Lucas, In re

Decision Date13 February 1991
Docket NumberNo. 89-6487,89-6487
Citation924 F.2d 597
Parties, 24 Collier Bankr.Cas.2d 804, 21 Bankr.Ct.Dec. 408, Bankr. L. Rep. P 73,790, 13 Employee Benefits Ca 1445 In Re Elizabeth Hayes LUCAS, Debtor. Jane B. FORBES, Trustee, Plaintiff-Appellee, v. Elizabeth Hayes LUCAS, Defendant, Holiday Corporation Savings and Retirement Plan, Defendant-Appellant.
CourtU.S. Court of Appeals — Sixth Circuit

James Flexer, Nashville, Tenn., for debtor.

Jane B. Forbes, Trustee, Franklin, Tenn., Margaret M. Spencer (argued), Forbes, McKelvey & Spencer, Franklin, Tenn., for plaintiff-appellee.

C. William Denton (argued), David J. Cocke, Borod & Kramer, Charles W. Broun, III, Memphis, Tenn., for defendant-appellant.

Before KENNEDY, BOGGS and SUHRHEINRICH, Circuit Judges.

SUHRHEINRICH, Circuit Judge.

Holiday Corporation Savings and Retirement Plan ("the Plan") appeals the order of the district court holding that the debtor's interest in an employee benefit plan was property of the bankruptcy estate under 11 U.S.C. Sec. 541(a)(1) and was not excluded under the exception found at Sec. 541(c)(2). Section 541(c)(2) provides that a restriction on the transfer of a beneficial interest of a debtor in a trust that is enforceable under "applicable nonbankruptcy law" is enforceable under the Bankruptcy Code. We reject a narrow interpretation of the phrase "applicable nonbankruptcy law" in Sec. 541(c)(2) as protecting only those debtors' interests which also constitute traditional spendthrift trusts under applicable state law, finding that the plain unambiguous language of the statute encompasses federal law other than that arising under Title 11 as well as state statutory and case law. We therefore hold that a debtor's interests in an ERISA-qualified pension plan are not property of the debtor's bankruptcy estate and thus are not subject to turnover to the trustee in bankruptcy.


The facts in this case are not in dispute. 1 On December 22, 1986, Elizabeth Hayes Lucas ("debtor") filed a petition for bankruptcy under Chapter 7 of the Bankruptcy Code. Jane B. Forbes, appellee, was appointed trustee ("trustee"). On the schedule of exempted property, debtor listed a $2,000 exemption in a retirement fund. Inquiries by the trustee revealed that debtor's retirement account was with her employer Holiday Inn Corporation ("Holiday") and that the account was fully vested. As a benefit to employees, Holiday offers participation in a savings and retirement plan ("the Plan"). Debtor claims that the Plan is qualified as a defined contribution plan under Sections 401(a) and (k) of the Internal Revenue Code. It is further alleged that the Plan is subject to the provisions of Titles I, III and IV of the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. Secs. 1001-1461, and contains the anti-alienation clause required by ERISA at 29 U.S.C. Sec. 1056(d)(1). 2

On April 20, 1987, Holiday provided the trustee with a copy of debtor's account statement, advising that $5,863.08 was vested as of January 1, 1987. During the period between April and August of 1987, debtor requested and received from Holiday withdrawals of $1,500.00 on April 15, 1987, $1,161.13 on May 7, 1987, and $4,829.98 on August 24, 1987.

On or about April 15, 1987, the trustee filed a complaint for turnover of assets against the debtor and Holiday, seeking the portion of vested benefits disbursed to debtor after the petition was filed. On cross-motions for summary judgment, the bankruptcy court stated that the debtor's pension benefits were not excluded from the bankruptcy estate and that the trustee could recover post-petition distributions from the debtor on the pension fund. 3 Lucas, 100 B.R. at 971-72.

The bankruptcy court initially stated that it was conceded that debtor's benefits plan was not a spendthrift trust under Tennessee law and was therefore property of the bankruptcy estate at filing on December 22, 1986. In reaching this conclusion the bankruptcy court cited In re Ridenour, 45 B.R. 72, 78 (Bankr.E.D.Tenn.1984) and In re Faulkner, 79 B.R. 362 (Bankr.E.D.Tenn.1987), both of which relied on a series of decisions which have interpreted the phrase "applicable nonbankruptcy law" in Sec. 541(c)(2) as protecting only those debtors' interests which constitute traditional spendthrift trusts under applicable state law. The bankruptcy court then found that the debtor's employee benefits were not subject to exemption 4 under Tenn.Code Ann. Sec. 26-2-111 because the debtor had access to vested benefits greater than that permitted by the statute. 5 Finally, the bankruptcy court held that the Supreme Court's decision in Mackey v. Lanier Collection Agency & Service, Inc., 486 U.S. 825, 108 S.Ct. 2182, 100 L.Ed.2d 836 (1988), did not change this result. 6 The district court affirmed without separate opinion 110 B.R. 335.

