Judge Bruce G. Iwasaki, Case Number: BC663174, Date: 2023-08-08 Tentative Ruling

On March 20, 2023, Defendant and Judgment Debtor Joseph Davis (Defendant, Debtor, or Davis) filed a Claim of Exemption with regard to two accounts held at LPL Financial Holdings Inc: LPL Financial Holdings Inc., Account Nos. 4441-3831 and 7026-7699.

On April 3, 2023, Plaintiff and Judgment Creditor Douglas Bagby (Plaintiff or Bagby) filed a Notice of Opposition to the Claim of Exemption. On June 26, 2023, Judgment Creditor filed an Amended, Supplemental Opposition to this Notice of Exemption. On July 6, 2023, Judgment Debtor filed a Reply. On July 11, 2023, Judgment Creditor filed a Sur-Opposition. On July 12, 2023, Judgment Debtor filed a Reply.

On July 19, 2023, the Court conducted a hearing on Debtor Davis’s Claim of Exemption. Before the hearing, the Court issued a tentative ruling that, among other things, relied on a previous order in assuming that Davis’s domicile or residence determined the choice of which state’s law to apply to the claim of exemption. The tentative ruling assumed that the law of Florida governed this issue and discussed whether Florida’s statute on the exemption of pension funds applied to Davis’s LPL Financial Holdings accounts. In reviewing Florida Statutes Annotated section 222.21, the tentative ruling focused on subdivision (1), and tentatively concluded that Davis had not shown that the funds in the account were “necessary to provide for the support of the judgment debtor.” In oral argument, Davis pointed out that the Florida statute’s subdivision (1) was limited to pensions of the United States, not the rollover IRA involved here.[1] The Court asked for further briefing on the issue. The parties submitted further briefs, which the Court has reviewed.

While Plaintiff Bagby addressed the Florida exemption statute, he primarily argued that under either California or Florida law, the Uniform Voidable Transactions Act should preclude Davis’s effort to exempt execution of the LPL retirement accounts. Bagby contends that the Court’s 2020 observation about Davis’s residence is not binding here, and more significantly, Davis has misrepresented where he actually lives. Bagby also argues that the Uniform Voidable Transactions Act evinces the state’s policy of protecting creditors.[2] Plaintiff alludes to an 1899 U.S. Supreme Court case involving a $76.16 judgment, that indicated that the law of the forum governs remedial issues. (Chicago, R.I. & P. Ry. v. Sturm (1899) 174 U.S. 710, 717 [“Exemption laws are not a part of the contract. They are part of the remedy, and subject to the law of the forum”].) Bagby further contends that Davis has not complied with the Florida statute and has unclean hands.

In support of his claim of exemption, Davis argues that Florida Statute 222.21 exempts Davis’s LPL accounts from execution.

The Court concludes here, as it tentatively concluded prior to the July 19, 2023 hearing, that Defendant Davis’s claim of exemption should be denied. But in contrast to its previous tentative ruling, the Court finds that the California exemption statute, not the Florida statute, governs. Under California law, Davis fails to meet his burden of establishing that the accounts are exempt. Because Davis chose not to rely on Code of Civil Procedure section 704.115, and thus has not had an opportunity to argue this aspect of the choice of law analysis, the Court will entertain limited oral argument at the hearing on the ex parte application set for this Court on August 8, 2023.

Both parties have argued the significance of Defendant Davis’s claim that he is a Florida resident or domiciliary, and thus the Florida exemption statute governs. Plaintiff Bagby has contested the authenticity of Davis’s residency claim. On June 16, 2023, the Court concluded, based primarily Davis’s daily expenses over many months in Southern California, that Davis resided within 150 miles from the Mosk Courthouse, and under Code of Civil Procedure section 708.160, could be compelled to sit for a judgment debtor examination there. The Court rejected Davis’s insistence that he resided in Florida, not California.

A brief look backward in this long-running litigation is in order. On October 15, 2020, this Court granted Davis’s claim of exemption as to annuity contracts and a life insurance policy that Bagby sought to execute upon. With little discussion, the Court found that Davis resided in Florida, and without analysis, assumed that Florida law applied to the claim of exemption. In its tentative decision issued for the July 19, 2023 hearing, the Court relied on this October 15, 2020 ruling – both the finding that in 2020 Davis resided in Florida and the assumption that such a finding dictated that Florida law governed. [3]

This Court’s assumption concerning choice of law reflected in the October 15, 2020 ruling was incorrect. The debtor’s domicile or residence normally does not determine choice of law for a claim of exemption. As discussed below, the forum state’s law governs – here, of course, California law.

Before turning to the choice of law discussion, the Court briefly addresses Bagby’s argument concerning the Uniform Voidable Transactions statute.

