In re Nadler
| Decision Date | 04 December 1990 |
| Docket Number | Bankruptcy No. 90-40191-JFQ,90-40192-JFQ. |
| Citation | 122 BR 162 |
| Parties | In re Marvin J. NADLER, Debtor. In re Harold E. RUBIN, Debtor. |
| Court | U.S. Bankruptcy Court — District of Massachusetts |
Joseph Reinhardt, Hendel, Collins & Newton, Springfield, Mass., for Marvin J. Nadler, Harold E. Rubin, debtors.
Herbert Weinberg, Kaye, Fialkow, Richmond & Rothstein, Boston, Mass., for Orix Credit Alliance.
The Debtors, Harold E. Rubin ("Rubin") and Marvin J. Nadler ("Nadler"), seek to exclude from their bankruptcy estates their benefits under the pension plan of Halmar Distributors, Inc. ("Halmar"). Alternatively, if the benefits are included in the estates in the first instance, the Debtors contend that they are entirely exempt as "reasonably necessary . . . for support" within the meaning of § 522(d)(10)(E) of the Bankruptcy Code, 11 U.S.C. § 522(d)(10)(E) (1982). The Debtors' largest creditor, ORIX Credit Alliance, Inc., moves for inclusion of the benefits in the Debtors' bankruptcy estates and opposes the exemption claims. The matter has been bifurcated in order to have the question of estate inclusion determined first. It is an important and unsettled question in this circuit.
The Debtors, now in their early sixties, founded Halmar many years ago. Each owns fifty percent of Halmar's capital stock, and each serves on its board of directors. Until recently, both worked for Halmar on a full-time basis, Rubin as its president and Nadler as its treasurer. Halmar sold a wide variety of household and personal products to department stores, drugstore chains, and other retail outlets located throughout the Northeast. Burdened by the consequences of a disastrous expansion into hardware items, Halmar sought chapter 11 protection with this court. Shortly thereafter, on February 14, 1990, the Debtors filed their own chapter 11 petitions as the result of personal guarantees of certain of Halmar's indebtedness. Halmar was unsuccessful in its attempt to reorganize; it has ceased operations and its assets have been largely liquidated by its principal lender.
In their schedules and statements of affairs filed with the court, the Debtors disclosed that they are entitled to retirement benefits under Halmar's pension plan, and that the value of the benefits held by each of them is approximately $540,000. The benefits are listed for informational purposes only, subject to the Debtors' contention that they are not part of their bankruptcy estates. Alternatively, if the benefits are ruled to be included in the bankruptcy estates, the Debtors have elected to claim the exemptions allowed them under federal rather than state law so as to be entitled to the exemption permitted for pension benefits by 11 U.S.C. § 522(d)(10)(E) (1982). (A Massachusetts statute granting exemptions for certain retirement plans has been enacted since the Debtors' bankruptcy filings. See 1990 Mass. Acts, ch. 77.
Halmar's pension plan was created on January 1, 1977 by a document entitled "Pension Plan and Trust Agreement of Halmar Distributors, Inc.," which was completely amended on December 12, 1984. Halmar is a signatory as employer and the Debtors are signatories as trustees. The plan has been determined to be qualified for the tax benefits allowed such plans under the Internal Revenue Code. Several hundred employees of Halmar are participants thereunder. It is a fixed benefit pension plan designed to provide a participant having sufficient years of service with monthly payments at age sixty-five equal to thirty percent of the participant's average monthly compensation. Whether its present funding is enough to provide that level of benefits has not yet been addressed at trial. Participants have the option to select various methods of receiving their retirement benefits, including monthly payments and a lump sum. The plan permits contributions by participants as well as by Halmar, but neither Nadler nor Rubin has made any contributions.
Significant to the present question of estate inclusion, the Employee Retirement Income Security Act of 1974 ("ERISA") requires pension plans "to provide that benefits provided under the plan may not be assigned or alienated," with exceptions for (i) voluntary and revocable assignments not in excess of ten percent of any benefit payment, (ii) certain assignments to secure a loan, and (iii) involuntary assignments of rights pursuant to specified court orders for alimony, child support or property settlement. Employee Retirement Income Security Act of 1974, § 206(d)(1), 29 U.S.C. § 1056(d)(1) (1990). Qualification of the pension plan for tax benefits under the Internal Revenue Code is dependent in part upon compliance with the requirement that "benefits provided under the plan may not be assigned or alienated," subject to the same three exceptions permitted by ERISA. 26 U.S.C. § 401(a)(13) (1983).
As required by these statutes, § 11.3 of Halmar's pension plan provides as follows:
11.3 NONALIENATION OF BENEFITS: Benefits payable under this Plan shall not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, charge, garnishment, execution, or levy of any kind, either voluntary or involuntary, prior to actually being received by the person entitled to the benefit under the terms of the Plan; and any attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber, charge or otherwise dispose of any right to benefits payable hereunder, shall be void. The Trust fund shall not in any manner be liable for, or subject to, the debts, contracts, liabilities, engagements or torts of any person entitled to benefits hereunder.
Section 11.7 of the plan allows the involuntary assignments permitted by ERISA pertaining to domestic relations orders. The plan contains no other provision relating to assignment of benefits and no provision permitting borrowing by participants.
Section 541 of the Bankruptcy Code, 11 U.S.C. § 541 (1982), provides in pertinent part:
Section 522 provides in part:
The Debtors pose a simple argument. They say that their pension benefits are excluded from the bankruptcy estates because Halmar's pension plan and trust contains, in the words of § 541(c)(2), "a restriction on the transfer of a beneficial interest of the debtor in a trust that is enforceable under applicable nonbankruptcy law." They point out that ERISA's mandate for a pension provision generally prohibiting assignment of a participant's benefits has been construed through regulations of the Secretary of the Treasury to prohibit garnishment of benefits by creditors of a participant. E.g., Tenneco, Inc. v. First Virginia Bank of Tydewater, 698 F.2d 688 (4th Cir.1983); General Motors Corp. v. Buha, 623 F.2d 455 (6th Cir.1980). See also Guidry v. Sheet Metal Workers Nat. Pension Fund, ___ U.S. ___, 110 S.Ct. 680, 107 L.Ed.2d 782 (1990) (). They argue that the "applicable nonbankruptcy law" consists of either ERISA under principles of preemption or Massachusetts common law upholding so-called "spendthrift trust" restrictions upon voluntary or involuntary assignment of beneficial interests. This argument finds support in most of the decisions dealing with the question. See, e.g., In re Moore, 907 F.2d 1476 (4th Cir.1990), (excludible by reason of prohibition in ERISA against creditor process); In re Threewitt, 24 B.R. 927 (D.Kan.1982) (same); Warren v. G.M. Scott & Sons (In re Phillips), 34 B.R. 543 (Bankr.S.D.Ohio 1983) (same); In re Daniel, 771 F.2d 1352 (9th Cir.1985) (); In re Lichstrahl, 750 F.2d 1488 (11th Cir.1988) (same); In re Goff, 706 F.2d...
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