In re Piskiel
| Decision Date | 10 February 2023 |
| Docket Number | 21-10727-t7 |
| Parties | In re: GREGORY JON PISKIEL, Debtor. |
| Court | U.S. Bankruptcy Court — District of New Mexico |
Before the Court are cross-motions for summary judgment on whether Debtor's survivor benefit from his deceased father's pension plan is available to Debtor's creditors. The chapter 7 trustee argues that the interest is estate property and is not exempt. Debtor asserts that the interest is exempt, but also argues that the plan is a "spendthrift" trust so his interest in the plan is not property of the estate. Not reaching the exemption issue the Court rules that Debtor's interest in the plan is not estate property. Summary judgment will be entered accordingly.
A. Facts.[1]
To rule on the cross-motions for summary judgment, the Court finds that these facts are not in genuine dispute:[2]
Debtor's father, Leon Piskiel ("L. Piskiel"), started working for the City of New York in October 1970. During his working years, L. Piskiel made regular contributions to the New York City Employee's Retirement System Plan, a defined-benefit pension plan regulated by the State and City of New York (the "NYCERS Plan" or the "Plan").
The "Summary Plan Description" for the Plan includes the following:
NYCERS was established by an act of the New York State Legislature in 1920. The system is responsible for the retirement benefits for most employees of the City of New York The head of the retirement system is the Board of Trustees. The Comptroller of the City of New York is the Custodian of the funds of the System, and by delegation of the Board of Trustees, has the power to invest those funds . . All persons holding a permanent civil service position in the competitive or labor class are required to become members of NYCERS six months after their date of employment . . .. NYCERS is a defined benefit plan, meaning that a specific benefit is provided at retirement in amounts that are paid either on a fixed-dollar basis or as a percentage of compensation. The retirement system manages the system's invested assets and pays out benefits according to formulas set forth in the New York State and New York City law. This plan consists of both employer and employee contributions . . In general, Tier 1 members[3] are governed by the Administrative Code of the City of New York, the New York State Retirement and Social Security Law (RSSL), the Rules of NYCERS and certain other applicable laws.
L. Piskiel retired in July 2001. He elected to receive a smaller monthly payment than he could have gotten, in exchange for a survivor benefit for his son Gregory Piskiel ("Debtor"). L. Piskiel died on February 6, 2013. Debtor applied for and obtained the survivor benefit his father left him under the NYCERS Plan.
On June 10, 2021, Debtor filed this Chapter 7 case. At the time, Debtor was entitled to monthly payments from the Plan of more than $1,110.94.[4] In Debtor's amended schedule B he disclosed his interest in the NYCERS Plan and valued it at $888.94. In his amended schedule C, Debtor claimed that his interest in the Plan was exempt under § 522(b)(3)(C).[5] Trustee objected to the exemption, generating this contested matter.
On August 31, 2022, Trustee and Debtor filed cross-motions for summary judgment on the Trustee's objection to the exemption. The motions ask the Court to determine whether the NYCERS Plan is available to estate creditors.
B. Summary Judgment Standards.
It is appropriate for the Court to grant summary judgment if the pleadings, discovery materials, and any affidavits before the Court show there is no genuine issue of material fact, and that the movant is entitled to judgment as a matter of law. See Fed.R.Civ.P. 56(a), made applicable to contested matters by Fed.R.Bankr.P. 9014. "[A] party seeking summary judgment always bears the initial responsibility of informing the … court of the basis for its motion, and … [must] demonstrate the absence of a genuine issue of material fact." Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). Courts must review the evidentiary materials submitted in support of a motion for summary judgment to ensure that the motion is supported by evidence. If the evidence submitted in support of the summary judgment motion does not meet the movant's burden, then summary judgment must be denied.
C. The Parties' Arguments.
Section 522(b)(3)(C) exempts:
retirement funds to the extent that those funds are in a fund or account that is exempt from taxation under section 401, 403, 408, 408A, 414, 457, or 501(a) of the Internal Revenue Code of 1986.
