In the

United States Court of Appeals

For the Seventh Circuit

No. 08-2885

IN RE:

BARRY G. RADCLIFFE,

Debtor-Appellee.

APPEAL OF:

INTERNATIONAL PAINTERS AND ALLIED

TRADES INDUSTRY PENSION FUND

Appeal from the United States District Court

for the Northern District of Indiana, Hammond Division.

No. 07 C 285—Philip P. Simon, Judge.

ARGUED FEBRUARY 13, 2009—DECIDED APRIL 23, 2009

Before KANNE, ROVNER, and EVANS, Circuit Judges.

EVANS, Circuit Judge. This is an appeal from an order

of the district court, in turn affirming a judgment of

the bankruptcy court in an adversary proceeding.

Barry G. Radcliffe owned a company called Glass

Service, Inc. As part of a labor agreement the company

contributed to the International Painters and Allied

Trades Industry Pension Fund. When the company’s

payments became delinquent, Radcliffe signed a personal
2 No. 08-2885

The district judge (the Honorable Philip P. Simon) set the 1

stage in the first paragraph of his 28-page decision by noting

(correctly, we think) that Radcliffe was a four-flusher who

“didn’t stand behind his personal guaranty and so he stiffed

the fund.”

guarantee to pay the contributions, but he failed to do so.

The Fund sued for breach of contract and obtained a

default judgment against him. He declared bankruptcy,

but not before requesting his own pension benefits from

the Fund. The Fund agreed that he was entitled to

benefits but told him that it would withhold payment

and apply the amounts withheld to his debt arising

from the default judgment.

Radcliffe informed the Fund of his belief that the “setoff”

violated the automatic stay that took effect when he

filed for bankruptcy (see 11 U.S.C. § 362). The Fund,

nevertheless, withheld payment. Radcliffe filed this

adversary action to enforce the stay and he prevailed in

the bankruptcy court. International was ordered to pay

compensatory damages, interest, punitive damages, and

attorney fees. In a decision with considerable flair, the 1

district court affirmed. We commend both the bankruptcy and the district courts for the clarity of their discussion of these issues. And we agree with them even

though we are somewhat uneasy with the end result

which gives a seemingly undeserved windfall to

Mr. Radcliffe.

It is not hard to guess that this situation presents a

thicket of legal issues in which, if one is not careful, it
No. 08-2885 3

would be possible to get hopelessly tangled. For that

reason, we ignore side issues, such as standing (Radcliffe

has standing) and mutuality (a concept thrown about

but never really grounded in the case), and address

what we see to be the dispositive issues before us.

The first issue is whether the setoff (or freeze on payments as the Fund terms it) violates the automatic stay

under 11 U.S.C. § 362(a)(6). If it does, the second issue

is whether the stay should have been lifted to allow the

setoff. Involved in that issue is whether the setoff

violates the anti-alienation provisions of the Employee

Retirement Income Security Act (ERISA), 29 U.S.C.

§ 1056(d)(1). If it does, there would be no reason to

lift the stay. On then to the first issue.

Immediately upon the filing of a bankruptcy petition,

§ 362 of the bankruptcy code provides for an automatic

stay of efforts outside the bankruptcy proceeding to

collect debts from the bankrupt debtor. Aiello v. Providian

Fin. Corp., 239 F.3d 876 (7th Cir. 2001). Bringing all debts

within the jurisdiction of the bankruptcy court allows

for the orderly distribution of assets. Holtkamp v. Littlefield (In re Holtkamp), 669 F.2d 505 (7th Cir. 1982). The

stay prevents pre-petition creditors from taking any

action to collect their debts. In re Vitreous Steel Prods. Co.,

911 F.2d 1223 (7th Cir. 1990). But in cases where the

stay will simply delay the inevitable—that is, the creditor

will be allowed at some point to collect his debt—

the bankruptcy code in § 362(d) permits relief from the

automatic stay on “the request of a party in interest

after notice and a hearing . . . .”
4 No. 08-2885

The district court found that the Fund’s conduct violated the provision of the stay found in § 362(a)(6), which

prohibits “any act to collect, assess, or recover a claim

against the debtor that arose before the commencement”

of the case. The prohibition includes threats of immediate action by creditors. Matter of Duke, 79 F.3d 43 (7th

Cir. 1996). What the Fund did here which, in the district

court’s view, violated the stay was to inform Radcliffe

by letter that his “monthly pension benefits will be

offset against [his] debt to the Pension Fund until such

time as the judgment has been satisfied.”

The Fund claims that the pension benefits were not

property of the estate and therefore the offset was proper.

It argues that the letter it sent to Radcliffe was not in

violation of § 362(a)(6) because it was not coercive or

harassing. Relying primarily on Citizens Bank of Maryland v. Strumpf, 516 U.S. 16 (1995), the Fund says that

nothing prohibits it from freezing payments until the

validity of the offset is determined.

