FILED NOV 18 2022 NOT FOR PUBLICATION SUSAN M. SPRAUL, CLERK U.S. BKCY. APP. PANEL OF THE NINTH CIRCUIT UNITED STATES BANKRUPTCY APPELLATE PANEL OF THE NINTH CIRCUIT

In re: BAP No. CC-22-1042-GTS MICHELE LYNN MCKEE, Debtor. Bk. No. 6:21-bk-10679-SY

MICHELE LYNN MCKEE, Appellant, v. MEMORANDUM*

KARL T. ANDERSON, Chapter 7 Trustee; LAURA O’KANE; CORRINE LONG, Appellees.

Appeal from the United States Bankruptcy Court for the Central District of California Scott Ho Yun, Bankruptcy Judge, Presiding

Before: GAN, TAYLOR, and SPRAKER, Bankruptcy Judges.

Memorandum by Judge Gan

Concurrence by Judge Taylor

* This disposition is not appropriate for publication. Although it may be cited for whatever persuasive value it may have, see Fed. R. App. P. 32.1, it has no precedential value, see 9th Cir. BAP Rule 8024-1. INTRODUCTION

Chapter 71 debtor Michele Lynn McKee (“Debtor”) appeals the

bankruptcy court’s order sustaining an objection to Debtor’s homestead

exemption filed by chapter 7 trustee Karl T. Anderson (“Trustee”) and

partially sustaining an objection filed by creditors Laura O’Kane and

Corrine Long. After an evidentiary hearing, the court concluded that

Debtor could not claim the California automatic homestead exemption

because, on the petition date, she did not physically occupy the property in

question, and she did not have an intent to return to the property.

On appeal, Debtor argues that she is entitled to the homestead

exemption under California law because it was impossible for her to safely

return to the property due to emotional abuse and physical intimidation by

her former life partner and co-owner O’Kane. We acknowledge that Debtor

made decisions during a difficult situation. But the bankruptcy court

correctly applied California law, and its factual findings—that Debtor

made an economic decision to relinquish her interest in the property and

did not demonstrate an intent to reside there—are not clearly erroneous.

Accordingly, we AFFIRM.

1 Unless specified otherwise, all chapter and section references are to the Bankruptcy Code, 11 U.S.C. §§ 101–1532, and all “Rule” references are to the Federal Rules of Bankruptcy Procedure. 2 FACTS

A. Prepetition Events

Debtor and O’Kane began a romantic relationship in late 2003 and

began living together in 2004. In approximately 2009 they began working

together as law partners in a firm called O’Kane & McKee, LLP (“O&M”).

In 2010, Debtor and O’Kane purchased a lot and built a home on Bella Cara

Way in Palm Springs, California (“Bella Cara”), which they finished in

2015. Debtor and O’Kane each owned one third of Bella Cara, and O’Kane’s

mother, Corrine Long, owned the remaining third.

In late September 2016, Debtor ended the personal relationship with

O’Kane and a few months later she moved out of Bella Cara. Debtor

initially rented a furnished house, and since February 2018, she has

continuously lived in a rented condominium on Via Sonoma in Palm

Springs (“Via Sonoma”). She changed her driver’s license and voter’s

registration to reflect her address at Via Sonoma.

After the relationship ended, Debtor and O’Kane began discussions

about dividing their jointly owned assets. The discussions culminated in an

October 2017 written agreement (the “Agreement”), which provided for a

division of personal property and titled vehicles, and a process to dissolve

O&M. The Agreement further provided that the parties would sell jointly

owned real property located in Oakland, California, and divide the net

proceeds.

3 Regarding Bella Cara, the Agreement stated that Debtor would

receive a “payout” of her interest based on her net equity under a

hypothetical sale. The parties also agreed that Debtor would retain her one-

third interest in proceeds from pending construction defect litigation.

Pursuant to the Agreement, Debtor agreed to return her keys to Bella Cara

and O’Kane agreed to be responsible for all taxes, insurance, and mortgage

payments for Bella Cara after April 1, 2017.

