United States Court of Appeals,

Eleventh Circuit.

No. 94-6072.

In re Lawrence William SLOMA, Debtor.

FIRST BANK OF LINDEN, Plaintiff-Appellant,

v.

Lawrence William SLOMA, Defendant-Appellee.

Jan. 30, 1995.

Appeal from the United States District Court for the Southern

District of Alabama. (No. 93-0577-T-S), Daniel H. Thomas, Judge.

Before HATCHETT and ANDERSON, Circuit Judges, and DYER, Senior

Circuit Judge.

DYER, Senior Circuit Judge:

The district court affirmed the judgment of the bankruptcy

court in an adversary proceeding filed by the Chapter 7 debtor

Lawrence William Sloma. This dispute concerns the issue of Sloma's

assignment of payments under an annuity to First Bank of Linden as

security for a loan, seven years prior to filing his bankruptcy

petition, and claiming an exemption under the Longshore and Harbor

Workers' Compensation Act.

Background

Sloma injured his shoulder in a work-related accident. He was

employed by Gulf Coast Catering Company which provided catering

services to offshore oil rigs. Damages for the injuries were

governed by the Longshore and Harbor Workers' Compensation Act, 33

U.S.C. 901, et seq.

Gulf Coast and its insurer, National Union Fire Insurance

Company, negotiated a settlement with Sloma to fulfill his rights
under the Act pursuant to which Sloma was to be paid $180,000.00,

structured as follows:

$10,000.00 to be paid immediately

$ 5,000.00 to be paid after 5 years

$10,000.00 to be paid after 10 years

$15,000.00 to be paid after 15 years

$20,000.00 to be paid after 20 years

$ 500.00 per month to be paid for 20 years.

Upon payment of the $180,000, Sloma's employer and its carrier

were discharged of any further obligation or liabilities to Sloma.

The settlement was approved as an Award by the United States

Department of Labor, pursuant to 33 U.S.C. § 908(i).

The employer's insurance carrier, National Fire Insurance

Company, paid the $180,000.00 award to Sloma by the payment of

$10,000.00 in cash to him and the purchase from Manufacturers Life

Insurance Company of an annuity, naming Sloma as the Annuitant, for

which National paid Manufacturers a single premium. Sloma agreed

that he should be paid as follows:

$500.00 per month for 20 years certain until 240 payments have

been made, and after that for the remaining life of the annuitant.

$ 5,000.00 on October 1, 1989

$10,000.00 on October 1, 1994

$15,000.00 on October 1, 1999

$20,000.00 on October 1, 2004.

On December 8, 1984, Sloma obtained a loan from the First Bank

of Linden for $85,000.00 for the purpose of acquiring and operating

a Western Auto Store. Sloma executed an absolute collateral
assignment of the annuity payments (provided to the Bank by

Manufacturers) to secure the loan. The loan was structured to be

repaid in accordance with the annuity payments that were assigned

to the Bank.

The Bank continued to receive monthly payments from

Manufacturers pursuant to the assignment until Sloma's business

venture failed and, in violation of the security agreement

contained within the note to the Bank, Sloma directed that

Manufacturers forward all future payments to him personally.

Due to the default under the terms of the note and the

conversion by Sloma of the monthly payments subject to the security

interest and assignment in favor of the Bank, the Bank filed suit

against Sloma in the Circuit Court of Morengo County, Alabama.

Judgment was entered against Sloma for the amount due under the

note. The Bank then caused the issuance of a garnishment against

Manufacturers to enforce payments under the assignment to satisfy

the judgment. The Circuit Court issued a final order directing

that Manufacturers fulfill the obligation under the assignment to

the Bank and pay all future annuity payments until the judgment

held by the Bank against Sloma was paid.

Procedural History

Sloma filed a Chapter 7 bankruptcy petition on January 8,

1992, seven years after the assignment by Sloma to the Bank of his

annuity payments. Sloma asserted a claim of exemption as to the

payments due from Manufacturers. The Bank did not file objections

to Sloma's claim of exemption within 30 days. After the petition

was filed, the Bank continued to receive the monthly payments from
Manufacturers pursuant to the final judgment of the State Circuit

Court.

