1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 7 EVANDER FRANK KANE Case No. 23-cv-05288-WHO

8 Debtor/Appellant,

ORDER AFFIRMING BANKRUPTCY

9 v. COURT ORDER GRANTING MOTION

FOR TURNOVER OF HOMESTEAD

10 FRED HJELMESET, TRUSTEE PROCEEDS 11 Appellee. Re: Dkt. No 7

12 13 Appellant Evander Frank Kane appeals a bankruptcy order by the Hon. Chief Judge 14 Stephen L. Johnson granting appellee and trustee Fred Hjelmeset’s (the “Trustee”) motion for 15 turnover of homestead proceeds. Kane received the proceeds as part of a homestead exemption 16 that he claimed when filing for bankruptcy, but he failed to reinvest them as required by California 17 law and Judge Johnson properly ordered him to turn them over to the Trustee. Nothing in the 18 Bankruptcy Code preempts California’s ability to implement reinvestment periods. The court did 19 not clearly err in finding that Kane did not show that he is otherwise exempt from California’s 20 reinvestment period. And it did not abuse its discretion when it declined to find that the 21 reinvestment period was equitably tolled. The bankruptcy court’s order is AFFIRMED. 22 BACKGROUND 23 Kane filed for Chapter 7 Bankruptcy on January 9, 2021. See Appellant’s Excerpts of 24 Record Documents (“ER”) [Dkt. No. 8-1] at 1-6. At the time of the filing, he claimed a 25 $600,000.00 homestead exemption for his residence in San Jose. See id. at 17. On May 4, 2021, 26 creditor Zions Bancorporation objected to the claimed homestead exemption, asserting that it 27 should be denied in full or that section 522(p) of the Bankruptcy Code—which limits exemptions 1 applied in California and limited his exemption to California’s statutorily-determined 2 $170,350.00. See ER at 104, 109. On July 9, 2021, the bankruptcy court held, in relevant part, 3 that section 522(p) did apply and limited the homestead exemption amount to $170,350.00. ER at 4 127. 1 5 On September 23, 2021, Judge Johnson authorized the sale of Kane’s San Jose residence 6 and ordered payment from the proceeds of the sale for Kane’s allotted exemption. ER at 158-60. 7 Kane received $170,350.00 from the proceeds of the sale on or about October 6, 2021. ER at 163- 8 65, 186. In March 2022, counsel for the Trustee informed Kane’s counsel that the six-month 9 reinvestment period, provided by Cal. Civ. Proc. Code § 704.720(b), would expire on April 5, 10 2022. ER at 187 ¶ 4. The parties agreed to table the homestead reinvestment issue until the 11 appeal, see supra n. 1, was resolved. Id. Kane purchased a new residence in September 2022. ER 12 at 203 ¶ 9. 13 In August 2023, the Trustee filed a motion to order Kane to turn over the proceeds from 14 the sale. ER at 180-85. Subsequent to oral argument, Judge Johnson explained why he was 15 granting the Trustee’s motion, see ER 218-45 (Bankruptcy Court Ruling), and held that Kane must 16 turn over the homestead exemption proceeds because he failed to reinvest the proceeds pursuant to 17 section 704.720(b). ER at 215-16 (Bankruptcy Court Order). Kane then appealed. 18 LEGAL STANDARD 19 A district court has jurisdiction to hear appeals from a bankruptcy court’s final judgments, 20 orders, and decrees. 28 U.S.C. § 158(a)(1). On appeal, a bankruptcy court’s conclusions of law 21 are reviewed de novo and its findings of fact are reviewed for clear error. Continental Cas. Co. v. 22 Chatz, 591 B.R. 396, 409-10 (N.D. Cal. 2018) (citations omitted). In reviewing the bankruptcy 23 court’s findings for clear error, “[t]his court must accept the bankruptcy court’s findings of fact 24 unless, upon review, the court is left with the definite and firm conviction that a mistake has been 25 committed by the bankruptcy judge.” In re Greene, 583 F.3d 614, 618 (9th Cir. 2009). For factual 26

27 1 On July 23, 2021, Kane appealed the Homestead Order, see ER at 155-57, and I affirmed. See 1 inferences based on the evidence, “[a] court’s factual determination is clearly erroneous if it is 2 illogical, implausible, or without support in the record.” In re Retz, 606 F.3d 1189, 1196 (9th Cir. 3 2010) (citing United States v. Hinkson, 585 F.3d 1247, 1261-62 & n. 21 (9th Cir. 2009) (en banc) 4 and Anderson v. City of Bessemer City, 470 U.S. 564, 577 (1985)). 5 DISCUSSION 6 Kane argues that the bankruptcy court erred: (1) by applying the six-month reinvestment 7 requirement in California Code of Civil Procedure section 704.720(b) even though it had 8 previously applied section 522(p) of the Bankruptcy Code to restrict Kane’s homestead 9 exemption; (2) by finding that Kane’s payment of rent and attorney fees did not constitute a 10 reinvestment that reduced or eliminated the amount he had to turn over to the Trustee; and (3) by 11 choosing not to equitably toll the six-month reinvestment period during the pendency of Kane’s 12 appeal of the bankruptcy court’s order limiting his homestead exemption. I consider the 13 bankruptcy court’s first contested conclusion de novo and review the second and third conclusions 14 for clear error and abuse of discretion, respectively. 