Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca10-90-04157/USCOURTS-ca10-90-04157-0/pdf.json

Parties Involved:
David L. Gladwell
Appellee
Wesley G. Harline
Appellant

Document Text:

PUBLISH 

UNITED STATES COURT OF APPEALS 

TENTH CIRCUIT 

In Rea WESLEY G. HARLIN£ 1 ) 

) 

Debtor. ) 

) 

FILED 

United States Court~ Appeals Tenth Ciremt 

DEC 0 51991 

ROBERT L. HOECKER 

Clerk 

) No. 90-4157 

DAVID L. 

v. 

WESLEY G. 

GLADWELL, Trustee, ) 

) 

Plaintiff-Appellee, ) 

) 

) 

) 

HARLINE, ) 

) 

Defendant-Appellant. ) 

APPEAL FROM THE UNITED STATES DISTRICT COURT 

FOR THE DISTRICT OF UTAH 

(D.C. Civil No. 90-NC-0022-S) 

Submitted on the briefaa 

Paul N. Cotro-Manes, Salt Lake City, Utah, for DefendantAppellant. 

Mona Lyman of McKay, Burton & Thurman, Salt Lake City, Utah, for 

Plaintiff-Appellee. 

Before LOGAN, MOORE and BALDOCK, Circuit Judges. 

LOGAN, Circuit Judge. 

Appellate Case: 90-4157 Document: 01019323410 Date Filed: 12/05/1991 Page: 1 
This appeal involves in an unusual context an ~portant legal 

issue--whether a beneficial interest in a profit sharing trust is 

part of a debtor's estate under 11 u.s.c. § 541 available to 

satisfy creditors' claims. 1 

Wesley G. Harline (Dr. Harline) filed a petition in bankruptcy for reorganization of his affairs under Chapter 11, which 

was later converted to a Chapter 7 proceeding. He did not list as 

an asset of his estate his beneficial interest in a profit sharing 

trust of the Weber Clinic, Inc. On discovering the existence of 

that interest bankruptcy trustee David L. Gladwell sued the 

trustee of the profit sharing trust, the Key Bank of Utah (bank 

trustee), to secure Dr. Harline's interest as an asset of the 

bankruptcy estate. Dr. Harline became an intervening defendant 

~ and carried the burden of the litigation. 

The bankruptcy court granted a summary judgment motion ordering the property to be turned over to the bankruptcy estate. On 

appeal the district court affirmed. Dr. Harline now seeks to obtain a determination that the profit sharing plan interest is not 

an asset of the estate under 11 u.s.c. § 541, either because 

(1) it is a valid spendthrift trust under Utah law or (2) it is 

exempt as a qualified Employee Retirement Income Security Act 

(ERISA) plan. 2 

1 After examining the briefs and appellate record, this panel has 

determined unanimously that oral argument would not materially 

assist the determination of this appeal. See Fed. R. App. P. 

34(a); lOth Cir. R. 34.1.9. The case is therefore ordered submitted without oral argument. 

2 Dr. Harline also argues that we must reverse because the insurance companies whose policies are the sole assets in the plan are 

(Continued on next page) 

2 

Appellate Case: 90-4157 Document: 01019323410 Date Filed: 12/05/1991 Page: 2 
The record in this case is not as fully developed as we would 

like. But it appears that Dr. Harline practiced medicine in 

association with other doctors, now deceased, doing business as 

the Weber Clinic. This clinic was unincorporated at the time the 

profit sharing trust was established in 1960, but was asserted to 

be an "association taxable as a corporation • ., Second Amendment to 

Weber Clinic Profit-Sharing Trust, Respondent's Ex. Add., tab 3 at 

1. In 1971 the association was "transformed into a Utah professional corporation." Id. Thereafter the trust was operated as a 

corporate retirement plan. The record indicates that Weber 

Clinic, Inc. is still a professional corporation with Dr. Harline 

as the sole shareholder, the sole remaining beneficiary of the 

plan, and the sole member of its deferred compensation committee. 

