Amicus Curiae Brief — Patterson v. Shumate

Supreme Court brief1992

Ask Donna

What actually matters in this document.

Text

IN THE

Supreme Court of the Gnited States

OCTOBER TERM, 1991

No. 91-913

JOHN R. PATTERSON, TRUSTEE,

‘ Petitioner,

JOSEPH B. SHUMATE, JR.,

Respondent.

On Writ of Certiorari to the

United States Court of Appeals for the Fourth Circuit

MOTION FOR LEAVE TO FILE AND BRIEF OF

THE ERISA INDUSTRY COMMITTEE AND THE

ASSOCIATION OF PRIVATE PENSION AND

WELFARE PLANS, INC., AS AMICI CURIAE

SUPPORTING RESPONDENT

The ERISA Industry Committee ("ERIC") and the

Association of Private Pension and Welfare Plans, Inc.

("APPWP"), hereby move, pursuant to Rule 37.4, for leave

to file the attached brief amici curiae in support of

Respondent's position that Section 541(c)(2) of the Bank-

ruptcy Code excludes from a debtor’s estate the assets of a

pension trust governed by the anti-alienation provision of the

Employee Retirement Income Security Act of 1974

("ERISA"), 29 U.S.C. § 1056(d)(1). While Respondent has

consented to the filing of this brief, Petitioner has declined to

consent. Correspondence reflecting the parties’ respective

positions has been lodged with the Clerk.

ERIC and APPWP are non-profit organizations that

together represent approximately 300 major corporations and

others doing business in a wide variety of industries. Lists of

ERIC’s and of APPWP’s members are set forth in the

Appendix to the accompanying brief. ERIC’s and APPWP’s

membership consists of a broad cross-section of major firms

that maintain both defined benefit and defined contribution

pension plans that are governed by ERISA and are qualified

as tax exempt trusts under 26 U.S.C. §§ 401(a) and 501(a).

Each of the plans contains the anti-alienation provisions

required by 29 U.S.C. § 1056(d)(1). All of ERIC’s members

and most of APPWP’s members do business in more than one

State, and some members maintain pension plans that provide

benefits for employees in all fifty states. Tens of millions of

participants and beneficiaries are covered by ERISA-governed

pension plans sponsored by ERIC’s and APPWP’s members.

This case poses a singularly important issue of statutory

construction that has the potential for nationwide effects far

beyond the relatively small sum at issue between the parties.

Ultimately at stake in this case are the two overarching

purposes of ERISA: assurance that pension benefits promised

to employees actually will be available to them when they

retire, see Nachman Corp. v. Pension Benefit Guaranty

Corporation, 446 U.S. 359, 375 (1980), and Congress’s

intent that "pension plan regulation [be] exclusively a federal

concern,” Alessi v. Raybestos-Manhattan, Inc., 451 U.S. 504,

523 (1981). ERIC’s and APPWP’s interest in seeing these

purposes fulfilled and in other important issues of benefit plan

administration has led them to appear as amicus curiae in

earlier cases in this Court.'

' ERIC appeared as amicus curiae in Firestone Tire & Rubber Co. v.

Bruch, 489 U.S. 101 (1989); Metropolitan Life Ins. Co. v. Taylor,

481 U.S. 58 (1987); Shaw v. Delta Air Lines, Inc., 463 U.S. 85 (1983);

Franchise Tax Board v. Construction Laborers Vacation Trust, 463 U.S.

1 (1983); Alessi v. Raybestos-Manhatan, Inc., 451 U.S. 504 (1981); and

International Bhd. of Teamsters v. Daniel, 439 U.S. 551 (1979).

APPWP appeared as amicus curiae in Public Employees Retirement

System of Ohio v. Betts, 492 U.S. 158 (1989).

ERIC and APPWP believe that as amici curiae in this

case, they can advance arguments relevant to the merits of

this case that otherwise will not be advanced by the parties.

While the parties no doubt will zealously present their

positions on the issues, in litigation between a bankruptcy

trustee and an individual debtor, where the amount in issue is

comparatively small, the parties’ resources to explore the

many issues involved in construing Section 541(c)(2) of the

Bankruptcy Code understandably are limited. Because the

Court's ruling in this case could have a far greater effect on

ERIC’s and APPWP’s members and their employees than it

will on the parties, ERIC and APPWP have a greater

incentive than do the parties to address these issues in depth.

For this reason, ERIC and APPWP believe that the analysis

of the statutory language, legislative history and rules of

statutory construction presented in Part I of the attached brief

is more thorough than the analysis presented by Petitioner and

the analysis likely to be presented by Respondent.

Furthermore, ERIC and APPWP bring to this case the

perspective of major employers that sponsor large plans with

participants and beneficiaries in different states — a perspec-

tive broader than that of the parties. The pension plans

sponsored by ERIC’s and APPWP’s members, unlike the plan

at issue here, have many thousands or tens of thousands of

participants and are not subject to the unilateral control of any

one empleyee-stockholder. Furthermore, most of the pension

plans sponsored by ERIC’s and APPWP’s members operate in

more than one state, and ERIC and APPWP therefore are

uniquely sensitive to the potentially far-reaching changes in

plan administration and employee retirement security that

could occur if, as a result of this case, state law becomes the

only basis for excluding pian assets from individual

bankruptcy estates. For those reasons, ERIC and APPWP

believe that the arguments presented in Part II of the attached

brief will not be raised by the parties, and will assist the

Court in evaluaung the potenual impact that adopting Petition-

ers reading of Section 541(c)(2) might have on plans

sponsored by major employers.

Respectfully submitted ,

JOHN M. VINE

(Counsel of Record)

THOMAS M. CHRISTINA

COVINGTON & BURLING

1201 Pennsylvania Avenue

P.O. Box 7566

Washington, D.C. 20044

(202) 662-6000

Attorneys for Amici Curiae

The ERISA Industry Committee

and Association of Private

Pension and Welfare Plans, Inc

March 31, 1992

QUESTION PRESENTED

This brief for The ERISA Industry Committee and the

Association of Private Pension and Welfare Plans, Inc., as

amici curiae is limited to the first question presented by the

Petition for Writ of Certiorari herein: whether ERISA’s ant-

alienation provision, 29U.S.C. § 1056(d)(1), is an

“applicable nonbankruptcy law” under 11 U.S.C. § 541(c)(2),

or whether that phrase is limited to state law principles

governing spendthrift trusts?

