Court Opinion

ID: 12010
Source: CourtListenerOpinion
Date Created: 2010-04-25 06:09:56+00
Date Added: 2024-06-11T15:04:41.139110
License: Public Domain

IN THE UNITED STATES COURT OF APPEALS

                       FOR THE FIFTH CIRCUIT

                       _____________________

                            No. 95-30700
                          Summary Calendar
                       _____________________

          IN THE MATTER OF: WILLIAM DENIS BROWN,III,

                              Debtor.
          __________________________________________
          HIBERNIA NATIONAL BANK,

                               Appellant,

          v.

          WILLIAM DENIS BROWN, III,

                              Appellee.
_________________________________________________________________

           Appeal from the United States District Court
               for the Western District of Louisiana
                             (95-CV-357)
_________________________________________________________________
                          January 19, 1996
Before KING, SMITH, and BENAVIDES, Circuit Judges.

PER CURIAM:*

     Hibernia National Bank ("Hibernia") appeals the district

court's affirmance of the bankruptcy court's grant of summary

judgment in favor of debtor William Denis Brown, III ("Brown").

     *
          Pursuant to Local Rule 47.5, the court has determined
that this opinion should not be published and is not precedent
except under the limited circumstances set forth in Local Rule
47.5.4.
Hibernia had objected to Brown's claimed exemption of his

interest in a pension plan.   The summary judgment dismissed

Hibernia's objection on the grounds that, where the Internal

Revenue Service (the "IRS") had determined that the pension plan

was "qualified under the Internal Revenue Code" as required by

Louisiana law, the bankruptcy court was precluded from contesting

that determination under In re Youngblood, 29 F.3d 225 (5th Cir.

1994).   We affirm.

                           I. BACKGROUND

     Brown created the Brownland Corporation Defined Benefit

Pension Plan (the "Pension Plan") in October 1980.   The IRS

issued determination letters in 1984 and 1993 indicating that the

Pension Plan was qualified under the Internal Revenue Code (the

"I.R.C.").   Brown filed for Chapter 7 bankruptcy on September 21,

1993 in the United States Bankruptcy Court for the Western

District of Louisiana.   Pursuant to § 522 of the Bankruptcy Code,

in his original and subsequently amended bankruptcy schedules,

Brown claimed his interest in the Pension Plan as exempt property

under Louisiana law, La. Rev. Stat. 13:3881D.

     On January 21, 1994, Hibernia, a creditor and party-in-

interest,2 filed an objection to the exemption.   Hibernia alleged

that Brown's interest in the Pension Plan could not be claimed as

     2
          Hibernia is the successor of First Commercial Bank and
assignee of its claim in the Brown bankruptcy.

                                 2
an exemption under Louisiana law because the Pension Plan was not

tax-qualified under the I.R.C.   On November 18, 1994, the

bankruptcy court ruled that our decision in Youngblood required

it to give deference to the IRS's treatment of the Pension Plan.3

Therefore, with the proviso that Hibernia retained the right to

request an IRS audit of the Pension Plan, the bankruptcy court

granted Brown's request for summary judgment and dismissed

Hibernia's objection to the exemption of Brown's interest in the

Pension Plan.   On January 5, 1995, the bankruptcy court issued an

amended order that reiterated its November 18, 1994 ruling,

adding that, unless the IRS indicated to the bankruptcy trustee

its intention to audit the Pension Plan before February 7, 1995,

final judgment would be entered dismissing Hibernia's objection.

