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McPHARLIN, SPRINKLES & THOMAS, LLP ELAINE M. SEID Bar # 72588 PAUL S. AVILLA, Bar #120458 10 Almaden Blvd., Suite 1460 San Jose, California 95113 Telephone: (408) 293-1900 Facsimile: (408) 293-1999 Attorneys for Appellee SARAH CECCONI
UNITED STATES DISTRICT COURT 8 NORTHERN DISTRICT OF CALIFORNIA 9 SAN JOSE DIVISION 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 In re: ) ) GIUSEPPE ENZO CECCONI, ) ) Debtor. ) ____________________________________) ) SARAH CECCONI, ) ) Plaintiff, ) ) v. ) ) GIUSEPPE ENZO CECCONI, A.C. ) SPICER, TRUSTEE IN BANKRUPTCY ) (UNDER U.K. INSOLVENCY LAWS), ) ) Defendants. ) ____________________________________) ) A.C. SPICER, TRUSTEE IN ) BANKRUPTCY, ) ) Appellant, ) ) v. ) ) SARAH CECCONI, ) ) Appellee. ) ) No. 5:07-CV-03636-JW
APPELLEE'S BRIEF The Honorable James Ware
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TABLE OF CONTENTS INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 STATEMENT OF THE CASE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
4 5 6 7 8 9 10 11 12 3. 13 14 15 16 17 18 19 20 21 3. 22 23 24 25 26 27 28 III. 4. Whether conveyance of the property to Sarah's Living Trust, or to the Cecconi Residential Trust ratified the property as community property or "transmuted" the property from separate property to community property; and . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Whether Sarah's refinancing the Property with a mortgage on which she and Enzo were jointly liable extinguished any resulting trust. . . . . . . . 6 2. II. Whether the Bankruptcy Court was clearly erroneous in finding that the alteration of documents by liquid white-out by Sarah did not prevent either the Trustee or the Court from ascertaining what those documents said . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 2. ISSUES ON APPEAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 I. Issues Based on Purportedly Erroneous Factual Findings. . . . . . . . . . . . . . . . . . . . . . 4 1. Whether the Bankruptcy Court was clearly erroneous in finding that Sarah did not intend for Enzo to have a beneficial interest in the Pebble Beach Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Whether the Bankruptcy Court was clearly erroneous in finding that Sarah Cecconi did not willfully deceive the court regarding relevant documents in her possession or control; and . . . . . . . . . . . . . . . . . . . . . . 5
Issues Based on Purportedly Erroneous Conclusions of Law. . . . . . . . . . . . . . . . . . . . 6 1. Whether California law presumes that Sarah intended to make a gift to Enzo, based on Sarah taking title to the property jointly with Enzo; . . . . . . 6 Whether the conveyance of the Pebble Beach Property to the Cecconi Residential Trust terminated the purchase money resulting trust in favor of Sarah; . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Issues Involving the Bankruptcy Court's Exercise of Discretion . . . . . . . . . . . . . . . . . 6 1. Whether the Bankruptcy Court abused its discretion in determining that Sarah's conduct in discovery was not "utterly inconsistent with the orderly administration of justice." . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
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STANDARD OF REVIEW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 I. The Bankruptcy Court's Factual Findings Are Reviewed Under the Clearly Erroneous Standard. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 The Bankruptcy Court's Legal Conclusions Are Reviewed De Novo . . . . . . . . . . . . . 8 The Bankruptcy Court's Denial of Terminating or Evidentiary Sanctions is Subject to Review Under the "Abuse of Discretion" Standard . . . . . . . . 8
II. III.
ARGUMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 I. The Trial Court's Conclusion That The Pebble Beach Property is Sarah's Sole and Separate Property is Supported Under Two Legal Theories. . . . . . 9 A. Under California Law, Sarah's Clear and Convincing Proof of Her Sole Beneficial Ownership of the Property Overcomes the Presumption of Joint Ownership Based on Title and Alone Supports Judgment in Sarah's Favor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Under the Law of Purchase Money Resulting Trusts, Proof That Sarah Purchased the Property and Did Not Intend to Gift Enzo an Interest Therein is Sufficient to Establish Sarah's Sole Beneficial Ownership, Despite the Fact That Sarah and Enzo Jointly Held Title to the Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 1. Sarah Established by Clear and Convincing Evidence That She Purchased the Pebble Beach Property With Her Separate Property Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 The Bankruptcy Court's Finding That Enzo Contributed Nothing to the Pebble Beach Property is Not Clearly Erroneous . . . . . . . 14 Trustee Has Failed to Establish Error in the Court's Finding That Enzo Did Not Contribute to the Property . . . . . . . . . . . . . . . . . . . . . 17 a. Trustee Has Failed to Support the Argument That Enzo's Testimony Was Contradictory. . . . . . . . . . . . . . . . . . . . . . 17 Trustee Has Failed to Explain How Bank Records Indicate Error in the Bankruptcy Court's Findings . . . . . . . . . . . . 17 Enzo Did Not, as Trustee Contends, Testify That the $300,000 Was Indirectly Used to Pay For Improvements to the Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
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B.
2. 21 22 23 24 25 26 27 28 3.
b.
c.
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4.
The Bankruptcy Court Was Not Clearly Erroneous in Finding that Sarah Did Not Intend to Gift Enzo an Interest in the Pebble Beach Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 a. Sarah Provided Direct Evidence of Her Intent Through Her Consistent and Unequivocal Testimony to the Effect That She Always Considered the Property to be Her Separate Property and Never Intended For Enzo to Have a Present Interest Therein. . . . . . . . . . . . . . . . . . . . 21 Sarah and Enzo's Conduct With Respect to the Pebble Beach Property Was Consistent With Sarah's Sole Beneficial Ownership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 The General Financial Relationship of the Cecconis Throughout Their 29-Year Marriage is Consistent With Sarah's Sole Ownership of the Property . . . . . . . . . . . . . . . 24 The Manner in Which the Cecconis Treated the Ownership and Disposition of the California Townhouse Corroborates Sarah's Testimony Regarding Her Intent Not to Gift Enzo Any Interest in Her Real Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 The Documentation of the First National Bank of Palm Beach Loans and Enzo's Reimbursement of Interest to Sarah Supports Sarah's Testimony Regarding Her Intent to Maintain Separate Finances and Separate Property . . . . . . . . . . . 28 Holding Title in Community Property For Estate Planning Purposes is Not Inconsistent With Sarah's Intent to Maintain Sole Beneficial Ownership of the Property . . . . . . . . . . 28
b.
c.
d.
e.
f. 21 22 23 24 25 26 27 28 b. 5.
Even the Bankruptcy court's Tangential Factual Findings Regarding Sarah's Intent Are Correct . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 a. The Bankruptcy Court Was Not Clearly Erroneous in Finding That Sarah and Enzo Did Not Own Any Property Together . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 The Bankruptcy court Was Not Clearly Erroneous in Finding That Contractors, Vendors and Others Assumed That the Cecconis Owned the Property Together . . . . . 30
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1 2 3 4 5 6 7 8 9 10 11 12 13 14 A. 15 16 17 18 19 20 IV. 21 22 23 24 25 26 27 28 C. V. B. III. II.
6.
