Source: https://law.justia.com/cases/federal/appellate-courts/F2/771/1352/379787/
Timestamp: 2019-07-23 02:35:22
Document Index: 266488902

Matched Legal Cases: ['§ 1334', '§ 1291', '§ 158', '§ 1056', '§ 401', '§ 522', '§ 522', '§ 522', '§ 522', '§ 219', '§ 1056', '§ 401', '§ 522', '§ 541', '§ 522', '§ 541', '§ 522', '§ 541', '§ 541', '§ 522', '§ 1001', '§ 401', '§ 541', '§ 522', '§ 541', '§ 541', '§ 541', '§ 541', '§ 522', '§ 522', '§ 522', '§ 522', '§ 522', '§ 401', '§ 522', '§ 522', '§ 219', '§ 1056', '§ 541', '§ 407', '§ 1717', '§ 729', '§ 228', '§ 352', '§ 3101']

13 Collier Bankr.cas.2d 793, Bankr. L. Rep. P 70,763,7 Employee Benefits Ca 1096in Re Howard Douglas Daniel, Debtor.howard Douglas Daniel, Debtor-appellant, v. Security Pacific National Bank, Commercial Bank of Sanfrancisco, Leasco Capital Corporation, and Capitalreserve Leasing Corporation, Creditors-appellees, 771 F.2d 1352 (9th Cir. 1985) :: Justia
Justia › US Law › Case Law › Federal Courts › Courts of Appeals › Ninth Circuit › 1985 › 13 Collier Bankr.cas.2d 793, Bankr. L. Rep. P 70,763,7 Employee Benefits Ca 1096in Re Howard Douglas...
13 Collier Bankr.cas.2d 793, Bankr. L. Rep. P 70,763,7 Employee Benefits Ca 1096in Re Howard Douglas Daniel, Debtor.howard Douglas Daniel, Debtor-appellant, v. Security Pacific National Bank, Commercial Bank of Sanfrancisco, Leasco Capital Corporation, and Capitalreserve Leasing Corporation, Creditors-appellees, 771 F.2d 1352 (9th Cir. 1985)
US Court of Appeals for the Ninth Circuit - 771 F.2d 1352 (9th Cir. 1985)
Argued and Submitted July 12, 1985. Decided Sept. 20, 1985
All parties agree that the District Court had Federal subject matter jurisdiction under former 28 U.S.C. 1471, now 28 U.S.C. § 1334; that we have jurisdiction under 28 U.S.C. § 1291 and 28 U.S.C. § 158(d); that the orders of the two lower courts (Bankruptcy and District) are "final" and appealable under In re Mason, 709 F.2d 1313, 1317 (9th Cir. 1983); and that the appeal is timely.
The applicable standard of review in a bankruptcy appeal was set forth by this Court in In re American Mariner Industries, Inc., 734 F.2d 426, 429 (9th Cir. 1984), as follows:
This court reviews the bankruptcy court's findings of fact by the clearly erroneous standard of F.R.Civ.P. 52(a). In re Comer, 723 F.2d 737, 739 (9th Cir. 1984). But the bankruptcy court's conclusions of law are subject to de novo review.
The general rule applied by this Circuit in the past was that interpretations of state law by a District Judge were entitled to deference and the District Court's determination was accepted on review unless shown to be "clearly wrong." Clark v. Musick, 623 F.2d 89, 91 (9th Cir. 1980). However, last year in an en banc opinion, this Court adopted a new rule that "questions of state law are reviewable under the same independent de novo standard as are questions of Federal law." Matter of McLinn, 739 F.2d 1395, 1397 (9th Cir. 1984). It is under this independent de novo standard that we have reviewed the District Court's decision and affirm it for the reasons now set forth.
In 1971, debtor's corporation formed a pension and profit-sharing plan which was managed and controlled by the debtor. The debtor was one of four beneficiaries of the plan. Section 8.05 of the debtor's plan contained the standard anti-alienation, anti-assignment clause required by ERISA, 29 U.S.C. § 1056(d) (1), and the Internal Revenue Code, 26 U.S.C. § 401(a) (13), in order to qualify the plan as tax exempt. The plan was approved as "qualified" by the Internal Revenue Service on March 25, 1971.
Under the debtor protection provisions of the Bankruptcy Code, an individual who files a petition for relief is entitled to a number of "exemptions" whereby certain of his assets are excluded from bankruptcy administration and distribution to his creditors. 11 U.S.C. § 522.
