BRACING PRESUMPTIONS AND SHIFTING BURDENS

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Alice is falling down into the rabbit hole

“In that direction,” the Cat said, waving its right paw round, “lives a Hatter, and in that direction,” waving the other paw, “lives a March Hare. Visit either you like: they’re both mad.” “But I don’t want to go among mad people,” Alice remarked.“ Oh, you can’t help that,” said the Cat: “we’re all mad here. I’m mad. You’re mad.” “How do you know I’m mad?” said Alice. “You must be,” said the Cat, “or you wouldn’t have come here.”

Lewis Carroll, Alice in Wonderland.

Welcome to the madness of evidentiary presumptions, and how they factor into the California Supreme Court’s In Re Brace, 9 Cal. 5th 903 (2020) decision.

In deciding Brace, the California Supreme Court answered a certified question from the Ninth Circuit, and in so doing overturned long-established California law on the characterization of property held by married couples.  The Brace decision held the “community property presumption” in California Family Code (Cal.Fam.Code”) §760 trumped the “record title presumption” in California Evidence Code (“Cal.Ev.Code”) §662.  

Prior to Brace, a married couple got the benefit of an evidentiary presumption that property titled as joint tenancy was the separate property of each spouse, and that presumption could only be rebutted by clear and convincing evidence.

After Brace when only one spouse files for bankruptcy, owning property titled as joint tenancy with their non-filing spouse, the spouses have the burden of overcoming a presumption that property is community property, a presumption that can only be rebutted in accord with specific Family Code statutes.

Several of my colleagues and I have already written about Brace, but as far as I can tell, nobody has examined the practical effect of this extraordinary flip-flop in evidentiary presumptions and burdens, and how it impacts trial practice.

Here’s a chronicle of the journey I took down the rabbit hole to figure it out. And I warn you in advance, it was not a short one.

Why are we talking about California law in a bankruptcy case?

Brace began as a case in a Federal bankruptcy court, and the issue was one of California law. Wait, what? Don’t the Federal Rules of Evidence apply in bankruptcy cases?

Answer, yes, that’s always where you start the analysis.

Why?  Because Federal Rule of Bankruptcy Procedure (“FRBP”) 9017, and FRE 1101(a) and (b) say so.

Hmmm. Federal law applies?

Nope. Not always. You also need to read and apply FRE §302, which tells us that in a civil case (as opposed to an uncivil case, where the lawyers shout, make faces and point fingers at each other), state law governs the effect of a presumption regarding a claim or defense for which state law supplies the rule of decision.

Does state law supply the rule of decision here? Yes – because bankruptcy courts look to state law to determine what property counts as community property under Butner v. United States (1979) 440 U.S. 48, 54, as cited in Brace.

Voila! We move to the California Evidence Code, where (unlike the FRE) there are several statutes concerning evidentiary presumptions.

Start with the burden of proof

In order to understand rebuttable presumptions, you need to go back to your evidence class in law school and revisit a fundamental principle – the burden of proof.

Confession time. I attended law school at night while working full time at a demanding job in corporate finance for a public company, so my memories of law school, and in particular evidence class, are limited to how to I ghosted through it, somehow passed the course, and moved on. I never intended to litigate cases, which of course is about all I do now. “Fate, it seems, is not without a sense of irony.” Thank you, Morpheus, how right you were.

Here’s the benefit of what I missed in law school and had to learn on the job.

In any civil or criminal lawsuit, there is an overarching burden of proof, consisting of a burden of persuasion and a burden of production (sometimes called the burden of going forward with evidence).

Time to parse some California Evidence Code sections, starting with Cal.Ev.Code §115, which defines the burden of proof as the obligation of a party to establish by evidence a requisite degree of belief concerning a fact in the mind of the trier of fact or the court.  