The Bankruptcy Court Did Not Make the Factual Finding That Sarah Intended For Enzo to Hold His Interest in Trust For Her . . . . . . . . 30 The Bankruptcy Court Did Not Make the Factual Finding That Sarah Understood That Record Title Did Not Convey a Beneficial Interest . . . 31 The Bankruptcy Court Did Not Make the Factual Finding That Mr. Sanders Assumed Enzo Was an Owner of the Property Based Solely on Record Title . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 The Factual Findings Challenged by Trustee, Even if Erroneous, Are Not Essential to the Judgment and Would Constitute Harmless Error . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
7.
8.
9.
Trustee's Challenge to the Bankruptcy Court's Findings and Ruling in Connection With Trustee's Motion for Sanctions is Premature, Because no Order or Judgment Has Been Entered on the Motion for Sanctions . . . . . . . . . . 33 The Bankruptcy Court Was Not Clearly Erroneous in its Factual Findings Regarding Trustee's Motion for Sanctions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 The Bankruptcy Court Was Not Clearly Erroneous in Finding That Sarah Did Not Willfully Deceive the Court Regarding Relevant Documents in Her Possession or Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 The Bankruptcy Court Was Not Clearly Erroneous in Finding That the Alteration of Documents by Liquid White-out by Sarah Did Not Prevent Either the Trustee or the Court from Ascertaining What Those Documents Said . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
The Bankruptcy Court Did Not Abuse its Discretion in Determining that Sarah Did Not Engage in Conduct Utterly Inconsistent with the Orderly Administration of Justice. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 Trustee's Assertions of Legal Error Are Without Merit . . . . . . . . . . . . . . . . . . . . . . . 39 A. B. Under California Law, No Gift Presumption Arises on the Facts of This Case . . 39 The Bankruptcy Court's Decision Not to Apply the "Gift Presumption" Cannot be Reversible Error, Because the Bankruptcy Court Found Evidence Sufficient to Rebut The Presumption in Any Event . . . . . . . . . . . . . . . 41 Conveyance of the Pebble Beach Property to the Cecconi Residential Trust Did Not Terminate the Purchase Money Resulting Trust in Favor of Sarah . . . . 41 1. The Fact That the Property Became Subject to an Express
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Trust in the Cecconi Residential Trust Does Not Defeat Sarah's Purchase Money Resulting Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 Transfer of the Property to the Cecconi Residential Trust Merely Changed the Form of Title Under Which Enzo Held the Property For Sarah's Benefit and, Therefore, Did Not Terminate the Purchase Money Resulting Trust . . . . . . . . . . . . . . . . . . . . 42
Conveyance of the Property to Sarah's Living Trust, or to the Cecconi Residential Trust Did Not Ratify the Property as Community Property or Transmute the Property From Separate Property to Community Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 The Trust Transfers Could Not Ratify the Property as Community Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 The Trust Transfers Did Not Transmute the Property From Sarah's Separate Property to Community Property . . . . . . . . . . . . . 46
Sarah's Refinancing of the Property with a Mortgage on Which She and Enzo Were Jointly Liable Did Not Extinguish the Resulting Trust . . . . 46
CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
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1 2 3 4 5 6 7 8 Federal Cases 9 10 Statutes
TABLE OF AUTHORITIES
Cal. Civ. Code § 853 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Cal. Evid. Code § 662 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2, 9, 10, 45 Cal. Probate Code §§ 15002, 15003(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Fed. Rules App.Proc. 28(a)(3) & (e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Fed. Rules Civ.Proc. 52(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7, 8
Adler v Duval County Sch. Bd. 112 F.3d 1475 (11th Cir. 1997) . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Anderson v. Air West, Inc., 542 F.2d 1090, 1093 (9th Cir. 1976) . . . . . . . . . . . . . . . . . . . . . . . . . 7
11 12 13 14 Fjelstad v. American Honda Motor Co., 762 F.2d 1334, 1337 (9th Cir. 1985) . . . . . . . . . . . . . . . 7 15 16 17 Hindmon v. National-Ben Franklin Life Ins. Corp., 677 F.2d 617, 621 (7th Cir. 1982) . . . . . . . . 7 18 19 20 21 22 23 24 25 26 27 28 National Hockey League v. Metropolitan Hockey Club, Inc., 427 U.S. 639, 642, 49 L. Ed. 2d 747, 96 S. Ct. 2778 (1976) (per curiam) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Obrey v Johnson, 400 F.3d 691, 699 (9th Cir. 2005) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 In re Rubin, 769 F.2d 611, 615 (9th Cir. 1985) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 In re U.S.A. Motel Corp., 450 F.2d 499, 503 (9th Cir. 1971) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Indiana State Employees Assoc. v Negley 501 F.2d 1239, 1242 (7th Cir. 1974) . . . . . . . . . . . 8, 18 Kesend v Dupont Towers, Inc. 427 F.2d 316, 318 (5th Cir. 1970) . . . . . . . . . . . . . . . . . . . . . . . . . 7 McGoldrick Oil Co. v Campbell 793 F.2d 649, 653 (5th Cir. 1986) . . . . . . . . . . . . . . . . . . . . . 17 N/S Corp. v Liberty Mut. Ins. Co. 127 F.3d 1145, 1146-47 (9th Cir. 1997) . . . . . . . . . . . . . . . . 17 In re Lawson 122 F.3d 1237, 1240 (9th Cir. 1997) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 In re Mantle, 153 F.3d 1082, 1064 (9th Cir. 1998) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 In re Maurice, 21 F.3d 767, 774-75 (7th Cir. 1994) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 Goodman v United States 398 F.2d 879 (9th Cir. 1968) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Hilao v Estate of Marcos 103 F.3d 767, 778, fn. 4 (9th Cir. 1996) . . . . . . . . . . . . . . . . . . . . . . . . 6 Anderson v. City of Bessemer, 470 U.S. 564, 573 (1985) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7, 8 Atel Fin. Corp. v Quaker Coal Co., 321 F.3d 924, 926 (9th Cir. 2003) . . . . . . . . . . . . . . . . . . . . 11 Clady v. County of Los Angeles 770 F.2d 1421, 1431 (9th Cir. 1985) . . . . . . . . . . . . . . . . . . . . . 8
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Perry v Baumann 122 F.2d 409, 410 (9th Cir. 1941) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Smith v Porter 143 F.2d 292 (8th Cir. 1944) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Tahoe-Sierra Pres. Council, Inc. v Tahoe Reg'l Planning Agency, 322 F.3d 1064, 1076-77 (9th Cir. 2003) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 UMC Elecs. Co. v United States 249 F3d 1337 (Fed. Cir. 2001) . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5 United Artists Corp. v. La Cage Aux Folles, Inc., 771 F.2d 1265, 1270 (9th Cir. 1985) . . . . . . . . 9 6 7 8 9 United States v. National Medical Enters, Inc., 792 F.2d 906, 911 (9th Cir. 1986) . . . . . . . . . . 7, 9 10 United States v. U.S. Gypsum Co., 333 U.S. 364, 395 (1948) . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 11 United States v. Yellow Cab Co., 338 U.S. 338, 341, 94 L. Ed. 150, 70 S. Ct. 177 (1949) . . . . 7, 8 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 California Cases Altramano v. Swan 20 Cal.2d 622, 628 (1942) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40, 41 Bayles v Baxter, 22 Cal. 575 (1863) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 Gudelj v Gudelj 41 Cal.2d 202 (1953) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45-47 In re MacDonald, 51 Cal.3d 262 (1990) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 Johnson v. Johnson 192 Cal.App. 3d 551, 556, fn. 1 (1987) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Lloyds Bank California v. Wells Fargo Bank 187 Cal.App.3d 1038, 1042 (1986) . . . . . . . . . . . 11 Lowenthal v Kunz, 104 Cal.App.2d 181 (1951) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42, 43 Majewsky v. Empire Constr. Co., Ltd. 2 Cal.3d 478, 485 (1970) [85 Cal.Rptr. 819] . . . . . . . . . 11 Martin v. Kehl 145 Cal.App.3d 228, 238-9 (1983) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 McKinnon v. McKinnon 181 Cal.App.2d 97 at 104 (1960) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 Novak v Novak, 249 Cal.App.2d 438 (1967) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 Owings v. Laugharn 53 Cal. App. 2d 789, 791 (1942) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 Snook v Page, 29 Cal.App. 246, 250 (1915) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 Socol v. King 36 Cal.2d 342, 345 (1950) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10, 40 Weber v Alabama-California Gold Mines Co. 121 F.2d 663, 665 (9th Cir. 1941) . . . . . . . . . . . . . 8 Wineberg v. Park 321 F.2d 214, 217 (9th Cir. 1963) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 United States v Aluminum Co. of America 148 F.2d 416, 65 (2nd Cir. 1945) (superseded by statute on other grounds as stated in United States v LSL Biotechnologies, 379 F.3d 672, (9th Cir. 2004) . . . . . . . . . . . . . . . . . . . . . . . 8 United States v Comstock Extension Mining Co. (9th Cir. 1954) 214 F.2d 400, 402-403 . . . . . . . 8
