In re Flindall, Bankruptcy No. B-88-3202 PHX RGM
| Decision Date | 06 September 1989 |
| Docket Number | 88-764.,Bankruptcy No. B-88-3202 PHX RGM,Adv. No. 88-765,B-88-3201 PHX RGM and B-88-4186 PHX RGM |
| Parties | In re Richard James FLINDALL, Debtor. Stanley W. FOGLER, Trustee; First Interstate Leasing Service Corp.; and Kendrick M. Mercer, P.C., Plaintiffs, v. Richard James FLINDALL, Defendant. In re Ronald S. GARLIKOV, Reda S. Garlikov, Debtors. Claude PITRAT, Trustee: Kendrick M. Mercer P.C.; and First Interstate Leasing Service Corporation, Plaintiffs, v. Ronald S. GARLIKOV and Reda S. Garlikov, Defendants. |
| Court | United States Bankruptcy Courts. Ninth Circuit. U.S. Bankruptcy Court — District of Arizona |
John F. Emerson, Beus, Gilbert, Wake & Morrill, Phoenix, Ariz., for debtors.
Charles W. Lowe, Davis & Lowe, Phoenix, Ariz., for Stanley W. Fogler, trustee.
John Friedeman, Phoenix, Ariz., for Claude Pitrat, trustee.
Susan Wintermute, Robbins & Green, Phoenix, Ariz., for First Interstate Leasing Corp.
Bryan A. Albue, Murphy & Posner, Phoenix, Ariz., for Kendrick M. Mercer, P.C.
Robert P. Harris, Streich, Lang, Weeks & Cardon, Phoenix, Ariz., for Seattle First.
These matters come before the Court on the trustees' motions for judgment on the pleadings. The trustees objected to the exemptions claimed by the three debtors to their benefits in Employee Retirement Income Security Act (ERISA) qualified profit sharing plans, defined benefit plans, pension plans and Individual Retirement Accounts (IRA's). The trustee of the Ronald and Reda Garlikov estates also objected to other exemptions claimed by those debtors. Creditors, First Interstate Leasing Corp. and Kendrick M. Mercer, P.C., also filed objections to the exemptions claimed by the debtors as to the benefits in the plans and IRA accounts. The Court designated these objections as adversary proceedings. The trustees filed motions for judgment on the pleadings. The Court ordered the trustees' motions be consolidated for the purpose of hearing and deciding the objections.
The trustee in the two Garlikov cases moved for judgment on the pleadings only as to the objection to the exemptions claimed for the funds in the pension plans. His motion did not address the other exemptions to which he objected. Therefore, the trustee's motions in those two cases will be treated as motions for partial judgment on the pleadings. The trustee and objecting creditors of the Flindall case only objected to the exemptions claimed for the funds in the various plans and IRA's.
On May 10, 1989, the Court conducted a hearing to consider the trustees' motions for judgment on the pleadings. After oral argument, the Court took the matter under advisement. Debtors filed responses to the trustees' motion for judgment on the pleadings and cross-motions for judgment on the pleadings. Replies, supplemental responses and supplemental replies were also filed. The parties have also filed statements of facts. Given the extent of the pleadings filed, the Court considers this matter fully briefed and is now prepared to rule on the trustees' motions and the debtors' cross-motions. Federal Rules of Civil Procedure 12(c) and Bankruptcy Rule 7012(b) provide that if matters outside the pleadings are presented and not excluded by the Court, a motion for judgment on the pleadings shall be treated as one for summary judgment. The Court will treat the trustees' motions for judgment on the pleadings as a motion for summary judgment in the Flindall adversary proceeding and as a motion for partial summary judgment in the Garlikovs' adversary proceeding.
The facts relevant to the Court's ruling are not in dispute. The Garlikovs have claimed exemptions in the amount of $1,257,619.00 for monies held by pension plans of which they are beneficiaries. Flindall has claimed like exemptions in the amount of $1,831,437.80 in various defined benefit plans and IRA's. These accounts and plans are qualified ERISA employee benefit plans. Debtors claim their exemptions based on state law pursuant to § 522(b) of the Bankruptcy Code as Arizona has opted out, Arizona Revised Statutes (A.R.S.) § 33-1133(B), and only state law exemptions are available. Debtors rely on an Arizona statute, A.R.S. § 33-1126(B) which provides that the following are exempt:
The trustees contend that A.R.S. § 33-1126(B) is unconstitutional for the reason that it is preempted by § 514(a) of ERISA, 29 U.S.C. § 1144(a).1 They rely on the Supreme Court case of Mackey v. Lanier Collections Agency and Service, Inc., 486 U.S. 825, 108 S.Ct. 2182, 100 L.Ed.2d 836 (1988), which found that a Georgia anti-garnishment statute was preempted by § 514(a) of ERISA. Debtors contend that Mackey is not controlling in a bankruptcy case. They assert that while ERISA § 514(a) preempts state law relating to ERISA plans, such state law is saved from preemption by § 522(b) of the Bankruptcy Code which refers to state law for determining what exemptions are available.