It is unclear from the record whether the corporation has ceased 

(Continued from previous page) 

necessary parties to this action. The district court ruled that 

Dr. Harline had not raised the issue before the bankruptcy court. 

But it found alternatively that they were not necessary parties, 

and we agree. The insurance policies are assets of the profit sharing trust to which title is held by the bank trustee. That 

trustee is a party to this action, and if the bankruptcy and district courts correctly found Dr. Karline's interest in the plan to 

be an asset subject to the claims of creditors, the bank trustee 

has the power and the duty to make the cash surrender value or the 

policies themselves available to the bankruptcy trustee. We also 

do not consider Dr. Harline's refund claim for post-petition insurance premium payments as that issue is not sufficiently developed in the record. If, as Dr. Harline argues, he is not the 

settlor of the profit sharing trust but a mere employee beneficiary not entitled to benefits because he has not retired or terminated his employment, then he would not be a proper claimant 

since the post-petition contributions would have been made by his 

employer, the Weber Clinic, Inc. 

3 

Appellate Case: 90-4157 Document: 01019323410 Date Filed: 12/05/1991 Page: 3 
making contributions to the plan. 3 The plan's sole remaining 

assets, held for Dr. Harline's account, are three insurance policies with cash values totalling more than $336,000. Dr. Harline 

asserts that the plan is uqualified" under ERISA. 

I 

Section 541 of the Bankruptcy Code, 11 u.s.c. § 541, includes 

in the bankruptcy estate essentially all beneficial ownership 

interests of a debtor unless the interest contains "[a] restriction on the transfer of a beneficial interest of the debtor in a 

trust that is enforceable under applicable nonbankruptcy law." 

Id. § 541(c)(2) (emphasis added). A beneficial interest in an 

ordinary spendthrift trust would clearly qualify for the exemption 

if the state courts would hold that creditors could not reach the 

~ interest. See Goff v. Taylor (In re Goff), 706 F.2d 574, 581-82 

(5th Cir. 1983) (detailing legislative history). Several of the 

circuit courts that have considered s·s41(c)(2)'s applicability to 

interests in ERISA qualified pension and profit sharing plans have 

declared they are excluded from the bankruptcy estate only if they 

qualify as valid spendthrift trusts under state law. Daniel v. 

Security Pac. Nat'l Bank (In re Daniel), 771 F.2d 1352, 1360 (9th 

Cir. 1985), cert. denied, 475 u.s. 1016 (1986); Lichstrahl v. 

Bankers Trust (In re Lichstrahl), 750 F.2d 1488, 1490 (11th Cir. 

1985); Samore v. Graham (In re Graham), 726 F.2d 1268, 1273-74 

3 Dr. Harline's brief in the district court states that 11 [t]he 

debtor-defendant had used his own funds, earned post petition to 

pay on the premiums due on several of the policies • • u I R. 

Supp. tab 3 at 3. His brief in this court states that "Appellant 

had paid in post earned monies to keep the policies in force 

•••• " Appellant's Opening Brief at 26. 

4 

Appellate Case: 90-4157 Document: 01019323410 Date Filed: 12/05/1991 Page: 4 
(8th Cir. 1984)J Goff, 706 F.2d at 580. In the instant case, the 

. bankruptcy and district courts accepted this reading of 

§ 541(c)(2) and focused upon whether Utah would recognize 

spendthrift trusts (concluding that it would) and whether Dr. 

Harline's interest in the profit sharing trust qualified as a 

spendthrift trust (concluding that it did not). Both courts ruled 

that Dr. Harline's interest in the trust had to be included in his 

bankruptcy estate. 

A 

Utah has never directly approved of the spendthrift trust. 

Dr. Harline has moved to certify this issue to the Utah Supreme 

Court. Following our review of the Utah cases that do address 

spendthrift trusts, we are satisfied that Utah would follow the 

~ vast majority of courts which recognize traditional state law 

spendthrift trusts and would adopt the views of those courts as to 

the characteristics required to create such a trust. Therefore, 

we deny the motion to certify this issue. 

