Kincaid, In re

• Decision Date: 25 October 1990
• Docket Number: No. 89-35342,89-35342
• Citation: 917 F.2d 1162
• Parties: , 23 Collier Bankr.Cas.2d 1537, 20 Bankr.Ct.Dec. 1932, Bankr. L. Rep. P 73,669, 12 Employee Benefits Ca 2711 In re Michael KINCAID; Sharon Kincaid, Debtors. JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY, a corporation; John Hancock Mutual Life Insurance Company, Administrator, Appellants, v. Ronald A. WATSON, Trustee, Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1162

917 F.2d 1162

59 USLW 2287, 23 Collier Bankr.Cas.2d 1537,

20 Bankr.Ct.Dec. 1932, Bankr. L. Rep. P 73,669,

12 Employee Benefits Ca 2711

In re Michael KINCAID; Sharon Kincaid, Debtors JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY, a corporation John Hancock Mutual Life Insurance Company Administrator, Appellants, v. Ronald A. WATSON, Trustee, Appellee.

No. 89-35342.

United States Court of Appeals Ninth Circuit.

Argued and Submitted July 11, 1990.

Decided Oct. 25, 1990.

Herbert H. Anderson, Spears, Lubersky, Bledsoe, Anderson, Young & Hilliard, Portland, Or., for appellants.

Ronald A. Watson, Portland, Or., for appellee.

Appeal from the Ninth Circuit Bankruptcy Appellate Panel.

Before GOODWIN, Chief Judge, FLETCHER and FERNANDEZ, Circuit Judges.

FERNANDEZ, Circuit Judge:

John Hancock Mutual Life Insurance Company ("administrator") appeals the Bankruptcy Appellate Panel's ("BAP") judgment confirming the decision of the bankruptcy court. The bankruptcy court ordered the administrator to turn over to Ronald Watson ("trustee") funds held on behalf of the debtor, Sharon Kincaid ("Kincaid"), in an ERISA deferred salary plan. We reverse.

BACKGROUND FACTS

Sharon Kincaid was employed by John Hancock Mutual Life Insurance Company ("Company"). The Company provided a There are three types of contributions that may be made to the Plan. The first is a basic amount. The employee agrees that the Company will reduce by 2% the future compensation otherwise payable to the employee. The second is a supplemental amount. The employee agrees that the Company will further reduce future compensation up to 8%. Each of these amounts is then contributed to the Plan by the Company. The third is an amount which the Company contributes on a monthly basis and which is equal to half of the sum of the basic amount.

401(k) ¹ Deferred Salary Plan ("Plan") in which its employees could choose to participate. Kincaid elected to participate in the Plan. The Plan contains an anti-alienation and anti-assignment provision as required by 29 U.S.C. Sec. 1056(d)(1), 26 U.S.C. Sec. 401(a)(13), and 26 C.F.R. Sec. 1.401(a)-13.

Kincaid declared bankruptcy on December 26, 1985. At the time of filing, she was still an employee of the Company and had the following interests in the Plan: $1,691.74 in basic contributions, $683.96 in supplemental contributions, and $836.03 in matching contributions.

Kincaid initially claimed an exemption in her bankruptcy schedules for her interest in the Plan. The trustee objected to her claim of exemption. Kincaid did not appear at the exemption hearing that was scheduled for July 14, 1986. Thereafter, the court entered an order sustaining the trustee's objection.

At the trustee's request, Kincaid applied for a withdrawal of contributions under the hardship provision of the Plan. The administrator denied the request for withdrawal. On June 19, 1987, the trustee filed a complaint for a turnover order against the administrator. The trustee's complaint sought to obtain the basic and supplemental contributions. The trustee did not seek to obtain the matching fund contributions.

The bankruptcy court subsequently conducted a hearing on the question, and rendered a judgment against the administrator. The administrator appealed. The BAP heard the appeal on May 19, 1988, and on March 16, 1989, it affirmed the bankruptcy court's judgment. The administrator appealed.

JURISDICTION AND STANDARD OF REVIEW

The bankruptcy court's jurisdiction is contested. We have jurisdiction pursuant to 28 U.S.C. Sec. 158(d).

We apply the same standard as the BAP in reviewing the bankruptcy court's decision. In re Herbert, 806 F.2d 889, 891 (9th Cir.1986). We review the bankruptcy court's findings of fact for clear error, and its conclusions of law de novo. Wein Air Alaska v. Bachner, 865 F.2d 1106, 1108 (9th Cir.1989).

DISCUSSION

I. Jurisdiction

The administrator claims that the trustee's action to recover the monies that represent Kincaid's interest in the Plan is merely an action to recover benefits, and is therefore preempted by ERISA. See 29 U.S.C. Sec. 1132(e)(1).

It is clear that this is true in clashes between ERISA and state law claims. See Davidian v. Southern California Meat Cutters Union and Food Employees Benefit Fund, 859 F.2d 134, 135 (9th Cir.1988) (nonbankruptcy breach of fiduciary duty claim preempted by ERISA). However, 29 U.S.C. Sec. 1144(d) expressly prohibits ERISA preemption of other federal laws. See In re Alagna, 107 B.R. 301, 306 n. 14 (Bankr.D.Colo.1989); In re the Bastian Co. Inc., 45 B.R. 717, 718 (Bankr.W.D.N.Y.1985); In re Goff, 706 F.2d 574, 587 (5th Cir.1983). Core proceedings are exclusively governed by federal bankruptcy law. Thus, if the trustee's action is a core proceeding, ERISA does not preempt 28 U.S.C. Sec. 157(b)(2), which confers jurisdiction upon the bankruptcy courts.