15 I. SUMMARY OF THE BANKRUPTCY STATUTORY SCHEME 16 The filing of a bankruptcy petition creates an estate and includes any property in which the 17 debtor had an interest at the time of filing. See 11 U.S.C. § 541. The Bankruptcy Code allows 18 debtors to exclude property from their bankruptcy estates through exemptions. See In re 19 Jacobson, 676 F.3d 1193, 1197-98 (9th Cir. 2012). It lists allowed exemptions, but states may opt 20 out of these exemptions and provide their own. See 11 U.S.C. § 522(b)(2). California has opted 21 out of the federal exemption scheme. See Cal. Civ. Proc. Code § 703.130. 22 California has two types of homestead exemptions, “declared” and “automatic.” The 23 declared homestead exemption applies when a debtor records a homestead declaration. See Cal. 24 Civ. Proc. Code § 704.910(a). The automatic exemption applies against the forced judicial sale of 25 a dwelling. See id. § 704.710. California’s homestead exemption protects a homestead that is the 26 “principal dwelling (1) in which the judgment debtor or the judgment debtor’s spouse resided on 27 the date the judgment creditor’s lien attached to the dwelling, and (2) in which the judgment 1 determination that the dwelling is a homestead.” Id. § 704.710(c). This exemption prevents the 2 judgment creditor from forcing a sale of the homestead unless there is sufficient equity to pay the 3 debtor the amount of homestead exemption entitled to her. See id. §§ 704.720, 704.850(a)(1)-(4). 4 The purpose of the California homestead exemption is to protect the family home against a 5 loss caused by a forced sale and to ensure that debtors and their families are not rendered 6 homeless. See In re Nolan, 618 B.R. 860, 863-64 (C.D. Cal. 2020). The bankruptcy court 7 determines the applicability of the California homestead exemption on the date the debtor files the 8 bankruptcy petition. Barclay v. Boskoski, 52 F.4th 1172, 1176-78 (9th Cir. 2022). Section 522(p) 9 of the Bankruptcy Code, quoted in relevant part below, may limit the amount of an exemption in a 10 debtor’s residence during the 1,215 days preceding the filing of a bankruptcy petition: 11 Except as provided in paragraph (2) of this subsection and sections 544 and 548, as a result of electing under subsection (b)(3)(A) to 12 exempt property under State or local law, a debtor may not exempt any amount of interest that was acquired by the debtor during the 13 1215-day period preceding the date of the filing of the petition that exceeds in the aggregate $189,050 [originally “$125,000”, adjusted 14 effective April 1, 2022]2 in value in-- 15 (A) real or personal property that the debtor or a dependent of the debtor uses as a residence; 16 (B) a cooperative that owns property that the debtor or a dependent of 17 the debtor uses as a residence; 18 (C) a burial plot for the debtor or a dependent of the debtor; or 19 (D) real or personal property that the debtor or dependent of the debtor claims as a homestead. 20 See 11 U.S.C.A. § 522(p). As I held previously, this federal cap applies to opt-out states like 21 California. See Kane v. Zions Bancorporation, 631 F. Supp. at 865. 22 Section 704.720(b) provides the following relevant parameters for proceeds received from 23 the sale of a homestead under California law: 24 25 26 27 2 …The proceeds are exempt for a period of six months after the time 1 the proceeds are actually received by the judgment debtor, except that, if a homestead exemption is applied to other property of the judgment 2 debtor or the judgment debtor's spouse during that period, the proceeds thereafter are not exempt. 3 Cal. Civ. Proc. Code § 704.720(b). A debtor’s right to proceeds from the forced sale of a 4 5 homestead property is, essentially, conditioned on reinvestment in a new homestead within six 6 months of receipt of the proceeds. Failure to reinvest proceeds in a new homestead within this 7 period leads to a forfeiture of the proceeds. See In re Jacobson, 676 F.3d 1193, 1198-99 (9th Cir. 8 2012). 9 10 II. SECTION 522(P)-PREEMPTION The first issue to address is whether the bankruptcy court erred in concluding that section 11 522(p) does not preempt California’s six-month reinvestment requirement as established by 12 section 704.720(b) of the California Code of Civil Procedure. I review this issue de novo. See In 13 re United Ins. Mgmt. Inc., 14 F.3d 1380, 1383 (9th Cir. 1994) (a bankruptcy court interpreting 14 statutory law is an issue of law reviewed de novo). 