The Utah Supreme Court apparently first considered spendthrift trusts in Crongyist v. Utah State Agricultural College, 201 

P.2d 280 (Utah 1949). Looking to authority from other jurisdictiona, the court discussed their characteristics and requirements. 

The court held that the trust before it was not a spendthrift 

trust because it contained none of the traditional spendthrift 

trust provisions and the language of the trust failed to indicate 

in any way that the settlor intended to create a spendthrift 

trust. Id. at 284. The court then said, "[t]his opinion is not 

~ to be construed as a holding by implication that spendthrift 

5 

Appellate Case: 90-4157 Document: 01019323410 Date Filed: 12/05/1991 Page: 5 
trusts are valid in Utah to any extent. As to that question, we 

express no opinion. It must await an occasion where a spendthrift 

trust was intended to be created." Id. at 285. 

Nonetheless, there are strong indications that Utah would 

recognize spendthrift trusts. For example, in Leach v. Anderson, 

535 P.2d 1241 (Utah 1975), the Utah Supreme Court, in reviewing an 

alleged spendthrift trust that was invalidated as violating Utah 

Code Ann. § 25-1-11, which makes conveyances in trust for the use 

of the settlor void as to his existing or subsequent creditors, 

stated: 

.. It is not to be supposed that that statute was 

intended to limit or interfere with other traditional 

and beneficial uses of trusts. That a trustor can deal 

generally with his property as he desires we have no 

doubt; and this includes placing it in an irrevocable 

trust, beyond his own power to reclaim, or to sell or 

alienate it; and may include a so-called 'spendthrift 

trust' provision to safeguard against improvident dissipation thereof." 

Id. at 1243. See also Territorial Sav. & Loan Ass'n v. Baird, 781 

P.2d 452, 456-57 (Utah App. 1989). Two Utah bankruptcy court 

decisions, In re Martin, 115 B.R. 311, 316 (Bankr. D. Utah 1990), 

and In re Kerr, 65 B.R. 739, 745 (Bankr. D. Utah 1986), conclude 

that Utah would follow the traditional view of spendthrift trusts. 

Id. at 316. 

B 

"Traditionally, there are three requirements for a spendthrift trust: (1) the settlor may not be a beneficiary of the 

trust plan, (2) the trust must contain a clause barring any beneficiary from voluntarily or involuntarily transferring his inter-

~ est in the trust, and (3) the debtor-beneficiary must have no 

6 

Appellate Case: 90-4157 Document: 01019323410 Date Filed: 12/05/1991 Page: 6 
present dominion or control over the trust corpus." Williams v. 

Board of Pensions of the Church of God, Inc. (In re Tomer), 117 

B.R. 391, 394 (Bankr. S.D. Ill. 1990); ~Restatement (2d) Trusts 

§§ 153, 156 (1959). The district court concluded that the Weber 

Clinic trust was not a spendthrift trust because it deter.mined 

that the trust was self-settled and that, as the single member of 

the trust's deferred compensation committee and the sole 

shareholder of the corporation, Dr. Harline had "complete dominion" over the trust property, following Lichstrahl, 750 F.2d at 

1490. I R. tab 5 at 7. 

We agree with the district court that the trust, on the particular facts before us, does not qualify as a spendthrift trust. 

We need not decide the questions of whether Dr. Harline is the 

settlor either because the trust was established before the Weber 

Clinic was incorporated or because Utah would disregard the corporate entity. See In re Velis, 123 B.R. 497, 509 (D. N.J. 1991) 

(court cannot disregard corporate entity simply because debtor is 

sole shareholder). Like the Lichstrahl court, we believe Dr. 

Harline's power as the only officer, director, and shareholder of 

the Weber Clinic, Inc. to amend or ter.minate the plan is fatal to 

spendthrift status, particularly when he already is beyond the 

plan's nor.mal retirement age and is sole member of the deferred 

compensation committee. Dr. Harline could take his interest in 

the plan without penalty and continue to practice medicine, either 

as a corporate employee or after dissolving the corporation. As 

we read the plan documents, although amendments have introduced 

~ ambiguities, Dr. Harline, having attained the age of fifty-five 

7 

Appellate Case: 90-4157 Document: 01019323410 Date Filed: 12/05/1991 Page: 7 
may request the committee (consisting of himself alone) to pay him 

his accumulated trust fund interest while continuing his employment. See The Weber Clinic Profit-Sharing Trust Agreement, 

Respondent's Ex. Add., tab 1 at 6; ~also id. tab 2 at 1, 3, and 

tab 5 at 2. 

