FILED MAR 25 2022

ORDERED PUBLISHED 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. EC-21-1141-SFL RIZAL JUCO GUEVARRA, Debtors. Bk. No. 2:18-bk-25306

RIZAL JUCO GUEVARRA, Appellant, v. OPINION DOUGLAS M. WHATLEY, Appellee.

Appeal from the United States Bankruptcy Court for the Eastern District of California Christopher D. Jaime, Bankruptcy Judge, Presiding

APPEARANCES: Mark T. O’Toole argued for appellant; Barry H. Spitzer argued for appellee.

Before: SPRAKER, FARIS, and LAFFERTY, Bankruptcy Judges.

SPRAKER, Bankruptcy Judge:

INTRODUCTION

The bankruptcy court held that debtor Rizal Guevarra was equitably

estopped from amending his exemption. Guevarra appeals this decision.

1 The bankruptcy court found that Guevarra induced the chapter 71 trustee

to sell his joint interest in real property by denying any interest and by

failing to exempt the real property in his original schedules. The court

based its decision on an unduly narrow understanding of Guevarra’s

position. The record demonstrates that the trustee was fully apprised of the

facts concerning Guevarra’s ownership and his argument that he held his

interest in a resulting trust for his nephew. As such, the trustee cannot

prove all the elements of equitable estoppel. Therefore, we REVERSE.

FACTS2

Many of the facts set forth below are drawn from this Panel’s prior

decision in Guevarra v. Whatley (In re Guevarra), BAP No. EC-20-1165-LBT,

(9th Cir. BAP Mar. 29, 2021). Guevarra commenced his

bankruptcy case in August 2018. Douglas M. Whatley was appointed to

serve as the chapter 7 trustee. Guevarra listed in his schedules real

property located in North Highlands, California (the “Property”). More

specifically, in response to the question in Schedule A/B “Do you own or

have any legal or equitable interest in any residence, building, land, or

similar property,” he answered “yes” and listed the Property by its street

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 We exercise our discretion to take judicial notice of the documents filed in

Guevarra’s bankruptcy case. See Atwood v. Chase Manhattan Mortg. Co. (In re Atwood),

, 233 n.9 (9th Cir. BAP 2003).

2 address. In the space provided in the schedule for describing the nature of

his ownership interest, he stated: “[c]o-signed for Nephew; Debtor has no

interest in property.” He valued the Property at $217,612 but stated that the

value of the portion he owned was “0.00.” Guevarra also listed the loan

secured by the deed of trust encumbering the Property as a secured debt in

his Schedule D.

Consistent with his Schedule A/B, Guevarra did not exempt any

interest in the Property. He did, however, claim an exemption under

California Code of Civil Procedure (“CCP”) § 703.140(b)(5)—also known as

California’s “wild card” exemption—for $310.00 in his bank accounts and

$22,306.20 in a 401(k) account.

The deed for the Property listed Guevarra and his nephew Daryl

Guevarra as joint tenants. Indeed, Guevarra never denied this. By the time

of the § 341(a) hearing held in September 2018, or shortly thereafter, the

trustee knew that Guevarra and Daryl held title to the Property as joint

tenants. Almost immediately, the trustee disagreed with Guevarra’s

assertion that he had no interest of value in the Property. On December 13,

2018, the trustee’s counsel wrote to Daryl to advise him that the

bankruptcy estate asserted an interest in the Property. As counsel

explained to Daryl, “[a]ccording to the documents provided by your uncle,

you and he are on title to the real property . . . .”

Guevarra’s counsel responded to the trustee’s counsel roughly a

week later committing to provide the trustee with documents showing that

3 Guevarra did not live at the Property and had not made any payments on

the loan. Nonetheless, based on Guevarra’s joint tenancy interest, the

trustee continuously asserted that 50% of any equity in the Property was

property of the bankruptcy estate. And Guevarra continuously countered

that while the deed granted him joint title to the Property, he did not hold

any interest in the Property.

The trustee sued Daryl to sell the Property under § 363(h) and

obtained entry of default. Instead of seeking default judgment in the

adversary proceeding, however, the trustee moved to sell Guevarra’s

interest in the Property. 3 The trustee proposed to sell Guevarra’s interest to

Global Capital Concepts, Inc. for $32,000 subject to existing liens. The

motion identified Guevarra as a joint tenant together with his nephew

under the Grant Deed and disclosed a deed of trust against the Property.