TABLE OF CONTENTS

PAGE

INTEREST OF AMICI] CURIAE ................ l

SUMMARY OF ARGUMENT ................ l

EE Fis BC eSet wos we kde See odes 6

I. SECTION 541(c)(2) OF THE BANKRUPTCY CODE

MUST BE CONSTRUED TO EXCLUDE FROM THE

BANKRUPTCY ESTATE THE ASSETS OF AN

ERISA-GOVERNED PLAN................. 6

A. The Statutory Language On Its Face Excludes

From the Bankruptcy Estate the Assets of Any

Trust the Transfer of a Beneficial Interest in

Which is Restricted by ERISA. ............ 6

B. The Legislative History of Section 541(c)(2)

Does Not Warrant Narrowing Its Scope. ...... 15

C. Reading Section 541(c)(2) to Apply to ERISA-

Governed Plans Does Not Render Section

522(d)(10)(E) Superfluous. ... ........... 18

D. The Exclusion from the Debtor's Estate of

Assets Held in a Trust Other Than a Spendthrift

Trust is Not a Departure From Pre-Code Law ... 20

fl. THE NARROW INTERPRETATION OF SECTION

54l(c2) ADVOCATED BY THE PETITIONER

CONFLICTS WITH FUNDAMENTAL NATIONAL

RETIREMENT INCOME POLICIES .......... 22

rer ee eee 30

TABLE OF AUTHORITIES

CASES PAGE

Alessi v. Raybestos-Manhattan, Inc.,

Oe Wee POD ccc ces bocce eve seress 25

American Honda Fin. Corp. v. Dairyland Ins. Agency

(In re Cilek), 115 B.R. 974 (Bankr.

| & “O GASP rerrrrerrereeerrs 19

Anderson v. Raine (In re Moore), 907 F.2d 1476

re Pe. bee eee essere ee neeseees 2

Atlantic Richfield Co. v. Herbert (In re

Herbert), 806 F.2d 889 (9th Cir. 1986)......... 11

Bavely v. Internal Revenue Service (In re Terwilliger's

Catering Plus, Inc.), 911 F.2d 1168 (6th Cir. 1990),

cert. denied sub nom. Ohio Department of Taxation v.

Internal Revenue Service, 111 S. Ct. 2815

Dt ceLeveereesteteeese ees see's eve 10

Brickley v. Internal Revenue Service (In re Brickley),

70 B.R. 113 (Bankr. App. 9th Cir. 1986) ....... 13

Business Guides, Inc. v. Chromatic Communications

Enterprises, Inc., 111 S. Ct. 922 (1991) ......... 7

Caruso Enterprises, Inc. v. Bumb (In re Wonderbowl, Inc.),

r fe | YT Ue eee 10

Consumer Products Safety Commission v. GTE Sylvania, Inc.,

ft e |) ae rrr ree 14

PAGE

Daniel v. Security Pacific Nat'l Bank (In re Daniel),

771 F.2d 1352 (9th Cir. 1985), cert. denied,

CUP Dale CEU GIUEED oo ccc cc cccccces 3, 15, 29

Davis v. Michigan Dept. of the Treasury,

CN EO CP er eer Pree 16

Demarest v. Manspeaker, 111 S. Ct. 599 (1991)... ... 14

Dennis v. Higgins, 111 S. Ct. 856(1991) ........... 8

Diamond v. Chakrabarty, 447 U.S. 303 (1980) ....... 6

Dole v. United Steelworkers of America,

ee ee 19

Dunlavey v. Newnum (In re Newnum), 2 B.R. 500

Se ED onc eck cccesvcicees 21

Eagle-Picher Industries, Inc. v. United States,

937 F.2d 625 (D.C. Cir. 1991) .............. 13

Eisenberg v. Feiner (In re Ahead by a Length, Inc.),

100 B.R. 157 (Bankr. S.D.N.Y. 1989) ......... 13

Escondido Mutual Water Co. v. La Jolla Band of Mission

Indians, 466 U.S. 765 (1984) .............. 6, 14

FMC Corp. v. Holliday, 111 S. Ct. 403 (1990) .... 26, 28

Forbes v. Lucas (In re Lucas), 924 F.2d 597

(6th Cir. 1991), cert. denied sub nom.

Forbes v. Holiday Corp. Savings and

Retirement Plan, 111 S. Ct. 2275 (1991) ......... 3

PAGE

Freytag v. Commissioner, 111 S. Ct. 2631 (1991) ..... 14

Gladwell v. Harline (In re Harline), 950 F.2d 669

PG GED pcccevessccdcaneeses 3, 13, 18

Goff v. Taylor (In re Goff), 706 F.2d 574

.. 2 rrr rr ee eee 3, 14, 15, 17, 29

Gollust v. Mendell, 111 S. Ct. 2173 (1991) .......... 8

Grogan v. Garner, 111 S. Ct. 654 (1991) ......... 8, 11

Guidry v. Sheet Metal Workers

Nat'l Pension Fund,

Fe | rrr rre 2, 24, 28, 29, 30

Gwaltney of Smithfield, Lid. v. Chesapeake

Bay Foundation, Inc., 484 U.S. 49 (1987) ........ 6

Hansberry v. Lee, 311 U.S. 32 (1940) .... 0.0.4... 26

Holywell Corp. v. Smith, 6 U.S.L.W. 4163

(February 25, 1992) .......-50- 5s ee uee ee

In re Century Vault Co., 416 F.2d 1035 (3d Cir. 1969) .. 9

Ingersoll-Rand Co. v. McClendon,

te. | £_rrrrrrrrenrn se a 24

Kelly v. Robinson, 479 U.S. 36 (1986) ............ 20

Lewis v. Manufacturers Nat'l Bank, 364 U.S. 603

Er aera a eee ee a ae 28

PAGE

Lichstrahl v. Bankers Trust (In re Lichstrahl),

750 F.2d 1488 (11th Cir. 1985) ............ 3, 15

Liscinski v. Mosley (In re Mosley), 42 B.R. 181

ee ES I ee cs cea eee 7

Mackey v. Lanier Collection Agency & Service, Inc.,

ee es IE, a Sra o's oh ie bo bese eee. 28

Mason v. Eastman Kodak Co. (Matter of Parker),

473 F. Supp. 746 (W.D.N.Y. 1979)........... 21

Midlantic National Bank v. New Jersey Dept. of

Environmental Protection, 474 U.S. 494 (1986) 20, 21

Minot v. Minot, 319 Mass. 253, 66 N.E.2d 5 (1946) . 18

Mobil Oil Exploration & Producing Southeast Inc. v.

United Distribution Cos., 111 S. Ct. 615 (1991) .... 7

Morrison-Knudsen Construction Co. v. Director,

Office of Workers’ Compensation Programs,

ee es I oo ds ok ee ds eee ee ks 6, 11

Nachman Corp. v. Pension Benefit Guaranty

Corporation, 446 U.S. 359 (1980) ............. 23

Norfolk & Western Ry. Co. v. American Train

Dispatchers Ass'n, 111 S. Ct. 1156 (1991)... 2.2... 8

North Dakota v. United States, 460 U.S. 300 (1983) ... 14

Pearlstein v. United States Small Business

Administration, 719 F.2d 1169 (D.C. Cir. 1983)

. 10, 11

Vii

PAGES

Perrin v. United States, 444 U.S. 37 (1979) ....... + OF

Pittston Coal Group v. Sebben, 109 S. Ct.

Se Gc diatd's 4 Gaia do bw eee 9 0 os oo 15-16, 16

Public Service Co. of New Hampshire v.

