Smith, In re, 91-3483

• Citation: 964 F.2d 636
• Decision Date: 15 May 1992
• Docket Number: No. 91-3483,91-3483
• Parties: In re William D. SMITH and Juliana M. Smith, Debtors. Richard E. BARBER, Trustee, Plaintiff-Appellee, v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Plan Administrator of the State Farm Insurance Companies' Incentive and Thrift Plan for United States Employees, et al., Defendants-Appellants.
• Court: United States Courts of Appeals. United States Court of Appeals (7th Circuit)

Page 636

964 F.2d 636

In re William D. SMITH and Juliana M. Smith, Debtors Richard E. BARBER, Trustee, Plaintiff-Appellee, v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Plan Administrator of the State Farm Insurance Companies' Incentive and Thrift Plan for United States Employees, et al., Defendants-Appellants.

No. 91-3483.

United States Court of Appeals Seventh Circuit.

Submitted Dec. 27, 1991.

Decided May 15, 1992.

L. Lee Smith, Asst. U.S. Atty., Kevin D. Schneider, Westervelt, Johnson, Nicoll & Keller, Peoria, Ill., for defendants-appellants.

Herbert M. Spector, Spector, Tappa & Nathan, Rock Island, Ill., for plaintiff-appellee.

Mark Jackson, East Moline, Ill., for debtors.

Before CUDAHY, POSNER, and COFFEY, Circuit Judges.

POSNER, Circuit Judge.

The appellee asks us to dismiss the appeal as moot, and the appellant opposes the request, raising an interesting procedural question.

The trustee in bankruptcy brought an adversary proceeding against State Farm, trying to get at money held by it for one of the two debtors in the bankruptcy proceeding as the administrator of her pension plan. The bankruptcy court ruled that the pension plan was not a "spendthrift trust" (that is, a trust not authorized to make distributions to the beneficiary's creditors) and therefore that the debtor's interest in it was included in the estate in bankruptcy, 115 B.R. 144. But he further ruled that since the trustee merely stood in the debtor's shoes and therefore had no greater rights than she, he could authorize no withdrawals from the pension trust other than those she could have made. Having not reached retirement age, she could withdraw money from the trust only if she faced some immediate and heavy financial need, such as a medical bill that she could not pay otherwise. Treas.Reg. § 1.401(k)-1(d)(2)(ii)(B). So the trustee likewise could make no withdrawal on behalf of the debtor's creditors save in accordance with that standard. Concerned with the ruling that the pension plan was not a true spendthrift trust, State Farm appealed.

The trustee has decided not to seek a hardship withdrawal or otherwise seek to obtain any of the money in the debtor's pension trust, and therefore he says that the appeal is moot and should be dismissed with directions to vacate the district court's orders. State Farm replies that that isn't good enough, because the orders will remain as precedents, and a loser shouldn't be deprived, by the winner's unilateral action in mooting the appeal, of an opportunity for appellate correction of an erroneous precedent.

If a case becomes moot on appeal, the appellate court loses jurisdiction. However, in order to protect the appellant against a preclusive (res judicata or collateral estoppel) use of an unappealable order, the appellate court will order the previous orders in the case dismissed at the same time that it dismisses the appeal. United States v. Munsingwear, 340 U.S. 36, 39, 71 S.Ct. 104, 106, 95 L.Ed. 36 (1950). There is an exception for the case where the appellant, fearing that he will lose the appeal, abandons it, thus making the appeal moot, and asks us to dismiss the previous orders. We won't do it in that case. Harris v. Board of Governors, 938 F.2d 720, 724 (7th Cir.1991). The rule of Munsingwear is for the protection of a party who is thwarted in his desire for an appeal. It is not for the protection of a party who, knowing that the order below is sound and will be affirmed, wants nonetheless to deprive it of any preclusive effect.

This is an intermediate case. The order appealed from was favorable to the trustee in that it held that the pension moneys were part of the estate in bankruptcy rather than protected by a spendthrift trust, but favorable to State Farm in that it limited the trustee's access to those moneys to situations of hardship to the debtor. Only State Farm appealed, and it is conceivable that the trustee abandoned the case because he was content with the judge's first ruling (that the pension plan was not a spendthrift trust) and didn't want to endanger it....