UNPUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

In Re: WILLIAM REID THOMPSON,

Debtor.

WILLIAM REID THOMPSON,

Plaintiff-Appellant,

No. 95-3112

v.

BOARD OF TRUSTEES OF THE FAIRFAX

COUNTY POLICE OFFICERS RETIREMENT

SYSTEM,

Defendant-Appellee.

Appeal from the United States District Court

for the Eastern District of Virginia, at Alexandria.

Albert V. Bryan, Jr., Senior District Judge.

(CA-95-1221-A, BK-93-15316)

Argued: July 8, 1996

Decided: August 2, 1996

Before WILKINS, LUTTIG, and WILLIAMS, Circuit Judges.

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Affirmed by unpublished per curiam opinion.

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COUNSEL

ARGUED: Robert Lee Vaughn, Jr., GLENNON, GOODMAN &

LUBELEY, Reston, Virginia, for Appellant. William McCauley
Arnold, MCCANDLISH & LILLARD, P.C., Fairfax, Virginia, for

Appellee.

_________________________________________________________________

Unpublished opinions are not binding precedent in this circuit. See

Local Rule 36(c).

_________________________________________________________________

OPINION

PER CURIAM:

Appellant William Reid Thompson became a police officer with

Fairfax county in 1969, at which time he became a participant in the

disability and retirement plan administered by appellee Board of

Trustees of Fairfax County Police Officers ("the Board"). In 1971,

Thompson was injured in a work-related automobile accident, for

which he began to receive disability benefits in 1973. In 1987, the

Board discontinued Thompson's disability payments because it determined that Thompson had been ineligible for disability benefits he

had previously received in the amount of $89,017.49. The Board's

determination was based on Thompson's plea of guilty in federal district court to four felony charges, including conspiracy to distribute

drugs, from which it was determined that Thompson made a profit of

six million dollars while collecting disability. Because disability benefits are reduced if the recipient receives other income, Thompson's

profits were more than sufficient to disqualify him from the disability

benefits he received from 1974-78 and 1984-86.

On January 1, 1994, Thompson became eligible to receive retirement benefits, and ineligible to receive further disability benefits, by

virtue of obtaining twenty-five years of "service credit" with the

police force. Three days prior to January 1, 1994, Thompson filed for

bankruptcy under Chapter 7. Although Thompson listed the Board as

an unsecured creditor and notified the board that any further attempt

to recover disability benefits would be in violation of the automatic

stay imposed by 11 U.S.C. § 362, the Board withheld Thompson's

retirement benefits and applied them to the amount Thompson owed

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the Board for the prior disability overpayments. Thompson filed an

adversary hearing in the bankruptcy court seeking injunctive relief,

damages, and sanctions against the Board for violation of the automatic stay and discharge injunction imposed by the Bankruptcy Code.

At the hearing, the Board asserted a right to recoupment, which

acts as an "equitable exception" to the automatic stay, or in the alternative a right to setoff Thompson's future retirement benefits against

his disability overpayments. The bankruptcy court found no right of

recoupment because the disability overpayments and retirement benefits arose from separate transactions, and thus they failed to meet the

requirement for recoupment that the two parties' claims arise from the

"same transaction." J.A. at 188. However, the bankruptcy court did

hold that the right of setoff existed.

In holding that the Board had a right of setoff under 11 U.S.C.

§ 553, the bankruptcy court concluded that the parties had the requisite mutuality, because both Thomas and the Board were asserting

rights that had existed before the filing of the bankruptcy petition. See

J.A. at 190. The bankruptcy court specifically determined that

Thompson's claim arose pre-petition, finding that, although it was

contingent on Thompson's obtaining twenty-five years service credit,

Thompson's claim for retirement benefits had arisen when he joined

the police force. See J.A. at 203. The bankruptcy court further found

that only $1.00 of Thompson's estate was exempted from setoff by

state law, because the schedules filed by Thompson were ambiguous.

See J.A. at 205. The bankruptcy court then exercised its discretion to

annul the automatic stay and provided retroactive relief to the Board,

allowing the Board to exercise its right to setoff against the remainder

of Thompson's estate exceeding $1.00. See J.A. at 207. Thompson

appealed, and the district court affirmed each of the bankruptcy

court's findings.

Thompson challenges the bankruptcy court's decision on several

grounds. First, Thompson asserts that the term "debt" is more limited

than the term "claim" under the bankruptcy code, and does not

include contingent claims such as Thompson's claim for retirement

benefits at the time of the filing of the bankruptcy petition. Second,

Thompson asserts that the bankruptcy court had no discretion to annul

the automatic stay. Third, Thompson asserts that his retirement bene-

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fits were exempt from setoff under federal and state law. Fourth,

Thompson asserts that the bankruptcy court erred in finding that the

Board was not barred by failure to file a proof of claim. Last, Thompson asserts that the district court judge erred in failing to recuse himself from the proceedings, based on the judge's alleged bias against

Thompson arising from the judge's involvement in earlier criminal

proceedings against Thompson's co-conspirators.

Having reviewed the lower court opinions, the record, and the

briefs and materials submitted by the parties, we conclude that the

district court committed no error. Accordingly, we affirm on the thorough opinions of the bankruptcy court, see Thompson v. Board of

Trustees, 182 B.R. 140 (Bankr. E.D. Va. 1995), and the district court.

AFFIRMED

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