Sloma filed an adversary proceeding against the Bank asserting

that the payments due from Manufacturers were exempt property.

After a trial the bankruptcy court entered a final judgment in

which it determined that the annuity payments due from

Manufacturers constituted an assignment of the right to receive

compensation under the Longshore and Harbor Workers' Act, and that

such assignment was void ab initio, as a matter of law.

The district court affirmed the judgment of the bankruptcy

court that the benefits under the Act were not assignable and that

the annuity payments were the exempt property of Sloma. This

appeal ensued.

Standard of Review

The facts are undisputed. The issues in this appeal are

questions of law, therefore the standard of review is de novo. In

Re Club Associates, 956 F.2d 1065, 1069 (11th Cir.1992).

Discussion

Two questions are posed in this appeal. First, was the

assignment of the annuity payments to the Bank by Sloma in payment

of his note for $85,000.00 valid, or was the assignment barred

under the anti-assignment provision of the Longshore and Harbor

Workers' Act. Second, did the Bank's failure to file a timely

objection in bankruptcy to the claim of the property as exempt by

Sloma prevent the Bank from challenging the validity of the

exemption.

The Assignment
We start with the Award made to Sloma under the Longshore and

Harbor Workers' Act. It states:

The employer, Gulf Coast Catering Company, and the insurance

carrier, National Union Fire Insurance Company, shall pay to

Lawrence Sloma, the claimant employee, compensation in the

amount of $180,000.00, in a structured settlement as specified

herein above, the payment of which will discharge the

liability of the employer and insurance carrier from all

future installments of compensation and the file of Lawrence

Sloma will be closed.

To satisfy the Award, Gulf Coast's insurance carrier, National

Union, paid Sloma $10,000.00 in cash and obtained a $170,000.00

annuity from Manufacturers in favor of Sloma as the annuitant,

payable in installments as set forth supra. Sloma subsequently

assigned the payments under the annuity to the Bank to obtain a

loan which the Bank would not have made absent such assignment. To

determine the validity of this assignment, we must focus on the

proper interpretation of 33 U.S.C. § 916 of the Longshore and

Harbor Workers' Act, which provides:

No assignment, release, or commutation of compensation or

benefits due or payable under this chapter, except as provided

by this chapter, shall be valid, and such compensation and

benefits shall be exempt from all claims of creditors and from

levy, execution, and attachment or other remedy for recovery

or collection of a debt, which exemption may not be waived.

(Emphasis added).

Neither we nor counsel have found any helpful precedent to

guide us in the application of this section to the unusual facts of

this case. There can be no doubt that had the employer paid Sloma

$180,000.00 in cash, he could have used it in any way he desired.

Cf. Guidry v. Sheet Metal Workers' Nat'l Pension Fund, 39 F.3d 1078

(10th Cir.1994) (en banc) (ERISA anti-alienation analysis). Here

the employer paid Sloma $180,000.00, $10,000.00 in cash and the

purchase of an annuity for $170,000.00. We see no material
difference whether the employer paid for the annuity or whether the

employer paid Sloma $170,000.00 with which he purchased the

annuity. The annuity is a payment under a contract where for a

gross sum paid by the employer, Manufacturers became liable to pay

certain sums to Sloma. The right to receive payments was purchased

and paid for prior to Sloma's adjudication in bankruptcy. The

payments are essentially repayments in installments of the sum with

which the annuity was purchased. See In Re Power, 115 F.2d 69, 73

(7th Cir.1940). Sloma received benefits of $180,000.00 under the

Act by the purchase of the annuity for $170,000.00 and $10,000.00

in cash.

 The payments received by Sloma under the annuity contract

were not due and payable under the Act; they were payments made to

him by a third party, Manufacturers. What the Supreme Court said

in McIntosh v. Aubrey, 185 U.S. 122, 125, 22 S.Ct. 561, 563, 46

L.Ed. 834 (1902), sums up the issue in this case, that "the

exemption provided by the act protects the fund only while in the

course of transmission to the pensioner [annuitant]. When the

money has been paid to him it has "inured wholly to his benefit,'

and is liable to seizure as opportunity presents itself. The

pensioner, however, may use the money in any manner, for his own

benefit and to secure the comfort of his family, free from the

attacks of creditors...."

