In re Threewitt

• Decision Date: 17 November 1982
• Docket Number: Civ. No. 82-1536.
• Citation: 24 BR 927
• Parties: In re Thomas Buntin THREEWITT and Nancy Lee Threewitt, Debtors. Cortland Q. CLOTFELTER, Plaintiff, v. CIBA-GEIGY CORPORATION, Irving Trust Company, Thomas Buntin Threewitt, and Nancy Lee Threewitt, Defendants.
• Court: U.S. District Court — District of Kansas

24 B.R. 927 (1982)

In re Thomas Buntin THREEWITT and Nancy Lee Threewitt, Debtors Cortland Q. CLOTFELTER, Plaintiff, v. CIBA-GEIGY CORPORATION, Irving Trust Company, Thomas Buntin Threewitt, and Nancy Lee Threewitt, Defendants.

Civ. No. 82-1536.

United States District Court, D. Kansas.

November 17, 1982.

Ronald K. Badger, Wichita, Kan., for plaintiff.

Richard T. Foster, Wichita, Kan., Stephan Piga, New York City, for defendants, CibaGeigy & Irving Trust.

Robert Feldt, Great Bend, Kan., for defendants, Threewitt.

MEMORANDUM AND ORDER

KELLY, District Judge.

This matter is now before the Court on appeal from the Bankruptcy Court's ruling that a debtor's Chapter 7 bankruptcy estate includes the debtor's vested, undistributed interest in a pension plan operated by his employer and qualified under the Employee Retirement Income Security Act of 1974 ("ERISA"), P.L. No. 93-406, 88 Stat. 829. As explained below, the Court concludes that the debtor's interest in the plan is excluded from his bankruptcy estate by virtue of 11 U.S.C. § 541(c)(2), and that the Bankruptcy Court's ruling must therefore be reversed. 20 B.R. 434.

The debtors, Thomas and Nancy Threewitt, filed their voluntary Chapter 7 petition in bankruptcy on March 11, 1981. Mr. Threewitt had, since 1974, participated in the Investment Savings Plan for Salaried Employees of CIBA-GEIGY Corporation and certain affiliated corporations ("Plan"). The Plan meets ERISA pension plan requirements, and is qualified for tax purposes under 26 U.S.C. § 401(a). Under the Plan, CIBA-GEIGY employees may make "basic contributions" of up to five percent of their pay, and CIBA-GEIGY makes corresponding contributions that increase with the amount contributed by the employee and with the length of the employee's service.¹ As of the filing of the bankruptcy petition, Mr. Threewitt's interest in the Plan was about $22,500.00; roughly 61% of that sum is attributable to contributions made to the Plan by Mr. Threewitt himself. The Plan has typical ERISA-required anti-alienation and anti-attachment provisions, but permits employees who have participated in the Plan five or more years, such as Mr. Threewitt, the relatively unrestricted right to make voluntary withdrawals from the Plan,² or borrow against their interest in the Plan.³ Mr. Threewitt has borrowed some $9,500.00 from the Plan, but has made no withdrawals.

The bankruptcy estate generally includes all the debtor's legal or equitable interest in property. 11 U.S.C. § 541(a). An explicit exception, however, is contained in 11 U.S.C. § 541(c)(2), which provides that:

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.

The Bankruptcy Court referred to the legislative history of Section 541(c)(2), found that section described as excluding the debtor's interest in a "spendthrift trust," see H.R.Rep. 95-595, 95th Cong., 1st Sess. 176, 369 (1977), U.S.Code Cong. & Admin. News 1978, p. 5787, and concluded that the exception would apply only to a pension plan that could be described as a "traditional spendthrift trust." The Bankruptcy Court reasoned that the instant plan did not meet that description since Mr. Threewitt's interest in the Plan was largely self-created, and since he could voluntarily withdraw much of his interest in the Plan; finding that the Plan did not fit the "generally accepted definition of . . . a spendthrift trust," the Bankruptcy Court ruled that Mr. Threewitt's interest in the Plan fell outside the Section 541(c)(2) exception.

This Court believes, however, that the Bankruptcy Court gave Section 541(c)(2) an unnecessarily narrow construction. Since Congress did not choose to use the term "spendthrift trust" in the language of the section itself, there is no reason to suppose that when the term appears in the legislative history it should be taken as a term of art; it is more reasonable to suppose that the term should be given its ordinary, more general meaning as "inclusive of all trusts which bar creditors from reaching a beneficiary's interest;" 76 Am.Jur.2d Trusts § 148, at 389. In the case sub judice the relevant question is not whether the Plan looks like a good, old-fashioned spendthrift trust; the relevant question is whether Mr. Threewitt's interest in the Plan would be protected from creditors in an ordinary state court action in which nonbankruptcy law would apply. Under the plain and simple language of Section 541(c)(2), if the ERISA anti-alienation provisions are enforceable against general creditors, they are enforceable against the bankruptcy trustee.

The great weight of authority is to the effect that a debtor's interest in an ERISA pension fund is beyond the reach of his general creditors. See Franchise Tax Board v. Construction Laborers Vacation Trust, 679 F.2d 1307 (9th Cir.1982); General Motors Corp. v. Buha, 623 F.2d 455 (6th Cir.1980); Commercial Mortgage Insurance, Inc. v. Citizens National Bank, 526 F.Supp. 510 (N.D.Tex.1981); Christ Hospital v. Greenwald, 82 Ill.App.3d 1024, 38 Ill.Dec. 469, 403 N.E.2d 700 (1980); Electrical Workers Local No. 1 Credit Union v. IBEW-NECA Holiday Trust Fund, 583 S.W.2d 154 (Mo.1979); Helmsley-Spear, Inc. v. Winter, 74 A.D.2d 195, 426 N.Y.S.2d 778 (1880); National Bank of North America v. International Brotherhood of Electrical Workers Local # 3, Pension and Vacation Funds, 69 A.D.2d 679, 419 N.Y.S.2d 127, 133 (1979) (Rabin, J., dissenting); but see id. at 127 (majority opinion) (per curiam). Little would be gained by recapitulating the reasoning of these cases; suffice it to say that this Court is persuaded that Congress intended that general creditors not reach a debtor's interest in an ERISA pension fund, and intended to preempt any state law to the contrary. It accordingly follows, by virtue of Section 541(c)(2), that the bankruptcy trustee may not reach Mr. Threewitt's interest in the Plan.

The Bankruptcy Court also relied on 11 U.S.C. § 522(d)(10)(E) as evidence of congressional intent to include ERISA pension funds in the bankruptcy estates of their beneficiaries;...