In re Dyke
| Decision Date | 21 April 1989 |
| Docket Number | Bankruptcy No. 87-09170-H5-7. |
| Parties | In re Marshall James DYKE, Debtor. William E. HEITKAMP, Trustee, Movant, v. Marshall James DYKE, Respondent. |
| Court | United States Bankruptcy Courts. Fifth Circuit. U.S. Bankruptcy Court — Southern District of Texas |
David Askanase and Kris Thomas, Houston, Tex., for debtor; Hughes, Watters & Askanase, of counsel.
Marilee A. Madan and Dan Patchin, Houston, Tex., for movant; Calvin, Dylewski, Gibbs, Maddox, Russell & Verner, of counsel.
ORDER AND MEMORANDUM OPINION WITH RESPECT TO CROSS-MOTIONS FOR SUMMARY JUDGMENT ON TRUSTEE'S OBJECTION TO DEBTOR'S CLAIMED PENSION PLAN EXEMPTION
The matter before me is the Trustee's Motion for Summary Judgment on his objection to the debtor's claim of an exemption based upon the debtor's interest in a pension plan. I have jurisdiction to enter a final order on the trustee's motion pursuant to 28 U.S.C. § 1334(a), 28 U.S.C. § 157(a) and the District Court's Order of Reference of Bankruptcy Cases and Proceedings. The proceeding which gave rise to the trustee's motion is a core proceeding under 28 U.S.C. § 157(b)(2)(B).
Under Rule 56 of the Federal Rules of Civil Procedure, which applies to contested matters pursuant to Bankruptcy Rules 7056 and 9014, a party is entitled to summary judgment upon demonstrating that there exists no genuine issue of material fact, and that the moving party is thus entitled to judgment as a matter of law. Since the issues in dispute are solely issues of law, summary judgment is not only appropriate but mandatory. After review of the arguments of counsel and legal precedent relevant to the dispute, I am granting trustee's motion for summary judgment in all respects.
The debtor, Marshall James Dyke, M.D., filed for relief under Chapter 7 on October 1, 1987. The debtor is the sole shareholder and director of a professional association known as the Conroe Ear, Nose and Throat Clinic. The debtor has sought to prevent the trustee, on behalf of the estate's creditors, from reaching the debtor's interest in a pension plan titled the Conroe Ear, Nose and Throat Clinic, P.A., Pension Plan and Trust (Pension Plan). The debtor is the sole trustee of the Pension Plan, and his interest in it, which is 95 percent vested, amounts to $1,170,000.
As sole trustee of the pension plan and sole shareholder and director of the professional association which funds the plan, the debtor has exclusive control over all administrative aspects of the plan. This control vested in the debtor the power to determine the amount of funding for the plan, any modifications and amendments to the plan, the degree of borrowing permissible under the plan, and the manner in which the pension plan's funds are to be invested.
The debtor offers three arguments in the alternative to support his contention that his pension plan is beyond the reach of the trustee: (1) debtor's interest in the Pension Plan is not property of the estate under 11 U.S.C. § 541(c)(2); (2) even if such interest is property of the estate, there exists a federal exemption for such plans under 11 U.S.C. § 522(b)(2)(A); and (3) debtor's interest is subject to a valid state law exemption under Section 42.0021 of the Texas Property Code.
The expansive reach of the concept of property of the estate under 11 U.S.C. § 541(a) is subject to a narrow exception under 11 U.S.C. § 541(c)(2). The exception 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." The debtor argues that a qualified plan under the Employees Retirement Income Security Act (ERISA), since it is subject to statutory restrictions on transfers, falls within the exclusionary language of Section 541(c)(2).
The problem with debtor's contention is that it flies squarely into the face of Fifth Circuit precedent. See In re Brooks, 844 F.2d 258, 261 (5th Cir.1988); In re Reagan, 741 F.2d 95, 97 (5th Cir.1984); In re Johnson, 724 F.2d 1138, 1140-41 (5th Cir.1984); In re Goff, 706 F.2d 574, 587 (5th Cir.1983). In the case of In re Goff, debtor also posed the argument that the reference in Section 541(c)(2) to "applicable nonbankruptcy law" was intended to encompass pension trusts governed by ERISA because of the restrictions on assignment and alienation contained in ERISA. The court in Goff held that Section 541(c)(2) is limited to those trusts which qualify as spendthrift trusts under state law. In re Goff, 706 F.2d at 587. Thus, under the precedent established by Goff, pension plans governed by ERISA can find safe harbor in Section 541(c)(2) only if they qualify separately under state law as a spendthrift trust.