The purpose of the anti-assignability provisions of the Act to

benefit an injured employee was served and ended once the amount of

the award of $180,000.00 was paid to Sloma by the payment of

$10,000.00 and the purchase, in his behalf, of an annuity for
$170,000.00. Sloma's assignment to the Bank of the payments under

the annuity in repayment of his loan of $85,000, made long prior to

the bankruptcy, was valid and the Bank is entitled to the payments

until its loan is fully repaid. The Bank was substituted for Sloma

to receive annuity payments over the period of time established by

Sloma's loan repayment schedule. During that time, Sloma had no

existing right to redirect the payments to himself.

Failure to Object to Claim of Exemption

 The second issue concerns the lack of objection by the Bank

to Sloma's claim of exemption within the 30-day time limit pursuant

to Bankruptcy Rule 4003(b). Sloma argues that the Bank's failure

to do so prevents it from now challenging the validity of the

exemption. We disagree.

The validity of the assignment to the Bank of payments under

the annuity and the necessity for objecting to it in the bankruptcy

proceedings are interrelated. We have held that the assignment is

valid and not barred by the Act. Since Sloma's lack of interest in

the assigned property does not establish a basis for a proper claim

of exemption, there was no need for the Bank, a secured creditor,

to object. The consensual lien establishes the creditor's interest

in the property. It is well established law that the trustee in

bankruptcy takes only the title of the debtor in property of the

estate. Pearlman v. Reliance Insurance Co., 371 U.S. 132, 135, 83

S.Ct. 232, 234, 9 L.Ed.2d 190 (1962). Having transferred his

property interest to a creditor, a debtor cannot claim as exempt

property that he does not own.

Conclusion
The assignment by Sloma to the Bank of Linden of the payments

under the annuity was valid and not barred by the anti-assignment

provisions of the Longshore and Harbor Workers' Act.

There was no need for the Bank to file an objection to Sloma's

claim of an exemption because he did not own the property claimed

to be exempt.

REVERSED.

HATCHETT, Circuit Judge, dissenting:

The majority states that there is no "helpful precedent to

guide us in the application of this section to the unusual facts of

this case." I, however, believe that a recent case from the Tenth

Circuit, In Re Delgado, 967 F.2d 1466 (10th Cir.1992), is

instructive. In Delgado, an injured employee received a lump sum

workman's compensation settlement which she placed in a certificate

of deposit maturing in five years. She also took out a loan in

which she granted the bank a security interest in the certificate

and assigned the certificate as collateral. The Tenth Circuit held

that the bank's security interest in the certificate was not

enforceable under Kansas's statute prohibiting assignment of

worker's compensation benefits. The Tenth Circuit explained that:

the Kansas provision defines compensation as including the

actual payments and nowhere is there a limitation that the

exemption applies only to security interests or assignments

entered into before the compensation is actually paid....

[W]e recognize that [the injured employee] will receive a

windfall by recovering the certificate of deposit funds after

having spent the loan proceeds which have not been repaid. To

avoid such a situation, a bank would need to inquire

concerning the source of funds which will serve as security

for a loan. In this case, though, the Bank was fully aware

that the workmen's compensation award was placed in the

certificate of deposit which served as security. By

structuring the transaction so as to control the compensation

funds before extending credit to its long-time customer, the
 1

Admittedly, the Kansas statute in Delgado expressly

provided: " "no ... compensation ... paid[ ] shall be

assignable.' " Delgado, 967 F.2d 1466, 1467. It expressly

included " "claim[s] for compensation, or compensation agreed

upon, awarded, adjudged or paid.' " Delgado, 967 F.2d 1466,

1468. Thus, the Tenth Circuit emphasized the past tense in

arriving at its holding. 

Bank took a risk.