15 As discussed above, a debtor can “exempt certain property from the bankruptcy 16 proceedings and protect that property from creditors” under 11 U.S.C. § 522(b). In re Greene, 583 17 F.3d 614, 618 (9th Cir. 2009) (citing 11 U.S.C. § 522(b)). The same section outlines the types of 18 property a debtor can claim as exempt. See 11 U.S.C. § 522(b), (d). It also includes an “opt-out 19 provision whereby the state can either require the debtor to exempt property under the state law 20 exemptions or grant the debtor the option of choosing between state exemptions and the section 21 522(d) exemptions.” Greene, 583 F.3d at 618 (citing 11 U.S.C. § 522(b)(2)). California is an opt- 22 out state that “permits its debtors only the exemptions allowable under state law.” In re Bhangoo, 23 634 B.R. 80, 85 (B.A.P. 9th Cir. 2021) (citing Cal. Civ. Proc. Code § 703.130). 24 Kane argues that the bankruptcy court erred in concluding that California’s reinvestment 25 requirement applied to him even though a federal statutory cap—section 522(p)—had been used to 26 cap his homestead exemption. See Appellant’s Opening Brief (“Opening Brief”) [Dkt. No. 7] at 27 1 reinvestment requirement preempts California’s reinvestment requirement. Id. at 14. I disagree. 2 California’s reinvestment requirement applies to Kane’s exempt proceeds. Under 11 3 U.S.C. § 522(b)(2), a debtor is required to comply with the state law at the time of the bankruptcy 4 filing. The Ninth Circuit is clear that bankruptcy exemptions are fixed at the time of the filing of a 5 bankruptcy petition. See In re Jacobson, 676 F.3d 1193, 1199 (9th Cir. 2012) (“[u]nder the so- 6 called ‘snapshot’ rule, bankruptcy exemptions are fixed at the time of the bankruptcy petition”) 7 (citation omitted)). 8 The California reinvestment rule is neither impliedly nor expressly preempted by 11 9 U.S.C. § 522(p). Implied preemption occurs in one of two ways: (1) through implied “field” 10 preemption, where federal law “so thoroughly occup[ies] a legislative field as to make reasonable 11 the inference that Congress left no room for the States to supplement it,” see Cipollone v. Liggett 12 Group., Inc., 505 U.S. 504, 516 (1992), or (2) through implied “conflict” preemption, where there 13 is an “actual conflict” between state and federal law, or where state law obstructs Congress’s 14 purpose in enacting the federal law, see Capital Cities Cable, Inc. v. Crisp, 467 U.S. 691, 698-99 15 (1984). There is no implied field preemption here because the federal law in question, section 16 522(p), does not comprehensively cover the subject at-issue, it only sets a cap on the homestead 17 exemption set by California state law. Nor is there an actual conflict between the two laws 18 because section 522(p) gives states flexibility in determining what their respective exemptions will 19 be. 20 There is no express preemption for largely the same reasons: The California reinvestment 21 rule is not clearly inconsistent with section 522(p), which gives the states flexibility in determining 22 what their respective exemptions will be. “States have the authority to provide for limited 23 exemptions or not to provide exemptions at all.” See In re Konoff, 356 B.R. 201, 206 (B.A.P. 9th 24 Cir. 2006) (citing Owen v. Owen, 500 U.S. 305, 308 (1991)). As the Konoff court observed, states 25 have the authority “‘to create whatever exemptions they elect,’ even if they are less inclusive (or 26 more restrictive) than the exemptions afforded debtors by the federal exemption scheme.” Konoff, 27 356 B.R. at 206 (citing Storer v. French (In re Storer), 58 F.3d 1125, 1128 (6th Cir.1995) (quoting 1 (9th Cir. 1986) (stating that federal courts have long recognized that state exemptions may be 2 more or less generous than federal exemptions and that state exemptions need not be identical or 3 comparable to federal exemptions). 4 To be sure, the Supreme Court has held that states do not have total freedom to place 5 unfettered restrictions on exemptions; if state exemptions conflict directly with the Bankruptcy 6 Code, then the preemption principles outlined above dictate that federal law prevail. See Owen, 7 500 U.S. at 309-13. But that is not the situation here. California’s six-month reinvestment 8 requirement does not directly conflict with section 522(p). There is “nothing in the [Bankruptcy] 9 Code that prohibits a state from imposing a time limitation as a condition to maintaining the 10 exempt status of a certain property.” Konoff, 356 B.R. at 207. 