Despite Guevarra’s titled interest, the motion to sell disclosed that “if

a Court of competent jurisdiction determines the bankruptcy estate did not

have an interest in the Subject Property, the bankruptcy estate will refund

the money paid by the Buyers.” Though the trustee did not say why the

estate might not have an interest in the Property, the motion discussed the

trustee’s strong-arm rights under the Bankruptcy Code. Specifically, the

trustee argued that his status as a bona fide purchaser for value under

3 After he succeeded in selling Guevarra’s interest, the trustee voluntarily dismissed the adversary proceeding.

4 § 544(a)(3) entitled the estate to sell its interest “free of a prior equitable

interest or constructive trust interest.”4

Guevarra’s counsel obtained leave to file a late, terse six-sentence

opposition to the sale motion without a declaration or other evidence. In it,

Guevarra merely restated his position that he only was a co-signer on his

nephew’s home loan and therefore had no genuine economic interest in the

Property. Rather than offer any analysis, the opposition advised that

Guevarra would move to convert the case to chapter 13 and asked that the

sale motion be continued so that it could be heard with the to-be-filed

conversion motion. Guevarra’s counsel filed the motion to convert the case

to chapter 13 the day before the hearing on the trustee’s motion to sell. The

motion acknowledged that it was filed to “save his nephew’s home.”

At the sale hearing, the bankruptcy court noted Guevarra’s argument

that he did not have any interest in the Property and was merely a co-

signer on the loan. The court observed that this argument was consistent

with Guevarra’s schedules but was otherwise unsupported by any

evidence. Based on the deed and deed of trust, the court ruled that

Guevarra’s joint tenancy interest was estate property.

Though the recently filed motion to convert was not on the calendar,

Guevarra’s counsel advised the court of it and asked that the sale motion

4 Counsel for the trustee submitted a fee application after the court approved the sale. His billing entries detail at least 3.3 hours researching Guevarra’s interest in the Property and discussing the topic with the trustee. This included 1.8 hours researching constructive and resulting trusts.

5 be continued to a date when both matters could be heard. The court

responded that Guevarra did not have a right to convert his case because

he had acted in bad faith by knowingly misstating his interest in the

Property on the schedules. Responding to the issue of bad faith, Guevarra’s

counsel informed the court that “I produced proof to the trustee that he

never made a down payment and doesn’t live in the house and that the

nephew’s made every payment.” The court replied, “[t]hat doesn’t matter,

he’s on the title.” Guevarra’s counsel then offered to cite applicable cases

on the issue, stating that he had previously provided them to trustee’s

counsel though they were not included in the opposition. The court did not

accept the offer for supplemental briefing. In its findings of fact and

conclusions of law approving the sale, the court found that Guevarra

believed he was on title and “yet filed the schedules incorrectly stating he

was a co-signer.”

The bankruptcy court approved the sale of Guevarra’s interest in the

Property to a competing bidder for $32,500. The court entered its sale order

in December 2019, and the trustee closed the sale. Guevarra did not appeal

either the sale order or the order denying his motion to convert.

In March 2020, Guevarra amended his schedules. By this time,

Guevarra’s counsel had been suspended from the practice of law. Guevarra

filed his amended schedules pro se. In his amended Schedule A/B, he

continued to list the value of his 50% interest in the Property as “$0.00.”

However, he described the nature of his ownership interest as: “Debtor

6 interest in said property it [sic] was sold for $32,500 by chapter 7 trustee[.]”

In the space provided for additional information, Guevarra put: “Debtor

claims said funds under exemption statute CCP 703.” In his amended

Schedule C, Guevarra claimed $27,915 of these sale proceeds as exempt

under California’s “wild card” exemption.5

The trustee objected to Guevarra’s amended exemption. According to

the trustee, Guevarra had acted in bad faith and was equitably estopped

from asserting the exemption claim. The trustee pointed out that Guevarra

had insisted since the commencement of his chapter 7 case that he had no

interest of value in the Property. The trustee additionally noted that it had

taken Guevarra nineteen months from the commencement of his case to

amend his schedules to claim the exemption in the Property (or its

proceeds). The trustee explained that had he known Guevarra would claim

an interest and an exemption in the proceeds he would not have sold the

Property.

In support of the objection, the trustee filed the declaration of his

counsel stating that he had spoken to Guevarra’s counsel to discuss the

ownership issue and requested documents. The trustee submitted his

counsel’s December 13, 2018 letter to Daryl informing him of the estate’s

interest in the Property based on the deed and deed of trust. The trustee

5 Guevarra’s amended Schedule C also still claimed a “wild card” exemption in his bank accounts, which he still valued at $310. As for his 401(k) account, he claimed that as exempt in his amended Schedule C under CCP § 703.140(b)(10)(E).

7 also included the response from Guevarra’s counsel dated December 19,

2018, committing to provide documents to establish that Guevarra never

paid any money for the Property and never lived there, whereas Daryl paid

all the monies owed on the Property including the down payment and

lived there.

Guevarra opposed the objection in another terse document. As he

explained, he never attempted to hide the Property from the trustee, and he

correctly identified it in his original schedules. Guevarra explained that he

changed his wild card exemption after the court ruled that he owned 50%

of the Property. For the first time, he submitted case law to support his

argument, citing Johnson v. Johnson,

(1987),

Siegel v. Boston (In re Sale Guaranty Corp.),

(9th Cir. BAP

1998), aff'd,

(9th Cir. 2000), and Law v. Siegel,

(2014). The Johnson and Sale Guaranty cases address California’s recognition

of resulting trusts. Specifically, these cases hold that a transferee of

property who does not pay the purchase price for the real property “is

presumed to hold the property in a resulting trust for the party who paid

the consideration.” In re Sale Guar. Corp.,

; Johnson,

.