Consolidated Utilities and Communications, Inc..,

846 F.2d 803 (Ist Cir. 1988) ...........-..-.. 12

Pulaski Highway Express Co. v. Central States,

Southeast and Southwest Areas Health &

Welfare and Pension Funds, 41 B.R. 305

a ay | 29

Regan v. Ross, 691 F.2d 81 (2d Cir. 1982) ........ 3, 15

Rubin v. United States, 449 U.S. 424 (1981) ........ 14

Samore v. Graham (In re Graham), 726 F.2d 1268

3 See ee 3, 15, 29

Securities and Exchange Commission v.

North American Planning Corporation,

Fed. Sec. L. Rep., ¢ 95,326, (3d Cir. 1975) ...... 9

Segal v. Rochelle, 382 U.S. 375... 1... ee eee 21

Shaw v. Delta Air Lines, Inc., 463 U.S. 85 (1983) .... 28

Shumate v. Patterson, 943 F.2d 362 (4th Cir. 1991),

cert. granted, 112 S. Ct. 932 (1992) ........... 2

Southeastern Community College v. Davis,

SE ody «0 ole 0 0 0 4 sie 6 4 \ 0000's 6

Vill

PAGE

Standard Oil Co. v. Blane (In re Baxter),

104 F.2d 318 (6th Cir. 1939) ........... 22

Sullivan v. Stroop, 110 S. Ct. 2499 (1980) .......... 7

Summit Valley Industries, Inc. v. Local 112,

United Brotherhood of Carpenters,

456 U.S. 717 (1982) ................0005. 6

Tennessee Valley Authority v. Hill,

co 14

Tennessee Valley Authority v. Kinzer,

142 F.2d 833 (6th Cir. 1944) ...... 2. 21

Thompson v. Magnolia Petroleum Co..,

309 U.S. 478 (1940) .................... 10

Turpin v. Wente (Matter of Turpin),

644 F.2d 472 (Sth Cir. 1981) ..............., 21

Union Bank v. Wolas, 112 S. Ct. 527 (1991)... . 14-15, 16

United States v. Darnell (In re Darnell),

834 F.2d 1263 (6th Cir. 1987) ............... 7)

United States v. James, 478 U.S. 597 (1986) ........ 6, 8

United States v. New Britain, 347 U.S. 81 ( 1954) ..... 10

United States v. Turkette, 452 U.S. 576 (1981) ...... 14

PAGE

Vanderpark Properties, Inc. v. Buchbinder

(In re Windmill Farms, Inc.),

841 F.2d 1467 (9th Cir. 1988) .........--.5--: 10

Velis v. Kardanis, 949 F.2d 78 a

Ls | a a ae 3, 13,

West Virginia University Hospital, Inc. v.

Casey, 111 S. Ct. 1138 (1991) 2... ee eee 9, 16

White v. Stump, 266 U.S. 310 (1924) .......--.--

STATUTES AND REGULATIONS

Bankruptcy Act of 1898, Ch. 541, 30 Stat. 544,

as amended, repealed 1978, formerly

codified at 11 U.S.C. § 1 et seq.

11 U.S.C. § 107(c)(1)(B) (1964) ...... 2.2 - ss

kf 2 2) Se i ee ee ee

11 U.S.C. § 110(e)(1) (1964) .......---- + ees

Bankruptcy Reform Act of 1978,

Pub. L. No. 95-598, 92 Stat. 2549

codified at 11 U.S.C. §§ 1 et seq

TRE (a 5 | )

TRS Td |: re

11 U.S.C. § 365(h)(1) 6. ees

x xi

PAGE PAGE

ie ee tak eS fees e i ee: 11 11 U.S.C. § 108(a)-(c) . 2... eee ee eee 12

Oe WN EY fg bse sea Uoe edb wewalgs 14 0) ee ee 12

ee ee 14, 23 OE ge a ee a a eo 12

OE Wea. SOD bk vk de wees 13 ee ca he cee eres ees 12

ee eres os ea ca ee 19 28 U.S.C. § 1411 2... eee eee 12

FS ee 19 Black Lung Benefits Reform Act of 1977,

Pub. L. No. 95-239, 92 Stat. 95 ........... 16, 17

11 U.S.C. § S22(d)(10)(E) .. . 2 2 4, 18, 19, 20

no Employee Retirement Income Security Aci of 1974,

po ee 11, 20 Pub. L. No. 93-406, 88 Stat. 832, codified

rinci at 29 U.S.C. §§ 1001 ef seq.

Be ee ee passim wisi ;

8 ad 0 23

a 29

WOU S.C. MURAI) .. 0. ccc cece ences 22

OR I Be ee ok do vic ee vc ccacn 11 +

, Lik Cae f+.) \ eer 2

OS WG. GORD fcc ccc ccc ccc ccan 1] : a

29 U.S.C. § 1002(34)-(35) .. 1... . 2 ee ee ees 22

ee 11

29 U.S.C. § 1054(g)(2)(B) .... 2. ee ee ees 26

dh |, 1] r

BOT ED cc ee etree wns 2, 24, 29

Bankruptcy Improvements and Federal Judgeship

Act, Publ. L. No. 98-353, 98 Stat. 333, 29 U.S.C. 8 POBGEEMT) . ww teens 2

amending Titles 11 and 28, U.S.C.

TS dl a 15

oD U.S.C. § MOG ww ww ke eee 12

PAGE

Federal Tort Claims Act, Ch. 753, 60 Stat. 812,

as ameneeg ... cnc cs see eee 13

Internal Revenue Code of 1954, Pub. L. No. 83-59]

68A Stat. 1, as amended f

ERC. § BIG)... 2... oe ew 2

LR.C. § IGNS) ... 5. ee ee 29

ER.C. § IGM) .... 2. ee 24

ER.C. § IG@MIS) . 5... oe ce 2

ER.C. § 420i) ... 2... 29

ERC. § Old) .......5... 50 29

ER.C. § 402)... . 2... 2

ER.C. § 402M) ........055 27

ER.C. § OQq) ......... 55 29

ERC. § 406 ... 2... ice ee 29

ER.C. § Oe). .... 2.5.50 ee ee 2

ER.C. § 4O0GNS) .. ec 27

ER.C. § 41S)... 26

ER.C.§ 418 ........605 0p 29

xill

PAGE

EE IEEE eee 24

EES 2,27

Se tt eb ee ee ee we 29

EE ee 29

Jones Act, Ch. 250, § 33, 41 Stat. 1007

46 U.S.C.A. app. § 688 (1988) ............. 12

Retirement Equity Act of 1984, Pub. L. No. 98-397,

OS” 24

Pub. L. No. 100-506, 102 Stat. 2538 (Oct. 18, 1988),

Ee 13

Pub. L. No. 100-710, Title I, § 106(b)(2) and

102(c), 102 Stat. 4746, 4752 (Nov. 23, 1988)... .. 12

Racketeer Influenced and Corrupt Organizations Act,

mm eae, We a, Ge, ww 13

Ship Mortgage Act of 1920, repealed 1988, formerly

codified at 46 U.S.C. §9ll etseg. ............ 12

Tax Equity and Fiscal Responsibility Act of 1982,

Pub. L. No. 97-248, 96 Stat. 324 (1982) ........ 29

Tax Reform Act of 1986, Pub. L. No. 99-514,

ESOT Ee 29

EE 27

Xiv

PAGE

Treas. Reg. § 1.4114¢)-425 ................... 26

LEGISLATIVE HISTORY

120 Cong. Rec. 29,197 (1974) (remarks of Rep. Dent) . 28

120 Cong. Rec. 29,933 (1974) (remarks of

Se a es hee 28

120 Cong. Rec. 29,942 (1974) (remarks of Sen. Javits) 28

H.R. Rep. No. 779, 93d Cong., 2d Sess. (1974)... ... 24

H.R. Rep. No. 807, 93rd Cong., 2d Sess. (1974) ..... 24

H.R. Rep. No. 1280, 93rd Cong., 2d Sess. (1974) 24

H.R. Rep. No. 595, 95th Cong., Ist Sess.

eee Seeks ae us Terre eee TT ree 12, 17, 19

Legislative History of the Employee Retirement Income

Security Act of 1974, 94th Cong., 2d Sess.