The debtors' reason that since § 522(b) incorporates state law, state law is then elevated to the level of federal law. They then rely on § 514(d) of ERISA, 29 U.S.C. § 1144(d)2 and conclude that § 514(d) saves the Arizona statute from ERISA preemption and thus the debtors' benefits in the various pension plans and IRA's are exempt.
Debtors also contend that the pension plans and IRA's are spendthrift trusts excluded from their bankruptcy estate by § 541(c)(2) of the Bankruptcy Code. Debtor further contends that the anti-alienation and anti-assignment provisions contained in the plans and IRA's required by § 401(a)(13) of the Internal Revenue Code and § 206 of ERISA protect benefits from attachment by general creditors. Debtors therefore assert that the trustees are unable to reach the funds of the plans and accounts. The trustees' and debtors' contentions regarding whether the plans and accounts in question do in fact fall within A.R.S. § 33-1126(B) need not be addressed given the Court's ruling.
The Court finds and concludes that given the clear language of Mackey, A.R.S. § 33-1126(B) is preempted by § 514(a) of ERISA. The debtors therefore are unable to use that state law to claim exemptions for their benefits in the various pension plans and accounts. The Court also finds that the pension plans, defined benefit plans, and IRA's are not excluded from the estate by § 541(c)(2) of the Bankruptcy Code as they are not spendthrift trusts under Arizona law. Since the plans and IRA's are neither exempt nor excluded from the estate, the trustees are not precluded from reaching those funds by the anti-alienation and anti-assignment provisions of ERISA and the Internal Revenue Code. The Court addresses each of the debtors' contentions as follows and for the reasons stated therein rejects them.
Debtors rely on two Circuit Court decisions, arguing that Mackey has no effect upon their holdings. Debtors claim that in these two cases, Matter of Goff, 706 F.2d 574 (5th Cir.1983) and In re Daniel, 771 F.2d 1352 (9th Cir.1985), the courts saved state law from ERISA preemption. Debtors cite these two cases as authority for the proposition that ERISA § 514(d) saves state law from preemption whenever the Bankruptcy Code refers to state law.
Debtors' reliance on Goff and Daniel are misplaced as they have misconstrued the holdings of those cases. In Goff, the court neither addressed the issue of whether the state law in question there, the Texas spendthrift trust law, was preempted by ERISA, nor ruled that preemption was shielded by the Bankruptcy Code and § 514(d) of ERISA. The issue in Goff was whether the anti-assignment and anti-alienation provisions in ERISA qualified plans could be the basis for excluding the assets of those plans from the estate pursuant to 11 U.S.C. § 541(c)(2) of the Bankruptcy Code.3 The debtor there urged that "applicable non-bankruptcy law" included the ERISA anti-assignment and anti-alienation provisions and therefore ERISA plans were excluded from property of the bankruptcy estate.
The Goff court, after reviewing the legislative history of § 541(c)(2), concluded that "applicable non-bankruptcy law" was limited to state spendthrift trust law and therefore the ERISA anti-assignment and anti-alienation provisions could not be used. Debtors conclude that the Goff court's ruling necessarily included a determination that the state spendthrift law was shielded from ERISA § 514(a) preemption. This is where debtors' argument fails. Goff only looked at the conflict between two federal laws, ERISA and Bankruptcy and concluded that ERISA § 514(d) made bankruptcy law, as to this issue, effective over ERISA and that ERISA did not broaden § 541(c)(2). The court stated:
It is well to make a final telling observation on the relationship between ERISA and the Bankruptcy Code. While ERISA preempts state law, 29 U.S.C. § 1144(a), it clearly was not intended to affect the operation of other federal law. It provides: "Nothing in this (Act) shall be construed to alter, amend,...
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