In re Mosley

• Decision Date: 14 August 1984
• Docket Number: Adv. No. 83-1284TS.,Bankruptcy No. 82-08473
• Citation: 42 BR 181
• Parties: In re Roy J. MOSLEY, Debtor. Theodore LISCINSKI, Jr., Trustee, Plaintiff, v. Roy J. MOSLEY, Crocker National Bank, Standard Oil Company of California and Chevron U.S.A., Inc., Defendants.
• Court: U.S. Bankruptcy Court — District of New Jersey

42 B.R. 181 (1984)

In re Roy J. MOSLEY, Debtor Theodore LISCINSKI, Jr., Trustee, Plaintiff, v. Roy J. MOSLEY, Crocker National Bank, Standard Oil Company of California and Chevron U.S.A., Inc., Defendants.

Bankruptcy No. 82-08473, Adv. No. 83-1284TS.

United States Bankruptcy Court, D. New Jersey.

August 14, 1984.

Theodore Liscinski, Jr., Trustee, pro se.

Steven P. Russo, Toms River, N.J., for Roy J. Mosley.

Wilentz, Goldman & Spitzer by Helen D. Chaitman, Woodbridge, N.J., for Standard Oil Co. of California and Chevron, U.S.A., Inc.

OPINION

AMEL STARK, Bankruptcy Judge.

Facts and Procedural History

1. Roy J. Mosley filed a voluntary petition under Chapter 7 of the Bankruptcy Code on December 8, 1982. This court entered a discharge of the Debtor on April 22, 1983 and the Debtor appeared at the discharge hearing required under section 524(d) of the Bankruptcy Code on June 28, 1983.

2. On October 7, 1983, the Trustee filed a complaint against the Debtor, Standard Oil Co. of California ("SOCAL"), Chevron, USA, Inc. ("Chevron") and Crocker National Bank seeking turnover of the entire value of the Debtor's interest in an Annuity Plan, Stock Plan and Savings Plan for Employees of SOCAL and Participating Companies. The complaint incorrectly identified Crocker National Bank as administrator of the Savings Plan; Crocker National Bank has not filed an answer to the complaint.

3. The complaint also alleged that the Debtor owned a time-sharing interest in a vacation home at Shawnee Village, Pennsylvania. The trustee voluntarily dismissed this count of the complaint on April 30, 1984.

4. On February 2, 1984, SOCAL and Chevron filed a motion for summary judgment on the ground that the Debtor's interest in the SOCAL Plans is excluded from property of the estate under section 541(c)(2) of the Bankruptcy Code.

The SOCAL Plans

5. Most of the facts relevant to this motion are set forth in the affidavit of Charles H. Mackdanz, Manager of the Benefits Staff of SOCAL, dated January 24, 1984. The Trustee has not contested Mr. Mackdanz's statements. Briefly, the Debtor is a current employee of Chevron and participates in the following benefit plans administered by SOCAL:

(a) The Annuity Plan for Employees of SOCAL and Participating Companies (the "Annuity Plan");

(b) The Stock Plan for Employees of SOCAL and Participating Companies (the "Stock Plan"); and

(c) The SOCAL Savings Plan (the "Savings Plan") (collectively the "benefit plans").

The SOCAL Plans are qualified plans under section 401(a) of the Internal Revenue Code (26 U.S.C. Section 401(a)) and contain the language prohibiting the assignment or alienation of benefits under such plans that is required by section 401(a)(13) of the Internal Revenue Code and section 206(d) of the Employee Retirement Income Security Act of 1974, 29 U.S.C. section 1056(d)(1).

Section 17(e) of the Annuity Plan states in pertinent part:

"The interest and property rights of any person in the Plan, in the Trust Fund or in any payment to be made under the Plan shall not be subject to option nor be assignable either by voluntary or involuntary assignment or by operation of law, including (without limitation) bankruptcy, garnishment, attachment or other creditor\'s process, and any act in violation of this Section 17(3) shall be void."

Similarly, Section 17(b) of the Stock Plan provides in pertinent part:

"Except as otherwise provided in Section 8 or by applicable law, the interest or property rights of any person in the Plan, in the Trust Fund or in any distribution to be made under the Plan shall not be subject to option nor be assignable, either by voluntary or involuntary assignment or by operation of law, including (without limitation) bankruptcy, garnishment, attachment, levy, execution or any other or equitable process, and any act in violation of this Subsection (b) shall be void."

Finally, Section 17(b) of the Savings Plan provides in pertinent part:

"The interest or property rights of any person in the Plan, in the Trust Fund or in any distribution to be made under the Plan shall not to subject to option nor be assignable, either by voluntary or involuntary assignment or by operation of law, including (without limitation) bankruptcy, garnishment, attachment or other creditor\'s process, and any act in violation of this Subsection (b) shall be void."

