In re Stern
| Decision Date | 04 February 2003 |
| Docket Number | No. 00-56431.,No. 00-56526.,00-56431.,00-56526. |
| Citation | 345 F.3d 1036 |
| Parties | In re: Steven H. STERN, Debtor, No. 00-56431 David A. Gill, Chapter 7 Trustee, Appellant, v. Steven H. Stern, Appellee. In re: Steven H. Stern, Debtor, Steven H. Stern, Appellant, v. David A. Gill, Chapter 7 Trustee, Appellee, and Dove Audio, Inc., Plaintiff. |
| Court | U.S. Court of Appeals — Ninth Circuit |
Richard D. Burstein, Danning, Gill, Diamond & Kollitz, Los Angeles, California, for the appellant.
David R. Weinstein (argued), Sharon Z. Weiss (briefed), Weinstein, Eisen & Weiss, Los Angeles, California, for the appellees.
Appeal from the United States District Court for the Central District of California; Gary A. Feess, District Judge, Presiding. D.C. No. CV-98-07415-GAF.
Before: Arthur L. Alarcón, Barry G. Silverman and Johnnie B. Rawlinson, Circuit Judges.
Opinion by Judge Rawlinson; Partial Concurrence and Partial Dissent by Judge Alarcón.
The opinion filed on February 4, 2003, is hereby amended. With this amendment, a majority of the panel has voted to deny the petition for rehearing and the alternative petition for rehearing en banc.
Judges Silverman and Rawlinson voted to deny the petition for rehearing and the alternative petition for rehearing en banc. Judge Alarcón voted to grant the petition for rehearing and recommended granting the alternative petition for rehearing en banc.
The full court has been advised of the alternative petition for rehearing en banc, and no active judge of the court has requested a vote on rehearing the matter en banc. Fed. R.App. P. 35.
The petition for rehearing and alternative petition for rehearing en banc filed on February 12, 2003 are DENIED.
No additional petitions for rehearing will be accepted in this case.
David A. Gill, Bankruptcy Trustee, ("Trustee") appeals the district court's decision affirming the bankruptcy court's order, which granted summary judgment in favor of the debtor Steven Stern ("Stern"). Stern cross-appeals the district court's determination that Stern's pension plan funds are not excluded from the bankruptcy estate.
Stern filed for bankruptcy after the entry of a sizeable judgment against him in an arbitration proceeding. We must determine whether the transfer of proceeds from an Individual Retirement Account ("IRA") into a Profit Sharing Pension Plan was a fraudulent transfer, subject to avoidance by the Trustee.1
Constrained by our precedent, we AFFIRM the district court's holding that, although the pension plan was properly included within the bankruptcy estate, the pension plan assets were exempt from distribution to Stern's creditors.
Stern's retirement planning commenced with the creation of a tax-qualified profit-sharing plan in 1974 ("1974 Plan").2 In 1978, Stern terminated the 1974 Plan and created a qualified, defined benefit pension plan ("1978 Plan"). In 1989, Stern terminated the 1978 Plan and transferred the plan assets into an IRA account ("IRA").
Stern became embroiled in a business dispute with Dove Audio, Inc. in 1991. The dispute culminated in an arbitration award of over $4.5 million dollars against Stern. At about the same time, Stern hired Margaret Mayersohn ("Mayersohn"), with whom he became romantically involved, and later married.
In April 1992, Stern created a Profit Sharing Plan ("1992 Pension Plan") with Mayersohn and Stern as beneficiaries. On October 22, 1992, the Los Angeles Superior Court issued a writ of attachment to secure the arbitration award. The next day, Stern executed the Plan Documents for the 1992 Pension Plan and, a few days later, transferred the proceeds of his IRA into the 1992 Pension Plan. Dove filed a fraudulent transfer action in state court, contending that Stern's transfer of funds from his IRA into the 1992 Pension Plan was fraudulently designed to shield his assets from creditors. Stern, in turn, initiated a voluntary Chapter 7 bankruptcy proceeding. The creditors removed the fraudulent transfer action to the bankruptcy court as an adversary proceeding.
Stern filed a Motion for Summary Judgment in the core bankruptcy proceeding, seeking to exclude the assets of the 1992 Pension Plan from the bankruptcy estate. Stern also sought summary judgment on the fraudulent transfer claim in the adversary proceeding.
The bankruptcy court ruled that the 1992 Pension Plan was excluded from the bankruptcy estate because it was a qualified plan under the provisions of the Employee Retirement Income Security Act of 1974 ("ERISA"). The bankruptcy court also concluded that, although the 1992 Pension Plan assets were not excluded from the estate under California law, the 1992 Pension Plan's assets were exempted from creditors' claims under California law. Finally, the bankruptcy court held that Stern's transfer of assets from the IRA to the exempt 1992 Pension Plan was not fraudulent. The creditors appealed the bankruptcy court's rulings to the district court.