Guevarra also submitted a declaration from Daryl in support of the

opposition. Daryl’s declaration was consistent with Guevarra’s argument:

his uncle only co-signed the home loan and was placed on title so that he

(Daryl) could qualify for the loan. Daryl further stated that he and his wife

8 had always lived in the home situated on the Property, that he always

made the loan payments, and that he and Guevarra never intended for

Guevarra to hold any interest of value in the Property.

The bankruptcy court denied the amended exemption without a

hearing. The court ruled that California law requires exemptions to be

claimed in good faith and to benefit the person taking the exemption. The

bankruptcy court found that Guevarra claimed his wild card exemption for

the improper purpose of protecting Daryl’s property. Consequently, the

bankruptcy court sustained the trustee’s exemption claim objection.

On appeal, we vacated and remanded. We held that California’s wild

card exemption does not require debtors to harbor an intent to use the

exempt property for any particular purpose. Rather, debtors were free to

use property in which they claimed a wild card exemption for whatever

purpose they saw fit.

Pertinent to the matter currently before us, we noted that California

law presumes that a joint tenant who does not pay for real property holds

bare legal title subject to a resulting trust. Citing Johnson and Sale Guaranty,

we observed:

Both cases involved resulting trusts. Under California law, if a transferee of property does not pay the purchase price for the property, the transferee is presumed to hold the property in a resulting trust for the party who paid the consideration for its purchase. Further, if a bankruptcy trustee has constructive notice of the resulting trust, it cannot be avoided under the trustee’s strong-arm powers. But Debtor did not indicate on his

9 schedules that he held the Property in a resulting trust, nor did he ever request any adjudication of these issues.

In re Guevarra,

, at *2 n.4 (citations omitted).

We remanded the case to the bankruptcy court to consider the

trustee’s equitable estoppel argument. On remand, the bankruptcy court

permitted the parties to file supplemental briefs. Guevarra, represented by

new counsel, filed a supplemental brief that argued he was not the legal

owner of the Property. As asserted in the supplemental brief, a resulting

trust arose because Guevarra did not make any payments towards the

purchase and had never lived on the Property. Guevarra filed his

declaration to support his argument. Once again, he stated that he had

never made any payments towards the purchase of the Property, never

lived in it, and had always intended that it would be Daryl’s property.

In his supplemental brief, the trustee argued that Guevarra should

not be rewarded for his lengthy inaction in light of the trustee’s costly

administration of the asset. The trustee did not, however, dispute that

Daryl lived on the Property, made all the payments on the loan, or that his

uncle had merely intended to help him purchase his residence. Nor did he

address the discussion of resulting trust cited in our decision remanding

the matter and in Guevarra’s supplemental briefing.

The bankruptcy court again ruled on the matter without argument. It

sustained the objection to the amended exemption based on equitable

estoppel. Guevarra timely appealed.

10 JURISDICTION

The bankruptcy court had jurisdiction under

and

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

.

ISSUE

Did the bankruptcy court abuse its discretion when it applied

equitable estoppel to sustain the trustee’s objection to Guevarra’s

exemption claim?

STANDARD OF REVIEW

We review the bankruptcy court’s decision whether to apply

equitable estoppel for an abuse of discretion. Parker v. Smith (In re Smith),

BAP No. EC–16–1140–BJuTa,

, at *4 (9th Cir. BAP Apr. 24,

2017) (citing Leong v. Potter,

(9th Cir. 2003)); see also In re

Guevarra,

, at *5 (citing California law and stating that the

application of equitable estoppel is matter of discretion for the bankruptcy

court).

A bankruptcy court abuses its discretion if it applies an incorrect

legal standard, or its factual findings are illogical, implausible or without

support in the record. TrafficSchool.com, Inc. v. Edriver Inc.,

(9th Cir. 2011).

DISCUSSION

A. Law generally governing exemptions.

When a debtor files a chapter 7 petition, the debtor’s legal and

equitable interests in property as of the petition date become property of

11 the bankruptcy estate, subject to the debtor’s right to exempt certain

property of the estate. Schwab v. Reilly,

(2010). The

Bankruptcy Code includes a list of federal bankruptcy exemptions but also

permits states to “opt out” of the federal exemption scheme and offer their

own list of exemptions. Phillips v. Gilman (In re Gilman),

(9th Cir. 2018) (citing § 522(b)(2), (b)(3)(A), (d)).

California has opted out of the federal exemption scheme and

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

§ 703.130. As a result, though the bankruptcy court has jurisdiction to

decide the merits of Guevarra’s exemption claims, the allowance or

disallowance of his claims is governed by California law. In re Gilman,

(citing Diaz v. Kosmala (In re Diaz),

(9th Cir.

BAP 2016)).

California exemptions are liberally construed in favor of the debtor.

