Commercial Mortg. Ins. Inc. v. Citizens Nat. Bank, Civ. A. No. 3-80-0489-H.

• Citation: 526 F. Supp. 510
• Decision Date: 10 November 1981
• Docket Number: Civ. A. No. 3-80-0489-H.
• Parties: COMMERCIAL MORTGAGE INSURANCE INC., Plaintiff, v. CITIZENS NATIONAL BANK OF DALLAS, Garnishee, Alan Eberstein, M.D., Professional Association Employees' Profit Sharing Plan and Trust; Alan Eberstein, M.D., Professional Association Employees' Pension Plan and Trust; Alan Eberstein, M.D., Professional Association; and Alan Eberstein, Trustee Intervenors.
• Court: U.S. District Court — Northern District of Texas

526 F. Supp. 510

COMMERCIAL MORTGAGE INSURANCE INC., Plaintiff, v. CITIZENS NATIONAL BANK OF DALLAS, Garnishee, Alan Eberstein, M.D., Professional Association Employees' Profit Sharing Plan and Trust; Alan Eberstein, M.D., Professional Association Employees' Pension Plan and Trust; Alan Eberstein, M.D., Professional Association; and Alan Eberstein, Trustee Intervenors.

Civ. A. No. 3-80-0489-H.

United States District Court, N. D. Texas, Dallas Division.

November 10, 1981.

COPYRIGHT MATERIAL OMITTED

Jim Lee, Winstead, McGuire, Sechrest & Trimble, Dallas, Tex., for plaintiff.

Patrick Stark, Baker, Riddle, Miller, Phillips, Brown & Murray, Dallas, Tex., for Garnishee.

Franklin H. Hytken, G. Tomas Rhodus, Rhodus, Jones & Hytken, Dallas, Tex., for intervenors.

MEMORANDUM OPINION

SANDERS, District Judge.

On September 2, 1974, following almost a decade of study of private pension plans, Congress enacted the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. § 1001, et seq. As the Supreme Court recently observed, ERISA is a "comprehensive and reticulated statute", Nachman Corp. v. Pension Benefit Guaranty Corp., 446 U.S. 359, 361, 100 S.Ct. 1723, 1726, 64 L.Ed.2d 354 (1980), which was designed to protect "interstate commerce and the interests of participants in employee benefit plans and their beneficiaries...." ERISA § 2(b), 29 U.S.C. § 1001(b). Finding "that the continued well-being and security of millions of employees and their dependents are directly affected by these plans ...." ERISA § 2(a), 29 U.S.C. § 1001(a), Congress prescribed a variety of requirements for pension plans, including participation and vesting standards, and established a complex regulatory scheme to effectuate the policies underlying the Act.

The Court is asked in the case sub judice to determine whether either the language or legislative intent of three provisions of ERISA operate to bar any garnishment under state law of pension benefits by a commercial creditor of a plan beneficiary. The construction of these particular sections of ERISA has yet to receive significant legal attention within the factual context presented by this controversy and presents a difficult question of both statutory interpretation and legislative history. The first section relevant to this inquiry is 29 U.S.C. § 1056(d)(1) which states that "each pension plan shall provide that benefits provided under the plan may not be assigned or alienated." ERISA § 206(d)(1). A provision almost identical to § 1056(d)(1) is found in the companion tax provisions to ERISA in the Internal Revenue Code wherein assignment or alienation of benefits is also prohibited if a pension plan is to be qualified for special tax benefits under the statute.¹ 26 U.S.C. § 401(a)(13). Another provision which bears on the present issue is section 1144(a) of the statute which provides that ERISA "shall supersede any and all state laws insofar as they may now or hereafter relate to any employee benefit plan ...." ERISA § 514(a). The interpretation and application of these provisions to the case at hand rests on the undisputed record before the Court which is set out below.

A. Garnishment of Eberstein Pension Benefits

On July 13, 1979, a judgment for $255,986.48 was entered in the United States District Court for the Northern District of Texas in favor of Plaintiff Commercial Mortgage Insurance (CMI) and jointly and severally against Dr. Alan Eberstein and others not presently involved in this case. Commercial Mortgage Insurance Corporation v. Eberstein, et al., Civil Action No. 3-77-0532-D (N.D.Tex.1979). No supersedeas bond was filed by any defendant pending appeal and the Fifth Circuit subsequently affirmed the judgment. Following post-judgment discovery, these garnishment actions were instituted against the Citizens National Bank and E. F. Hutton as garnishees to reach Dr. Eberstein's interests in accounts styled "Alan Eberstein, M.D.-P.A., Money Purchase Pension Plan" and "Alan Eberstein, M.D.-P.A. Profit Sharing Plan" and in other assets of the plans. The profit-sharing and pension plans and their trustee, Eberstein, have intervened herein to assert exemptions as to such funds under both ERISA and Texas law.²

Dr. Eberstein practices as a general surgeon and was one of the original shareholders of Alan Eberstein, M.D.-P.A. (the "Association"), a Texas Professional Association chartered under Tex.Rev.Civ.Stat.Ann. Art. 1528e on February 28, 1972. In April 1972, the Association adopted the pension and the profit-sharing plans based upon a prototype furnished by Republic National Bank, which was designated as trustee under both plans. The Internal Revenue Service notified both plans in May 1973 that they had been determined to be qualified under the then-applicable provisions of the Internal Revenue Code. The Association's board of directors, then consisting of Dr. Eberstein and Richard Martin, M.D., adopted a resolution in November 1974 which authorized and directed the removal of Republic as trustee of the plans and which named themselves as co-trustees.

