Lowenschuss, In re

• Decision Date: 17 March 1999
• Docket Number: Nos. 96-17213,97-16506,s. 96-17213
• Citation: 170 F.3d 923
• Parties: Bankr. L. Rep. P 77,920, 22 Employee Benefits Cas. 2649, 99 Cal. Daily Op. Serv. 1918, 1999 Daily Journal D.A.R. 2457 In re Fred LOWENSCHUSS, Debtor. Fred Lowenschuss, individually and in all capacities, Appellant, and Sun International North America, Inc., Intervenor-Appellant, v. Beverly Selnick, Appellee. In re Fred Lowenschuss, Debtor. Fred Lowenschuss, Appellant, v. Beverly Selnick, Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 923

170 F.3d 923

Bankr. L. Rep. P 77,920, 22 Employee Benefits Cas. 2649,

99 Cal. Daily Op. Serv. 1918,

1999 Daily Journal D.A.R. 2457

In re Fred LOWENSCHUSS, Debtor.

Fred Lowenschuss, individually and in all capacities, Appellant, and Sun International North America, Inc., Intervenor-Appellant, v. Beverly Selnick, Appellee.

In re Fred Lowenschuss, Debtor.

Fred Lowenschuss, Appellant, v. Beverly Selnick, Appellee.

Nos. 96-17213, 97-16506.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Oct. 6, 1998.

Submission Deferred Oct. 9, 1998.

Resubmitted March 10, 1999.

Decided March 17, 1999.

Robin L. Filion, Baker & McKenzie, San Francisco, California, for the appellant.

Mitchell A. Karlan and Leslie E. Moore, Gibson, Dunn & Crutcher, New York, New York, for the intervenor-appellant.

Joseph S. Kistler, Gordon & Silver, Ltd., Las Vegas, Nevada, for the appellee.

Appeals from the United States District Court for the District of Nevada; Edward C. Reed, Jr., District Judge, Presiding. D.C. Nos. CV-95-00714-ECR, CV-93-00778-ECR.

Before: SNEED, HALL, and RYMER, Circuit Judges.

CYNTHIA HOLCOMB HALL, Circuit Judge:

Fred Lowenschuss ("Debtor") appeals the district court's orders: (1) affirming the bankruptcy court's order granting Beverly Selnick's ("Selnick") motion for leave to seek a QDRO in the Pennsylvania courts; (2) vacating the bankruptcy court's ruling that the Pennsylvania divorce court awarded Selnick a money judgment in Debtor's beneficial interest in the Fred Lowenschuss & Associates at Law Pension Plan (the "Pension Plan"); and (3) vacating the bankruptcy court's order confirming Debtor's proposed plan of reorganization. Sun International, Inc. ¹ ("Sun") has intervened in that part of the appeal addressing the district court's order vacating the bankruptcy court's money judgment ruling. We have jurisdiction under 28 U.S.C. § 158(d), and we affirm each of the district court's orders.

BACKGROUND

On September 28, 1981, Selnick filed for divorce in the Pennsylvania courts. Almost ten years later, in July 1991, a Pennsylvania divorce court entered an order (the "Divorce Decree") for the equitable distribution of the marital property of Debtor and Selnick. The Divorce Decree awarded Selnick, inter alia, 38.7% of Debtor's interest in the Pension Plan. The divorce court ordered Debtor to transfer to Selnick the full value of her 38.7% share directly from the Pension Plan. One month later, instead of transferring to Selnick her share of the Pension Plan assets, Debtor transferred over $8 million in Pension Plan assets out of Pennsylvania to avoid the jurisdiction of the Pennsylvania courts. Debtor followed his assets out of Pennsylvania, relocating in Nevada where, on August 24, 1992, he filed a Chapter 11 bankruptcy petition. ² On his bankruptcy petition, Debtor listed as excluded from the bankruptcy estate his beneficial interest in the Pension Plan as an ERISA qualified plan under 11 U.S.C. § 541(c)(2) and Patterson v. Shumate, 504 U.S. 753, 112 S.Ct. 2242, 119 L.Ed.2d 519 (1992). In the alternative, Debtor claimed that his beneficial interest in the Pension Plan was exempt from the bankruptcy estate under 11 U.S.C. § 522(b).

In deciding the composition of Debtor's bankruptcy estate, the bankruptcy court determined that the Pension Plan was "ERISA qualified," and therefore excluded from the bankruptcy estate Debtor's beneficial interest in the Pension Plan (the "Exclusion Order"). Selnick appealed the Exclusion Order. Debtor then submitted to the bankruptcy court a proposed plan of reorganization. During the plan confirmation hearing, the bankruptcy court ruled that the Divorce Decree had awarded Selnick a money judgment against Debtor, and not a property interest in the Pension Plan. While Selnick's appeal of the Exclusion Order was still pending, the bankruptcy court confirmed Debtor's plan of reorganization (the "Confirmation Order"). Selnick appealed both the money judgment ruling and the Confirmation Order.

