Appeal from the United States Bankruptcy Court for the Central District of California Hon. Alan Ahart, Bankruptcy Judge, Presiding. Bk. No. LA 05-43980 AA
SUSAN M SPRAUL, CLERK U.S. BKCY. APP. PANEL O F THE NINT H CIRCUIT
Argued and submitted on March 16, 2011 at Pasadena, California
Before: PAPPAS, DUNN and KIRSCHER, Bankruptcy Judges.
Chapter 7*fn2 debtor Shanel Stasz ("Stasz") appeals the bankruptcy court's Order Compelling Turnover of Estate Property. We AFFIRM.
On October 13, 2005, Stasz filed a petition for relief under chapter 7. Rosendo Gonzalez ("Gonzalez") was appointed trustee. Gonzalez has spent the past five years attempting to collect and reduce to money the property of the bankruptcy estate given resolute opposition by Stasz.*fn3 Because of the parties' familiarity with the circumstances, only those facts necessary to understand the current appeal are recited here.
On July 10, 2001, two trusts were allegedly created: the Alta Loma Ultra Trust (the "Alta Loma Trust"), and the West Hollywood Domestic Non Grantor Trust (the "West Hollywood Trust"). Stasz signed the trust instrument as Settlor of the Alta Loma Trust, and Allen Spaulding ("Spaulding"), an employee of Stasz' attorney, Carl E. Lovell, Jr. ("Lovell"), signed the trust instrument as Settlor of the West Hollywood Trust. Lovell was named as trustee of both trusts. Attached to the West Hollywood Trust as Schedule A is the statement, "The amount of corpus originally contributed by the Settlor is One Thousand Dollars ($1,000.00 US)."
In 2004, in a pleading filed in a Los Angeles County state court lawsuit filed by Stasz against Lovell, Stasz v. Lovell et al., case no. BC325059, Stasz purported to rescind both trusts:
On or about, November 24, 2004, pursuant to the provisions of Section 1689 of the California Civil Code, Plaintiff [Stasz] gave notice in writing of rescission to Defendant, Carl E. Lovell, Jr., as Trustee West Hollywood Domestic Grantor Inst. and to Carl E. Lovell, Jr., as Trustee of the Alta Loma Ultra Trust, of  all transfers, including transfers involved in connection with Exhibits 2 through 5 inclusive attached hereto and Trusts involved in the Plan on the grounds that (1) the consideration for the obligation of the Plaintiff who is the rescinding party has failed, in whole or in part, through the fault of the Defendant, Carl E. Lovell, Jr.: the consideration for the obligations of the rescinding party, before it was rendered to her, failed in a material respect due to his negligence; and (3) the contract, including but not limited to the so-called PRIVATE ANNUITY AGREEMENTS contained in Exhibits 3 and 5 attached hereto which are part of the Plan, are unlawful for causes which do not appear by their terms or conditions, and the parties are not equally at fault.
Later, in Adversary Proceeding No. 06-1481 in the bankruptcy case, the bankruptcy court found that Stasz had rescinded both trusts by this statement. Order re Statement of Uncontroverted Facts and Conclusions of Law at ¶ 23. This Order was appealed by Stasz to the BAP, which affirmed the bankruptcy court; the Court of Appeals affirmed the BAP, and the Supreme Court denied certiorari. See supra n.3, 2007 Bankr. LEXIS 4830.
When Stasz filed her bankruptcy petition and schedules in 2005, she listed the West Hollywood Trust as an asset on her Schedule B, valued at "$0.00." She did not claim an exemption as to the trust in her original Schedule C, nor did she ever amend Schedule C later to claim any exemption for West Hollywood Trust.*fn4
In 2009, Gonzalez became aware for the first time of the existence of an account at a branch office of Morgan Stanley Smith Barney ("Morgan Stanley") in the name of West Hollywood Trust. The account reportedly held approximately $220,000. On June 22, 2009, counsel for Gonzalez sent an email to Morgan Stanley, asserting that these funds were property of the bankruptcy estate and demanding that Morgan Stanley turn over these assets to Gonzalez. On June 25, 2009, Morgan Stanley issued a check to Gonzalez in the amount of $220,889.15.
Stasz contacted Morgan Stanley, insisting that the funds in West Hollywood Trust were not property of the estate. At some time not clear in the record, Morgan Stanley contacted Gonzalez, instructing him not to disburse any of the funds from the West Hollywood Trust until the bankruptcy court could make a determination that they were estate property.
On January 27, 2010, Morgan Stanley filed a "Motion to Excuse Third-Party Morgan Stanley Smith Barney LLC's Compliance with 11 U.S.C. § 542." In the motion, Morgan Stanley indicated that it was unable to determine who was entitled to the funds it had paid to Gonzalez; it requested an order from the court confirming its rights and responsibilities with respect to the funds, and either (1) making a finding that the funds were not property of the bankruptcy estate and requiring Gonzalez to return the funds to Morgan Stanley, or (2) making ...