11 The Trustee points to several Ninth Circuit cases where state exemption laws were 12 followed so long as no conflict existed between the state and federal law. See Appellee’s 13 Response at 7. For example, In re Golden, 789 F.2d 698 (9th Cir. 1986), is on point. There, the 14 Ninth Circuit considered whether a debtor who claimed a California homestead exemption was 15 required to reinvest the proceeds of the sale of the homestead within six months. In re Golden, 16 789 F.2d at 699. The court applied California law to determine whether the debtor could claim the 17 exemption. Id. at 700. Although the debtor in Golden argued that debtors who claim the 18 California homestead exemption retain the exemption so long as the bankruptcy petition is filed 19 within six months of the sale, the court made it clear that California law requires reinvestment to 20 ensure the debtor does not squander the proceeds. Id. Acceptance of an alternative position, the 21 court explained, would “frustrate the objective of the California homestead exemption and the 22 bankruptcy act itself[.]” Id. 23 Moreover, the Bankruptcy Code does not allow debtors to invoke one part of the California 24 homestead exemption and ignore others. In re Jacobson, 676 F.3d 1193 (9th Cir. 2012), is 25 instructive on this point. In Jacobson, the Ninth Circuit considered California state law to 26 determine if a debtor’s homestead proceeds were subject to the reinvestment requirement. In re 27 Jacobson, 676 F.3d at 1199. The court was clear that its analysis included the “exact scope of the 1 Because the exemption gives the debtor a defined right to the proceeds of the sale of the 2 homestead, the court held that right is contingent on reinvestment within six months of receipt. Id. 3 The Ninth Circuit refused to read out the reinvestment requirement from the exemption because 4 the Bankruptcy Code does not allow debtors to invoke one part of the exemption and ignore 5 others. Id. at 1200. Yet that is precisely what Kane seeks to do. There is no dispute that Kane 6 claimed a homestead exemption pursuant to California law. ER at 017. Because of this, all 7 California exemption law applies, including any contingent rights. 8 Additionally, this court has already held that the section 522(p) statutory cap applies to 9 California. See Kane v. Zions Bancorporation, N.A., 631 F. Supp. at 865 (holding that the 10 statutory cap set forth in section 522(p) applies to opt-out states such as California). Congress’s 11 intent to close loopholes that allow debtors to shield homesteads from creditor reach was central to 12 my analysis of section 522(p) in that case. Id. California’s objective and Congress’s objective do 13 not conflict. Ensuring that debtors reinvest proceeds in another homestead within a certain period 14 subject to creditor reach is compatible with the intent of both legislative bodies. Interpreting the 15 applicability of the reinvestment requirement otherwise would be inconsistent with Ninth Circuit 16 precedent and California law. 17 Kane insists that California’s reinvestment provision is incompatible with the section 18 522(p) exemption cap. See Opening Brief at 14. But the cases upon which he relies for this 19 argument are distinguishable from his own. First, Kane cites Barclay v. Boskoski, 52 F. 4th 1172 20 (9th Cir. 2022), for the proposition that the Ninth Circuit has modified the rigidity with which 21 state law is applied to exemptions and that state exemptions are not absolute. Opening Brief. at 22 15. Barclay considered whether a judgment lien impairs a debtor’s California homestead 23 exemption, a dispute that is not at issue here. See Barclay, 52 F. 4th at 1175. The question 24 concerned section 522(f) of the Bankruptcy Code, which allows a mechanism for a debtor to avoid 25 a judgment lien. Id. at 1176. Although the Ninth Circuit departed from Jacobson in Barclay, it 26 did so because “[n]othing in [the Jacobson] case concerned the lien avoidance procedure at issue 27 here.” Id. at 1178. In contrast, as discussed above, Jacobson is on point with Kane’s case. 1 (Bankr. W.D. Wash. 2022), and In re Reicher, No. CV-22-2050, 2023 WL 4291065, at *1 (C.D. 2 Cal. Apr. 4, 2023), cases where joint debtors whose exemptions were capped by section 522(p) 3 doubled their exemption proceeds amounts despite state law prohibiting them from doing so. See 4 Opening Brief at 15. Davis and Reicher, while addressing the applicability of state exemption law 5 after proceeds were capped by section 522(p), are distinguishable from this case in two ways. 6 First, both involved exemptions claimed by joint debtors. Kane, and no additional debtor, filed a 7 bankruptcy petition claiming the homestead exemption. See ER at 017. Second, and more 8 importantly, the bankruptcy courts in Davis and Reicher applied an additional federal exemption 9 provision—section 522(m)—to analyze whether joint debtors could double their exemption. The 10 Davis court found that section 522(m) permits each debtor to claim the capped state exemption, 11 effectively allowing the doubling of the exemption provided for by state law. In re Davis, 647 12 B.R. at 779. The Reicher court relied heavily on the Davis decision to reach the same conclusion 13 on the same issue. In re Reicher, 2023 WL 4291065, at *7. 