St. Paul Fire and Marine Ins. Co. v. Cox, Civ. A. No. 78-G-1236-M.

• Decision Date: 15 March 1984
• Docket Number: Civ. A. No. 78-G-1236-M.
• Citation: 583 F. Supp. 1221
• Parties: ST. PAUL FIRE AND MARINE INSURANCE COMPANY, a corporation, Third-Party Plaintiff and Judgment Creditor, v. H. Ray COX, Third-Party Defendant and Judgment Debtor, Alabama City Bank of Gadsden, Garnishee and Plaintiff in Interpleader, D.E. Locklear, Defendant in Interpleader.
• Court: U.S. District Court — Northern District of Alabama

583 F. Supp. 1221

ST. PAUL FIRE AND MARINE INSURANCE COMPANY, a corporation, Third-Party Plaintiff and Judgment Creditor, v. H. Ray COX, Third-Party Defendant and Judgment Debtor,

Alabama City Bank of Gadsden, Garnishee and Plaintiff in Interpleader,

D.E. Locklear, Defendant in Interpleader.

Civ. A. No. 78-G-1236-M.

United States District Court, N.D. Alabama, M.D.

March 15, 1984.

George P. Ford, Simmons & Ford, Gadsden, Ala., for St. Paul Fire and Marine Ins. Co.

Edward Cunningham, Taylor & Cunningham, Gadsden, Ala., for Locklear in interpleader action.

F. Michael Haney, Inzer, Suttle, Swann & Stivender, Gadsden, Ala., for garnishee and plaintiff in interpleader.

H. Ray Cox, pro se.

MEMORANDUM OPINION

GUIN, District Judge.

This cause is before the court upon third-party plaintiff's motion for condemnation of funds interpleaded in response to a writ of garnishment which the court treats as a motion for summary judgment. The garnishment proceedings were instituted by judgment creditor, St. Paul Fire & Marine Insurance Company (St. Paul), against the vested interest of H. Ray Cox in the pension and profit sharing plan of Alabama City Bank of Gadsden, the garnishee. In addition to the judgment creditor's garnishment, a claim against the same fund has been made by D.E. Locklear, who contends that Cox's interest in the plan was assigned to Locklear as a "guarantee" for certain equipment and realty leases executed between these parties. To avoid multiple litigation of potential liabilities, the bank instituted an interpleader action in the amount of the monies payable to Cox under the pension and profit sharing plan.

The garnishment proceeding instituted by St. Paul came after a final judgment in the amount of $152,500.00 plus costs had been entered in its favor on June 16, 1980, against Cox. St. Paul's claim against Cox arose as a result of contract obligations between Alabama City Bank and St. Paul as insurer against the bank's loss caused by employee dishonesty. On August 12, 1977, pleading guilty to eighteen counts of a fifty-one count indictment, Cox was convicted of willfully and knowingly misapplying and causing to be misapplied bank monies and funds with the intent to injure and defraud said bank in violation of 18 U.S.C. § 656. The bank subsequently filed with its surety, St. Paul, a proof of loss statement covering transactions handled by Cox. As part of the settlement agreement between the insurer, St. Paul, and the insured, Alabama City Bank, St. Paul paid to the bank $152,500.00 and the bank assigned all rights that it had against any person or persons responsible for the losses. St. Paul subsequently secured a judgment against Cox for the amount of the loss incurred. The judgment has remained unsatisfied; hence, these post-judgment and interpleader actions.

Cox contends that the assignment to Locklear is invalid as a result of the strict prohibition against assignability included in the pension plan. It is also argued that the assignment fails as an invalid attempt to assign a future interest. This common law issue is not reached, however, because the public policy considerations regarding pension funds must be evaluated in accordance with the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. §§ 1001 et seq. To ensure stability and security in the subject funds, Congress declared that nonassignment of plan benefits was to be the rule and not the exception. To this end, legislation was enacted which states that: "Each pension plan shall provide that benefits under the plan may not be assigned or alienated." 29 U.S.C. § 1056(d)(1).

The pension fund in question had a clause specifically designed to satisfy the Congressional mandate. The Employees Profit Sharing Plan and Trust Agreement of Alabama City Bank contains a nonalienation provision in Article IX, Section 16, which states that:

No benefit payable under the Plan will, except as otherwise specifically provided by law, be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, or charge, and any attempt so to anticipate, alienate, sell, transfer, assign, pledge, encumber, or charge the same will be void; nor will any benefit be in any manner liable for or subject to the debts, contracts, liabilities, engagements, or torts of the person entitled thereto. Upon the occurrence or threatened occurrence of any act or thing in violation of or contrary to the foregoing provision, then the benefit affected will, in the discretion of the Committee, cease and terminate, and in that event the Committee will hold or make the payments, which would otherwise be payable on account thereof, to or for the benefit of the Member or beneficiary involved, his spouse, children, or other dependents, or any of them, in such manner and in such proportion as the Committee may deem proper.

