In re Kincaid
| Decision Date | 16 March 1989 |
| Docket Number | Bankruptcy No. 385-05403.,BAP No. OR-88-1001 JMoAs |
| Citation | 96 BR 1014 |
| Parties | In re Michael and Sharon KINCAID, Debtors, Ronald A. WATSON, Trustee, Plaintiff/Appellee, v. Sharon KINCAID and John Hancock Mutual Life Ins. Co., a foreign corporation, and John Hancock Mutual Life Ins. Co., Administrator, Defendants/Appellants. |
| Court | U.S. Bankruptcy Appellate Panel, Ninth Circuit |
Herbert H. Anderson, Spears, Lubersky, Campbell, Bledsoe, Anderson & Young, Portland, Or., for defendants/appellants.
Ronald A. Watson, Portland, Or., for plaintiff/appellee.
Before JONES, MOOREMAN and ASHLAND, Bankruptcy Judges.
John Hancock Mutual Life Insurance Company appeals a bankruptcy court order requiring it to turnover to the estate $2,375.70 held by it in its capacity as administrator of the Debtor's ERISA plan.
The Debtors, Sharon and Michael Kincaid, filed a bankruptcy petition on December 26, 1985. At the time of the filing, Sharon Kincaid was an employee of the Appellant, John Hancock Mutual Life Insurance Company ("John Hancock"), and a participant in the Deferred Salary Plan (the "Plan") administered by John Hancock. The Plan is qualified pursuant to the Employment Retirement Income Security Act of 1984, (ERISA), 29 U.S.C. §§ 1001 et seq., and also complies with the provisions of Internal Revenue Code §§ 401(a)(13) and 401(k). The Plan is commonly known as a 401(k) savings plan.
In accordance with ERISA and Internal Revenue Code requirements, the Plan contains the following provision restricting the alienation or assignment of the employee's interest:
No Participant or Beneficiary shall have the right to alienate or assign his interest under this plan.... No such interest shall otherwise be subject to attachment, execution, garnishment, or other equitable or legal process. The Company shall take whatever action may be necessary to preserve such interest for the benefit of such Participant or Beneficiary.
John Hancock is fiduciary and administrator of the Plan. Distributions can be made only upon retirement, attainment of age 59 and ½, disability, death or termination of service. Withdrawals can be made only upon a showing of hardship which is defined under the Plan as "immediate and heavy financial need (such as the purchase of a primary residence, educational needs of a Participant or his dependants or extraordinary medical expenses of a Participant or members of his immediate family) of a Participant or his dependants." The Plan further provides that it is to be governed by the laws of Massachusetts except as otherwise provided by ERISA.
The Plan is funded by three types of contributions: 1) voluntary employee salary deferrals ("basic contributions") equal to two percent of compensation; 2) voluntary employee supplemental contributions ("supplemental contributions") not to exceed eight percent of compensation; and 3) matching contributions made by the employer equal to one-half of the basic contributions made by the employee ("matching contributions"). On the date the petition was filed, Sharon Kincaid had $3,211.73 in the Plan, comprised of basic contributions of $1,691.74, supplemental contributions of $683.96, and matching contributions of $836.03.
In the bankruptcy schedules, the Debtors claimed Sharon Kincaid's interest in the Plan as exempt. The bankruptcy trustee objected to the claim of exemption, and the Debtors' attorney requested a hearing on the matter. A hearing was held on July 14, 1986, but the Debtors' attorney did not appear. On July 21, 1986, the bankruptcy court entered an order sustaining the trustee's objection to the debtors' exemption, finding that the 401(k) account was an asset of the estate.
On June 19, 1987, the trustee filed an adversary proceeding against John Hancock for the turnover of the funds held in the account. The complaint sought the turnover of the Debtors' basic and supplemental contributions totaling $2,375.70; it did not seek the matching contributions of John Hancock. The trustee argued that the money held in the Plan was property of the estate by virtue of 11 U.S.C. § 541(a)(1), which provides that all property in which the debtor has a legal or equitable interest is included in the bankruptcy estate. John Hancock opposed the complaint, arguing, inter alia, that pursuant to § 541(c)(2) the money was not property of the estate because the Plan contains a provision restricting transfer of the Debtors' interest in the Plan that is enforceable under applicable nonbankruptcy law.
