Matter of Watkins
| Decision Date | 01 July 1988 |
| Docket Number | File No. K87-381 CA9. |
| Citation | 95 BR 483 |
| Parties | In the Matter of Debtor No. NK87-01686 George Ira WATKINS, Debtor. CHRYSLER-UAW PENSION PLAN, Appellant, v. George Ira WATKINS and Joseph Chrystler, Trustee, Appellees. |
| Court | U.S. District Court — Western District of Michigan |
Dickinson, Wright, Moon, Van Dusen & Freeman, by Brian J. Renaud, Lansing, Michigan, for appellant.
Edward R. Barton, Allegan, Michigan, for appellee.
The September 28, 1987 Order of the United States Bankruptcy Court for the Western District of Michigan denying the motion of Chrysler-UAW Pension Plan ("Pension Plan") for Reconsideration of Order to Commence Interim Payments ("Interim Payment Order") is a "final order" over which this Court has jurisdiction pursuant to 28 U.S.C. § 1334 and 28 U.S.C. § 158(a). Chrysler-UAW Pension Plan ("appellant") appeals from the Bankruptcy Court's final order which confirmed the Bankruptcy Court's interim payment order which directed the Pension Plan to pay to the Chapter 13 Trustee a portion of the monthly Pension Plan benefits owing to the debtor George Ira Watkins ("the debtor" or "the appellee" and Joseph Chrystler, "Trustee," and collectively as the "appellees"). It is clear that all that remains for the Bankruptcy Court to do here, pursuant to its final order, is to monitor the payment by the Pension Plan of Pension Plan funds to the Chapter 13 Trustee on the debtor's behalf. Cf. City of Louisa v. Levi, 140 F.2d 512, 514 (6th Cir.1944) (); see also Michigan Employment Security Commission v. Jenkins, 64 B.R. 195 (Bankr.W.D.Mich.1986).
Prior to the commencement of the debtor's Chapter 13 case, the debtor was employed by Chrysler Corporation. The debtor retired from Chrysler effective November 1, 1980, and pursuant to the Pension Plan, is entitled to monthly pension benefits of $196.73. On June 1, 1987, debtor filed his Chapter 13 petition, and Bankruptcy Judge David E. Nims, Jr., entered his Interim Payment Order pursuant to which the Pension Plan was ordered to deduct $130.00 from the debtor's monthly pension benefit and to turn over that sum directly to the Chapter 13 Trustee. On July 20, 1987, the Pension Plan filed with the Bankruptcy Court, and served on counsel for the debtor and the Chapter 13 Trustee, a Motion for Reconsideration of the Interim Payment Order and a supporting brief. On July 24, 1987, while the Pension Plan's Motion for Reconsideration was pending, the Bankruptcy Court confirmed the debtor's proposed Chapter 13 plan.
The record reveals that due to an apparent administrative snafu, at the time of the hearing the Bankruptcy Court had not had the opportunity to read and study the Pension Plan's supporting brief. At the hearing, the appellees argued that after plan confirmation, the Bankruptcy Court has the power under 11 U.S.C. § 1325(c)1 to order any entity from whom the debtor receives income, including the Pension Plan, to pay all or any part of such income to the Chapter 13 Trustee. The Bankruptcy Judge found, after adjourning to read appellant's brief, that the cases cited therein were not on point. See Bankruptcy Transcript at 2. The Bankruptcy Judge found the issue to be the apparent conflict between 11 U.S.C. § 1325(c) and 11 U.S.C. § 541(c)(2).2 Accordingly, the Bankruptcy Judge denied the Pension Plan's motion for reconsideration and issued its final order. The Bankruptcy Judge appears to have seen the issue as mostly an "administrative" one, and concluded that requiring Pension Plans to obey Chapter 13 payment orders was similar to requiring "governmental entities" to make such payment orders. The Bankruptcy Judge noted that these "governmental entities" had "worked out such differences" in the courts and had been judicially required to obey such payment orders. See Second Bankruptcy Transcript at 2-7.
It is clear that on appeal a district court may affirm, modify or reverse the bankruptcy court's judgment order or decree, or it may remand the case with instructions for further proceedings. The bankruptcy court's findings of fact will not be set aside unless clearly erroneous. Bankruptcy Rule 8013. Conclusions of law, or mixed questions of law and fact, are reviewed under a de novo standard. See e.g., In re Fasano-Harriss Pie Co., 71 B.R. 287, 290 (Bankr. W.D.Mich.1987). Finally, it has been said that a district court may consider any issue presented by the record even if the issue was not presented to the bankruptcy court. Matter of Pizza of Hawaii, Inc., 761 F.2d 1374, 1379 (9th Cir.1985).
