Walker, In re

• Decision Date: 26 March 1992
• Docket Number: No. 90-5171,90-5171
• Citation: 959 F.2d 894
• Parties: , Bankr. L. Rep. P 74,528 In re Donald Dean WALKER, Debtor. Donald Dean WALKER, Plaintiff-Appellee, v. Kenneth G.M. MATHER, Trustee, Defendant-Appellant.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 894

959 F.2d 894

22 Bankr.Ct.Dec. 1284, Bankr. L. Rep. P 74,528

In re Donald Dean WALKER, Debtor.

Donald Dean WALKER, Plaintiff-Appellee, v. Kenneth G.M. MATHER, Trustee, Defendant-Appellant.

No. 90-5171.

United States Court of Appeals, Tenth Circuit.

March 26, 1992.

Chris Economou, Tulsa, Okl. (Kurt G. Glassco of Bond Glassco & Hyman, with him on the brief), for plaintiff-appellee.

Thomas A. Creekmore, III of Jones, Givens, Gotcher & Bogan, Tulsa, Okl., for defendant-appellant.

Before ANDERSON and BALDOCK, Circuit Judges, and SAM, District Judge. ^*

BALDOCK, Circuit Judge.

At issue in this case is whether Plaintiff-appellee Donald Dean Walker's (Debtor) individual retirement annuities (IRA's) and Keogh annuities should be included as property of his bankruptcy estate, and, if included, whether the annuities are subject to exemption from the estate pursuant to the relevant Oklahoma exemption statutes. ¹ Under the Bankruptcy Code, virtually all property in which a debtor has a legal or equitable interest at the commencement of the case is included in the bankruptcy estate, see 11 U.S.C. § 541, but a debtor may exempt certain property from the estate, see id. § 522. The Code includes a list of properties which may be exempted, see id. § 522(d), and it allows states to establish separate exemption lists. A debtor may choose either the federal exemption provisions or the state provisions unless he resides in a state that has "opted out" of the federal exemption list. See id. § 522(b)(1); 3 Collier on Bankruptcy p 522.02, (15th ed. 1991). In states that have "opted out," debtors are limited to the state exemption list. The relevant state in this case, Oklahoma, has "opted out." See Okla.Stat.Ann. tit. 31, § 1B (West 1991). Oklahoma bankrupt debtors therefore are limited to the Oklahoma exemptions. See id. § 1A (exemptions).

Debtor filed for Chapter 7 bankruptcy protection and claimed two IRA's and a Keogh as exempt from the bankruptcy estate pursuant to Okla.Stat.Ann. tit. 31, § 1A(20). The Oklahoma statute allows debtors to exempt both IRA's and Keoghs provided the investments fully qualify for tax deferral treatment under the Internal Revenue Code. Id. The Defendant-appellant Trustee challenged the exemptions, contending that the Oklahoma statute was invalid. In a core proceeding resulting in a published final order, the bankruptcy court ruled in favor of Trustee. See In re Walker, 108 B.R. 769 (Bankr.N.D.Okla.1989). Specifically, the court held that the annuities were property of the estate pursuant to § 541 and were not subject to exemption under § 522 because the Oklahoma exemption statute was an unconstitutional impairment of contracts. U.S. Const. art. I, § 10, cl. 1. On appeal, the district court also held that the annuities were part of the estate pursuant to § 541; however, it reversed the bankruptcy court order, holding that the Oklahoma exemption statute did not violate the Contracts Clause.

Trustee appeals from the district court judgment. He contends that the Oklahoma exemption statute is invalid because (1) it is an unconstitutional impairment of contracts, (2) it is preempted by the Employee Retirement Income Security Act of 1974 (ERISA), and (3) it exceeds the scope of authority delegated to the States pursuant to § 522 of the Bankruptcy Code to establish bankruptcy exemptions. In the alternative, Trustee argues that Debtor did not meet his burden of proving that the annuities in question were not overfunded and therefore fully tax exempt. The Trustee did not raise this alternative argument below, and he has not attempted to articulate a reason for us to depart from the general rule that "a federal appellate court does not consider an issue not passed upon below." Singleton v. Wulff, 428 U.S. 106, 120, 96 S.Ct. 2868, 2877, 49 L.Ed.2d 826 (1976). See also Pell v. Azar Nut Company, Inc., 711 F.2d 949, 950-51 (10th Cir.1983). Therefore, we decline to consider the argument. We have jurisdiction to address the remaining issues on appeal pursuant to 28 U.S.C. § 1291 and 28 U.S.C. § 158(d). Upon exercising de novo review of the remaining legal issues, see First Bank v. Mullet (In re Mullet), 817 F.2d 677, 679 (10th Cir.1987), we affirm.

I. The Annuities.

The bankruptcy court made specific findings regarding the annuities in this case. See 108 B.R. at 770-772. In sum, the court found as follows: the total cash surrender value of the three annuities was $137,699.48 as of June 30, 1988; the IRA's were funded fully by the debtor; the Keogh was funded fully by a business which the debtor formerly owned and operated; all annuities qualified for tax deferral treatment under the Internal Revenue Code; and finally, the annuities were not subject to ERISA regulations. ² These findings were accepted implicitly by the district court, see In re Walker, 139 B.R. 31 (N.D.Okla.1990), and they are not challenged here.

