In re Burns
| Decision Date | 08 December 1989 |
| Docket Number | Bankruptcy No. 88-08121-LN. |
| Citation | 108 BR 308 |
| Parties | In re Larry A. and Deborah L. BURNS, Debtors. |
| Court | U.S. Bankruptcy Court — Western District of Oklahoma |
Timothy Kline, Mark E. Monfort, Richard E. Coulson and Patrick M. Castleberry, Oklahoma City, Okl., for debtors.
Janice D. Loyd, Oklahoma City, Okl., for trustee.
Thomas Bolt and Gary Lyon, Oklahoma City, Okl., for Federal Deposit Ins. Corp.
James A. Hogue, Sr., Tulsa, Okl., for Ray K. Babb, amicus curiae.
Before BOHANON, Chief Judge, and LINDSEY and TeSELLE, Bankruptcy Judges.
ORDER ON OBJECTION TO CLAIM OF EXEMPTION FOR ERISA QUALIFIED RETIREMENT PLANS
On December 30, 1988, Larry and Deborah Burns ("debtors") filed for relief under Chapter 7 of the Bankruptcy Code, 11 U.S.C. § 101, et seq. In their joint schedules, debtors claimed as exempt their vested interest in Larry A. Burns, D.O., Inc., Money Purchase Pension Plan and Trust and their vested interest in Larry A. Burns, D.O., Inc., Profit Sharing Plan and Trust (the "Retirement Trusts"). Larry Burns is the sole owner and shareholder of Larry A. Burns D.O., Inc., and is its president, its sole director and a key employee. Deborah Burns is its secretary and a key employee. Debtors are also the sole trustees of the Retirement Trusts.
The Retirement Trusts are qualified under the Employee Retirement Income Security Act of 1974, 29 U.S.C. §§ 1001, et seq., ("ERISA"), and are tax exempt pursuant to § 401 of the Internal Revenue Code ("I.R.C."), 26 U.S.C. §§ 1, et seq. Their aggregate value is approximately $700,000.
On September 1, 1989, an en banc hearing was held before the three bankruptcy judges of this district upon the objection of the Federal Deposit Insurance Corporation ("FDIC") and the trustee (hereafter collectively referred to as "objectors") to debtors' claim of exemption for the Retirement Trusts. The issue presented in this case is presented in other cases assigned to this court and to the other judges in this district. In the interests of judicial economy, and in order to encourage a uniform approach to and decision upon such issues, the judges of this district, in the exercise of the inherent power of courts to control their dockets, determined that the issue should be heard en banc.
At the conclusion of the hearing, at which the parties and an amicus curiae appeared and were heard, the matter was taken under advisement. Subsequently, the parties were requested to provide authorities and argument with regard to the effect upon this case, if any, of the withdrawal and substitution of the opinions in Federal Deposit Ins. Corp. v. Farha, 87-1530 (10th Cir. June 13, 1989), withdrawn, (10th Cir. Oct. 10, 1989).1
Debtors advance three alternative arguments in support of exemption or exclusion of the Retirement Trusts from the bankruptcy estate. Debtors first assert that they are exempt pursuant to the State exemptions created under Okla.Stat. tit. 31, § 1(A)(20) (Supp.1990) and Okla.Stat. tit. 60, § 326-28 (1981), and that those exemptions are not preempted by ERISA. Next, they assert that their interests in the Retirement Trusts are excluded from the estate by operation of § 541(c)(2) of the Bankruptcy Code. Finally, debtors assert that the Retirement Trusts are exempt under other federal law and are therefore exempt by operation of § 522(b)(2)(A) of the Bankruptcy Code.
Okla.Stat. tit. 31, § 1(A)(20) (Supp.1990).
The second exempts from garnishment, attachment, execution or claims of creditors any retirement, pension or profit sharing plan which qualifies for federal tax exemption and contains an anti-alienation provision. Okla.Stat. tit. 60, §§ 326-328 (1981). The parties have stipulated that the Retirement Trusts are federally tax exempt and that they contain anti-alienation clauses.
