Gertz v. Warner (In re Warner)

• Decision Date: 14 April 2017
• Docket Number: Case No. 14–52325,Adversary Proceeding No. 15–05115
• Citation: 570 B.R. 582
• Parties: IN RE Margaret Katie WARNER, Debtor. Marc P. Gertz, Trustee, Plaintiff, v. Margaret Katie Warner, et al., Defendants.
• Court: U.S. Bankruptcy Court — Northern District of Ohio

570 B.R. 582

IN RE Margaret Katie WARNER, Debtor.Marc P. Gertz, Trustee, Plaintiff,

v.Margaret Katie Warner, et al., Defendants.

Case No. 14–52325

Adversary Proceeding No. 15–05115

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

Signed April 14, 2017

Peter G. Tsarnas, Goldman & Rosen, Ltd., Akron, OH, for Plaintiff.

Gregory L. Hail, Holland & Muirden, Akron, OH, Anthony J. DeGirolamo, Canton, OH, Philip Leonard Bednar, U.S. Department of Justice, Washington, DC, for Defendants.

MEMORANDUM DECISION ON CROSS–MOTIONS FOR SUMMARY JUDGMENT

ALAN M. KOSCHIK, U.S. Bankruptcy Judge

Marc P. Gertz, 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 federal Thrift Savings Plan ("TSP") custodial account of defendant Carlos Warner. Mr. Warner is the husband of debtor Margaret Katie Warner (the "Debtor"). The Debtor filed a complaint for divorce against Mr. Warner prior to her Chapter 7 petition. As of the petition date, the Ohio domestic relations court had not entered any domestic relations order approving a property settlement between the Debtor and her husband, including any "qualifying retirement benefits court order" ("QRBCO") (more fully defined, infra ). The Trustee asserts that this posture allows him to stand in the shoes of the Debtor, and ultimately receive the funds from the TSP account to be distributed to the Debtor in the divorce, without running afoul of either the anti-alienation provision of the TSP's governing statute, or the exemptions applicable to tax-advantaged retirement accounts under Ohio law 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 contesting the Trustee's claims.

Currently before the Court are the motion for partial summary judgment by the United States (Docket No. 15)¹ (the "United States Motion") and the motion for summary judgment by the Trustee (Docket No. 17) (the "Trustee Motion"), both filed on March 11, 2016. On March 25, 2016, the United States filed a response to the Trustee Motion and the Trustee filed a response to the United States Motion (Docket Nos. 18 and 19, respectively). The United States and Trustee each filed replies in support of their position on April 1, 2016. (Docket Nos. 20 and 23, respectively.) At an April 4, 2016 preliminary hearing on the motions, the Debtor's counsel announced that the Debtor had chosen not to provide additional briefing and would rest on the briefs of the United States filed in opposition to the Trustee's Motion, as well as the United States' Motion, which essentially sought judgment in the Debtor's favor. At the request of the parties, the Court later conducted an oral argument on May 9, 2016.

The collection of issues presented by the six briefs and subsequent oral argument in this matter can be summarized thus:

(1) Whether the Debtor had a beneficial interest in the TSP account by virtue of her status as Mr. Warner's designated beneficiary;

(2) Whether Ohio domestic relations law grants a debtor a present interest in all or a portion of her spouse's retirement plan assets upon the filing of a divorce action;

(3) Whether a debtor's interest in a spouse's TSP account after filing for divorce but prior to the entry of a QRBCO is property of the 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) ;

(4) Whether a debtor's interest in a spouse's TSP account after filing for divorce but prior to the entry of a QRBCO can be exempted from the bankruptcy estate pursuant to 11 U.S.C. § 522 ; and(5) Whether it is legally permissible for a bankruptcy estate trustee to use a QRBCO under the TSP's enabling statute to effect an assignment of benefits in a TSP custodial account to bankruptcy estate administered by such 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) and the Court has authority to enter a final judgment.

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. 12.) The following facts are derived from those stipulations, stipulated exhibits, and the Court's own docket.

The Debtor married Carlos Warner, also a defendant in this action, on or about August 20, 2005. She filed a complaint for divorce against him in the Domestic Relations Division of the Summit County Court of Common Pleas (the "State Court") on August 12, 2013.

Mr. Warner works as a public defender for the Office of the Federal Public Defender for the Northern District of Ohio, and is thus an employee of the United States Government. Through that employment, he is a participant in the Thrift Savings Plan ("TSP"), which is a defined-contribution retirement plan for federal employees. Mr. Warner has contributed a custodial account in his name held within the TSP. As of September 3, 2013, when Mr. Warner filed an Affidavit of Property with the State Court, he estimated that the balance in his TSP account was $101,000. (Docket No. 12 at ¶ 14 and Ex. C.) In the affidavit, Mr. Warner described the account as a "401K" account. Id.

Mr. Warner opened his TSP account on or about September 19, 2005, thirty days after he married the Debtor. The Debtor has never made any direct contributions into Mr. Warner's TSP account.

Mr. Warner, who is still living, has designated the Debtor as the primary beneficiary of his interest in the TSP account.

The Debtor filed a voluntary petition under Chapter 7 of the Bankruptcy Code on September 4, 2014. Marc P. Gertz was duly appointed the Chapter 7 trustee for the estate of the Debtor pursuant to designation of the United States Trustee.

The Trustee filed his complaint in this adversary proceeding on October 13, 2015. In it, he alleged that the "equitable claim to an equal division and distribution of the marital property" is property of the estate (Compl. ¶ 8), and that the Trustee was entitled to an order directing distribution of such property interest to the Trustee. (Compl. ¶ 9). The Trustee's complaint further asks this Court "to enter its order authorizing and empowering the trustee to execute a QDRO directing distribution of such funds to the estate and compelling the defendant, Todd Warner, to join in such Qualified Domestic Relations Order."² (Compl. ¶ 12.)

The United States filed its answer on November 10, 2015. The Debtor filed her answer on November 19, 2015. Mr. Warner filed an answer much later, on March 7, 2016, but did not materially participate in this adversary proceeding.

Following a further pretrial after the close of discovery, the Court entered a scheduling order setting simultaneous deadlines for stipulations, dispositive motions, response briefs, and replies. The Court informed Mr. Warner that his participation in the dispositive motion briefing was not necessary, and Mr. Warner did not file or respond to any dispositive motions. The United States and the Trustee each filed dispositive motions, filed responses to each other's motion, and filed...