After a hearing on Hibernia's motion to extend the deadline, the

reference to the February 7, 1995 deadline was deleted by oral

ruling of the bankruptcy court on March 2, 1995.4   On April 20,

     3
          Three months earlier, in Youngblood, we held that,
under the Texas exemption statute, a bankruptcy court was
required to defer to the IRS's determination that a pension plan
was tax-qualified. In re Youngblood, 29 F.3d 225, 229 (5th Cir.
1994).
     4
          Because the bankruptcy court originally did not enter a
formal order memorializing its ruling of March 2, 1995, Brown
construed the January 5, 1995 order as interlocutory. When
Hibernia subsequently filed a Notice of Appeal, Brown charged
that Hibernia had not complied with the requirements for appeal
set forth in Rule 5 of the Federal Rules of Appellate Procedure.
Accordingly, Brown filed a motion to dismiss this appeal for lack
of jurisdiction. On September 8, 1995, however, the bankruptcy
court entered an order memorializing its March 2, 1995 ruling and
unequivocally dismissing Hibernia's objection to the exemption of

                                 3
1995, the IRS notified Brown that it intended to audit the

Pension Plan for the years 1992 and 1993.5

     In a memorandum ruling dated June 22, 1995, the United

States District Court for the Western District of Louisiana

affirmed the bankruptcy court's ruling and adopted the reasons

assigned by the bankruptcy judge.     The district court declined to

distinguish this case from Youngblood on the basis of whether or

not the IRS performed an audit.   Noting that "[t]he IRS has

always treated this Pension Plan as tax qualified," the district

court found no reason to reverse the bankruptcy court's ruling.

This appeal followed.

                           II. ANALYSIS

     We review de novo the district court's affirmance of the

bankruptcy court's legal conclusion that the bankruptcy court was

bound by the IRS's determination.     In re Southmark, Corp., 49
F.3d 1111, 1114 (5th Cir. 1995); In re Brocato, 30 F.3d 641, 642

(5th Cir. 1994).   Although we benefit from the district court's

consideration of the matter, the amount of persuasive power to be

Brown's interest in the Pension Plan. Brown has since
acknowledged that any jurisdictional defects to this appeal have
been cured.
     5
          On July 28, 1995, the IRS notified Brown of the results
of its audit: The returns submitted for 1992 and 1993 were
accepted by the IRS; no additional taxes were assessed; and
previous determinations that the Pension Plan was tax-qualified
were not revoked.

                                  4
assigned to the district court's conclusion is a matter of

appellate discretion.   In re Briscoe Enters., Ltd., II, 994 F.2d
1160, 1163 (5th Cir.), cert. denied, 114 S. Ct. 550 (1993).

     Once an action in bankruptcy is commenced, all property in

which the debtor has a legal or equitable interest becomes the

property of the bankruptcy estate.   11 U.S.C. § 541.   However, a

debtor may claim as exempt any property that is exempt under

federal, state, or local law.   11 U.S.C. § 522(b).   In this case,

Brown claimed an exemption for his individual interest in the

Pension Plan under La. Rev. Stats. 13:3881D and 20:33.6   These

statutes and the corresponding provision in the Bankruptcy Code,7

     6
          Under the heading "General exemptions from seizure,"
the Louisiana Revised Statutes provide:

     The following shall be exempt from all liability
     for any debt except alimony and child support: all
     pensions, all proceeds of and all payments under
     annuity policies or plans, all individual retirement
     accounts, all Keogh plans, all simplified employee
     pension plans, and all other plans qualified under
     sections 401 or 408 of the Internal Revenue Code.
     However, an individual retirement account, Keogh plan,
     simplified employee pension plan, or other qualified
     plan is only exempt to the extent that contributions
     thereto were exempt from federal income taxation at the
     time of the contribution, plus interest or dividends
     that have accrued thereon.

La. Rev. Stat. 13:3881D(1). La. Rev. Stat. 20:33 contains
language identical to La. Rev. Stat. 13:3881D(1).
     7
          The Bankruptcy Code provides in pertinent part:

     (d) The following property may be exempted under
     subsection (b)(1) of this section:
          . . . .
          (10) The debtor's right to receive--

                                 5
require pension plans to be qualified under the I.R.C. in order

to be exempt from seizure.

