Jones v. American Airlines, Inc.

• Court: Texas Court of Appeals
• Writing for the Court: Anne Gardner
• Citation: Jones v. American Airlines, Inc., 131 S.W.3d 261 (Tex. App. 2004)
• Decision Date: 26 February 2004
• Docket Number: No. 2-02-179-CV.,2-02-179-CV.
• Parties: Sharon E. JONES, Appellant, v. AMERICAN AIRLINES, INC. and American Airlines, Inc. Pilot Retirement Benefit Program, Appellees.

131 S.W.3d 261

Sharon E. JONES, Appellant, v. AMERICAN AIRLINES, INC. and American Airlines, Inc. Pilot Retirement Benefit Program, Appellees.

No. 2-02-179-CV.

Court of Appeals of Texas, Fort Worth.

February 26, 2004.

John F. Taylor, Fort Worth, for appellant.

Kelly Hart & Hallman, P.C., Marshall M. Searcy, Jr., Jeffrey R. Grable, Fort Worth, for appellees.

Panel B: DAUPHINOT, GARDNER, and WALKER, JJ.

OPINION

ANNE GARDNER, Justice.

Appellant Sharon E. Jones appeals from a turnover order directing her to pay $410,540.32, plus any post-judgment interest, into the registry of the court for the benefit of Appellees American Airlines, Inc. and American Airlines, Inc. Pilot Retirement Benefit Program. Jones challenges the turnover order in two issues, arguing that the trial court erred in its implied findings (1) that her Individual Retirement Account ("IRA"), into which the pension fund payments were rolled over, did not qualify under the Internal Revenue Code and (2) that the funds ordered turned over by the trial court were not exempt under Texas law from turnover as the proceeds of exempt property. We affirm.

I. Factual and Procedural Background

In 1995, Sharon Jones divorced Leslie Jones, who had a pension plan with Appellees. As part of the divorce proceedings, the divorce court entered a Qualified Domestic Relations Order (QDRO), under which Appellees were to pay a portion of Mr. Jones's pension funds to Appellant with interest. See Tex. Fam.Code Ann. §§ 9.101-9.105 (Vernon 1998) (governing post-decree QDROs). Mr. Jones filed a lawsuit against Appellees in the United States District Court in Fort Worth, Texas, under the Employee Retirement Income Security Act of 1974 (ERISA). See 29 U.S.C.A. §§ 1001 et seq. (1999 & Supp.2003). Under ERISA, in the event of a divorce, benefits due under the terms of an ERISA plan may be transferred to a participant's former spouse according to the terms of a valid QDRO. Id. § 1056(d)(3)(A); Day v. Wall, 112 F.Supp.2d 833, 836 (E.D.Wis.2000). Mr. Jones asserted that Appellees wrongfully paid benefits to Appellant, instead of paying them to him. Appellees joined Appellant as a third-party defendant to the federal lawsuit, contending that if proceeds had been wrongfully paid to Appellant, they were entitled to equitable reimbursement from her.

Appellees settled with Mr. Jones and proceeded to trial on their third-party claims against Appellant. After a trial to the bench, the federal court ruled for Appellees on their claims against Appellant and found that Appellees were entitled to recover $410,540.32 in mistakenly paid benefits:

I find that Sharon Leutwyler, then Sharon Jones, equitably should be required to repay defendant's—the plan benefits she was overpaid, that is, the $167,445.67 and the $243,094.65. I don't think she suffered any detrimental reliance by reason of the overpayment.... I find that Sharon knew that there was a dispute as [to] the amount Jones, her husband, should receive and the amount she should receive. And she knew that before she received any payments and should have taken that into account in whatever planning she engaged in.¹

The federal court signed a judgment in accordance with its ruling, awarding Appellees $410,540.32, plus post-judgment interest. Appellant did not appeal the federal court's judgment. After Appellees learned through post-trial discovery that Appellant had withdrawn and transferred $463,128 to various accounts in the weeks leading up to the federal trial, the parties entered an agreed injunction on August 30, 2001, which froze all of Appellant's retirement accounts, including, but not limited to, accounts she held at Securities America, Inc., Morgan Stanley Dean Witter, and Wells Fargo Bank, N.A.

Appellees initiated collection proceedings in the federal court, but the federal court declined to further exercise jurisdiction over the matter. See United Mine Workers v. Gibbs, 383 U.S. 715, 725, 86 S.Ct. 1130, 1138, 16 L.Ed.2d 218 (1966) (discussing the doctrine of pendent jurisdiction). Consequently, Appellees filed an application for a turnover order in the 153rd District Court of Texas. See Tex. Civ. Prac. & Rem.Code Ann. § 31.002 (Vernon Supp.2004). Appellant filed an answer in which she asserted that the funds were exempt from turnover proceedings under section 31.002(f) of the Texas Civil Practice and Remedies Code and section 42.0021 of the Texas Property Code. See id. § 31.002(f); Tex. Prop.Code Ann. § 42.0021 (Vernon 2000).

