In re Snyder

• Decision Date: 14 March 2002
• Docket Number: Bankruptcy No. 98-71761 NG.,No. C 01-2501 CW.,C 01-2501 CW.
• Citation: In re Snyder, 285 B.R. 712 (N.D. Cal. 2002)
• Parties: In re Donald SNYDER, Debtor. Donald Snyder, Debtor/Appellant, v. United States of America, Internal Revenue Service, Creditor/Appellee.
• Court: U.S. District Court — Northern District of California

285 B.R. 712

In re Donald SNYDER, DebtorDonald Snyder, Debtor/Appellant, v.United States of America, Internal Revenue Service, Creditor/Appellee.

No. C 01-2501 CW.

Bankruptcy No. 98-71761 NG.

United States District Court, N.D. California.

March 14, 2002.

Robert N. Kolb, Law Offices of Robert N. Kolb, Antioch, CA, for Debtor.

David L. Denier, U.S. Attorney's Office, Tax Division, San Francisco, CA, Michael E. Melone, Special Assistant U.S. Attorney, San Francisco, CA, for U.S.

ORDER AFFIRMING DECISION OF BANKRUPTCY COURT

WILKEN, District Judge.

Debtor/AppellantDonald Snyder appeals the bankruptcy court's decision allowing Creditor/Appellee Internal Revenue Service's (IRS) secured claim.This appeal presents the question of whether the bankruptcy court erred in ruling that Snyder's interest in his ERISA¹ — qualified pension plan may be used to secure the IRS's federal income tax claim in the amount of $145,664.48 in Snyder's Chapter 13 bankruptcy case.Having considered all of the papers filed by the parties, the Court AFFIRMS the order of the bankruptcy court.

BACKGROUND

I.Statement of Facts

The facts in this case are not in dispute.(Excerpt of Record, hereinafter "ER," 46-51).At all relevant times, Snyder was a vested participant in the Contra Costa County Electrical Worker's Union Retirement Plan (the Plan).(ER 46-47).The Plan was duly qualified under ERISA's provisions at 26 U.S.C. § 401, et seq.(ER 256-57) and 29 U.S.C. § 1001, et seq.(ER 256-57).The Plan contained an anti-alienation provision as required by 26 U.S.C. § 401(a)(13)and29U.S.C. § 1056(d)(1).(ER 255).

All contributions to the Plan were made by the various employers of the participants and were pooled into one common fund with other participants and thereafter allocated to separate individual accounts for each participant for ERISA-required accounting and reporting purposes.(ER 47-48).The balance of Snyder's allocated individual account as of December 31, 1998 was $180,477.(ER 48).

Plan participants have no right, title or interest in the trust assets or separate individual accounts, except at the time or times and upon the terms and conditions provided in the Plan.(ER 227, 254).Plan benefits are payments to which participants and beneficiaries are or may become entitled under the Plan.(ER 48).The benefits provided by the Plan are: (1) normal retirement benefit payments payable at age 60; (2) early retirement at age 55 through 59 in an amount up to one-half the normal retirement benefits; (3) a lump sum payment in the event of total disability; or (4) payments to a surviving spouse or designated beneficiary in the event the participant dies before complete distribution of Plan benefits.(ER 48).Snyder was forty-four years of age as of December 7, 1998.(ER 46).

II.Procedural History

On December 7, 1998, Snyder filed a Chapter 13 bankruptcy petition and scheduled the IRS as an unsecured creditor in the amount of $158,228, of which $134,363 was scheduled as a general unsecured claim and $24,085 was scheduled as a priority claim.(ER 1-29, 49).In his Schedule B-Personal Property, Snyder listed his interest in the Plan with a balance of $171,443 as of June 30, 1998 and indicated, "ERISA-qualified, cannot be withdrawn."(ER 5).Snyder listed the current value of his interest in the Plan as zero.(ER 5, 48).Snyder's Chapter 13 plan was confirmed on January 21, 1999.(ER 30).

On February 28, 1999, the IRS filed a proof of claim in the amount of $158,228.11, of which $145,664.48 was claimed as secured, $11,581.04 was claimed as priority, and $982.59 was claimed as general unsecured.The IRS had duly filed Notices of Federal Tax Liens as set forth in its proof of claim.(ER 31-32, 49).

On April 23, 1999, Snyder objected to the secured portion of the IRS's claim.(ER 33-34).On April 27, 1999, the IRS filed a timely response to Snyder's objection.(ER 35-36).

On November 6, 2000, the bankruptcy court held a hearing on Snyder's objection to the IRS's claim.(ER 125-212).At the conclusion of the hearing, the bankruptcy court held that for purposes of a federal tax lien, Snyder's interest in the ERISA-qualified retirement plan was property of the Chapter 13 estate (ER 209:2-12), that Snyder's objection to the IRS's claim was overruled, and that the IRS's claim was allowed as secured.(ER 209:19-21).

