In re Laher
| Decision Date | 02 August 2007 |
| Docket Number | No. 05-4168.,05-4168. |
| Citation | 496 F.3d 279 |
| Parties | In re Debra A. LAHER; Timothy M. Laher, Debtors. Gary V. Skiba v. Timothy M. Laher; Debra A. Laher; Tiaa-Creff Timothy M. Laher; Debra A. Laher, Appellants. |
| Court | U.S. Court of Appeals — Third Circuit |
Joseph B. Spero, [Argued], Erie, PA, for Appellants Timothy M. Laher; Debra A. Laher.
Gary V. Skiba, [Argued], Yochim, Skiba, Johnson, Cauley & Nash Erie, PA, for Appellee Gary V. Skiba.
Before: RENDELL, BARRY, and CHAGARES, Circuit Judges.
This case presents the question of whether Timothy M. Laher's TIAA-CREF retirement annuity is excluded from the bankruptcy estate pursuant to 11 U.S.C. § 541(c)(2). We hold that it is, and will reverse the decision of the District Court and order that the case be remanded to the Bankruptcy Court for entry of an order excluding the annuity from the bankruptcy estate.
While employed by Gannon University, Timothy Laher participated in a tax-deferred retirement plan. Pre-tax contributions were taken from his paycheck and accumulated into a sum that would be used to purchase a contract that would pay him an annuity over time after retirement.1 Salary contributions and employer contributions were fixed as a percentage of the employee's salary.2 Under the plan, 3% of an employee's compensation was withheld from his paychecks, and Gannon contributed an amount equal to 7% of the employee's compensation. Participation in the plan was mandatory. See Gannon Plan, App. 44 (). Under the particular plan chosen by Laher, the pre-tax contributions would be used to pay for premiums on an annuity contract. The manager for his plan was TIAA-CREF, the Teacher Insurance and Annuity Association — College Retirement Equities Fund. TIAA-CREF "offer[ed] fixed dollar (guaranteed) annuities through the Teachers Insurance and Annuity Association (TIAA); or several variable investment accounts through the College Retirement Equities Fund (CREF)." App. 67. Each premium paid for an "Accumulation Unit" in the TIAA or CREF accounts, and the sum of such units would eventually provide the annuity benefits for Laher.3
The terms of the Summary Plan Description informed Laher that the "accumulations resulting from your participation in one or more of the investment contracts or accounts offered by the Fund Managers [such as TIAA-CREF] will be the source of your retirement benefits, which can be paid out under a variety of methods available under this Plan." App. 62. "You can begin to receive Plan benefits only after you have retired or terminated employment with the University." App. 70. The CREF and TIAA certificates explained how the money would be managed, and each stated that the benefits would be protected from the claims of creditors to the "fullest extent permissible by law." CREF Certificate, App. 100; TIAA Certificate, App. 132. Both stated that they were governed by New York law.
On May 20, 2004, Laher and his wife Deborah ("Debtors") filed a Chapter 7 bankruptcy petition in the Western District of Pennsylvania's Bankruptcy Court. On Schedule B of their petition, Debtors listed the retirement account with TIAA-CREF. The account had a value of $92,847.93. Records indicate that roughly $41,000 of that amount was held in a "TIAA Traditional" account, which "guarantees [the] principal and a specified interest rate." App. 20 (Portfolio Summary). The other $51,000 was held in funds listed as "CREF Stock" and "CREF Money Market." Id. A pie chart in the summary stated that 29% of Laher's monies was in equities, 45% was guaranteed, and 26% was in a money market account. Id.
On September 9, 2004, the Chapter 7 Trustee, Gary Skiba, filed an adversary proceeding alleging that Laher's TIAA-CREF annuity was property of the bankruptcy estate "under either Patterson v. Shumate, 504 U.S. 753, 112 S.Ct. 2242, 119 L.Ed.2d 519 (1992), or 11 U.S.C. § 541(c)(2) because it is not a trust." Skiba Compl. 2; App. 18. Section 541 states, in relevant part:
The commencement of a case under section 301, 302, or 303 of this title [11 USCS § 301, 302, or 303] creates an estate. Such estate is comprised of all the following property, wherever located and by whomever held:
(1) Except as provided in subsections (b) and (c)(2) of this section, all legal or equitable interests of the debtor in property as of the commencement of the case.