The Uniform Voidable Transactions Act does not govern the claim of exemption.

Bagby argues that the Uniform Voidable Transactions Act (UVTA, Cal. Civ. Code, § 3439.01, et seq.) should preclude Davis’s effort to shield the retirement accounts from execution.[4] Bagby maintains that Davis’s contention that he is a Florida resident and no longer resides in California is an elaborate charade. He offers the declaration of Tamara Baron, who says Davis told her in 2020 that he had rented a home in Florida to establish the appearance of being a “Floridian resident” to prevent Plaintiff from attaching his annuity payments. Davis offered nothing to contradict this account. And the Court has found that Davis resides in California within the distance permitting the Court to order him to appear for a judgment debtor examination. (Code. Civ. Proc., § 708.160.) But Bagby’s contention that all of Davis’s conduct has been a scheme to defraud him of the fruits of the judgment must deal with the language of the UVTA.

Assuming that Bagby’s characterization is accurate, that Davis’s claim of having changed his residence or domicile to Florida is fraudulent, the Court does not see what bearing the UVTA has on Davis’s claim to exempt the retirement accounts from execution. The UVTA permits the court to void a “transfer made or obligation incurred” if made “with actual intent to hinder, delay, or defraud any creditor….” (Civ. Code, § 3439.04, subd. (a)(1).) Clearly, therefore, the claim of exemption itself cannot be voided, because the claim is not a transfer or obligation. Bagby is not explicit on this point, but the only other transfer that might conceivably apply is the rollover of the insurance policy cash value to the two LPL Financial Holdings accounts, the larger of which is an Individual Retirement Account. But the Act defines a “transfer” as “disposing of or parting with an asset.” (Civ. Code, § 3439.01, subd. (m).) That is not what occurred here. Bagby agrees that Davis is the beneficial owner of the retirement accounts. The funds changed form – from insurance policy cash value to retirement accounts – and have a different custodian, but Davis “disposed” of nothing.[5] The UVTA does not preclude Davis’s claim of exemption.

As noted, this Court had assumed that if Davis resided in Florida, the law of that state would govern his claim of exemption. The parties have therefore sparred over indicia of Davis’s residence. In its previous choice of law analysis, however, the Court was mistaken. In matters of procedure, including execution and exemptions from execution, the law of the forum governs.

Marriage of Delotel (1977) 73 Cal.App.3d 21, was a dissolution action, in which by stipulated decree, husband was ordered to pay wife both child support and spousal support. Two years later, husband moved permanently to Oregon. The next year, wife secured a writ of execution for unpaid support. The writ was served on the agency that paid husband’s government pension. Husband sought to exempt the pension from execution, which the California trial court denied. The Court of Appeal affirmed, applying California law. Oregon law exempted from execution any government pension. California law only exempted such funds for a California resident, and as of the time of the execution, did not exempt child support and spousal support. Thus, under California law, husband could not exempt his pension from execution. The Court of Appeal concluded that the law of the forum applied because “[e]xemption laws pertain merely to the remedy and have no extraterritorial effect and exemption laws of the forum apply.” (Id. at p. 24.) Moreover, the “foreign law will not be granted comity where to do so would be contrary to the statutory law or the policy of the state of the forum.” (Ibid.) Thus, the determination turned on the law of the forum, not the residence of the debtor.

The view that the law of the forum governs procedural matters is well established. (3 Witkin, Cal. Proc. 6^th ed. Actions, § 50, subd. (2)(k) [“The basic rule is well settled that matters of procedure are governed by the law of the forum” including the law of execution and exemptions from execution]; Restatement (Second) of Conflict of Laws, § 132 [ordinarily, the local law of the forum determines what property of the debtor is exempt from execution].)

Accordingly, California law, specifically Code of Civil Procedure section 704.115, governs Davis’s claim of exemption here.

At least one of the LPL Financial Holdings Accounts which Davis seeks to exempt is an individual retirement account under Code of Civil Procedure section 704.115. While Bagby contends Davis has not met his burden of establishing that the account qualifies as a potentially exempt IRA, the Court finds that the declaration of Jason Solodkin on this point is sufficient.

But Davis bears the burden of proving entitlement to an exemption. (Code Civ. Proc., § 703.580, subd. (b).) The amount of the exemption depends on the debtor’s necessity for support. Section 704.115 contains subsections that cross-reference each other and that create exceptions within exceptions. An IRA is exempt, but “only to the extent necessary to provide for the support of the judgment debtor when the judgment debtor retires and for the support of the spouse and dependents of the judgment debtor, taking into account all resources that are likely to be available for the support of the judgment debtor when he judgment debtor retires.” (Code Civ. Proc., § 704.115, subd. (e).) Here, according to Mr. Solodkin, the IRA (Acct. 4441-3831) held, at the end of last year, “slightly more than One Million Dollars.” (Solodkin Decl. ¶ 14.)