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Treatises Restatement of the Law, Second, Trusts, § 442 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40, 41
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INTRODUCTION The trial in this adversary proceeding was to establish whether Enzo Cecconi ("Enzo") has any interest in a 4.52 acre parcel of real property, including a residence thereon, located at 3190 Del Ciervo Drive, Pebble Beach, California (the "Property" or the "Pebble Beach Property"). Title to the Property (unimproved at that time) was acquired in 1985 under grant deeds conveying the Property in two separate parcels to "Giuseppe E. Cecconi and Sarah Coleman Cecconi, husband and wife as Community Property." It is stipulated that the raw land was purchased entirely with plaintiff Sarah Cecconi's ("Sarah's") separate property funds. At trial, Sarah sought a determination that the Property is her sole and separate property, despite the fact that the initial grant deeds conveyed title to Sarah and Enzo as Community Property. A.C. Spicer, Trustee in Bankruptcy (under U.K. Insolvency Laws), the Trustee in Enzo's U.K. bankruptcy proceeding ("Trustee") sought a determination that Enzo holds a community property interest in the Property. The outcome of the case ultimately turned on the factual issue of Sarah's intent specifically, whether Sarah intended to gift Enzo a beneficial interest in the Property. The Bankruptcy Court found that Sarah met her burden of proof by clear and convincing evidence: "The evidence shows clearly and convincingly that Sarah held the full beneficial interest in the Property when the Property was acquired and did not intend to gift an interest to Enzo by placing his name on record title." The Bankruptcy Court decided this factual issue on the basis of credible testimony from Sarah, Enzo and corroborating witnesses to the effect that Sarah and Enzo both firmly believed at all times that the Property was Sarah's and Sarah's alone. The development of the Property was the fulfillment of Sarah's lifelong dream to own her own home in Pebble Beach. Sarah purchased the Property without input from Enzo. Sarah alone hired an architect and the other professionals who obtained necessary approvals and who designed and built her house. She funded the entire effort with her separate property funds and for more than 20 years has paid all expenses associated with the Property, including property taxes, insurance and maintenance. The evidence at trial established that Enzo never contributed any money toward the Property. The conduct of the
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Cecconis was thus shown to be consistent with their testimony that they considered the Property to be Sarah's separate property at all times. The Bankruptcy Court's decision was also based on extensive documentary evidence establishing that Sarah and Enzo consistently maintained separate finances throughout their somewhat unusual 30 year marriage. The Cecconis have pursued very separate and independent lifestyles. During twenty-two years of their marriage (and the period during which the Property was acquired and improved) the Cecconis lived apart and visited each other at certain times of the year. During this period, Enzo pursued his restaurant business in Europe and Sarah spent time traveling with her mother. With the exception of helping Enzo obtain loans on a number of occasions, Sarah was not privy to Enzo's business dealings and his financial information and Enzo was not involved in Sarah's financial affairs or the stock portfolio she inherited from her grandmother. The Bankruptcy Court explained in its Memorandum Decision After Trial (the "Decision") that: "It is due in large part to the unusual nature of their relationship that Sarah is able to support her position so convincingly as the plaintiff in this lawsuit."1 Among other things, the Bankruptcy Court found that "The couple had a mutual, clear and strong understanding that Enzo's property from his business ventures were his and Sarah's inheritance was hers."2 The judgment declaring the Property to be Sarah's sole and separate property is supported under two different legal theories. The first legal theorgy by which the judgment is supported is derived from Cal. Evid. Code § 662. Thereunder, clear and convincing proof that neither Sarah nor Enzo intended for Enzo to have any beneficial interest in the Property is sufficient to overcome the presumption of joint beneficial ownership based on the state of title. Thus, the judgment can be affirmed solely on the basis of clear and convincing proof that both parties who held title to the Property intended that the Property be Sarah's sole and separate property. The second legal basis by which the judgment is supported is the legal theory of purchase money resulting trusts. Under that theory, the law implies that Enzo held title solely in trust for the benefit of Sarah and held no beneficial ownership himself, based upon a two-prong analysis 1 Clerk's Record ("C.R."), Docket No. 202, Memorandum Decision After Trial ("Decision"), at pp. 3-4. 2 C.R., Docket No. 202, Decision, at p. 3. Appellee's Brief Page 2
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showing clear and convincing evidence (1) that Sarah purchased the Property with her separate property funds, and (2) that she never intended to gift Enzo an interest in the Property. In this appeal, Trustee challenges the ultimate factual finding regarding Sarah's intent to maintain sole beneficial ownership of the Property and argues that no evidence exists to support that finding. Trustee also challenges several of the legal conclusions reached by the Bankruptcy Court. Trustee argues that the Bankruptcy Court erred in concluding that Sarah's purchase money resulting trust was not terminated by her post-acquisition transfers of the Property for estateplanning purposes and/or a later refinance of the Property. Trustee is wrong on each of these points. Finally, Trustee challenges factual findings and the ruling made by the Bankruptcy Court in connection with Trustee's Motion For Evidentiary Sanctions filed before trial. Trustee claims that the Bankruptcy Court committed clear error in finding that Sarah did not intentionally mislead the court or conceal documents in discovery and abused its discretion in denying evidentiary or terminating sanctions. These findings are not properly before this Court on appeal, however, because the Bankruptcy Court has not yet entered any order or judgment on Trustee's motion for sanctions. Any appeal of those findings, as reflected in the Bankruptcy Court's Memorandum Decision After Trial, is premature. In any event, to the extent those findings are treated as being incorporated into the judgment entered by the Bankruptcy Court, Sarah addresses those issues below and shows that the Bankruptcy Court was not clearly erroneous in making such findings and did not abuse its discretion. STATEMENT OF THE CASE On January 7, 2002, Trustee filed an ancillary proceeding under 11 U.S.C. § 304 in the U.S. Bankruptcy Court For the Northern District of California, seeking to collect upon Enzo's alleged interest in the Pebble Beach Property. On January 15, 2003, Sarah filed a Complaint to Establish Purchase Money Resulting Trust against Enzo and Trustee.3 On February 21, 2003,
3 C.R., Docket No. 1, Complaint to Establish Purchase Money Resulting Trust. Appellee's Brief Page 3
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Trustee filed his answer, counterclaim and cross-claim.4 Trustee thereafter amended his counterclaim and cross-claim on March 27, 2003 and June 18, 2003.5 On March 16, 2005, Trustee filed a Motion For Evidentiary Sanctions (the "Motion for Sanctions"), seeking dismissal of Sarah's claims or, in the alternative, the inference that additional unknown, unproduced documents contain statements favorable to Trustee. The initial hearing on the Motion for Sanctions occurred the first day of trial. The Bankruptcy Court decided to carry the motion with the case. The Motion for Sanctions was thereafter briefed in all of the post-trial briefs filed by the parties and was argued along with the merits of the case at closing argument in the trial. Trial commenced in this adversary proceeding on March 21, 2005 and continued from time to time on fifteen days between March 21, 2005 and May 31, 2005. Closing arguments were held September 22, 2006 and post-trial briefing ended on November 22, 2006.6 The Bankruptcy Court filed its Memorandum Decision After Trial on April 17, 2007, finding that "Enzo holds no beneficial interest in the Property. The Property is Sarah's sole and separate property. Accordingly, Trustee has no interest in the Property."7 On June 6, 2007, the Bankruptcy Court entered judgment in favor of Sarah.8 This appeal followed. ISSUES ON APPEAL I. Issues Based on Purportedly Erroneous Factual Findings. 1. Whether the Bankruptcy Court was clearly erroneous in finding that Sarah did not intend for Enzo to have a beneficial interest in the Pebble Beach Property.