II 

A 

Our conclusion that Utah state courts would not consider Dr. 

Harline's interest in the profit sharing trust as a valid spendthrift trust does not resolve the appeal. In his appellate brief 

Dr. Harline asks us to find "whether an ERISA qualified plan" is 

includable in his bankruptcy estate under 11 u.s.c. § 541. Appellant's Opening Brief at 2. 

The bankruptcy trustee argues that this issue was not raised 

below and hence is not properly before us. We do not agree. We 

apparently do not have in the appellate record everything filed in 

the bankruptcy court, but the seventh issue raised in the designation of record on appeal and statement of issues filed in the 

bankruptcy court was "[d]id the Court err in ruling that a 

qualified profit sharing trust could be invaded by the Trustee in 

Bankruptcy?" Appellant's Add. No. 12. The issue was raised, 

inartfully to be sure, in the district court. In Dr. Harline's 

brief before the district court he identified the plan as an ERISA 

plan, I R. Supp. tab 3 at 3; he also stated that one of the issues 

was "[d]id the Court err in ruling that a qualified profit sharing 

trust could be invaded by the Trustee in Bankruptcy?" Id. at 1. 

~ He argued in that brief that "Congress when it amended the ERISA 

8 

Appellate Case: 90-4157 Document: 01019323410 Date Filed: 12/05/1991 Page: 8 
existing law in 1974 in adopting the Retirement Income Security 

Act, codified under 29 u.s.c. § 1101, et seq., had the intent to 

make the defined benefit plans the exclusive property of the 

beneficiaries under the plan." Id. at 8-9. He cited federal tax 

regulations on the ERISA requirements for spendthrift provisions 

in qualified plans, id. at 9-11, and finished with this plea: 

"Admittedly some bankruptcy cases have paid little heed to the IRS 

regulations or laws with respect to the applicability under the 

Bankruptcy laws. However it is submitted that some credence must 

be applied to the acts of congress in the overall scheme of federal law." Id. at 11. 

No doubt Dr. Harline was discouraged in pursuing an ERISA 

exemption argument because the bankruptcy court in Utah previously 

had adopted the view of the only four circuit courts that had 

considered the matter to that date, all of which held that 

retirement plan interests would be excluded from the bankruptcy 

estate only if enforceable under state law as spendthrift trusts. 

See In re Kerr, 65 B.R. at 744. We read the district court's 

opinion as adopting the same view. We hold that the issue of 

ERISA preemption is properly before us. 

B 

ERISA, of course, overrides state law in the area of employee 

retirement benefits it covers, and its preemption feature has been 

broadly construed. See FMC Corp. v. Holliday, 111 s. Ct. 403, 407 

(1990). Thus, apart from the Bankruptcy Code there is no doubt 

that a "qualified" pension or profit sharing plan containing 

~ provisions protecting against creditors' claims, as required by 

9 

Appellate Case: 90-4157 Document: 01019323410 Date Filed: 12/05/1991 Page: 9 
ERISA, would override any state law to the contrary. 4 To be 

"qualified" means the contributions are tax deductible and neither 

the contributions nor their earnings are taxed as income to the 

beneficiary until taken out in accordance with the plan. See 

5 I.R.C. §§ 401, 402. 

The question then is whether Congress intended for ERISA protection to lapse when a beneficiary of such a plan takes bankruptcy. Four circuits have taken the position that Congress 

intended the exclusionary reference to "applicable nonbankruptcy 

law" in 11 u.s.c. § 541(c)(2) "as a narrow reference to state 

'spendthrift trust' law and not as a broad reference to all other 

law, both federal and state, including ERISA." Goff, 706 F.2d at 

577; see also Graham, 726 F.2d at 1273; Lichstrahl, 750 F.2d at 

1490; Daniel, 771 F.2d at 1360. These decisions rely upon the 

following: (1) the general purpose of the Bankruptcy Code to 

include virtually all of a debtor's property interests in the 

bankruptcy estate; (2) expressions in the legislative history of 

§ 541(c)(2) focus almost exclusively upon a desire to continue to 

4 "Each pension plan shall provide that benefits provided under 

the plan may not be assigned or alienated. 11 29 u.s.c. 