Section 522(b)2 of the Code is structured to give the debtor an election or choice to exempt either the particular bankruptcy law assets specified by 11 U.S.C. § 522(d)3 , as directed by Sec. 522(b) (1);4 or those assets specified as exempt under the provisions of the debtor's local state law or under Federal non-bankruptcy law, as directed by Sec. 522(b) (2) (A).5 Debtor elected to claim his vested interest in the pension and profit-sharing plan as exempt under then existing California law, former California Code of Civil Procedure Sec. 690.18(d) [former C.C.P. Sec. 690.18(d) ]6 , pursuant to 11 U.S.C. § 522(b) (2) (A).
On December 8, 1982, pursuant to Bankruptcy Rule 4003, debtor/appellant's creditors, Security Pacific National Bank, Commercial Bank of San Francisco, Leasco Capital Corporation and Capital Reserve Leasing Corporation, filed an "Objection To Debtor's Claim of Exemption" with respect to the debtor's interest in the pension and profit-sharing plan. Two days of hearings on the objection to the claim of exemption were held before the Honorable Robert L. Hughes, United States Bankruptcy Judge. Having elected the state law exemption under Section 522(b) (2) (A) of the Bankruptcy Code, which also permits use of certain Federal non-bankruptcy exemptions, the debtor advanced both state law and Federal non-bankruptcy law arguments before the Bankruptcy Court.
The District Court agreed that the debtor's self-interested handling of the plan defeated any exemption under California law and, in addition, concluded that Congress did not intend to include ERISA or Internal Revenue Code qualified pension plans as Federal non-bankruptcy exemptions under 11 U.S.C. § 522(b) (2) (A).
Under the explicit language of the California statute, a "profit-sharing plan designed and used for retirement purposes" is not a sub-species of "any retirement plan", but is its own separate and distinct type of plan. Indeed, the new structure of new C.C.P. Sec. 704.115,7 which is the recodification of former C.C.P. Sec. 690.18(d), explicitly supports this interpretation. See C.C.P. Sec. 704.115(a) (1) and (a) (2). Therefore, a profit-sharing plan, in order to qualify for an exemption, must be "designed and used for retirement purposes." [Emphasis added.]
The fact that the pre-bankruptcy contribution of $39,000 was not fraudulent and not violative of ERISA or the Internal Revenue Code does not dispose of the question of whether the plan was used for retirement purposes. While it is well recognized that a debtor may convert non-exempt property to exempt property on the eve of bankruptcy, Love v. Minick, 341 F.2d 680 (9th Cir. 1965), the shielding and hiding of assets from creditors is clearly not a "use for retirement purposes."
The debtor's interest in the plan cannot be an IRA. The plan was established by the debtor's corporation under IRC Sec. 401(a), while an IRA, by contrast, must be established pursuant to IRC Sec. 219. See 26 U.S.C. § 219. Moreover, section 219(b) (2) (A) (i)10 specifically forbids an IRA deduction by one who, like the debtor here, is "an active participant in ..... [a] plan described in section 401(a)."
Appellant/debtor argues that the anti-alienation, anti-assignment prohibitions in 29 U.S.C. § 1056(d) (1)12 [ERISA] and 26 U.S.C. § 401(a) (13)13 [Internal Revenue Code], which are incorporated into his pension and profit sharing plan, create federal non-bankruptcy exemptions under 11 U.S.C. § 522(b) (2) (A)14 . In addition, by citing certain cases from Bankruptcy Courts15 , appellant apparently contends, for the first time in this appeal, that the ERISA and IRC anti-assignment and anti-alienation provisions included in the plan provide the basis for the plan's exclusion from the bankruptcy estate under 11 U.S.C. § 541(c) (2)16 , which protects property subject to restrictions on alienation which are enforceable under "applicable non-bankruptcy law."
In the Matter of Goff, 706 F.2d 574 (5th Cir. 1983), upon which the District Court relied, the Fifth Circuit explicitly considered the types of exemptions and exclusions envisaged by both 11 U.S.C. § 522(b) (2) (A) and 11 U.S.C. § 541(c) (2). The Goff case makes it clear that Congress never intended for the ERISA and IRC anti-alienation provisions to create exemptions or exclusions for pension plans under either the federal non-bankruptcy exemption of 11 U.S.C. § 522(b) (2) (A) or the non-bankruptcy exclusions of 11 U.S.C. § 541(c) (2).
The reasoning and results in the Goff case have been followed by every other Circuit which has considered the issue of whether IRC or ERISA qualified plans are properly excluded or exempted under either 11 U.S.C. § 541(c) (2) or 11 U.S.C. § 522(b) (2) (A). See In re Graham, 726 F.2d 1268 (8th Cir. 1984) and In re Lichstrahl, 750 F.2d 1488 (11th Cir. 1985).