The "Issues Presented" portion of Trustee's Appellate Brief fails to identify exactly what factual findings of the Bankruptcy Court Trustee is challenging. Trustee vaguely describes the first issue on appeal as "Whether the Bankruptcy Court's findings and conclusions that Sarah 4 C.R., Docket No. 6, Answer to Complaint, Counterclaim and Crossclaim by Defendant A.C. Spicer. 5 C.R., Docket No. 31, Second Amended Counterclaim by A.C. Spicer against Sarah Cecconi and Crossclaim by A.C. Spicer against Giuseppe Enzo Cecconi. 6 Docket No. 197, Trial Transcript ("TT"). 7 C.R., Docket No. 202, Decision, at p. 84. 8 C.R., Docket No. 209, Judgment. Appellee's Brief Page 4
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Cecconi established the existence of a resulting trust and that the gift presumption does not apply in this case are clearly erroneous." The phrase "findings and conclusions that Sarah Cecconi established the existence of a resulting trust," encompasses much of the Bankruptcy Court's decision in the case and is, therefore, virtually meaningless. The second part of Trustee's first issue ("that the gift presumption does not apply in this case") at least identifies a particular legal conclusion reached by the Bankruptcy Court. It is apparent from Trustee's overall Appellant's Brief that he is challenging the central factual finding of the Bankruptcy Court that Sarah did not intend for Enzo to have any beneficial interest in the Pebble Beach Property.9 Although Trustee's approach seems to be to dispute some of the tangential facts found by the Bankruptcy Court in arriving at its central factual finding,10 Trustee's arguments are most appropriately considered as part of an overall argument that the Bankruptcy Court's was clearly erroneous in making its ultimate factual finding regarding Sarah's intent. The only other factual findings challenged by Trustee were made by the Bankruptcy Court in connection with Trustee's Motion for Sanctions. However, the Bankruptcy Court has not yet entered any order or judgment on Trustee's Motion for Sanctions. In the judgment from which Trustee now appeals, the Bankruptcy Court specifically reserved jurisdiction to "determine the appropriate relief, if any, to be awarded to defendant A.C. SPICER on the basis of defendant A.C. SPICER'S Motion For Evidentiary Sanctions."11 Any challenge to the Bankruptcy Court's factual findings or legal conclusions related to the Motion For Sanctions are, therefore, premature. Nonetheless, in the event the District Court elects to consider the judgment itself as necessarily including a denial of Trustee's request for terminating or adverse inference sanctions, Sarah will address Trustee's challenge to the following two factual findings of the Bankruptcy Court: 2. Whether the Bankruptcy Court was clearly erroneous in finding that Sarah Cecconi did not willfully deceive the court regarding relevant documents in her possession or control;12 and
9 See, e.g. the heading for section I.C. of Trustee's Appellant's Brief ("Appellant's Brief"). 10 Appellant's Brief, Argument, subsections I.C-G. 11 C.R., Docket No. 209, Judgment. 12 Appellant's Brief, at subsection V.A, p. 43, lines 20-23. Appellee's Brief Page 5
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1 2 3 4 5 6 7 8 II.
3.
Whether the Bankruptcy Court was clearly erroneous in finding that the alteration of documents by liquid white-out by Sarah did not prevent either the Trustee or the Court from ascertaining what those documents said.13
Issues Based on Purportedly Erroneous Conclusions of Law. Trustee's appeal raises the following issues regarding conclusions of law made by the
Bankruptcy Court: 1. Whether California law presumes that Sarah intended to make a gift to Enzo, based on Sarah taking title to the property jointly with Enzo; Whether the conveyance of the Pebble Beach Property to the Cecconi Residential Trust terminated the purchase money resulting trust in favor of Sarah; Whether conveyance of the property to Sarah's Living Trust, or to the Cecconi Residential Trust ratified the property as community property or "transmuted" the property from separate property to community property; and Whether Sarah's refinancing the Property with a mortgage on which she and Enzo were jointly liable extinguished any resulting trust.14
2. 9 10 11 12 13 14 4. 15 16 17 18 19 20 21 22 23 24 25 26 27 28 III. 3.
Issues Involving the Bankruptcy Court's Exercise of Discretion. Trustee's challenge to the Bankruptcy Court's ruling on his Motion for Sanctions raises the
following issue involving the Bankruptcy Court's exercise of discretion: 1. Whether the Bankruptcy Court abused its discretion in determining that Sarah's conduct in discovery was not "utterly inconsistent with the orderly administration of justice."