§ 1056(d)(1). "A trust shall not constitute a qualified trust 

under this section unless the plan of which such trust is a part 

provides that benefits provided under the plan may not be assigned 

or alienated." 26 u.s.c. [I.R.C.] § 401(a)(l3). 11Under section 

401(a)(l3), a trust will not be qualified unless the plan of which 

the trust is a part provides that benefits provided under the plan 

may not be anticipated, assigned (either at law or in equity), 

alienated or subject to attachment, garnishment, levy, execution 

or other legal or equitable process... Treas. Reg. § 1. 403 (a)-

13(b)(1). 

5 Although some of ERISA'S provisions are codified in labor law 

sections 29 u.s.c. §§ 1001-1144, the qualification process is delegated to the Internal Revenue Service. 

10 

Appellate Case: 90-4157 Document: 01019323410 Date Filed: 12/05/1991 Page: 10 
exclude state-recognized spendthrift trusts; (3) the fact that 

federal exemption§ 522(d)(10)(E) exempts payments under a pension 

or profit sharing plan "to the extent reasonably necessary for the 

support of the debtor and any dependent of the debtor"; and 

(4) the legislative history of§ 522(b)(2)(A), exempting property 

pursuant to "Federal law other than[§ 522(d)(10)(E)]" does not 

include interests in ERISA-qualified plans in its illustrative 

list of examples of exempt properties. See 706 F.2d at 581-87. 

Recent opinions in three other circuit courts considering the 

matter, however, have reached the contrary result, and have ruled 

that qualified ERISA pension and profit sharing plan interests are 

not assets of the bankruptcy estate under § 541(c)(2). See 

Anderson v. Raine (In re Moore), 907 F.2d 1476, 1477 (4th Cir. 

1990); Forbes v. Lucas (In re Lucas), 924 F.2d 597, 601 (6th 

Cir.), cert. denied, 111 s. Ct. 2275 (1991); Velis v. Kardanis, 

No. 91-5084, slip op. at 12 (3d Cir. Nov. 14, 1991). These 

circuits hold that "[a]n appeal to legislative history is inappropriate here because the language of § 541(c)(2) is clear," 

relying upon Burlington Northern R.R. v. Oklahoma Tax Comm'n, 481 

u.s. 454, 461 (1987), and Davis v. Michigan Dep't of Treasu6Y, 489 

u.s. 803, 808 n.3 (1989). Moore, 907 F.2d at 1478-79. They also 

view the legislative history as inconclusive. Additionally they 

rely upon two purposes of ERISA: "to guarantee the security of 

employees' retirement income" and to ensure "uniform treatment of 

pension benefits throughout the country." Id. at 1479-80; ~ 

also Lucas, 924 F.2d at 601 ("narrow interpretation" of 

~ § 541(c) (2) 's reference to applicable nonbankruptcy law "is also 

11 

Appellate Case: 90-4157 Document: 01019323410 Date Filed: 12/05/1991 Page: 11 
inconsistent with other uses of the identical phrase throughout 

_ the Bankruptcy Code, where the phrase is used to refer to the federal as well as state law") (citing Moore at 1477). 

The Ninth Circuit, which embraced the narrow construction in 

its Daniel case, also appears to be having second thoughts. See 

John Hancock Mut. Life Ins. Co. v. Watson (In re Kincaid), 917 

F.2d 1162, 1166 (9th Cir. 1990) ("We recognize a certain 

incongruity in the notion that only ERISA'S anti-alienation 

provisions offer protection until bankruptcy, and only state 

spendthrift provisions do so in bankruptcy. The same might be 

said of the idea that some ERISA plan benefits are protected from 

creditors before bankruptcy and lose that protection upon 

bankruptcy. Yet, that is in accord with the great weight of 

authority and is the law of this Circuit."); see also id. at 1169-

70 (Fletcher, J., concurring). But see Pitrat v. Garlikov, No. 

