the second case pull versus freight revenue recovery of miami in please the court bryan for all here representing freight revenue recovery of miami we are here today to appeal decision by the district court to approve a writ of garnishment that is going to satisfy a judgment wien for a company against individual assets of a retirement plan this case started out as a disagreement between companies whirlpool believed that freight revenue owed them or their money and so security judgment against them district court outside of its own district of florida they were looking for assets to recover that judgment and so they found that amongst the company assets of what they thought were company assets whereas a qualified retirement plan that was sponsored by the company they then decided to file the writ of against that company the souther me the district court decided that the plan was not qualified and so against internal revenue code requirements it decided to take the judgment against the company from individual assets that were within the retirement plan you agree that it was not a qualified plan correct correct the only issue is whether the money was properly taken or just constructive trust theories that your best argument the district court did make sufficient findings on a constructive trust correct is not a construct of trust or honor it is the fact that under the internal revenue code itself one of the requirements of making sure that you have a retirement plan make sure that their retirement plan is qualified is the fact that it's for the exclusive benefit of the participants in one of the written again one of the tenets in the the code itself is that assets cannot be reverted to two back to the company if you're going to for companies going to set up a retirement plan to be able to have the advantages the tax advantages the defer deferral of income for not only the company but also for the participants at the company itself is not able to raid their those assets are not able to go in and use that as their own personal cookie jar for the company to be able to pull those assets out that is a trust that is separate from the company as for the exclusive benefit of the participants in this case the judgment was against company itself and because against the company itself that garnishment cannot be used to kind of do the same thing that a company is not allowed to do which is go in and raid the cookie jar of the retirement plan what i was struck by as far as the ma gistrate's report recommendation and the district court's judgment is we spend a lot of time and the parties have spent a lot of time arguing about whether or not whether there's an exemption for garnishment whether it meets all the i r s requirements but what seems to me to be missing and i'm hoping you can fill in the pieces is who own this account who does charles schwab thinks think own is the account are there plan documents that indicate you know where the statements for this account are going  that's what i'm trying to figure out is there it may be in fact subject to garnishment but if if the owner of the account is not the one being garnished then why are we going into this account the owner of the account  self it's a separate trust as a separate entity in of itself that is being held on behalf of the participants of the retirement plan that would be within the legal plan documents themselves and so there is a trustee for that trust and are the plan documents in the record i do not believe so your honor so who is the owner who get who gets the monthly statements about the account who who puts money in or can take money out that would be the trustee the trustee as an individual which would be the owner of the company itself richard dawson and there it's ok so same person ok that is the owner of the company is also the trustee of the trust what evidence is actually in the record with regard to who  is being held it's the profit sharing plan of great revenue recovery of miami as compared to just the company itself that's just that just refers to the title of the account isn't that right dropped but the title of the account  those types of accounts sometimes will have the company name in the title yes but so what what just going back to judge prior question what is in the record showing who owns that is it back to what you were saying to me as far as the trustee is the one th gentleman mr mr dawson yes that is the case i don't think we have anything in the record that for the legal plan documents themselves other than the child statement of it being a profit sharing plan as compared to was mr dawson the trustee at that time the sole trustee yes yes the plan itself has been around since the early one nine hundred eighty s mr dawson has always been the trustee in the plan the sole  trustee so when we did moneys stop when was the last time the company made a contribution to this account two thousand and fourteen was the last and there's a contribution put into this because i was reading in the briefs that there was some suggestion it might have some of the contributions might have continued up closer to the time there was allegations yes by whirlpool based on bank statements but the four fifty five hundred report which was filed with the department of labor based stays at the last time that countries are put into the plan is two thousand and fourteen which was about a year and a half before the lawsuit was filed or roughly it was right around the same time in the the amounts the the lawsuit itself the default was for almost two hundred thousand dollars the last contribution in the plan was i believe ten me go back to this question of construct for just a moment couldn't it if you are successful in the matter is remanded back based on the finding that the district court didn't make proper findings impose a constructive trust you have to agree when you do the court could do that on remand could make those findings and you'd be back in the same situation right they could find the fact that if you know again we're stipulating that the plan is not qualified but when the plan does not be qualified because of the requirement by the i r s that plans not revert back to the company what happened is that the trust itself is dissolved that becomes taxable income then for the participants in this case it would be mr dawson himself and so instead of the pla assets being able to come back to the employer to pay for a judgment it's taxable to the participants if the trust itself is a part of a non qualified and qualified plan and here then that is a mechanism that's set up when we talk about florida garnishment exemption and when they talk about law if it's qualified it's exempt but if it's not qualify it is not exempt wealth it is not qualified not exempt and under the florida gushing exemption then all that happens then is that is then allowed to be used if there are claims against the individuals that are within the plan itself again the florida statute exemption does not allow again