Davis, as noted, did not address the application of section 704.115. And he has not shown that the IRA is necessary for his support. He merely states:

“Since I am fully retired, this retirement account is important to me because longevity is a trait in the Davis family line. within the last month, my mother passed away at the age of 103 1/2 years. Assuming I have anywhere near her longevity, the retirement account (less the taxes that will have to be paid) will be important to support me in the years ahead.” (7/12/23 Davis Decl., ¶ 26.)

This evidence is inadequate to show these funds are “necessary” for the debtor’s support or the support of his family. Further, other evidence before the court further weakens the claim that these funds are necessary for support. As noted by Judgment Creditor, in Section IV of the LPL account application of February 2021, Judgment Debtor claimed his annual income is $500,000-750,000 per year and liquid net worth of over $1 million. (Not. of Opp to Exemption, Ex. C, p. 4 of 10.) Given these sums of money available to Judgment Debtor, the Court finds that Davis has failed to meet his burden of showing that the retirement funds are “necessary to provide for the support of the judgment debtor.” (Code Civ. Proc, § 704.115, subd. (e).)[6]

Based on the foregoing, Judgment Debtor Davis has not met his burden of showing the exemption to the LPL accounts applies. The Claim of Exemption is denied.

[1] Judgment Debtor also argued that his claim of exemption was opposed by Judgment Creditor’s Notice of Opposition to Claim of Exemption filed on April 3, 2023. Pursuant to Code of Civil Procedure section 703.570, subdivision (a), Judgment Creditor was required to obtain a hearing on his Opposition within 30 days, or by May 3, 2023. However, as the Sur-Opposition notes, the statute permits exceptions for good cause, which exists given the Court’s heavy calendar load.

[2] Bagby seems to confuse the reference in the Act to when an “obligation” is incurred with when he obtained judgment against Davis or even before then. That is not the obligation that can be voided under the UVTA. (Civ. Code, § 3439.04, subd. (a).)

[3] Moreover, in the tentative ruling for July 19, 2023, the Court analyzed only Florida law because Davis relied solely for his exemption claim on Florida Statute Annotated section 222.21, and not California Code of Civil Procedure section 704.115. (7/12/23 Reply, fn. 1.)

[4] Bagby contends that the Florida version of the UVTA yields the same result. (Fla. Stat. Ann. §726.105 et seq.)

[5] The rollover to an IRA is wholly different from the alleged scheme, attested to by Baron, that Davis sought to transfer his Indian Wells home to her, to prevent Bagby from executing on it. Parting with the property would be a “transfer” under the UVTA, and could be shown to be both fraudulent and without equivalent exchange value. (Civ. Code, § 3439.04, subd. (a).)

[6] Judgment Creditor also argues that Judgment Debtor is not entitled to any relief from this Court due to the Disentitlement Doctrine. On Nov. 23, 2022, this Court ordered Judgment Debtor to produce certain discovery. Judgment Creditor represents that Judgment Debtor has never produced the discovery responses he was ordered to produce by this Court. And the Court has found Davis less than candid about his residency. There is substantial evidence that has engaged in schemes to hide his assets and misrepresent his residency.

Citing TMS, Inc. v. Aihara (1999) 71 Cal.App.4th 377, 380, the appellate court dismissed a judgment debtor’s appeal because the judgment debtor refused to respond to post-judgment written discovery. Additionally, Judgment Creditor cites Stoltenberg v. Ampton Investments, Inc. (2013) 215 Cal. App. 4th 1225, the appellate court dismissed an appeal because the judgment debtor was ignoring a subpoena to produce financial records. Our Court of Appeal has stated that “[w]here a party unlawfully withholds evidence of his income and asses, he will not be heard to complain that an order is not based on the evidence he refuses to disclose….¶ The disentitlement doctrine enables an appellate court to stay or to dismiss the appeal of a party who has refused to obey the superior court’s legal orders.” (Marriage of Hofer (2012) 208 Cal.App.4^th 454, 458-459.)

Although not exclusively so, the disentitlement doctrine is primarily a remedy for appellate courts. The Court would be inclined to apply it here, because like the doctrine of unclean hands, a party that seeks equitable relief must do equity. However, the Court need not reach either the argument for disentitlement or for application of the unclean hands doctrine. Debtor Davis has failed to meet his burden of showing grounds for exemption under the Code of Civil Procedure section 704.115.

Judge Bruce G. Iwasaki

Department 58