Corzin v. Lawson (In re Lawson)

• Decision Date: 31 March 2017
• Docket Number: Adversary Proceeding No. 15–05094,Case No. 15–50618
• Citation: 570 B.R. 563
• Parties: IN RE Carla M. LAWSON, Debtor. Harold A. Corzin, Trustee, Plaintiff, v. Carla M. Lawson, et al., Defendants.
• Court: U.S. Bankruptcy Court — Northern District of Ohio

570 B.R. 563

IN RE Carla M. LAWSON, Debtor.Harold A. Corzin, Trustee, Plaintiff,

v.Carla M. Lawson, et al., Defendants.

Case No. 15–50618

Adversary Proceeding No. 15–05094

United States Bankruptcy Court, N.D. Ohio, Eastern Division.

Signed March 31, 2017

Michael J. Moran, Gibson & Moran, Cuyahoga Falls, OH, for Plaintiff.

Peter G. Tsarnas, Goldman & Rosen, Ltd., John C. Collins, John C. Collins Co. LPA, Akron, OH, for Defendants.

MEMORANDUM DECISION ON CROSS–MOTIONS FOR SUMMARY JUDGMENT

ALAN M. KOSCHIK, U.S. Bankruptcy Judge

Harold A. Corzin, the duly-appointed Chapter 7 trustee (the "Trustee") in the underlying bankruptcy case in which this adversary proceeding arises, has filed a complaint for declaratory and injunctive relief regarding the right, title, and interest of the parties in the 403(b) custodial account (the "Plan") of defendant Todd A. Osborne ("Osborne"), the husband of debtor Carla M. Lawson (the "Debtor"). The Debtor had filed a complaint for divorce against Osborne prior to filing her Chapter 7 petition. As of the petition date, the Ohio domestic relations court with jurisdiction over the divorce action, the Stark County Court of Common Pleas Family Court Division (the "State Court"), had entered an order styled as a "judgment entry" approving a property settlement between the Debtor and her husband, but not a formal qualified domestic relations order ("QDRO") as defined in the Employee Retirement Income Security Act, 29 U.S.C. §§ 1001 – 1461 ("ERISA"). The Trustee asserts that this particular posture allows him to stand in the shoes of the Debtor and ultimately receive the Debtor's share of the funds from the Plan upon completion of the divorce without running afoul of either the ERISA-required anti-alienation provision of the Plan itself or the exemptions applicable to qualified tax-advantaged retirement accounts under Ohio and federal bankruptcy law.

The Debtor and the United States of America (the "United States"), on behalf of its defendant agency, the Internal Revenue Service (the "IRS"), each filed answers substantively contesting the Trustee's claims. Osborne also filed a pro forma answer but did not substantively contest the Trustee's claims and did not take part in the subsequent summary judgment briefing or oral argument that is the subject of this Memorandum Decision.

The following motions are currently before the Court: First, the Trustee's motion for summary judgment (Docket No. 26) (the "Trustee Motion"); second, the United States' motion for partial summary judgment (Docket No. 27) (the "United States Motion");¹ and third, the Debtor's motion for summary judgment (Docket No. 31) (the "Debtor Motion"). The Trustee Motion, United States Motion, and Debtor Motion were each filed on April 1, 2016. On April 15, 2016, the Trustee filed responses to both the Debtor Motion and United States Motion (Docket Nos. 33 and 35, respectively), and the United States and the Debtor each responded to the Trustee Motion (Docket Nos. 36 and 37, respectively). The parties each filed replies in support of their respective position on April 22, 2016. (Docket Nos. 38–41.) At the request of the parties, the Court conducted an oral argument on May 9, 2016.

The collection of issues presented by the eleven briefs and subsequent oral argument in this matter can be summarized as follows:

(1) Whether the State Court's order in the Debtor's divorce case constitutes a domestic relations order, and whether it provided the Debtor a beneficial interest in her husband's Plan even though that order is not a QDRO as defined by ERISA;

(2) Whether the Debtor had a beneficial interest in the Plan by virtue of her status as Osborne's designated beneficiary and/or his spouse;

(3) Whether an Ohio debtor has a present interest in a share of her spouse's 403(b) retirement plan account pursuant to Ohio's domestic relations law upon filing a divorce action;

(4) Whether the Debtor's interest in her husband's Plan is property of her bankruptcy estate pursuant to 11 U.S.C. § 541, or is excluded from property of the estate pursuant to 11 U.S.C. § 541(c)(2) ;

(5) Whether any interest obtained by the Debtor prior to the entry of a QDRO can be exempted from her bankruptcy estate pursuant to 11 U.S.C. § 522 ; and

(6) Whether it is legally permissible for a panel trustee of a bankruptcy estate to obtain a QDRO under ERISA and related provisions of the Tax Code, in lieu of the divorcing debtor spouse, to effect an assignment of benefits in a 403(b) plan account owned by the debtor's non-filing ex-spouse to the debtor's bankruptcy estate administered by the trustee.