14 Section 522(m) is not at issue here, and Davis and Reicher do not support Kane’s argument 15 that a federal cap on exempt proceeds dictates preemption or that a lack of a reinvestment 16 requirement in section 522 means a state’s reinvestment requirement becomes inapplicable. 17 Indeed, the Reicher court reasoned that section 522(p) acts as a limitation that does not provide a 18 basis to claim an exemption that exceeds what is provided for under state law. See In re Reicher, 19 2023 WL 4291065, at *3. This view is in line with the Bankruptcy Appellate Panel’s reading of 20 section 522(p) as expressed in In re Caldwell, 545 B.R. 605 (B.A.P. 9th Cir. 2016), where the 21 B.A.P. held that section 522(p)(1) is a limitation on the homestead exemption regardless of the 22 applicable state law exemptions. See In re Caldwell, 545 B.R. at 609. Consequently, the federal 23 cap placed on a homestead exemption was not material to the outcome in Davis or Reicher; it was 24 section 522(m), which expressly allowed each individual debtor to claim the exemption, that was 25 material. Because section 522(p) acts as a limitation rather than an exemption that debtors can 26 claim and no federal limitation on reinvestment requirements exists, state law exemption 27 provisions are applicable. 1 reinvestment requirement, it is not impossible to comply with both provisions. There is nothing in 2 the Bankruptcy Code that conflicts with California’s reinvestment requirement, and the objectives 3 of Congress and the California legislature are in harmony; therefore, California’s reinvestment 4 requirement must be applied. The bankruptcy court did not err in concluding that the California 5 reinvestment requirement applies even where exempt proceeds were capped by section 522(p). 6 III. WHETHER REINVESTMENT REQUIREMENTS WERE SATISFIED 7 Kane also argues that the bankruptcy court erred in finding that his payments for rental 8 properties and attorney fees did not constitute proper use of exempt proceeds to satisfy 9 California’s reinvestment requirement. A bankruptcy court’s findings of fact on whether proceeds 10 are subject to turn over are reviewed for clear error. See In re Jacobson, 676 F.3d at 1198. 11 Factual findings are clearly erroneous if they are “illogical, implausible, or without support in the 12 record.” In re Elliot, 523 B.R. 188, 192 (B.A.P. 9th Cir. 2014) (citation omitted). Judge Johnson 13 did not clearly err in his interpretation of the facts before him. 14 A. Rental Payments 15 Kane claims that the use of the homestead proceeds to rent three rental properties satisfies 16 California’s six-month reinvestment requirement and that the bankruptcy court erred in holding 17 otherwise. See Opening Brief at 17-30. His argument finds little support in the caselaw; his 18 situation differs from those where rental payments have been sufficient to satisfy the reinvestment 19 requirement of the homestead exception. Kane provides no facts from which the bankruptcy court 20 could have inferred the properties that he rented might have been subject to an enforcement action 21 by the judgment lien creditor. 22 As discussed, California’s homestead exemption requires debtors to reinvest homestead 23 sale proceeds in a new homestead within six months of receipt. Cal. Civ. Proc. Code § 24 704.720(b). Under California law, the party claiming the automatic homestead exemption has the 25 burden of proof to establish that he is entitled to an exemption. See In re Diaz, 547 B.R. 329, 337 26 (B.A.P. 9th Cir. 2016). Kane did not record a declaration of a homestead; therefore, the automatic 27 homestead exemption is applicable, and he has the burden to prove entitlement to that exemption. 1 protected under the declared homestead exemption, its coverage is not without limit. As explained 2 in In re Nolan, 618 B.R. 860, 865 (C.D. Cal. 2020), “the type of interest upon which a homestead 3 exemption can be asserted, must be an ‘interest sought to be reached by the judgment creditor in 4 the homestead.’” See Cal. Civ. Proc. Code § 704.720. Kane has not shown that he had this kind of 5 interest in the properties he rented. 