(Comm. Print) ("Leg. Hist.")

2 Leg. Hist. 1865-71 (remarks of Sen. Kennedy)... 23

2 Leg. Hist. 3371 (remarks of Rep. Perkins) .... . 24

3 Leg. Hist. 3583 (remarks of Rep. Price)... ... . 23

3 Leg.Hist. 4811-12 (remarks of Sen. Ribicoff).... 23

3 Leg. Hist. 4698 (remarks of Rep. Annunzio) .... 23

PAGE

3 Leg. Hist. 4707 (remarks of Rep. Mathias) ..... 24

3 Leg. Hist. 4793 (remarks of Sen. Bentsen) ..... 23

3 Leg. Hist. 4819 (remarks of Sen. Packwood) .... 25

S. Rep. No. 127, 93d Cong., Ist Sess. (1973) ....... 24

S. Rep. No. 989, 95th Cong., 2d Sess. (1978) ....... 17

S. Rep. No. 505, 100th Cong., 2d Sess. (1988),

reprinted in 1988 U.S. Code Cong. & Adm.

0 a as hw 6 oe 0 6 8 0.688 13

MISCELLANEOUS

4 Collier on Bankruptcy € 541 021)

ET ee ee eee 20-21

37 C.J.S. Fraudulent Conveyances § 444 (1943) ...... 29

Notice 83-10, Questions and Answers Relating to

Amendments to Employee Plans Provisions of

the Internal Revenue Code by the Tax Equity

and Fiscal Responsibility Act of 1982,

ee eee eae + 0 0 6 8 29

Notice 87-21, Employee Plans -- New Limitations

on Contributions and Benefits Under Section 415,

ee TE bd ow ob a oe 6 be We o0.8 wre 29

Notice 89-45, Employee Plans -- Application of

Section 415(b)(5)(D), 1981-1 C.B. 684. ........ 29

XV1

PAGE

Private Letter Ruling 8131020 (May 5, 1981) ....... 27

Private Letter Ruling 8829009 (April 6, 1988) ....... 27

Private Letter Ruling 8951067 (September 28, 1989) ... 27

Private Letter Ruling 9011037 (December 20, 1989) 27

Private Letter Ruling 9109051 (December 5, 1990) .... 27

Uniform Exemptions Act, § 6, 13 U.L.A. 224 (1986) 20

IN THE

Supreme Court of the Cnited States

OCTOBER TERM, 1991

No. 91-913

JOHN R. PATTERSON, TRUSTEE,

Petitioner,

JOSEPH B. SHUMATE, JR.,

Respondent.

On Writ of Certiorari to the

United States Court of Appeals for the Fourth Circuit

BRIEF OF THE ERISA INDUSTRY COMMITTEE

AND THE ASSOCIATION OF PRIVATE

PENSION AND WELFARE PLANS, INC. AS

AMICI CURIAE SUPPORTING RESPONDENT

This brief is submitied on behalf of The ERISA Industry

Committee ("ERIC") and the Association of Private Pension

and Welfare Plans, Inc. ("“APPWP"), as amici curiae

(collectively, “amici") supporting Respondent.

INTEREST OF AMICI CURIAE

The interest of ERIC and APPWP is set forth in the fore-

going Motion for Leave to File.

SUMMARY OF ARGUMENT

The question of statutory construction posed in this case

will affect the retirement income security of millions of

Americans, and could result in substantial changes in the

administration of pension plans, both large and small,

nationwide. Section 541(c)(2) of the Bankruptcy Code makes

enforceable in a case under Title 1] "“[a] restriction on the

transfer of a beneficial interest of the debtor in a trust that is

enforceable under applicable nonbankruptcy law...." The

Employee Retirement Income Security Act of 1974

("ERISA"), Pub. L. No. 93-406, 88 Stat. 832, as amended,

codified principally at 29 U.S.C. §§ 1001 ef seq., requires

that each pension plan shall provide that benefits provided

under the plan “may not be assigned or alienated." ERISA

§ 206(d)(1), 29 U.S.C. § 1056(d)(1) (1988).' The right of a

participant to receive benefits from an ERISA-governed plan

is protected from the claims of creditors outside bankruptcy.

See Guidry v. Sheet Metal Workers Nat'l Pension Fund,

493 U.S. 365 (1990). The question posed in this case is

whether that protection is also available in bankruptcy.

In this case and in its earlier decision, Anderson v. Raine

(In re Moore), 907 F.2d 1476, 1480-81 (4th Cir. 1990), the

Fourth Circuit held that ERISA’s anti-alienation provision is

an “applicable nonbankruptcy law" within the meaning of

Section 541(c)(2), and therefore that a debtor's interest in an

ERISA-governed plan is not an asset of the bankruptcy estate.

Shumate vy. Patterson, 943 F.2d 362, 365 (4th Cir. 1991).

_ERISA defines a "pension plan" as “any plan, fund or program

which . . . (i) provides retirement income to employees, or (ii) results in

a deferral of income by employees for periods extending to the

termination of covered employment or beyond, regardless of the method

of calculating the contributions made to the plan, the method of

calculating the benefits under the plan or the method of distributing

benefits from the plan." 29 U.S.C. § 1002(2)(A) (1988). Pension plans

that meet the qualification requirements of the Internal Revenue Code and

their participants are accorded advantageous tax treatment. See generally

I.R.C. §§ 401(a), 402(a), 404(a), & 501 (a) (1988).

One of the qualification requirements is that a plan must provide that

“benefits Provided under the plan may not be assigned or alienated," i.e. ,

a provision that mirrors the requirements of ERISA § 206(d)(1),

29 U.S.C. § 1056(d)(1) (1988). See 1.R.C. § 401(a)(13) (1988).

Three other courts also have adopted this view.’ Despite the

breadth of the term “applicable nonbankruptcy law," five

Circuits have ruled that Section 541(c)(2) excludes from the

debtor’s estate only assets excludable under state spendthrift

trust principles.* The limitation of Section 541(c)(2)’s scope

to state spendthrift trust law is insupportable as a matter of

statutory construction, and jeopardizes fundamental national

policies regarding retirement income security.