The Debtor has vested interests in the SOCAL Plans. However, he is not qualified to receive any distributions of those interests until the earlier of the termination of his employment with Chevron or the year 2000.

A. The Annuity Plan

Debtor was born February 16, 1945. He began to work with Chevron on September 19, 1966. Under the provisions of the Annuity Plan, Debtor's normal retirement date will be March 1, 2010. The Annuity Plan allows Debtor to receive a refund of his member contribution prior to 2010 only if he ceases employment. Debtor's member contributions as of September 30, 1983 totalled $1,534.62. If Debtor were to cease his employment, he would lose the portion of his annuity derived from pre-July 1981 employer contributions as well as his rights to participate as an annuitant in certain employee welfare plans. In addition, Debtor would forfeit the right to the Annuity Plan's post-retirement spousal annuity.

The Annuity Plan entitles Debtor to a vested annuity from employer contributions if he leaves employment before 25 years of service and before age 65. Even under these circumstances, Debtor would not be able to receive any type of annuity until 2000, when he reached age 55. If Debtor ceased employment now, he would not be entitled to any payment from employer contributions at all until the year 2000. At that time he would be entitled to receive approximately $40,429.

B. The Savings Plan

Debtor's interest in the Savings Plan is his ESOP account. As of September 30, 1983, the balance in Mr. Mosley's ESOP account totalled 132.940 shares of SOCAL common stock. Mosley is entitled to distribution of his SOCAL stock only upon termination of his employment.

C. The Stock Plan

Debtor's interest in the Stock Plan consists of a member account comprised of employee contributions and a contingent account comprised of employer contributions. As of June 30, 1983, the plan held 9.839 shares of SOCAL common stock in his member account and 1,226.576 shares of SOCAL common stock in his contingent account, valued by the Debtor at $33,771.33 as of January 1983. Upon the termination of his employment, Debtor would be entitled to receive a distribution of his interests in the stock held in his member and contingent accounts. The Stock Plan offers Debtor the option of deferring the distribution until his 70th birthday.

Thus, under all three of the SOCAL Plans, Debtor has no present ability to receive any distribution of his interests unless he terminates his employment with Chevron.

DISCUSSION

If the Debtor's interest in the three benefit plans were included in the estate, the Trustee would own his interest subject to all restrictions which the plans had imposed on the Debtor. 11 U.S.C. § 541. The Trustee would therefore be unable to collect the benefits from the plan at least until the Debtor terminated his employment with Chevron. If the Debtor's interest in the plans is not to be included in the estate, the Debtor would be free to terminate his employment shortly after filing his petition and collect, free from the claims of his creditors, approximately $40,000 from the three benefit plans. The Trustee contends that Congress could not have intended to allow such a fraud upon creditors. SOCAL asserts, however, that Congress intentionally chose, in enacting ERISA, to strongly encourage employee participation in such benefit plans, and that the Bankruptcy Code has specifically continued the protections of ERISA in bankruptcy proceedings.

Statutes

This dispute involves apparent conflicts between numerous federal statutes. Section 541(a) of the Bankruptcy Code provides that the commencement of a case under title 11 creates an estate which includes "all legal or equitable interests of the debtor in property as of the commencement of the case." Section 541(c)(2) creates an exception to this broad inclusion of all of the debtor's property in the estate. It states:

"A restriction on the transfer of a beneficial interest of the debtor in a trust that is enforceable under applicable non-bankruptcy law is enforceable in a case under this title." 11 U.S.C. Section 541(c)(2).

Resolution of the motion for summary judgment focuses on the proper interpretation of this subsection.

Section 522(d)(10) provides that when a debtor's benefit plan is included in property of the estate, the debtor is entitled to an exemption for the following part of his entitlement to benefits:

"The debtor\'s right to receive—

. . . . .

(E) a payment under a stock bonus, pension, profitsharing, annuity, or similar plan or contract on account of illness, disability, death, age, or length of service, to the extent reasonably necessary for support of the debtor and any dependent of the debtor, unless

(i) such plan or contract was established by or under the auspices of an insider that employed the debtor at the time the debtor\'s rights under such plan or contract arose;

(ii) such payment is on account of age or length of service; and

(iii) such plan or contract does not qualify under section 401(a), 403(a), 403(b), 408 or 409 of the Internal Revenue Code of 1954. . . ." (Emphasis added.)

The Employee Retirement Income Security Act of 1974 (ERISA) is contained partly in the Internal Revenue Code and partly in Title 29 of the United States Code, and it contains an anti-alienation requirement for employee benefit plans in each of these titles. Section 401(a)(13) of the Internal Revenue Code states:

"A trust shall not constitute a qualified trust under this section unless the plan of which such trust is a part provides that benefits provided under the plan may

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