In re Gaudette

• Decision Date: 11 June 1999
• Docket Number: Bankruptcy No. 96-12653-MWV. Adversary No. 97-1096-MWV.
• Citation: 240 BR 649
• Parties: In re Reginald GAUDETTE, Debtor. Richard R. Erricola, Trustee, Plaintiff, v. Reginald Gaudette, Defendant.
• Court: U.S. Bankruptcy Court — District of New Hampshire

240 B.R. 649 (1999)

In re Reginald GAUDETTE, Debtor Richard R. Erricola, Trustee, Plaintiff, v. Reginald Gaudette, Defendant.

Bankruptcy No. 96-12653-MWV. Adversary No. 97-1096-MWV.

United States Bankruptcy Court, D. New Hampshire.

June 11, 1999.

Geraldine Karonis, Assistant U.S. Trustee, Manchester, NH, for UST J. Christopher Marshall.

William S. Gannon, Wadliegh, Starr & Peters, P.L.L.C., Manchester, NH, Thomas J. Raftery, Carlisle, MA, for plaintiff.

Joseph A. Foster, Ralph Holmes, McLane, Graf, Raulerson & Middleton P.A., Nashua, NH, Marc L. Van De Water, Thomas, Utell, Van De Water & Raiche, Manchester, NH, for defendant.

MEMORANDUM OPINION

MARK W. VAUGHN, Chief Judge.

The Court has before it the Plaintiff's Request for Ruling, which seeks a determination that the Debtor's pension plan, the OFS Pension Plan and Trust ("OFSPPT" or "Plan"), is not a qualified pension plan under the Employee Retirement Income Security Act of 1974 ("ERISA"). For the following reasons, the Court grants the Plaintiff's request and finds that the OFSPPT is not a pension plan subject to ERISA and is therefore property of the estate under section 541 of the Bankruptcy Code.

This Court has jurisdiction of the subject matter and the parties pursuant to 28 U.S.C. §§ 1334 and 157(a) and the "Standing Order of Referral of Title 11 Proceedings to the United States Bankruptcy Court for the District of New Hampshire," dated January 18, 1994 (DiClerico, C.J.). This is a core proceeding in accordance with 28 U.S.C. § 157(b).

FACTS

This matter is before the Court for a decision based upon the following thirty-nine stipulated, verbatim facts from Exhibit A of the parties' Joint Final Pretrial Statement:

1. Reginald L. Gaudette of 7 Virginia Court, Hooksett, New Hampshire, is the Debtor herein.

2. On September 23, 1996 (the "Petition Date"), Reginald Gaudette filed a petition under Chapter 7 commencing this bankruptcy case.

3. Louise Gaudette of 7 Virginia Court, Hooksett, New Hampshire, is the spouse of Reginald.

4. Lionel Gaudette and Edith Gaudette of 1235 West River Drive, Margate, Florida, are Debtor\'s mother and father.

5. On March 6, 1972, Gaudette Associates, Inc. ("GAI") was incorporated as a New Hampshire corporation.

6. Upon the establishment of GAI, Lionel Gaudette was the President and majority shareholder, and Reginald Gaudette was the Vice President and minority shareholder. In the first year of GAI\'S operation, Lionel Gaudette and his spouse, Edith Gaudette, each owned 43.75% of the corporation and Reginald owned 12.5%.

7. On May 15, 1973, GAI established the Gaudette Associates, Inc. Pension Plan and Trust ("GAIPPT").

8. GAIPPT was established during the period when Lionel and Edith Gaudette were the majority shareholders of GAI.

9. According to Schedule A to the 1973 IRS Form 4848 (Page 2, Section 15), GAIPPT received an IRS favorable determination letter as to its tax qualified status under the Internal Revenue Code on June 20, 1973.

10. Effective May 15, 1976, the GAIPPT form of pension plan was amended to effect interim compliance with ERISA and the Internal Revenue Code as amended.

11. By amendment executed August 25, 1977, the GAIPPT was further amended to effect compliance with ERISA and the Internal Revenue Code as amended, and the Amendment received a favorable determination letter from the IRS dated May 16, 1977.

12. Effective December 1, 1984, the GAIPPT was further amended, which amendment received a favorable determination letter from the IRS dated March 25, 1986.

13. The only beneficiary of GAIPPT was Reginald Gaudette.

14. The President and majority shareholder of the company, Lionel Gaudette, was a seasonal employee, and therefore not eligible to participate under the Plan.¹

15. As part of an installment buy-out of GAI, Reginald and Louise Gaudette jointly purchased incremental units of stock in GAI.

16. In 1987, Reginald and Louise Gaudette sold their stock in GAI to Tom and Roseanne Hussey.

17. After the stock sale, GAI was still responsible for the continuation and maintenance of GAIPPT.

18. GAI failed to file the required IRS Form 5500 Annual Return on behalf of GAIPPT for the fiscal years ending 11/30/88 and 11/30/89.