The Agreement required Debtor to complete billing for an O&M

matter (the “Robinson Matter”) and obtain client approval for the invoice

by December 1, 2017, and it provided she would receive her payout within

30 days of doing so. 2 The Agreement specified that if Debtor failed to

complete the billing and obtain approval on the Robinson Matter by

December 1, 2017, her payout would be reduced, and if she did not

complete the billing by December 31, 2017, she would essentially forfeit her

interest in Bella Cara.

Debtor asserts that she completed the billing on the Robinson Matter

by December 1, 2017, but O’Kane refused to approve her time. O’Kane

maintains that Debtor did not complete the billing on the Robinson Matter

until September 2018 and consequently forfeited her interest in Bella Cara.

2 The Robinson Matter involved O&M’s representation of Jason Robinson in a probate case between 2014 and 2017. In May 2017, the state court approved a settlement agreement which provided for payment of $270,000 to O&M for attorney’s fees. 4 O’Kane did not pay Debtor under the Agreement, and the handling of the

Robinson Matter is part of ongoing litigation to dissolve O&M.

B. The Bankruptcy and Exemption Objections

In February 2021, Debtor filed her chapter 7 petition. She listed her

one-third interest in Bella Cara in Schedule A/B and claimed the California

automatic homestead exemption under California Code of Civil Procedure

(“CCP”) § 704.730.

O’Kane and Long objected to Debtor’s homestead exemption,

arguing: (1) Debtor forfeited her interest in Bella Cara pursuant to the

Agreement, and it was not property of the estate; and (2) Debtor admitted

that on the petition date she resided at Via Sonoma and had not lived at

Bella Cara since 2018.

Trustee also objected to Debtor’s homestead exemption and partially

joined O’Kane and Long’s objection. Trustee argued that Debtor’s interest

in Bella Cara was property of the estate, but because Debtor admitted that

she did not physically occupy Bella Cara on the petition date, and she was

unable to demonstrate the requisite intent to live there, she was not entitled

to the exemption. Trustee disputed the validity of the Agreement, but

asserted that even if it was effective, it did not operate to disclaim Debtor’s

interest in Bella Cara. And regardless of the validity of the Agreement, it

clearly demonstrated Debtor’s intent not to reside at Bella Cara after

October 2017.

5 Debtor responded to the objections and argued: (1) her interest in

Bella Cara was property of the estate because it was O’Kane, not Debtor,

who breached the Agreement, and even if Debtor breached it, O’Kane

would have at most a claim for breach of contract; and (2) notwithstanding

her lack of physical occupancy, she was entitled to claim the homestead

exemption because she had a continuous intent to reside at Bella Cara.

Debtor contended that although she and O’Kane were not married, they

cohabited as life partners, and she should be entitled to the protection of

CCP § 704.720(d). That statute allows a debtor who no longer resides in a

homestead to retain the exemption when her “separated or former spouse

continues to reside in or exercise control over possession of the

homestead.”

She further argued that the Agreement did not support a conclusion

that she was abandoning her homestead; it merely demonstrated that she

knew it was unsafe to return to Bella Cara, and she was doing what she

could to amicably obtain her interest in the property and reinvest it

elsewhere. Debtor claimed that her “involuntary absence” from Bella Cara

did not constitute abandonment because, under the Agreement, she was

supposed to receive the value of her interest within a short period of time.

Debtor filed a supplement to her opposition in which she argued that

she did not abandon her homestead under California law because she was

forced from Bella Cara by O’Kane’s verbal abuse and physical intimidation.

She asserted that, but for the abuse, she would still be living there.

6 The bankruptcy court set an evidentiary hearing on the objections. At

the hearing, Debtor testified that O’Kane had been abusive “on multiple

levels” throughout the relationship and became “very nasty” after Debtor

ended the relationship. Debtor stated that after the breakup, she feared for

her safety when O’Kane pushed her into the laundry room and would not

let her leave. Three former employees of O&M all testified that they

witnessed several instances of O’Kane yelling at Debtor and forcing her

way into Debtor’s office.

Debtor testified that after she moved out of Bella Cara, she intended

that her interest in the property be “bought out” by O’Kane. She stated that

she had no choice because she could no longer live at Bella Cara. Debtor

testified that after the couple broke up, she wanted to stay at Bella Cara

until it was sold but had to leave because of O’Kane’s behavior. Debtor

asked about the status of the buyout many times, and in 2018 she emailed

O’Kane, accusing her of delaying the process to avoid paying the buyout.

