In Re Mary Frances Pardee

• Decision Date: 02 June 2010
• Docket Number: No. 09-13841-M.,09-13841-M.
• Citation: 433 B.R. 377
• Parties: In re Mary Frances PARDEE, Debtor.
• Court: U.S. Bankruptcy Court — Northern District of Oklahoma

433 B.R. 377

In re Mary Frances PARDEE, Debtor.

No. 09-13841-M.

United States Bankruptcy Court N.D. Oklahoma.

June 2, 2010.

COPYRIGHT MATERIAL OMITTED

Todd M. Henshaw, James, Potts & Wulfers, Inc., Tulsa, OK, for Debtor.

Steven W. Soule, Hall, Estill, Hardwick, Gable, et al., Tulsa, OK, for Trustee.

MEMORANDUM OPINION

TERRENCE L. MICHAEL, Bankruptcy Judge.

A widow. Her deceased husband. A prior ex-wife. Over $600,000 in cash. More than nine years of litigation, including appeals. A state court order ordering the widow to hand over to the ex-wife some $188,000, plus interest. Unsuccessful attempts to set that order aside through appeal. Finally, a bankruptcy filing in which the widow claims that all of the money is hers, regardless of what any state court might think. Those are the main ingredients in the stew presently before the Court. The following findings of fact and conclusions of law are made pursuant to Bankruptcy Rule 7052, which is made applicable to this contested matter by Bankruptcy Rule 9014.

Jurisdiction

The Court has jurisdiction over these matters pursuant to 28 U.S.C.A. § 1334(b).¹ Reference to the Court of this bankruptcy case is proper pursuant to 28 U.S.C.A. § 157(a). This is a core proceeding as contemplated by 28 U.S.C.A. § 157(b)(2)(A) and (B).

Findings of Fact²

Betty Schack Pardee (“Betty”) was married to Douglas DeBaun Pardee (“Douglas”) in 1968.³ They divorced on December 6, 1991, pursuant to a final decree filed in the Circuit Court of Roanoke County, Virginia (the “Virginia Consent Decree”). The Virginia Consent Decree incorporated a post-nuptial agreement dated October 2, 1991 (the “Agreement”), wherein Betty and Douglas resolved all matters involving their property rights. The Agreement provided, in part, that Betty was entitled to one-half of Douglas' annuity or retirement plans with his employer, Blue Circle Cement Company (“Blue Circle”). The Agreement was specific in regards to future compliance and provided that each party would execute any document necessary in a timely manner upon request. Betty and Douglas agreed that the law of the Commonwealth of Virginia would govern the Agreement.

Douglas moved to Oklahoma and married Mary Frances Pardee (“Mary” or “Debtor”) on December 21, 1991, fifteen days after entry of the Virginia Consent Decree. Douglas retired from Blue Circle on July 15, 2000, and elected to receive his retirement benefits in a lump sum payment. Accordingly, the administrator of the Blue Circle retirement plan paid Douglas $189,397.41 on July 27, 2000. The distribution was made to an individual retirement account in Douglas' name (the “Douglas IRA”) with Mary as the named beneficiary. Douglas died one day after receipt of the funds. The Virginia Consent Decree notwithstanding, Betty received not one dime.

Upon Douglas' death, Debtor collected the funds from the Douglas IRA and moved them into an individual retirement account in her name (the “Mary IRA”). Initially, Betty made a claim for one-half of the retirement funds with Blue Circle, which it denied. Betty then made a demand upon Debtor for payment of these funds, which Debtor refused. Refusing to take no for an answer, Betty brought an action in the District Court in and for Tulsa County, Oklahoma (the “District Court”), Case No. CJ-2001-1825 (the “State Court Action”), seeking to recover one-half of the retirement funds from either Debtor and/or Douglas' estate.⁴ On cross-motions for summary judgment, the District Court ruled in favor of the Debtor, finding that any order regarding distribution of funds to Betty would be in direct violation of federal law, i.e., the Employee Retirement Income Security Act of 1974, as amended by the Retirement Equity Act of 1984 (“ERISA”).⁵ Betty appealed the decision. In an opinion issued on May 6, 2005, the Oklahoma Court of Civil Appeals reversed the decision of the District Court, ruling that ERISA does not protect pension funds after the beneficiary receives the funds. ⁶ The State Court Action was remanded to the District Court for further proceedings.