JURISDICTION AND VENUE

This Court has jurisdiction over this adversary proceeding pursuant to 28 U.S.C. § 1334 and General Order No. 2012–7 entered by the United States District Court for the Northern District of Ohio on April 4, 2012. Venue is proper pursuant to 28 U.S.C. § 1409(a). This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(B), (E), and (O ).

SUMMARY JUDGMENT STANDARD

In bankruptcy cases, including adversary proceedings, a party may move for summary judgment at any time before 30 days before the initial date set for an evidentiary hearing on any issue for which summary judgment is sought, unless a different time is set by local rule or the court orders otherwise. Fed. R. Bankr. P. 7056 (otherwise incorporating Fed. R. Civ. P. 56 ); see also Fed. R. Bankr. P. 9014(c). When a party so moves, the court "shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a) ; see also Celotex Corporation v. Catrett , 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). A Plaintiff movant must establish all essential elements supporting its claim in this fashion; a defendant must establish that any one (or more) essential elements of Plaintiff's claim fails, or establish all elements of one or more of defendant's affirmation defenses, in order to obtain a defense judgment by summary judgment. Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 252, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).

Evidence presented in support of summary judgment is viewed in the light most favorable to the non-moving party "drawing all reasonable inferences in its favor." Matsushita Electric Industrial Co., Ltd. v. Zenith Radio Corporation , 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). However, if a moving party meets its burden to establish a lack of genuine dispute as to a material fact, the burden then shifts to the non-moving party to "come forward with evidence which would support a judgment in its favor." Celotex , 477 U.S. at 324, 106 S.Ct. 2548 ; Fed. R. Civ. P. 56(e). In responding in this way to a motion for summary judgment, the non-moving party may not rely on a "mere scintilla of evidence" in support of its opposition to the motion. There must be enough evidence presented in which a jury could reasonably find for the non-moving party. Zenith , 475 U.S. at 586, 106 S.Ct. 1348.

In this adversary proceeding, and on the cross-motions for summary judgment currently before the Court, the parties are of the unanimous opinion that summary judgment is appropriate here without the need for a trial. The Court agrees. The disputes before the Court concern only the correct legal conclusions based on undisputed facts.

UNDISPUTED FACTS AND PROCEDURAL HISTORY

The parties submitted a substantial stipulated record for the Court to take under advisement, including exhibits. (Docket No. 24.) The following facts are derived from those stipulations, stipulated exhibits (which include, inter alia , the State Court's docket through June 2, 2015), and this Court's own docket.

The Debtor married Todd A. Osborne, also a defendant in this action, on or about May 16, 1998. She filed a complaint for divorce against him in the State Court on March 7, 2014.

Osborne is employed by Summa Akron City Hospital/Summa Health System ("Summa"). Through that employment, he holds an interest, as a plan participant, in a retirement plan known as the Summa Health 403(b) Plan (as previously defined, the "Plan"). A copy of the Plan document was stipulated as an exhibit. (Docket No. 24 at ¶ 8 and Ex. B.) Section 13.9 of the Plan provides as follows:

None of the benefits, payments, proceeds, claims, or rights of any Participant or Beneficiary hereunder shall be anticipated, encumbered, or in any other manner alienated or assigned by a Participant or Beneficiary, nor shall they be subject to any legal process, bankruptcy proceedings, or the interference or control of any creditor, spouse or divorced spouse, or other person except for the creation, assignment or recognition of a right to any benefit payable with respect to a Participant pursuant to a Qualified Domestic Relations Order, as defined in Section 206(d)(3) of ERISA.

Osborne opened his Plan account on or about July 8, 1999. The Debtor is not and has never been employed by Summa, and has never made any direct contributions into Osborne's Plan account.

Osborne, who is still living, has designated the Debtor as the primary beneficiary of his interest in the Plan account, and Jessie Lawson as sole contingent beneficiary. (Docket No. 24 at ¶ 12 and Ex. C.)

On January 6, 2015, the State Court held a hearing on the divorce proceeding during which Osborne's counsel read into the record the terms of the separation agreement negotiated by and between the Debtor and Osborne, which included an equal division of the assets in the Plan account between the Debtor and Osborne. (Docket No. 15 at ¶ 16.) The parties have stipulated to the accuracy of a transcript of those proceedings. (Docket No. 24 at ¶ 15 and Ex. E.) Two days later, on January 8, 2015, Judge Rosemarie A. Hall of the State Court entered an order styled as a "Judgment Entry," which is a stipulated exhibit here (Docket No. 24 at ¶ 17 and Ex. F) (the "Judgment Entry"), stating that "the proposed shared parenting...