6 Kane cites cases where the debtors provided far more evidence to the bankruptcy court 7 regarding reinvestment of proceeds than what he provided to Judge Johnson. He relies heavily on 8 In re Sain, 584 B.R. 325 (S.D. Cal. 2018), to argue that he met reinvestment requirements. But his 9 use of the proceeds is distinguishable from the debtor in Sain in several ways. The Sain court 10 considered other reinvestment interests besides rental payments, like deposits that the debtor made 11 into escrow for the purchase of the same homestead for which he claimed an exemption. Id. at 12 331. Here, Kane asserts that he invested at least $174,500.00 of the homestead proceeds in 13 housing by making rental payments, but unlike the debtor in Sain, he did so in several different 14 rentals rather than the same homestead. Also unlike the debtor in Sain, he shows no evidence that 15 he paid property taxes on those homes or made deposits into escrow. 16 The court in Sain also made clear that the debtor’s case was unique because it involved a 17 lease and the debtor’s repurchase of the home from the trustee. Id. at 327. To make its 18 determination of whether proceeds were subject to turnover, the court in Sain reviewed the lease 19 and determined that it provided the debtor with the option to purchase the home and charged him 20 with payment of homeowner’s association fees, homeowner’s insurance, landscaping costs, and 21 property taxes. Id. at 327-28. Here, as the bankruptcy court observed, Kane provided only a 22 declaration stating that he paid rent on three rental properties and paid for a security deposit. 23 Judge Johnson found that this was insufficient to conclude that Kane had a sufficient interest that 24 judgment creditors might have reached. See ER at 234. That determination was reasonable. 25 Finally, there was no dispute in Sain that the debtor had an ownership interest and at all 26 times resided in the same home he repurchased. See In re Sain, 584 B.R. at 330. Rental payments 27 satisfied the reinvestment requirement because the trustee did not allow the debtor to credit bid the 1 loan for the purchase. Id. at 333. Here, Kane did not purchase a home within the reinvestment 2 period, nor did he remain in the same residence throughout that period. Instead, as I mentioned 3 above, Kane claims that he used the proceeds to pay for multiple short-term rentals. See Opening 4 Brief at 24. Sain does not support that making rental payments in multiple short-term rentals 5 during the reinvestment period constitutes proper reinvestment. 6 In re Casserino, 379 F.3d 1069 (9th Cir. 2004) is also distinguishable. The Casserino 7 court considered whether a debtor’s security deposit and prepaid rent constituted reinvestment 8 under Oregon law. In re Casserino, 379 F.3d at 1074. To guide its analysis, the court considered 9 decisions from other jurisdictions and determined that a security deposit and lease are not 10 severable because the debtor is only entitled to take possession of the property after payments for 11 the security deposit and prepaid rent have been made. Id. The Casserino court reviewed the 12 debtor’s lease, which detailed how the prepaid rent could be allocated under Oregon law. Id. 13 Here, Kane, as the bankruptcy court pointed out, did not provide a lease that allows the court to 14 understand the lease conditions for the three rental properties and whether they would qualify as 15 homesteads under California law. 16 Kane insists that the bankruptcy court erred in finding that his use of proceeds to pay rent 17 did not satisfy the reinvestment requirement because it incorrectly interpreted the exemption as 18 requiring the purchase of a new residence to meet the requirement. Opening Brief at 17. 19 California Code of Civil Procedure section 704.710(c) does not require that a debtor continuously 20 own a property to meet the reinvestment requirement. Id. at 17-18. And the automatic homestead 21 exemption does not specify which interests are covered under the exemption and does not limit 22 leasehold interests. See id. at 19-20 (citing California Code of Civil Procedure § 704.820, a 23 Legislative Committee comment to the automatic homestead exemption statute, and In re Nolan, 24 618 B.R. 860, 867-68 (C.D. Cal. 2020), for the assertion that the automatic homestead exemption 25 does not address which interests are covered under the exemption nor is there a limitation on 26 leasehold interests). 27 But the facts of Kane’s situation do not mirror those where the courts have found that 1 recognized that the debtor held a beneficiary interest in a trust for which the California legislature 2 has specifically extended protection to beneficiary interests if it is subject to an enforcement lien. 3 In re Nolan, 618 B.R. at 867-68. Kane does not claim a beneficiary interest in the rental 4 properties, nor could the bankruptcy court determine from the record the type of interest Kane 5 holds in the rental properties and whether it was subject to an enforcement lien. See Bankruptcy 6 Court Order at 233. 