Make sense? The burden of proof is simply a party’s duty to prove a disputed assertion or claim. The burden of proof may require a party to raise a reasonable doubt concerning the existence or nonexistence of a fact, or to establish the existence or nonexistence of a fact by a preponderance of the evidence, by clear and convincing proof, or (in criminal cases) by proof beyond a reasonable doubt. Except as otherwise provided by law, the burden of proof requires proof by a preponderance of the evidence.

Cal.Ev.Code §500 allocates the burden of proof. Unless otherwise provided by law, a party has the burden of proof as to each fact the existence or nonexistence of which is essential to the claim for relief or defense that he is asserting. It’s usually a safe bet to assume the burden of proof rests with the plaintiff in a civil case, or moving party in a contested matter.

But even safe bets sometimes lose, and (switching back to federal law for a moment), particularly in bankruptcy cases and proceedings. For example, take an objection to a claim of exemption, where we have FRBP 4003(c) that allocates the burden of proof, and places it on the party challenging the claim of exemption.

That was about the safest bet in town given a Federal Rule of Bankruptcy Procedure squarely on point, at least until 2015, when In re Tallerico, 532 B.R. 774, 776 (Bankr. E.D. Cal. 2015) found FRBP 4003(c) invalid, because Rule 4003(c) assumed the burden of proof was procedural rather than substantive.

As an aside (I am non-linear, so just get over it) Tallerico reasoned the Bankruptcy Rules Enabling Act, 28 U.S.C. § 2075, forbids rules that alter substantive rights, and we know the burden of proof is substantive, not procedural. Raleigh v. Illinois Dep’t of Revenue, 530 U.S. 15, 20-21 (2000). Thus, in Tallerico and subsequent cases, it was held the debtor, as the exemption claimant, had the burden of proof to establish the asset as exempt and the extent to which the exemption applied.

Let’s venture a bit further down the rabbit hole.

Burden of proof includes burden of persuasion & burden of production

In 1994, the United States Supreme Court observed in Director, Office of Workers’ Compensation Programs v. Greenwich Collieries (1994) 512 U.S. 267, 272:

For many years the term burden of proof was ambiguous because the term was used to describe two distinct concepts.   Burden of proof was frequently used to refer to what we now call the burden of persuasion-the notion that if the evidence is evenly balanced, the party that bears the burden of persuasion must lose.   But it was also used to refer to what we now call the burden of production-a party’s obligation to come forward with evidence to support its claim.

Let’s break them down.

Burden of persuasion

(Here’s where evidence scholars are going to cringe, send me unflattering emails and comments, and search out my law school transcripts to see if I actually passed evidence and graduated from law school.)

The burden of persuasion is the same concept as the burden of proof. It is the burden to either persuade the fact-finder or lose – or put another way, the risk of loss by the party who has the burden, if he fails to persuade the jury.

Don’t believe me? Think I make this stuff up? Well “time will explain.” (Had to get a quote in from Jane Austen if I’m talking about Persuasion). “The terms burden of proof and burden of persuasion are synonymous.” (1 Witkin, Cal. Evidence (4th ed. 2000) Burden of Proof, § 3, p. 157; 2 McCormick, Evidence, Burden of Proof, § 336, p. 409.) Sargent Fletcher, Inc. v. Able Corp., 110 Cal. App. 4th 1658, 1667 (2003)

So there.

Burden of production

The burden of production does not operate to shift the burden of proof. (Cal.Ev.Code §§ 110, 115, 604, 606).

It is the obligation of a party to introduce evidence sufficient to avoid a ruling against him on the issue. Cal.Ev.Code §110. The burden of producing evidence as to a particular fact is on the party against whom a finding on that fact would be required in the absence of further evidence, and is initially on the party with the burden of proof as to that fact.  Cal.Ev.Code §550.

Unlike the burden of proof, the burden of producing evidence may shift between plaintiff and defendant throughout the trial. (See Evid. Code, § 550)

Initially, the burden of producing evidence as to a particular fact rests on the party with the burden of proof as to that fact. (Evid. Code, § 550(b)) If that party fails to produce sufficient evidence to make a prima facie case, it risks nonsuit or other unfavorable determination. (Mathis v. Morrissey, 11 Cal. App. 4th 332, 346 (1992)).

