United States District Court, D. Arizona
Douglas L. Rayes, United States District Judge.
Christina and Robert Flatt appeal the bankruptcy court's
turnover order and, in doing so, have moved to certify
questions to the Arizona Supreme Court regarding
Arizona's homestead statute, A.R.S. § 33-1101(C)
(Doc. 6). For the reasons stated below, Appellants'
motion to certify is denied and the bankruptcy court's
order is affirmed.
filed their Chapter 7 bankruptcy petition on April 18, 2017.
As of the petition date, the bankruptcy estate owned real
property located in Glendale, Arizona. Appellee Brian J.
Mullen was appointed acting trustee of the bankruptcy estate.
6, 2017, the bankruptcy court approved the sale of the real
property, which generated proceeds of $59, 093.18. On June 9,
2017, relying on Arizona's homestead exemption, the
proceeds were deposited into Appellants' checking
account, which also contained other funds not originated from
the sale. During the next several months, Appellants spent
the proceeds on various expenditures, including groceries,
dining, entertainment, clothing, insurance premiums, utility
bills, apartment furnishings, auto loan payments, health care
expenses, and veterinarian bills.
November 21, 2017, Appellee filed a motion requesting
Appellants turn over all of the identified cash proceeds from
the sale of the property, contending that Appellants were not
entitled to a homestead exemption under Arizona law.
Appellants timely opposed the motion, requested certification
of pertinent questions to the Arizona Supreme Court, and
sought a stay until the Arizona Supreme Court accepted
certification and made a final ruling, or declined to do so.
Appellee filed a reply memorandum, supporting turnover and
opposing the motion for certification and stay.
February 27, 2018, after a hearing, the bankruptcy court
granted Appellee's motion for turnover of cash proceeds
from the sale of the property. On March 6, 2018, a written
order followed, clarifying that Appellants were not entitled
to the homestead exemption because they commingled the sale
proceeds and spent them on non-exempt expenditures. The
written order also clarified that the bankruptcy court denied
Appellants' request for certification and stay. On March
8, 2018, Appellants noticed an appeal.
Motion to Certify
Arizona Supreme Court may answer questions of law certified
to it by a United States District Court if: (1) there are
questions of state law that might be determinative of the
case pending in the certifying court and (2) it appears to
the certifying court that there is no controlling state court
precedent. A.R.S. § 12-1861; see also Binford v.
Rhode, 116 F.3d 396, 399 (9th Cir. 1997). Certification
is not mandatory, however, simply because state law is
unclear on a particular issue. Lehman Bros. v.
Schein, 416 U.S. 386, 390-91 (1974). Whether to certify
a question to the state's highest court is within the
district court's discretion. Id. In determining
whether certification is appropriate, courts look to
“factors such as the complexity of the issue, the
availability of precedent from lower courts or other
jurisdictions, and the magnitude of disagreement on the issue
. . . .” Smith v. Allstate Ins. Co., 202
F.Supp.2d 1061, 1064 (D. Ariz. 2002).
raise two issues related to Arizona's homestead
exemption, which generally exempts proceeds from the sale of
certain delineated properties from a bankruptcy estate: (1)
whether the homestead exemption is lost by commingling
homestead proceeds with non-exempt funds, and (2) whether the
homestead exemption is lost with respect to proceeds spent
for non-exempt purposes. Neither issue is complex.
Id. (finding issue non-complex when the court was
not required to “wade into any intricate or abstruse
administrative or statutory scheme”). Although Arizona
courts have not weighed in on these particular issues, courts
in other states with similar statutes have addressed both
issues and have resolved them in a similar manner, indicating
a lack of serious debate. See, e.g., In re
Kierig, No. 99-21016, 2000 WL 33716966, at *3 (Bankr. D.
Idaho Feb. 10, 2000); In re Ziegler, 239 B.R. 375,
379 (Bankr. C.D. Ill. 1999); In re Zibman, 268 F.3d
298, 305 (5th Cir. 2001) (Texas law); In re Golden,
789 F.2d 698, 700 (9th Cir. 1986) (California law). Moreover,
bankruptcy courts applying the Arizona homestead statute have
reached nearly uniform results. See, e.g., In re
Smith, 515 B.R. 755, 762 (Bankr. D. Ariz. 2014); In
re White, 389 B.R. 693, 704 (9th Cir. B.A.P. 2008);
In re Hassett, No. 14-BK-12106-BKM (Bankr. D. Ariz.
Mar. 13, 2017) (order denying debtors' motion for
abandonment). Given these circumstances, the Court concludes
that certification is not necessary and denies
Appeal of Bankruptcy Court's Turnover Order
“On appeal, a district court may affirm, modify, or
reverse a bankruptcy judge's judgment, order, or decree
or remand with instructions for further proceedings. A
district courts review a bankruptcy court's . . .
conclusions of law de novo.” Medina v. Vander
Poel, 523 B.R. 820, 823 (E.D. Cal. 2015) (internal
quotation and citation omitted).
challenge the bankruptcy court's conclusion that
Appellants waived their homestead exemption rights by
commingling the proceeds with non-exempt funds and by
spending proceeds on non-exempt expenditures. They do not
challenge the bankruptcy court's factual findings that
they commingled the proceeds with non-exempt funds and spent
proceeds for non-exempt purposes. Instead, Appellants contend
that the bankruptcy court erred as a matter of law when it
concluded that § 33-1101(C) prohibits commingling and
use of sales proceeds on non-exempt expenditures. The Court
filing of a bankruptcy petition creates an estate that
consists of all of the debtor's legal and equitable
interests in property, including potentially exempt property.
11 U.S.C. § 541; Cusano v. Klein, 264 F.3d 936,
945-46 (9th Cir. 2001). Section 522(b) of the Bankruptcy Code
allows a debtor to exempt property from the bankruptcy
estate. Because Arizona has “opted out” of the