II. Bankruptcy Estate Property.

Before reaching the Oklahoma exemption issues, we must determine whether the annuities in this case should be included in the bankruptcy estate pursuant to 11 U.S.C. § 541. As stated above, § 541 encompasses virtually all property in which a debtor has a legal or equitable interest as of the time of the bankruptcy petition. Even properties with underlying agreements which contain restrictions on transfer are included. See id. § 541(c)(1)(A). Nevertheless, § 541 contains an exception for "a restriction on the transfer of a beneficial interest of the debtor in a trust that is enforceable under applicable nonbankruptcy law...." Id. § 541(c)(2). ³ Such anti-alienability provisions remain enforceable under the statute; therefore, a debtor's interest in the trusts does not enter the bankruptcy estate.

The circuits are split over the scope of § 541(c)(2)'s exception for anti-alienability provisions that are enforceable under "applicable nonbankruptcy law." Four circuits have held that the provision refers exclusively to state spendthrift trust law. See Daniel v. Security Pacific National Bank (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); Lichstrahl v. Bankers Trust (In re Lichstrahl), 750 F.2d 1488, 1490 (11th Cir.1985); Samore v. Graham (In re Graham), 726 F.2d 1268, 1273-74 (8th Cir.1984); Goff v. Taylor (In re Goff), 706 F.2d 574 (5th Cir.1983). We recently rejected the reasoning of the above courts, however, and joined three other circuits in holding that "applicable nonbankruptcy law" is not limited to state spendthrift trust law. See Gladwell v. Harline (In re Harline), 950 F.2d 669 (10th Cir.1991). See also Velis v. Kardanis, 949 F.2d 78, 81-82 (3d Cir.1991); Forbes v. Lucas (In re Lucas), 924 F.2d 597, 601 (6th Cir.), cert. denied, --- U.S. ----, 111 S.Ct. 2275, 114 L.Ed.2d 726 (1991); Anderson v. Raine (In re Moore), 907 F.2d 1476, 1477 (4th Cir.1990). Instead, we indicated that "[t]he phrase on its face is clear and broad" and could encompass federal ERISA anti-alienability provisions as well as state provisions aside from spendthrift trust law. Gladwell, 950 F.2d at 674.

Debtor seizes on the § 541(c)(2) exception as an alternative ground for affirmance, contending that his annuities should be excluded from the bankruptcy estate because they are enforceable spendthrift trusts under Oklahoma law. See Okla.Stat.Ann. tit. 60, § 175.25 (West 1971). In support of this proposition, he cites Greening Donald Co. v. Oklahoma Wire Rope Products, Inc., 766 P.2d 970 (Okla.1989). Greening Donald, however, did not involve spendthrift trust law. On the contrary, the court in that case held that IRA's cannot be enforceable spendthrift trusts under Oklahoma law. Id. at 973. But this does not end the inquiry given our holding that the § 541(c)(2) exclusion is not limited to spendthrift trust law.

Greening Donald turned on the court's interpretation of Okla.Stat.Ann. tit. 60, §§ 326-28 (West 1971), which provides that retirement trusts are exempt from state garnishment proceedings provided they meet certain criteria. ⁴ Specifically, the court applied the statute to an Individual Retirement Account, holding that the Account was exempt from garnishment because it qualified for tax deferral treatment under the Internal Revenue Code and contained an anti-alienability clause. See Greening Donald, 766 P.2d at 972-73. Debtor's argument rests on a superficial similarity between his annuities and the Greening Donald account. That is, all the instruments fall into the category of tax deferred investments loosely described as IRA's and Keoghs; however, debtor's instruments do not contain anti-alienability provisions. Whereas the Individual Retirement Account in Greening Donald expressly prohibited alienation, the Individual Retirement Annuities and Keoghs in this case expressly allow written assignment. See I R. exh. 1 at 14, exh. 2 at 16 and exh. 3 at 14. Clearly, debtor's annuities do not contain anti-alienability clauses enforceable under any "applicable nonbankruptcy law." Therefore, the bankruptcy court correctly included the annuities in the estate.

III. Exempt Property.

Debtor's IRA's and Keogh undisputedly fit within the Oklahoma exemption statute. See Okla.Stat.Ann. tit. 31, § 1A(20) (West 1991). ⁵ Therefore, barring some legal deficiency in the application of or on the face of the statute, the IRA's and Keoghs should be exempted from the bankruptcy estate pursuant to 11 U.S.C. § 522. Trustee urges us to reinstate the bankruptcy court's holding that the Oklahoma exemption statute as applied is unconstitutional because it impairs the creditors' ability to collect on their contracts, all of which were entered before the effective date of the statute. See U.S. Const. Art. I, § 10, cl. 4, ("No State shall ... pass any ... Law impairing the Obligation of Contracts....").

Recognizing that the Contracts Clause "prohibition must be accommodated to the inherent police power of the State 'to safeguard...