After a hearing, the bankruptcy court concluded that because the amounts sought by the trustee had been voluntarily contributed by the Debtor, the Plan was not a valid spendthrift trust under state law and, therefore, it was an asset of the estate under Bankruptcy Code § 541(a)(1). John Hancock appealed.
On appeal, John Hancock first argues that the bankruptcy court lacked jurisdiction over this matter because 29 U.S.C. § 1132(e)(1) gives a federal district court exclusive jurisdiction over certain ERISA-related proceedings. That section provides:
Except for actions under subsection (a)(1)(B) of this section, the district courts of the United States shall have exclusive jurisdiction of civil actions under this subchapter brought by the Secretary or a participant, beneficiary, or fiduciary. State courts of competent jurisdiction and district courts of the United States shall have concurrent jurisdiction of actions under subsection (a)(1)(B) of this section.
29 U.S.C. § 1132(e)(1). Subsection (a)(1)(B) provides:
29 U.S.C. § 1132(a)(1)(B).
John Hancock argues that because this is not an action to recover benefits or to enforce or clarify the Debtor's rights under the Plan, the district court has exclusive jurisdiction over this action. We find this argument unpersuasive. In our view, John Hancock mischaracterizes the nature of this proceeding. The present action is a proceeding for turnover of property of the estate which is a "core" proceeding pursuant to 28 U.S.C. § 157(b)(2)(E). It requires a determination of whether the funds in the ERISA plan are property of the estate within the meaning of 11 U.S.C. §§ 541(a)(1) and (c)(2). A bankruptcy court is clearly empowered to enter orders that are necessary to carry out the provisions of the Bankruptcy Code, including orders requiring turnover of property of the estate. 28 U.S.C. § 157(b)(2)(E). Moreover, 29 U.S.C. § 1144(d) expressly prohibits ERISA's impairment of other federal laws:
Nothing in this title shall be construed to alter, amend, modify, invalidate, impair or supercede any law of the United States ... or any rule or regulation issued under any such law.
29 U.S.C. § 1144(d). Accordingly, courts have held that ERISA should not be construed so as to preempt other federal laws. See, e.g., In re Bastian, 45 B.R. 717, 718 (Bankr.W.D.N.Y.1986) and cases cited therein.
In In re Cott Corporation, 26 B.R. 332 (Bankr.D.Conn.1982) the debtor corporation had failed to make required contributions to a multi-employer pension plan. The sponsor of the plan attempted to collect the amounts owed and the debtor brought an action in bankruptcy court to enjoin the collection efforts. The sponsor argued that the bankruptcy court lacked jurisdiction over the matter because Congress in ERISA granted complete and exclusive jurisdiction over such actions to an arbitration process contained in 29 U.S.C. § 1401. The bankruptcy court rejected this argument, noting that nothing in the ERISA legislation "purports to deny a bankruptcy court its fundamental function of determining the validity of claims against the estate." Cott, 26 B.R. at 335. In our view, determining the nature and extent of property of the estate is also a fundamental function of a bankruptcy court. Thus, the Cott analysis is applicable to this case. See also In re Braniff Airways, 22 B.R. 1005, 1008 (Bankr.N.D.Tex.1982) (); Bastian, 45 B.R. at 718-719 ().
Proceedings to determine the nature and extent of property of the estate are fundamental to the administration of a bankruptcy case. Proceedings to turnover property of the estate are "core" within the meaning of 28 U.S.C. § 157(b)(2)(E). We will not read 29 U.S.C. § 1132 to deprive a bankruptcy court of its jurisdiction over such matters, especially in light of 29 U.S.C. § 1144(d) which expressly prohibits ERISA's impairment of other federal laws. Accordingly, John Hancock's argument that the bankruptcy court lacked jurisdiction over this proceeding is without merit.
Under Bankruptcy Code § 541(a)(1), all property in which the debtor has a legal or equitable interest is included in the bankruptcy estate. Section 541(c)(2), however, excludes from the estate interests of the debtor that contain "a restriction on the transfer of a beneficial interest of the debtor in a trust that is enforceable under applicable nonbankruptcy law." The reference to "applicable nonbankruptcy law" in su...
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