In re Carbaugh
| Decision Date | 01 May 2002 |
| Docket Number | BAP No. KS-01-029.,Adversary No. 00-7001.,Bankruptcy No. 99-42350. |
| Citation | 278 B.R. 512 |
| Parties | In re Donald Ray CARBAUGH, Debtor. Joan Carbaugh, Plaintiff-Appellee, v. Donald Ray Carbaugh, Defendant-Appellant, Joseph I. Wittman, Trustee, Defendant-Appellee. |
| Court | U.S. Bankruptcy Appellate Panel, Tenth Circuit |
Charles R. Hay of Goodell, Stratton, Edmonds & Palmer, Topeka, KS, for Defendant-Appellant.
Joseph I. Wittman, Trustee, pro se.
Eric C. Rajala, Overland Park, KS, for Plaintiff-Appellee.
Before McFEELEY, Chief Judge,
OPINION
Appellant/Debtor Donald Ray Carbaugh, ("Debtor") appeals the Judgment entered by the United States Bankruptcy Court for the District of Kansas, which 1) determined that funds held in the Debtor's Hallmark Retirement Plan were not property of the bankruptcy estate; 2) determined that funds in a brokerage account that were withdrawn from the Debtor's Hallmark Retirement Plan were property of the estate and were not exempt; and 3) granted relief from the automatic stay to the Plaintiff/Appellee, Joan Carbaugh ("Appellee") for the purpose of pursuing state court litigation to determine the nature of Appellee's interest in the Hallmark Retirement Plan under the parties' Separation Agreement.
The Bankruptcy Appellate Panel has jurisdiction over this appeal. The bankruptcy court's judgment disposed of the adversary proceeding on the merits and is a final order subject to appeal under 28 U.S.C. § 158(a)(1). See Quackenbush v. Allstate Ins. Co., 517 U.S. 706, 712, 116 S.Ct. 1712, 135 L.Ed.2d 1 (1996). The Debtor timely filed his notice of appeal pursuant to Federal Rule of Bankruptcy Procedure 8002. All parties have consented to this Court's jurisdiction by failing to elect to have the appeal heard by the United States District Court for the District of Kansas. 28 U.S.C. § 158(c)(1); Fed. R. Bankr.P. 8001.
"For purposes of standard of review, decisions by judges are traditionally divided into three categories, denominated questions of law (reviewable de novo), questions of fact (reviewable for clear error), and matters of discretion (reviewable for `abuse of discretion')." Pierce v. Underwood, 487 U.S. 552, 558, 108 S.Ct. 2541, 101 L.Ed.2d 490 (1988); see Fed. R. Bankr.P. 8013; Fowler Bros. v. Young (In re Young), 91 F.3d 1367, 1370 (10th Cir.1996).
Whether funds are property of the estate is a question of law and is reviewed de novo. See In re Cogar, 210 B.R. 803, 808 (9th Cir. BAP 1997).
Whether a bankruptcy court has erred in lifting the stay is reviewed for abuse of discretion. Franklin Sav. Ass'n v. Office of Thrift Supervision, 31 F.3d 1020, 1023 (10th Cir.1994). "Under the abuse of discretion standard: `a trial court's decision will not be disturbed unless the appellate court has a definite and firm conviction that the lower court made a clear error of judgment or exceeded the bounds of permissible choice in the circumstances.'" Moothart v. Bell, 21 F.3d 1499, 1504 (10th Cir.1994) ().
The Debtor and the Appellee were divorced on April 15, 1982. The Journal Entry for the Divorce filed in Douglas County, Kansas incorporates by reference a Separation Agreement filed March 16, 1982. At that time Debtor was employed by the Hallmark Corporation. In 1982 there were three retirement plans in place for Hallmark employees: a Retirement Plan, an Employee Profit Sharing and Ownership Plan, and a Thrift Plan (collectively "Hallmark Plans," unless referred to individually). It is undisputed that the Hallmark Plans were and are qualified under the Employee Retirement Income Security Act of 1974 ("ERISA"), 88 Stat. 829, as amended, 29 U.S.C. § 1001 et seq.2 At the time of the formation of the Settlement Agreement the Appellee was to receive 50% interest in the Retirement Plan,3 which, at that time, was estimated to be about $27,000. In 1982 there was no federal law authorizing the administrator of an ERISA-qualified retirement plan to segregate the interest of a plan beneficiary's ex-spouse from the interest of the beneficiary. The ERISA amendment that established the Qualified Domestic Relations Order ("QDRO") procedure for allowing retirement plan administrators to make direct payment of retirement plan benefits to ex-spouses of plan beneficiaries was not enacted until 1984.