those assets to be reverted back to the employer to pay for the employer's debt it would only be able to pay for the president's debt and that is supported by case law you know whether it be in bankruptcy or other type of garnishments here that when creditors are attacking these assets that are potentially not qualified they're going after an individual debt itself or an individual they're not going after garnishment or a corporate entity in this case so you would concede that if there was and if whirlpool had a judgment against mr dawson yes they could go after this account yes and you would concede that if the plan does not meet these qualifications yet there may be tax consequences yes you're just saying that that does not mean that these assets revert back to world poll and therefore does not revert back to the company and so we're all poll cannot come after them as a company asset exactly  fact that they did not do that that they're going after and they're trying to have a a a assets held within trust for participants to be actually be used or pay company debts and that sets a dangerous precedent here any company now at this case if they have a credit creditor against a company they can find out if the company is in bad bad financial condition they can decide well let's no longer take the burden the time the cost to qualify this plan from freight revenue or did mr dawson make any contributions himself individual the majority of the the assets are actually from a roll over that mr dawson had from a prior role overqualified plan into the the company itself that answer question and is that that's on the record that is and i believe that is in our brief the appellate brief itself i don't think we have any evidence that in the eye could itself was his role over from anything that was in any way tied to freight revenue or was it completely individually held a believe it was completely individual held my time's up if there's any other questions account holding freight revenue assets that is subject to garnishment there are strict requirements that profit sharing plans must be maintained and complied in compliance with i r s code so the plan can get protection those benefits under the law freight revenue fail to comply with the law and is not entitled to those protections what have you agree completely with it with all of the things the thing the arguments you have made that is not a qualified plan that the i r s may not recognize that what if all of that is absolutely correct how does that mean that the assets in this account belong to freight revenue well the free revenues entire argument that they're claiming that the money should belong to dawson is based on the fact that it is a profit sharing plan and our argument is if they haven't complied with several provisions of four a one then how can they claim the benefits under for a one to protect the plan i r s code far for a one a controls how a profit sharing plan is supposed to be maintained for the revenue conceded several violations of for a one but then they want to use that exact same stand you to say well ok so what we've violated but under that section there we say we can't use the money for this purpose but if it's not be operated as a profit sharing plan then it shouldn't be considered a profit sharing plan and it should be given the benefits of a profit sharing plan in the protections of profit sharing plan the department of labor actually gives great guidance on this very issue because they've set forth in regulations what they would consider a profit sharing plan and if they reviewed this exact plan and the way that it was operated they would come to the conclusion that it's not being operated as a profit sharing plan and so it should receive any protections and benefits under the law as a qualified plan when it was created in one thousand nine hundred four there's a there's a possibility that it could have been in that time and one very important fact that i need to correct on the record here is whether or not there were other employees in the plan over time and it's an important fact that there was actually no record evidence whatsoever of other employees being in this plan the only person who's ever that their only record have been shows that richard dawson see only participant over time the there is a statement made by opposing counsel here that there was record evidence of other participants and that's actually not correct at all and there's testimony from richard dawson in two different places where he admitted there's no evidence of other employees it's been him the whole time there's also another thing i need to correct is that the evidence of where the funds in the account came from was not from that evidence was not that it was a rollover the evidence in the in the record is that this was one hundred percent funded by freight revenue assets and so we need to essentially strip down the argument from if you're if you have a bank account and you set up a  page count and you say it's profit sharing plan but then you do absolutely nothing to comply with the law in the operation of the plan you fail to update your plan documents you make excess contributions in violated law most importantly you enter into prohibited transactions that would strip the account completely of any benefits under the law once the i r s would find out about that you know if you're not operating in compliance with for a one in so many different ways to the essence that it's not even being operated as a profit sharing plan excluding people that probably should have been included things like that if it comes down to that then how could you even say you should be entitled to the benefits of protection under the i r s code and the question who's operating in that manner is it the or is it the individual well richard did the district court say about ownership that's really the key isn't it what the district court said about who own this and the reason for exactly well the district court was correct in holding that the that the the because it's not a profit sharing plan and the funds were derived from freight revenue assets the money is for revenue assets is subject to garnishment oh yeah i had the horse but in the district court it was because it was imposing a construct of trast fundings that a constructive trust exists i'm not i don't i don't remember i don't remember seeing in the record that the court made a constructive trust but i mean i'm not i'm not sure i can answer that question employees in the plan and as i stated there's no record evidence of any employees in the plan and without any employees in the plan you don't get a receipt protection and all the cases i want to go back to judge branches question yes let's say we all agree that the plan is not compliant with a rate with the risks and it doesn't comply with the i r s regulations how does that mean that this is somehow recaptured income or that this is the this is under the ownership of freight revenue those assets well the money's