     The bankruptcy court and the district court concluded that

Brown's Pension Plan was tax-qualified, based on their respective

readings of Youngblood.    In that case, the Youngbloods sought to

exclude from their Chapter 7 bankruptcy estate the interest that

they held in an individual retirement account ("IRA").    The IRA

had accepted a rollover contribution from a defined-benefit

employee pension plan created by Mr. Youngblood in connection

with his construction company.    A creditor objected to the

claimed exemption on the grounds that the pension plan was not

qualified under the I.R.C. as required under Texas law.    The

bankruptcy court held that the Youngblood's pension plan was not

tax-qualified despite two IRS determination letters and an IRS

audit to the contrary.    The district court affirmed the judgment

of the bankruptcy court.   We concluded that, regarding the

pension plan's tax qualification, the bankruptcy and district

                . . . .
                (E) a payment under a stock bonus, pension,
               profitsharing, annuity, or similar plan . . .
               to the extent reasonably necessary for the
                    support of the debtor and any dependent of
the            debtor, unless--
                    . . . .
                    (iii) such plan or contract does not
              qualify under section 401(a), 403(a),
         403(b), or 408 of the Internal Revenue
Code of 1986.

11 U.S.C. § 522(d)(10)(E)(iii).

                                  6
courts erred in not deferring to the determination of the IRS.

Youngblood, 29 F.3d at 229.

     Prior to Youngblood, in In re Goff, 706 F.2d 574 (5th Cir.

1983), abrogated on other grounds by Patterson v. Shumate, 504
U.S. 753 (1992), we suggested that courts must defer to the IRS

as to the qualification of self-employed Keogh plans under the

Employment Retirement Security Act of 1974 ("ERISA"):

     Although an argument might have been made that the
     debtors' plan was not qualified, . . . we must accept
     for purposes of this appeal that the plan was qualified
     and thus subject to ERISA anti-alienation provisions.
     Congress has committed the determination of
     qualification, in the first instance, to the
     Commissioner of Internal Revenue, and it would
     therefore be inappropriate for us to pass upon this
     question.

Goff, 706 F.2d at 580 n.16.

     In the instant case, based on Youngblood and Goff, the

bankruptcy court determined that it must defer to the IRS's

treatment of the Pension Plan as qualified.8   The IRS treated

Brown's Pension Plan as tax-qualified for more than ten years

and, consistent with the facts in Youngblood, the IRS issued

     8
          The bankruptcy court explained:

     [I]n review of how the [Louisiana] state statutes want
     this issue determined they clearly show, and Youngblood
     clearly states, they don't want me to do it. They do
     not want the state courts to do it. They, instead,
     want the IRS to do it because the IRS is that entity
     which determines whether or not the plans are
     qualified. It [en]forces its own regulations . . . and
     it does so in a timely fashion and it does so in a
     uniform fashion.

                                7
determination letters indicating that the Pension Plan was tax-

qualified.9    Therefore, the bankruptcy court ruled that Brown's

interest in the Pension Plan was exempt from the bankruptcy

estate.     The district court adopted the bankruptcy court's

rationale and affirmed its ruling.

     Hibernia advances three arguments on appeal:     (1) that

Youngblood is not controlling with respect to Louisiana law; (2)

that Youngblood is relevant only where the IRS has performed a

comprehensive audit; and (3) that Youngblood should be overruled

because it undermines the statutory duties of the bankruptcy

court.     We address these arguments seriatim.

     First, Hibernia proposes that Youngblood is not controlling

with respect to Louisiana law.     Hibernia contends that it was

error for the district court to affirm the bankruptcy court's

conclusion that Youngblood applies not only to the Texas

exemption statute but to La. Rev. Stats. 13:3881D(1) and 20:33 as

well.     Despite the language of the relevant Louisiana and Texas

statutes--language equivalent on its face,10 Hibernia attempts to

     9
          Additionally, after auditing the Pension Plan for the
years 1992 and 1993, the IRS let stand all previous
determinations that the Pension Plan was tax-qualified.
     10
          The Louisiana code exempts pensions, "simplified
employee pension plans, and all other plans qualified under
sections 401 or 408 of the Internal Revenue Code," from liability
for any debt. La. Rev. Stat. 13:3881D(1) (emphasis added); La.
Rev. Stat. 20:33. The Texas Property Code exempts pensions,
simplified employee pension plans, and other plans "unless the
plan . . . does not qualify under the applicable provisions of
the Internal Revenue Code of 1986." Tex. Prop. Code Ann. §