7 Kane points out that the Ninth Circuit held in In re Gilman, 887 F.3d 956 (9th Cir. 2018), 8 that a debtor does not necessarily need to hold title to property to claim a homestead exemption for 9 that property; courts consider whether a debtor has continuously resided in a dwelling when 10 determining whether they have met the reinvestment requirement. Opening Brief at 20. The 11 bankruptcy court noted as much. See ER at 231-32. But in In re Gilman the debtor claimed a 12 homestead exemption for a home that the debtor was voluntarily selling at the time of the filing of 13 the Chapter 7 petition. In re Gilman, 887 F. 3d at 960. And although “the record was replete with 14 evidence the [d]ebtor was a continuous resident of the property in question,” the panel vacated and 15 remanded the decision that granted the debtor the exemption because the bankruptcy court failed 16 to make a finding with respect to the debtor’s intent to reside in the property. Id. at 965-66. 17 Here, there is no dispute about Kane’s continuous residence and intent to reside in the San 18 Jose residence for which he claimed and received $170,350.00 in homestead exemption proceeds. 19 But the bankruptcy court did not make a finding as to the reinvestment of proceeds in the three 20 other rental properties because Kane did not provide sufficient evidence that would allow the court 21 to properly analyze the interest he held in those properties. See ER at 233.3 The record consisted 22 of Kane’s declaration and brief that state that he made rental payments for three rental properties 23 between September 2021 and July 2022. ER at 197 ¶¶ 12-15; ER at 203 ¶¶ 6, 8-9. Kane 24 supplemented that record in this appeal with a table demonstrating the same information that the 25 bankruptcy court acknowledged in its oral ruling. Opening Brief at 24. But there is nothing in the 26 3 Tarlesson v. Broadway Foreclosure Invs., LLC, 184 Cal. App. 4th 931, 936 (2010), which Kane 27 also cites in support, is similarly distinguishable because that case did not address the sufficiency 1 record that demonstrates that Kane had the kind of legal interest in these properties that he rented 2 that he could have been subject to an enforcement action by a lien creditor; that is the standard he 3 had to meet, see In re Nolan, 618 B.R. 860, and he has not met it. The facts of his case are not 4 analogous to those where courts have slightly extended the coverage of the homestead exemption 5 to make room for novel reinvestments. See supra. 6 Having been provided the same information as Judge Johnson with respect to rental 7 payments, I cannot conclude that the bankruptcy court erred when it determined there was 8 insufficient information in the record to find that Kane’s rental payments met the reinvestment 9 requirement. 10 B. Attorney Fees 11 The bankruptcy court also did not err when it determined that Kane’s payment of attorney 12 fees did not meet reinvestment requirements. In re Sain is once again instructive. There, the court 13 determined that the debtor’s use of proceeds to pay for attorney fees defending his homestead was 14 proper reinvestment. In re Sain, 584 B.R. at 333. The court noted that the debtor did not have to 15 acquire a new home and that no statute prohibits a debtor from buying his home back from the 16 trustee. Id. at 332. The debtor used the proceeds to pay counsel to assist in buying his own home 17 back. Id. at 333. Although Kane claims he used proceeds to defend his homestead rights, he 18 offers no evidence demonstrating that the payment of attorney fees was used to defend homestead 19 rights in connection with the purchase of a property. Kane offers no evidence that a judgment 20 creditor would be able to reach the $30,000.00 that he paid in attorney fees by attaching a 21 creditor’s lien to it. 22 In short, the bankruptcy court did not err in finding that Kane’s use of proceeds on attorney 23 fees was not proper reinvestment. 24 IV. EQUITABLE TOLLING 25 Finally, Kane argues that the bankruptcy court abused its discretion by not equitably 26 tolling the six-month reinvestment period. Opening Brief at 30. I disagree. Equitable tolling is 27 reviewed for abuse of discretion. In re Milby, 545 B.R. 613, 619 (B.A.P. 9th Cir. 2016). A 1 on clearly erroneous findings of fact.” Farris v. Seabrook, 677 F.3d 858, 864 (9th Cir. 2012) 2 (citation omitted). California’s six-month reinvestment requirement is subject to equitable tolling, 3 see In re Dudley, 617 B.R. 149, 154-55 (Bankr. E.D. Cal. 2020), but “[e]quitable tolling is a rare 4 remedy to be applied in unusual circumstances, not a cure-all for an entirely common state of 5 affairs[,]” In re Marriott, 427 B.R. 887, 895 (Bankr. D. Idaho 2010) (citing Wallace v. Kato, 549 6 U.S. 384, 396 (2007)). 