The situation here differs in at least two material respects

from Strumpf. First, in Strumpf there was an undeniable

right to a setoff. The bank had a right under Maryland

law to set off a defaulted loan against Strumpf’s

checking account balance. The Court pointed out that,

under section 553(a) of the bankruptcy code, “whatever

right of setoff otherwise exists is preserved in bankruptcy.” Here, as we shall soon see, there was no right to

a setoff. Secondly, in Strumpf, even though, except for

the stay, the bank had a clear right to a setoff, it merely

placed an administrative hold on the checking account
No. 08-2885 5

until it could seek relief from the automatic stay, which

it in fact sought five days later. The Court found that there

was no violation of the stay because the action the

bank took was not a setoff at all. The bank was holding

the payment only for a brief period of time while it

sought relief from the stay. It did not “purport permanently to reduce respondent’s account balance by the

amount of the defaulted loan.”

In our case, the Fund did not move for relief from

the stay until six months had passed. It had requested

that the stay be modified in its answer to Radcliffe’s

complaint, but even this came two months after the

Fund’s letter to Radcliffe stating its intention to withhold payment and well after the first payment was, in

fact, withheld. The bankruptcy court found that the

Fund’s request in its answer to the complaint was not

sufficient to modify the stay, especially since no affirmation action was requested at the time regarding any

right to a setoff. The bankruptcy court found even the

ultimate motion for relief from the stay to be “woefully

inadequate under the requirements of Fed.R.Bank.P.

9013,” and it was filed only after the court required it. The

Fund went far beyond placing a temporary hold on the

benefits so that it could promptly seek relief from the

stay. Rather, it refused to pay the pension and did

nothing about the stay until urged to do so by the court.

The Fund’s comparison of its situation to Strumpf is way

off the mark.

Furthermore, the Fund’s letter to Radcliffe is in violation of § 362(a)(6). As the district court correctly noted,
6 No. 08-2885

the Fund held all the cards. Without seeking court approval, it simply made a unilateral decision not to pay

the pension benefits. It informed Radcliffe that it did not

need court approval because it did not believe the bankruptcy law applied to it. We discern no abuse of discretion in the decision that the Fund violated the automatic stay.

But because damages are only available for a willful

violation, see section 362(h) of the code, the question

remains as to whether the Fund acted willfully. We

think it’s clear that it did. A willful violation does not

require specific intent to violate the stay; it is sufficient

that the creditor takes questionable action despite the

awareness of a pending bankruptcy proceeding. Price v.

United States (In re Price), 42 F.3d 1068 (7th Cir. 1994). It

is indisputable that the Fund acted with knowledge

of the bankruptcy proceeding. Its letter to Radcliffe announcing that it would offset the debt against the

pension payments explicitly stated, “We have received

notice that you filed a Chapter 7 bankruptcy petition on

October 13, 2005.”

The next and more complex issue is whether the stay

should have been lifted. Resolution of the issue takes us

to ERISA’s anti-alienation provisions. ERISA is, of course,

designed among other things to safeguard employment

benefits. Boggs v. Boggs, 520 U.S. 833 (1997). One of the

ways it protects benefits is through an anti-alienation

provision which states simply that “[e]ach pension plan

shall provide that benefits provided under the plan may

not be assigned or alienated.” 29 U.S.C. § 1056(d)(1). The
No. 08-2885 7

anti-alienation language removes Radcliffe’s pension

benefits from the bankruptcy estate. See Patterson v.

Shumate, 504 U.S. 753 (1992); In re Baker, 114 F.3d 636

(7th Cir. 1997).

Despite this provision, there are certain exemptions

from the ban on alienation. Section 1056(d)(4) says that

the ban on alienation does not apply if

(A) the order or requirement to pay arises—

(i) under a judgment of conviction for a crime

involving such plan,

[or]

(ii) under a civil judgment . . . entered by a court in

an action brought in connection with a violation (or

alleged violation) of part 4 of this subtitle

. . . .

[and]

(B) the judgment, order, decree, or settlement agreement expressly provides for the offset of all or part

of the amount ordered or required to be paid to the

plan against the participant’s benefits provided

under the plan . . . .

However, these exemptions do not apply to the Fund’s

actions. There is no criminal activity here, and the only

civil judgment involves a straightforward breach of

contract, not a breach of a fiduciary duty—i.e., a violation

of part 4 of the subtitle.

Nevertheless, the Fund says it did not violate the antialienation provisions. First, citing Coar v. Kazimir, 990
8 No. 08-2885

F.2d 1413 (3rd Cir. 1993), it argues that the anti-alienation

provisions apply only when a third party is involved,

and there is no third party here. It is true that in Coar the

court said “we read section 206(d)(1) and, by extension

Guidry [v. Sheet Metal Workers Nat’l Pension Fund, 493

U.S. 365 (1990)], as shielding only the beneficiaries’

interest under the pension plan from third-party creditors.” At 1420-21. However, the context of the statement

is that trustees must “undo any harm they have done to

the pension plan . . . .” At 1420. In other words, the

court was considering the anti-alienation provisions in

the context of fiduciaries. As we have said, there is no

claim in the present case of any fiduciary duty.

In a similar vein, the Fund argues that our decision in

Northcutt v. General Motors Hourly-Rate Employees Pension

Plan, 467 F.3d 1031 (7th Cir. 2006), allows a setoff for

contractual remedies due a plan. The case is not on point.