Section 157(b)(2) lists the core proceedings in bankruptcy. The trustee contends The administrator's position mischaracterizes the interest that it holds. The 401(k) Plan in this case is not a debt owed to Kincaid by the administrator. The Plan provides Kincaid a discrete account which holds a sum certain in which she has a present, vested interest. The Plan contains no provision by which Kincaid's interest could ever be distributed to other employees or revert to the employer. The administrator itself has no personal title to Kincaid's interest in the Plan. Instead, the money is merely being held in trust by the administrator on Kincaid's behalf. Thus, the trustee's action to obtain that interest is quite simply a proceeding to force the administrator to turn over something that belongs to the debtor.

that his action seeks the turnover of property of the estate and, thus, is a core proceeding pursuant to section 157(b)(2)(E). The administrator claims that the trustee's action is not an attempt to obtain property of the estate. It asserts that Kincaid has no present right to her interest, as her interest in the Plan has not matured. Thus, it claims that the trustee's action is nothing more than an action to collect a future debt.

The action in this case is, therefore, distinguishable from the actions brought by the trustees in the cases cited by the administrator. In those cases, the trustees were not seeking to obtain property of the debtor but were instead seeking to obtain property owed to the debtor, but belonging to a third party. Those actions could hardly be characterized as actions to obtain the property owned by the debtor, and were, therefore, not turnover proceedings. See Northern Pipeline Constr. Co. v. Marathon Pipeline Co., 458 U.S. 50, 71-72, 102 S.Ct. 2858, 2872, 73 L.Ed.2d 598 (1982) (Chapter 11 debtor's "right to recover contract damages to augment its estate is 'one of private right, that is, of the liability of one individual to another under the [state] law as defined' "). Accord St. George Island, Ltd. v. Pelham, 104 B.R. 429, 432 (Bankr.N.D.Fla.1989) (actions to recover accounts receivable arising prepetition are non-core proceedings); In re Crabtree, 55 B.R. 130 (Bankr.E.D.Tenn.1985) (suit to enforce a promissory note is not a turnover proceeding); In re B & L Oil Co., 46 B.R. 731, 736 (Bankr.D.Colo.1985) (an action to recover damages resulting from a breach of contract action not yet adjudicated is not a turnover proceeding); In re Atlas Automation, 42 B.R. 246, 247 (Bankr.E.D.Mich.1984) (action to collect accounts receivable is not a turnover proceeding).

Moreover, as the BAP pointed out, "determining the nature and extent of property of the estate is also a fundamental function of a bankruptcy court.... [and] fundamental to the administration of a bankruptcy case." In re Kincaid, 96 B.R. 1014, 1017 (9th Cir. BAP 1989). Since an action to obtain property of the estate would necessarily involve a determination regarding "the nature and extent of property of the estate," the action would also be a matter "concerning the administration of the estate," and, therefore, a core proceeding. 28 U.S.C. Sec. 157(b)(2)(A). We hold that this is a core proceeding. Thus, the bankruptcy court had jurisdiction to decide the question.

II. Kincaid's Interest in the Plan is not Property of the Estate.

A. In General.

Property of the bankruptcy estate is property in which the debtor has "legal or equitable interest as of the commencement of the case." 11 U.S.C. Sec. 541(a)(1). The only exceptions to this broad definition are sections 541(b) and 541(c)(2). The administrator contends that Kincaid's interest in the Plan is specifically excluded from property of the estate under section 541(c)(2). Section 541(c)(2) provides that "[a] restriction on the transfer of a beneficial interest of the debtor in a trust that is enforceable under applicable nonbankruptcy law " is not property of the estate. (Emphasis added).

The trustee relies upon In re Daniel, 771 F.2d 1352, 1360 (9th Cir.1985), cert. denied, 475 U.S. 1016, 106 S.Ct. 1199, 89 L.Ed.2d 313 (1986), in claiming that the term "applicable nonbankruptcy law" only applies to In Daniel, we held that "the phrase 'applicable nonbankruptcy law' in 11 U.S.C. Sec. 541(c)(2) was intended to be a narrow reference to state 'spendthrift trust' law and not a broad reference to all other laws, including ERISA and IRC, which prohibit alienation." Id. (Emphasis in original) (citing Goff, 706 F.2d at 582 (Code makes explicit "reference to 'federal laws' or pension laws, including ERISA, when federal as opposed to state law is the subject of the reference")).

state spendthrift trusts. He argues that Kincaid's interest in the Plan is excluded only if it is found to be a spendthrift trust.

Virtually every circuit that has considered the question has agreed that the debtor's interest in an ERISA pension or profit sharing plan is included in the bankruptcy estate unless the debtor's interest in the plan is considered a spendthrift trust under state law. See In re Lichstrahl, ...