Debtor indicated that she intended to return to Bella Cara only if O’Kane

agreed to vacate the property, but she had no expectation that O’Kane

would ever leave.

At the conclusion of the evidentiary hearing, the bankruptcy court

requested written closing arguments to address whether Debtor’s intent to

buy a new home with the proceeds from her interest in Bella Cara was

sufficient to claim the homestead exemption under California law when

she was unable to return to living at the property, and whether Debtor’s

7 intent to reside at Bella Cara should be measured by an objective or

subjective standard. The parties submitted their written arguments, and the

court subsequently entered its oral ruling on the record.

The court reserved judgment on whether Debtor forfeited her interest

in Bella Cara because Trustee had a separate pending adversary

proceeding which involved the validity and effect of the Agreement. The

court ruled that, although Debtor had an intent to retain her monetary

interest in Bella Cara, she did not have an intent to reside there. It reasoned

that whether Debtor had the requisite intent to return to the property

required an objective test, and it noted that apart from Debtor’s statement

that she would return if O’Kane left, all other evidence indicated that

Debtor’s goal was to take proceeds from her interest in Bella Cara to buy a

new house.

The court also rejected Debtor’s argument to apply CCP § 704.720(d)

because she and O’Kane were not married, and the statute could not be

extended to non-spouses. The court entered a written order disallowing

Debtor’s homestead exemption, and Debtor timely appealed.

JURISDICTION

The bankruptcy court had jurisdiction under

and

157(b)(2)(B). We have jurisdiction under

.

8 ISSUE

Did the bankruptcy court err by finding that Debtor did not satisfy

the residency requirement for the California automatic homestead

exemption?

STANDARD OF REVIEW

A debtor’s right to claim an exemption is a question of law we review

de novo, and we review the bankruptcy court’s factual findings, including

a debtor’s intent, for clear error. Elliott v. Weil (In re Elliott),

(9th Cir. BAP 2014) (citing Kelley v. Locke (In re Kelley),

(9th

Cir. BAP 2003)).

Factual findings are clearly erroneous if they are illogical,

implausible, or without support in the record. Retz v. Samson (In re Retz),

(9th Cir. 2010). “Where there are two permissible views

of the evidence, the factfinder’s choice between them cannot be clearly

erroneous.” Anderson v. City of Bessemer City,

(1985).

DISCUSSION

A. Legal Standards Governing the California Automatic Homestead Exemption

California has opted out of the federal exemption scheme and

permits its debtors only the exemptions allowable under state law. CCP

§ 703.130. As a result, “[t]he bankruptcy court decides the merits of state

exemptions, but the validity of the exemption is controlled by California

law.” Diaz v. Kosmala (In re Diaz),

(9th Cir. BAP 2016).

9 Bankruptcy courts must liberally construe the law and facts to promote the

beneficial purposes of the homestead exemption. Phillips v. Gilman, (In re

Gilman),

(9th Cir. 2018) (citing Tarlesson v. Broadway

Foreclosure Invs., LLC,

(2010)).

In California, there are two types of homestead exemptions: a

declared homestead exemption, which must be recorded by a party, and an

automatic homestead exemption, which arises by operation of law when a

party’s principal dwelling is subject to a forced sale. Bhangoo v. Engs Com.

Fin. Co. (In re Bhangoo),

, 85 (9th Cir. BAP 2021). Debtor did not

record a declared homestead exemption and instead claimed the automatic

homestead exemption under CCP § 704.730. For purposes of the automatic

homestead exemption, the filing of a bankruptcy petition constitutes a

forced sale. In re Diaz,

.

“Under California law, the party claiming the automatic homestead

exemption has the burden of proof on the existence of the exemption.” In re

Bhangoo, 634 B.R. at 85. Bankruptcy courts must apply the state law burden

of proof on exemptions claimed under California law. See In re Diaz,

(“[W]here a state law exemption statute specifically allocates the

burden of proof to the debtor, Rule 4003(c) does not change that

allocation.”).

“To determine whether a debtor resides in a property for homestead

purposes, courts consider the debtor’s physical occupancy of the property

and the intent to reside there.” In re Gilman,

(citing In re

10 Diaz,

; Ellsworth v. Marshall,

(1961)).