Elliott v. Weil (In re Elliott),

(9th Cir. BAP 2014). And we

must determine Guevarra’s exemption rights as they existed on the date he

filed his bankruptcy petition. Wolfe v. Jacobson (In re Jacobson),

(9th Cir. 2012).

Debtors in bankruptcy have a general right to amend their schedules,

including their exemptions, at any time before the case is closed. Rule

1009(a). Bankruptcy courts have no equitable authority under federal law

to restrict this right based on a perception of bad faith or prejudice to

creditors. Gray v. Warfield (In re Gray),

(9th Cir. BAP

12 2014) (citing Law, 134 S. Ct. at. 1196-97). On the other hand, such equitable

power might be derived from state law if state law provides an equitable

basis for disallowing the amended exemption.

at 175 (citing Law,

).

Here, the bankruptcy court applied California equitable estoppel law

to disallow Guevarra’s amended wild card exemption. Guevarra

challenges this application. Thus, we must consider the elements for

applying equitable estoppel under California law and whether the

bankruptcy court correctly determined that all the requisite elements were

satisfied.

B. Equitable estoppel and exemption claims.

Both the Ninth Circuit and this panel generally have observed that

equitable estoppel can be invoked to sustain objections to California

exemptions. In re Gilman,

; In re Guevarra,

,

at *5. When equitable estoppel is raised in an objection to an exemption, the

objecting party bears the burden of proof to establish the elements of

equitable estoppel. In re Smith,

, at *5 (citing Domarad v.

Fisher & Burke, Inc.,

(1969)); see also Transp.

Clearings-Bay Area v. Simmonds,

, 427–28 (1964) (stating

that “[t]he doctrine of estoppel must be applied strictly and established in

every particular”). To successfully invoke equitable estoppel under

California law, the objecting party must establish:

13 “(a) a representation or concealment of material facts; (b) made with knowledge, actual or virtual, of the facts; (c) to a party ignorant, actually and permissibly, of the truth; (d) with the intention, actual or virtual, that the ignorant party act on it; and (e) that party was induced to act on it.”

In re Guevarra,

, at *5 (quoting Simmons v. Ghaderi,

(2008)).

Bankruptcy courts in California have applied equitable estoppel to

deny exemptions in similar situations where a debtor amended exemptions

after the bankruptcy estate administered an asset. In In re Aubry,

(Bankr. C.D. Cal. 2016), the trustee reopened the debtor’s case to

administer a previously undisclosed annuity from which the debtor was

receiving annual payments. Aubry did not amend her exemptions to

exempt the annuity until after the trustee had recovered one of the annual

annuity payments. She exempted the annuity nearly two years after she

filed her bankruptcy and more than a year after the trustee had reopened

her case. When her case was reopened, she had even amended her

exemptions but had not exempted the annuity.

.

The court held that Aubry was equitably estopped from claiming an

exemption in the annuity. The court found that her failure to exempt the

annuity when the trustee reopened and administered the undisclosed asset

constituted a representation that she would not amend her exemptions.

. It also held that her failure to exempt the annuity in a timely manner

qualified as a concealment of her intent to exempt the annuity.

The court

14 found that Aubry knew, or should have known, that she had the

opportunity to exempt the annuity and her failure to do so would

constitute knowledge that she was representing she would not exempt the

asset.

. It also held that the trustee had proven the remaining

elements necessary to estop Aubry from amending her exemptions.

.

A year after Aubry, the Ninth Circuit issued its unpublished decision

in Lua v. Miller (In re Lua),

, 852–53 (9th Cir. 2017),

reversing the denial of an amended exemption based on equitable estoppel.

In Lua, the debtor originally listed an interest in her residence as part of her

schedules and exempted the interest under California’s homestead

exemption. She then amended her schedules to say that she “had no

interest in the Property other than ‘such community interest as may exist

for the purposes of a divorce action.’” In re Lua,

(Bankr.

C.D. Cal.), aff'd,

(C.D. Cal. 2015), rev'd and remanded,

(9th Cir. 2017). The amended schedules stated that the residence

was owned by her husband and two other members of his family.

In

keeping with these amendments, Lua also amended her Schedule C to omit

her prior homestead exemption.

The chapter 7 trustee spent almost three years litigating with Lua and

her non-debtor husband to sell the residence. The court ultimately held the

entirety of the residence was community property and ordered that it be

turned over to the trustee. It was only after the trustee obtained an order

15 compelling Lua to turn over possession of the residence that she finally

vacated the property and permitted the trustee to sell it. Id. at 770-71.

Roughly a month after Lua vacated the property, she filed her second

amended schedules to claim a $100,000 homestead exemption under

California law. Id. at 771.

The bankruptcy court held that Lua was equitably estopped from

amending her exemption, and the district court affirmed. On appeal, the

Ninth Circuit reversed. It explained that the debtor’s first amended

exemption “cannot form the basis of an estoppel because [it] set forth all of

the existing facts known to Lua.”

. The Ninth Circuit

further found that “nothing in Lua’s First Amended Schedules can be

deemed a representation by Lua that she would not amend her exemptions

again if circumstances changed.”

