In re Segovia
| Decision Date | 30 March 2009 |
| Docket Number | No. C 08-3075 PJH.,No. 06-30387.,No. 05-3441.,C 08-3075 PJH.,06-30387.,05-3441. |
| Citation | 404 B.R. 896 |
| Parties | In re Maria O. SEGOVIA, Debtor. Maria O. Segovia, Debtor/Appellant, v. E. Lynn Shoenmann, Defendant/Appellee. |
| Court | U.S. District Court — Northern District of California |
Law Offices of Neal H. Konami, Oakland, CA, for Debtor.
ORDER AFFIRMING JUDGMENT OF THE BANKRUPTCY COURT
Plaintiff and appellant Maria Segovia ("Segovia") appeals the bankruptcy court's June 9, 2008 decision and order sustaining the chapter 7 trustee's ("trustee") objections to her claimed exemptions and exclusions in an employer compensation plan. For the reasons that follow, the court AFFIRMS the judgment of the bankruptcy court.
On May 16, 2006, Segovia, currently fifty-three years-old, filed a voluntary chapter 7 bankruptcy petition. Prior to bankruptcy, Segovia worked at Wells Fargo Bank ("Wells Fargo") for more than thirty years. During that time, Segovia held numerous positions with the bank, from file clerk to corporate finance manager.1 On October 5, 2005, the bank notified Segovia that her job as a finance manager would be eliminated as of December 3, 2005. However, Segovia was placed on continuation of leave of service with Wells Fargo, which lasted until March 3, 2007. During the fifteen month leave, Segovia received her salary under a salary continuation or severance plan.
Throughout the course of her employment at the bank, Segovia received Wells Fargo stock options pursuant to Wells Fargo's Long-Term Incentive Compensation Plan ("LTICP"). Prior to filing for bankruptcy, Segovia exercised stock options granted to her under the LTICP on three occasions, realizing a total of $205,591.63. She used the proceeds from those three exercises to pay for remodeling and construction costs to a residence that she owned with her sister and mother at 320-322 Maple Street in San Francisco, California.
At the time Segovia filed for bankruptcy, she owned additional unexercised stock options under the LTICP. In addition to the LTICP, Segovia also possessed a formal retirement or 401(k) plan with Wells Fargo worth $772,754.16.
In the schedules that Segovia filed with her bankruptcy petition on June 13, 2006, she listed the LTICP stock options as non-exempt personal property. She did, however, schedule her Wells Fargo 401(k) retirement plan in the amount of $772,754.16 as exempt. Additionally, in schedules that she amended on September 13, 2006, Segovia also scheduled $130,863.75 that she received under the Wells Fargo salary continuation plan as exempt. On November 30, 2006, the bankruptcy court subsequently ruled that the funds Segovia received under the salary continuation plan were indeed exempt in spite of the trustee's objection, concluding that the salary continuation plan constituted an ERISA welfare benefit plan.
Subsequently, on March 19, 2007, Wells Fargo and the trustee entered into a stipulation that allowed the trustee, as the legal representative of the debtor, to exercise the unexercised stock options Segovia held under the LTICP, and the bankruptcy court approved the stipulation on March 23, 2007. In response, on April 13, 2007, Segovia filed amended bankruptcy schedules in which she claimed that the stock options were exempt and not property of the bankruptcy estate because they constituted a qualified retirement account.
On May 9, 2007, the trustee objected to Segovia's characterization of the stock options in her amended schedules, asserting that the LTICP under which the options arose was not an ERISA-protected or qualified plan, nor was it a retirement plan exempt under California law. A week later, on May 16, 2007, the trustee and Wells Fargo entered into an amended stipulation to facilitate the trustee's ability to exercise the stock options, which was approved by the bankruptcy court on May 29, 2007. In that stipulation, Wells Fargo and the trustee agreed that the LTCIP, under which Segovia received the stock options, was not subject to ERISA, and did not constitute an Employee Stock Ownership Plan, commonly referred to as an "ESOP." They noted that their prior March 19, 2007 stipulation "appear[ed] to have incorrectly characterized the LTICP as a qualified employee stock ownership plan and mischaracterized the Debtor's stock options as qualified stock options." Appellee's Excerpts of Record ("E.R.") Exh. 8.
On June 5, 2007, Segovia filed a declaration in support of her claim that the stock options were exempt. On June 21, 2007, the trustee exercised the stock options pursuant to the May 29, 2007 stipulation and order, and realized net proceeds of $399,498.42, which the trustee held in a trust account in connection with Segovia's bankruptcy case. From June 2007 until June 2008, the parties prepared for trial before the bankruptcy court regarding Segovia's claimed exemption. During this time, on September 29, 2007, Segovia again amended her bankruptcy schedules and specifically claimed that the LTICP, under which the stock options arose, was an ERISA-defined "pension benefit plan" or "employee benefit plan," and was thus wholly excluded from the chapter 7 bankruptcy estate. Segovia additionally claimed that the options constituted "retirement benefits," that were exempt under state law.
On June 5, 2008, the bankruptcy court held a hearing on Segovia's claimed exemption. Prior to the hearing, the parties submitted stipulated facts, in addition to twenty-six trial exhibits, including Segovia's bankruptcy schedules, transcripts of her deposition, transcripts of depositions of other Wells Fargo executives, the LTICP, tax forms, and other correspondence from Wells Fargo. There was no testimony at the hearing, nor was any new evidence introduced. The bankruptcy court decided the matter based on the evidence submitted, and on the parties' arguments at the hearing.