A debtor who does not physically occupy a property on the petition date is

not necessarily precluded from claiming the automatic homestead

exemption. See e.g., In re Bhangoo, 634 B.R. at 86; In re Diaz,

;

McBeth v. Karr (In re Karr), BAP No. CC-06-1079-KMoSn,

,

at *4 (9th Cir. BAP Oct. 2, 2006).

The automatic homestead exemption may be available to a debtor

temporarily absent from the principal dwelling on the petition date if the

debtor can establish an intent to return to the homestead property after the

absence. In re Bhangoo, 634 B.R. at 86; In re Diaz,

. Debtor

acknowledged that she did not physically occupy Bella Cara on the petition

date. Thus, the automatic homestead exemption applies only if she could

prove her intent to return to Bella Cara.

B. The Bankruptcy Court Properly Applied California Homestead Law.

Debtor argues that the bankruptcy court erred by disallowing her

homestead exemption because she had the subjective intent to reinvest her

interest in Bella Cara in a new residence, and she would have returned to

Bella Cara if O’Kane had ever left the property. She contends that she did

not abandon her homestead because she was forced to leave the property

due to emotional abuse and physical intimidation, and it was impossible

for her to return so long as O’Kane continued to reside there.

11 California courts have long held that a lack of physical occupancy

does not necessarily preclude a party from claiming the homestead

exemption. See In re Bhangoo, 634 B.R. at 86; In re Diaz,

.

And where a party does not physically occupy the property due to safety

concerns, California courts have been notably lenient. See Michelman v.

Frye,

(1965) (upholding debtor’s declaration of

homestead made while she was absent from the property due to threats of

violence made by her husband who continued to reside there); Moss v.

Warner,

(1858) (holding that “removal made under very

just apprehensions for the safety of his family from the existing hostilities

of the Indians in the vicinity” was not an abandonment of the homestead).

Though we understand the plight of a debtor who must leave a

homestead property due to safety concerns, and we liberally construe the

law and facts to promote the beneficial purpose of the homestead

exemption, we cannot obviate the residency requirement under California

law. It is essential that a debtor who is temporarily absent on the petition

date have an intent to reside in the property, even if the debtor was forced

to leave due to dangerous conditions. See Michelman

(“Absence from one’s permanent residence, if all the while he intends the

absence only for a special temporary purpose to be followed by resumption

of the former residence, constitutes neither abandonment thereof nor a

change of residence. The question . . . must depend largely upon his

intention.”) (cleaned up); Moss,

(“The residence of the family

12 in San Diego [away from the homestead] was merely temporary. Their

home was not there, and, of course, not their homestead. They were merely

sojourners in the city.”).

We are unaware of any authority supporting a claim to the California

automatic homestead exemption where the debtor does not demonstrate an

intent to reside there. “[W]hether the debtor physically occupies the

property or not, the debtor must have an intention to reside there.” In re

Diaz,

; see also In re Gilman,

; Ellsworth,

(“While the very purpose of the homestead law is to protect

the property from existing debts, the declarant must have ‘a bona fide

intention to make the place his residence, his home.’” (quoting Lakas v.

Archambault,

(1918)).

Consequently, the bankruptcy court correctly determined that the

automatic homestead exemption required Debtor to demonstrate an intent

to return to Bella Cara.

C. The Bankruptcy Court Did Not Clearly Err by Finding that Debtor Lacked the Intent to Return to Bella Cara.

Debtor contends that her subjective statement—that she would

return to Bella Cara if O’Kane vacated the property—is sufficient to

overcome objective evidence that she intended to abandon the homestead.

Although a debtor’s intent to reside in a property involves a subjective

state of mind, that subjective intent is typically demonstrated by objective

manifestations. Debtor’s testimony about her intent is probative, but it is

13 not necessarily dispositive. See Tromans v. Mahlman,

(1896)

(“The physical fact of actual occupancy, as well as the intention with which

she occupied the house, were both elements to be considered in

determining actual residence; and the court was not bound to accept her

statement that she intended to reside thereon as conclusive, if other

facts . . . were inconsistent with such intention.”); see also, Nahman v. Jacks

(In re Jacks);

(9th Cir. BAP 2001) (“[S]ubjective intent may

be gleaned from objective factors.”); Carrillo v. Su (In re Su),

,

1146 n.6 (9th Cir. 2002).

