SSA Baltimore Federal Credit Union v. Bizon

• Decision Date: 30 June 1984
• Docket Number: Civ. No. K-83-1850,Bankruptcy No. 82-2-0187.
• Citation: 42 BR 338
• Parties: SSA BALTIMORE FEDERAL CREDIT UNION v. Daniel Frank BIZON, Sr.
• Court: U.S. District Court — District of Maine

42 B.R. 338 (1984)

SSA BALTIMORE FEDERAL CREDIT UNION v. Daniel Frank BIZON, Sr.

Civ. No. K-83-1850, Bankruptcy No. 82-2-0187.

United States District Court, D. Maryland.

June 30, 1984.

H. Richard Piet, Baltimore, Md., for plaintiff.

Robert B. Greenwalt, Catonsville, Md., for defendant.

Richard M. Kremen, Baltimore, Md., for trustee.

FRANK A. KAUFMAN, Chief Judge.

SSA, Baltimore Federal Credit Union ("SSA"), appeals from a decision of the Bankruptcy Court (Mannes, J.) holding that civil service retirement monies due to Bizon, a chapter 7 debtor, are not part of Bizon's estate in bankruptcy, In re Bizon, 28 B.R. 886 (Bankr.D.Md.1983). The relevant and material facts are not in dispute.

On February 3, 1982, Bizon filed a chapter 7 petition. Prior thereto, Bizon had voluntarily, in February 1981, resigned his job with the Social Security Administration after approximately 17 years of service. At the time Bizon so left that government employment, he had accrued approximately $18,000 in the Civil Service Retirement and Disability Fund.¹ Under the Civil Service Retirement Act, 5 U.S.C. §§ 8331 et seq., Bizon, because of his age and length of service, is not eligible in any event to receive annuity payments until the year 2005.² However, upon his separation from government service, Bizon became and remains presently eligible to receive, upon demand, the accrued total of his retirement fund contributions in the form of one lump-sum payment.³ Judge Mannes assumed for the purposes of his decision that Bizon would, immediately after he achieved his discharge under chapter 7, elect to receive those funds in a lump sum. 28 B.R. at 887. That assumption is seemingly accepted by both parties to this appeal, and is taken as a "given" by this Court.

The debtor reported the funds as an asset of his estate under 11 U.S.C. § 541, but claimed an exemption as to them under section 522(b)(2)(A).⁴ Id. 887. Judge Mannes did not reach the latter issue because he concluded that Bizon's retirement monies were not property of the estate in bankruptcy, in view of 11 U.S.C. § 541(c)(2) and 5 U.S.C. § 8346(a).⁵

On appeal, SSA contends that Bizon's interest in his retirement fund is neither excludable from the estate in bankruptcy under subsection 541(c)(2), nor exempt from his creditors under any provision of section 522.

I

Section 541 was intended to include in the estate in bankruptcy the entire range of tangible and intangible assets of the debtor. It was designed, in contrast to statutory provisions in force and effect prior to the 1978 legislation, to "create a more uniform and comprehensive scope to `property of the estate' which is subject to the reach of debtors' creditors. . . ." Matter of Goff, 706 F.2d 574, 578 (5th Cir.1983); see also United States v. Whiting Pools, 462 U.S. 198, ___ - ___, 103 S.Ct. 2309, 2312-14, 76 L.Ed.2d 515, 521-22 (1983). Subsection 541(c)(2), however, as Judge Mannes stated, creates a narrow exception to the broad inclusionary scope of the remainder of section 541. That exception "preserves restrictions on transfer of a spendthrift trust to the extent that the restriction is enforceable under applicable nonbankruptcy law." H.R.Rep. No. 595, 95th Cong., 2d Sess. 369, reprinted in 1978 U.S.Code Cong. & Ad.News 5963, 6325; see also Goff, 706 F.2d at 580.

In Goff, two self-employed debtors claimed that their ERISA-qualified Keogh retirement plans were excluded from their chapter 7 estates by virtue of the statutory prohibitions on alienation which govern such plans.⁶ The debtors contended that those statutory provisions, in and of themselves, constituted the "applicable nonbankruptcy law" to which subsection 541(c)(2) makes reference. Judge Williams, for the Fifth Circuit, rejected that contention in favor of a conclusion that subsection 541(c)(2) referred only to "traditional state spendthrift trust law", 706 F.2d at 581, concluding that the legislative history of subsection 541(c)(2) indicated that "Congress intended by its reference to `applicable nonbankruptcy law' to exempt only those `spendthrift trusts' traditionally beyond the reach of creditors under state law." Id. at 582. In addition, in Goff, the Court considered that the debtors argument for an expansive definition of "applicable nonbankruptcy law" fell afoul of the explicit references in 11 U.S.C. § 522 (which concerns exemptions of property included in the estate) "to `federal law' or pension laws, including ERISA when federal as opposed to state law is the subject of the reference," id., and that, therefore, the use of other more specific terms to refer to federal law elsewhere in the Bankruptcy Code negated a possible inference that "applicable nonbankruptcy law" included the statutory provisions of ERISA. Accordingly, Judge Williams wrote:

Section 541(c)(2) . . . was never intended to include ERISA in its reference to "applicable nonbankruptcy laws." Congress made reference to federal law and pension benefits in section 522 when such a characterization was intended; yet it did not do so in Section 541(c)(2). . . . Congress was well aware of ERISA, specifically considered the role of pension benefits in bankruptcy proceedings in Section 522 and did not grant a broad exemption. The only reasonable inference to draw is that Congress intended that pensions provided for by federal law be insulated from bankruptcy only to the extent recognized in Section 522.

Id. at 586. This did not mean, Judge Williams cautioned, that ERISA pensions were always included in the estate by section 541, but rather that "their exclusion under that section is provided solely by state spendthrift trust law and not by operation of ERISA." Id. (footnote omitted). Thus, if the statutory provisions of ERISA in combination with the other provisions of the pension plan qualified as a valid spendthrift trust under applicable state law, the funds held in the plan were not property of the estate.

In the last section of its opinion, the Court in Goff considered the question of whether the ERISA-qualified pension plan constituted a spendthrift trust under state law. The Court, looking to the law of Texas, found that the requisites of such a trust was lacking:

Our reasoning in the Witlin case 640 F.2d 661, 663 (5th Cir.1981) is persuasive. There we held that self-settled Keogh plans were not exempt under the spendthrift provision of the old Bankruptcy Act. We said: "There is . . . a strong policy that will prevent any person from placing his property in what amounts to a revocable trust for his own benefit which would be exempt from the claims of his creditors." 640 F.2d at 662. See Glass v. Carpenter, 330 S.W.2d 530, 534 (Tex.Civ.App. San Antonio 1959, writ ref\'d n.r.e.) stating that Texas law follows the principle quoted from Witlin. Here as in Witlin, appellant-debtors attempted such a revocable trust for their own benefit. They retained freedom to withdraw their Keogh plan assets, yet purported to insulate those assets from their creditors. If this dichotomous treatment were to be recognized, the strong common law policy of spendthrift trusts, as well as the Bankruptcy Code\'s intent, would be subverted. Debtors could shelter funds in Keogh plans immediately before declaring bankruptcy—as did the Goffs with at least some of their funds—and immediately after discharge of all debts withdraw such funds for their own benefits. Whatever might be the rule in a nonbankruptcy setting involving ERISA\'s provisions we hold that neither law nor equity would afford self-settled Keogh plans "spendthrift" exemptions in bankruptcy.

Id. at 588 (footnotes omitted).⁷ However, in what appears to be dicta, Judge Williams noted that "employer-created-and-controlled" pension plans might well qualify as spendthrift trusts. Id. at 589.

In In re Graham, 726 F.2d 1268 (8th Cir.1984), a chapter 7 debtor also argued that his ERISA-qualified pension plan was not included in his estate pursuant to subsection 541(c)(2) because "applicable nonbankruptcy law" included ERISA. Judge McMillian rejected that argument in the face of the treatment of pension plans under section 522, because the implication of the reference in the latter section to pension plans was that such plans were included in the estate and withheld from creditors only to the extent specified in section 522. Judge McMillian wrote:

We thus see a coherent scheme regarding a debtor\'s pension rights under the Code consistent with the Code\'s general policy. The question of pension rights is dealt with as a matter of exemption. A debtor\'s interest in pension funds first comes into the estate. To the extent they are needed for a fresh start they may then be exempted out.

726 F.2d at 1272-73. The Court in Graham, although it cited to Goff, apparently did not consider it necessary to reach the issue of whether the debtor's pension met the applicable state law standards for a spendthrift trust and would thus be excluded.⁸ In that connection, see United States v. Devall, 704 F.2d 1513, 1516 (11th Cir. 1981); Reagan v. Ross, 691 F.2d 81, 86 (2d Cir.1982). In Goff, the trustee argued as follows:

The inclusion in Section 522(d) of pension benefit exemption, 11 U.S.C. § 522(d)(10)(E), for those making a federal exemption election, negatives any congressional intent to include any ERISA pensions at all within the ambit of Section 541 (c)(2).

706 F.2d at 587. However, Judge Williams rejected that argument as an "arbitrary interpretation" of the Code:

Section 522(d)(10)(E) reaches a broad array of employment benefits and exempts both qualified and unqualified pension plans, to the extent such benefits are reasonably necessary for the support of the debtor and his dependents. Given this much broader exemption of benefits available only to those making a federal election we find no reason to doubt that ERISA-qualified pension funds are included in Section 541 (c)(2) if they qualify as spendthrift trust plans under state law.

Id. (...