In 1992, the Appellee requested assurance from Hallmark Cards that her share would be distributed to her at the time of the Debtor's withdrawal. In 1992, Hallmark found that the Separation Agreement did not meet the requirements to enable it to treat the Appellee as an alternate payee for the purposes of the Hallmark Plans. Two years later, Hallmark confirmed to the Debtor, with a copy to the Appellee, that the Divorce Order was insufficient to qualify as a QDRO.
On May 18, 1995, the Appellee initiated a proceeding in the District Court of Douglas County, Kansas ("state court"), requesting the following relief: 1) a restraining order to enjoin Hallmark Cards from distributing any amounts from the Hallmark Plans to the Debtor; and 2) a determination of the amount owed her under the Separation Agreement. The state court denied the application for a restraining order. After a hearing on December 14, 1995, the state court entered an Order ("state court Order") describing how the Appellee's interest in the Hallmark Plans was to be determined. Objecting to the state court's determination of the interest rate on the funds allocated to her pursuant to the Separation Agreement, the Appellee appealed the state court Order to the Kansas Court of Appeals, which affirmed the state court on June 12, 1998. Before the Debtor filed his bankruptcy petition, a hearing had been scheduled in the state court for the purpose of implementing the state court Order. After the Debtor filed his petition with the bankruptcy court, the hearing was cancelled.
On December 31, 1997, the Debtor retired from Hallmark Cards. In 1998, the Debtor received a portion of his retirement benefits in a lump sum distribution of $97,436.70 from the Hallmark Plans. After paying taxes on that sum, he invested the remaining monies in an account with Berthel Fisher & Co ("BFC account"). No other funds have been put into the BFC account. The amount remaining in the Hallmark Plans could be distributed to him if he so requested.
On October 15, 1999, the Debtor filed a petition for relief under Chapter 7 of the Bankruptcy Code. The Debtor's schedules list an account balance in the Hallmark Plans4 as exempt under Kansas law, Kan. Stat. Ann. § 60-2308(b). He also listed the BFC account5 as exempt under Kansas law, Kan. Stat. Ann. §§ 60-2308(b) and 60-2310.
In his petition, the Debtor scheduled two debts: a credit card obligation to VISA in the amount of $2,400 and a disputed debt to the Appellee in the amount of $109,000.
The Appellee filed a proof of claim based on the Separation Agreement, listing the dollar amount as unknown. The Appellee also filed an objection to the Debtor's exemptions. Finally, the Appellee moved for relief from the automatic stay and initiated an adversary proceeding to seek a determination as to the dischargeability of her claim and also a declaratory judgment as to her interest, if any, in the Debtor's account balance in the Hallmark plans. The Trustee also objected to the Debtor's exemption of the BFC account.
In a hearing held on April 11, 2001, the bankruptcy court granted the Appellee's Stay Relief Motion and determined that the funds in the BFC account were not exempt. At the hearing, the bankruptcy court announced its findings and conclusions, which were later memorialized in a judgment. The bankruptcy court found that the Debtor's interest in the Hallmark Plans was not property of the estate. The bankruptcy court further found that the BFC account funds were not exempt under ERISA, nor were they exempt as wages. The Court abstained from resolving the dispute about the parties' respective interests in the Hallmark Plans under the Separation Agreement and lifted the stay to allow the Appellee to seek resolution of this dispute in state court. In conclusion, the bankruptcy court held that whether any of the debt was dischargeable was not yet ripe for review and ordered the trustee to hold the BFC account funds pending resolution by the state court of the dispute before it.
On appeal, the Debtor argues that the bankruptcy court erred in its determination that the Hallmark Plans were not property of the estate and that the funds in the BFC account were not exempt. The Debtor also argues that the bankruptcy court abused its discretion when it lifted the stay under 11 U.S.C. § 3626 to permit the Appellee to proceed with state court litigation.
First, the Debtor contends that the funds in the Hallmark Plans should be included within property of the estate based either on his vested interest in them or on his entitlement to a state law exemption in pension plans.
Section 541(a)(1) provides that all "legal or equitable interests of the debtor in property" become property of the estate. 11 U.S.C. § 541(a)(1). With a few enumerated exceptions, only property that a debtor has a legal or equitable interest in at the time of the filing of the petition becomes property of the estate. Id. Specifically excluded from property of the estate is any interest of the Debtor that fits within the requirements of § 541(c)(2). In pertinent part, § 541(c)(2) provides that "[a] restriction on the transfer of a beneficial interest of the debtor in a trust that is enforceable under applicable nonbankruptcy law is enforceable in a case under this title." 11 U.S.C. § 541(c)(2). In Patterson v. Shumate, 504 U.S. 753, 112 S.Ct....
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