On appeal, the district court vacated the Exclusion Order, and remanded the case to the bankruptcy court to hear additional testimony on the exclusion issue. In addition, the district court ordered the bankruptcy court to grant Selnick leave to seek a Qualified Domestic Relations Order ("QDRO") in the Pennsylvania courts. Pending resolution of the exclusion issue, the district court stayed Selnick's appeal of the money judgment ruling and the Confirmation Order, and issued a related minute order declaring that the plan of reorganization could not be confirmed until the exclusion issue had been resolved. Debtor immediately appealed, but the Ninth On remand, the bankruptcy court granted Selnick's motion for leave to petition the Pennsylvania courts for a QDRO. Debtor appealed the QDRO order, and the district court affirmed. Debtor now appeals the district court's order affirming the bankruptcy court's QDRO order.

Circuit dismissed the appeal for lack of jurisdiction.

In addition, the bankruptcy court determined that the Pension Plan was not ERISA qualified, and that therefore Debtor's beneficial interest in the Pension Plan could not be excluded from Debtor's bankruptcy estate. Having resolved the exclusion issue, the bankruptcy court determined that Debtor's beneficial interest in the Pension Plan was not exempt from the bankruptcy estate under Nevada law. ³

Following resolution of the exclusion and exemption issues, the district court lifted the stay on Selnick's appeal of the Confirmation Order. The district court then vacated both the money judgment ruling and the Confirmation Order, and remanded the case to the bankruptcy court. Debtor appealed the district court's order, and Sun intervened in the appeal of that part of the district court's order vacating the money judgment ruling.

DISCUSSION

I. QDRO ORDER

Debtor contends that the bankruptcy court erred by granting Selnick's motion to lift the automatic stay to allow Selnick to petition the Pennsylvania courts for a QDRO. We disagree.

We will reverse the QDRO order only if the bankruptcy court abused its discretion. In re Conejo Enters., Inc., 96 F.3d 346, 351 (9th Cir.1996). The bankruptcy court did not abuse its discretion because Selnick showed more than adequate cause for relief from the automatic stay in her motion to petition the Pennsylvania courts for a QDRO. ⁴ See 11 U.S.C. § 362(d)(1); Conejo, 96 F.3d at 352 (requiring bankruptcy court to grant relief from automatic stay for cause).

Debtor listed on his bankruptcy petition as excluded under 11 U.S.C. § 541(c)(2) and Patterson v. Shumate, 504 U.S. 753, 112 S.Ct. 2242, 119 L.Ed.2d 519 (1992), his beneficial interest in the Pension Plan. The Supreme Court decided in Patterson that a debtor's interest in a pension plan could be excluded from the debtor's bankruptcy estate if the pension plan contained a transfer restriction that was enforceable under ERISA. See 504 U.S. at 758-60, 112 S.Ct. 2242. Because Patterson was decided in June 1992, almost one year after the Divorce Decree was entered and just two months before Debtor filed his petition, the QDRO issue did not become important until Debtor's bankruptcy. Therefore, the bankruptcy court did not abuse its discretion when it granted Selnick's motion to lift the automatic stay to allow her to return to the Pennsylvania courts to seek a QDRO. Neither Debtor, Selnick, nor the Pennsylvania divorce court could have known during the divorce proceeding that the QDRO issue would be important in the future. ⁵ Nor could the divorce court have anticipated that Debtor would transfer all of his assets out of Pennsylvania and flee the jurisdiction of the Pennsylvania courts.

Debtor contends that the bankruptcy court granted Selnick's motion for a QDRO only Debtor also contends that the Confirmation Order ousted the bankruptcy court of jurisdiction to lift the automatic stay to allow Selnick to seek a QDRO in the Pennsylvania courts. Debtor's argument is without merit because the district court effectively stayed the Confirmation Order pending resolution of the exclusion and exemption issues. Where, as here, an asset worth over sixty percent of approximately $8 million ⁶-Debtor's beneficial interest in the Pension Plan on the petition date-has been erroneously excluded from the bankruptcy estate, the plan cannot be confirmed. See In re Chinichian, 784 F.2d 1440, 1444 (9th Cir.1986). Therefore, the bankruptcy court had jurisdiction to grant Selnick's motion.

because the district court ordered it do so, and that the bankruptcy court failed to find the requisite cause to lift the automatic stay. Debtor is incorrect. The bankruptcy court stated in its order that it had read and considered Selnick's motion, Debtor's opposition, and all of the papers and pleadings filed with the court, and that it had considered the argument of counsel. The bankruptcy court stated that, based upon this information, it was entering its order for good cause shown.

Debtor also contends that the bankruptcy court violated his right to due process by granting Selnick's motion without a meaningful hearing. After a careful review of the record, we find Debtor's argument to be without merit. Debtor had numerous opportunities to be heard on this issue, filed a lengthy opposition to Selnick's motion, and appeared at the hearing on Selnick's motion.

Finally, Debtor contends that the QDRO order was barred by principles of res judicata. Res judicata prevents relitigation in a subsequent action of a claim based on a cause of action that has already been settled by a final judgment. See Montana, 440 U.S. at 153, 99 S.Ct. 970. In this case, the issue of whether the Pension Plan was ERISA qualified was never litigated during the divorce proceedings because Debtor testified during those proceedings that he was the sole participant in the Pension Plan, which would have prevented the Pension Plan from being ERISA qualified. Therefore, the district...