Upon remand, the issues in the State Court Action were: (1) whether or not the parties' Agreement to divide future pension benefits as incorporated in the Virginia Consent Decree was valid and enforceable against Debtor and/or Douglas' estate; and (2) if so, whether a constructive trust in Betty's favor should be imposed over the proceeds deposited in the Mary IRA or other property of Douglas' estate. In an order entered on February 14, 2008 (the “State Court Order”), the District Court answered both questions in the affirmative. ⁷ The District Court held that “[t]he Agreement to split [Douglas'] future pension was valid and enforceable.” ⁸ Upholding the validity of the Virginia Consent Decree, the District Court found that under both Oklahoma and Virginia law, the Virginia Consent Decree took on the status of a judgment upon the approval of the presiding judge. The District Court also found that: (1) under the Agreement, Douglas intended to make a distribution to Betty of one-half of his pension benefits from Blue Circle; (2) Douglas' failure to distribute those funds to Betty was a breach of their Agreement; (3) Douglas' act of placing all of the funds in the Douglas IRA was wrongful; and (4) Debtor's placing of the funds into the Mary IRA was an act to further deprive Betty of her rightful property under the Agreement. The State Court Order contained the following enforcement provisions:

IT IS THEREFORE ORDERED by the Court that Plaintiff [Betty]'s Motion for Summary Judgment upholding the validity of the Virginia Consent Decree and imposing upon Defendant [Debtor]'s I.R.A. and/or other property of [Douglas'] Estate, a constructive trust equal to one-half of the Deceased's [Douglas'] retirement benefit or the sum of $94,698.70 is sustained.

IT IS FURTHER ORDERED by the Court that Plaintiff [Betty] is granted judgment in the sum of $94,698.70 plus interest at the legal rate from July 27, 2000 until paid in full.

IT IS FURTHER ORDERED by the Court that Defendants' [Debtor, individually and as representative of Douglas' estate] Counter Motion for Summary Judgment filed September 11, 2007 is overruled.

FOR ALL OF WHICH LET EXECUTION ISSUE.

The State Court Order was never directly appealed.

On March 14, 2008, Betty filed an application in the State Court Action for attorney fees, costs, and pre-judgment interest.⁹ Debtor initially sought additional time to respond, but subsequently filed an application with the Oklahoma Supreme Court to assume original jurisdiction and a petition for a writ of prohibition (the “Petition for Writ”).¹⁰ Debtor sought to prevent further proceedings in the State Court Action and to prevent enforcement of the State Court Order.¹¹ Debtor argued that the State Court Order and the previous ruling of the Oklahoma Court of Civil Appeals were preempted and void for lack of jurisdiction because the outcome did not comport with ERISA.¹² The argument appears similar if not identical to the argument previously rejected by the Oklahoma Court of Civil Appeals.¹³ The Petition for Writ was denied by the Oklahoma Supreme Court.

After the Petition for Writ was denied, Betty began garnishment proceedings against Prudential Insurance Company of America, Inc. (“Prudential”), the entity that holds Debtor's investment and retirement accounts, including the Mary IRA.¹⁴ Prudential responded that although it was in possession of property belonging to Debtor, it would not release funds pending further order from the court.¹⁵ Betty then sought an order from the District Court directing Prudential to relinquish the requested funds.¹⁶ After a contested hearing on the matter, at which both Betty and Debtor were heard, the District Court ordered Prudential to pay Betty the sum of $188,379.32, or face a citation for contempt.¹⁷

On December 4, 2009, before Prudential transferred any funds to Betty, Debtor filed a voluntary petition under Chapter 7 of the Bankruptcy Code. In her schedules, Debtor lists as assets a series of annuities and life insurance held by Prudential, valued in total at $618,533.00. These annuities are described in Debtor's pleadings as being held in the Mary IRA.¹⁸ Debtor claims the Mary IRA as exempt under both Oklahoma and bankruptcy law. ¹⁹ Betty is scheduled as a creditor holding an unsecured disputed claim in the amount of $188,000.00.²⁰ On January 13, 2010, Betty filed a proof of claim in the amount of $253,704.19. Betty filed the claim as a secured claim, claiming a lien upon the Mary IRA.²¹ Betty also asserts that the funds she claims are being held by the Debtor in constructive trust.

To the extent the “Conclusions of Law” contain items that should more appropriately be considered “Findings of Fact,” they are incorporated herein by this reference.

Conclusions of Law

The dispute between Betty and Debtor is embodied in two separate contested matters. Debtor has filed a motion to avoid the lien claimed by Betty on the Mary IRA, arguing that any such lien impairs her exemption in those accounts. Betty has filed an objection to the Debtor's claim of exemption in the Mary IRA on the basis that the Mary IRA is held by Debtor subject to the constructive trust recognized in the State Court Order, arguing that funds held in constructive trust do not constitute property of the estate and may not be claimed as exempt.²² In response, Debtor argues that the State Court Order is a nullity and demands that this Court set it aside. Debtor also seeks a ruling that she be allowed to retain all monies in the Mary IRA free and clear of any claim held by Betty.

Effect of the State Court Order

In Debtor's motion to avoid lien, she asserts that 1) the State Court Order was interlocutory and not appealable, and therefore not final; and 2) the District Court lacked subject matter jurisdiction to impose a constructive trust on the Mary IRA, rendering the State Court Order void ab initio. ²³ Debtor raises similar...