. The Ninth Circuit held that

despite the trustee’s administration of the residence, she was not equitably

estopped from amending her exemption because her circumstances

changed when “the bankruptcy court entered an order finding that the

Property was 100% community property, providing Lua a new factual

basis to claim a homestead exemption.”

After Lua, the bankruptcy court in In re Gonzalez,

(Bankr.

C.D. Cal. 2019), also applied equitable estoppel to deny the debtor’s

amended homestead exemption. Gonzalez, a real estate broker, originally

disclosed a residence and commissions held by his realty corporation. Id. at

302-04. Postpetition, Gonzales received and spent a significant amount of

16 the outstanding commissions. The trustee informed Gonzalez that under

California law he could exempt either the commissions under California’s

bankruptcy-like exemptions or the homestead under its general

nonbankruptcy exemptions, but not both.6 Id. at 304. After the trustee sued

him for turnover of the commissions, Gonzalez amended his schedules to

exempt roughly $28,000 in commissions under California’s bankruptcy-like

exemptions of CCP § 703.140(b). Id. at 305-06. Ultimately, the parties agreed

that Gonzalez could exempt roughly $20,000 of the commissions and asked

the court to decide whether the balance qualified as exempt tools of the

trade. Id. at 306-07.

While the decision was pending, the trustee retained a real estate

broker to sell Gonzalez’s residence. Gonzalez did not object to the broker’s

employment but instead filed his third amended schedules to restate the

value of his residence at a higher value and exempt the resulting equity

under California’s nonbankruptcy exemptions. See CCP § 704.010, et seq.

The trustee objected to the homestead exemption. 620 B.R. at 308-09.

The bankruptcy court sustained the trustee’s objection, holding that

Gonzalez was equitably estopped from exempting the homestead. The

court read Lua narrowly for the proposition that a debtor’s omission of an

exemption from her initial schedules did not by itself constitute a

6 California permits bankruptcy debtors to choose either the bankruptcy exemptions of CCP § 703.140(b) or California’s nonbankruptcy exemptions but not both. CCP § 703.140(a).

17 representation that she would not later amend her schedules to claim an

exemption for purposes of equitable estoppel. Id. at 325. It pointed out that

both the debtor and the trustee in Lua had access to the same set of facts. As

a result, there could be no concealment of the true facts in that situation. Id.

In contrast, the court noted that Gonzalez repeatedly advised the trustee

that he affirmatively chose to elect the “bankruptcy-like” California

exemptions under CCP § 703.140(b) to exempt his commissions to the

exclusion of the homestead exemption available under the nonbankruptcy

exemptions of CCP § 704.010, et seq. Additionally, it distinguished Lua by

noting that Gonzalez did not involve a bona fide material change in

circumstances that triggered his switch to the homestead exemption under

California’s non-bankruptcy exemptions. Id. at 325-26. Gonzalez’s election

and actions established the elements for equitable estoppel. Id. at 313-14,

319-20, 325-26.

With these decisions in mind, we turn to the merits of the issue on

appeal.

C. The bankruptcy court erred when it denied Guevarra’s amended wild card exemption based on equitable estoppel.

“The doctrine of equitable estoppel is based on the theory that a party

who by his declarations or conduct misleads another to his prejudice

should be estopped from obtaining the benefits of his misconduct.” Cotta v.

City & Cnty. of San Francisco,

(2007) (quoting

Kleinecke v. Montecito Water Dist.,

(1983)).

18 Accordingly, the trustee was required to prove some misrepresentation or

concealment of a material fact. Vu v. Prudential Prop. & Cas. Ins. Co.,

, 1149–1152 (2001).

The bankruptcy court found that Guevarra had “concealed the ‘wild

card’ exemption otherwise available to exempt his interest in the Property.”

The court explained that Guevarra did so by repeatedly declaring that he

held no interest in the Property or that it was valueless, and by not taking

the exemption in his original schedules. Guevarra’s purported denial of

any interest in the Property is the cornerstone of the trustee’s argument to

deny the amended exemption. It informs each element necessary to

establish equitable estoppel. Therefore, we first address the denial of

ownership before considering the court’s finding that Guevarra concealed

an intent to exempt his interest in the Property.

1. Guevarra’s “representation” regarding his ownership interest.

Guevarra, or his counsel, indisputably stated on several occasions

that he had no interest in the Property. But such statements were part of a

broader, more nuanced resulting trust argument under California and

bankruptcy law that Guevarra held bare legal title to the Property and held

equitable title in trust for his nephew’s benefit. Guevarra never articulated

this argument to the court in such a direct manner until the supplemental

briefing on equitable estoppel after our remand. But for purposes of

equitable estoppel, when Guevarra presented his resulting trust theory to

the court is largely irrelevant. Equitable estoppel focuses on the

19 representation(s) to the party allegedly prejudiced. See Simmons,

. Here, the relevant party is the trustee, and the record is clear that

Guevarra early on informed the trustee, through his counsel, of the facts

and law supporting the resulting trust argument.

