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Cavellini, v. Harris

United States District Court, N.D. California

July 8, 2016

ROY T. CAVELLINI, et al., Plaintiffs,
v.
MICHAEL F. HARRIS, et al., Defendants.

          ORDER DENYING DEBTOR'S CLAIM OF EXEMPTION Re: Dkt., 383

          KANDIS A. WESTMORE JUDGE

         On November 10, 2015, the Court granted Plaintiffs' motion for an assignment order against Judgment Debtor Michael F. Harris to the extent that distributions made to Michael F. Harris from the Rita Harris Trust, the Gilbert Harris Bypass Trust and/or the Michael Harris Discretionary Trust are subject to assignment. (Dkt. No. 382.) The Court gave Debtor leave to file a claim of exemption under California Code of Civil Procedure § 708.550, and required Debtor to file a properly noticed motion for a claim of exemption within 14 days.

         On November 23, 2015, Debtor filed a claim of exemption. On June 16, 2016, the Court held a hearing, and, for the reasons set forth below, DENIES Debtor's claim of exemption.

         I. BACKGROUND

         In 1998, the district court granted summary judgment against Michael Harris for self-dealing, prohibited transactions and breaches of fiduciary duty under ERISA involving the Harris Realty Pension Plan in 1998, and awarded damages in an amount of over $1, 000, 000 (including attorneys' fees and costs), later renewed in 2008 for a total amount of approximately 1.6 million dollars. (Dkt. No. 255). The Ninth Circuit affirmed the judgment. Cavellini v. Harris, 188 F.3d 512 (9th Cir. 1999).

         In parallel criminal proceedings, Michael Harris was convicted of theft, false statements and mail fraud involving the same Pension Plan transactions, which was affirmed on appeal. United States v. Harris, 185 F.3d 999, 1003 (9th Cir. 1999). As part of that criminal case, Michael Harris was ordered to make restitution in the amount of $646, 000.00. Sentencing Hearing Minutes, United States v. Harris, Case No. 3:95-CR-00227-TEH (N.D. Cal. June 9, 1997), ECF No. 127.

         On October 2, 2014, Plaintiffs filed the motion for assignment order. (Dkt. No. 350.) On October 30, 2014, the district court issued an abstract of judgment in this civil matter in the amount of $1, 685, 470.54. (Dkt. No. 356.) On April 16, 2015, Defendant filed a notice of death of trustor Rita E. Harris. (Dkt. No. 367.) After additional supplemental briefing, the Court held a hearing on August 6, 2015. On November 20, 2015, the Court granted in part Plaintiffs' motion, finding that distributions from the Trusts were subject to assignment to satisfy the judgment. (Dkt. No. 382.) The Court, however, granted Debtor leave to file a claim of exemption, "which includes a financial affidavit that complies with California Code of Civil Procedure § 703.520." Id. at 10. Debtor was advised that the "[f]ailure to make a timely claim of exemption constitutes a waiver of the exemption, and all distributions to Debtor from the Trusts will be assigned to Plaintiffs. Id.

         On November 23, 2015, Debtor filed a claim of exemption. (Def.'s Mot., Dkt. No. 383.) On November 30, 2015, Plaintiffs filed an opposition. (Pls.' Opp'n, Dkt. No. 384.)

         On June 16, 2016, the Court held a hearing on the claim of exemption, and granted leave to the Debtor to file a supplemental letter to clarify the statutory basis for his claim of exemption. On June 21, 2016, Debtor filed the supplemental letter. (Def.'s Suppl. Letter, Dkt. No. 389.) On June 27, 2016, Plaintiffs filed a response. (Pls.' Suppl. Letter, Dkt. No. 390.)

         II. LEGAL STANDARD

         When a judgment creditor files a motion for an assignment order, a judgment debtor who wishes to claim that all or a portion of the right to payment is exempt from enforcement of a money judgment, must file the exemption claim by noticed motion along with an affidavit and a copy of his financial statement with the levying officer. Cal. Civ. Proc. Code §§ 703.520, 708.550(a). Generally, the claim must be served on the judgment creditor no less than three days before the hearing date. Cal. Civ. Proc. Code § 708.550(b). The court decides whether to grant the claim of exemption based on the declaration of the parties and any evidence presented at the hearing. Kono v. Meeker, 196 Cal.App.4th 81, 86 (2011); Kilker v. Stillman, 233 Cal.App.4th 320, 330 (2015); Cal. Code Civ. Pro. § 708.550(c). The debtor claiming an exemption bears the burden of proving that an exemption applies. Cal. Civ. Proc. Code § 703.580(b).

         III. DISCUSSION

         A. Whether the financial statement was executed under oath

         The November 10, 2015 order explicitly required Debtor to "file a properly noticed motion for claim of exemption within 14 days of this order, which includes a financial affidavit that complies with California Code of Civil Procedure § 703.520." (Dkt. No. 382 at 10.) Debtor was advised that the failure to make a timely claim would constitute a waiver, "and ...


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