This case presents two major issues. The first issue is whether the debtor's interest, if any, in funds to be disbursed from the Pension Plan is property of his Chapter 13 estate and for that reason subject to the Bankruptcy Court's final order. The second issue is whether, even assuming that the debtor has an interest in the Pension Plan which is recognizable as property of his Chapter 13 estate, it was appropriate for the Bankruptcy Court to enter its final order directing the Pension Plan to make payments directly to the Chapter 13 Trustee.
The Pension Plan at issue here provides in relevant part:
. . . No assignment of any pension, supplemental allowances and special age 65 benefit or part of any of them will be recognized or permitted, and payment . . . may cease . . . upon notice of assignment, attachment, or garnishment of the pension . . . and attachment or other legal process against the pension . . . will not be recognized. . . .
Appellant argues that this language is included in the Pension Plan in order to satisfy certain requirements under the Employee Retirement Income Security Act of 1974, as amended ("ERISA") and the Internal Revenue Code, as amended ("IRC") for plan qualification. See 29 U.S.C. § 10563 and 26 U.S.C. § 401(a)(13).4
The appellant argues further that the Pension Plan contains no provision for hardship distributions to the debtor or for a lump sum payment in lieu of monthly benefits. Further, contributions to the Pension Plan are made only by Chrysler. Finally, employee-beneficiaries of the Pension Plan have no power to revoke the Pension Plan trust and reach its corpus. The gravaman of appellant's argument is that the Bankruptcy Court had no authority to hold that pension benefits paid pursuant to a Pension Plan in the nature of a state law spendthrift trust are property of the debtor's estate. It is clear that 11 U.S.C. § 541(a)(1)5 broadly defines "property of the estate" to include all legal or equitable interests of the debtor in property except for interests defined in 11 U.S.C. § 541(b) and 11 U.S.C. § 541(c)(2). 11 U.S.C. § 541(c)(2) provides that a restriction on the transfer of a beneficial interest in a trust enforceable under applicable non-bankruptcy law is enforceable in bankruptcy. Thus, it is clear that interests of a debtor which are subject to enforceable state law transfer restrictions are not property of a debtor's estate. See e.g., Bezanson v. Maine National Bank, 42 B.R. 599, 601-602 (Bankr.D.Maine 1984) (). Once such property has been actually paid to the debtor pursuant to the terms of the trust, the property may become "property of the estate."
In McLean v. Central States, Southeast and Southwest Areas Pension Fund, 762 F.2d 1204, 1206 (4th Cir.1985), the court said:
The estate property definition of section 541 is adopted for Chapter 13 plans by 11 U.S.C. § 1306(a), which for purposes of Chapter 13 proceedings also draws into the definition of estate property after-acquired property of the debtor that would qualify under § 541 as estate property. Hence, a pensioner\'s interest in a trust fund that in the hands of the fund trustee is subject to an enforceable transfer restriction and is therefore not in that form section 541 estate property, may become estate property in a Chapter 13 plan once paid to a debtor under the terms of the trust. (emphasis added).
A number of circuit courts of appeal have considered and/or applied the so-called "state law spendthrift trust rule" set forth in Bezanson. In Regan v. Ross, 691 F.2d 81 (2d Cir.1982), the Second Circuit held that pension benefits were property of a Chapter 13 debtor's estate, even where the pension plan provisions restricting assignment of pension plan benefits were required by statute and state spendthrift trust law. Accordingly, the Second Circuit affirmed the Chapter 13 payment order issued by the Bankruptcy Court. However, Regan v. Ross was expressly rejected by the Fourth Circuit in McLean v. Central States, Southeast and Southwest Areas Pension Fund, supra. The McLean court adopted the approach set forth in Goff v. Taylor, 706 F.2d 574, 586-89 (5th Cir.1983), which recognized that a determination of whether a particular pension fund interest is the property of a debtor's estate is determined only by looking at whether a restriction on transfer of the pension fund interest is enforceable under non-bankruptcy, that is, state spendthrift trust law. The Mclean court said:
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