In re Springfield Furniture, Inc.
| Citation | 145 BR 520 |
| Decision Date | 30 September 1992 |
| Docket Number | Bankruptcy No. 85-00349-A,Adv. No. 88-0156-AB. |
| Parties | In re SPRINGFIELD FURNITURE, INC. t/a Cost Less Furniture, Inc., Debtor. Robert L. MOORE, Plaintiff/Counter-Defendant, v. Joseph F. MANSON, III, Trustee, Defendant/Counter-Plaintiff. |
| Court | Bankr. V.I. |
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John D. Sawyer, Hudock, Sawyer & Azarcon, Vienna, Va., for Robert L. Moore.
H. Jason Gold, Gold & Stanley, P.C., Alexandria, Va., for Joseph F. Manson, III, trustee.
MARTIN V.B. BOSTETTER, Jr., Chief Judge.
We are called upon to determine whether the assets of a retirement plan created by a debtor corporation for the benefit of the debtor's employees are assets of the debtor's bankruptcy estate, and if such assets are not assets of the bankruptcy estate, whether certain transfers of assets made by the debtor to the retirement plan can be avoided by the Chapter 7 trustee. For the reasons set forth herein we hold that (1) the assets of the retirement plan are not assets of the debtor's bankruptcy estate except to the extent they exceed the liabilities of the plan after the plan is liquidated, and (2) the last two contributions made to the plan may be avoided by the trustee.
Springfield Furniture, Inc. (the "Debtor") created a defined benefit pension plan entitled the Springfield Furniture, Inc. Defined Benefit Pension Plan (the "Plan"). The creation of the Plan was effectuated by the execution on May 26, 1982 of two documents, the Springfield Furniture, Inc. Defined Benefit Pension Plan (the "Plan Agreement") and the Springfield Furniture, Inc. Defined Benefit Pension Plan Trust Agreement (the "Trust Agreement").
The Plan Agreement contains provisions concerning the eligibility of and benefits payable to the employees of the Debtor, who are the beneficiaries of the Plan. The Plan Agreement also provides that the Board of Directors of the Debtor may amend1 or terminate2 the Plan at any time. Upon the termination of the Plan and satisfaction of all of its liabilities, the Plan Agreement provides that any remaining assets of the Plan would pass to the Debtor.3
Under the provisions of the Trust Agreement, the Debtor created a trust (the "Trust") to hold the assets of the Plan. Federal law requires all assets of an employee benefit plan to be held in trust. 29 U.S.C. § 1103. The Trust Agreement designates Robert L. Moore ("Moore") as the initial trustee of the Trust. The Trust Agreement authorizes the trustee of the Trust to manage and invest the Trust's assets and to apply the same to satisfy all obligations of the Plan. By letter dated February 1, 1983, the IRS determined that the Plan was "qualified" under the Internal Revenue Code. As a "qualified" plan, any contributions to the Plan made by the Debtor generally could be used to reduce taxable income in the year the contributions were made. 26 U.S.C. § 404.
The Debtor's original contribution to the Plan in May of 1982 was $100. The Debtor made additional contributions to the Plan prior to March 18, 1985 in the amount of $193,000, as is illustrated in the chart below.
Date of Amount of
Contribution Contribution
August 17, 1982 $6,000
August 17, 1982 29,000
August 18, 1982 35,000
August 8, 1983 30,000
September 8, 1983 20,000
September 19, 1983 3,000
February 5, 1985 70,000
________
TOTAL $193,000
On March 18, 1985 the Debtor filed a petition for relief under Chapter 11 of the United States Bankruptcy Code (the "Code"). The Debtor continued to operate its business as a debtor-in-possession.4 On April 4, 1985, without the approval of this Court, the Debtor made a contribution of $10,284.38 to the Plan.
On October 18, 1985, the Debtor converted this case to a case under Chapter 7. A meeting of the Debtor's creditors was held pursuant to § 341 of the Code on December 5, 1985. At such meeting, Joseph F. Manson, III was elected as the Debtor's Chapter 7 trustee (the "Bankruptcy Trustee").
During the creditors meeting, the Bankruptcy Trustee learned of the Plan's existence. Shortly thereafter, the Bankruptcy Trustee insisted that Moore, who is both the president of the Debtor as well as the trustee of the Trust, turn over all of the Plan's assets. On the advice of his counsel, Moore agreed to comply with the Bankruptcy Trustee's demand. On January 28, 1986, Moore turned over to the Bankruptcy Trustee three certificates of deposit with an aggregate value of $235,014.25.5 These certificates of deposit represented the bulk of the Plan's assets. By a check in the amount of $10,741.73, dated February 7, 1986 and made payable to "Joseph F. Manson, III — Trustee", Moore turned over the remaining assets of the Plan to the Bankruptcy Trustee.
