In re Plunk

Citation481 F.3d 302
Decision Date12 March 2007
Docket NumberNo. 06-10426.,06-10426.
PartiesIn the Matter of: Don Royl PLUNK, Debtor. Don Royl Plunk, Appellant, v. Robert Yaquinto, Jr. and Comerica Bank, Appellees.
CourtUnited States Courts of Appeals. United States Court of Appeals (5th Circuit)

T. Rick Frazier, Dallas, TX, for Appellant.

Aubyn Keith Shettle, Jr., Dallas, TX, for Appellees.

Appeal from the United States District Court for the Northern District of Texas.

Before DAVIS, DENNIS and PRADO, Circuit Judges.

PRADO, Circuit Judge:

Before us is an appeal by a debtor of the bankruptcy court's decision that his pension plan is not exempt under Texas law from being "property of the estate" because it was not "qualified" pursuant to 26 U.S.C. § 401(a) (2000). The debtor also appeals the bankruptcy court's decision that collateral estoppel prevented him from challenging whether a creditor owned a judgment against him. For the following reasons, we AFFIRM.

I. BACKGROUND

On October 12, 2004, Debtor-Appellant Don Royl Plunk ("Plunk") filed for Chapter 7 bankruptcy. Plunk listed the Don R. Plunk P.S. Plan ("the Plan"), a self-administered pension plan worth $300,000, as personal property on Schedule B. Plunk then claimed the Plan as exempt property on Schedule C pursuant to section 42.0021 of the Texas Property Code. Section 42.0021 exempts a pension plan from attachment, execution, or other seizure if the plan is "qualified" under the Internal Revenue Code ("I.R.C."). TEX. PROP.CODE ANN. § 42.0021(a) (Vernon 2000 & Supp.2006); see also 11 U.S.C. § 522(b) (incorporating state law exemptions into bankruptcy proceedings).

In early December 2004, Appellees Robert Yaquinto, Jr. ("the Trustee") and Comerica Bank ("Comerica") (collectively, "Appellees") filed objections to Plunk's claim that the Plan was exempt. Appellees argued that Plunk had abused Plan assets and, thus, the Plan was no longer qualified under I.R.C. § 401(a), 26 U.S.C. § 401(a), and could not be exempted in the bankruptcy proceeding.

Later that month, Comerica filed a motion to lift the automatic bankruptcy stay to permit Comerica to proceed in a garnishment case in the 193rd Judicial District Court of Dallas County, Texas, styled Comerica Bank-Texas, N.A. v. Neighborhood Credit Union and Don R. Plunk, No. 02-10675-1 ("the state garnishment action"). Comerica claimed to own, as the successor to a series of mergers, a judgment of over $750,000 ("the judgment") against Plunk that was originally awarded to BancTexas Dallas, N.A. ("BancTexas") in 1989. In the state garnishment action, Comerica was attempting to garnish a bank account held by the Plan in order to collect on the judgment. As in the bankruptcy case, Comerica argued that the Plan was not qualified under I.R.C. § 401(a) and, thus, was not exempt from garnishment. At the time Plunk declared bankruptcy, which stayed the garnishment action, the state court had already held a number of hearings and was on the verge of trial. Comerica, therefore, asked that the stay be lifted so that the state court could make a final determination about the qualified status of the Plan.

The bankruptcy court held a hearing on these issues over a period of days between February 2005, and April 2005. At the hearing, Plunk put on evidence that the Internal Revenue Service ("IRS") had determined that the Plan was structurally qualified under § 401(a) when the Plan was created. In response, Appellees did not argue that the Plan was not qualified structurally, but contended instead that Plunk had misused Plan assets to the extent that the Plan was no longer qualified operationally.

With respect to the motion to lift the stay, Comerica offered evidence that the judgment owned by BancTexas was transferred to Hibernia National Bank of Texas ("Hibernia") by the Federal Deposit Insurance Corporation as the receiver for BancTexas in 1990. Subsequently, Hibernia merged into Comerica. Plunk disputed that Comerica owned the judgment and argued there was an insufficient chain of title between Hibernia and BancTexas. Comerica then put on evidence that in 1992, Hibernia relied on the judgment to bring a garnishment action against some of Plunk's assets ("the 1992 garnishment action"). Plunk responded to the 1992 garnishment action, but did not contest Hibernia's ownership of the judgment. Therefore, Comerica argued that the principles of res judicata and collateral estoppel prevented Plunk from contesting Hibernia's ownership of the judgment in the current proceedings.

