Appeal from the Ninth Circuit Bankruptcy Appellate Panel Kirscher, Pappas, and Taylor, Bankruptcy Judges, Presiding BAP No. No. 10-60040
The opinion of the court was delivered by: Farris, Circuit Judge:
Argued and Submitted February 16, 2012-Pasadena, California
Before: Jerome Farris and William A. Fletcher, Circuit Judges, and Alvin K. Hellerstein, Senior District Judge.*fn1
This appeal grows out of an adversary proceeding in Myrna Jacobson's Chapter 7 bankruptcy proceedings. The bankruptcy trustee filed a complaint against Myrna and her husband, Donald Jacobson, claiming that certain money and property belonged to Myrna's bankruptcy estate. The trustee sought turnover to the bankruptcy estate of certain proceeds from the sale of the Jacobsons' homestead, a rental property held in Donald's name, and income earned from the rental property. The bankruptcy court rejected all of the trustee's claims. The Bankruptcy Appellate Panel affirmed. We have jurisdiction under 28 U.S.C. § 158(d)(1).
We reverse in part and affirm in part. The proceeds from the homestead sale belong to Myrna's bankruptcy estate. The rental property held in Donald's name and the income from it do not.
This case arises from nearly three decades of litigation between the Jacobsons and Myrna's principal creditor, Larry Cunningham. In 1985, Cunningham sued the Jacobsons and their business partners in California state court for torts related to the construction and sale of a beach home in Orange County. The litigation dragged on for 10 years. In 1995, as a re-trial neared, the Jacobsons filed a Chapter 7 bankruptcy petition. The bankruptcy petition automatically stayed the state court litigation under 11 U.S.C. § 362(a)(1).
In 1997, Cunningham filed an adversary complaint in the bankruptcy court objecting to discharge of the Jacobsons' debts, alleging the Jacobsons had fraudulently concealed assets. After a trial, the bankruptcy court concluded that Myrna had fraudulently hidden assets from the bankruptcy court and denied her a discharge under 11 U.S.C. § 727(a). The bankruptcy court concluded, however, that Donald could not have formed the intent to commit fraud due to his mental disabilities and dependence on Myrna to run his affairs. The bankruptcy court thus granted Donald a discharge.
The bankruptcy court's ruling left Cunningham free to pursue his tort claims against Myrna in California state court. In 2000, a ...