property
as her separate property and gave up any relationship she had with
Debtor’s business and income; Debtor gave up rights to her business,
income and home as well. Id. at 36, line 3; and 37, lines 1-14.
K. Eberts further testified that after the Post-Nuptial
Agreement was signed, the mortgage and judgment liens were paid off
with monies from her father, which this Court has determined were not
loans to her. Id. at 38, lines 2-7, 41, lines 15-24. In addition, K.
Eberts paid the real estate taxes, landscaping fees, pool
maintenance, utilities, homeowners insurance and the security system
charges. Id. at 38-39. The items which K. Eberts bases her alleged
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contribution rights (property taxes and property preservation costs)
were incurred after she and the Debtor agreed to separate their
finances in the Post-Nuptial Agreement was executed. Consequently, K.
Eberts has no contribution rights for these items which at that time
they were incurred, Debtor had no obligation to pay.
III
CONCLUSION
Based on the foregoing, after consideration of the issues
upon remand, the Court awards judgment in favor of RFF with
respect to the declaratory relief claims of the Trustee and K.
Eberts. The Court shall prepare a judgment consistent with this
memorandum of decision.
###
Date: January 13, 2014
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