The district court rendered the following rulings on appeal:
1. The 1992 Pension Plan was not ERISA qualified;
2. The 1992 Pension Plan was not excludable under state law;
3. The 1992 Pension Plan was exempt under California law; and
4. The transfer of assets from Stern's IRA to the 1992 Pension Plan was not fraudulent.
Stern appeals the district court's ruling that the 1992 Pension Plan was not ERISA-qualified. The Trustee appeals the district court's rulings that the 1992 Pension Plan was exempt under California law, and that the transfer of assets from the IRA to the 1992 Pension Plan was not fraudulent.
We review the bankruptcy court's grant of summary judgment de novo. Clicks Billiards, Inc. v. Sixshooters, Inc., 251 F.3d 1252, 1257 (9th Cir.2001). We must determine whether, viewing the evidence in the light most favorable to the nonmoving party, genuine issues of fact remain for trial. Oliver v. Keller, 289 F.3d 623, 626 (9th Cir.2002). We also must determine whether the bankruptcy court correctly applied the relevant substantive law. Id.
"We review the district court's decision on appeal from the bankruptcy court de novo, without giving deference to the district court's conclusions." Harmon v. Kobrin (In re Harmon), 250 F.3d 1240, 1245 (9th Cir.2001) (citation omitted). Because the facts in this case are virtually undisputed, we focus on the court's application of the law to the facts.3
If the 1992 Pension Plan was ERISA-qualified, the assets in the plan were excluded from the bankruptcy estate. See Patterson v. Shumate, 504 U.S. 753, 757-58, 112 S.Ct. 2242, 119 L.Ed.2d 519 (1992); Barkley v. Conner (In re Conner), 73 F.3d 258, 259-60 (9th Cir.1996). The status of the pension plan is determined as of the date of the bankruptcy filing. Lowenschuss v. Selnick (In re Lowenschuss), 171 F.3d 673, 680 (9th Cir.1999).
It is undisputed that, as of the date of his bankruptcy filing, Stern was married to Mayersohn, the only other beneficiary of the 1992 Pension Plan. Prior to the marriage, Mayersohn was the sole employee of the 1992 Pension Plan.4 Absent at least one employee beneficiary, a pension plan is not ERISA-qualified. See Peterson v. Am. Life & Health Ins. Co., 48 F.3d 404, 407-08 (9th Cir.1995).
Although Stern acknowledged the applicability generally of In re Lowenschuss, he challenges its applicability specifically to the facts of this case. Relying upon Peterson, Stern contended that his marriage to Mayersohn did not alter the ERISA-qualified status of the 1992 Pension Plan.
We agree with the district court that the fact that Peterson concerned an employee welfare benefit plan and In re Lowenschuss addressed a pension plan is outcome determinative.
29 U.S.C. § 1002(1) defines an ERISA-qualified welfare benefit plan as one "established or maintained ... for the purpose of providing [benefits] for its participants or their beneficiaries[.]" 29 U.S.C. § 1002(1) (West 1999). In contrast, a pension plan is ERISA-qualified only "to the extent that by its express terms or as a result of surrounding circumstances [the pension plan] provides retirement income to employees ..." 29 U.S.C. § 1002(2)(A)(i) (West 1999).
Taking into account the welfare benefit plan definition's focus on the past and the pension plan definition's emphasis on the present, Peterson and In re Lowenschuss are easily reconciled. Under the rationale of Peterson, ERISA qualification for a welfare benefit plan is determined after considering the purpose of the plan when it was established or as it is maintained. 48 F.3d at 407-08. In In re Lowenschuss, however, we are instructed to assess ERISA qualification for a pension plan by gauging whether there is at least one extant employee beneficiary. 171 F.3d at 680. Under In re Lowenschuss, the assessment is made as of the bankruptcy filing date. Id.
There is no dispute that as of the bankruptcy filing date, the 1992 Pension Plan covered an owner and the spouse of an owner, neither of which met the definition of employee. See Peterson, 48 F.3d at 408; see also 29 C.F.R. § 2510.3 3(c)(1). The district court properly applied In re Lowenschuss and determined that the 1992 Pension Plan was not ERISA-qualified at the time of the bankruptcy filing. As a result, the assets of the 1992 Pension Plan were not exempt from the bankruptcy estate by virtue of ERISA qualification.
Cal.Civ.Proc.Code § 704.115(b) provides: "All amounts held, controlled, or in process of distribution by a private retirement plan, for the payment of benefits as an annuity, pension, retirement allowance, disability payment, or death benefit from a private retirement plan are exempt."
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