13 Appellant's Brief, at subsection V.A, p. 43, lines 23-25. 14 Trustee also asserts in footnote no. 6 of his Appellant's Brief that the Bankruptcy Court abused its discretion in admitting two promissory notes into evidence (Exhibits 14 and 17). This is insufficient to raise that issue on appeal. Hilao v Estate of Marcos 103 F.3d 767, 778, fn. 4 (9th Cir. 1996); Adler v Duval County Sch. Bd. 112 F.3d 1475 (11th Cir. 1997) (argument or claim mentioned only in passing or in a footnote not sufficient to avoid waiver of the issue). Appellee's Brief Page 6
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STANDARD OF REVIEW The Bankruptcy Court's Factual Findings Are Reviewed Under the Clearly Erroneous Standard. The clearly erroneous standard of Rule 52(a) of the Federal Rules of Civil Procedure is applicable to Bankruptcy Court's factual findings in this case,15 including the factual findings made by the court in connection with Trustee's Motion for Sanctions.16 Under this standard, the findings of the Bankruptcy Court must be upheld, unless the District Court, on review of the entire evidence, arrives at the definite and firm conviction that the finding is mistaken.17 When the evidence will support a conclusion either way, a trial judge's choice between two permissible views of the weight of the evidence cannot be clear error.18 Courts also say that the reviewing court may not reject findings just because it might have come to a different result on the same evidence or given the facts another construction when the trial court's interpretation is not clearly erroneous. In 1985, the Supreme Court, in Anderson v. Bessemer City,19 emphasized: "The reviewing court oversteps the bounds of its duty under Rule 52 if it undertakes to duplicate the role of the lower court... . If the district court's account of the evidence is plausible in light of the record viewed in its entirety, the court of appeals may not reverse it even though convinced that had it been sitting as the trier of fact, it would have weighed the evidence differently." Trustee's burden of demonstrating that the Bankruptcy Court's factual findings are clearly erroneous is a heavy one.20 This burden is especially strong in a case such as this where findings are primarily based upon oral testimony and the trial judge has viewed both the demeanor and the
15 Perry v Baumann 122 F.2d 409, 410 (9th Cir. 1941). 16 United States v. National Medical Enters, Inc., 792 F.2d 906, 911 (9th Cir. 1986); Fjelstad v. American Honda Motor Co., 762 F.2d 1334, 1337 (9th Cir. 1985); Anderson v. Air West, Inc., 542 F.2d 1090, 1093 (9th Cir. 1976); Hindmon v. National-Ben Franklin Life Ins. Corp., 677 F.2d 617, 621 (7th Cir. 1982). 17 United States v. U.S. Gypsum Co., 333 U.S. 364, 395 (1948); Anderson v. City of Bessemer, 470 U.S. 564, 573 (1985); In re U.S.A. Motel Corp., 450 F.2d 499, 503 (9th Cir. 1971). 18 United States v. Yellow Cab Co., 338 U.S. 338, 342 (1949). 19 470 U.S. 564, 573-74 (1985). 20 Kesend v Dupont Towers, Inc. 427 F.2d 316, 318 (5th Cir. 1970). Appellee's Brief Page 7
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credibility of the witnesses.21 When a trial judge's finding is based on his decision to credit the testimony of a witness who has told a coherent and facially plausible story that is not contradicted by extrinsic evidence, that finding can virtually never be clear error.22 Extra deference may be accorded to findings that are based on the credibility of witnesses.23 In reviewing the trial court's findings of fact, the appellate court is required to take that view of the evidence which is most favorable to the appellees.24 All controverted questions of fact must be taken in their most favorable possible light for the parties who prevailed at the trial.25 Since the Bankruptcy Court's findings here are based largely on Sarah and Enzo's testimony and a credibility determination made by the trial court, the findings must be treated as unassailable.26 As the U.S. Supreme Court has stated: "findings as to the design, motive and intent with which men act depend peculiarly upon the credit given to witnesses by those who see and hear them."27 Thus, if there was no conflict in the evidence and the question is whether the testimony of a witness should be believed, the finding of the trial court is conclusive.28 II. The Bankruptcy Court's Legal Conclusions Are Reviewed De Novo. The questions of law raised in this appeal are reviewed de novo.29 III. The Bankruptcy Court's Denial of Terminating or Evidentiary Sanctions is Subject to Review Under the "Abuse of Discretion" Standard. The Bankruptcy Court's determination, in connection with Trustee's Motion for Sanctions, that Sarah had not engaged in conduct utterly inconsistent with the orderly administration of
21 Indiana State Employees Assoc. v Negley 501 F.2d 1239, 1242 (7th Cir. 1974). UMC Elecs. Co. v United States 249 F3d 1337 (Fed. Cir. 2001). 22 Bessemer, supra 470 U.S. at 564, 573; Clady v. County of Los Angeles 770 F.2d 1421, 1431 (9th Cir. 1985). 23 Fed. Rules Civ.Proc. 52(a); Bessemer, supra 470 U.S. at 574-575. 24 Smith v Porter 143 F.2d 292 (8th Cir. 1944). 25 Wineberg v. Park 321 F.2d 214, 217 (9th Cir. 1963); United States v Comstock Extension Mining Co. 214 F.2d 400, 402-403 (9th Cir. 1954). 26 United States v Aluminum Co. of America 148 F.2d 416, 65 (2nd Cir. 1945) (superseded by statute on other grounds as stated in United States v LSL Biotechnologies, 379 F.3d 672, (9th Cir. 2004). 27 United States v. Yellow Cab Co., 338 U.S. 338, 341, 94 L. Ed. 150, 70 S. Ct. 177 (1949). 28 Weber v Alabama-California Gold Mines Co. 121 F.2d 663, 665 (9th Cir. 1941). 29 In re Lawson 122 F.3d 1237, 1240 (9th Cir. 1997). Appellee's Brief Page 8
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justice is reviewed under the abuse of discretion standard.30 This Court should not reverse absent a definite and firm conviction that the Bankruptcy Court made a clear error of judgment.31 The question is not whether this court would have, as an original matter, decided the issue differently, but whether the trial court exceeded the limits of its discretion.32 ARGUMENT I. The Trial Court's Conclusion That The Pebble Beach Property is Sarah's Sole and Separate Property is Supported Under Two Legal Theories. The Bankruptcy Court judgment declares the Pebble Beach Property to be Sarah's sole and separate property and that Enzo has no interest therein. The judgment can be supported on either of two grounds.33 The first ground is that the Court's factual finding, by clear and convincing evidence, that "neither Enzo nor Sarah intended for Enzo to hold any beneficial interest in the Property,"34 is sufficient to rebut the presumption of joint beneficial ownership that arises under Cal. Evid. Code § 662 from joint record ownership (title). Thus, even without reference to purchase money resulting trust theory, this factual finding alone supports the judgment declaring the Property to be Sarah's sole and separate property. Furthermore, the transfers of the Property for estate planning purposes and the refinancing of the Property (that Trustee claims defeat a resulting trust) do not alter this result. The second ground on which the judgment below may be upheld is that the factual findings of the Bankruptcy Court support a purchase money resulting trust in favor of Sarah. The court determined that Sarah purchased the property with her separate property funds and that she never intended for Enzo to have any beneficial interest in the property. On those facts alone, the court may impose a purchase money resulting trust. The question then becomes whether that resulting trust was extinguished or terminated by Sarah's acts of transferring the property for estate planning purposes, or refinancing the property. Those legal issues are addressed below. 30 United States v. National Medical Enters, Inc., 792 F.2d 906, 910 (9th Cir. 1986); United Artists Corp. v. La Cage Aux Folles, Inc., 771 F.2d 1265, 1270 (9th Cir. 1985). 31 Id. 32 National Hockey League v. Metropolitan Hockey Club, Inc., 427 U.S. 639, 642, 49 L. Ed. 2d 747, 96 S. Ct. 2778 (1976) (per curiam); In re Rubin, 769 F.2d 611, 615 (9th Cir. 1985). 33 Whether property is property of the estate is determined under state law. In re Mantle, 153 F.3d 1082, 1064 (9th Cir. 1998). 34 C.R., Docket No. 202, Decision, at p. 62. Appellee's Brief Page 9
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A.
Under California Law, Sarah's Clear and Convincing Proof of Her Sole Beneficial Ownership of the Property Overcomes the Presumption of Joint Ownership Based on Title and Alone Supports Judgment in Sarah's Favor.