After a hearing on Appellees' petition, the court signed a turnover order, which required Appellant to turn over to the registry of the court $410,540.32 plus post-judgment interest. The order also awarded attorneys' fees to Appellees in the amount of $35,000 plus conditional appellate attorneys' fees.² No findings of fact and conclusions of law were requested or filed. Appellant timely filed her notice of appeal.³

II. Issues on Appeal

In two issues, Appellant complains that the trial court erred (1) by its implied finding that her IRA did not qualify under the applicable provisions of the Internal Revenue Code and (2) by its implied finding that the funds ordered turned over were not exempt from turnover as the proceeds of exempt property. We construe Appellant's arguments under these two issues as a challenge to the legal sufficiency of the evidence supporting these implied findings. Appellees respond that the trial court did not abuse its discretion in rejecting the exemption claims of Appellant to the mistakenly paid benefits and ordering turnover relief. Appellees have also requested appellate attorneys' fees.

III. Texas Turnover Statute and Texas Property Code Section 42.0021

As we stated in Dale v. Finance America Corp., "The Texas `turnover' statute... is a procedural device by which judgment creditors may reach assets of a debtor that are otherwise difficult to attach or levy on by ordinary legal process." 929 S.W.2d 495, 498 (Tex.App.-Fort Worth 1996, writ denied); see Tex. Civ. Prac. & Rem.Code Ann. § 31.002. The turnover statute provides for turnover relief as follows:

(a) A judgment creditor is entitled to aid from a court of appropriate jurisdiction through injunction or other means in order to reach property to obtain satisfaction on the judgment if the judgment debtor owns property, including present or future rights to property, that:

(1) cannot readily be attached or levied on by ordinary legal process; and

(2) is not exempt from attachment, execution, or seizure for the satisfaction of liabilities.

Tex. Civ. Prac. & Rem.Code Ann. § 31.002(a). However, "[a] court may not enter or enforce an order under this section that requires the turnover of the proceeds of, or the disbursement of, property exempt under any statute, including Section 42.0021, Property Code." Id. § 31.002(f).

Section 42.0021, entitled "Additional Exemption for Retirement Plan," provides in pertinent part:

(a) In addition to the exemption prescribed by Section 42.001, a person's right to the assets held in or to receive payments, whether vested or not, under any stock bonus, pension, profit-sharing, or similar plan, including a retirement plan for self-employed individuals, and under any annuity or similar contract purchased with assets distributed from that type of plan, and under any retirement annuity or account described by Section 403(b) or 408A of the Internal Revenue Code of 1986, and under any individual retirement account or any individual retirement annuity, including a simplified employee pension plan, is exempt from attachment, execution, and seizure for the satisfaction of debts unless the plan, contract, or account does not qualify under the applicable provisions of the Internal Revenue Code of 1986....

(b) Contributions to an individual retirement account ... and any accrued earnings on such contributions are not exempt under this section unless otherwise exempt by law.... In addition, amounts qualifying as nontaxable rollover contributions under Section 402(c), 402(e)(6), 402(f), 403(a)(4), 403(a)(5), 403(b)(8), 403(b)(10), 408(d)(3), or 408A of the Internal Revenue Code of 1986 on or after January 1, 1993, are treated as exempt amounts under Subsection (a).

Tex. Prop.Code Ann. § 42.0021(a), (b). The legislature enacted section 42.0021 in 1987 in response to federal decisions holding that the benefits of retirement plans held by debtors in bankruptcy proceedings were not protected from the claims of creditors in Texas. Tex. Prop.Code Ann. § 42.0021; see, e.g., In re Goff, 706 F.2d 574, 587-88 (5th Cir.1983) (holding that the retirement plan benefits were property of the bankruptcy estate, where no Texas law exempted those benefits from creditor's claims); In re Brooks, 60 B.R. 155, 160 (Bankr.N.D.Tex.1986) (ruling that debtor's interest in a retirement plan was not exempted from the bankruptcy estate under Texas law); see also M. Bruce Peele, Retirement Plan—Benefits Are they Exempt, 53 Tex. B.J. 114, 114-115 (discussing Goff and the enactment of section 42.0021 of the property code).

As one commentator had observed, section 42.0021 "is designed to protect retirement benefits from the claims of creditors," including judgment creditors. Katherine C. Hall, Retirement Benefits: Texas Property Code Amendment, 50 Tex. B.J. 993, 993 (1987). However, this protection is not without limits. While section 42.0021 was enacted "to protect the unwary debtor from having his [or her] retirement funds seized for payment of past debts," it was not intended to "become a safe-haven for sham retirement plans created to defraud creditors." Joseph V. Gote, The Texas Exemption of Retirement Benefits: Interaction with the Bankruptcy Code and Possible Preemption by Mackey v. Lanier Collections Agency and Service, 50 Hous. L.Rev. 497, 515 (1989). Thus, if a debtor places funds in a retirement plan in an attempt to defraud his or her creditors, those creditors "can still exercise their rights ...