The phrase “applicable nonbankruptcy law" is not defined

in the Bankruptcy Code, and therefore must be interpreted

according to the ordinary meaning of its terms. That

meaning, as established by dictionary definitions, judicial

usage, and the meaning Congress attached to the phrase

elsewhere in Title 11 and in Title 28, clearly includes federal

statutory law such as ERISA. The ordinary meaning of the

term “applicable nonbankruptcy law" cannot be limited to

state law principles governing spendthrift trusts.

Section 541(c)(2) is not a “rare and exceptional” instance

in which the Court need go beyond the plain meaning of the

2 See Gladwell v. Harline (in re Harline), 950 F.2d 669 (10th Cir.

1991): Velis v. Kardanis, 949 F.2d 78 (3d Cir. 1991); and Forbes v.

Lucas (In re Lucas), 924 F.2d 597 (6th Cir. 1991), cert. denied sub nom.

Forbes v. Holiday Corp. Savings and Retirement Plan, 111 S. Ct. 2275

(1991).

’ The principal basis for this interpretation is that the pertinent House

and Senate Judiciary Committee Reports do not refer to any application

of Section 541(c)(2) other than preserving the exclusion under prior law

of spendthrift trusts. See Regan v. Ross, 691 F.2d 81, 84-85 (2d Cir.

1982); Lichstrahl v. Bankers Trust (In re Lichstrahl), 750 F.2d 1488,

1490 (11th Cir. 1985); Daniel v. Security Pacific Nat'l Bank (in re

Daniel), 771 F.2d 1352 (9th Cir. 1985), cert. denied, 475 U.S. 1016

(1986); Samore v. Graham (In re Graham), 726 F.2d 1268, 1271-72 (8th

Cir. 1984); and Goff v. Taylor (in re Goff), 706 F.2d 574, 581-82 (Sth

Cir. 1983).

Statutory terms. This Court is not required to construe the

words “applicable nonbankruptcy law" to mean less than they

plainly do simply because the House and Senate Judiciary

Committee Reports accompanying the Bankruptcy Reform Act

do not state that protecting the assets of ERJSA-governed

plans was an additional purpose of Section 541(c)(2). Statutes

often have effects that are not specifically mentioned in their

legislative histories.

Even if the meaning of the phrase "applicable

nonbankruptcy law" in Section 541(c)(2) were tethered to the

legislative history, that history does not show that the only

purpose of Section 541(c)(2) was to protect the assets of

spendthrift trusts. The rationale for Congress's protection of

spendthrift trusts applies equally well to the protecti

tect

ERISA-governed pension plans. Pare

Interpreting Section 541(c)(2) to apply to the assets of

ERISA-governed plans does not render Section 522(d)(10)(E)

of the Bankruptcy Code superfluous. The latter section

excludes from a debtor's estate only certain distributions

received from pension plans, whereas Section 541(c)(2)

excludes the corpus of ERISA-governed pension trusts.

Section 522(d)(10)(E) cannot be construed as an exemption

for undistributed plan assets.

Il.

Interpreting Section 541(c)(2) to apply only to

trusts would violate two fundamental ais bah seers

ment income security that this Court repeatedly has endorsed:

enforcement of Congress's desire that retirement income and

savings benefits promised to American workers will in fact be

available to them upon their retirement, and enforcement of

Congress's desire that pension plan r

egulati

exclusively by federal law. : gulation be governed

If the assets of ERISA-governed trusts are not excluded

from debtors’ estates, then some plan participants will lose

their pension funds, perhaps at an age when they cannot hope

ever again to build a retirement nest egg. That result is

incompatible with ERISA’s purposes of ensuring that

promised pension benefits will in fact be available, and that

employees will not look principally to public support when

they reach retirement age or are no longer able to work. It is

difficult to believe that in the Bankruptcy Reform Act,

Congress would abrogate fundamental premises of national

retirement income policy, much less that it would do so sub

silentio in House and Senate Judiciary Committee Reports.

If Sections 541(c)(2) is interpreted to apply only to state-

law spendthrift trusts, then state law will govern whether their

assets are immune from the claims of bankruptcy creditors —

a result clearly inconsistent with this Court’s adherence to the

principle that employee benefit plan regulation be governed

exclusively by federal law. Deviation from this principle will

expose plan sponsors and fiduciaries to unnecessary

administrative costs, and potential liability. If only state

spendthrift trust principles can shield undistributed plan assets

from bankruptcy claims, plan fiduciaries may be faced with

claims of liability if they fail to restructure their plans

wherever possible as spendthrift trusts. Plan fiduciaries may

be forced repeatedly to defend the state law status of their

plans before many bankruptcy courts nationwide. Most

significantly, if the Internal Revenue Service determines that a

turnover of plan assets to a bankruptcy court is a prohibited

distribution under ERISA, and disqualifies the plan from

favorable federal income tax treatment, all the participants in

the plan will lose the tax benefits on which their retirement

income largely depends. Thus, the bankruptcy of one

employee could jeopardize the retirement income of thousands

of his or her coworkers.

These radical departures from national retirement income

policy will provide a windfall to creditors, permitting them to

reach assets in bankruptcy that they cannot look to outside

bankruptcy. The inclusion of pension assets in the estates of

all debtors cannot be justified as a means of preventing the

small minority of plan participants who can control the

amount of contributions to their plans from sheltering assets.

A less drastic remedy aimed only at such practices is

available. Thus, there is no reason to d i

— = n eny Section 541(c)(2)

ARGUMENT

I. SECTION 541(c)(2) OF THE BANKRUPTCY

CODE

MUST BE CONSTRUED TO EXCLUDE FROM THE

BANKRUPTCY ESTATE THE ASSETS OF AN

ERISA-GOVERNED PLAN.

A. The Statutory Language On Its Face Excludes From

the Bankruptcy Estate the Assets of Any Trust the

Transfer of a Beneficial Interest in Which is

Restricted by ERISA.

In cases of statutory construction, this Court begins with

the language of the statute. Gwaltney of Smithfield, Ltd. v

Chesapeake Bay Foundation, Inc., 484 U.S. 49, 56 (1987).

Summit Valley Industries, Inc. v. Local 112. United Brother.

hood of Carpenters, 456 U.S. 717, 722 (1982): Diamond v.

Chakrabarty, 447 U.S. 303, 308 (1980): Southeastern

Community College v. Davis, 442 U.S. 397, 405 ( 1979). See

also Morrison-Knudsen Construction Co. v. Director Office

of Workers’ Compensation Programs, 461 U.S. 624 630

(1983). In construing the Statutory language, "it should be

generally assumed that Congress expresses its purposes

through the ordinary meaning of the words it uses.”