Outside a marital dissolution proceeding, the determination of beneficial ownership of real property begins with the presumption of Cal. Evid. Code § 662 that beneficial ownership corresponds to title. It is equally clear, however, that separate property of one spouse can be held in community property (and vice versa) by oral agreement between the spouses, so long as such understanding is proven by clear and convincing evidence, so as to overcome the presumption of record ownership in Cal. Evid Code § 662. This is because, the form of the instrument under which a husband and wife hold title is not conclusive as to the status of the property. Property acquired in joint form may be shown to be actually the separate property of one spouse (or vice versa) according to the intention, understanding or agreement of the parties.35 Here, the Bankruptcy Court found by clear and convincing evidence that Sarah purchased the Pebble Beach Property with her separate property funds;36 she developed and maintained the Property with her separate property funds;37 and she and Enzo always intended that the Property be Sarah's sole and separate property.38 Although the Bankruptcy Court analyzed Sarah's claim to the Property under the theory of a purchase money resulting trust, Sarah also argued in the trial court that the Property could be determined to be her separate property on the basis of clear and convincing evidence that Sarah held the sole beneficial interest in the Property.39 The District Court may affirm the Bankruptcy Court's decision on any ground that has support in the record, whether or not the Bankruptcy
35 Socol v. King 36 Cal.2d 342, 345 (1950). 36 Trustee stipulated to this fact. See, C.R., Docket No. 193, Stipulation Regarding Purchase of Unimproved Pebble Beach Property in 1985. 37 C.R., Docket No. 202, Decision, at p. 51 ("The Court finds by clear and convincing evidence that the initial purchase price and all costs of improvement were financed solely by Sarah."). 38 C.R., Docket No. 202, Decision, at p. 60-61 ("Sarah has demonstrated by clear and convincing evidence that she had no intention to [gift one-half of the Property to Enzo]."); p. 62 ("The Court finds [t]hat Sarah has shown the existence of a purchase money resulting trust by clear and convincing evidence. First, both Enzo and Sarah credibly testified that neither Enzo nor Sarah intended for Enzo to hold any beneficial interest in the Property."). 39 C.R. Docket No. 198, Joint Post-Trial Final Supplemental Brief of Sarah Cecconi and Giuseppe Enzo Cecconi, at p. 2, lines 4-12; p. 5. Appellee's Brief Page 10
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Court relied upon the same ground or reasoning adopted by the District Court.40 Thus, the findings of the Bankruptcy Court are sufficient to rebut the presumption of joint ownership arising from the state of title and support the Bankruptcy Court's judgment in favor of Sarah, even without reference to the law of resulting trusts. The judgment should stand on this basis alone. B. Under the Law of Purchase Money Resulting Trusts, Proof That Sarah Purchased the Property and Did Not Intend to Gift Enzo an Interest Therein is Sufficient to Establish Sarah's Sole Beneficial Ownership, Despite the Fact That Sarah and Enzo Jointly Held Title to the Property.
The law of purchase money resulting trusts ("PMRTs") is reflected in the Restatement on the Law, Trusts and is recognized under California law.41 Under PMRT law, where one party's funds are used to acquire real property and title is taken in the name of, or jointly with, another person, a rebuttable presumption arises that the property is owned solely by the person whose funds are used to purchase the property. The presumption reflects the legal likelihood that in such cases the parties intended that the ostensible purchaser or joint-purchaser should acquire and hold title to the property for the one who paid for it.42 The first step in PMRT analysis is thus for the person asserting the PMRT to establish by clear and convincing evidence that they provided the funds used to purchase the property. 1. Sarah Established by Clear and Convincing Evidence That She Purchased the Pebble Beach Property With Her Separate Property Funds.
Trustee stipulated that the unimproved Pebble Beach Property was purchased using Sarah's separate property funds.43 Trustee argued in the trial court, however, that Enzo had contributed funds toward the cost of constructing Sarah's residence on the Property. The Bankruptcy Court 40 Atel Fin. Corp. v Quaker Coal Co., 321 F.3d 924, 926 (9th Cir. 2003); Tahoe-Sierra Pres. Council, Inc. v Tahoe Reg'l Planning Agency, 322 F.3d 1064, 1076-77 (9th Cir. 2003). 41 Lloyds Bank California v. Wells Fargo Bank 187 Cal.App.3d 1038, 1042 (1986); Martin v. Kehl 145 Cal.App.3d 228, 238-9 (1983). Cal. Civ. Code § 853, upon which these and other cases rely, was repealed in 1986. Nevertheless, cases decided under that statute express the common law of California relating to trusts and are still authoritative. Cal. Probate Code §§ 15002, 15003(b); Johnson v. Johnson 192 Cal.App. 3d 551, 556, fn. 1 (1987). 42 Id. at 238-9; See also, Majewsky v. Empire Constr. Co., Ltd. 2 Cal.3d 478, 485 (1970) [85 Cal.Rptr. 819]. 43 C.R., Docket No. 193, Stipulation Regarding Purchase of Unimproved Pebble Beach Property in 1985. Appellee's Brief Page 11
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rejected that argument and found "by clear and convincing evidence that the initial purchase price and all costs of improvement were financed solely by Sarah"44 and that none of Enzo's money was used to improve the Property.45 That finding is not clearly erroneous. At trial, Sarah and Enzo testified unequivocally that Sarah and Sarah alone paid every expense associated with the acquisition, development, and maintenance of the Pebble Beach Property and that Enzo has made no financial contribution whatsoever to the Property.46 One of the witnesses at trial, Carla Korb, was the business and personal secretary to Sarah's father (George Coleman) from August 1976 until Mr. Coleman's death in July 1997. Ms. Korb also maintained Sarah's financial records and acted as Sarah's personal secretary from 1980 through February of 1998.47 Ms. Korb testified with respect to the financial records that she prepared and maintained for Sarah, all of which established that Sarah financed all aspects of the Pebble Beach Property with her separate property. Ms. Korb assisted Mr. Coleman in taking care of all of Sarah's financial affairs while she worked for Mr. Coleman and, after his death, as Sarah's secretary.48 Ms. Korb kept meticulous records, paid all of Sarah's bills,49 arranged all of Sarah's loans50 and routinely generated very detailed monthly reports51 of Sarah's income and expenses,52 which reports later included a
44 C.R., Docket No. 202, Decision, at p. 51. 45 C.R., Docket No. 202, Decision, at p. 56-57. 46 Docket No. 159, TT 185:25 - 186:9; 192:8-13; 200:7-9; 264:3-5 (Enzo testimony); Docket No. 167, TT 1630:21 - 1631:7; 1632:19-24; 1647:7-15; 1648:20-22; 1649:1-8 (Sarah testimony).
47 Docket No. 160, TT 387:11-12; 415:10-15 [Ms. Korb worked for Mr. Coleman for 20 years]; 387:15-16 [Ms. Korb handled everything, the books, income, checks]; 390:8-391:9 [Mr. Coleman & Ms. Korb managed Sarah's financial life commencing in 1979]; 391:14-22 [Ms. Korb paid most of her bills, kept records of monthly statements showing her portfolio, cost basis, what the market value was, reconciled her bank account and made sure she had funds in the bank for her bills]; 391:22-392:23 [only Mr. Coleman's office managed Sarah's finances from 1980 through February 1998; 392:24-25 [Ms. Korb supervised Sarah's checkbook]; 393:1-3 [Ms. Korb took care of paying the majority of Sarah's bills]; 394:1-3 [Ms. Korb reconciled Sarah's bank statements every month]; 477:8-11; 495:19-21 [Ms. Korb maintained Sarah's business records from 1980 - 1998] (Ms. Korb testimony).