                                   8
distinguish the Louisiana exemption statutes from Texas law on

the basis of legislative intent.       As evidence that Youngblood is

inapplicable in Louisiana, Hibernia offers the concern voiced by

Representative Manuel Fernandez that a debtor might abuse the

exemption process.11   Hibernia proposes that, notwithstanding the

expertise of the IRS and the Texas legislature's deference to

that expertise, the Louisiana legislature meant to wrest the

interpretation of federal tax law from the IRS in the belief that

exemption abuse can be discerned more readily by a state court or

a bankruptcy court applying state law.

     The argument that Louisiana's lawmakers believed that, in

the interest of limiting debtor abuse, it was necessary to

displace the IRS with bankruptcy courts is unconvincing.

Explicit anti-fraud provisions were included by the Legislature

42.0021(a) (emphasis added).

     11
          The minutes of the June 13, 1983 meeting of the
Louisiana House Committee on Civil Law and Procedure contain the
following entry:

     Representative Fernandez stated that IRA's and Keogh
     accounts have limitations on the tax benefits, but
     there are no limitations on the amount of money that
     can go into the account if you are willing to take the
     tax consequences. Representative Fernandez expressed
     concerns that this situation could be abused; money
     could be hidden from seizure.

House Comm. on Civil Law and Procedure, 6-13-83, SB No. 324.

                                   9
in the exemption statutes themselves.12   Moreover, shortly after

expressing his concern about debtor abuse, Representative

Fernandez acknowledged that this concern was adequately addressed

by the statutes' tax-qualification requirement;13 and, as we

stated, in Youngblood:

     [T]he legislature had to know that, in applying [the
     exemption statute], its own courts would be required to
     look to federal tax law to determine whether a plan was
     qualified under the Internal Revenue Code. The IRS,
     which has been entrusted with the task of implementing
     the Internal Revenue Code, has adopted extensive rules
     and regulations governing income tax in general, and
     the taxability of pension plans in particular. The IRS
     also has a wealth of experience in the practical
     application of tax laws.

Youngblood, 29 F.3d at 228.   We are not convinced on the basis of

the legislative history offered by Hibernia that the Louisiana

legislature intended for bankruptcy courts to construe federal

     12
          In accord with 11 U.S.C. § 727(a)(2), each of
Louisiana's exemption statutes stipulates: "No contribution
shall be exempt if made less than one calendar year from the date
of filing for bankruptcy, whether voluntary or involuntary, or
less than one calendar year from the date writs of seizure are
filed against such account or plan." La Rev. Stat. 13:3881D(2)
(emphasis added); La. Rev. Stat. 20:33.
     13
          The minutes of the June 13, 1983 meeting of the
Louisiana House Committee on Civil Law and Procedure contain the
following response to Representative Fernandez's concern about
the possibility of debtor abuse:

     Mr. Edward Glusman representing the Louisiana State Bar
     Association . . . stated that Representative
     Fernandez's problem is taken care of on page 1, line 32
     of the bill [that to be exempt plans must be "qualified
     under sections 401 or 408 of the Internal Revenue
     Code"]. Representative Fernandez agreed.

House Comm. on Civil Law and Procedure, 6-13-83, SB No. 324.

                                10
tax law in opposition to an IRS determination.14   Whether or not

the Louisiana legislature was arguably more preoccupied with

debtor abuse than was the Texas legislature is not dispositive.