ERISA contains two preemption provisions. The first is ERISA § 514(a) which states that ERISA "shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan. . . ." 29 U.S.C. § 1144(a) (1985). The second states that nothing in ERISA "shall . . . supersede any law of the United States. . . ." 29 U.S.C. § 1144(d) (1985).
Debtors argue that Oklahoma's two exemption statutes are not preempted by ERISA because they do not single out ERISA plans, seeking to distinguish Mackey v. Lanier Collection Agency & Service, Inc., 486 U.S. 825, 108 S.Ct. 2182, 100 L.Ed.2d 836 (1988). In Mackey a State statute would have prohibited the garnishment of funds or benefits of ERISA pension, benefit or welfare benefit plans, whereas, ERISA permitted such garnishment. The Supreme Court held that ERISA preempted the State statute because of this conflict. Id. at 2184. Debtors point to the fact that Mackey held only that the provision prohibiting the garnishment of ERISA welfare benefit plans was preempted, not the entire State garnishment procedure, and note that the Mackey Court found that ERISA plan funds may be attached for "run-of-the-mill" State law claims such as unpaid rent and failure to pay a creditor. Id. at 2187. Thus, debtors urge, since ERISA's structure and provisions indicate that Congress did not intend to forbid the use of State law mechanisms for executing judgments, it should not be held to have intended to forbid the application of State law exemptions for pension benefit plans.
Objectors contend, relying on Mackey, supra, that both of Oklahoma's exemption statutes are preempted by ERISA. They recognize that Mackey dealt with ERISA welfare benefit plans and not pension benefit plans, but assert that the language of Mackey is so broad that State statutes dealing with pension benefit plans are also preempted. The broad language of Mackey that objectors rely upon is as follows:
Objectors contend that both of the Oklahoma exemption statutes are preempted because they make "reference to," and therefore "relate to" ERISA. They assert that title 31, § 1(A)(20) makes "reference to" ERISA when it exempts retirement plans as defined by I.R.C. § 403(a) and § 403(b), since ERISA plans come under those provisions. As to title 60, §§ 326-328, objectors contend that it makes "reference to" ERISA because it exempts from creditor's claims any retirement, pension or profit sharing plan which is federally tax exempt and which contains an anti-alienation provision. They note that ERISA plans are federally tax exempt and that they must contain an anti-alienation provision.
This court is well aware that Mackey dealt specifically with ERISA welfare benefit plans, not pension benefit plans. It observes, however, that the expansive reading which Mackey gives to the meaning of the term "relates to," quoted above, indicates that the preemptive provisions of ERISA are viewed as quite comprehensive and far-reaching.
As is noted above, title 31 § 1(A)(20) exempts from bankruptcy proceedings retirement plans as defined by I.R.C. § 403(a) and § 403(b). ERISA pension plans are tax exempt under I.R.C. § 403(a) and § 403(b). It is this court's view that when title 31 § 1(A)(20) exempts from bankruptcy proceedings retirement plans which are tax exempt under I.R.C. § 403(a) and § 403(b) it makes "reference to," and thus "relates to" ERISA. The court therefore holds that title 31 § 1(A)(20) is preempted by ERISA.
Title 60, §§ 326-328 make a debtors' interest in retirement, pension or profit sharing plan exempt from garnishment so long as the plan is federally tax exempt and contains an anti-alienation provision. In order for a pension plan to qualify as an ERISA pension plan it must be federally tax exempt and it must contain an anti-alienation provision. It is this court's view that when title 60, §§ 326-328 make these requirements, they make "reference to" ERISA and thus "relate to" ERISA. The court therefore holds that title 60, §§ 326-328 are also preempted by ERISA.2
Under § 541(a) of the Bankruptcy Code all "legal or equitable interest of the debtor in property" is property of the estate. An exception is contained in § 541(c)(2), which excludes from the estate property which has a "restriction on the transfer of a beneficial interest of the debtor in a trust that is enforceable under applicable nonbankruptcy law." The meaning of the terms contained in this provision has been the subject of a considerable volume of litigation, with disparate results.
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