Unpublished Disposition, 931 F.2d 897 (9th Cir. 1991)

MEMORANDUM^* 

FACTS AND PROCEEDINGS

Reliance Insurance Company ("Reliance") agreed not to execute on a default judgment entered against Diana Miley as long as she carried out her indemnity obligations by paying Reliance $125 per month and taking out and maintaining a $100,000 insurance policy on her life payable to Reliance.

Miley's husband became ill and she let the payments to Reliance and the premiums on her insurance policy lapse. At her husband's death, Miley received $1,050,000 in insurance proceeds on his life. In the year following, Miley spent $721,096.82 of the proceeds. Miley's remaining assets (other than her residence) include:

(1) $34,000 equity in two automobiles,

(2) $50,000 equity in property,

(3) $15,000 secured loan to adult son, and

(4) $302,462.71 in cash & bank accounts.

Reliance obtained a writ of execution to enforce its judgment. It sought to levy the writ on all of Miley's assets, except her residence. Miley claimed an exemption under Cal.Code Civ.P. Sec. 704.100(c). She asserted that her assets, other than her residence, were derived from life insurance proceeds on the life of her deceased husband and were reasonably necessary for her support and for the support of her minor son.¹  After an evidentiary hearing, the magistrate made findings of fact and conclusions of law upholding Miley's exemption claim. The district court agreed, adopted the magistrate's recommendation and held all proceeds of the life insurance policies were exempt under Cal.Code Civ.P. Sec. 704.100(c).

The district court had diversity jurisdiction under 28 U.S.C. § 1332. We have jurisdiction under 28 U.S.C. § 1291, and we affirm.

DISCUSSION

As in bankruptcy actions, "the federal courts decide the merits of state exemptions, but the validity of the claimed state exemption is controlled by the applicable state law." Redwood Empire Prod. Credit Ass'n v. Anderson (In re Anderson), 824 F.2d 754, 756 (1987), quoting Commercial Western Finance Corp. v. Andrew (In re Commercial Western Finance Corp.), 761 F.2d 1329, 1333 (9th Cir. 1985). Findings of fact are reviewed under the clearly erroneous standard, and conclusions of law are subject to de novo review. Daniel v. Security Pacific Nat'l Bank (In re Daniel), 771 F.2d 1352, 1353 (1985).

Reliance contends the magistrate and the district court, by relying on Miley's former life style, applied an erroneous standard in determining her reasonable needs. We disagree. California courts place substantial emphasis on a debtor's station in life and accustomed manner of living in deciding exemption claims. See Thornton v. ITT Financial Corp. (In re Thornton), 91 Bankr.Rep. 913, 915 (Bankr.C.D. Cal. 1988); Lucas v. ITT Financial Services (In re Lucas), 77 Bankr.Rep. 242, 245 (Bankr. 9th Cir. 1987); Newport Nat'l Bank v. Adair, 2 Cal. App. 3d 1043, 1045, 83 Cal. Rptr. 1, 3 (1969); Independence Bank v. Heller, 275 Cal. App. 2d 84, 87, 79 Cal. Rptr. 868, 871 (1969). In upholding exemption claims, courts have relied on the broad language of exemption statutes and the bankruptcy policy of liberally construing such statutes in favor of debtors. Lucas, 77 Bankr.Rep. at 245; Independence Bank, 275 Cal. App. 2d at 88, 79 Cal. Rptr. at 871.

Miley is 47 years old, with multiple sclerosis. The magistrate found she is unable to work and has no means of support other than the remainder of the insurance proceeds and the equity in her residence. At the time the magistrate made his findings of fact and conclusions of law, Miley's son was 16 years old and a junior in high school. The magistrate determined that the sole source of support for Miley and her dependent son, and payment of her son's education expenses, would be the remaining life insurance proceeds. While Miley had a home, only its homestead exemption amount could be counted on. That amount and the remaining insurance proceeds would have to take care of Miley for the rest of her life.² 

We conclude that the district court did not err in holding that the remainder of the life insurance proceeds are exempt from execution under Cal.Code Civ.P. Sec. 704.100(c).³ 

AFFIRMED.