In re Brooks
| Citation | 60 BR 155 |
| Decision Date | 27 March 1986 |
| Docket Number | Bankruptcy No. 485-41159. |
| Parties | In re Jack G. BROOKS, M.D., Debtor. |
| Court | United States Bankruptcy Courts. Fifth Circuit. U.S. Bankruptcy Court — Northern District of Texas |
J. Robert Forshey, Cantey, Hanger, Gooch, Munn & Collins, Fort Worth, Tex., for InterFirst Bank Fort Worth.
John Gamboa, Law Offices of Jim Claunch, and G. Thomas Boswell, Law, Snakard & Gambill, Fort Worth, Tex., for debtor Jack G. Brooks, M.D.
Jared D. Giddens, Hastie & Kirschner, Oklahoma City, Okl., for First Nat. Bank and Trust Co. of Oklahoma City.
On March 5, 1986, the Court held an evidentiary hearing on the objections filed by InterFirst Bank Fort Worth, N.A. and the First National Bank and Trust of Oklahoma City to the Debtor's schedules of exempt property. The objections were filed pursuant to Bankruptcy Rule 4003(b) and constituted a "contested matter" for purposes of Rule 9014. The Banks object to the exempt status of the Debtor's interest in a profit sharing plan and to the exempt status of a portion of the Debtor's post-petition earnings.
All post-hearing briefs have now been filed; and the Court, having heard the evidence and the arguments of counsel, now enters the following findings of fact and conclusions of law pursuant to Bankruptcy Rules 7052 and 9014:
FINDINGS OF FACT
19, 1985 seeking relief under Chapter 11 of the Bankruptcy Code after apparently suffering extensive losses in his oil and gas and race horse investments. In addition to other assets and debts, Dr. Brooks listed debts of $940,000.00 to First National Bank and Trust and $353,000.00 to InterFirst Bank of Fort Worth.
2. Dr. Brooks is a physician practicing in the area of diagnostic radiology as an associate in Radiology Associates of Fort Worth, a Texas professional corporation ("Radiology Associates"). Radiology Associates employs thirty-two physicians and approximately ninety support personnel. Each physician who is an associate in Radiology Associates, including the Debtor, owns one share of common stock in Radiology Associates, Inc.
3. Radiology Associates is composed of six different clusters or groups of physicians practicing radiology in the Tarrant County, Texas area. Each cluster or group of physicians practices in connection with a hospital in the Fort Worth/Tarrant County area. For many years, Radiology Associates has maintained arrangements with the hospitals whereby Radiology Associates is granted the exclusive right to provide diagnostic radiology services to all patients in those hospitals. The arrangement with the hospital includes Radiology Associates' exclusive right to utilize the diagnostic equipment located in the hospital.
4. Radiology Associates is governed by a Board of Directors and the membership of the Board of Directors is rotated on a periodic basis among the various members of the association.
5. The Association also has an Executive Committee, consisting of six members, which makes determinations and recommendations respecting financial matters including annually setting the salaries paid to the members of the association. One member from each "cluster" of doctors is elected to the Executive Committee. The Debtor has been a member of the Executive Committee in the past. Each doctor has an equal voice in the selection of his group's representative to the Executive Committee.
6. The members of Radiology Associates hold monthly associate's meetings at which financial and other important matters are brought before the membership for decision. The Debtor attends these meetings and participates as a full associate with an equal voice in management of the association.
7. The Debtor purchased his share of common stock of Radiology Associates for $2,099.00 in 1972. The share of stock owned by the Debtor is presently valued pursuant to Section 4 of Article V of the By-Laws, Radiology Associates of Fort Worth ("the Bylaws") at approximately $5,000.00 and is conceded by all parties to be an asset of the Debtor's bankruptcy estate. The value of each share of stock in Radiology Associates is calculated by determining the appraised value of the various assets of Radiology Associates pursuant to Section 4 of Article V of the Bylaws and subtracting therefrom any liabilities of Radiology Associates. Pursuant to Section 4 of Article V of the Bylaws, goodwill, accounts receivable and appreciation of fixed assets are deemed to have no value for purposes of valuing shares of stock in Radiology Associates. The resulting appraised value is then divided by the number of outstanding shares of common stock in Radiology Associates. The true value of the shares of Radiology Associates is substantially undervalued due to the deletion of goodwill and accounts receivable, both of which have substantial value.