The clear language of the clause is to prohibit assignment of plan funds for the satisfaction of debts or obligations of the named fund participant. Nonalienability of pension fund assets is based upon sound public policy, has been sanctioned by Congress, and is the law of the land. The attempted assignment of the fund benefits to Locklear is, therefore, invalid. Because the court finds that the attempted assignment was void ab initio, issues surrounding the timing of execution, recording, and perfection of the lease agreements which were secured by the assignment need not be addressed.

Having found that the attempted assignment to Locklear was invalid, the court must next determine whether the garnishment proceeding instituted by the judgment creditor, St. Paul, reaches into the protected province of the defendant's pension trust fund. Trusts have through their historical development become an integral part of equitable jurisprudence, Townsend v. Vanderwerker, 160 U.S. 171, 16 S.Ct. 258, 40 L.Ed. 383 (1895), and have long been recognized as an independent source of equitable jurisdiction. Scott v. Mussafer, 223 Ala. 153, 134 So. 857 (1931). In the case at bar this court sits in equity because the administration of a trust is the point upon which all other issues turn. Clews v. Jamieson, 182 U.S. 461, 21 S.Ct. 845, 45 L.Ed. 1183 (1901). The court, therefore, construes plaintiff's claim as one for equitable, rather than legal, garnishment. See State Farm Mutual Automobile Insurance Co. v. McClendon, 269 Ala. 456, 114 So.2d 153, 156 (1959).

It has long been settled that a court sitting in equity will give redress when there is a right without a remedy or when the remedy would be incomplete. See Tiger Motor Co. v. McMurtry, 284 Ala. 283, 224 So.2d 638, 641 (1969) citing Teague v. Russell, 2 Stew. 420, 423 (Ala.1830). While equitable garnishment may be utilized to enforce a recognized right in a manner unattainable at law, clearly established common or statutory law may not be disregarded. Henderson v. Hall, 134 Ala. 455, 32 So. 840 (1900). In his defense Cox relies upon the common law, contending that he has no present or possessory interests which support garnishment of the trust funds. He also proffers the statutory provisions of ERISA which prohibit alienation of those funds.

First, Cox contends that because Alabama City Bank is withholding funds pending the outcome of this litigation, there exists a "contingency" which precludes garnishment. If the commencement of a garnishment action were allowed to create a contingency which precluded garnishment, the entire process would be self-defeating. The term "contingency" must therefore be construed to mean that property with only a possibility of future acquisition is not subject to garnishment.

Mr. Cox correctly cites Alabama decisions dealing with legal garnishments which hold that funds sought to be garnished must be due absolutely and without contingency. See Escambia Chemical Corp. v. United Insurance Co. of America, 396 So.2d 66 (Ala.1981); Sloss v. Glaze, 231 Ala. 234, 164 So. 51 (1935). The legal garnishment cases simply do not apply. The subject matter of the instant garnishment proceeding is a trust fund and equitable jurisdiction attaches to all matters of trust administration. No other equity need be found. Equity depends on the chancellor's conscience. It does not allow a result which is unconscionable. Therefore, equitable considerations, especially those of unjust enrichment and clean hands, which are barred on the law side are applicable in equity. Because the funds held by Alabama City Bank are fully vested in, and are the acknowledged property of, Mr. Cox, the court finds that the pension funds are, at least in equity, the property of the defendant, absolutely and without contingency. The funds are the sole property of the defendant and garnishment is not precluded upon the contingency issue alone. See Druid City Hospital Board v. Epperson, 378 So.2d 696 (Ala.1979).

The equitable garnishment action has long been recognized in Alabama. See Henderson v. Hall, 134 Ala. 455, 32 So. 840 (1900). The application of equitable garnishment has been limited by the Supreme Court of Florida, stating that equitable garnishment "cannot apply where the amount claimed is unliquidated, is in dispute, or is uncertain." Ake v. Chancey, 152 Fla. 677, 13 So.2d 6, 8 (1943). None of these limitations acts as a bar in the instant case. Other than the possible statutory bar discussed below, research has yielded no case which suggests any other impediment to the equitable garnishment proceeding before this court.

In addition to his reliance upon common law property principles, Cox argues that ERISA applies with equal weight to judgment creditors and assignees, so that the claims by St. Paul are defeated in the same manner as those of Locklear. Cox cites cases from various jurisdictions in support of his argument. See, e.g., United Mine Workers v. Boyle, 418 F.Supp. 406 (D.D.C. 1976) (public policy did not demand that settlor of trust be allowed to attach funds of trust...