On December 7, 2000, Snyder filed a motion for reconsideration.(ER 83-90).On December 20, 2000, the IRS filed an opposition thereto (ER 91-97), and Snyder replied on January 5, 2001.(ER 98-107).On January 11, 2001, after oral argument, the bankruptcy court reversed itself in part, holding that Snyder's interest in the ERISA-qualified retirement plan was not property of his Chapter 13 estate, but left standing its prior ruling that Snyder's objection was overruled and the IRS's claim must be paid as a secured claim.(ER 317).

On April 30, 2001, the IRS filed a request for order of the court or instructions and conference to resolve the apparent inconsistency between the bankruptcy court's decision on November 6, 2000 and its conclusion on January 11, 2001.(ER 116-24).On April 26, 2001, Snyder filed his response.(ER 108-15).On May 23, 2001, the bankruptcy court entered its Order Allowing Claim holding that for purposes of the IRS's federal tax lien, Snyder's interest in his ERISA-qualified retirement plan was property of his Chapter 13 bankruptcy estate and thus the IRS's claim was allowed as a secured claim.(ER 320-21).

On June 1, 2001, Snyder filed a timely notice of appeal.(ER 322-23).

JURISDICTION AND STANDARD OF REVIEW

A district court has jurisdiction to hear appeals from a bankruptcy court pursuant to 28 U.S.C. § 158(a).The district court reviews the bankruptcy court's findings of fact for clear error and conclusions of law de novo.Fed. R. Bankr.P. 8013;In re Lockard,884 F.2d 1171, 1174(9th Cir.1989).In the instant case, the bankruptcy court's findings of fact are not in dispute, and this Court therefore conducts a de novo review.

DISCUSSION

Snyder argues that the bankruptcy court erred in finding that his interest in the Plan could be used to secure the IRS's claim.Specifically, Snyder contends that because his interest in the Plan would ordinarily be excluded from the bankruptcy estate and could not be used to secure the claims of other creditors, it should not have a "split personality" by being deemed property of the estate to secure the IRS's claim.Appellant's Opening Briefat 11.The IRS argues that a debtor's interest in a beneficial trust, such as Snyder's interest in the Plan, is property of the estate for purposes of determining the IRS's secured claim even if that interest would be excluded from the bankruptcy estate with respect to other creditors.

For an allowed claim to be "secured" under the Bankruptcy Code, it must be secured by a lien on property in which the estate has an interest.²11 U.S.C. § 506(a).The bankruptcy estate is comprised of "all legal and equitable interests of the debtor in property as of the commencement of the case."11 U.S.C. § 541(a)(1).Section 541(c)(2) provides the following exclusion from the definition of property of the estate: "A restriction on the transfer of a beneficial interest of the debtor in a trust that is enforceable under applicable nonbankruptcy law is enforceable in a case under this title."11 U.S.C. § 541(c)(2).In Patterson v. Shumate,504 U.S. 753, 759, 112 S.Ct. 2242, 119 L.Ed.2d 519(1992), the Supreme Court held that ERISA plans are generally excluded from the property of the bankruptcy estate under § 541(c)(2).

Before Patterson,courts treated the phrase "applicable nonbankruptcy law" in § 541(c)(2) as limited to traditional spendthrift trusts under State law.Because § 541(c)(2)'s exclusion did not apply to ERISA, debtors' interests in ERISA plans were deemed to be property of the bankruptcy estate.

In Patterson, however, the Supreme Court obliterated this narrow interpretation of the exclusion and held that the phrase "applicable nonbankruptcy law" in § 541(c)(2)"encompasses any relevant nonbankruptcy law, including federal law such as ERISA."Id. at 759, 112 S.Ct. 2242.In reaching the conclusion that interests in State spendthrift trusts were not the only interests contemplated by § 541(c)(2), the Court relied on the plain language of the Bankruptcy CodeandERISA."The 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.Nothing in § 541 suggests that the phrase `applicable nonbankruptcy law' refers, as petitioner contends, exclusively to state law."Id. at 758, 112 S.Ct. 2242.Next, the Court viewed the plain language of § 206(d)(1) of ERISA: "Each pension plan shall provide that benefits provided under the plan may not be assigned or alienated."29 U.S.C. § 1056(d)(1).The Court noted that this language "clearly imposes a `restriction on the transfer' of a debtor's `beneficial interest' in the trust."Patterson,504 U.S. at 759, 112 S.Ct. 2242(citing also transfer restrictions in 26 U.S.C. § 401(a)(13)and26C.F.R. § 1.401(a)-13(b)(1)).Therefore, the Court concluded, "The anti-alienation provision required for ERISA-qualification and contained in the Plan at issue in this case thus constitutes an enforceable transfer restriction for purposes of section 541(c)(2)'s exclusion of property from the bankruptcy estate."Id. at 760, 112 S.Ct. 2242.The law is thus settled that an interest in a qualified ERISA plan is not property of the bankruptcy estate for the purposes of securing the claims of ordinary creditors.Id.

In cases where the creditor is not the IRS, the Ninth Circuit has consistently decided that the debtor's interest in an ERISA plan was excluded from the property of the bankruptcy estate and was thus unable to secure a claim.See e.g., In re...