In Northcutt the plan was using the offset to recover

overpayments to a beneficiary. The plan had originally

paid disability benefits to the beneficiary, who then

obtained social security disability benefits. The plan

required that, in such a situation, the beneficiary repay

the benefits the plan paid, which duplicate the social

security benefits. The plan had the right to recover

the overpayment by withholding future payments.

Here, of course, because no payments were ever made

to Radcliffe, there were no overpayments to recoup.

The Fund also cites a recent Supreme Court case—

Kennedy v. Plan Administrator for DuPont Savings and

Investment Plan, 129 S. Ct. 865 (2009)—and claims it sup-
No. 08-2885 9

ports the offset. The Fund says that Kennedy “holds that

the anti-alienation clause in ERISA is similar to a spendthrift clause in a traditional trust and looks to the common law of trusts to interpret the scope of the anti-alienation rule in ERISA in that context . . . .”

We are at a loss to know how the Fund thinks that

Kennedy is helpful to its position. Kennedy involves a suit

by the estate of a plan participant against the plan administrator seeking to recover benefits for the estate. The

participant, whose wife was the beneficiary during their

marriage, did not, upon their divorce, designate a new

beneficiary for a savings and investment plan. The plan

administrator paid the benefits to the then-ex-wife in

accordance with designations of beneficiary. In the suit

by the estate to claim the benefits, one of the issues

was whether the divorce constituted a common law

waiver of benefits. The Court found that the waiver

was valid; that—as in the common law of spendthrift

trusts—a beneficiary can waive her interest in the benefits. But the divorce decree was not a qualified domestic

relations order (QDROs are given special consideration under the statute), and thus there was no designation

of an alternate payee. The Court declined to say that a

waiver—by itself without a designation of an alternate

payee—forfeits a beneficial interest and sends it to the

next in line (in that case, the estate). So the Court concluded that, while the ex-wife’s waiver was valid, it

did not carry the day for the estate: the fact that the

waiver escaped “inevitable nullity under the express

terms of the antialienation clause” did not control the

decision. At 874. Despite the waiver, the plan admin-
10 No. 08-2885

istrator was required to do its “statutory ERISA duty”

and pay the benefits to the ex-wife. As relevant to our

case, the Court emphasized that plan administrators are

obligated to act in accordance with plan documents

when those documents are consistent with the statute.

What the Court was after was simplicity in the administration of plans so that beneficiaries could “get what’s

coming quickly, without the folderol essential under lesscertain rules.” At 875-76 (quoting Fox Valley & Vicinity

Constr. Workers Pension Fund v. Brown, 897 F.2d 275, 283

(7th Cir. 1990)). The point was to prevent plan administrators from having to examine a “multitude of external

documents” before paying benefits. At 876.

In the present case, the Fund documents indicate that

Radcliffe is the beneficiary. Under Kennedy, the administrator is obligated to pay the benefits in conformity

with plan documents without resort to external documents, in this case a judgment on a contract which falls

far short of establishing the right to a setoff, even if the

added complication of bankruptcy were not involved.

In short, the bankruptcy judge was well within his discretion in refusing to lift the stay. To act otherwise

would have been an exercise in futility.

The Fund also disputes the bankruptcy court’s calculation of compensatory damages for pre-petition pension

benefits, the award of punitive damages, and the

interest rate applied to the damage award.

The pre-petition pension payments made in September and October 2005, the Fund argues, would, if they

had been paid, be property of the estate, and the debtor
No. 08-2885 11

cannot compel the Fund to make payments to him of

property belonging to the estate. This strikes us as a

stunningly bold argument coming from the entity which

improperly failed to make the payments in the first

place. And it is an argument we reject. The Fund relies on

Morlan v. Universal Guaranty Life Insurance Company, 298

F.3d 609, 616 (7th Cir. 2002), and quotes as follows: the

bankruptcy filing “lost the [pre-petition] chunk of [plaintiff’s] ERISA claim . . .; it fell into the estate in bankruptcy.” (The Fund added the ellipsis and the brackets.)

The Fund implies that Morlan says all pre-petition ERISA

claims are part of a bankruptcy estate. There is no such

implication in the case. The Morlan quotation without

the ellipsis makes clear that what fell into the bankruptcy estate was the ERISA claim “that we are concerned with in this part of the opinion.” That “part of the

opinion” dealt with welfare benefits, not pension benefits. We said that some welfare benefits, unlike

pension benefits, could be assignable to the bankruptcy

estate. In the present case, of course, we are concerned

only with pension benefits, not welfare benefits. The

Fund’s underhanded use of ellipsis to hide what the

court was talking about, at best, undermines its argument; the Fund is not entitled to the line-item veto.

Also, the Fund relies on Kokoszka v. Belford, 417 U.S. 642

(1974), for the proposition that a “right to a refund is

therefore property of the estate.” Kokoszka, however,

dealt not with pension benefits, but with an income tax

refund. Use of that case in this context is also disingenuous.

As to the interest rate applied and the award of punitive damages, we agree entirely with the district court.
12 No. 08-2885

Accordingly, the judgment of the district court is AFFIRMED.

4-23-09