9. Radiology Associates' budget is determined for each calendar year at the end of the preceding calendar year. In effect, the budgeting process determines the estimated net profit of Radiology Associates prior to the payment of compensation to the associates in Radiology Associates. The resulting estimated profit is then divided by the number of associates to arrive at the compensation to be received by each associate for the succeeding year.
10. The result of the budgeting process is that Radiology Associates distributes all net profits to the associates in the form of a compensation "package" consisting of both their salary and an annual contribution to the profit sharing plan in the amount of fifteen percent (15%) of the associate's compensation not to exceed $30,000.00. Each associate receives an equal salary and an equal contribution to the profit sharing plan.
11. The Debtor's annual salary for calendar years 1982 through 1985 was as follows:
Year Amount
1982 $224,250.00
1983 249,197.00
1984 228,072.00
1985 242,000.00
The Debtor's 1986 salary is at approximately the same level as his 1985 salary. The Debtor's present take-home pay is approximately $16,000.00 per month. The Debtor's current family living expenses are approximately $5,000.00 — $5,700.00 per month.
12. Radiology Associates has never distributed any dividends to its shareholders. All payments and distributions of profit by Radiology Associates have been in the form of salary distributions to the associates, payments to the profit sharing plan and other incidental fringe benefits.
13. As a result of Radiology Associates' policy of distributing one hundred percent (100%) of the "net profits" to the associates in the form of compensation, Radiology Associates has accumulated few tangible assets.1
14. The practice of diagnostic radiology requires access to the use of extremely expensive equipment. A Cat Scanner, one such piece of equipment, can cost in excess of one million dollars. The hospitals have entered into an arrangement with Radiology Associates whereby the hospital supplies all of the equipment required to practice diagnostic radiology at no cost to Radiology Associates.
15. The equipment which is used in the operation of Radiology Associates' outpatient facilities is leased by Radiology Associates from Fort Worth Radiology Corporation ("Radiology Corporation"). Radiology Corporation is owned by certain of the members of Radiology Associates. The equipment which Radiology Corporation leases to Radiology Associates has substantial value.
16. Another asset with significant value to Radiology Associates is the outstanding accounts receivable. The average daily balance of Radiology Associates' accounts receivables is $3,200,000.00. The value of accounts receivable attributable to each share of Radiology Associates stock exceeds $100,000.00. The accounts receivable balance is in addition to the average daily cash balance of $400,000.00.
17. The most significant asset owned by Radiology Associates is the exclusive right to practice diagnostic radiology in the various hospitals in which Radiology Associates performs radiology. The value of the exclusive franchise with each hospital is not included or reflected upon the books and records of Radiology Associates and, therefore, is not included in the computation of value of the Radiology Associates common stock owned by the Debtor. Nor is the value of free access to the equipment supplied by each of the hospitals with which Radiology Associates has an arrangement reflected in the value of the Radiology Associates common stock.
18. Radiology Associates' arrangement with the hospitals provides Radiology Associates with access to prohibitively expensive equipment and a steady supply of patients. Each is a significant factor in the ability of Radiology Associates to earn a profit and generate the significant cash flow distributed to each associate as compensation. The Debtor's successful practice of diagnostic radiology, whether with Radiology Associates or otherwise, is dependent upon access to a busy hospital equipped with the necessary equipment.
19. Radiology Associates established a qualified Defined Contribution Plan in 1968 which it has maintained since that time known as the "Profit Sharing and Thrift Plan of Radiology Associates of Fort Worth" ("the Plan"). Each participant or beneficiary under the Plan, including the Debtor, has a separate segregated account. The Debtor has been a participant in the Plan since 1972.
20. In order to meet the requirements of the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. § 1056(d)(1) (1975), and to qualify for tax exempt status under the Internal Revenue Code, 26 U.S.C. § 401(a)(13) (1978), Section 17.2 of the Plan included the following anti-alienation and anti-assignment clauses:
"No Participant, Former Participant or Beneficiary shall have the...
To continue reading
Request your trial