90-15252, 1991 WL 213896, at *2 (9th Cir. Oct. 25, 1991) 

(reaffir.ming Daniel). 

We are persuaded by the reasoning of the Third, Fourth and 

Sixth Circuit opinions, and we join them in holding that a taxqualified ERISA pension or profit sharing plan is exempt from the 

bankruptcy estate under§ 541(c)(2). 6 We do not perceive an 

ambiguity in the phrase "applicable nonbankruptcy law" that would 

per.mit us to differentiate state from federal law. The phrase on 

its face is clear and broad. As the Fourth Circuit in Moore 

noted, "when Congress intended to refer to state law, it did so 

6 We express no opinion on the federal exemption provisions of 11 

u.s.c. § 522(b)(2)(A) and§ 522(d)(10)(E), as no argument based 

upon those sections has been presented in the appeal. 

12 

Appellate Case: 90-4157 Document: 01019323410 Date Filed: 12/05/1991 Page: 12 
explicitly." Moore, 

u.s.c. §§ 109(c)(2), 

907 F.2d 

522(b)(1) 

at 1478 (citing examples in 11 

& (2), 523(a)(5)). An 

interpretation of "applicable nonbankruptcy law" to include both 

federal and state law is consistent with Congress' use of that 

same ter.m in other sections of the Bankruptcy Code. In 11 u.s.c. 

§ 101(56), Congress uses the phrase "applicable nonbankruptcy law" 

to refer to federal laws concerning trade secrets, patents and 

plant varieties. 11 u.s.c. § 101(56). Sections 108(a), (b) & (c) 

all use the phrase "applicable nonbankruptcy law," and courts have 

held that phrase in these subsections refers to federal law. 

~' Eagle-Picher Indus., Inc. v. United States, 937 F.2d 625, 

639-40 (D.C. Cir. 1991) (Federal Tort Claims Act as applicable 

nonbankruptcy law under§ 108(b)); Brickley v. United States (In 

re Brickley), 70 B.R. 113, 115-16 (Bankr. 9th Cir. 1986) (IRC 

statute of l~itation, 26 u.s.c. § 6503, as applicable 

nonbankruptcy law under § 108(c)); ·Motor Carrier Audit & 

Collection Co., a Div. of Delta Traffic Serv., Inc. v. Lighting 

Prods .• Inc., 113 B.R. 424, 425-26 (N.D. Ill. 1989) (Interstate 

Commerce Act as applicable nonbankruptcy law under§ 108(a)); 

Eisenberg v. Feiner (In re Ahead by a Length, Inc.), 100 B.R. 157, 

162 (Bankr. S.D.N.Y. 1989) (RICO as applicable nonbankruptcy law 

under§ 108(a)). Yet another example of the use of "applicable 

nonbankruptcy law" to mean both federal and state law is 11 u.s.c. 

§ 1125(d) which states in part, "Whether a disclosure statement 

• • • contains adequate information is not governed by any 

otherwise applicable nonbankruptcy law, rule, or regulation 

~ •••• " This subsection's legislative history confir.ms that the 

13 

Appellate Case: 90-4157 Document: 01019323410 Date Filed: 12/05/1991 Page: 13 
I 

~ 

language refers to both federal and state law; more specifically, 

the language refers to federal and state securities laws. See s. 