Escondido Mutual Water Co. v. La Jolla Band of Mission

Indians, 466 U.S. 765, 772 (1984). See also United States v

James, 478 U.S. 597, 604 (1986). Unless the words or

phrases to be construed are defined terms, they must be

interpreted “as taking their ordinary, contemporary, common

meaning." Diamond, supra, 447 U.S. at 308 (quoting Perrin

v. United States, 444 U.S. 37, 42 (1979). “[I]f the statute is

clear and unambiguous, ‘that is the end of the matter, for the

court, as well as the agency, must give effect to the unambig-

uously expressed intent of Congress."" Sullivan v. Stroop,

110 S. Ct. 2499, 2502 (1980) (quoting K Mart Corp. v.

Cartier, Inc.. 486 U.S. 281, 291-92 (1988)); Mobil Oil

Exploration & Producing Southeast Inc. v. United

Distribution Cos., 111 S. Ct. 615, 623 (1991).*

The statutory language in issue here — “applicable

nonbankruptcy law" — is neither a defined term nor

composed of defined terms. The ordinary meaning of the

words “applicable nonbankruptcy law," as illuminated by

dictionary definitions and other evidence of “ordinary,

contemporary and common" usage, undeniably encompasses

federal statutory law except for Title 11 itself. Furthermore,

an examination of the judicial and legislative use of the phrase

at or near the time the Bankruptcy Reform Act was passed

confirms that “applicable nonbankruptcy law" was understood

to include federal statutory law, and suggests that “applicable

nonbankruptcy law" was used in the Act to refer to any rule

of decision that would govern a given controversy if that

controversy arose outside the context of Title 11.°

1. Legal and general dictionaries establish that the

ordinary meaning of the words “applicable nonbankruptcy

*“ See also Business Guides, Inc. vy. Chromatic Communications

Enterprises, Inc., 111 S. Ct. 922, 928 (1991) ("As with a statute, our

inquiry is complete if we find the text of the Rule to be clear and

unambiguous").

> Of., e.g., Liscinski v. Mosley (in re Mosley), 42 B.R. 181, 191

(Bankr. D.N.J. 1984) (the phrase “applicable nonbankruptcy law" in

Section 541(c)(2) "refer{s] to all law that might normally apply outside of

bankruptcy proceedings”).

law" extends at least as far as fede

than Title 11 itself.° The seieeeuieee te on oe

law" is broad enough to encompass federal Statutory law

and the modifiers “applicable” and "nonbankruptcy" certainly

do not limit the word “law" to exclude ERISA.’ "Law, in its

generic sense, is a body of rules of action or conduct

prescribed by controlling authority, and having binding legal

force... ‘law’ generally contemplates both statutory and

case law...." Black's Law Dictionary at 884 (citations

omitted).* As recently as last year, this Court explained that

“honbankruptcy law that creates substantive claims

include[s] .. . claims that have their source in substantive

soa rea * Grogan v. Garner, 111 S. Ct. 654, 658

us, : i

federal statutes such as A +cat aieerialnaaae

2. The dictionary definitions that establi i

; ish the ordina

meaning of the words "applicable nonbankruptcy law" a

confirmed by judicial usage roughly contemporaneous with

* This Court often relies on legal and general dictionari

. .

the ordinary meaning of statutory — See, ¢.g., Holywell } oem re

Smith, 60 U.S.L.W. 4163, 4165 (February 25.1992): Gollur v

Mendell, 111 S. Ct. 2173, 2179 & n.7 (1991); Dennis v. Higgins, 111

-- ct. 856, 871 (1991); James, supra, 478 U.S. at 597 n.6. Although

tages definitions are not sufficient to establish the precise meaning of

€ statutory phrase applicable nonbankruptcy law,” they do establish

that the ordinary meaning of those words cannot exclude ERISA.

7 °

Applicable" is defined to mean "[fJit, suitable inent

wee . , , relat

— capable of being applied." Black's ‘> Mace te don

RK ). The primary definition of “applicable” is "capable of bein

applied: having relevance." Webster's Third New International Dictio-

— the English Language, Unabridged at 105 (1976). The adjective

applicable," then, conveys no limitation on the category or source of th

legal rules referred to by the noun “law.” ‘

* See also Webster's Third Internati

| ional at 1279; cf. Norfolk & Western

- Rong American Train Dispatchers Ass'n, 111 S. Ct. 1156, 1163

y itself, the phrase ‘all other law’ indicates no limitation").

the adoption of the Bankruptcy Reform Act of 1978, and by

legislative usage of that phrase both in Title 11 itself and in

Title 28. Given judicial and legislative use of the words

“applicable nonbankruptcy law" to include federal statutory

law, any suggestion that the phrase as used in Sec-

tion 541(c)(2) is ambiguous is insupportable. West Virginia

University Hospital, Inc. v. Casey, 111 S. Ct. 1138, 1147

(1991).°

a. Both shortly before and after the passage of the

Bankruptcy Reform Act, courts used the phrase "nonbank-

ruptcy law" in contexts where it clearly included federal law.

In 1969, the Third Circuit stated that under 11 U.S.C.

§ 107(c)(1)(B) (1964), “the basic test of a lien’s validity [is]

whether under state or federal nonbankruptcy law the lien was

perfected against bona fide purchasers." Jn re Century Vault

Co., 416F.2d 1035, 1038 (1969). In Securities and

Exchange Commission v. North American Planning

Corporation, Fed. Sec. L. Rep. [CCH] { 95,326, at 98,644

(E.D. Pa. 1975), the court observed that a trustee’s rights to

avoid transfers under § 70(e)(1) of the Bankruptcy Act, then

codified at 11 U.S.C. § 110(e)(1), “depend on nonbankruptcy

law, typically state law.”

Similarly, in the years after 1978, courts used the words

“applicable nonbankruptcy law" to include federal law where

federal law supplied the pertinent rule of decision in a

proceeding under Title 11. In United States v. Darnell (In re

Darnell), 834 F.2d 1263, 1266, 1269 (6th Cir. 1987), the

° While it is sufficient for an affirmance in this case merely to show that

the words “applicable nonbankruptcy law" do not exclude ERISA,

judicial and legislative use of the phrase “applicable nonbankruptcy law"

suggests that the precise meaning of that phrase in Title 1] is “any law,

state or federal, that would be applicable to a given issue if that issue

arose outside the context of a case under Title 11." Under this definition

§ 541(c)(2)’s reference to “applicable nonbankruptcy law" clearly in-

cludes ERISA.

“applicable nonbankruptcy law" governing the _ relative

priority in bankruptcy of state and federal tax liens was held

to be the "first in time, first in right" principle enunciated in

United States v. New Britain, 347 U.S. 81 (1954), because

"the competing liens involve a federal tax, [and therefore]

federal law controls." Similarly, in Pearlstein v. United

States Small Business Administration, 719 F.2d 1169, 1176

(D.C. Cir. 1983), it was held that the comparative priority of

a Small Business Administration lien and a District of

Columbia sales tax lien was to be determined by "pertinent

nonbankruptcy lien law," and that "[s]lince the nontax lien is

that of the United States... federal law governs... ."

Accord, Bavely v. Internal Revenue Service (In re

Terwilliger’s Catering Plus, Inc.), 911 F.2d 1168, 1176 (6th

Cir. 1990) ("Where one of the competing liens is a federal tax

lien, the applicable bankruptcy law that determines the

priority between the liens is federal law"), cert. denied sub

nom. Ohio Department of Taxation v. Internal Revenue

Service, 111 S. Ct. 2815 (1991).