The Lichstrahl case, which is the most recent decision by a Circuit Court reviewing and approving the Goff and Graham holdings, contains an excellent and succinct discussion of the very issues raised by Appellant in this appeal. As in the present case, the debtor in Lichstrahl was a surgeon who was the sole director and stockholder of his professional medical corporation. His corporation created pension plans pursuant to 29 U.S.C. § 1001 et seq (1982) (ERISA) and 26 U.S.C. § 401 (IRC). The plans contained prohibitions on assignment or alienation of the beneficiaries' interests. The Lichstrahl Court held that the plans were not properly excluded under 11 U.S.C. § 541(c) (2) and could not be exempted under 11 U.S.C. § 522(b) (2) (A). Id. at 1489.
Addressing the issue of Federal non-bankruptcy exclusions in view of the legislative history of 11 U.S.C. § 541(c) (2)17 , the Lichstrahl Court emphasized at 1489-1490:Under Sec. 541 of the Bankruptcy Code, all property in which a debtor has a legal or equitable interest at the time of bankruptcy comes into the estate. 11 U.S.C. § 541(a) (1) (1982). What constitutes a legal or equitable interest is broadly construed. One exception to the sweeping scope of Sec. 541(a) is Sec. 541(c) (2). It preserves restrictions on the transfer of a beneficial interest of the debtor in a trust which is enforceable under applicable nonbankruptcy law and thus prevents such an interest from inclusion in the property of the estate.
Relying primarily on legislative history, courts have generally interpretated the section's reference to "applicable nonbankruptcy law" as applying only to state law concerning spendthrift trusts. See, e.g., Matter of Goff, 706 F.2d 574 (5th Cir. 1983); see also In re Graham, 726 F.2d 1268 (8th Cir. 1984); [further citations omitted]. But see In re Pruitt, 30 B.R. 330 (Bankr.D. Colo. 1983). We too hold that "applicable nonbankruptcy law" refers only to state spendthrift trust law. Therefore, ERISA-qualifying pension plans containing anti-alienation provisions are excluded pursuant to section 541(c) (2) only if they are enforceable under state law as spendthrift trusts. See Matter of Goff, 706 F.2d 574 (5th Cir. 1983) [Emphasis added and footnote omitted]
Thus, following the Goff, Graham and Lichstrahl cases, this court holds that the phrase "applicable non-bankruptcy law" in 11 U.S.C. § 541(c) (2) was intended to be a narrow reference to state "spendthrift trust" law and not a broad reference to all other laws, including ERISA and IRC, which prohibit alienation. Therefore, the ERISA and IRC anti-alienation provisions in debtors pension and profit sharing plan does not create a Federal non-bankruptcy exclusion under 11 U.S.C. § 541(c) (2).
The Lichstrahl court also focused its examination on whether IRC and ERISA approved plans could be exempted pursuant to 11 U.S.C. § 522 (1982). As concluded in Lichstrahl at 1491:
We agree with the Fifth Circuit that Congress did not intend to exempt such plans under this section. See Matter of Goff, 706 F.2d 574, 585 (5th Cir. 1983); Matter of Turpin, 644 F.2d 472, 474 n. 1 (5th Cir. 1981) (dicta).
The House and Senate reports on Sec. 522(b) (2) (A) provide a list of property that can be exempted under federal laws.18 ERISA-qualified pension plans are not included. Although Congress may not have intended the list to be exhaustive, the failure to include ERISA is nontheless indicative of congressional intent. Congress knew of the much-debated and comprehensive statute when it issued the House and Senate reports on Sec. 522(b) (2) (A) in 1977 and 1978, and yet it did not include ERISA in those reports. Matter of Goff, 706 F.2d at 585; see also In re Graham, 726 F.2d 1268, 1274 (8th Cir. 1984). Congress, however, did refer to ERISA in other sections of the Bankruptcy Court. Of particular importance is ERISA's inclusion within the alternative federal exemptions listed in Sec. 522(d). The failure to mention ERISA in connection with Sec. 522(b) was intentional. Matter of Goff, 706 F.2d at 585.
Furthermore, excluding ERISA-qualified pension plans from the list of property exempted under federal law is consistent with an important distinction between exempted property and property covered by ERISA. Despite the similarity between the anti-alienation provisions of ERISA and some of the listed statutes, the "pensions, wages, benefits and payments included in the ... list are all peculiarly federal in nature, created by federal law or related to industries traditionally protected by the federal government. In sharp contrast, ERISA regulates private employer pension systems." In re Graham, 726 F.2d at 1274. It is this "peculiarly federal nature" shared by the cited statutes that identifies and determines which federal statutes are to be included within the "other federal law" exemption of Sec. 522 and which, like ERISA, are to be excluded. See Matter of Goff, 706 F.2d at 586. The failure to mention ERISA in the legislative history accompanying Sec. 522(b) (2) (A) is, therefore, both purposeful and reasoned. [Footnote omitted]
Appellant's reliance on the Ninth Circuit case of Franchise Tax Board v. Construction Laborers et al., 679 F.2d 1307 (9th Cir. 1982), is misplaced since it was reversed by the Supreme Court.19 Moreover, it dealt only with the power to garnish or levy against retirement benefits of a solvent debtor under state law and did not address the nature of federal exemptions in a Bankruptcy context. Similarly, appellant's discussion of certain District and Appellate Court cases from other jurisdictions20 is not on point since those cases likewise do not deal with Federal non-bankruptcy exemptions pursuant to 11 U.S.C. § 522(b) (2) (A).