all derived from for freight revenue assets it's an account where it was not operated as a profit sharing plan it's almost like a common sense argument because it's if it's the money in the account if this is if they just put the title on the account but then never operated it that way why should they be entitled to the benefits and protections of that same law what it what is the evidence that it's rate revenues money in the account there was testimony from from mr dawson and his bank statements went which also show that the money came directly from freight revenue bank account and that the month that the that he was and that he admitted these are freight revenue assets that are being deposit account there is no employee contributions that's what he specifically admitted to it in on the record what if freight revenue had whenever this account had been created had simply opened a bank account for one person for richard dawson and started every month putting certain amounts on it and it's just a bank account in his name and they're not trying to get a qualified as a wrist so they're not trying trying to get any kind of virus qualifications would you concede in that circumstance you would not those are not freight revenue assets that could be captured well if if it was not it matters how the count was set up if it was set up and it was taxed income given to richard dawson and because then if it that's essentially what they're doing they're trying to avoid the taxes and so they're putting it into a profit sharing plan so if it's taxed income and they're paying income to richard dawson it's taxable  it's his money it's getting paid directly ok so in this case though they do try to get concert tax benefits so why is it not simply that you didn't comply so we're now going to start taxing this and that's go be a consequence that mr dawson faces but what magically makes this revert back to freight revenue well these are egregious violations that's on the record the testimony is that these are great just violations of law that can't simply be corrected by paying taxes but how do you get from agree just violations of this account where he's going to have to answer to the federal government and penalties taxes whatnot to that oh we're going to we're going to deem that this has reverted back to the company i think that's the piece of the puzzle that i'm struggling most with you may still have to over taxes on this if it comes down to it this isn't this isn't a termination of taxation it could it's not mutually exclusive it could be that it turns out that this money should have been put into a profit share plan to begin with it should have been treated the way it was and then the money in the account should be used for the garnishment and they should have to pay to have see that's the leap that you're making is that even if we can see that all of the points about a risk and about tax consequences how does this go f mr dawson back to freight revenue because you would concede that world poll cannot reach these assets through garnishment unless the or these are deemed to be assets or freight revenue correct well yes you are and there are additional those assets in a constructive trust for freight revenue as returns are corrected to remove tax deductions yes that's correct so that's actually one of our alternate justifications there's no findings by the district court in that regard there's no findings as to some of your other alternative right there's no findings because a judge excuse for legal justifications out presented to the court in our trial briefs the court accepted the first justification and and because it accepted the first justification the issue was resolve and there was no further inquiry needed into the other three let again with the first justification the first justification is that this is not a profit sharing plan it's not been operated it's a profit sharing plan so the money in the account belongs to freight revenue and it's subjective garnishment you agree that it's a question of fact who the account belongs to yes well we know where the source of the fun comes from it's fate revenue assets in our pinion in our are our argument is that if this is not operating as a profit sharing plan they can't claim the money belongs to richard dawson just because they put the name on the account doesn't mean you get those benefits if the department of treasury wouldn't consider this a profit sharing plan the court is fully justified in making that same determination in saying it's not a profit sharing plan so why should you get the benefits if you say for a one you've you ok well under four a one a two is where we get this benefit but if you didn't comply with for a one a one a three a five and actually you also violated a two by entering into prohibited transactions this isn't a checklist where you can just kind of pick and choose what you want to comply with you have to comply with the entire four a one a in order to get a qualified trust and failing to complete failing to operate an account in that manner according to the department of treasury says look at the operation of an account if the account is being used to to to give money to to shareholders to subterfuge assets to shareholders which is exactly what they're doing here richard dawson is the sole director so owner sole shareholder of this of of freight revenue and so they're trying to subterfuge all the profits from freight revenue directly to richard dawson by avoiding and avoiding taxation and avoiding creditors in the meantime if the department of treasury is going to look at an account like this and say that's not a profit sharing plan why should that then get the benefits and protections of a profit sharing plan and not be subject to creditors but see if you're the i r s right now i might be agreeing with you and saying absolutely un but you're not the i r s you're trying to say because of that noncompliance with i r s regulations we're going to revert it back and that's that's kind  of the piece of the puzzle that i'm struggling with but let me ask you a related question do you agree with him that the last contribution into the scale was in two thousand and fourteen actually the the money in the count continued to grow after years revenue did not present any record evidence to establish the source and of that of that income and so part of the argument is that there were continuous contributions in the account that were in excess of four a one allowances and what evidence is there that contrary to what he's represented there were contributions past twenty fourteen simply because the value of the account continued to grow and the charles schwab's account showed deposits monthly deposits that continue to be deposited and the frou women your i'm sorry don't have the exact date of that in the record it should be in the record of all the charles schwab accounts were fully evaluated at the trial court should be in the brief from the trial court hearing he's relying opposing counsel