Docket No. 160, TT 390:8-391:9 (Ms. Korb testimony). Docket No. 160, TT 391:1421, 393:4-393:17 (Ms. Korb testimony). 50 Docket No. 160, TT 413:17-414:4 (Ms. Korb testimony). 51 Docket No. 220, Exhibits 54 through 60; Docket No. 221, Exhibit 61 through 70; Docket No. 222, Exhibit 71.
49 52
48
Docket No. 160,TT 393:18-395:9; 400:16-18 (Ms. Korb testimony). Page 12
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summary of Sarah's stock portfolio,53 that were used by Mr. Coleman and Sarah's professionals as a management tool regarding Sarah's finances.54 Mr. Coleman and Ms. Korb had no involvement with Enzo's finances.55 The primary source of Sarah's finances was the portfolio she inherited from her grandmother in 1979.56 The dividend and royalties from her portfolio were Sarah's primary source of income.57 When Sarah purchased a townhouse in 1984, when she purchased the Pebble Beach Property in 1985, and when she later constructed a house on the Property, she did so with a series of loans secured by stock from her portfolio.58 The notes were all signed by Sarah,59 and not Enzo.60 The loan proceeds went into Sarah's bank account from which Ms. Korb paid for the purchase of the townhouse and the Property and, later, the construction of Sarah's home.61 Sarah's monthly reports reflect in detail the loan proceeds as income and also reflect as expenditures the property acquisitions and house construction.62 Sarah paid the mortgage for the house,63 the construction expenses,64 the property taxes,65 and the property insurance.66 Sarah eventually repaid all the loans by selling more of her stock.67 When the Pebble Beach House was
Docket No. 160, TT 400:19-401:2 (Ms. Korb testimony). Docket No. 160, TT 401:19-20 (Ms. Korb testimony). 55 Docket No. 160, TT 404:1-2 (Ms. Korb testimony). 56 Docket No. 160, TT 389:17-390:7 (Ms. Korb testimony). 57 Docket No. 160, TT 395:18-22 (Ms. Korb testimony). 58 Docket No. 160, TT 504:1-4; 506:10-13; 512:7-12; 528:9-10; 529:2-3; 529:22-23; 531:2225; 534:4-6; 534:20-23; 536:20-22; 538:4-7; 540:20-23; Docket No. 162, TT 678:15-18; 679:1013; 680:5-8; 681:20-23; 683:8-11; 685:16-17; 685:16-19 (Ms. Korb testimony).
54
53
Docket No. 160, TT 502:13-16; 505:4-9; 506:15-18; 512:13-14; 527:16-17; 528:21-22; 529:16-17; 531:20-21; 533:24-25; 534:16-17; 537:25-538:1; 540:16-17; Docket No. 162, TT 678:19-20; 679:14-15; 680:9-10; 681:24-25; 683:12-13; 685:20-21 (Ms. Korb testimony).
60 Docket No. 160, TT 505:10-11; 506:19-20; 527:21-22; 528:23-24; 529:18-19; 534:1-2; 534:18-19; 538:2-3; 540:18-19; Docket No. 162, TT 678:21-22; 679:16-17; 680:11-12; 682:1-2; 683:14-15; 685:22-23; 688:9-15 (Ms. Korb testimony).
59
Docket No. 162, TT 709:2-25 (Ms. Korb testimony). Docket No. 162, TT 753:14-792:12 (Ms. Korb testimony). 63 Docket No. 220, Exhibit 53; Docket No. 162, TT 707:6-15, 708:1-13 (Ms. Korb testimony).
62 64 65 66 67
61
Docket No. 222, Exhibit 79; Docket No. 162, TT 688:19-21 (Ms. Korb testimony). Docket No. 223, Exhibit 87; Docket No. 162, TT 792:22-793:9 (Ms. Korb testimony). Docket No. 223, Exhibit 88; Docket No. 162, TT 793:23-794:25 (Ms. Korb testimony). Docket No. 162, TT 687:15-20 (Ms. Korb testimony). Page 13
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completed, Sarah paid all household expenses for the residence.68 There is no credible dispute that the Pebble Beach Property was purchased, developed, and has been maintained exclusively with Sarah's separate property funds. 2. The Bankruptcy Court's Finding That Enzo Contributed Nothing to the Pebble Beach Property is Not Clearly Erroneous.
At trial, Trustee sought to establish that $300,000 transferred by Enzo to Sarah's bank account in three separate payments in 1988 and 1999 was used to improve the Property. The Bankruptcy Court found, on the basis of documentary evidence and the testimony of Sarah, Enzo and Ms. Korb, that the $300,000 wired by Enzo to Sarah's account was used to repay loans that Enzo and Sarah jointly obtained from the First National Bank of Florida and which are reflected in promissory notes that Sarah and Enzo jointly signed, dated January 26, 1981 in the amount of $200,000 (the "$200,000 Note")69 and January 1, 1982 in the amount of $100,000 (the "$100,000 Note") (collectively, the "Notes").70 The Notes were secured by some of Sarah's stock portfolio, but the borrowed funds were used by Enzo and he paid the interest that accrued on the Notes and repaid the principal. The proceeds of the loan represented by the $200,000 Note were used to pay off a previous loan that Enzo had received from Bessemer Trust when he started his restaurant business in London.71 The proceeds of the loan represented by the $100,000 Note were used to pay off an investor in Enzo's Paris restaurant, Mr. Gruet.72 The Bankruptcy Court found that Enzo and Sarah both understood that Enzo would be solely responsible for paying the interest and paying off the principal on the two Notes.73 And that is what occurred. After making interest payments on the Notes, Enzo paid off the principal balances by borrowing $300,000 from the Royal Bank of Scotland ("RBS") in three installments of $100,000 each in December 1988, September 1989 and November 1989. Those funds were
Docket No. 244, Exhibits 101-105; Docket No. 245, Exhibits 106-110; Docket No. 246, Exhibits 111-112; Docket No. 163, TT 816:7-12 (Ms. Korb testimony); Docket No. 167, TT 1630:21-1631:7; 1632:19-24 (Sarah testimony). 69 The $200,000 Note was amended on February 2, 1989. 70 C.R., Docket No. 202, Decision, at p. 13-14; Docket No. 230, Exhibits, 163, 164, 165. 71 C.R., Docket No. 202, Decision, at p. 13. 72 C.R., Docket No. 202, Decision, at p. 13. 73 C.R., Docket No. 202, Decision, at p. 13; TT 457:10-14 (Ms. Korb testimony). Appellee's Brief Page 14
68
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then wired to Sarah's bank account in the same amounts in the same months. Checks were promptly written to pay down or pay off the Notes that Sarah and Enzo had signed with the First National Bank of Florida in 1981 and 1982.74 The accounting regarding these loans was handled by Ms. Korb, who kept track of the interest Enzo was to pay.75 Ms. Korb corroborated Sarah and Enzo's testimony76 that these were bona fide loans. Ms. Korb made all loan arrangements for Sarah.77 She reconciled Sarah's bank statements each month78 and prepared monthly reports of Sarah's income and expenses79 and consistently and repeatedly testified regarding her understanding that the $200,000 Note and the $100,000 Note, including interest thereon, were to be repaid by Enzo80 and that the loans were neither gifts to Enzo nor investments in Enzo's business.81 Ms. Korb kept track of the interest owed by Enzo on the Notes,82 reflected Enzo's interest payments on Sarah's monthly reports83 and, at Mr. Coleman and Sarah's directions, asked Enzo to repay the Notes by letter84 and telephone calls.85 Sarah's monthly report for January 1981 shows that the proceeds from the $200,000 Note were deposited in Sarah's account and used to pay Enzo's obligations to the Bessemer Trust in three checks.86 Sarah's monthly report for January 1982 shows that the proceeds from the $100,000 Note were deposited in Sarah's account and used to repay GLC (George L. Coleman)87