The debtor has not claimed that his pension plan qualifies as a spendthrift trust under state law, and given the self-settled nature of the pension plan and debtor's control over it, any argument in support of such a claim would be unavailing. Instead, the debtor has sought to directly attack the validity of the holding in Goff as incorrectly decided. Besides the fact that I am bound by Fifth Circuit precedent, every other circuit which has addressed the issue has held that ERISA is not "applicable nonbankruptcy law" for purposes of 11 U.S.C. § 541(c)(2). In re Daniel, 771 F.2d 1352, 1361 (9th Cir.1985); In re Lichstral, 750 F.2d 1488, 1490 (11th Cir.1985); In re Graham, 726 F.2d 1268, 1273 (8th Cir. 1984). The only argument which warrants consideration, since it could not have been addressed by the Circuit Courts cited above, is debtor's argument that the recent Supreme Court opinion in Mackey v. Lanier Collections Agency & Service, Inc., 486 U.S. ___, 108 S.Ct. 2182, 100 L.Ed.2d 836 (1988) alters the precedential effect of those cases.
The United States Supreme Court in Mackey held that a Georgia statute exempting longshoreman's vacation and holiday funds from garnishment was preempted by ERISA. The decision to strike down the antigarnishment statute was based on ERISA's express preemption provision embodied in Section 514(a) (29 U.S.C. § 1144(a)). Section 514(a) provides that ERISA preempts "any and all state laws insofar as they may now or hereafter relate to an employee benefit plan." The Supreme Court in Mackey held that the Georgia anti-garnishment statute's express reference to ERISA employee benefit plans was fatal to the statute's constitutionality. The court, however, declined to strike down Georgia's general garnishment statute as it applied to welfare benefit plans. The court concluded that Congressional silence with respect to the alienation or assignment of welfare benefit plans as opposed to the statutory bar against alienation or assignment of pension benefit plans evidenced an intent on the part of Congress not to preempt creditor enforcement proceedings against participants of welfare benefit plans:
Where Congress intended ERISA to preclude a particular method of state law enforcement of judgments, or extend an alienation protection to a particular type of ERISA plan, it did so expressly in this statute. Specifically, ERISA § 206(d)(1) bars (with certain enumerated exceptions) the alienation or assignment of benefits provided for by ERISA pension benefit plans. 29 U.S.C. § 1056(d)(1). Congress did not enact any similar provision applicable to ERISA welfare benefit plans.
Mackey v. Lanier Collections Agency & Service, Inc., 108 S.Ct. at 2188 (emphasis in original).
Debtor argues that Mackey impliedly overrules Goff, which held that ERISA restrictions are ineffective in bankruptcy, and a pension plan must further qualify as a spendthrift trust under state law to be excluded from the estate. He asserts that Mackey confirms that pension plans which contain the transfer restrictions set forth in 29 U.S.C. § 1056(d)(1) are exempt from the reach of creditors. Given that creditors cannot reach the beneficial interest in an ERISA qualified pension plan, debtor maintains "there is no difference between the trust created by such a plan and a valid spendthrift trust since the only distinguishing aspect of a valid spendthrift trust is that it protects the beneficiary's interest from claims of the beneficiary's creditors." Debtor further argues that to the extent that state spendthrift law relied upon by the court in Goff imposes the requirement that a trust not be self-settled to be a valid spendthrift trust, ERISA preempts such law to allow it. The debtor concludes that to the extent that Goff applied state spendthrift trust law to negate the effect of ERISA restrictions on transfer in bankruptcy, it must be reexamined. If preempted by ERISA, then ERISA restrictions on transfer remain effective in bankruptcy, and "ERISA is left as the only possible `applicable nonbankruptcy law' under § 541(c)(2)."
Debtor's argument fails in two important respects. First, the Fifth Circuit in Goff did not resort to state spendthrift trust law to negate in bankruptcy the effect of ERISA's anti-alienation and assignment provisions. Instead, the court applied federal bankruptcy law:
The Bankruptcy Code was, generally, intended to broaden the "property of the estate" available to creditors in bankruptcy and, specifically, intended to limit any exemption of pension funds. These policies based upon provisions of the Code would be frustrated were ERISA\'s anti-alienation and assignment provisions applied with a sweeping brush.
Consequently, the court was able to safely conclude that since federal law and federal policies operated to negate ERISA's anti-alienation and assignment provisions, no preemption issue was presented by virtue of ERISA's non-displacement of federal law. 29 U.S.C. § 1144(d); In re Goff, 706 F.2d at 587.
Mackey only confirms that ERISA-covered pension benefit plans are exempt from creditor process when state law is...
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