Patterson v. Shumate

• Decision Date: 15 June 1992
• Docket Number: No. 91-913,91-913
• Citation: 112 S.Ct. 2242,504 U.S. 753,119 L.Ed.2d 519
• Parties: John R. PATTERSON, Trustee, Petitioner v. Joseph B. SHUMATE, Jr
• Court: U.S. Supreme Court

112 S.Ct. 2242

504 U.S. 753

119 L.Ed.2d 519

John R. PATTERSON, Trustee, Petitioner

v Joseph B. SHUMATE, Jr.

No. 91-913.

Argued April 20, 1992.

Decided June 15, 1992.

Syllabus

Respondent Shumate was a participant in his employer's pension plan, which contained the anti-alienation provision required for tax qualification under the Employee Retirement Income Security Act of 1974 (ERISA). The District Court rejected his contention that his interest in the plan should be excluded from his bankruptcy estate under § 541(c)(2) of the Bankruptcy Code, which excludes property of the debtor that is subject to a restriction on transfer enforceable under "applicable nonbankruptcy law." The court held, inter alia, that the latter phrase embraces only state law, not federal law such as ERISA, and that Shumate's interest in the plan did not qualify for protection as a spendthrift trust under state law. The court ordered that Shumate's interest in the plan be paid over to petitioner, as trustee of Shumate's bankruptcy estate. The Court of Appeals reversed, ruling that the interest should be excluded from the bankruptcy estate under § 541(c)(2).

Held: The plain language of the Bankruptcy Code and ERISA establishes that an anti-alienation provision in a qualified pension plan constitutes a restriction on transfer enforceable under "applicable nonbankruptcy law" for purposes of § 541(c)(2). Pp. 757-766.

(a) Plainly read, § 541(c)(2) encompasses any relevant nonbankruptcy law, including federal law such as ERISA. The section contains no limitation on "applicable nonbankruptcy law" relating to the source of the law, and its text nowhere suggests that that phrase refers, as petitioner contends, exclusively to state law. Other sections in the Bankruptcy Code reveal that Congress knew how to restrict the scope of applicable law to "state law" and did so with some frequency. Its use of the broader phrase "applicable nonbankruptcy law" strongly suggests that it did not intend to restrict § 541(c)(2) in the manner petitioner contends. Pp. 757-758.

(b) The anti-alienation provision contained in this ERISA-qualified plan satisfies the literal terms of § 541(c)(2). The sections of ERISA and the Internal Revenue Code requiring a plan to provide that benefits may not be assigned or alienated clearly impose a "restriction on the transfer" of a debtor's "beneficial interest" within § 541(c)(2)'s meaning, and the terms of the plan provision in question comply with those requirements. Moreover, the transfer restrictions are "enforceable," as required by § 541(c)(2), since ERISA gives participants the right to sue to enjoin acts that violate that statute or the plan's terms. Pp. 759-760.

(c) Given the clarity of the statutory text, petitioner bears an "exceptionally heavy" burden of persuasion that Congress intended to limit the § 541(c)(2) exclusion to restrictions on transfer that are enforceable only under state spendthrift trust law. Union Bank v. Wolas, 502 U.S. ----, ----, 112 S.Ct. 527, ----, 116 L.Ed.2d 514. He has not satisfied that burden, since his several challenges to the Court's interpretation of § 541(c)(2)—that it is refuted by contemporaneous legislative materials, that it renders superfluous the § 522(d)(10)(E) debtor's exemption for pension payments, and that it frustrates the Bankruptcy Code's policy of ensuring a broad inclusion of assets in the bankruptcy estate—are unpersuasive. Pp. 760-765.

943 F.2d 362 (CA 4 1991), affirmed.

BLACKMUN, J., delivered the opinion for a unanimous Court. SCALIA, J., filed a concurring opinion.

G. Steven Agee, Roanoke, Va., for petitioner.

Kevin R. Huennekens, Richmond, Va., for respondent.

Christopher J. Wright, Washington, D.C., for U.S. as amicus curiae by special leave of Court.

Justice BLACKMUN delivered the opinion of the Court.

The Bankruptcy Code excludes from the bankruptcy estate property of the debtor that is subject to a restriction on transfer enforceable under "applicable nonbankruptcy law." 11 U.S.C. § 541(c)(2). We must decide in this case whether an anti-alienation provision contained in an ERISA-qualified pension plan constitutes a restriction on transfer enforceable under "applicable nonbankruptcy law," and whether, accordingly, a debtor may exclude his interest in such a plan from the property of the bankruptcy estate.