Guevarra listed the Property in his original Schedule A/B, disclosing

an interest in the Property. Though he provided a valuation of the

Property, he valued his interest at zero. In the schedule, he explained that

he merely co-signed on the loan for his nephew to acquire the Property.

The record does not include what information, if any, Guevarra provided

the trustee at the meeting of creditors. So, we do not know what was asked,

or said, about Guevarra’s interest at that time. But the letter sent by the

trustee’s counsel afterwards reveals that Guevarra provided him with the

Grant Deed which established Guevarra’s joint tenancy interest.

More importantly, Guevarra never denied that the Grant Deed gave

him a joint legal interest in the Property. Rather, he consistently argued

that he had merely helped his nephew to purchase the Property. Guevarra

maintained that his nephew wholly owned the Property despite the clear

language of the Grant Deed. By December 2018, Guevarra’s counsel had

advised the trustee’s counsel that the nephew had always lived at the

Property and had made all the loan payments. Guevarra’s counsel

committed to sending the trustee proof to substantiate these facts,

including Guevarra’s rent for his residence at a different location.

20 Daryl’s exclusive possession and payments were significant, material

facts that Guevarra disclosed early and often to the trustee. These facts

patently had the potential to drastically affect the nature of Guevarra’s

ownership under California law. As we recognized in our disposition of

the trustee’s bad faith argument, that Guevarra did not pay the purchase

price for the Property triggered a presumption that he held his interest in a

resulting trust for his nephew. In re Guevarra,

, at *2 & n.4.

A resulting trust under California law had the potential to prevent

Guevarra’s joint ownership from becoming property of the bankruptcy

estate.

If Guevarra’s joint interest in the Property was equitably held in

trust for his nephew, he would be left with bare legal title. And bare legal

title is effectively without value because the substantive equitable interest

does not become property of the bankruptcy estate. § 541(d); see also Mitsui

Mfrs. Bank v. Unicom Comput. Corp. (In re Unicom Comput. Corp.),

(9th Cir. 1994) (“[S]omething held in trust by a debtor for another is neither

property of the bankruptcy estate under section 541(d), nor property of the

debtor for purposes of section 547(b).”); Savin v. Kafka (In re Kafka), Case

No. 17-30013 HLB,

, at *12 (Bankr. N.D. Cal. Nov. 21,

2018) (determining that debtor held bare legal title to the property and held

interest in a resulting trust for the beneficial owners of the property);

Airwork Corp. v. Markair Express, Inc. (In re Markair, Inc.),

, 641-

42 (9th Cir. BAP 1994) (“The resulting trust having been determined by law

21 to exist, the trustee has no equitable rights in the trust, and the res is not

property of the estate pursuant to § 541.”).

The record does not reveal whether the trustee ever received the

documentation promised by Guevarra’s counsel. But the trustee’s motion

to sell demonstrates that the trustee fully understood the significance of

Guevarra’s argument. The trustee sought to sell Guevarra’s joint interest in

the Property based on the Grant Deed. Despite the clear existence of that

interest, the trustee included considerable discussion about his strong-arm

powers as trustee. The obvious purpose of this discussion was to show that

the trustee’s status as a bona fide purchaser for value under § 544(a)(3)

could defeat any equitable interest Guevarra’s nephew might have in his

uncle’s share of the Property. Given that the Grant Deed established their

joint legal title, there was no reason for the trustee to include that

discussion except to rebut Guevarra’s argument that a resulting trust arose

from his nephew’s payments and possession of the Property. Indeed, the

time records for the trustee’s counsel show that he spent several hours

researching constructive and resulting trusts before filing the motion to

sell.

We acknowledge that prior to his response to the trustee’s exemption

claim objection, Guevarra’s terse arguments to the court never specifically

and distinctly articulated his resulting trust theory. Instead, Guevarra only

told the court he was a mere co-signer on the loan and that he made no

payments for and did not live on the Property. But regardless of what the

22 court understood at the time, there is no doubt as to what the trustee knew

and understood at the time. In fact, at the sale motion hearing, the trustee

did not dispute any of Guevarra’s alleged facts regarding possession of and

payments for the Property. Rather, he invoked his strong-arm powers

under § 544(a)(3) and argued that his status as a bona fide purchaser for

value could defeat any prior equitable interest. The trustee also argued that

the trustee’s actual knowledge of the facts was irrelevant. But as we

recognized in our prior decision, under California law “if a bankruptcy

trustee has constructive notice of the resulting trust, it cannot be avoided

under the trustee’s strong-arm powers.” In re Guevarra,

at

2 n.4 (citing In re Sale Guaranty Corp.,

).