7 Kane makes two arguments on this question. First, he contends that the bankruptcy court 8 identified an incorrect legal rule when it claimed that he did not cite any authority showing that an 9 extension of the six-month reinvestment period is allowed. Opening Brief at 30. Second, he 10 asserts that even if the bankruptcy court identified the correct legal rule, it erred by interpreting the 11 law in an illogical manner. Id. at 31. I disagree on both fronts. The bankruptcy court did not err 12 on the law or the facts; Kane’s circumstances distinguish him from the debtors in cases where 13 courts have correctly chosen to equitably toll the reinvestment period. 14 While Kane is correct that California courts have equitably tolled reinvestment periods, 15 they have not done so in situations that mirror his own. Courts have chosen to equitably toll the 16 reinvestment period when claimants lack possession or control of the homestead proceeds 17 following the sale of their homestead. See e.g., In re Dudley, 617 B.R. at 154 (citing Chase v. 18 Bank of America, Nat. Trust & Sav. Ass’n, 227 Cal. App. 2d 259 (1964)); Thorsby v. Babcock, 36 19 Cal. 2d 202 (1950); In re Marriott, 427 B.R. 887 (Bankr. D. Idaho 2010); In re Bading, 376 B.R. 20 143 (Bankr. W.D. Tex. 2007). As Judge Johnson observed, see ER 235-36, it does not appear 21 from the record that Kane similarly lacked possession or control over his homestead proceeds. 22 In In re Dudley, the bankruptcy court equitably tolled the reinvestment period during the 23 coronavirus pandemic in a situation where the exemption claimant, through no fault of his own, 24 lacked control of or possession over the homestead proceeds and, as a result, could not reinvest 25 them. See ER at 235 (citing In re Dudley, 617 B.R. at 156). Kane’s situation is not analogous. 26 As the bankruptcy court noted, Kane had complete control over the $170,350.00 homestead 27 proceeds as of October 6, 2021, and never sought to equitably toll those until long after the six- 1 where the debtor never had control of the proceeds from his homestead sale because they were 2 deposited directly into the debtor’s trust account and never released. In re Marriott, 427 B.R. at 3 894-95. Unlike the debtor in Marriott, Kane was free to use the proceeds to reinvest in a new 4 homestead immediately upon receiving the proceeds. In re Bading differs for the same reason: 5 There, the debtor was precluded from “making a complete disposition of her homestead” which 6 did not provide her an opportunity to timely reinvest. In re Bading, 376 B.R. at 145-46. In 7 Kane’s situation, the homestead proceeds were disbursed immediately, and he received the full 8 amount of proceeds available to him under the exemption. ER at 165. 9 The bankruptcy court correctly distinguished Kane’s case from these cases, ultimately 10 concluding that they were “inapposite” because Kane had “complete control over the $170,350.00 11 homestead proceeds…” and he “never sought to stay or file the motion to equitably toll…until the 12 [reinvestment] period had long passed.” ER at 235. The record supports the bankruptcy court’s 13 conclusions. It is undisputed that Kane received the homestead proceeds in October 2021. ER at 14 163-65, 186. Kane’s receipt of the proceeds, which were available for reinvestment immediately 15 upon receipt, does not compare to the unusual circumstances the Dudley or Marriott debtors faced. 16 Finally, although Kane contends that his appeal of the Homestead Order restricted his 17 receipt and control of the $600,000.00 claimed exemption, the bankruptcy court correctly pointed 18 out that it was the application of the federal cap that restricted the proceeds, not the appeal. 19 Opening Brief at 31; ER at 235. Kane asserts that acceptance of the bankruptcy court’s conclusion 20 that he had unrestricted access to the homestead proceeds subject to reinvestment would have 21 required him to purchase two homes if he had succeeded on appeal. Opening Brief at 33. This is 22 unpersuasive because Kane’s own authority acknowledges that California law does not require 23 title to a residence for it to be considered a homestead, nor does reinvestment require the purchase 24 of a home. See Opening Brief at 19-24; In re Gilman, 887 F.3d 956 (9th Cir. 2018); In re Sain, 25 584 B.R. 325 (S.D. Cal. 2018). 26 Because the bankruptcy court applied the correct law and did not apply the law in an 27 illogical manner, the bankruptcy court did not abuse its discretion when it determined that 1 CONCLUSION 2 The bankruptcy court did not err in ordering Kane to turn over proceeds from the sale of 3 || his home for failure to comply with California’s reinvestment requirement. The bankruptcy 4 court’s order is AFFIRMED. 5 IT IS SO ORDERED. 6 || Dated: August 9, 2024 \ g ® liam H. Orrick 9 United States District Judge 10 11 12

15 16

= 17

Z 18

19 20 21 22 23 24 25 26 27 28