On appeal to this court, "the Plan" raises the following issues:

1) Whether the district court erred in concluding that debtor's vested pension benefits were property of the estate;

2) Whether the exception contained in Section 541(c)(2) applies only to ERISA-qualified pension plans which also constitute valid spendthrift trusts under relevant state law;

3) If Section 541(c)(2) is not to be so narrowly construed, whether the anti-alienation provisions contained in the Holiday Plan and required by ERISA are enforceable against the trustee; and

4) If Section 541(c)(2) is to be so narrowly construed, whether Tennessee law is preempted by ERISA as to what constitutes a spendthrift trust.


Since the facts in this case are not in dispute and the issues presented involve purely legal questions, the only standard of review with which we need concern ourselves is that governing a bankruptcy court's conclusions of law. Such rulings by a bankruptcy court are subject to de novo review by this court. United States v. Mississippi Valley Generating Co., 364 U.S. 520, 526, 81 S.Ct. 294, 297, 5 L.Ed.2d 268 (1961); In re Caldwell, 851 F.2d 852, 857 (6th Cir.1988).


The filing of a bankruptcy petition under Title 11 of the United States Code creates an estate comprised of "all legal or equitable interests of the debtor in property as of the commencement of the case." 11 U.S.C. Sec. 541(a)(1) (West 1979 & Supp. 1990). As the legislative history of this section makes clear, the provision was intended to be broad in scope. United States v. Whiting Pools, Inc., 462 U.S. 198, 204-205, 103 S.Ct. 2309, 2313, 76 L.Ed.2d 515 (1983) (citing S.Rep. No. 95-989, p. 82 (1978); and H.R.Rep. No. 95-595, pp. 367-368 (1977)), U.S.Code Cong. & Admin.News 1978, pp. 5787, 5868, 6323-24.

The Code further provides that "an interest of the debtor in property becomes property of the estate ... notwithstanding any provision ... (A) that restricts or conditions transfer of such interest by the debtor[.]" 11 U.S.C. Sec. 541(c)(1)(A) (West Supp.1990). Paragraph 2 of subsection (c), however, states an exception to the general rule of Sec. 541(c)(1)(A): "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." 11 U.S.C. Sec. 541(c)(2) (West Supp.1990) (emphasis added). Thus, property of a debtor falling within the definition of this exception is excluded from the bankruptcy estate.

The Plan contends that debtor's interest in the employee benefit plan are excluded from the bankruptcy estate because they are protected by an enforceable restriction on transfer under ERISA which constitutes "applicable nonbankruptcy law" under Sec. 541(c)(2) of the Bankruptcy Code. There is a split among the courts which have considered the issue of whether ERISA constitutes "applicable nonbankruptcy law." Several circuits have interpreted the phrase narrowly, relying on the section's legislative history to hold that Sec. 541(c)(2) was intended to refer only to state "spendthrift trust" law. See In re Daniel, 771 F.2d 1352, 1360 (9th Cir.1985) cert. denied, 475 U.S. 1016, 106 S.Ct. 1199, 89 L.Ed.2d 313 (1986); In re Lichstrahl, 750 F.2d 1488, 1490 (11th Cir.1985); In re Graham, 726 F.2d 1268 (8th Cir.1984); Matter of Goff, 706 F.2d 574 (5th Cir.1983). Under this view, only those ERISA pension plans which qualify as spendthrift trusts under the applicable state law will be excluded from the property of the bankruptcy estate.

By contrast, a minority of courts have held that ERISA does constitute "applicable nonbankruptcy law", and thus ERISA benefits which are subject to that Act's anti-alienation provisions are excluded from the bankruptcy estate under Sec. 541(c)(2). Courts adopting this position have relied on the plain language of the statute, which on its face does not limit "applicable nonbankruptcy law" to state spendthrift trust law. These courts reason that the legislative history does not evidence an attempt by Congress to restrict the scope of Sec. 541(c)(2) to state spendthrift trust law, but simply reflects a ratification of a long-standing prior law honoring state spendthrift trust law. See In re Moore, 907 F.2d 1476 (4th Cir.1990); In re Majul, 119 B.R. 118 (Bankr.W.D.Tex.1990); In re Threewitt, 24 B.R. 927 (D.Kan.1982); In re Komet, 104 B.R. 799 (Bankr.W.D.Tex.1989); In re Ralstin, 61 B.R. 502 (Bankr.D.Kan.1986); In re Mosley, 42 B.R. 181 (Bankr.D.N.J.1984); Warren v. G.M. Scott & Sons, 34 B.R. 543 (Bankr.S.D.Ohio 1983); see also In re Kincaid, 917 F.2d 1162 (9th Cir.1990) (Fletcher, J., concurring).

It is an axiom of statutory construction that resort to legislative history is improper when a statute is unambiguous.

Legislative history can be a legitimate guide to a statutory purpose obscured by ambiguity, but "[i]n the absence of a 'clearly expressed legislative intention to the contrary,' the language of the statute itself 'must ordinarily be regarded as conclusive.' " Unless exceptional circumstances...

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