In short, there was no need for the trustee to invoke his strong-arm

powers except as a means to respond to Guevarra’s resulting trust

argument. By that time, the trustee’s discussions with Guevarra’s counsel

had made it clear to the trustee that Guevarra was asserting a resulting

trust that limited his interest in the Property to bare legal title. The trustee’s

strong-arm powers may well have ultimately defeated Guevarra’s resulting

trust argument given the facts and circumstances of this case. See generally

McGranahan v. Dillard (In re Dillard), Case No. 06-20596-A-7,

at *4 (Bankr. E.D. Cal. Oct. 30, 2007). But the ultimate outcome is

not the issue. Whether or not successful, Guevarra’s resulting trust

argument, and the trustee’s recognition of that argument, establishes that

Guevarra did not merely deny his interest in the Property.

23 At bottom, no finder of fact reasonably could have found that

Guevarra misled the trustee as to his ownership in the Property on the

record before us. While Guevarra stated that he had no ownership interest

of value, he explained the facts that created a presumption of a resulting

trust under controlling law that supported his position. There was no

misrepresentation of a material fact—only a dispute about the legal

implications of those facts. Consequently, the bankruptcy court’s finding

that Guevarra knowingly misstated his ownership was clearly erroneous.

2. Guevarra’s “concealment” of a present intent to exempt his interest in the Property.

Though Guevarra’s putative misrepresentation of his ownership of

the Property predominated the trustee’s objection to the amended

exemption, the court found that Guevarra induced the trustee to sell his

interest in the Property by concealing an intent to exempt that interest. The

court cited Guevarra’s repeated denials of his interest in the Property as

evidence of this concealment. But as explained above, Guevarra disclosed

his ownership interest and argued that it was not property of the estate, or

was worthless, because he held bare legal title. Because he believed that he

held bare legal title, his interest was valueless without the equitable interest

which was not property of the estate. Accordingly, there was no practical

reason for Guevarra to exempt bare legal title. Guevarra’s resulting trust

argument was consistent with his original decision not to exempt his

interest in the Property.

24 In Lua, the Ninth Circuit rejected an argument similar to the trustee’s

present concealment argument. There, the debtor challenged her interest in

real property for years based on her belief that she did not hold any

community interest in her residence. The chapter 7 trustee in Lua had

argued that her failure to take a homestead exemption was proof that she

concealed her intent to exempt her residence. The Ninth Circuit held to the

contrary that Lua’s original schedules “cannot form the basis of an estoppel

because they set forth all of the existing facts known to [the debtor].” In re

Lua,

. Given a debtor’s right to amend her schedules,

including her exemptions, “nothing in Lua’s First Amended Schedules can

be deemed a representation by Lua that she would not amend her

exemptions again if circumstances changed.”

.

The bankruptcy court attempted to distinguish Lua. It cited Aubry in

support of its conclusion that Guevarra concealed his exemption “by

omitting the exemption from the initial Schedules and thereafter testifying

at the § 341 meeting that the initial Schedules were accurate.” It also cited

Gonzalez for the proposition that Guevarra had mislead the trustee by

originally using the wild card to exempt “a Wells Fargo 401(k) bank

account.” Finally, it reasoned that like the trustee in Aubry, the trustee in

Guevarra was harmed because he incurred considerable expense to sell the

Property based on the debtor’s choice not to exempt a valuable asset.

Though Lua is an unpublished decision, we find it persuasive and

adopt its reasoning. The absence of an exemption for his interest in the

25 Property in Guevarra’s original schedules did not constitute a

representation that he would not amend his exemption in the future. In re

Lua,

; see also In re Gilman,

, 729 (Bankr.

C.D. Cal. 2019) (following Lua and holding that the debtor’s failure to

disclose a prepetition escrow of a residence for sale in his initial schedules

did not equitably estop the debtor from claiming an automatic homestead

exemption in the residence), aff’d,

(C.D. Cal. Oct. 28,

2020). Nor are we persuaded that Guevarra’s exemption of a 401(k) account

under the wild-card exemption was meaningful as demonstrated by his

subsequent amended exemption of the 401(k) account under the more

applicable CCP § 703.140(b)(10)(E). In Gonzalez the debtor had the choice to

exempt one of two assets under mutually exclusive exemptions. For

whatever reason Guevarra originally decided to exempt his 401(k) account

under the wild-card exemption, it did not preclude exemption under the

more specific provision of CCP § 703.140(b)(10)(E).