As mentioned, that evidence included deposition transcripts from two Wells Fargo executives, Paula Roe, the executive vice president of compensation and benefits, and Mary Morrow, the human resources manager. Appellee's E.R. Exh. 10. Roe testified that she has managed the team that is responsible for executive compensation and all of Wells Fargo's benefit programs for approximately twenty years. Roe herself makes day-to-day administrative decisions regarding the LTICP. Id. at 50. In determining which employees receive an award under the plan, recommendations are made to a committee, which approves or rejects them. Id. at 51.
In particular, Roe testified regarding the nature of Wells Fargo's LTICP, and also regarding the purpose of particular provisions of the plan. Roe explained that the options are viewed as part of an individual's competitive compensation package. Id. at 9. She testified that the intended benefit of the LTICP was to deliver compensation to employees, and to allow them to share in the success of Wells Fargo through its stock appreciation. Id. at 30. The awards have some element of deferred compensation because an employee has to earn a right to them; however, the LTICP is not a deferred compensation plan. Id. at 30, 32. Roe noted that Wells Fargo has a separate deferred compensation plan. Id. at 31.
Roe further testified that Wells Fargo did not view the stock options as a retirement benefit or subject to ERISA. Id. at 18. Nor, according to Wells Fargo, are they an ESOP, an employee stock ownership plan, because Wells Fargo actually has a different, separate ESOP, in which Segovia also participated. Id. at 19. Roe testified that those ESOP rights had nothing to do with the stock options under the LTICP. Id.
Roe further explained that non-qualified stock options, like those Segovia received under the plan, are the right to purchase a share of stock at a predetermined price over a defined period of time. Id. at 10. She noted that the vesting term for options varies according to the grant. Id. at 8. Roe testified that once Segovia's stock options vested, there was no limit on her ability to exercise the options as long as she continued "to be employed or satisfied employment, eligibility and disability or retirement and employment." Id. at 17. Additionally, she clarified that there was no requirement that Segovia needed to be retired in order to exercise the stock options. Id. at 17-18. Once the shares are exercised, then either the shares or the cash, depending on the type of exercise, are deposited into the participant's brokerage account, which is set up by the participant. Id. at 39.
If an employee ceases to be employed by Wells Fargo—other than as a result of death, retirement, or disability—the employee has three months from termination to exercise her stock options, or if the options expire before the three months, then up until the expiration date. Id. at 19-20. When an employee actually retires, their stock options don't suddenly become somehow connected with ERISA or a retirement benefit. Id. at 55. In fact, an employee's retirement doesn't do anything under the LTICP with respect to the stock options other than extend the time for their exercise that the employee wouldn't have had had they simply left Wells Fargo for other reasons. Id. at 56. When an employee retires, they continue to hold the rights in the stock options until the options expire or until they exercise the options. Id. at 21.
In terms of retirement, an employee is the one who tells Wells Fargo that they're retiring, not the other way around. Id. at 47. And once the employee gives Wells Fargo a date, then the people responsible for managing the health plan administer those plans. Those people who manage the LTICP report up to Roe in the compensation department. Id. at 47.
Roe testified that the non-transferability provision was added to the LTICP not to turn it into a retirement plan, but instead to limit Wells...
To continue reading
Request your trial
-
Vincenzo v. Hewlett-Packard Co.
...a procedure for amending the plan, and (4) specif[ies] a basis for payments to and from the plan." Segovia v. E. Lynn Shoenmann, No. 05-3441, 404 B.R. 896, at *915 (N.D. Cal. March 30, 2009) (citing Cinelli v. Sec. Pac. Corp., 61 F.3d 1437, 1441-42 (9th Cir. 1995) (quoting Watkins v. Westin......
-
Barthelmes v. Kimberly-Clark Corp.
...Grp., Inc., 325 F.3d 184, 189 (3d Cir. 2003) ("the AIG stock option agreements were not ERISA plans"); Segovia v. Schoenmann (In re Segovia), 404 B.R. 896, 916 (N.D. Cal. 2009) ("A stock option plan generally does not satisfy the pension plan definition and is therefore not subject to ...
-
Overby v. Tacony Corp.
... ... 933) ... Other ... circuits have similarly reasoned that the plans at issue were ... not covered by ERISA because payments were not systematically ... deferred until termination of employment. See In re ... Segovia, 404 B.R. 896, 917 (N.D. Cal. 2009), affd ... sub nom. Segovia v. Schoenmann, 408 Fed.Appx. 61 (9th ... Cir. 2011); Oatway v. Am. Int'l Grp., Inc., 325 ... F.3d 184, 189 (3d Cir. 2003); Murphy, 611 F.2d at ... 575; McKinsey v. Sentry, 986 F.2d 401, 405-06 (10th ... ...
-
Shafer v. Stanley
...v. Am. Int'l Grp., Inc., 325 F.3d 184, 189 (3d Cir. 2003); Murphy v. Inexco Oil Co., 611 F.2d 570, 575 (5th Cir. 1980); and In re Segovia, 404 B.R. 896, 922 (ND. Cal. 2009), affd sub nom. Segovia v. Schoenmann, 408 Fed.Appx. 61 (9th Cir. 2011). SO ORDERED. ...