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Fuentes v. Goodrich

United States District Court, C.D. California

May 30, 2018

RUDY E. FUENTES
v.
DAVID M. GOODRICH IN RE AIDA FUENTES No. 213-bk-11518-ER

          Present: The Honorable CHRISTINA A. SNYDER

          CIVIL MINUTES-GENERAL

         Proceedings: (IN CHAMBERS) - MOTION TO DISMISS BANKRUPTCY APPEAL (Dkt. 9, filed March 23, 2018)

         The Court finds this motion appropriate for decision without oral argument. Fed.R.Civ.P. 78; Local Rule 7-15.

         I. INTRODUCTION

         On February 15, 2018, Rudy E. Fuentes ("Rudy") appealed from an order of the United States Bankruptcy Court for the Central District of California authorizing David M. Goodrich-the Chapter 7 Trustee ("Trustee") of the bankruptcy estate of Aida Fuentes ("Aida")-to sell the Trustee's right, title, and interest in residential real property located at 16335 East Elgenia Street in Covina, California (the "Property"). Dkt. 1; see In re Aida Fuentes, No. 2:13-BK-11518-ER, 2018 WL 722704 (Bankr. CD. Cal. Feb~2, 2018) (the "Sale Order").

         On March 13, 2018, the Trustee filed the instant motion to dismiss pursuant to Federal Rule of Bankruptcy Procedure 8013(a), asserting that the appeal is both statutorily moot under 11 U.S.C. § 363(m) and equitably moot because there has been a comprehensive change of circumstances so as to render it inequitable for the Court to consider the merits of the appeal. Dkt. 9 ("Mot "). On March 22, 2018, Rudy filed an opposition. Dkt. 10 ("Opp'n"). On March 26, 2018, the Trustee filed a reply. Dkt. 11 ("Reply").

         Having carefully considered the parties arguments, the Court finds and concludes as follows.

         II. BACKGROUND

         Prior to marrying Rudy in July 2006, Aida owned the Property as her sole and separate property. In re Aida Fuentes, 2018 WL 722704, at *2. By a grant deed recorded on September 12, 2011, Aida conveyed all of her right, title and interest in the Property to Rudy. Id. On January 18, 2013, Aida filed a voluntary Chapter 7 petition; and David M. Goodrich was appointed as the Trustee of her bankruptcy estate. Id. On March 12, 2014, the Trustee initiated an adversary proceeding against Rudy and Aida seeking to avoid the September 2011 transfer as actually and constructively fraudulent and to recover possession of the Property. Id.; see Goodrich v. Fuentes. et al. Adv. No. 2:14-ap-01159-ER. On April 30, 2015, the bankruptcy court entered judgment in favor of the Trustee and against Rudy, setting aside the September 2011 transfer. In re Aida Fuentes, 2018 WL 722704, at *2. However, the court ordered that the turnover shall be subject to Rudy's homestead exemption in the Property and the Trustee obtaining an order authorizing the sale of the Property. Id.

         On September 8, 2014, Rudy filed a separate Chapter 7 petition and claimed a $175, 000 homestead exemption in the Property.[1] Id. The Trustee moved to disallow Rudy's homestead exemption. On February 19, 2oTs, the bankruptcy court denied the Trustee's disallowance motion, finding that Rudy was entitled to a homestead exemption based on his possessory interest in the Property. Id. This order was affirmed on appeal both by the district court, see In re Fuentes, No. 2T5-cv-02080-MWF (CD. Cal. Sept. 23, 2015), and subsequently the Ninth Circuit in an unpublished memorandum of decision issued on April 17, 2017, see In re Fuentes, 687 Fed.Appx. 542 (9th Cir. 2017). The Ninth Circuit held that because Rudy satisfied the residency requirements of California Code of Civil Procedure section 704.710(c), he could claim a homestead exemption for his possessory interest in the Property. Id. at 544. However, the Ninth Circuit noted that, although there was no basis to disallow the homestead exemption, "Fuentes is not guaranteed to receive any particular amount of money if any other interest (besides his possessory interest) in the Property is sold." Id. at 544, n.1.

         On September 13, 2017, the bankruptcy court held a hearing on the Trustee's motions to (1) compel Aida to turn over the Property and (2) for an order authorizing the sale of the Property. In re Fuentes, 2018 WL 722704, at *5 The court denied both motions without prejudice because Aida, Rudy, and their children were still residing at the Property. Id. In order to adjudicate issues regarding Rudy's possessory interest and homestead exemption, the court reopened Rudy's bankruptcy case. Id. On September 18, 2017, Rudy filed an adversary complaint in his reopened case, which the court dismissed with leave to amend. Id. On November 21, 2017, Rudy filed an amended complaint alleging that (1) Rudy's possessory interest in the Property has a value of at least $150, 000; (2) Rudy holds an equitable interest in the Property due to community payments on the Property's mortgage; and (3) the Trustee's attempt to sell the property without paying Rudy for his homestead exemption constitutes a taking without just compensation. Id. at *6.

         On January 31, 2018, the court held a hearing on the Trustee's second motion to sell the Property and his motion to dismiss certain claims asserted by Rudy in the adversary proceeding. Id. at * 1. The Trustee sought authorization to sell the property to Equity Saver Construction, Inc. ("Equity"), free and clear of liens and encumbrances, for the purchase price of $360, 000. Id. The sale was not contingent upon the delivery of the Property in a vacant condition no7the extinguishment of the possessory interests of Aida, Rudy, or any other occupants. Id. at *6. The Trustee intended to sell only his interest, not Rudy's possessory interest in the Property. Id. The Trustee further sought a finding that Equity, or any qualified overbidder prevailing at the auction, is a good faith purchaser. Id. With respect to the motion to dismiss, the Trustee argued that any equitable interest Rudy may have held in the Property dissipated as a result of the fraudulent September 2011 transfer. Id. at *7.

         On February 2, 2018, the bankruptcy court granted both the Trustee's second sale motion and the motion to dismiss. The court found that Rudy's allegations regarding his equitable interest in the Property failed to state a claim upon which relief can be granted because any equitable interest that Rudy may have acquired is community property of Aida's estate and therefore belongs to the Trustee pursuant to 11 U.S.C. § 541(a)(2). Id. at *10. With regard to Rudy's claims based on his possessory interest in the Property the court determined that Rudy was not entitled to receive any payment for his homestead exemption because the Trustee was not selling Rudy's possessory interest in the Property-only the Trustee's interest was being sold to Equity. Id. at *11-12. Because the Trustee was neither seeking to sell nor terminate Rudy's possessory interest, the court determined that it lacked jurisdiction to determine the value of that interest. Accordingly, the court sua sponte dismissed the complaint's remaining claims for lack of jurisdiction. Id. at *12. Finally, after reviewing the declaration of Joe Timko, the president of Equity, the court found that Equity is a good faith purchaser entitled to the protections of 11 U.S.C. § 363(m). Id. at* 14.

         On February 15, 2018, Rudy filed a notice of appeal of the Sale Order in addition to an emergency motion to stay the sale pending appeal. That same day, the bankruptcy court denied Rudy's motion for a stay and issued an order authorizing the Trustee to sell the Property to Equity for the purchase price of $360, 000. See dkt. 9, Request for Judicial Notice ("RJJJ") of orders and pleadings entered or filed in In re Aida Fuentes, No. 2:13-bk-11518-ER Exs. 3-4. On March 9, 2018, the Trustee filed a report of sale pursuant to Federal Rule of Bankruptcy Procedure 6004(f)(1) and Local Bankruptcy Rule 6004-1(g), indicating that (1) the Trustee consummated the sale of his right, title and interest ...


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