But once that party produces evidence sufficient to make its prima facie case, the burden of producing evidence shifts to the other party to refute the prima facie case. Even though the burden of producing evidence shifts to the other party, that party need not offer evidence in reply, but failure to do so risks an adverse verdict.

After a prima facie showing is made, it is for the trier of fact to say whether or not the crucial and necessary facts have been established. Sargent Fletcher, Inc. v. Able Corp., supra, at1667-68.

For anyone who is confused, just turn to one of my favorite statutes on the burden of proof, Evid. Code. §522 – “The party claiming that any person, including himself, is or was insane has the burden of proof on that issue.”  That’s right – the insane person has the burden of proof she is (or was) insane.

See the theme here? Let’s move on while we still have our sanity.

What’s a rebuttable presumption?

(MORE IMPORTANTLY, ARE THERE BUTTABLE PRESUMPTIONS?)

Cal.Ev.Code §601 tells us a rebuttable presumption is either (a) a presumption affecting the burden of production or (b) a presumption affecting the burden of proof.  Which is it? Burden of production or burden of proof, and how do you figure it out? And what’s the difference?         

Professor Charles T. McCormick, a well-known evidence scholar, wrote that evidentiary presumptions are “the slipperiest member of the family of legal terms….” (McCormick on Evidence, Sec. 342 (6th Ed. 2002)) He wasn’t kidding.

Let’s start with a presumption, what the heck is it anyway? Evid. Code § 600 says a presumption is not evidence; it is merely an assumption of fact that the law requires to be made from another fact or group of facts found or otherwise established. Butler v. LeBouef, 248 Cal.App.4th 198, 211 (2016); Rowan v. Hilliard, No. D075779, 2020 Cal. App. Unpub. LEXIS 6130, at *29 n.11 (Sep. 22, 2020)

With very few exceptions (such as the presumption of innocence in a criminal case), a presumption is not operative until some basic facts are established that give rise to the presumption. In its most basic form, an evidentiary presumption is really nothing more than a shortcut to proof, where a difficult-to-prove critical fact may be established by proving some other more easily provable subsidiary fact from which the critical fact is presumed; it’s an advantage the law gives a litigant at the outset of a trial.

Quick aside – presumptions are different from inferences, which are conclusions the trier of fact may draw from proof of certain facts, if such facts would lead a reasonable person of average intelligence to reach the same conclusions.  Cal.Ev.Code §600

Here’s a more detailed and better explanation of evidentiary presumptions:

“Evidentiary presumptions are a direction of law to a judge (to be heeded in considering whether a production burden is overcome) and/or to the jury (to be heeded in considering whether the persuasion burden is overcome), that if fact A is believed by the jury to be established (to the degree required by the persuasion burden) or is otherwise established, then fact B must be (in the case of a mandatory presumption) or may be (in the case of a permissive presumption) taken by the jury as also established, where there is no [direct evidence] of fact B itself. The presumption may or may not accord with what a reasonable person would have to or could believe. In other words, presumptions may be predominantly expressions of rational probabilistic factual connections (perhaps based on common sense, experience, logic, studies, statistics, etc.); or of extrinsic social policy concerning which way it is desirable to “tilt” the case to achieve certain social objectives, or some combination of both.” [See, Demystifying Burdens of Proof and the Effect of Rebuttable Evidentiary Presumptions in Civil and Criminal Trials (2017) Paul F. Rothstein, Georgetown University, internal citations omitted.]

Division 5 of the California Evidence Code codifies the Burden of Proof (§§500 – 524), the Burden of Producing Evidence (§550), and a number of presumptions and inferences (§§600 – 670) Some are policy based, while others convenience based.

