In re Moses
| Decision Date | 14 November 1997 |
| Docket Number | BAP No. CC-96-1899-MaVH,Bankruptcy No. LA-96-15439-LF. |
| Citation | 215 BR 27 |
| Parties | In re Max R. MOSES and Marlene E. Moses, Debtors. SOUTHERN CALIFORNIA PERMANENTE MEDICAL GROUP and The Retirement Committeee for the Southern California Permanente Medical Group Retirement Plan, Appellants, v. Howard M. EHRENBERG, Chapter 7 Trustee, Appellee. |
| Court | U.S. Bankruptcy Appellate Panel, Ninth Circuit |
Evan M. Jones, O'Melveny & Myers, L.L.P., Los Angeles, CA, for Southern California Permanente Medical Group.
Edward M. Wolkowitz, Los Angeles, CA, for Howard M. Ehrenberg.
Before: MacDONALD,1 VOLINN, and HAGAN, Bankruptcy Judges.
The Southern California Permanente Medical Group ("SCPMG") and the Retirement Committee for SCPMG ("the Committee") appeal the bankruptcy court's order sustaining the objection of Howard M. Ehrenberg, chapter 7 trustee, to the debtor's claim of exemption in a Keogh retirement plan sponsored by SCPMG. We REVERSE the order of the bankruptcy court.
Debtor Max R. Moses is an orthopedic surgeon and a partner in the Southern California Permanente Medical Group ("SCPMG"), a partnership of more than 2,400 physicians which provides medical services to Kaiser Permanente. Dr. Moses has been a partner in SCPMG for 18 years.
On February 21, 1997, at the age of 54, Dr. Moses and his wife filed a joint chapter 7 petition. On their schedule of personal property (Schedule B), Dr. Moses listed an interest in three pension plans with SCPMG: a Keogh plan with a value of $260,372.00; an ERISA qualified, defined benefit pension plan which will pay the debtor $11,000.00 per month upon retirement at age 65; and a 401(k) pension plan with a value of $1,263.00. On schedule B, the debtors indicated that the latter two plans were "excluded from bankruptcy estate by Section 541(c)." On the debtors' schedule C, all three plans were claimed wholly exempt pursuant to Cal. Code Civ. Proc. § 704.115.
The chapter 7 trustee, Howard M. Ehrenberg, filed an objection to the debtors' claim of exemption in the Keogh account. The debtors' exemption of the other two pension plans was not disputed. The trustee argued that the Keogh plan is a self-employment retirement plan, only exempt to the extent necessary to provide for the support of the debtors on retirement or the support of their dependents pursuant to Cal. Code of Civ. Proc. § 704.115(e), and that in this case the debtors would be amply provided for in their retirement even without the Keogh funds. The trustee noted that the debtors' scheduled monthly gross income was $26,000.00, or $312,000.00 annually, and that even without the Keogh plan the debtors would receive more than $12,800 per month on retirement from Social Security benefits and Dr. Moses's defined benefit pension plan.
In opposition, the debtors advanced three arguments: 1) that the Keogh account is not property of the bankruptcy estate, pursuant to 11 U.S.C. § 541(c)(2), because the Keogh plan contains an anti-alienation provision as required by the Internal Revenue Code, 26 U.S.C. § 401(a)(13)2; 2) that the account is not property of the bankruptcy estate, pursuant to 11 U.S.C. § 541(c)(2), because the Keogh plan contains a spendthrift clause enforceable under California law; and 3) that the account is a profit-sharing plan established for retirement purposes, exempt in its entirety pursuant to Cal. Code Civ. Proc. § 704.115(a)(2).
The trustee responded that the Keogh plan is not an ERISA qualified plan and does not contain an enforceable anti-alienation provision, that the plan is not an enforceable spendthrift trust under California law because Dr. Moses is both the trust settlor and its beneficiary, and that the Keogh plan is a self-employed retirement plan which can only be claimed exempt to the extent necessary to provide for the support of the debtor or his dependents under Cal. Code Civ. Proc. § 704.115(a)(3) and (e).