here is relying on fifth form fifty five hundred that were filed with the i r s in order to determine where the funds came from how much was in the funds things like that but we actually proved at the trial that the form fifty five hundred were all incorrect because they did not report certain assets that were the property that was being purchased by richard dawson on behalf of one of his own companies lehi lots which is the prohibited transaction they weren't using c p a audited  financial statements they were not issuing bonds to protect those accounts again all of these violations of why this is not being operated as a profit sharing plan and then they and then the essentially lied to the i r s through the fifty five hundred to avoid to avoid disclosing this information to them how again this is how can this be that you're going to get the protections without it hearing to the rules it just it can't be that you can have both and want to i want to address  you judge grants you mention if the iris if i were gyrus you would accept my argument well we're not here it's taxation we only are really talking about garnishment so i have to make a parallel argument to whatever the tax that would the i r s would make in this case because i'm not the i r s i am representing whirlpool but i'm only guided by what the i r s has issued because that's that's what's out there what's out there is i r s a value codes cases that are by in value eighty evaluating those codes so i have to make the parallel argument that the iris would make here because mr just a point of information the judgment that is being collected through the garnishment was not the result of a settlement you know and that was actually something that was i needed to correct as well is that this was a stipulated judgment from the district court of michigan freight revenue was represented in that case it was not a default judgment they admitted that they owed the money different revenue they were actually concealing money that they were taking from from from whirlpool they were  thinking that there was a bank account for truck for freight revenue there and came back informed us of the sick your honour's my time is up in conclusion the evidence overwhelmingly supports the fact that freight revenues conduct amounts to create just violations of law so forth by various codes and they should not be rewarded by allowing them to claim exemptions the district court should affirm the condition this courtship from the district court's ruling that the money in the county is subject garnishment to pay for it revenues judgment each of you have hit on the leap that is going too far that were police trying to make the fact is that if the plan is unqualified if the treasury would come in and state that it is not qualified the department of labor would come in and say that is not  qualified elite that is too far is that somehow that then reverts those assets revert back to the company the consequence the punishment the effect of that is that that trust is dissolved and becomes taxable income to the participants in this case of the mr dawson there is no legal support the whirlpool has that allows for when a plan no longer is qualified that was planned assets revert back to the to the corporation self it's right within the code itself that basically paraphrasing says  impossible for any part of the corpus or income to be used diverted for purposes other than exclusive benefit of the per employees or the beneficiaries that is our main argument is that leap that has gone too far in fact of what is happening any type of again stipulating completely the plan is not qualified if the department of labor would come in in fact there is a large section here and when the district court judge approved the report recommendation started to bring in reza retirement plans being very complex or actually ruled by two different government agencies we have the i r s under the internal revenue code and we have the department of labor under rissa to narrow it down for you all we don't have to deal with  we don't have to worry about whether there are other employees in the plan we don't need to be subject to risk for freight revenue to win this case we can completely rely on the internal revenue code itself there are plans that are exempt from a ris such as governmental plans church plans that still need to make sure that they comply with any type of requirements under the tax law to make sure that that is happening the case so there is no need to even get into a risk of the department of labor we can deal strictly with the internal revenue code their requirements itself again the requirement that assets of plants should not be reverting back to the employer that if there are issues whether that you know if there is noncompliance to these requirements the requirements that co whirlpool the effect of that is that it becomes taxable income to those participants were poles counsel has as indicated the contributions continued past twenty fourteen can you address whether that's correct or there are allegations due to deposits that were made there were assets that were held outside of the charles schwab account where money needed to go in and out i'm relying on the last four to five hundred which has not been challenged by the department of labor to state that the last contributions in were two thousand and fourt no further questions we may ask one and this is going to be a hypothetical but i could imagine a situation where the i r s believes these assets belong to mr dawson and taxes him for not complying with the i r s code and yet the court sends it says this is a freight revenue account and it is subject to garnishment that could set up us potentially set up a situation where mr dawson is having is being assessed by the i r s for mon that he's no longer in control of and that woods could set up another court battle completely your honor and that is you know again we'll pull was not without remedy here and we've talked about this you know with the fact if they are claiming that the plan is not qualified that you know that the four a one a within the referent code was not satisfied again they had the ability to get the personal judgment they had the ability to pierce the corporate veil and alter ego whatever requirement they would need to make sure that that is an individual again owner director and president of the company what they're trying to do then is to morph him into the corporation self without actually going through the legal steps that are required to be able to do that and so again judge branch  to your question that yes that if they there was an alternative mechanism here you know whirlpool was not left without legal remedy age did not go to through the proper legal steps so in conclusion we asked this court to overturn the district's decision approve the writ of congressman against the charles schwab account which took retirement assets that were held for the benefit of participants to pay a corporate debt thank you