19. The IRS Form 5500 for the fiscal years ending November 30, 1988 and November 30, 1989, were filed by GAI in 1991.

20. According to the Form 1120 Corporate Tax Returns filed for GAI during the period 11/30/73 through 11/30/84, and the Annual Returns filed on behalf of the Pension Plan to the IRS for plan years 11/30/74, 11/30/75, 11/30/78, 11/30/81, 11/30/84, 11/30/87, 11/30/90 and 11/30/91 and 1992 5500, 1993 5500, 1994 5500, and 1995 5500, the history of employer contributions to the GAI Pension Plan, and its asset values for the stated years, was reported as follows:

                DATE         CONTRIBUTION     PLAN ASSETS
                11/30/73      $ 2,900.00       Not Known
                11/30/74      $ 2,900.00       Not Known
                11/30/75      $ 2,900.00       $ 5,690.00
                11/30/76      $ 2,900.00       Not Known
                11/30/77      $ 4,800.00       Not Known
                11/30/78      $ 6,200.00       $ 22,283.00
                11/30/79      $ 6,280.75       Not Known
                11/30/80      $ 6,517.53       Not Known
                11/30/81      $ 9,243.75       $ 52,760.00
                11/30/82      $ 8,250.00       Not Known
                11/30/83      $10,602.00       Not Known
                11/20/84      $11,661.50       $114,205.00
                11/30/85      Not Known        Not Known
                11/30/86      Not Known        Not Known
                11/30/87      $ 5,000.00       $271,115.00
                11/30/90      $     0.00       $345,549.00
                11/30/91      $     0.00       $314,024.00
                (At this point the assets were transferred to OFSPPT)
                12/31/92      $     0.00       $314,024.00
                12/31/93      $     0.00       $341,352.00
                12/31/94      $     0.00       $378,497.00
                12/31/95      $     0.00       $430,675.00
                

21. On or about November 22, 1988, Office & Financial Service ("OFS") was established as a New Hampshire corporation.

22. During 1989, OFS established the OFS Pension Plan and Trust ("OFSPPT").

23. During 1991, all the assets of GAIPPT were transferred to OFSPPT.

24. The value of the assets transferred to OFSPPT in 1991 was $314,024.00.

25. The present value of the assets in the OFSPPT is approximately $592,000.00.

26. On or about November 26, 1991, OFS changed its name to LLG Services Corporation ("LLG").

27. As of January 1, 1992, OFSPPT was amended.²

28. LLG (f/k/a OFS) is and has been the only sponsor of the OFSPPT.

29. LLG (I/k/a OFS) is and has been the only administrator of the OFSPPT.

30. From its inception through August 1, 1996, Reginald Gaudette was the sole trustee of OFSPPT.

31. On and after August 1, 1996, Louise Gaudette was and is the sole trustee of OFSPPT.

32. The only beneficiary of OFSPPT was and is Reginald Gaudette.

33. At all times relevant hereto, Louise Gaudette was and is the sole shareholder of LLG.

34. At all times relevant hereto, Reginald Gaudette was the president and treasurer of LLG.

35. At all times relevant hereto, Reginald Gaudette was the sole director of LLG.

36. The form of the OFSPPT is known as a Prototype Standardized Money Purchase Plan and Trust (the "Northwestern Plan Form") prepared by The Northwestern Mutual Life Insurance Company for adoption by sponsoring employers.

37. Pursuant to a letter from the Internal Revenue Service ("IRS") dated July 10, 1990, the Northwestern Plan form was deemed by the IRS to be a qualified Pension Plan in form under Section 401 of the Internal Revenue Code of 1986. (IRS Letter Serial No.: D248455a).

38. In 1992, the Northwestern Plan Form was amended which amendments also received a favorable determination letter from the IRS dated January 21, 1993 (IRS Letter Serial No.: D248455b).

39. The OFSPPT contains the nonalienation clause required under Section 206(d)(1) of ERISA, as further codified under Section 401(a)(13) of the Internal Revenue Code.

(Joint Final Pretrial Statement, Ex. A; Pl.'s and Def.'s Ex. 1.) Plaintiff's Exhibit 101 and Defendant's Exhibit 1 were admitted into evidence at hearing on April 8, 1998; Defendant's Exhibit 1 is a binder of exhibits which supports the stipulated facts. Exhibit 101 is a Power of Attorney executed by Louise Gaudette on October 4, 1986, which grants a power of attorney to her husband, Reginald Gaudette, and which states that he may:

act as my attorney or agent in relation to all matters in which I may be interested or concerned and on my behalf to execute any document and to do anything effectually in my name, place and stead as if I were present.

(Pl.'s Ex. 101.)

DISCUSSION

The Plaintiff's Request for Ruling and Memorandum of Law ("Plaintiff's Request") seeks a determination that: (1) the OFS Pension Plan and Trust ("Plan"), a pension plan established by OFS Lending, Inc., is not an "ERISA-qualified" plan; and (2) the Debtor's interest in funds of the Plan, upon which the Debtor has claimed an exemption under Schedule C,³ is property of the estate pursuant to section 541 of the Bankruptcy Code.⁴

I. Whether the Plan is "ERISA-qualified".

In Patterson v. Shumate, 504 U.S. 753, 765, 112 S.Ct. 2242, 119 L.Ed.2d 519 (1992), the Supreme Court held that "a debtor's interest in an ERISA-qualified pension plan may be excluded from the property of the bankruptcy estate pursuant to § 541(c)(2)." It also read the phrase "applicable nonbankruptcy law" in section 541(c)(2) to apply by its plain meaning to both state and federal law, id. at 759, 112 S.Ct. 2242, and found that the pension plan at issue was qualified under the Internal Revenue Code ("I.R.C." or "IRC"), 26 U.S.C. § 401(a)(13),⁵ and subject to ERISA, in that it contained an antialienation provision.⁶ Id. at 759-60, 112 S.Ct. 2242. Notably absent from the Supreme Court's opinion, however, was a definition of the term "ERISA-qualified." See Patterson, 504 U.S. 753, 112 S.Ct. 2242, 119 L.Ed.2d 519 (1992). Since 1992, courts' interpretations of "ERISA-qualified" plans have included one to four of the following features:

(1) plans which are subject to ERISA;

(2) plans which

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