I

Respondent Joseph B. Shumate, Jr., was employed for over 30 years by Coleman Furniture Corporation, where he ultimately attained the position of president and chairman of the board of directors. Shumate and approximately 400 other employees were participants in the Coleman Furniture Corporation Pension Plan (Plan). The Plan satisfied all applicable requirements of the Employee Retirement Income Security Act of 1974 (ERISA) and qualified for favorable tax treatment under the Internal Revenue Code. In particular, Article 16.1 of the Plan contained the anti-alienation provision required for qualification under § 206(d)(1) of ERISA, 29 U.S.C. § 1056(d)(1) ("Each pension plan shall provide that benefits provided under the plan may not be assigned or alienated"). App. 342. Shumate's interest in the plan was valued at $250,000. App. 93-94.

In 1982, Coleman Furniture filed a petition for bankruptcy under Chapter 11 of the Bankruptcy Code. The case was converted to a Chapter 7 proceeding and a trustee, Roy V. Creasy, was appointed. Shumate himself encountered financial difficulties and filed a petition for bankruptcy in 1984. His case, too, was converted to a Chapter 7 proceeding, and petitioner John R. Patterson was appointed trustee.

Creasy terminated and liquidated the Plan, providing full distributions to all participants except Shumate. Patterson then filed an adversary proceeding against Creasy in the Bankruptcy Court for the Western District of Virginia to recover Shumate's interest in the Plan for the benefit of Shumate's bankruptcy estate. Shumate in turn asked the United States District Court for the Western District of Virginia, which already had jurisdiction over a related proceeding, to compel Creasy to pay Shumate's interest in the Plan directly to him. The bankruptcy proceeding subsequently was consolidated with the district court action. App. to Pet. for Cert. 53a-54a.

The District Court rejected Shumate's contention that his interest in the Plan should be excluded from his bankruptcy estate. The court held that § 541(c)(2)'s reference to "nonbankruptcy law" embraced only state law, not federal law such as ERISA. Creasy v. Coleman Furniture Corp., 83 B.R. 404, 406 (1988). Applying Virginia law, the court held that Shumate's interest in the Plan did not qualify for protection as a spendthrift trust. Id., at 406-409. The District Court also rejected Shumate's alternative argument that even if his interest in the Plan could not be excluded from the bankruptcy estate under § 541(c)(2), he was entitled to an exemption under 11 U.S.C. § 522(b)(2)(A), which allows a debtor to exempt from property of the estate "any property that is exempt under Federal law." Id., at 409-410. The District Court ordered Creasy to pay Shumate's interest in the Plan over to his bankruptcy estate. App. to Pet. for Cert. 54a-55a.

The Court of Appeals for the Fourth Circuit reversed. 943 F.2d 362 (1991). The court relied on its earlier decision in Anderson v. Raine (In re Moore), 907 F.2d 1476 (1990), in which another Fourth Circuit panel was described as holding, subsequent to the District Court's decision in the instant case, that "ERISA-qualified plans, which by definition have a non-alienation provision, constitute 'applicable nonbankruptcy law' and contain enforceable restrictions on the transfer of pension interests." 943 F.2d, at 365. Thus, the Court of Appeals held that Shumate's interest in the Plan should be excluded from the bankruptcy estate under § 541(c)(2). Ibid. The court then declined to consider Shumate's alternative argument that his interest in the Plan qualified for exemption under § 522(b). Id., at 365-366.

We granted certiorari, --- U.S. ----, 112 S.Ct. 932, 117 L.Ed.2d 104 (1992), to resolve the conflict among the Courts of Appeals as to whether an anti-alienation provision in an ERISA-qualified pension plan constitutes a restriction on transfer enforceable under "applicable nonbankruptcy law" for purposes of the § 541(c)(2) exclusion of property from the debtor's bankruptcy estate.¹

II

A.

In our view, the plain language of the Bankruptcy Code and ERISA is our determinant. See Toibb v. Radloff, 501 U.S. ----, ----, 111 S.Ct. 2197, 2199, 115 L.Ed.2d 145 (1991). Section 541(c)(2) provides the following exclusion from the otherwise broad definition of "property of the estate" contained in § 541(a)(1) of the Code:

"A restriction on the transfer of a beneficial interest of the debtor in a trust that is enforceable under applicable nonbankruptcy law is enforceable in a case under this title." (emphasis added).

The natural reading of the provision entitles a debtor to exclude from property of the estate any interest in a plan or trust that contains a transfer restriction enforceable under any relevant nonbankruptcy law. Nothing in § 541 suggests that the phrase "applicable nonbankruptcy law" refers, as petitioner contends, exclusively to state law. The text contains no limitation on "applicable nonbankruptcy law" relating to the source of the law.

Reading the term "applicable nonbankruptcy law" in § 541(c)(2) to include federal as well as state law comports with other references in the Bankruptcy Code to sources of law. The Code reveals, significantly, that Congress, when it desired to do so, knew how to restrict the scope of applicable law to "state law" and did so with some frequency. See, e.g., 11 U.S.C. § 109(c)(2) (entity may be a debtor under chapter 9 if authorized "by State law"); 11 U.S.C. § 522(b)(1) (election of exemptions controlled by "the State law that is applicable to the debtor"); 11 U.S.C. § 523(a)(5) (a debt for...