Court Opinion

ID: 176973
Source: CourtListenerOpinion
Date Created: 2010-10-09 00:05:24+00
Date Added: 2024-06-11T17:25:40.342290
License: Public Domain

FILED
                           NOT FOR PUBLICATION                              OCT 08 2010

                                                                       MOLLY C. DWYER, CLERK
                    UNITED STATES COURT OF APPEALS                       U .S. C O U R T OF APPE ALS

                            FOR THE NINTH CIRCUIT

In the Matter of: COMUNITY LENDING,              No. 09-15302
INC.,
                                                 D.C. Nos.    5:08-cv-00201-JW
              Debtor,                                         5:07-cv-05436-JW

MAI CHRISTINA PHAM; JANENE                       MEMORANDUM *
TOWNER; PHYLLIS CHRISTRICH;
JOHN PHAM; MAI NGUYEN; HUNG
PERRY NGUYEN; JOYCE FREEMAN;
CHRISTOPHER HAKE; JOHN
NELSON; KATHERINE BUCKMEYER;
JACK FERGUSON; JEANNE RUPERT;
PHYLLIS HEINRICHS,

             Plaintiffs-counter-claim-
defendants - Appellees,

  v.

SUZANNE L. DECKER, Chapter 7
Bankruptcy Trustee for debtor ComUnity
Lending, Inc.,

              Defendant-counter-claimant -
Appellant.

        *
             This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.
In the Matter of: COMUNITY LENDING,             No. 09-16191
INC.,
                                                D.C. Nos.    5:08-cv-00201-JW
              Debtor,                                        5:07-cv-05436-JW

MAI CHRISTINA PHAM; JANENE
TOWNER; PHYLLIS CHRISTRICH;
JOHN PHAM; MAI NGUYEN; HUNG
PERRY NGUYEN; JOYCE FREEMAN;
CHRISTOPHER HAKE; JOHN
NELSON; KATHERINE BUCKMEYER;
JACK FERGUSON; JEANNE RUPERT;
PHYLLIS HEINRICHS,

             Plaintiffs-counter-claim-
defendants - Appellees,

  v.

SUZANNE L. DECKER, Chapter 7
Bankruptcy Trustee for debtor ComUnity
Lending, Inc.,

              Defendant-counter-claimant -
Appellant.

                   Appeal from the United States District Court
                     for the Northern District of California
                     James Ware, District Judge, Presiding

                           Submitted October 6, 2010 **

       **
             The panel unanimously concludes this case is suitable for decision
without oral argument. See Fed. R. App. P. 34(a)(2).

                                         -2-
                              San Francisco, California

Before: THOMPSON, FERNANDEZ and SILVERMAN, Circuit Judges.

      Suzanne Decker, Chapter 7 Trustee for Debtor ComUnity Lending, Inc.,

appeals the district court’s order entering summary judgment in favor of Plaintiffs,

certain participants in a “top hat” plan established by ComUnity Lending. We

have jurisdiction under 28 U.S.C. § 1291 and we reverse.

      In interpreting a benefit plan under ERISA, “courts should first look to

explicit language of the agreement to determine, if possible, the clear intent of the

parties.” Gilliam v. Nev. Power Co., 488 F.3d 1189, 1194 (9th Cir. 2007) (quoting

Richardson v. Pension Plan of Bethlehem Steel Corp., 112 F.3d 982, 985 (9th Cir.

1997)). There can be no doubt that the plan at issue was intended to be a top hat

plan. Article 10.2 of the plan states that it “was designed and intended to be a Top-

Hat plan.” ERISA “defines a top hat plan as one ‘which is unfunded and is

maintained by an employer primarily for the purpose of providing deferred

compensation for a select group of management or highly compensated

employees.’” Id. at 1192-93 (quoting 29 U.S.C. §§ 1051(2), 1081(a)(3),

1101(a)(1)).

      “Unfunded plans do not confer a present taxable economic benefit.” Minor

v. United States, 772 F.2d 1472, 1475 (9th Cir. 1985). Therefore, if an employer

                                          -3-
places plan participants’ deferred compensation into a separate trust, the plan

remains “unfunded” only if “the employee’s interest is unsecured or not otherwise

protected from the employer’s creditors.” Minor, 772 F.2d at 1475. The plan at

issue includes numerous provisions stating that all employee contributions remain

subject to claims by the company’s creditors in the event of insolvency. Most

specifically, Article 10.6 states that the “vested Account balance of a Participant

shall be paid from the Trust only to the extent the Employer is not at the time of

payment insolvent.”

      Despite these provisions, the district court concluded that because ComUnity

Lending had terminated the plan, the company had to distribute the funds to

Plaintiffs even if it was insolvent. However, if the company can terminate the plan

and distribute the funds to participants when it is insolvent, the plan is not

“unfunded.” The district judge’s interpretation of the agreement would allow the

company to distribute fund assets to participants at a time when the company is

insolvent simply by terminating the plan. Such a plan would not qualify as

unfunded because the funds in the plan would not be subject to the claims of

creditors in the event of insolvency.

      Yet the very provision relied upon by the district court—Article 10.2

governing plan termination—expressly states that the plan is intended to be an

                                          -4-
unfunded top hat plan. By including this language in Article 10.2, the plan’s

drafters explicitly provided that the termination provisions do not supercede the

unfunded status of the plan. The district judge’s interpretation therefore

contravenes the fundamental principle that the plan must be interpreted according

to the “clear intent of the parties” as conveyed by the “explicit language of the

agreement.” Gilliam, 488 F.3d at 1194. In accordance with the parties’ express

intent to create an unfunded top hat plan, Article 10.6’s prohibition on distributing

fund assets when the company is insolvent must be interpreted to apply even in the

event of plan termination.

      This interpretation does not conflict with any other provision of the plan.

Just because the funds become eligible for distribution, or “payable,” upon plan

termination does not mean that the employer may actually pay the participants if

the company is insolvent at the time of payment. The plan provides that the

employer may not distribute the plan’s assets to participants if the company is

insolvent “at the time of payment.” Likewise, although the participants’ account

balances were fully vested at all times, meaning that the participants had earned the

right to be paid the amounts shown on their statements, the funds set aside by the

company remained subject to claims by creditors until distributed to the

participants. Nor did ComUnity Lending violate the trust agreement, which allows

                                          -5-
the plan’s trustee to disburse funds to the company “for the benefit of” the

participants. Upon receiving the funds, the company placed them in a segregated

account pending further inquiry into its financial condition. It did not

misappropriate the funds for its own use.

      ComUnity Lending’s insolvency remains a question of fact for trial. The

Chapter 7 Trustee provided a declaration from ComUnity’s Lending’s former CFO

stating that the company was insolvent at the time of payment. The CFO reviewed

the company’s books and prepared a statement of assets and liabilities for the

period from May to December 2007. That balance statement shows that the

company’s total liabilities exceeded its estimated liquidity beginning in May 2007.

The CFO concluded that “the Company (based upon my analysis) was insolvent as

of July 2007, and probably earlier.” Plaintiffs are therefore incorrect that the

CFO’s declaration lacks foundation. Because the company did not terminate the

plan and submit the distribution requests until September 2007, there is a genuine

issue of material fact regarding its solvency at the time of payment. The district

court erred in granting Plaintiffs’ motion for summary judgment.

      The district court’s order granting Plaintiffs’ summary judgment is

REVERSED, the court’s judgment and the order awarding Plaintiffs their

attorneys’ fees are VACATED, and the case is REMANDED.

                                          -6-