In re Kim

• Decision Date: 06 December 2000
• Docket Number: No. CC-00-1123-MOPB,RS-99-12686-MJ.,CC-00-1123-MOPB
• Citation: 257 BR 680
• Parties: In re Jin E. KIM, Debtor. Arturo M. Cisneros, Chapter 7 Trustee, Appellant, v. Jin E. Kim, Appellee.
• Court: U.S. Bankruptcy Appellate Panel, Ninth Circuit

257 B.R. 680 (2000)

In re Jin E. KIM, Debtor Arturo M. Cisneros, Chapter 7 Trustee, Appellant, v. Jin E. Kim, Appellee.

No. CC-00-1123-MOPB, RS-99-12686-MJ.

United States Bankruptcy Appellate Panel of the Ninth Circuit.

Argued and Submitted on October 11, 2000.

Filed December 6, 2000.

COPYRIGHT MATERIAL OMITTED

D. Edward Hays, Rus, Milibrand & Smith, Irvine, CA, for Arturo M. Cisneros, Ch. 7 Trustee.

Jin E. Kim, Alta Loma, CA, Pro Se.

Before MONTALI, PERRIS and BRANDT, Bankruptcy Judges.

OPINION

MONTALI, Bankruptcy Judge.

The Chapter 7 trustee appeals from an order of the bankruptcy court overruling his objections to the debtor's claim of exemption in funds held in a retirement plan. He maintains that the debtor's receipt of all of those funds just days after bankruptcy requires disallowance of the exemption. We disagree and AFFIRM.

I. FACTS

At the time he filed his Chapter 7 petition, Appellee Jin E. Kim ("Debtor") was employed as a bus driver with the Los Angeles Metropolitan Transit Authority ("MTA"). During the course of his employment, he had contributed to MTA's retirement income plan, the Los Angeles County Metropolitan Transportation Authority United Transportation Union Retirement Income Plan (the "Retirement Plan"). The Retirement Plan required monthly contributions and these contributions were non-refundable except in the event of death or termination of employment. The Retirement Plan prohibited employees from receiving funds until retirement, death or termination from full-time employment; moreover, the Retirement Plan contained no provision permitting employees to borrow from the plan. In addition, the Retirement Plan prohibited the transfer or assignment of funds accumulated in the plan:

A. Except to the extent that the following may be contrary to the laws of this State, and except as otherwise provided herein, no active Member, vested Member, retired Member or beneficiary hereunder shall have the right to assign, transfer, encumber, or anticipate his/her interest in any retirement funds accumulated under this Plan and in any retirement income being paid therefrom, and such funds and income shall not in any way be subject to any legal process to levy upon or attachment of the same for the payment of any claim against any such Member, vested Member, retired Member or beneficiary.

Under the Retirement Plan, an employee who had worked for MTA for at least 23 years was entitled to retire. On the petition date, Debtor had been employed by MTA for 22 years and 51 weeks. He became eligible for retirement approximately one week later. Three days after that, he retired and received lump-sum payments from the Retirement Plan.

Debtor received his after tax contribution of $18,627.67¹ directly; the balance (approximately $285,000)² was rolled over into an individual retirement account ("IRA"). Debtor used the $18,627.67 distribution to pay personal bills, including the down payment on two new vehicles. In addition, Debtor structured the IRA in a manner that allowed him to receive regular monthly distributions to supplement his income. After retiring, Debtor resumed working for the MTA in a different capacity. The Retirement Plan specifically permits a retired employed to be re-employed.

Debtor filed a no-asset Chapter 7 case. On his Schedule C, Debtor disclosed and claimed as exempt (pursuant to California Code of Civil Procedure section 704.110)³ his "retirement funds," which he improperly valued at $150,000 (even though his entitlement under the Retirement Plan was nearly $305,000). Appellant Arturo M. Cisneros, the Chapter 7 trustee of Debtor's estate ("Trustee") filed objections to Debtor's exemptions, arguing that the "retirement funds" were not exempt, because they had been placed in an IRA account and were not being used for retirement purposes, that the Retirement Plan was not a spendthrift trust subject to exclusion from the estate, and that Debtor was not otherwise entitled to an exemption under California law.

On or about December 27, 1999, the bankruptcy court issued a memorandum decision concluding that all of the funds held in the Retirement Plan as of the petition date were fully exempt under CCP § 704.115. The bankruptcy court additionally held that the Retirement Plan was a spendthrift trust excluded from the bankruptcy estate, except for 25 percent of the funds (which, under California law, remain subject to claims of creditors).⁴ It entered an order overruling Trustee's objections to Debtor's claimed exemptions on February 25, 2000, and Trustee filed a timely notice of appeal.