74 C.R., Docket No. 202, Decision, at p. 37. 75 Docket No. 160, TT 470:22 - 471:22 (Ms. Korb testimony). 76 Docket No. 166, TT 1600:4-18; 1601:7-13; 1602:21-1603:7; 1603:19-1604:3 (Sarah testimony); Docket No. 159, TT 226:7-8; 226:25-227:3; 233:11-19; 234:5-8; 235:12-20; 237:2-4 (Enzo testimony). 77 Docket No. 160, TT 413:17 - 414:4 (Ms. Korb testimony). 78 Docket No. 160, TT 394:1-3 (Ms. Korb testimony). 79 Docket No. 160, TT 394:4-7 (Ms. Korb testimony). 80 Docket No. 160, TT 424:23-425:12; 426:13-426:17; 429:10-11; 439:13-441:8 (Mr. Coleman asked Ms. Korb to get Enzo's signature on note because it was a loan to Enzo) 457:10-457:14 (Ms. Korb testimony); Docket No. 164, TT 949:3-952:5 (Ms. Korb testimony). 81 Docket No. 160, TT 453:24-454:2 (Ms. Korb testimony). 82 Docket No. 160, TT 470:22-471:12 (Ms. Korb testimony). 83 Docket No. 160, TT 457:15-19 (Ms. Korb testimony). 84 Docket No. 160, TT 474:24-475:8 (Ms. Korb testimony). 85 Docket No. 160, TT 420:8-16 (Ms. Korb testimony). 86 Docket No. 220, Exhibit 55, at p. 1 [checks #801, #803 & #804, payable to Bessemer entities]. 87 Docket No. 220, Exhibit 56, at p. 1. Appellee's Brief Page 15
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for a bridge loan he arranged for Enzo in the same amount in December 1981, as reflected in Sarah's monthly report for December 1981.88 Ms. Korb testified that the proceeds from the two loans represented by the $200,000 Note and the $100,000 Note went to Enzo or to pay Enzo's debts89 and Sarah's monthly reports corroborate Ms. Korb's testimony. Sarah's monthly report for December 1988 shows Enzo wired to Sarah's account $100,000 in December 1998 for the specific purpose of paying off the $100,000 Note.90 Enzo's wired funds were immediately used to fund Sarah's check #2813 in the amount of $102,366.67 described in Sarah's monthly report for that month as "First National Bank in Palm Beach Payoff of 100,000 note + int."91 Sarah's monthly reports for September 198992 and November 198993 reflect two $100,000 wires from Enzo to Sarah's account that were used in the same respective months, check #3116 "First National Bank paydown 200,000 note- Enzo Cecconi loans", and check #3211 "First National Bank in Palm Beach payoff interest and principal on $100,000 line of Credit Giuseppe Cecconi," evidencing again that Enzo's wires were made for the specific purpose of paying off the $200,000 Note.94 On cross examination, Ms. Korb testified that the three $100,000 wires from Enzo were used to pay off the $200,000 Note and the $100,000 Note,95 she was instructed to use the three $100,000 wires to immediately pay those Notes and that none of the $300,000 went to pay for the construction of the Pebble Beach Property.96 All of this testimony was given with reference to, and corroborated by, detailed financial records prepared more than a decade before this litigation commenced.
88 89 90 91 92 93 94 95 96
Docket No. 220, Exhibit 55, at p. 11. Docket No. 160, TT 431:23-432:6; 453:24-454:2 (Ms. Korb testimony). Docket No. 230, Exhibit 165. Docket No. 221, Exhibit 62, at p. 24. Docket No. 221, Exhibit 63, at p. 17 & 18. Docket No. 221, Exhibit 63, at p. 21 & 22. Docket No. 230, Exhibit 163, 164 (renewed). Docket No. 160, TT 475:19-23; 475:24-35; 494:2-12 (Ms. Korb testimony). Docket No. 165, TT 1371:24 - 1382:15 (Ms. Korb testimony). Page 16
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3.
Trustee Has Failed to Establish Error in the Court's Finding That Enzo Did Not Contribute to the Property.
In this appeal, Trustee contends that the Bankruptcy Court committed clear error in finding that the $300,000 Enzo wired to Sarah's Florida bank account was not used to improve the Pebble Beach Property. In his Appellant's Brief, Trustee completely ignores the great weight of testimony and documentary evidence discussed above. Instead, Trustee argues that the Bankruptcy Court erred because: (1) Enzo's testimony was "contradictory;" (2) unspecified bank records somehow establish error; and (3) Enzo supposedly admitted that the $300,000 he borrowed was indirectly used for improvements to the Property.97 a. Trustee Has Failed to Support the Argument That Enzo's Testimony Was Contradictory.
Trustee has failed to cite this Court to any evidence in the record to support the assertion that Enzo's testimony was contradictory. The Bankruptcy Court made no such finding. In fact, the Bankruptcy Court found both Enzo and Sarah to be credible. This argument should be considered waived, based on Trustee's failure to support it with reference to any specific evidence in the case.98 b. Trustee Has Failed to Explain How Bank Records Indicate Error in the Bankruptcy Court's Findings.
Also without citing the record or any evidence whatsoever, Trustee claims that the Bankruptcy Court erred, given the "numerous contemporaneous business records of the Royal Bank reporting [Enzo's] stated purpose."99 Neither Sarah, nor this Court should be required to scour the numerous bank records that were admitted into evidence and determine how, if at all, those records would establish error in the Bankruptcy Court's findings. This argument should, therefore, be treated as waived, based on Trustee's failure to cite evidence in the record. Nonetheless, to the extent Trustee is referring to the "May Memo," referenced in the Bankruptcy 97 Appellant's Brief, p. 26, line 2-7. 98 This argument should be considered waived or the brief stricken on this point. See, McGoldrick Oil Co. v Campbell 793 F.2d 649, 653 (5th Cir. 1986) (brief stricken, based in part on failure to cite evidence in the record, citing Fed. Rules App.Proc. 28(a)(3) & (e)); N/S Corp. v Liberty Mut. Ins. Co. 127 F.3d 1145, 1146-47 (9th Cir. 1997) ("The brief leaves it up to the court to attempt to find the asserted information."). 99 Appellant's Brief, at p. 26, lines 4-5. Appellee's Brief Page 17
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Court's Decision, the Bankruptcy Court found that document unreliable. The Court noted that the memo reflected "a general understanding by the Bank's personnel of Enzo's financial situation"100 and contained at least one obvious factual error.101 The Court also found that Enzo credibly testified that he told the bank personnel that the purpose of the borrowing was to release Sarah's collateral so that she could obtain additional financing to fund construction of the house on the Property.102 Finally, the Bankrupt