To be surc, the case law sometimes uses "nonbankruptcy

law" to refer to state law.'° However, the equation of

nonbankruptcy law with state law merely acknowledges that,

in most instances, state law creates and governs the property

In Caruso Enterprises, Inc. v. Bumb (In re Wonderbowl, Inc.), 456

F.2d 954, 956 (9h Cir. 1972), for example, the court held that a

bankruptcy court should decline to adjudicate a matter better left to

plenary litigation “where important questions turning on nonbankruptcy

law are involved," citing, inter alia, Thompson v. Magnolia Petroleum

Co., 309 U.S. 478, 483 (1940), a case in which this Court held that

bankruptcy courts should “consent to submission to state courts of

particular controversies involving unsettled questions of state property

law ...." The Ninth Circuit was more blunt in Vanderpark Properties,

Inc. v. Buchbinder (In re Windmill Farms, Inc.), 841 F.2d 1467, 1469

(1988): “The phrase ‘applicable nonbankruptcy law’ [in 11 U.S.C.

§ 365(c)(3)] means applicable state law.”

interests at stake in a Title 11 case.'’ “State law" is

sometimes used as a short-hand expression for al! law, state

and federal, that determines an issue in question. Indeed,

only last year this Court held that "The validity of a creditor's

claim [against a bankruptcy estate] is determined by rules of

state law," but explained:

We use the term state law expansively herein to refer to

all nonbankruptcy law that creates substantive claims. We

thus mean to include in this term claims that have their

source in substantive federal law, such as federal securities

law or other federal antifraud laws.

Grogan v. Garner, supra, 111 S. Ct. at 657-58 and n.9.

b. Congress’s use of the term “applicable nonbank-

ruptcy law" establishes that it understood that phrase to

include federal law. In fact, it appears that Congress used the

phrase “applicable nonbankruptcy law” to refer to any body

of law, state or federal, that would supply the rule of decision

pertinent to a given issue if the issue arose outside the context

of bankruptcy. |

I. The best evidence of Congress’s understanding of the

phrase “applicable nonbankruptcy law" is the use to which

that phrase was put elsewhere in portions of Title 11 enacted

by the Bankruptcy Reform Act of 1978." In addition to

Section 541, nine such sections or subsections use the phrase

“applicable nonbankruptcy law": 11U.S.C. §§ 363(f)(1),

365(h)(1), 510, 522(b)(2)(B), 524(c), 552(b), 1125(d),

1126(b)(1), and 1142(a). Three of these sections on their face

compel the conclusion that Congress understood “applicable

'' See, e.g., Pearlstein, supra, 719 F.2d at 1176, and Atlantic Richfield

Co. v. Herbert (In re Herbert), 806 F.2d 889, 892 (9th Cir. 1986).

See Morrison-Knudsen, supra, 461 U.S. at 633 ("[A] word is

presumed to have the same meaning in all subsections of the same

statute").

nonbankruptcy law" to include federal statutory law. The

phrase “applicable nonbankruptcy law" in Sections 1125(d)

and 1126(b)(1), which concern disclosure in connection with

acceptance or rejection of reorganization plans, clearly

includes federal statutes regulating securities.’ Similarly,

Section 363(f)(1) permits the sale of estate property free and

clear of the interest of a third party if such a sale is permitted

under “applicable nonbankruptcy law,” a phrase that includes

federal law.'*

Il. The Bankruptcy Improvements and Federal Judgeship

Act of 1984 added five additional references in Title 11 to

“applicable nonbankruptcy law.” ll U.S.C.A.

§§ 101(S6)[2d], 108(a)-(c), 927, 943, and 1123." Once

again, several of the references to “applicable nonbankruptcy

law" clearly include federal law. For example, Section

108(a) extends unexpired statutes of limitations fixed, inter

alia, by “applicable nonbankruptcy law," including statutes of

" See Public Service Co. of New Hampshire v. Consolidated Utilities

_~ py ey Inc., 846 F.2d 803, 808 (ist Cir. 1988) and see

o House iciary Committee Report accompanying H.R. 8200

which became Pub. L. No. 95-598, H.R. Rep. No. 595, 95th C ’

Sess. (1977) at 409-10. sa ateieas

‘* See Pub. L. No. 100-710, Title 1, § 106(b)(2) and 102(c), 102 Stat.

4746, 4752 (Nov. 23, 1988), repealing and replacing the Ship Mortgage

Act of 1920, 46 U.S.C. §911 ef seq., which governs foreclosure of

certain maritime liens and specifies the conditions under which a vessel of

the United States can be sold free from pre-existing claims in certain

foreclosure sales.

sy Section 102(a) of the Act also added Section 1411 of Title 28 of the

United States Code, which provides in relevant part that except as

ordered by a district court in an involuntary case under Title 11, neither

Title 28 nor Title 11 “affect any right to trial by jury that an individual

has under applicable nonbankruptcy law with regard to a personal injury

or wrongful death tort claim." The right to a trial by jury in personal

injury and wrongful death claims may be conferred by federal statutory

law. See, e.g., the Jones Act, Act of June 5, 1920, ch. 250, § 33, 41

Stat. 1007, codified at 46 U.S.C.A. app. § 688 (1988).

limitations arising under the Federal Tort Claims Act. Eagle-

Picher Industries, Inc. v. United States, 937 F.2d 625, 639-

40 (D.C. Cir. 1991). Section 108(b) extends unexpired

periods arising under “applicable nonbankruptcy law" for,

inter alia, filing claims under the Internal Revenue Code.

Brickley v. Internal Revenue Service (In re Brickley), 70 B.R.

113, 115-16 (Bankr. App. 9th Cir. 1986) (per curiam).

Section 108(c) extends against the debtor certain statutes of

limitations arising under “applicable nonbankruptcy law,"

including the Racketeer Influenced and Corrupt Organizations

Act. Eisenberg v. Feiner (In re Ahead by a Length, Inc.),

100 B.R. 157, 162-63 (Bankr. S.D.N.Y. 1989).

Il. Pub. L. No. 100-506, 102 Stat. 2538 (Oct. 18, 1988),

added subsection 365(n) to the Bankruptcy Code to protect the

rights “under applicable nonbankruptcy law” of licensees of

intellectual property. As used in Section 365(n)(1)(B), the

phrase “applicable nonbankruptcy law" refers to, inter alia,

federal copyright laws. Gladwell, 950 F.2d at 674 (dictum);

Velis, supra, 949 F.2d at 81 (dictum).

IV. Petitioner is correct to point out that the phrase

“applicable nonbankruptcy law" is sometimes used in Title 11

in circumstances where the only law to be applied is state

law. See Pet. Br. 35, citing Section 522(b)(2)(B), pertaining

to tenancies by the entireties. But the phrase “applicable

nonbankruptcy law" refers to state law in such contexts not

because the meanings of the words “applicable nonbankruptcy

law” have changed, but because they are used in contexts

‘© The Senate Judiciary Committee Report on S. 1626, which became

Pub. L. No. 100-506, S. Rep. No. 505, 100th Cong., 2d Sess. (Sept. 14,

1988), reprinted in 1988 U.S. Code Cong. & Adm. News 3200, 3204-

OS, uses the phrase “applicable nonbankruptcy law" as a synonym for

“federal or state law, statutory or common law.”

where, as it happens, only state law can supply the

rule of decision.'’ wing onsos

3. _ This Court has indicated that there can be “rare and

exceptional" circumstances under which the Court's inquiry

will not stop at the unambiguous meaning of the Statutory

text."* In particular, the Court sometimes has suggested that

where there has been a "‘clearly expressed legislative intent to

the contrary” of the ordinary meaning of the words

employed, the ordinary meaning may not control. Escondido

Mutual Water Co., supra, 466 U.S. at 772, quoting North

Dakota v. United States, 460 U.S. 300, 312 (1983), quoting

Consumer Products Safety Commission v. GTE Sylvania, Inc.

