Knapp v. Cardinale

• Decision Date: 15 July 2013
• Docket Number: Case No. C–12–05076–RMW
• Citation: 963 F.Supp.2d 928
• Court: U.S. District Court — Eastern District of California
• Parties: Keith Charles Knapp, as Trustee of the California Home Loans Profit Sharing Plan; Trust for the California Home Loans Profit Sharing Plan, as a fiduciary of the California Home Loans Profit Sharing Plan; Therese A. Lavoie, as a participant in the California Home Loans Profit Sharing Plan, Plaintiffs, v. Noreen Cardinale, an individual, Defendant.

963 F.Supp.2d 928

Keith Charles Knapp, as Trustee of the California Home Loans Profit Sharing Plan; Trust for the California Home Loans Profit Sharing Plan, as a fiduciary of the California Home Loans Profit Sharing Plan; Therese A. Lavoie, as a participant in the California Home Loans Profit Sharing Plan, Plaintiffs,

v.Noreen Cardinale, an individual, Defendant.

Case No. C–12–05076–RMW

United States District Court, N.D. California. San Jose Division

July 15, 2013

Stephen N. Hollman, Business & Technology Law Group, 160 W. Santa Clara Street, Suite 1180, San Jose, CA 95113–2366, Joseph Allen Garofolo, Garofolo Law Group, P.C., 90 New Montgomery Street, Suite 905, San Francisco, CA 94105, for Plaintiffs.

Louis (Michael) Alexander Boli, IV, Michael Boli, Law Office of Michael L. Boli, 1501–37th Avenue Suite G, Building 26, Oakland, CA 94601, Martha Louise Caron, Caron and Associates, PO Box 1188, Hillsborough, NH 03244, for Defendant.

ORDER DENYING PLAINTIFFS' MOTION FOR A PRELIMINARY INJUNCTION AND DENYING DEFENDANT'S MOTION TO DISMISS OR STAY

[Re Docket No. 34, 38]

RONALD M. WHYTE, United States District Judge

Keith Charles Knapp, the trustee of the purported California Home Loans Profit Sharing Plan (“Plan”), and Therese Lavoie, a participant in the purported Plan, bring this lawsuit for “Injunctive and Other Appropriate Equitable Relief and Declaratory Relief” against Noreen Cardinale, a state judgment creditor of Keith Knapp and California Home Loans. Plaintiffs seek to prevent defendant Cardinale from satisfying any part of her judgment by executing on funds held by First Republic Bank because, according to plaintiffs, the funds are those of an ERISA plan whose assets are exempt from execution. Cardinale, on the other hand, contends that the funds belong to Knapp and California Home Loans and have been fraudulently transferred to an unqualified, invalid purported ERISA employee pension benefit plan. Presently before the court is Knapp's motion for a preliminary injunction to enjoin Cardinale from making any further attempts to satisfy her judgment from assets of the Plan. Cardinale opposes the motion for a preliminary injunction and seeks to dismiss or stay the instant federal action because, among other reasons, the federal action is precluded and the federal court should abstain from interfering with Cardinale's state court post-judgment execution efforts.

I. BACKGROUND

On May 11, 2011, following a jury trial for fraudulent transfers, the Contra Costa County Superior Court entered judgment in favor of Cardinale and against Knapp and California Home Loans (of which Knapp is the sole owner) for compensatory damages of $2,170,593. Caron Decl. Ex. 1, Cardinale v. Miller,¹ Dkt. 15–2. The jury also assessed $300,000 in punitive damages against Knapp and $500,000 against California Home Loans. Id. Knapp appealed the judgment but no bond has been posted precluding collection pending the outcome on appeal. On July 11, 2011, Cardinale served a notice of levy on First Republic Bank seeking to execute on $498,025.30 in an account in the name of California Home Loans Profit Sharing Plan. Id. at Ex. 3. On December 19, 2011, “Keith Charles Knapp aka K.C. Knapp aka K.C. Knapp trust” filed a claim of exemption on the basis that the account belonged to California Home Loans Profit Sharing Plan & Trust and were in an “approved ERISA account.” Id. at Ex. 4. On December 22, 2011, Knapp, as trustee of the California Home Loans Profit Sharing Plan & Trust, filed a third party claim alleging that the funds belonged to the Plan. Caron Decl. Ex. 11, Dkt. No. 38–4 at 50. Thereafter, the state court held a hearing on the issue of “whether the First Republic Bank Levy should be overcome by a claim of exemption as a matter of law.” Notice of Removal Ex. 6, Cardinale v. Miller, Dkt. No. 1–6. On August 27, 2012, a commissioner in the state court held that “the court declines to find as a matter of law that the First Republic Bank levy is comprised of exempt funds.” Id.

The Contra Costa Superior Court has apparently set an evidentiary hearing to determine whether the Plan is exempt under ERISA. This court is unclear as to whether the hearing has been held. In any event, by the action pending in this court, Knapp and Lavoie seek a preliminary injunction prohibiting Cardinale from making any further efforts to levy on the funds in the Plan and specifically the funds held by First Republic Bank on the basis that those funds are exempt from execution as funds governed by ERISA. Cardinale, on the other hand, moves to dismiss or stay this action on the basis that the federal court's interference in the state court proceedings would violate the Anti–Injunction Act, the Rooker–Feldman Doctrine and the Colorado River Doctrine.