The Trustee objects to Debtor's claim that his interest in the Plan is exempt under this subsection. The Trustee cites Clark v. Rameker, 573 U.S. 122 (2014), which found that the corpus of an Individual Retirement Account (IRA) inherited by a debtor on her mother's death was not a retirement fund within the meaning of § 522(b)(3)(C) and therefore was not exempt. In Clark, the Court focused on the "legal characteristics of the account in which the funds are held, asking whether, as an objective matter, the account is one set aside for the day when an individual stops working." Id. at 127. Since the IRA in Clark was set aside for the debtor's mother's retirement, not the debtor's, the Supreme Court ruled that it was not exempt in the hands of the daughter. In support of this conclusion, the Supreme Court noted that the tax rules and restrictions for inherited IRAs differ markedly from IRAs created and funded by the retiree. Id. at 128. The Supreme Court held that the tax differences make the inherited IRA funds available for immediate use, rather than designed to fund the owner's retirement. Id.
The Trustee argues that Debtor's inherited interest in the Plan is comparable to the inherited IRA in Clark, should not be considered a retirement fund under § 522(b)(3)(C), and therefore is not exempt.
Debtor makes two arguments in its cross-motion for summary judgment. First, Debtor argues that the Plan is a spendthrift trust, so his interest in it is excluded from property of the estate by § 541(c)(2).
Debtor also argues that, even if the Plan is property of the estate, Clark is distinguishable because, inter alia, funds in inherited IRAs can be withdrawn at any time, while Debtor cannot withdraw anything from the NYCERS Plan.
D. Property of the Estate and the § 541(c)(2) Exclusion.
Filing a bankruptcy case creates an estate consisting of "all legal or equitable interests of the debtor in property as of the commencement of the case," § 541(a)(1). There are exceptions, however, for property described in § 541(b)[6] and (c)(2). Only property of the bankruptcy estate is subject to distribution by the Trustee. § 726(a).
Section 541(c) provides:
Under § 541(c)(1)(A), property of a debtor becomes estate property even if the debtor's right to transfer it is restricted or conditioned. However, there is an exception to the general rule if the following conditions are satisfied: (i) the debtor has beneficial interest in a trust, if (ii) there is a restriction on the transfer of the interest, and (iii) the restriction on transfer is enforceable under applicable nonbankruptcy law. § 541(c)(2); see also In re Wilcox, 233 F.3d 899, 904 (6th Cir. 2000) ( ). Debtor argues that his interest in the NYCERS Plan comes within this "spendthrift trust" exclusion.
E. The NYCERS Plan Is a Trust.
The term trust is not defined in the Bankruptcy Code, so the word must be understood in its ordinary public meaning unless the context indicates otherwise. Bostock v. Clayton County, Georgia, 140 S.Ct. 1731, 1738 (2020). In interpreting § 541(c)(2), the unanimous court in Patterson v. Shumate, 504, U.S. 753, 758 (1992), found that "[t]he natural reading of [§ 541(c)(2)] entitles a debtor to exclude from property of the estate any interest in a plan or trust that contains a transfer restriction enforceable under any relevant nonbankruptcy law." By referring to a plan as well as a trust, some courts have held that Patterson expanded the definition of trust beyond a literal reading or, at least, focused on the substance of the legal arrangement rather than its label.
In In re Laher, 496 F.3d 279, 287 (3rd Cir. 2007), for example, the Third Circuit held:
The [Patterson] Court did not discuss whether the pension plan at issue constituted a "trust" under the terms of § 541(c)(2), and seems to have expanded the type of legal instruments protected by § 541(c)(2) by referring to "any interest in a plan or trust." Id. at 758 (emphasis added). . . . Thus, Patterson does not opine as to the meaning of "trust," but it does employ language that could be interpreted to mean that § 541(c)(2) is not limited to literal trusts or trusts formed explicitly. In re Barnes, 264...
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