II. ISSUES

1. Whether the bankruptcy court erred in determining that the Retirement Plan was designed and used for retirement purposes and thus that Debtor was entitled to exempt fully those funds held in the Retirement Plan as of the petition date; and

2. Whether the bankruptcy court erred in determining that Debtor's Retirement Plan was a qualified spendthrift trust, with 75 percent of the funds excluded from the estate.

III. STANDARD OF REVIEW

The bankruptcy court's application of California exemption law is a question of statutory construction which is reviewed de novo. Friedman v. Broach (In re Friedman), 220 B.R. 670, 671 (9th Cir. BAP 1998). Whether property is included in a bankruptcy estate is a question of law also subject to de novo review. Ramsay v. Dowden (In re Central Ark. Broad. Co.), 68 F.3d 213, 214 (8th Cir.1995). Whether a plan is designed and used for retirement purposes is a question of fact that the panel reviews for clear error. Phillips v. Mayer (In re Phillips), 218 B.R. 520 (N.D.Cal.1998). Where the facts are established and the rule of law is undisputed, whether the facts satisfy the legal rule is a mixed question of law and fact that the panel reviews de novo. Spenler v. Siegel (In re Spenler), 212 B.R. 625 (9th Cir. BAP 1997).

IV. DISCUSSION

A. The Retirement Funds Were Fully Exempt

A debtor in bankruptcy is entitled to exempt certain assets from the bankruptcy estate. 11 U.S.C. §§ 522, 541.⁵ California has "opted out" of the federal exemption scheme, so California law governs whether funds contained in the Retirement Plan as of the petition date are exempt. See Wolf v. Salven (In re Wolf), 248 B.R. 365, 367 (9th Cir. BAP 2000) ("In California, then, a debtor may exempt any property that is exempt under state law in effect on the petition date. Like the Code, case law makes it clear that a debtor's exemption rights are determined as of the date of the petition."). Although Debtor initially claimed the funds in the Retirement Fund as exempt under CCP § 704.110 (governing public retirement plans), the parties presented the bankruptcy court with legal memoranda focusing on the exempt status of the retirement funds under CCP § 704.115. Section 704.115 applies to private retirement plans "including, but not limited to, union retirement plans"⁶ and fully exempts funds contained in such retirement plans:

(b) All amounts held, controlled, or in process of distribution by a private retirement plan, for the payment of benefits as an annuity, pension, retirement allowance, disability payment, or death benefit from a private retirement plan are exempt.

Cal.Code Civ. Pro. § 704.115(a) and (b) (West Supp.2000).

Trustee contends that the full exemption of CCP § 704.115 is inapplicable, because Debtor did not use the retirement funds for retirement purposes. Trustee's argument, however, requires judicial consideration of Debtor's post-petition acts, because the retirement funds were clearly still held by and in the Retirement Plan as of the petition date. The bankruptcy court concluded that the exemption was determined as of the petition date and that the funds were held in a qualified retirement plan as of that date.

A plan, account or annuity fits within the ambit of CCP § 704.115 when it is "designed and used for retirement purposes." Bloom v. Robinson (In re Bloom), 839 F.2d 1376, 1378 (9th Cir.1988); Jacoway v. Wolfe (In re Jacoway), 255 B.R. 234 (9th Cir. BAP 2000). In this case, the Retirement Plan was clearly designed for retirement purposes, and Trustee does not dispute that.⁷ Trustee disputes that the funds from the Retirement Plan were "used" by Debtor for retirement purposes. Prior to, and as of the petition date, Debtor did not have control over any of the funds in the Retirement Plan. Consequently, he never used the funds for a nonretirement purpose. The fact that after the petition date, Debtor retired⁸ and received the funds has no bearing on whether, as of the petition date, the Retirement Plan had been used for retirement purposes. The bankruptcy court held that the funds were held in a retirement plan as of the petition date and were exempt regardless of the Debtor's post-petition use of the funds.

The bankruptcy court did not err in holding that the relevant date for determining the status of the exemptions was the petition date. As noted in Harris v. Herman (In re Herman), 120 B.R. 127, 130 (9th Cir. BAP 1990) (emphasis added), "Absent conversion from one chapter to another, the nature and extent of a debtor's exemption rights are determined as of the date of the petition. . . . Thus, any post-petition disposition of the property or post-petition change in the identity of the property into proceeds has no impact upon the exemption analysis." See also Graziadei v. Graziadei (In re Graziadei), 32 F.3d 1408, 1410 (9th Cir.1994) (quoting Herman, court held that post-petition sale of home does not alter debtor's entitlement to homestead exemption).

Similarly, this panel recently reiterated that a debtor's exemption rights are determined as of the petition date, noting that the law on this issue is well-established: "Unsupported by legal authority and contravened by the plain language of the Code, the debtor's attempt to carve out an exception to the well-established law that exemption rights are determined on the petition date must be rejected." Wolf, ...