     Second, Hibernia contends that Youngblood is relevant only

where the IRS has performed a comprehensive audit.   In

Youngblood, after auditing the pension plan, the IRS did not

revoke its earlier determination that the plan was tax-qualified.

Similarly, in the instant case, the IRS ultimately audited

Brown's Pension Plan and let stand its earlier determination that

the plan was tax-qualified.   However, because the IRS did not

conduct its audit prior to the filing of Brown's bankruptcy

petition, Hibernia attempts to distinguish this case from

Youngblood.   The Supreme Court has pointed out that "exempt

property is determined 'on the date of the filing of the

petition.'"   Owen v. Owen, 500 U.S. 305, 314 n.6 (1991) (quoting

     14
          Hibernia contends that bankruptcy courts are capable of
interpreting federal tax law. The issue, however, is whether the
Louisiana legislature intended for a bankruptcy court's
interpretation of federal tax law to preempt a contrary
interpretation of federal tax law advanced by the IRS. Pension
plan qualification under federal tax law is an esoteric and
complex area. The "IRS has established programs . . . designed
to correct past defects, to ensure that plans are properly
operated in the future, and to impose sanctions less severe than
outright disqualification." Youngblood, 29 F.3d at 228-29 n.4
(quoting Federal Tax Coordinator 2d ¶ T-10590 (1994)).
Particularly because the IRS can make fine distinctions--the IRS
might impose no more than a monetary penalty or may excuse
entirely an I.R.C. indiscretion that a bankruptcy court might
interpret as a disqualifying event, we find it unreasonable to
believe that the legislature intended to adopt a scheme that
supplants the informed judgment of the IRS with court-construed
disqualification.

                                11
11 U.S.C. § 522(b)(2)(A)).    Hibernia cites Owen and several other

cases, including In re Peterson, 106 B.R. 229 (Bankr. D. Mont.

1989), overruled by In re Doss, Nos. 91-41578-007, 91-31042-007,

1991 WL 700518 (Bankr. D. Mont. 1991),15 to support its

contention that, notwithstanding the IRS determination letters to

the contrary, the Pension Plan was not tax-qualified for purposes

of exemption from Brown's bankruptcy estate.    We find this

argument unavailing.

     The Pension Plan itself was not altered by the 1994 IRS

audit.    It did not suddenly acquire tax-qualified status

coincident with the audit.    Nor did Brown's circumstances

relative to the plan's qualification change as a result of the

IRS audit.    Rather, it is self-evident that on the date in 1993

when Brown filed his bankruptcy petition the Pension Plan was

already tax-qualified because the IRS had so treated the plan for

the better part of 13 years and, thereafter, when it eventually

audited the plan for the years 1992 and 1993, the IRS did not

revoke its prior determinations.

     15
            In Peterson, the court stated:

     The date of petition is seen as the critical date for
     several other determinations in a bankruptcy case. For
     example, it is on that date when the debtor's rights in
     exempt property are defined, despite a later change in
     circumstances.

Peterson, 106 B.R. at 230.

                                 12
     Furthermore, the determinative issue in Youngblood was

whether the IRS had made a determination regarding the

qualification of the Youngblood's pension trust, not whether the

IRS had conducted a comprehensive audit.    We are not prepared to

restrict the ruling in Youngblood to that limited category of

pension plans that have been audited by the IRS.    In Youngblood,

we stated that "[w]e do not believe that the legislature wanted

to adopt a scheme that invites frequent, unseemly, conflicting

decisions between the state court or bankruptcy court, and the

IRS, such as occurred in this case."    Youngblood, 29 F.2d at 229.

Where the IRS has not audited a pension plan but has determined

that the plan is tax-qualified and has treated it as such, the

likelihood of conflicting decisions is no less substantial and no

less troublesome.