After the enactment of ERISA in 1974, the two original Republic National Bank plans were superseded and replaced by plans drafted to conform to the new statute. Pursuant to the provisions of ERISA, 29 U.S.C. § 1056(d)(1) and 26 U.S.C. § 401(a)(13), both plans contained the following clause:

Except insofar as may be contrary to any applicable laws, no participant shall have any power to assign, transfer, pledge, encumber or anticipate any interest in the trust or in any payments to be made thereunder and any attempts to do so shall be void; nor shall any such interest be in any manner subject to levy, attachment or other legal process to enforce payment of any claim against any participant; except that such prohibitions shall not be applicable to any loan made by the Plan to a participant of beneficiary, which is secured by the participants' vested accrued benefit and which is authorized in accordance with this Plan and Trust.

Pension Plan, ¶ 10.01, Profit Sharing Plan ¶ 10.01. Upon their adoption and at various times thereafter, the plans have received notification from the Internal Revenue Service that the plans were deemed qualified under Section 401 of the Internal Revenue Code. Since receipt of the last such letter in October 1977, nothing has occurred to revoke or modify the determination of the IRS.

Eberstein has been an employee of the Association since it was chartered in 1972, and, as of January 1980, was its sole shareholder and sole director. In addition, Dr. Eberstein is now the sole trustee of both plans since Richard Martin was removed as trustee sometime before commencement of this action. Other employees of the Association have been and are participants and beneficiaries under the plans. As of January 1980, assets were approximately $43,000 in the pension plan and $84,000 in the profit sharing plan.³ Dr. Eberstein's interest in these plans is approximately 80% of their total value. The plans are not yet in pay status and Eberstein has not received any payment or benefits from either of the plans, although he expects to do so in the future.

These garnishment actions are now before the Court on motions for summary judgment filed by Plaintiff CMI and Intervenors Eberstein, et al. The major thrust of the Eberstein motion is that ERISA exempts the assets of the two plans from garnishment by a private judgment creditor and also preempts any state laws in conflict with this provision. In the alternative, Eberstein argues that Texas law precludes garnishment of the plans because they both contain spendthrift provisions.

In response to the claims of the Eberstein intervenors, CMI initially contends that Section 1056(d)(1) applies, if at all, only to pension plans and has no effect on profit sharing plans. On the substantive interpretation of Sections 1056(d)(1) and 1144(a), CMI maintains that ERISA prohibits only voluntary assignments and has no effect on involuntary transfers such as garnishments. In the alternative, if Congress intended to impose such an exemption, CMI's position is that an implicit exception was made for those ERISA plans which were essentially self-settled. In any event, CMI argues that neither Congress nor any governmental agency has constitutional authority to declare a general exemption of private property and any such attempt is void under the Tenth Amendment. Under the controlling Texas law of trusts, furthermore, the "spendthrift" provisions of the two trust instruments are invalid as to the interests of Eberstein since the plans are essentially self-settled trusts.

The substantive legal issues posed by both motions for summary judgment are questions of the statutory construction of ERISA. In interpreting statutes, a court's function "is to construe the language so as to give effect to the intent of Congress." United States v. Amer. Trucking Ass'ns., 310 U.S. 534, 542, 60 S.Ct. 1059, 1063, 84 L.Ed. 1345 (1940). The most persuasive evidence of congressional intent is "the words by which the legislature undertook to give expression to its wishes." Id. at 543, 60 S.Ct. at 1063. Although a salutary rule of statutory construction prohibits resort to extrinsic aids when a statute on its face appears to be clear and unambiguous, the Court heeds the Supreme Court's admonition that:

When aid to construction of the meaning of words, as used in the statute, is available, there certainly can be no `rule of law' which forbids its use, however clear the words may appear on `superficial examination'.

Id. at 543-44, 60 S.Ct. at 1063-64; see also Train v. Colorado Pub. Int. Research Group, 426 U.S. 1, 96 S.Ct. 1938, 48 L.Ed.2d 434 (1976); Exxon Corp. v. Train, 554 F.2d 1310 (5th Cir. 1977). In the difficult task of discerning congressional intent in this case, therefore, the Court will be aided by several tools of statutory construction such as the language of the statute, the regulatory...