RES–GA Dawson, LLC v. Rogers (In re Rogers)

• Decision Date: 16 September 2015
• Docket Number: Case No.: 13–22983–JRS
• Citation: 538 B.R. 158
• Parties: In re: Donald Keith Rogers, Debtor. RES–GA Dawson, LLC, and Bradley J. Patten, Chapter 7 Trustee, Movants, v. Donald Keith Rogers, Respondent.
• Court: U.S. Bankruptcy Court — Northern District of Georgia

538 B.R. 158

In re: Donald Keith Rogers, Debtor.RES–GA Dawson, LLC, and Bradley J. Patten, Chapter 7 Trustee, Movants

v.Donald Keith Rogers, Respondent.

Case No.: 13–22983–JRS

United States Bankruptcy Court, N.D. Georgia, Gainesville Division.

Signed September 16, 2015

Filed September 17, 2015

Charles N. Kelley, Jr., Cummings & Kelley PC, Gainesville, GA, for Debtor.

CONTESTED MATTER

ORDER

James R. Sacca, U.S. Bankruptcy Court Judge

The Court must determine whether the Debtor, who is the sole trustee for and participant in a profit sharing plan, established and operated this alleged retirement plan in such a way that the Chapter 7 trustee is entitled to administer the assets in the plan for the benefit of creditors. The assets in the plan are estimated to be about $300,000 of cash, personal property and loans.

After Mr. Rogers filed for bankruptcy, a judgment creditor and the Chapter 7 trustee both filed motions to disallow an exemption he claimed in his profit sharing plan. The judgment creditor filed a motion for summary judgment to which Mr. Rogers responded with his own motion for summary judgment. The issues presented are: (1) whether the profit sharing plan is property of the bankruptcy estate and (2) if it is property of the estate, whether Mr. Rogers may exempt the plan under either Georgia law or the Bankruptcy Code. The crux of both issues is whether the plan is “qualified” under 26 U.S.C. § 401. If the plan is a qualified plan, it is either one of the following: (a) not property of the estate or (b) property of the estate which Mr. Rogers could exempt, either of which would render it not subject to administration or claims of creditors. On the other hand, if it is not a qualified plan, then it is property of the estate which Mr. Rogers may not exempt and which the Chapter 7 trustee may administer.

Factual Background

Sometime in 2000 or 2001, Donald Rogers (“Mr.Rogers”) formed ProStar Properties, Inc. (“ProStar Properties”), which was in the business of building houses. (RES–GA's Statement of Material Facts Not in Dispute (“RES–GA's SOMF”) ¶¶ 2; Mr. Rogers Response to RES–GA's Statement of Material Facts Not in Dispute (“Rogers' Response”) ¶ 2; Donald Keith Rogers' Aff. ¶ 2). In 2004, ProStar Properties adopted the ProStar Properties Profit Sharing Plan (the “Plan”). (RES–GA's SOMF ¶ 5; Rogers' Response ¶ 5). Mr. Rogers was an officer, the sole owner, and the sole employee of ProStar Properties, as well as the only trustee of the Plan. (RES–GA's SOMF 4, 7, 24; Rogers' Response ¶¶ 4, 7, 24). Mr. Rogers' discontinued his employment with ProStar Properties in 2008, and sometime between 2011 and 2013 ProStar Properties ceased operation. (Rogers' Aff. ¶ 3–4; RES–GA's SOMF ¶ 3; Rogers' Response ¶ 3). The Adoption Agreement and a Summary Plan Description (the “Plan Summary”) are both before the Court, but the actual Plan document has not been presented. (See RES–GA's Mot. for Summ. J. Exs. B & C, Docs. 57–3 & 57–4).

RES–GA Dawson, LLC (“RES–GA”) is a judgment creditor of Mr. Rogers. It asserts that the Plan is not qualified and points to various facts to support that position, a summary of which follow. RES–GA contends that in 2010 Mr. Rogers' step-daughter made an $11,000 contribution to the Plan. (RES–GA's SOMF ¶ 12). Mr. Rogers disputes this allegation, and it appears the parties disagree about whether the money was provided to the Plan as a contribution or a loan. (Rogers' Response ¶ 12). In 2010 or 2011, the Plan purchased a property in Flowery Branch, Georgia (the “Flowery Branch Property”), after which Mr. Rogers remodeled it, moved into it, paid no rent, did not sign a lease, and sold it on behalf of the Plan in 2013 for a profit.¹ (RES–GA's SOMF ¶¶ 15–19; Rogers' Response 15–19; Rogers' Aff. 5–6). In 2012, Mr. Rogers began using the Plan's checking account to pay his living expenses because it was his only source of money from which he could continue to pay those expenses. (RES–GA's SOMF 13–14; Rogers' Response ¶¶ 13–14). Mr. Rogers claims that his use of the funds were actually distributions permitted by the Plan.² (Rogers' Reply Brief 3, Doc. 72). However, there is no evidence before the Court as to how the use of that money was treated both for tax purposes and by the Plan. In 2013, the Plan purchased a boat and accompanying trailer (the “Boat”). (RES–GA's SOMF ¶¶ 20–21; Rogers' Response ¶¶ 20–21). Mr. Rogers asserts the Plan purchased the Boat as an investment for $6,000 less than fair market value and immediately began offering it for sale. (Rogers' Aff. ¶ 7). Mr. Rogers personally used the Boat at least ten times on Lake Lanier.³ (RES–GA's SOMF ¶ 22; Rogers' Response ¶ 22). RES–GA claims the Plan also loaned $130,000 to Smokehouse Properties, LLC, a company owned by a relative of Mr. Rogers. (RES–GA's Reply to Debtor's Response (“RES–GA's Second Reply”) 7, Jan. 16, 2015, Doc. 74). In addition, both parties contend that at some point the Plan made at least one loan to Mr. Rogers, but the Court does not have any evidence of the details of any loans made by the Plan to Mr. Rogers or when they occurred. (See RES–GA's Reply to Debtor's Response (“RES–GA's First Reply”) 9 n.5, Nov. 28, 2014, Doc. 68; Rogers' Reply Brief 3–4, 11, Doc. 72).