     Finally, Hibernia argues that Youngblood should be overruled

because it undermines the statutory duties of the bankruptcy

court.    Citing 28 U.S.C. § 157,16 as well as § 505 of the

     16
            28 U.S.C. § 157(b) provides in pertinent part:

     (b)(1) Bankruptcy judges may hear and determine all
     cases under title 11 and all core proceedings under
     title 11 . . .
        (2) Core proceedings include . . .
          . . .
          (B) allowance or disallowance of claims against
     the estate or exemptions from property of the estate,
     and . . .

28 U.S.C. § 157(b).

                                 13
Bankruptcy Code,17 inter alia, Hibernia contends that Youngblood

improperly limits bankruptcy courts' specific grant of

jurisdiction regarding exemption issues.     We disagree.

     As permitted under the Bankruptcy Code, Louisiana has chosen

to "opt out" of the opportunity to allow its debtors to use the

"laundry list" of exemptions enumerated under subsection (d) of

11 U.S.C. § 522.18    Instead, Louisiana has created its own

exemption scheme, pursuant to authority recognized by the

Bankruptcy Code.     11 U.S.C. § 522(b).   What is at issue in this

     17
          Under the title "Determination of tax liability," the
Bankruptcy Code provides in relevant part:

     (a)(1) Except as provided in paragraph (2) of this
     subsection, the court may determine the amount or
     legality of any tax, any fine or penalty relating to a
     tax, or any addition to tax, whether or not previously
     assessed, whether or not paid, and whether or not
     contested before and adjudicated by a judicial or
     administrative tribunal of competent jurisdiction.

          (2)  The court may not so determine--
                (A) the amount or legality of a tax, fine,
            penalty, or addition to tax if such amount or
            legality was contested before and adjudicated
            by a judicial or administrative tribunal of
            competent jurisdiction before the commencement
            of the case under this title; or . . .

11 U.S.C. § 505(a).

     18
          The Louisiana legislature has provided that only
"property and income which is exempt under the laws of the state
of Louisiana and under federal laws other than Subsection (d) of
Section 522 of [] Title 11 of the United States Code," shall be
exempt from the property of a bankruptcy estate. La. Rev. Stat.
13:3881B(1).

                                  14
case is the interpretation of those Louisiana statutes setting

forth Louisiana's chosen exemption scheme.   The authority of the

bankruptcy court to adjudicate tax liability, for example, is of

little consequence to the construction of these state statutes,

particularly--as in this case--where the IRS has not asserted a

claim against the Pension Plan for additional taxes.   We do not

find the ability of a bankruptcy court to fulfill its statutory

duties diminished in any meaningful way by deference to the IRS

on matters of tax qualification under a state statute.

     Consistent with the reasoning in Youngblood, we conclude

that, for purposes of exempting Brown's interest in the

bankruptcy estate, the Pension Plan was tax-qualified.    The Texas

and Louisiana legislatures employed comparable language in

drafting their respective exemption statutes, and, as we

explained, with regard to Texas law, in Youngblood:

     We are persuaded that the legislature intended for its
     own courts (or bankruptcy courts applying Texas law) to
     defer to the IRS in determining whether a retirement
     plan is "qualified" under the Internal Revenue Code.
     We see no reason that the legislature would want its
     courts, which are inexperienced in federal tax matters,
     to second-guess the IRS in such a complex, specialized
     area. We find it much more reasonable to assume that
     the legislature contemplated creating an exemption from
     seizure for a debtor's retirement funds that could be
     simply and readily determined by referring to the
     federal tax treatment of those funds.

Youngblood, 29 F.3d at 229.   We are not convinced that the

lawmakers of Louisiana were any less interested than those of

Texas in providing an exemption that may be applied simply and

                                15
readily.   The bankruptcy court properly deferred to the IRS's

determination that Brown's Pension Plan was tax-qualified.

Therefore, it was not error for the bankruptcy court to dismiss

Hibernia's objection to Brown's claimed exemption of the plan

from the bankruptcy estate.   The district court properly affirmed

this dismissal.

                          III. CONCLUSION

     For the reasons stated above, we AFFIRM the judgment of the

district court.

                                16