11 U.S.C. § 541(a) (emphasis added).
Section (c) states:
(1) Except as provided in paragraph (2) of this subsection, an interest of the debtor in property becomes property of the estate under subsection (a)(1), (a)(2), or (a)(5) of this section notwithstanding any provision in an agreement, transfer instrument, or applicable nonbankruptcy law—
(A) that restricts or conditions transfer of such interest by the debtor; or
(B) that is conditioned on the insolvency or financial condition of the debtor, on the commencement of a case under this title, or on the appointment of or taking possession by a trustee in a case under this title or a custodian before such commencement, and that effects or gives an option to effect a forfeiture, modification, or termination of the debtor's interest in property.
(2) 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.
11 U.S.C. § 541(c) (emphasis added).
Skiba argued that the annuity's restriction on creditors' access to the account did not apply to Laher's annuity because the annuity did not qualify as a "trust" under § 541(c)(2). On April 12, 2004, Judge Bentz rejected this argument and ruled that the TIAA-CREF plan was excluded from the bankruptcy estate. In a one-page order, Judge Bentz wrote that "it is ORDERED that, in accordance with the separate Opinion issued this date in the case of In re Gould, Bankruptcy No. 04-11889, Document No. 19 related to Document No. 13, the Complaint is dismissed and the Debtor's retirement plan through TIAA-CREF is excluded from the bankruptcy estate." App. 34.
Judge Bentz's opinion in In re Gould explained his reasoning. Similar to the instant case, the case involved a debtor whose pension plan was a "tax sheltered annuity plan qualified under section 403(b) of the Internal Revenue Code, 26 U.S.C. § 403(b)." Skiba v. Gould (In re Gould), 322 B.R. 741, 741 (Bankr.W.D.Pa.2005). The trustee (Gary Skiba, the same trustee as in the instant case) argued that the "Pension Plan is an annuity by definition and not a trust; that only an interest in a trust can be a subject of an enforceable transfer restriction within the meaning of 11 U.S.C. § 541(c)(2); and therefore, the Debtor's Pension Plan cannot be excluded from the bankruptcy estate." Id. at 742.4
Judge Bentz began by citing § 541(c)(2), id. at 742, and then took issue with the decision of the Bankruptcy Appellate Panel in the case of In re Adams, 302 B.R. 535 (6th Cir. BAP 2003), noting that he agreed with the dissenting opinion in that case. Specifically, Judge Bentz believed that the Adams majority erroneously "read[] the statute literally to require a trust." Id. Judge Bentz held that a literal trust was not required, but, rather, a plan which functioned like a trust would satisfy the "trust" requirement, relying on the following language of Judge Latta's dissent in Adams:
I find no functional distinction between the protections afforded to beneficiaries of ERISA-qualified pension plans in which assets are held in trust and those in which assets are used to purchase annuity contracts. Outside of bankruptcy, no creditor of the Adams would be able to reach the debtors' beneficial interests in their pension plans to satisfy claims, and this is true not because these interests are exempt from execution pursuant to state law, but because they are exempt from execution pursuant to federal law.
Id. (quoting In re Adams, 302 B.R. 535, 547 (6th Cir. BAP 2003) (Latta, J., dissenting)).
[My] view is aligned with the view of the dissenting Opinion in Adams. [I] see no reason to treat a corporate pension plan differently than a 403(b) annuity pension plan. Both are set up by a third party, utilize the tax vehicles provided by the Internal Revenue Code to accumulate funds on a tax-free basis and contain anti-alienation clauses to prevent creditors from reaching a debtor's interests in the plan. [I] further conclude that this broader view of § 541(c)(2) is supported by the Congressional goal of protecting pension benefits.
The anti-alienation clause set forth in Debtor's Pension Plan sufficiently restricts Debtor's use of funds such that outside of bankruptcy, no creditor would be able to reach Debtor's interests, and therefore, the Pension Plan must be excluded from the bankruptcy estate by the provisions of § 541(c)(2).
Id. at 744 (citation omitted).
The trustee appealed and on August 5, 2005, the District Court for the Western District of Pennsylvania reversed the decision of the Bankruptcy Court. The District Court first stated that the "lone issue before us is whether [the] TIAA-CREF pension plan falls within the § 541(c)(2) exception." Skiba v. Gould, 337 B.R. 71, 72-73 (W.D.Pa.2005). It stated that the "debtors, citing Patterson [v. Shumate, 504 U.S. 753, 112 S.Ct. 2242, 119 L.Ed.2d 519 (1992) ], urge [me] to affirm the bankruptcy court's conclusion that any interest in an employer's pension plan can be excluded from the bankruptcy estate if the plan is subject to an enforceable transfer restriction under applicable nonbankruptcy law." Id. at 73. It noted that "[i]n the wake of Patterson, several courts have...
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