Although there are a few Bankruptcy Court decisions outside this Circuit to the contrary, the holdings of our sister circuits in Goff, Graham, and Lichstrahl are controlling and should be adopted by this Circuit. Thus, pursuant to the solid weight of authority of Goff and its progeny, we hold that the anti-alienation provisions of ERISA and the Internal Revenue Code do not create Federal non-bankruptcy exemptions for ERISA qualified plans under 11 U.S.C. § 522(b) (2) (A).
11 U.S.C. § 522(b) provides in relevant part:
(2) (A) any property that is exempt under Federal law, other than subsection (d) of this section, or State or local law that is applicable on the date of the filing of the petition at the place in which the debtor's domicile has been located for the 180 days immediately preceding the date of the filing of the petition, or for a longer portion of such 180-day period than in any other place; ...
As to exemptions for pension and profit-sharing plans 11 U.S.C. § 522(d) (10) (E) provides, in pertinent part,
(iii) such plan or contract does not qualify under section 401(a), 403(b), 408, or 409 of the Internal Revenue Code of 1954 (26 U.S.C. § 401(a), 403(b), 408, or 409).
See Footnote 2, 11 U.S.C. § 522(b) (1), for the exact language
See Footnote 2, 11 U.S.C. § 522(b) (2) (A), for the exact language
Former 26 U.S.C. § 219(b) (2) (A) (i) provided:
29 U.S.C. § 1056(d) (1) states that " [e]ach pension plan shall provide that benefits provided under the plan may not be assigned or alienated."
IRC Sec. 401(a) (13) specifies that " [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."
"Alienated" as it is used in 26 U.S.C. 401(a) (13) includes an involuntary transfer to an executing creditor.
IRC Reg. 1.401(a)--(13) (b) (1) provides:
Under section 401(a) (13) a trust will not be qualified unless the plan of which the trust is a part provides that benefits under the plan may not be anticipated, assigned (either at law or in equity), alienated or subject to attachment, garnishment, levy or other legal or equitable process.
In re Threewitt, 24 B.R. 927 (D. Kan. 1982); Warren v. G.M. Scott & Sons, 34 B.R. 543 (Bankr.S.D. Ohio 1983); In re Holt, 32 B.R. 767 (Bankr.E.D. Tenn. 1983); In re Pruitt, 30 B.R. 330 (Bankr.D. Colo. 1983); In re Rogers, 24 B.R. 181 (Bankr.D. Ariz. 1982)
11 U.S.C. § 541(c) provides:
(c) (1) Except as provided in paragraph (2) of this subsection, an interest of the debtor in property becomes property of the estate under subsection (a) (1), (a) (2), or (a) (5) of this section notwithstanding any provision in an agreement, transfer instrument, or applicable nonbankruptcy law--
Both House and Senate reports expressly limit section 541(c) (2) to spendthrift trusts. The House Report, moreover, states that the Bankruptcy Code of 1978 "continues over the exclusion from property of the estate of the debtor's interest in a spendthrift trust to the extent the trust is protected from creditors under applicable State law." [Footnote omitted] H.R.Rep. No. 595, 95th Cong., 2d Sess. 176, reprinted in 1978 U.S.Code Cong. & Ad.News 5787, 5963, 6136; S.Rep. No. 989, 95th Cong., 2d Sess. 83, reprinted in 1978 U.S.Code Cong. & Ad.News 5787, 5869
Social security payments, 42 U.S.C. § 407; Injury or death compensation payments from war risk hazards,, 42 U.S.C. § 1717;
Civil service retirement benefits, 5 U.S.C. §§ 729, 2265;
Railroad Retirement Act annuities and pensions, 45 U.S.C. § 228(L);
Veterans benefits, 45 U.S.C. § 352(E);
Special pensions paid to winners of the Congressional Medal of Honor, 38 U.S.C. § 3101;
Tenneco, Inc. v. First Tidewater Bank of Virginia, 698 F.2d 688 (4th Cir. 1983); General Motors Corp. v. Buha, 623 F.2d 455 (6th Cir. 1980); Commercial Mortgage Insurance Inc. v. Citizens National Bank of Dallas, 526 F. Supp. 510 (N.D. Tex. 1981)