Delgado, 967 F.2d 1466, 1468. Similarly, I believe that the

assignment in this case was not valid. Sloma may "receive a

windfall by recovering [the annuity installments] after having

spent the loan proceeds which have not been repaid." But, just as

the injured employee in Delgado was entitled to the windfall, Sloma

is entitled to the windfall under 33 U.S.C. § 916. When it secured

Sloma's loan with an assignment of the annuity that he received as

compensation under the Longshore and Harbor Workers' Compensation

Act, the First Bank of Linden simply took a risk that did not pay

off.

Section 916 provides: "No assignment ... of compensation or

benefits due or payable ... shall be valid." The majority

emphasizes the words "due or payable." Apparently, it believes

that these three words mean that section 916 only invalidates an

assignment of compensation that is to be received in the future.

I disagree for the reasons explained in Delgado.1

Even under the majority's interpretation of section 916, I

believe that the assignment in this case was invalid. The majority

explains:

There can be no doubt that had the employer paid Sloma

$180,000.00 in cash, he could have used it in any way he

desired. Here the employer paid Sloma $180,000.00, $10,000.00

in cash and the purchase of an annuity for $170,000.00. We

see no material difference whether the employer paid for the
 2

"An annuity contract is the exact inverse of a life

insurance contract. In return for a lump sum, the insurance

company typically promises the annuitant periodic payments that

will continue until the death of the annuitant. The lump sum is

determined by the life expectancy of the annuitant, and, in this

case, the insurance company gambles that the annuitants will die

prior to the actuarial predictions." Variable Annuity Life Ins.

Co. v. Clarke, 998 F.2d 1295, 1301 (5th Cir.1993). 

 3"The bankruptcy court's factual determinations are subject

to review under the clearly erroneous standard." In Re Club

Associates, 956 F.2d 1065, 1069 (11th Cir.1992). No showing of

clear error regarding this fact has been made. 

annuity or whether the employer paid Sloma $170,000.00 with

which he purchased the annuity.... The payments received by

Sloma under the annuity contract were not due and payable

under the Act.

Thus, the majority argues that because Sloma's employer purchased

an annuity for him, thereby satisfying its obligations, Sloma was

able to assign the installments of that annuity. 2 That, however,

is not what happened in this case.

In its findings of fact, the bankruptcy court found: "The

settlement provided for the establishment of an annuity issued by

Manufacturers Life Insurance Company ("Manufacturers"). The

annuity policy provided that Sloma would receive monthly payments

... and lump sum payments ... The policy expressly provided that

National Union was the owner of the policy." 3

 Thus, the employer

never purchased an annuity for Sloma; instead, the employer's

insurance carrier, National Union, purchased an annuity in which it

maintained ownership. Because of this subtle difference, I believe

that Sloma was still in the course of receiving compensation "due

or payable" under the majority's interpretation of section 916.

The annuity policy was the result of a settlement that was

approved by the United States Department of Labor pursuant to 33
U.S.C. § 908(i). Section 908(i)(3) provides: "A settlement

approved under this section shall discharge the liability of the

employer or carrier, or both." Thus, the majority was correct when

it stated: "Upon payment of the $180,000, Sloma's employer and its

carrier were discharged of any further obligation or liabilities to

Sloma." Sloma's employer, however, and its carrier, National

Union, had not made the full payment of the $180,000 because

National Union owned the annuity policy. Sloma merely stood as an

intended third party beneficiary of the annuity contract between

National Union and Manufacturers. As a result, the $180,000 had

not been paid (past tense) to Sloma. Sloma was simply entitled to

the installments of the annuity contract, which National Union

owned; thus, he was still in the process of receiving

"compensation or benefits due or payable." Therefore, the

compensation could not be assigned to the First Bank of Linden.

In sum, I believe that the majority has incorrectly

interpreted 33 U.S.C. § 916 as only invalidating assignments of

compensation that has not been paid (past tense). Instead, the

statute should be read in accordance with the Tenth Circuit's

approach in Delgado. I also believe that even under the majority's

interpretation of section 916, the facts of this case indicate that

the compensation had not been paid (past tense), and therefore, the

assignment was not valid.