Finally, Guevarra’s case materially differs from Aubry. The trustee in

Aubry incurred time and fees to administer an undisclosed annuity. For a

year after discovery of the asset, the debtor did not challenge the estate’s

rights in the asset or exempt it despite filing amended exemptions when

the case was reopened. Only after the trustee received an annual payment

did the debtor exempt the annuity. Here, as in Lua, the debtor challenged

the estate’s rights in the asset the estate sought to administer. Once

Guevarra lost that challenge, his circumstances changed, and he was

26 entitled to amend his exemption based on the court’s decision to permit the

estate to sell his interest in the Property. In re Lua,

(holding that circumstances changed “when, at the request of the Trustee,

the bankruptcy court entered an order finding that the Property was 100%

community property, providing Lua a new factual basis to claim a

homestead exemption”). Neither Aubry nor Gonzalez involved any

legitimate change in circumstances that served as an impetus for the

amended exemption. Rather, in both situations it was the trustee’s

administration of the nonexempt asset that prompted the belated

exemption when it was available throughout the case. In contrast, the

debtor in Lua and Guevarra both experienced bona fide changes in

circumstances: the court’s rejection of their respective legal positions that

challenged whether the subject property was property of the estate.7

As in Lua, Guevarra provided the trustee with all the existing facts

concerning his ownership. The parties merely disputed the legal

significance of those facts. The trustee is not misled, and there is no

concealment, where the parties disagree as to the legal significance of

known facts. Nor can the trustee penalize a debtor for litigating his

position, even when the debtor amends his or her exemptions if the debtor

loses. Here, the court effectively disposed of Guevarra’s resulting trust

7 We express no opinion whether omitting an asset completely from the debtor’s schedules ever could be, by itself, sufficient grounds for equitable estoppel under California law.

27 argument when it approved the sale of his interest in the Property. As a

result of the court’s decision, Guevarra’s circumstances changed, and that

change in circumstances provided him with a basis to claim an exemption

he previously did not believe he had. Guevarra’s situation was no different

than the debtor in Lua. The record simply does not support any inference

that Guevarra held a present intent to exempt a property interest that he

believed was limited to bare legal title when he filed his original schedules

and exemptions.

3. Given the absence of a misrepresentation or concealment, the other equitable estoppel elements also are absent.

There being no misrepresentation of Guevarra’s ownership, or

concealment of a pre-existing intent to exempt his interest in the Property,

the rest of the elements needed to establish equitable estoppel also fail. The

trustee was required to prove that he was actually and permissibly

ignorant of the truth. But “where the person pleading estoppel had

knowledge of the facts, there is no reliance.” In re Lua,

(quoting Sidebotham v. Robison,

(9th Cir. 1954)). The trustee

knew of Guevarra’s interest under the Grant Deed as well as his resulting

trust argument. And as a trustee he knew, or should have known, there

was no need for Guevarra to exempt an interest that was limited to bare

legal title because the estate did not have any beneficial interest in such

property. See § 541(d) (providing that when debtor holds only legal title to

property, no equitable interest in that property passes to the bankruptcy

28 estate); see also In re Markair, Inc.,

(stating that trust res

did not constitute estate property when the debtor had no equitable

interest in the res to pass on to the trustee and the estate).

Similarly, the trustee is charged with knowing that if the court

rejected Guevarra’s resulting trust argument, Guevarra could amend his

exemption in light of that ruling. In re Gilman, 608 B.R. at 729 (“[A] debtor’s

schedules cannot form the basis of an equitable estoppel claim because the

parties are aware that the debtor may amend her schedules at any time.”).

That is exactly what happened here. As such, the trustee failed to establish

that he was permissibly ignorant of either Guevarra’s ownership or his

ability to exempt that interest if the court rejected his resulting trust

argument.

The record additionally provides no support for the court’s findings

that Guevarra induced the trustee to sell his interest while concealing an

intent to exempt that interest. Based on the resulting trust argument, there

was no need for Guevarra to exempt his interest if it was limited to bare

legal title. That was the entire point of Guevarra’s resulting trust argument:

to prevent the trustee from selling his interest.

The bankruptcy court held that Guevarra intended to induce the

trustee to sell his interest in the Property because he failed “to properly

exempt his interest in the Property.” In this instance, this amounts to

nothing more than penalizing the debtor for raising an unsuccessful legal

argument. The trustee was fully aware of Guevarra’s argument, which was

29 entirely consistent with his not exempting an interest that he argued was

limited to bare legal title.

CONCLUSION

There is an obvious tension between the debtor’s right to amend his

exemptions and application of equitable estoppel. As we noted in our prior

decision, we have interpreted Law v. Siegel,

(2014), “as

overruling the bankruptcy court’s authority to deny an exemption on

grounds of bad faith.” In re Guevarra,

, at *4. Equitable

estoppel is not a substitute for bad faith. Courts must be careful not to

penalize debtors for exercising the statutory right to amend their

exemptions or to read too much into a debtor’s failure to exempt an asset.

Without more, such an omission does not constitute a misrepresentation or

concealment for purposes of equitable estoppel. Similarly, standing alone,

the failure to exempt an asset does not impermissibly induce a trustee to

administer an asset as he or she knows that debtors may amend their

exemptions as a matter of right. Admittedly, this can place chapter 7

trustees in a tenuous position when faced with a valuable asset that the

debtor has not exempted but could. Even so, we are not free to ignore the

necessary implications of Law v. Siegel simply because they present a

practical problem for chapter 7 trustees in administering estate assets.

As explained above, the record does not support the bankruptcy

court’s findings that Guevarra knowingly concealed his interest in the

Property while the trustee was ignorant of that interest, or of Guevarra’s

30 right to amend his exemptions. Accordingly, we REVERSE the bankruptcy

court’s order sustaining the trustee’s exemption claim objection based on

the application of equitable estoppel.

31