Case Number: KC066717 Hearing Date: March 28, 2018 Dept: O

Millenium-Diamond Road Partners LLC, et al. v. Diamond Bar Country Estates Association, et al. (KC066717)

HEARING ON DIAMOND BAR COUNTRY ESTATES ASSOCIATION’S CLAIM OF EXEMPTION

Respondent: Plaintiffs/Cross-Defendants/Judgment Creditors, Millennium-Diamond Road Partners, LLC and Hua Qing Enterprises, LLC

TENTATIVE RULING

The hearing on Defendant/Cross-Complainant/Judgment Debtor Diamond Bar Country Estates Association’s claim of exemption will be continued in order to afford Judgment Creditors the opportunity to adequately review and respond to the contents of Association’s Reserve Study and Allocated Reserve Fund Schedule, attached as Exhibits “D” and “E” to the 3/14/18 declaration of Trevor Fenwick. Good cause exists for the continuance as such declaration was not contained in Judgment Debtor’s original Claim of Exemption and Judgment Creditor has not had an opportunity to respond.

Plaintiffs/Judgment Creditors, Millennium-Diamond Road Partners, LLC and Hua Qing Enterprises, LLC (“Judgment Creditors”) oppose the Claim of Exemption submitted by Defendant/Judgment Debtor Diamond Bar Country Estates Association (“Association”) as to Association’s entire account at Merrill Lynch Wealth.

BURDEN OF PROOF:

“The claimant may make a claim of exemption by filing with the levying officer a claim of exemption together with a copy thereof. The claim shall be made within 10 days after the date the notice of levy on the property claimed to be exempt was served on the judgment debtor.” CCP § 703.520(a). “The claim of exemption shall be executed under oath and shall include all of the following: (1) The name of the claimant and the mailing address where service of a notice of opposition to the claim may be made upon the claimant. (2) The name and last known address of the judgment debtor if the claimant is not the judgment debtor. (3) A description of the property claimed to be exempt. If an exemption is claimed pursuant to Section 704.010 or 704.060, the claimant shall describe all other property of the same type (including exempt proceeds of property of the same type) owned by the judgment debtor alone or in combination with others on the date of levy and identify the property, whether or not levied upon, to which the exemption is to be applied. If an exemption is claimed pursuant to subdivision (b) of Section 704.100, the claimant shall state the nature and amount of all other property of the same type owned by the judgment debtor or the spouse of the judgment debtor alone or in combination with others on the date of levy. (4) A financial statement if required by Section 703.530. (5) A citation of the provision of this chapter or other statute upon which the claim is based. (6) A statement of the facts necessary to support the claim.” CCP § 703.520(b).

“The notice of opposition to the claim of exemption shall be executed under oath and shall include both of the following: (a) An allegation either (1) that the property is not exempt under the provision of this chapter or other statute relied upon or (2) that the equity in the property claimed to be exempt is in excess of the amount provided in the applicable exemption. (b) A statement of the facts necessary to support the allegation.” CCP § 703.560.

“The claim of exemption and notice of opposition to the claim of exemption constitute the pleadings, subject to the power of the court to permit amendments in the interest of justice.” CCP § 703.580(a). “[T]he exemption claimant has the burden of proof.” CCP § 703.580(b). “’[E]xemptions are to be interpreted liberally and in the debtor’s favor whenever possible. [Citation.]’ (In re Cole [(Bankr. 9th Cir. 1988)] 93 Bankr. [707,] at 709).” Spencer v. Lowery (1991)235 Cal.App.3d 1636, 1639.

“The claim of exemption is deemed controverted by the notice of opposition to the claim of exemption and both shall be received in evidence. If no other evidence is offered, the court, if satisfied that sufficient facts are shown by the claim of exemption (including the financial statement if one is required) and the notice of opposition, may make its determination thereon. If not satisfied, the court shall order the hearing continued for the production of other evidence, oral or documentary.” CCP § 703.580(c). “At the conclusion of the hearing, the court shall determine by order whether or not the property is exempt in whole or in part. Subject to Section 703.600, the order is determinative of the right of the judgment creditor to apply the property to the satisfaction of the judgment. No findings are required in a proceeding under this section.” CCP § 703.580(d).

Defendant/Cross-Complainant/Judgment Debtor Diamond Bar Country Estates Association (“Association”) represents that the monies in the account at Merrill Lynch Wealth contains funds solely from homeowner regular assessments that are used solely for essential services of the Association, which are exempt under Civil Code § 5620. Association further represents that the account levied upon contains only “reserve funds,” as defined under Civil Code §§ 5510 et seq.

“Except as provided in Section 5605, the association shall levy regular and special assessments sufficient to perform its obligations under the governing documents and this act.” Civil Code § 5600(a). “An association shall not impose or collect an assessment or fee that exceeds the amount necessary to defray the costs for which it is levied.” Civil Code § 5600(b). “The board shall not expend funds designated as reserve funds for any purpose other than the repair, restoration, replacement, or maintenance of, or litigation involving the repair, restoration, replacement, or maintenance of, major components that the association is obligated to repair, restore, replace, or maintain and for which the reserve fund was established.” Civil Code § 5510(b).

“Regular assessments imposed or collected to perform the obligations of an association under the governing documents or this act shall be exempt from execution by a judgment creditor of the association only to the extent necessary for the association to perform essential services, such as paying for utilities and insurance. In determining the appropriateness of an exemption, a court shall ensure that only essential services are protected under this subdivision.” Civil Code § 5620(a).

At the outset, the court rules on Judgment Creditors’ evidentiary objections as follows:

Overrule as to No. 1;

Sustain as to Nos. 2 and 3.

Additionally, the court elects to consider Association’s 3/15/18 filing pursuant to CCP § 703.580(a); Judgment Creditors’ 3/22/18 objection to same is overruled.

As Civil Code § 5620(a) gives only two “examples” of essential services, utilities and insurance; as such, the court must determine what an essential service is. In this regard, the court requires more briefing on this issue. The court finds good cause to continue the hearing on Association’s claim of exemption in order to afford Judgment Creditors the opportunity to adequately review and respond to the contents of Association’s Reserve Study and Allocated Reserve Fund Schedule, attached as Exhibits “D” and “E” to the 3/14/18 declaration of Trevor Fenwick. This declaration and its exhibits were not filed as part of the Debtor’s Claim of Exemption. As a result, the Judgment Creditor has not had any opportunity to respond to it and the issue whether reserves for maintenance and repairs are “…necessary for the association to perform essential services ….”