Presumptions affecting the burden of proof are codified in Cal.Ev.Code §§ 660 – 670. The community property presumption is not among them, so perhaps for now an argument can be made Brace merely affects the burden of production. The rabbit hole is deep.

A presumption affecting the burden of producing evidence requires the ultimate fact to be found from proof of the predicate facts in the absence of other evidence. If contrary evidence is introduced, then the presumption has no further effect and the matter must be determined on the evidence presented. (Cal.Ev.Code § 604.) This is known as the bursting bubble theory.

Convenience-based evidentiary presumptions are shortcuts to rigorous proof and generally shift the burden of production. By means of an evidentiary presumption, a difficult-to-prove critical fact may be established by proving some other more easily provable subsidiary fact from which the critical fact may be presumed. Examples of these convenience-based presumptions are:

  • A writing is presumed to have been truly dated. Cal.Ev.Code §640
  • A letter correctly addressed and properly mailed is presumed to have been received in the ordinary course of mail. Cal.Ev.Code §641

Policy-based presumptions are established to implement some public policy other than to facilitate the determination of the particular action in which the presumption is applied, such as the policy in favor of establishment of a parent and child relationship, the validity of marriage, the stability of titles to property, or the security of those who entrust themselves or their property to the administration of others. Policy based presumptions shift the burden of proof. Cal.Ev.Code §§605, 660 Mathis v. Morrissey, supra, at 346.

The community property presumption in Fam. Code §760 is just such a policy-based presumption that traces back to concerns about undue influence. In re Marriage of Valli, 58 Cal. 4th 1396, 1411 (2014). The California Supreme Court found in Brace that:

The mere fact that spouses choose to take title as joint tenants appears to be the kind of “unreliable” evidence that the Legislature intended to target with the transmutation statute. (MacDonald, supra, 51 Cal.3d at p. 269; see Schindler v. Schindler, supra, 126 Cal.App.2d at p. 601 [“It is common knowledge that innumerable husbands and wives with little or no information about estates in real property acquiesce without reflection in the suggestion that they place purchased property in joint tenancy.”].) Under Family Code section 852, the question is whether it is apparent solely from the titling of a deed as a joint tenancy that the spouses understood the writing to change the character of property acquired with community funds into separate property. We conclude the answer is no because a joint tenancy deed does not itself constitute “language which expressly states that the characterization or ownership of the property is being changed.” (MacDonald, at p. 272.) Brace, 9 Cal. 5th 903, 937, 266 Cal. Rptr. 3d 298, 322, 470 P.3d 15, 35 (2020)

Sounds like policy-based stuff to me. Either way, the burden (of either proof or production) now rests on the spouse seeking to defend a property titled in joint tenancy against the presumption of community property. For trial lawyers, I think this means Brace essentially switched the burden of proof and hence the roles of “plaintiff” and “defendant,” because the ultimate issue in the dispute is the characterization of the property in question.

Burdens in action

Here’s the setup. Imagine that 20 years after the purchase of a home by a married couple titled in joint tenancy from the time of purchase, where there is no dispute between them, and no divorce or separation, one spouse files for bankruptcy. The bankruptcy trustee files an adversary proceeding as plaintiff to determine the character of the home as community property.

Once the bankruptcy trustee (plaintiff) establishes the preliminary fact the home was purchased by the debtor and non-debtor spouse (the defendants) during their marriage, he sits down and smiles like the Cheshire Cat. Why? Because after Brace the bankruptcy trustee gets the benefit of the community property presumption, and the burden shifts to the defendants to disprove it.

How exactly do you rebut a rebuttable presumption?

Almost all presumptions are rebuttable because conclusive presumptions have serious due process issues. That’s because a conclusive presumption is not a presumption at all, but a rule of substantive law.