In resolving questions of a temporary absence from a homestead, we

have endorsed the “useful analysis” articulated by the bankruptcy court in

In re Bruton,

(Bankr. S.D. Cal. 1994). See In re Bhangoo, 634

B.R. at 89; In re Karr,

, at *5. That analysis focuses on

“whether the debtors demonstrated, rather than merely claimed, their

intent to return to their home after the absence.” In re Karr,

, at *5. “In other words, courts should focus on what objective

evidence showed an intent to return.” In re Bhangoo, 634 B.R. at 89.

Here, the bankruptcy court considered Debtor’s testimony, but

concluded that the objective evidence—including the Agreement and email

exchanges between the parties—showed that Debtor never intended to

return to Bella Cara and instead sought payment from O’Kane for her

interest. The court reasoned:

14 [W]e have so much other evidence, especially written evidence, that indicates she had no intent to ever move back into the house. She wanted to sell it. She just wanted money. The only evidence that slightly supports her claim of homestead exemption is just her testimony, subjective belief that this is her homestead and she would get money out of this, since she wanted to buy a home.

Hr’g Tr. 16:16-23, Feb. 9, 2022.

Debtor clearly expected to be paid for her interest, but the record

does not evidence an intent to return to Bella Cara. She changed her

address on her driver’s license and voter registration, relinquished her keys

and possession of Bella Cara, signed the Agreement which provided for

her to receive payment for her interest, and had communications with

O’Kane in which she continually asked for her buyout. And under the

Agreement, Debtor ceased paying the mortgage, maintenance, taxes, and

other expenses related to Bella Cara.

Debtor argues that she signed the Agreement to preserve her

homestead interest, not to abandon it. But the automatic homestead

requires a debtor to reside in a property, not merely to retain an economic

interest in it. The purpose of the Agreement was to divide the parties’

jointly held property interests. It was an economic transaction that

provided for Debtor to leave Bella Cara and receive payment for her

interest while O’Kane continued living there.

The bankruptcy court’s finding is supported by evidence in the

record, and we do not substitute our judgment for that of the bankruptcy 15 court. See Legal Serv. Bureau, Inc. v. Orange Cnty. Bail Bonds, Inc. (In re

Orange Cnty. Bail Bonds, Inc.),

, 149 (9th Cir. BAP 2022). And

“[w]here there are two permissible views of the evidence, the factfinder’s

choice between them cannot be clearly erroneous.” Anderson,

. The bankruptcy court did not clearly err in finding that Debtor lacked

the intent to return to Bella Cara, and it did not err in sustaining the

objection to her homestead exemption.

D. CCP § 704.720(d) is Not Applicable to Debtor’s Situation.

Debtor asserts that under a liberal application of the homestead

statutes required by California law we should treat her the same as a

married spouse in the same situation who would otherwise be allowed the

exemption under CCP § 704.720(d).3 She maintains that the California

Legislature intended individuals forced to leave a homestead under similar

circumstances be entitled to the homestead exemption without needing to

prove their intent to return to the property.

3 CCP § 704.720(d) provides: If a judgment debtor is not currently residing in the homestead, but his or her separated or former spouse continues to reside in or exercise control over possession of the homestead, that judgment debtor continues to be entitled to an exemption under this article until entry of judgment or other legally enforceable agreement dividing the community property between the judgment debtor and the separated or former spouse, or until a later time period as specified by court order. Nothing in this subdivision shall entitle the judgment debtor to more than one exempt homestead. Notwithstanding subdivision (d) of Section 704.710, for purposes of this article, “spouse” may include a separated or former spouse consistent with this subdivision. 16 By enacting CCP § 704.720(d), the California Legislature chose to

extend the homestead exemption to debtors not currently residing in the

property only: (1) while that debtor’s separated or former spouse continues

to reside in the property; and (2) until the community property is divided

by judgment or enforceable agreement. Section 704.720(d) is inapplicable

here; Debtor and O’Kane were not married, and Bella Cara was not

community property. Liberally construing this provision does not permit

us to extend the exemption beyond the express limitations of the statute.