Rep. No. 95-989, 95th Cong., 2d Seas. 121 (1978), reprinted in 

1978 u.s.c.c.A.N. 5787, 5907 ("Subsection (d) relieves the court 

of the need to follow any otherwise applicable Federal or state 

law in determining the adequacy of the information contained in 

the disclosure statement • • " ) ; H. R. Rep. No • 9 5-5 9 5 , 95th 

Cong., 2d Sess. 409 (1977), reprinted in 1978 u.s.c.c.A.N. 5963, 

6365 ("Subsection (d) excepts the disclosure statements from the 

requirements of the securities laws (such as section 14 of the 

1934 Act and section 5 of the 1933 Act), and from s~ilar State 

securities laws (blue sky laws, for example).");~ also 11 

u.s.c.A. § 1125, Historical and Revision Notes 528-29 (1979) 

(quoting Senate and House reports' explanations of subsection 

(d)); In re Stanley Hotel, Inc., 13 B.R. 926, 931 (Bankr. D. Colo. 

1981) (Moore, J.) (Section 1125(d) refers, inter alia, to 

Securities Act of 1933.). We note that "[s]tatutory phrases are 

not construed in isolation; they must be construed in the context 

of the statute or act as a whole. Generally, when the same words 

are used in different sections of the law, they will be given the 

same meaning." Barnson v. United States, 816 F.2d 549, 554 (lOth 

Cir.) (citations omitted), cert. denied, 484 u.s. 896 (1987). 

Finding no ambiguity in the language of§ 541(c)(2), resort 

to legislative history is inappropriate. See Toibb v. Radloff, 

111 S. Ct. 2197, 2200 (1991). But even considering the 

legislative history, which we acknowledge was almost exclusively 

~ concerned with preserving state-recognized spendthrift trusts, we 

14 

Appellate Case: 90-4157 Document: 01019323410 Date Filed: 12/05/1991 Page: 14 
do not find "a clearly expressed legislative intention" to limit 

the meaning of § 541(c)(2) exclusively to state-recognized 

spendthrift trusts. See Consumer Prod. Safety Comm'n v. GTE 

Sylvania, Inc., 447 u.s. 102, 108 (1980) ("Absent a clearly 

expressed legislative intention to the contrary, th(e) language 

must ordinarily be regarded as conclusive.");~ also Toibb, 111 

S. Ct. at 2200 (quoting Consumer Prod. Safety Comm'n). In the 

legislative history we see an explicit desire to allow staterecognized spendthrift trusts but no explicit rejection of federal 

law including ERISA. We also are persuaded by the incongruity 

inherent in the narrower interpretation which would result in 

ERISA's antialienation provisions trumping state law until 

bankruptcy, but withdrawing that protection upon bankruptcy unless 

state law would give it. 

The apparent overlap of § 522 and § 541, and confusion in the 

legislative history, may be the result of the fact the report of 

the Commission on Bankruptcy Laws of the United States recommended 

eliminating recognition of the spendthrift trust entirely, except 

for the amount necessary to support the debtor and dependents. 

See Goff, 706 F.2d at 581 n.19 This view was incorporated in the 

Senate version but rejected in the House version that was 

ultimately enacted. Moreover, we find persuasive the explanation 

offered by the Third Circuit in Velis: 

"The argument that if 'applicable nonbankruptcy 

·law' in§ 541(c)(2) includes both state and federal law, 

the exemption provisions of§ 522(d)(10)(E) would be 

superfluous or meaningless overlooks the distinctions 

between the two sections. Section 522 deals with 

distributions made from a pension plan and distributions 

which the debtor has a present and immediate right to 

receive. Even if pension plan assets in the hands of a 

15 

Appellate Case: 90-4157 Document: 01019323410 Date Filed: 12/05/1991 Page: 15 
trustee are beyond the reach of creditors because not a 

part of the debtor's estate under § 541(c)(2), 

distributions made from the plan to the debtor would not 

enjoy such protection, in the absence of exemption under 

§ 522(d)(10)(E)." 

Velis, No. 91-5084, slip op. at 8 (citation omitted). 

Our position is reenforced by the recent Supreme Court decision in Guidry v. Sheet Metal Workers National Pension Fund, 110 

s. Ct. 680 (1990), which refused Lmposition of a constructive 

trust on a participant's interest in a qualified pension plan for 

his embezzlement, in the face of another federal statute that 

arguably would permit such imposition in some circumstances. The 

Supreme Court relied strongly on ERISA's intended protection of 

participants' pension benefits: 

"Section 206(d) [of ERISA] reflects a considered congressional policy choice, a decision to safeguard a 

stream of income for pensioners (and their dependents, 

who may be, and perhaps usually are, blameless), even if 

that decision prevents others from securing relief for 

the wrongs done them. If exceptions to this policy are 

to be made, it is for Congress to undertake that task. 