            Examples of conclusive (also known as irrebuttable) presumptions are:

  • The conclusive presumption of paternity codified in Family Code §7540: “[T]he child of a wife cohabiting with her husband, who is not impotent or sterile, is conclusively presumed to be a child of the marriage.”
  • 26 C.F.R. § 1.166-2(d)(3)(ii) (Department of the Treasury authorizing use of a method of accounting that establishes a “conclusive presumption” of worthlessness for debts).
  • Government Agencies have also proved capable of making a presumption irrebuttable if they so desire. See, e.g., 20 C.F.R. § 718.304 (Department of Labor creating various “irrebuttable presumptions” for miners diagnosed with pneumoconiosis). As has Congress. See, e.g., 30 U.S.C. § 921(c)(3) (creating various “irrebuttable presumptions” related to miners).

That said, conclusive presumptions are exceedingly rare. Alvarado v. Barr, Nos. 18-1761, 19-2258, 2020 U.S. App. LEXIS 34723, at *20 n.* (4th Cir. Nov. 1, 2020).

Back to rebuttable presumptions, the most well-known of which is the presumption of innocence in a criminal case. The effect of the presumption of innocence is the accused (who gets the benefit of the presumption) doesn’t have to offer any evidence, and can win without providing a defense. Moreover, the government must rebut the presumption of innocence with evidence beyond a reasonable doubt, the most rigorous standard of proof in Anglo-Saxon law. But I’m getting ahead of myself (a very common problem).

In a civil case, we know the standard of proof to rebut a rebuttable presumption is generally a preponderance of the evidence. This is a relatively easy standard, as it requires the scales to be tipped ever so slightly in the proponent’s favor – one percent will do.

A rebuttable presumption may (usually) be rebutted by evidentiary facts. Attorney argument is not proof. Nor are legal briefs. It is for the trier of fact to determine whether the proffered evidence outweighs the presumption. In re Marriage of Mix (1975) 14 Cal.3d 604, 611-612. The finding that a rebuttable presumption has been overcome will not be reversed on appeal if supported by substantial evidence. Ibid.

Nah, too easy. Let’s make it harder to rebut

Here’s where it gets even more challenging. The Fam.Code §760 community property presumption requires a specific kind of evidence before it can be rebutted.

As the California Supreme Court found in In re Marriage of Valli, supra, at 1396, not just any evidence can overcome the community property presumption, but only evidence showing that another statute makes the property something other than community property. “By its own terms, the definition of community property in section 760 applies ‘[e]xcept as otherwise provided by statute.’ It therefore exempts property defined as separate under other provisions. (E.g., [Fam. Code,] §§ 770 [property acquired by gift or inheritance], 771 [earnings and accumulations while living separate and apart].)” In re Marriage of Benson, 36 Cal.4th 1096, 1103 (2005).

Thus, the general rule is that property acquired during marriage is community unless the preponderance of the evidence establishes that a specifically enumerated statutory exemption applies to make it something else.

Can it get any more difficult? Why yes, because in the post-Brace world, a party contesting the community property presumption now has the difficult burden of establishing that the ownership interests in the property are held in some other capacity pursuant to a specifically enumerated statute that must be found in the Family Code.

The statutes governing California’s community property law are found in the Family Code; a statute outside of the community property law, such as Evidence Code section 662, cannot nullify those statutes. In re Marriage of Valli, supra, at 1410.  

The takeaway

Unless there is an applicable statutory exception in the Family Code, property titled in joint tenancy purchased during a marriage any time after 1975 will be treated as community property if either spouse files for bankruptcy. 

And whether the Family Code §760 community property presumption is ultimately determined to shift either the burden of proof or the burden of production, the non-debtor spouse will have an almost insurmountable obstacle to overcome trying to rebut it.

Absent a valid transmutation agreement evidenced by a separate writing and (in the case of real property) recorded at or near the time of the acquisition of the property in question, or proof of one of the other statutory exceptions in the Family Code, the property will be treated as community property.

A legislative change is needed here. Until then, “I leave Sisyphus at the foot of the mountain.”  (Camus, Myth of Sisyphus).