United States District Court, C.D. California
RUDY E. FUENTES
DAVID M. GOODRICH IN RE AIDA FUENTES No. 213-bk-11518-ER
Present: The Honorable CHRISTINA A. SNYDER
(IN CHAMBERS) - MOTION TO DISMISS BANKRUPTCY APPEAL (Dkt. 9,
filed March 23, 2018)
Court finds this motion appropriate for decision without oral
argument. Fed.R.Civ.P. 78; Local Rule 7-15.
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").
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
carefully considered the parties arguments, the Court finds
and concludes as follows.
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.
September 8, 2014, Rudy filed a separate Chapter 7 petition
and claimed a $175, 000 homestead exemption in the
Property. 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.
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.
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.
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.
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