Mr. Rogers filed for chapter 7 bankruptcy relief on October 23, 2013. On his Schedule B, he listed his interest in the Plan and valued it at $300,000. In addition, on his Schedule C, he claimed the full fair market value of the Plan as exempt pursuant to O.C.G.A. § 44–13–100(a)(2.1). Subsequently, RES–GA and Bradley Patten, the Chapter 7 trustee (the “Trustee”), sought to disallow Mr. Rogers' exemption of the Plan. (Docs. 17 & 37). Mr. Rogers later amended his Schedule C to not only exempt the Plan under Georgia exemption law, but also pursuant to 11 U.S.C. § 522(b)(3)(C). (Doc. 61). Both RES–GA and the Trustee now seek to disallow the exemption under the Bankruptcy Code as well. (Docs. 67 & 69). After much discovery, Mr. Rogers and RES–GA have filed cross-motions for summary judgment which are presently before the Court (the “Motions”). The Court also heard oral argument on the Motions from counsel for Mr. Rogers, RES–GA, and the Trustee.

Summary Judgment Standard

Summary judgment is appropriate only when there are no genuine issues of material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56. The substantive law applicable to the case determines which facts are material. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). A factual issue is genuine if there is sufficient evidence for a reasonable jury to return a verdict in favor of the non-moving party. Id. The Court “should resolve all reasonable doubts about the facts in favor of the non-movant, and draw all justifiable inferences in his favor.” United States v. Four Parcels of Real Prop., 941 F.2d 1428, 1437 (11th Cir.1991) (citations and punctuation omitted). The court may not weigh conflicting evidence or make credibility determinations. Hairston v. Gainesville Sun Publ'g. Co., 9 F.3d 913, 919 (11th Cir.1993), reh'g denied, 16 F.3d 1233 (1994) (en banc).

For issues upon which the moving party bears the burden of proof at trial, he must affirmatively demonstrate the absence of a genuine issue of material fact as to each element of his claim on that legal issue. Fitzpatrick v. City of Atlanta, 2 F.3d 1112, 1115 (11th Cir.1993). He must support his motion with credible evidence that would entitle him to a directed verdict if not controverted at trial. Id. “The movant ‘always bears the initial responsibility of informing the ... court of the basis for its motion,’ and identifying those portions of the record, including pleadings, discovery materials, and affidavits, ‘which it believes demonstrate the absence of a genuine issue of material fact.’ ” Smith v. Prine, No., 2012 WL 2308639, at *1 (M.D.Ga. May 2, 2012) (quoting Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986) ). If the moving party makes such a showing, he is entitled to summary judgment unless the non-moving party comes forward with significant, probative evidence demonstrating the existence of an issue of material fact. Id.

Discussion

A. Property of the Estate

Upon the commencement of the case, § 541 creates a bankruptcy estate consisting of “all legal or equitable interests of the debtor in property.”11 U.S.C. § 541. However, pursuant to § 541(c)(2), “[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 bankruptcy case].” 11 U.S.C. § 541(c)(2). To the extent the Plan has an anti-alienation provision that is enforceable under applicable nonbankruptcy law, the provision is enforceable in this case and the Plan will not become property of the estate. The burden of proof in establishing that something is not property of the bankruptcy estate pursuant to § 541(c)(2) rests on the debtor. See e.g., In re Adams, 302 B.R. 535, 540 (6th Cir. BAP 2003) ; In re Greenly, 481 B.R. 299, 307 (Bankr.E.D.Pa.2012) ; In re Vanwart, 497 B.R. 207, 211 (Bankr.E.D.N.C.2013).

In Patterson v. Shumate, the Supreme Court concluded that the applicable nonbankruptcy law referred to in § 541(c)(2) includes not only state law, but applicable nonbankruptcy federal law as well. Patterson v. Shumate, 504 U.S. 753, 757–59, 112 S.Ct. 2242, 119 L.Ed.2d 519 (1992). In so concluding, the court held that an ERISA⁴ qualified retirement plan was not property of the bankruptcy estate pursuant to § 541(c)(2). Id. at 759–60, 765, 112 S.Ct. 2242. Here, the parties agree that the Plan is not covered by ERISA because it only provides benefits to Mr. Rogers, the sole owner of the business, and thus ERISA is not the applicable nonbankruptcy law for purposes of § 541(c)(2). See Raymond B . Yates, M.D., P.C. Profit Sharing Plan v . Hendon, 541 U.S. 1, 21, 124 S.Ct. 1330, 158 L.Ed.2d 40 (2004) (“Plans...