Notwithstanding the Debtor's bankruptcy proceeding and Moore's turnover of the Plan's assets, Moore, as president of the Debtor, executed an amendment to and restatement of the Springfield Furniture, Inc. Defined Benefit Plan (the "Amended Plan Agreement") on August 12, 1986. Moore executed the Amended Plan Agreement allegedly to comply with the provisions of the Tax Equity and Fiscal Responsibility Act of 1982. By letter dated February 12, 1987, the IRS determined that the Plan, as amended by the Amended Plan Agreement, was "qualified" under the Internal Revenue Code.
On March 10, 1988, Moore6 filed a complaint requesting this court to enter a judgment declaring that the Plan's assets which Moore turned over to the Bankruptcy Trustee continue to be assets of the Plan, and further directing the Bankruptcy Trustee to turn over such assets to Moore. Moore also seeks to hold the Bankruptcy Trustee personally liable for damages allegedly incurred by the Plan as a consequence of the Bankruptcy Trustee's mismanagement. The complaint was amended on August 30, 1988 (the "Complaint"). The Bankruptcy Trustee timely filed an answer to the Complaint on September 8, 1988.
The Bankruptcy Trustee filed a Counterclaim in this proceeding on July 25, 1989.7 In the Counterclaim the Bankruptcy Trustee seeks to avoid all of the Debtor's transfers to the Plan. Through the Counterclaim the Bankruptcy Trustee also seeks to (1) have the Trust declared null and void, (2) hold Moore liable for all debts of the Debtor, and (3) use the Trust's assets to satisfy the obligations of Moore and the Debtor pursuant to section 55-19 of the Code of Virginia.
Before addressing the propriety of the arguments set forth by the parties, this Court finds it necessary to determine whether the Plan is governed by the provisions of the Plan Agreement or the Amended Plan Agreement. The Plan Agreement specifically provides that the Debtor may amend the Plan Agreement at any time by action of its board of directors. The Debtor, through Moore, attempted to amend the Plan Agreement by executing the Amended Plan Agreement on August 12, 1986. However, the execution of the Amended Plan Agreement occurred after the Debtor converted its bankruptcy case to Chapter 7. The Bankruptcy Trustee did not participate in the execution of the Amended Plan Agreement.
The United States Supreme Court in Commodity Futures Trading Commission v. Weintraub, 471 U.S. 343, 352, 105 S.Ct. 1986, 1992, 85 L.Ed.2d 372 (1985), held that a bankruptcy trustee exercises functions analogous to those possessed by officers and directors outside of bankruptcy. Conversely, the Supreme Court held that the powers of a corporation's directors after such corporation files for bankruptcy Weintraub, 471 U.S. at 352-53, 105 S.Ct. at 1993. Based on this decision, we hold that the attempt of Moore to amend the Plan Agreement without the consent and approval of the Bankruptcy Trustee is a complete nullity.8
Having determined that the provisions of the Plan Agreement govern the Plan, we next address the issue of whether the Plan's assets are assets of the Debtor's bankruptcy estate. But for a few exceptions not relevant here, § 541(a)(1) of the Code provides that a debtor's bankruptcy estate includes "all legal or equitable interests of the debtor in property as of the commencement of the case." As previously noted, the Plan's assets are held by the Trust. Although the Debtor created and funded the Plan and the Trust, the Trust is a separate and distinct legal entity. Washington-Baltimore Newspaper Guild, Local 35 v. Washington Star Co., 543 F.Supp. 906, 910 (D.D.C.1982) (); Holloway v. HECI Exploration Co. Employees' Profit Sharing Plan, 76 B.R. 563, 568 (N.D.Tex.1987) (), aff'd, 862 F.2d 513 (5th Cir.1988). The Trust is not owned by the Debtor. Rather, its beneficiaries are the eligible employees of the Debtor. Accordingly, we hold that the assets of the Trust (and Plan) are not assets of the Debtor's bankruptcy estate pursuant to § 541(a)(1). Holloway, 76 B.R. at 569.
The Bankruptcy Trustee argues that the Plan's assets are property of the Debtor's bankruptcy estate pursuant to § 541(a)(7) of the Code. That section provides that a bankruptcy estate includes "any interest in property that the estate acquires after the commencement of the case." 11 U.S.C. § 541(a)(7). The Bankruptcy Trustee contends that because he received the Plan's assets from Moore after the commencement of the case, these assets must now be assets of the Debtor's bankruptcy estate.
The Court of...
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