II. Analysis

A. State Court's Power to Determine If a Purported Plan Is an ERISA Plan

Knapp, Lavoie, and the Plan contend that the Plan is a retirement plan formed and governed by ERISA and that the state court has no jurisdiction to determine whether the Plan is a legitimate and valid ERISA plan. Knapp previously attempted to remove the state fraud action to federal court on the basis that Cardinale's post-trial collection efforts raised a federal question that could only be resolved by the federal court. This court remanded that action finding that the action was not removable and, in any event, the notice of removal was not timely. Remand Order, Cardinale v. Miller, Dkt. No. 43. Knapp, Lavoie, and the Plan now seek an injunction in their federal action precluding the state court from ruling on whether the Plan is a valid ERISA plan entitled to an exemption from levy and thus barring Cardinale, as a judgment creditor, from taking any further action to execute on the First Republic account.

The threshold issue is whether state courts have jurisdiction to determine the ERISA status of a plan. The Eighth Circuit directly considered this question and determined that both state and federal courts have the power to determine ERISA status. Int'l Ass'n of Entrepreneurs of Am. v. Angoff, 58 F.3d 1266, 1269 (8th Cir.1995). The court reasoned that because the law was silent on whether states have the power to decide ERISA status the default rule should apply: “[u]nless instructed otherwise by Congress, state and federal courts have equal power to decide federal questions.” Id.

Although the Ninth Circuit has not addressed this specific issue, it has held that “state courts amply are able to determine whether a state statute or order is preempted by ERISA.” Delta Dental Plan of California, Inc. v. Mendoza, 139 F.3d 1289, 1296–97 (9th Cir.1998)disapproved of on other grounds byGreen v. City of Tucson, 255 F.3d 1086 (9th Cir.2001). Other courts that have addressed this issue have found that both federal and state courts have jurisdiction to decide the status of an ERISA plan. SeeWeiner v. Blue Cross & Blue Shield of Maryland, Inc., 925 F.2d 81, 83 (4th Cir.1991); Browning Corp. Int'l v. Lee, 624 F.Supp. 555, 557 (N.D.Tex.1986). Many courts have also assumed concurrent jurisdiction to decide ERISA plan status without specifically addressing the issue. See, e.g.,Marshall v. Bankers Life & Cas. Co., 2 Cal.4th 1045, 1052–54, 10 Cal.Rptr.2d 72, 832 P.2d 573 (1992).

At oral argument, Knapp argued that Daniels–Hall v. National Education Association establishes exclusive federal jurisdiction. 629 F.3d 992, 997 (9th Cir.2010). This, however, overstates the court's decision. In Daniels–Hall, the court determined that the federal district court had subject matter jurisdiction, but it did not make any finding about whether or not state courts had concurrent jurisdiction. Id.

The court is satisfied that the Contra Costa Superior Court has the power to determine whether the Plan is an ERISA plan and whether the account levied upon contains funds exempt from execution by a creditor.²

B. Request for Preliminary Injunction by Knapp as Trustee

Knapp, as trustee of the California Home Loans Profit Sharing Plan, and Lavoie, as a participant of the Plan, seek a preliminary injunction and claim that they will likely suffer irreparable harm by virtue of Cardinale's challenge to the “financial soundness and integrity of their Plan.” Pls.' Br. 22, Dkt. No. 34. To succeed on a motion for preliminary injunction, the plaintiff must establish (1) “that he is likely to succeed on the merits,” (2) “that he is likely to suffer irreparable harm in the absence of preliminary relief,” (3) “that the balance of equities tips in his favor,” and (4) “that an injunction is in the public interest.” Winter v. Natural Res. Def. Council, Inc., 555 U.S. 7, 20, 129 S.Ct. 365, 172 L.Ed.2d 249 (2008). “[A] preliminary injunction is an extraordinary remedy never awarded as of right.” Id. at 24, 129 S.Ct. 365 (citing Munaf v. Geren, 553 U.S. 674, 689–90, 128 S.Ct. 2207, 171 L.Ed.2d 1). “Under any formulation of the test, plaintiff must demonstrate that there exists a significant threat of irreparable injury.”Oakland Tribune, Inc. v. Chronicle Pub. Co., Inc., 762 F.2d 1374, 1376 (9th Cir.1985). Here, plaintiffs have not made such a showing.

First, the state commissioner's order of August 27, 2012, merely held that the exemption issue could not be determined as a matter of law, i.e. factual issues exist as to whether the funds in the First Republic account are exempt. Notice of Removal Ex. 6, Cardinale v. Miller, Dkt. No. 1–6. The state court is equipped to make that decision. California has procedures for execution on money judgments to protect third parties' interests. See, e.g.,Cal. Civ. Proc. § 708.180. If, after such a hearing, the state court finds that the First Republic account belongs to a legitimate ERISA plan, it will presumably not allow Cardinale to execute on the Pension and Profit Sharing funds. In that situation, Knapp would obviously not be harmed. On the other hand, if the state court determines that the plan is a sham or that funds were transferred...