At the hearing on the trustee's objection, the bankruptcy court indicated that it agreed with the "overall analysis" of In re Witwer, 148 B.R. 930 (Bankr.C.D.Cal.1992), aff'd mem., 163 B.R. 614 (9th Cir. BAP 1994), and the trustee's interpretation of how that case applied to Dr. Moses's Keogh plan. An order granting the trustee's objection to the debtors' exemption claim was entered on August 12, 1996. The order provides that "Debtors" Keogh account with the Southern California Permanente Medical Group, Mellon Bank, N.A. account number XXXXXX, is non-exempt property of the bankruptcy estate not necessary to provide for the support of debtors when they retire within the meaning of California Code of Civil Procedure sections 704.115(a)(3) and (e), or any other section.' The order also directs the debtors, as well as Mellon Bank, N.A., or the current Trustee of the Keogh plan and the Committee appointed under the plan provisions, each Committee member and SCPMG, to turn over the funds in the debtors' Keogh account to the trustee. The debtors appealed this order.3
Appellants SCPMG and the Committee were unaware of the trustee's objection to the debtors' claimed exemption of the Keogh plan until shortly before the court's order was entered. Neither of the appellants was served with the trustee's objection, nor were they notified of the hearing. However, once the order was entered, SCPMG and the Committee were served with a copy. SCPMG and the Committee filed a motion for reconsideration with the bankruptcy court, which was denied. SCPMG and the Committee then filed a notice of appeal. The chapter 7 trustee moved for dismissal of the appeal, on the grounds that it was untimely and that SCPMG and the Committee lacked standing to appeal the order because they were not parties to the exemption proceeding. This motion was denied by an earlier panel.
On appeal, SCPMG and the Committee argue that the Keogh plan is excluded from property of the estate pursuant to 11 U.S.C. § 541(c)(2) because the anti-alienation provision in the Keogh plan is enforceable under federal law. The appellants also contend the Keogh plan should be considered an ERISA plan because it is jointly administered with benefit plans which include SCPMG employees as participants. Finally, the appellants contend the Keogh plan is an enforceable spendthrift trust under California law.
The trustee advances the same arguments he made to the bankruptcy court and again raises the issue of standing.4
1) Whether SCPMG and the Committee have standing to pursue an appeal of an order which denies the debtor's claim of exemption and directs turnover of the debtor's Keogh plan assets.
2) Whether the bankruptcy court erred in holding that the debtors' interest in the Keogh plan was not excluded from the bankruptcy estate pursuant to 11 U.S.C. § 541(c)(2).
A bankruptcy court's factual findings are reviewed for clear error and its conclusions of law are reviewed de novo. Ewell v. Diebert (In re Ewell), 958 F.2d 276, 279 (9th Cir.1992), citing Arizona Appetito's Stores, Inc. v. Paradise Village Inv. Co. (In re Arizona Appetito's Stores, Inc.), 893 F.2d 216, 218 (9th Cir.1990). Issues involving statutory interpretation are reviewed de novo. Chappel v. Proctor (In re Chappel), 189 B.R. 489, 491 (9th Cir. BAP 1995). Standing is also a question of law reviewed de novo. Wedges/Ledges of Calif., Inc. v. City of Phoenix, Ariz., 24 F.3d 56, 61 (9th Cir.1994).
A qualified retirement plan is one that satisfies specific requirements of the Internal Revenue Code, particularly I.R.C. § 401(a), entitling it to receive favorable tax advantages. Before 1962, self-employed individuals (sole proprietors and partners) could not participate in or obtain the tax benefits of such retirement plans. Keogh or "H.R. 10" pension plans were authorized by legislation enacted as the Self-Employed Individuals Tax Retirement Act of 1962, Pub.L. No. 87-792, 76 Stat. 809 (1962). The act's purpose was to provide self-employed individuals with an opportunity to participate in retirement plans on a comparable basis to those offered corporate employees. S.Rep. No. 992 (1961), reprinted in 1962 U.S.C.C.A.N. 2964, 2971-2972. To this end, the act amended § 401 of the Internal Revenue Code "to provide that self-employed individuals may be covered under qualified pension and profit sharing plans." Id. at 2990. Initially, only individuals who were employees under common law could participate in such plans. The act expanded the definition of employee "to include, for any taxable year, a self-employed individual who has earned income . . . for the taxable year." Id. at 2993. Further, since qualified plans had to be offered by "employers", the act expanded this definition as well, so that "an individual who owns the entire interest in an unincorporated trade or business" is treated as his own employer, and a partnership is treated as the employer of its partners. Id. at 2994.5
Keogh plans are generally subject to the same rules as plans offered corporate employees. These plans "contain more restrictions than do corporate plans, but they permit self-employed individuals to receive tax benefits analogous to those available under qualified corporate plans." Larotonda v. Comm'r of Internal Revenue, 89 T.C. 287, 290, 1987 WL 43887 (1987).
In this case, only the partner physicians, as "self-employed individuals," can participate in the Keogh plan offered by SCPMG. SCPMG's nonphysician employees have comparable coverage under other qualified plans offered by SCPMG. The Keogh plan is a profit sharing plan, and benefits are payable upon a participant's retirement, disability, death, or termination of his employment. The plan has been found to be "tax qualified" by the Internal Revenue Service. More than 2,400 physicians participate in the plan.
Mellon Bank, N.A., has been appointed the plan trustee. The plan...
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