As a general matter, courts should be loath to 

announce equitable exceptions to legislative requirements or prohibitions that are unqualified by the statutory text. The creation of such exceptions, in our 

view, would be especially problematic in the context of 

an antigarnishment provision. Such a provision acts, by 

definition, to hinder the collection of a lawful 

debt •••• 

Understandably, there may be a natural distaste for 

the result we reach here. The statute, however, is 

clear. In addition, as has been noted above, the malefactor often is not the only beneficiary of the pension." 

Id. at 687-88 (footnote omitted). 

Our construction of § 541(c) harmonizes the Bankruptcy Code 

with the clear policy and intent of ERISA. See Shumate v. 

Patterson, 943 F.2d 362, 365 (4th Cir. 1991) ("[F]ollowing the 

16 

Appellate Case: 90-4157 Document: 01019323410 Date Filed: 12/05/1991 Page: 16 
rule that, whenever possible, statutes should be read in har.mony 

and not in conflict, we interpret these in such a way as to give 

full effect to both ERISA and the Bankruptcy Code by holding that 

interests in ERISA-qualified pension plans are excluded from a 

bankrupt's estate.") (citation omitted). 

c 

Our conclusion that qualified ERISA plans are not assets of 

the bankruptcy estate still does not resolve the instant appeal. 

Although Dr. Harline asserts that he is the participant in a 

"qualified" ERISA plan, there is no certification in the record 

that his plan was indeed qualified under the law in effect at the 

time of his bankruptcy. Indeed, the documents in the appellate 

record raise some doubt of this as the last plan amendment is 

dated April 2, 1974, before major changes were made in ERISA that 

required amendments in nearly all plans. The plan documents in 

the record, which may be incomplete, would seem to per.mit Dr. 

Harline to borrow at four percent interest an amount equal to the 

total value of his interest if he has need. Amendments to the 

Weber Clinic Profit-Sharing Trust, Respondent's Ex. Add., tab 2 at 

3. ERISA, however, limits borrowing by controlling shareholders 

of a corporation and requires borrowers to pay "reasonable" rates 

of interest. See I.R.C. §§ 401(a)(l3)(A), 497S(d)(l)(D), 

4975(e)(2)(E); Treas. Reg. § 1.401(a)(13)(d)(2)(iii). ERISA also 

requires participants to begin taking their retirement funds by 

age 701 years, I.R.C. § 40l(a)(9)(C); this plan seems to have no 

compulsory starting date for fund benefits, merely per.mitting them 

after age fifty-five years. Third Amendment to the Profit-Sharing 

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Appellate Case: 90-4157 Document: 01019323410 Date Filed: 12/05/1991 Page: 17 
Trust of the Weber Clinic, Respondent's Ex. Add., tab 5 at 2. Dr. 

Harline's brief in the district court infers that the plan has 

ter.minated and that he personally, rather than the corporation, is 

making premium payments on the insurance policies. See I R. Supp. 

tab 3 at 3 ("[t]he debtor-defendant had used his own funds, earned 

post petition to pay on the premiums due on several of the 

po 11c1es • • II) • • • • 

We can make no deter.mination on the record before us whether 

or not the plan is indeed currently "qualified" under ERISA. That 

is an issue to be addressed on remand. We do hold that if the 

plan is tax-qualified and Dr. Harline has not retired or ter.minated employment with the employer sponsor of the plan, his interest is excluded from his bankruptcy estate under§ 54l(c)(2). If 

the plan is not qualified then it is not protected by ERISA, nor 

as a spendthrift trust under state law, and no other "nonbankruptcy" law has been cited which might apply. 

The summary judgment in favor of the bankruptcy trustee is 

REVERSED and the case is REMANDED for further proceedings consistent herewith. 

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