CONCLUSION

Based on the foregoing, we AFFIRM the bankruptcy court’s order

sustaining Trustee’s objection to Debtor’s homestead exemption.

Concurrence begins on next page.

17 TAYLOR, Bankruptcy Judge:

I join with reluctance.

I agree that the California legislature limited application of C.C.P. §

704.720(d) to a separated or former spouse. I recognize that this statute

reflects a legislative recognition that the dissolution of a relationship

frequently requires a termination of joint residence even where physical

threat is not present; accordingly, it provides automatic protection of the

homestead rights of a spouse who vacates the home. But we cannot expand

the statute through judicial fiat to cover non-married persons.

And I acknowledge that the bankruptcy judge's findings of fact as to

Ms. McKee's state of mind are entitled to deference and evaluated under

the clear error standard. Here the findings have sufficient, if far from over-

whelming, support in the record. I must affirm.

But I write separately because the focus of both the bankruptcy court

decision and the memorandum from the Panel appear to me to

inappropriately narrow the frame of inquiry when a domestic partner

leaves a homestead and alleges that the departure is involuntary,

expedient, or based on an actual risk of harm.

First, we cannot lightly deprive a person of a homestead against a

background of alleged physical threat. California law has protected the

homestead when the departure is involuntary and the result of a fear of

1 physical harm for over a century. See Moss v. Warner,

(1858); see also Michaelman v. Frye,

, 704 (1965). 1

Here, the bankruptcy judge implicitly found that such threats were

not the reason for the departure; he found, in effect, that it was a business

decision. The record supports this conclusion: Ms. McKee owned only a

third of the home – the remainder was owned by her former domestic

partner and her former domestic partner's mother; the agreement involved

a broader separation of assets, including dissolution of a law partnership;

the agreement allowed for a total loss of Ms. McKee's interest in the home's

proceeds if she did not perform certain law office related tasks; Ms. McKee

was absolved from responsibility for all costs in connection with the home;

and Ms. McKee neither retained her homestead rights in the document nor

discussed the homestead otherwise when she entered into the transaction.

That Ms. McKee is a lawyer is also supportive of her relinquishment of a

homestead. Again, on this record, I affirm even though I might reach a

different conclusion were the case tried to me.

But in the absence of factors supporting such a business basis for the

departure from the home, I would reverse. And I would do so even if the

1I emphasize that there was no judicial finding substantiating Ms. McKee's allegations of violence as to Ms. O'Kane. I concur to express concerns as to future cases involving a substantiated threat of harm or any situation where one domestic partner co-owner makes the decision that they can no longer live in a jointly owned home without a risk to physical safety, emotional health, or general well-being or where the removal from the home is coerced or otherwise involuntary as a result of the termination of the relationship. 2 facts do not support a conclusion that the departure was not required to

avoid physical harm.

The fact that the co-owner vacating possession rented another

dwelling and acted as the law requires in changing an address on

government documents should be given little or no weight when the

departure from the jointly-owned home is merely-expedient, involuntary,

or coerced. And a well-evidenced desire to return only when or if a former

domestic-partner departs should be sufficient where there is no exchange

of valuable alternative consideration in exchange for vacating the home.

Finally, the fact that the non-resident co-owner is deeply interested in

receiving proceeds to use toward purchase of a new home typically should

support a conclusion that the homestead rights are retained; the purpose of

the homestead exemption is to keep a roof over a person's head. Where the

nonresident party wants to use home proceeds for exactly this purpose and

is not resident in the home because joint habitation is difficult, impossible,

or dangerous, we should interpret the exemption statutes broadly and

absent unusual facts determine that the homestead was not abandoned.

I acknowledge that the California cases to date focus on the intent to

return to the dwelling. But we need not tie-on blinders and ignore that the

shattering of a relationship injects tremendous complication into the

scenario. I am confident that when the relationship between domestic

partner co-owners terminates, the party who vacates the home need not

intend to return in all circumstances to preserve the homestead. In short, I

3 would find it sufficient for retention of the homestead, if such a person, to

borrow from Moss, merely sojourns in another location until it is safe for

body, mind, and spirit to return to the homestead. And, as a result, if the

homestead is sold during this period of absence, I would allow the

inadvertently absent co-owner to claim the proceeds free from creditor

claims and to use them to acquire a safe place to live.

4