On April 15, 2005, the bankruptcy court entered an order sustaining Appellees' objections to Plunk's claim that the Plan was exempt. The bankruptcy court determined that Plunk had used Plan assets to pay personal bills and that the Plan was no longer qualified. The bankruptcy court also lifted the stay on May 10, 2005, to permit the state court garnishment action to proceed. In making its decision to lift the stay, the bankruptcy court ruled that collateral estoppel and res judicata precluded Plunk from arguing that Hibernia, and thus Comerica, did not own the judgment at issue.

Plunk appealed both rulings to the district court. The district court affirmed the bankruptcy court's decisions, and Plunk now appeals to this court. On appeal, Plunk contends that this court's precedent in Youngblood v. Federal Deposit Insurance Corp. (In re Youngblood), 29 F.3d 225 (5th Cir.1994), prevents the bankruptcy court from making an independent determination of whether the Plan was qualified and that res judicata and collateral estoppel do not bar his claim that Comerica does not own the judgment. We have jurisdiction to consider Plunk's appeal pursuant to 28 U.S.C. § 158(d), and now turn to the merits of the parties' arguments.

II. STANDARD OF REVIEW

This court applies the same standard of review to the decisions of a bankruptcy court as does the district court. Nesco Acceptance Corp. v. Jay (In re Jay), 432 F.3d 323, 325 (5th Cir.2005). Findings of fact are reviewed for clear error, while conclusions of law are considered de novo. Id.; see also FED. R. BANKR.P. 8013. We may affirm on any grounds supported by the record, even if those grounds were not relied upon by the lower courts. Bonneville Power Admin. v. Mirant Corp. (In re Mirant Corp.), 440 F.3d 238, 245 (5th Cir. 2006).

III. DISCUSSION
A. Whether the Plan is Qualified

We will first consider Plunk's appeal regarding the decision that the Plan was not qualified. Plunk does not argue that the bankruptcy court erroneously found that he had abused the Plan's assets and that such abuse warranted disqualification. Instead, Plunk argues that the bankruptcy court was required by this court's precedent in Youngblood to defer to the initial IRS determination that the Plan was qualified. Consequently, resolution of this case requires an analysis of our decision in Youngblood.

In Youngblood, Youngblood Builders, Inc., created a defined-benefit pension trust for its employees. 29 F.3d at 226. The IRS issued favorable determination letters that the plan was "qualified" under § 401(a) in 1978 and 1987. Id. In December 1987, the plan was terminated and William Youngblood, a beneficiary of the plan, had his distribution rolled over into an IRA. Id. Around that same time, the IRS audited the plan. Id. at 227. The IRS assessed sanctions against the plan for two improper loans and questioned several other transactions. Id. The IRS, however, did not revoke the plan's qualified status. Id. When Youngblood went bankrupt in 1989, he claimed his IRA as exempt property under section 42.0021 of the Texas Property Code. Id. One of his creditors objected, arguing that because the plan was not qualified, Youngblood's IRA was not exempt. Id. The bankruptcy court agreed and ruled that the plan was not qualified. Id.

On appeal, Youngblood1 argued that the bankruptcy court was precluded from finding that the plan was not qualified because the IRS had already concluded otherwise. Id. This court held that the key issue in deciding the case was whether the Texas legislature, in enacting section 42.0021, "contemplated that its courts would independently decide whether particular violations were sufficiently serious to merit the ultimate sanction of disqualification especially when the IRS has made a contrary determination." Id. at 229. We decided the Texas legislature intended that courts defer to the IRS in determining whether a plan is qualified. Id. In so holding, we stated:

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. Moreover, we 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.

Id.

This case, then, hinges on this court's decision in Youngblood — whether it stands for the proposition that a bankruptcy court can never question an IRS determination that a plan is qualified, as contended by Plunk, or whether it permits a bankruptcy court, in limited circumstances, to undertake its own analysis of a plan's qualified status, as urged by Appellees. We have found no other circuit court case considering this question, nor has any Texas court addressed this issue. But see Jones v. Am. Airlines, Inc., 131 S.W.3d 261, 270 (Tex.App.-Fort Worth 2004, no pet.) (determining that Youngblood did not apply to the situation in that case).

Appellees argue that the instant appeal is distinguishable from Youngblood because the IRS in Youngblood had considered the misconduct at issue and decided not to disqualify the plan. Here, the IRS has not audited the Plan or ruled whether Plunk's abuse of Plan assets...

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