447 U.S. 102, 108 (1980)."* This is not an appropriate case

for the Court to invoke the “rare and exceptional"

circumstances exception to entertain interpretations of

Section 541(c)(2) that deviate from its plain meaning. To

adopt a reading of the Bankruptcy Code that runs counter to

the Clear meaning of the statutory text requires meeting an

excepuonally heavy” burden. See Union Bank v. Wolas

112 S. Ct. 527, 530 (1991) (citing United States v. Ron Pair

” Even the Fifth Circuit in Goff. 706 F.2d at 586 n.33. disclai

| : .33, disclaimed

reliance on Section 522(b)(2), concluding that the reasoning in opinions

interpreting the words “applicable nonbankruptcy law” in Section 522(b)

to refer only to state law were “not wholly applicable to the case at hand

because the only law defining such property interests is state law.” Jd.

* See, e.g., Freytag v. Commissioner, 111 §

, Fre ; . Ct. 2631, 2636 (1991);

a om v. Manspeaker, 111 S. Ct. 599, 604 (1991) (citing Burlington

Rubin v ~ er “9 US. 424 a0 (Ry: Yee va Ue

. es, S. ‘ 1981). | J

1S3, 187 0.33 (197) (1981); TVA v. Hill, 437 U.S.

" See also United States v. Turkene, 452 U.S. 576. 580

. S. . (1981) ( in

Consumer Prods. Safety Comm'n v. GTE Sylvania, Inc., aus

102, 108 (1980)) ("If the statutory language is unambiguous,” then “in

the absence of ‘a clearly expressed legislative intent to the contrary, that

language must ordinarily be regarded as conciu:ive’”).

Enterprises, Inc., 489 U.S. 235, 241-42 (1989)).* That

burden has not been met here, either in the suggestion that the

legislative history requires a narrow reading of Section

541(c)(2), or in the suggestion that Section 522(d)(10)(E) of

the Bankruptcy Code would be rendered superfluous by the

literal meaning of Section 541(c)(2).”'

B. The Legislative History of Section 541(c)(2) Does

Not Warrant Narrowing Its Scope.

The essence of the primary interpretive argument adopted

by the Second, Fifth, Eighth, Ninth and Eleventh Circuits,

and by Petitioner, is that the general category created by the

literal interpretation of the words “applicable nonbankruptcy

law” should be limited to the specific class of laws referred to

in the legislative history. Regan v. Ross, supra, 691 F.2d at

85; Goff, supra, 706F.2d at 581-82; Graham, supra,

726 F.2d at 1271-72; Lichstrahl, supra, 750 F.2d at 1490,

Daniel, supra, 771 F.2d at 1359-60 n.17. Pet. Br. at 28, 38-

39. This argument cannot be countenanced because “[i}t is

not the law that a statute can have no effects which are not

explicitly mentioned in its legislative history.” Pittston Coal

” See also Mansell v. Mansell, 490 U.S. 581, 592 (1989) (Where

statutory language is “plain and precise,” one who would interpret a

statute contrary to its literal meaning “faces a daunting standard. She

cannot prevail without clear evidence that reading the language literally

would thwart the obvious purposes of the Act”).

2! Following the lead set by Goff, supra, 706 F.2d at 586-87, Petitioner

also urges that ERISA § 514(d), 29 U.S.C. § 1144(d), requires that Sec-

tion 54i(c) be interpreted not to include ERISA among “applicable

nonbankruptcy law{s]." Pet. Br. 15-16. This argument is based on a

misconception. ERISA § 514(d) provides only that, subject to certain

exceptions not germane to the issue here, nothing in Subchapter | of

ERISA will be construed “to alter, amend, modify, invalidate, impair or

supersede any law of the United States... .” It is not suggested that

Subchapter | of ERISA should be construed to alter or impair any

provision of the Bankruptcy Code. Only the construc‘ion of Section

§41(c)(2) of the Bankruptcy Code is in issue in this case.

Group v. Sebben, 109 S. Ct. 414, 420-21 (1988). Further-

more, a careful reading of the legislative history does not

support the limitation for which Petitioner argues.

1. This Court has made clear that legislative history may

not be used to narrow the scope of a statutory term. Wesr

Virginia University Hospitals., Inc., supra, 111 S. Ct. at 1147

( “Where [the statutory text] contains a phrase that is unam-

biguous — that has a clearly accepted meaning in both legis-

lative and judicial practice — we do not permit it to be

expanded or contracted by the statements of individual

legislators or committees during the course of the enactment

process"). In particular, “[t}his Court has never required that

every permissible application of a statute be expressly

referred to in its legislative history." Moskal, supra, 111

S. Ct. at 467.” Even if Congress did not foresee that the

phrase “applicable nonbankruptcy law" would encompass

more than merely state law principles governing spendthrift

trusts, the statutory language should be given its full effect.

See Union Bank v. Wolas, supra, 112 S. Ct. at 531 (citing

Toibb v. Radloff, 1\\ S. Ct. 2197 (1991)).

Furthermore, in Pittston Coal Group, supra, 488 U.S.

at 115 (1988), this Court rejected categorically an argument

of the precise form adopted by the Goff line of cases. There,

the Secretary of Labor argued that only medical criteria came

within a statutory mandate in Section 2(c) of the Black Lung

Benefits Reform Act of 1977 ("BLBRA")”’ to establish

interim criteria for certain categories of disability claims that

* See also Davis v. Michi

gan Dept. of the Treasury, 489 U.S. 803

yon n.3 (1989) ("The language of the statute leaves no room for

: . -.. 60 the State's attempt to establish a minor inconsistency with

e legislative history need not detain us. Legislative history is irrelevant

to the interpretation of an unambiguous statute”).

*” Pub. L. No. 95-239, 92 Stat. 95. codi 1s

5 saaer . ified as amended at 30 U S.C

were no more restrictive than those in force on a specified

date before the passage of the BLBRA, because the legislative

history disclosed an intention to preserve only the prior

medical criteria. Jd. at 115. By comparison with the legis-

lative histevy relied upon in Goff, there were numerous

references in the legislative history of the BLBRA lending

considerable support to the Secretary's argument in Pittston.

See id. at 134-45 (Stevens, J., dissenting). Nonetheless, this

Court flatly rejected the notion that a general statutory term

can be narrowed by legislative history that referred to a more

limited and specific purpose.

2. The legislative history of § 541(c)(2) on which Goff

and its progeny so heavily rely does not justify constricting

the meaning of the phrase “applicable nonbankruptcy law."

At most, the House Judiciary Committee Report merely

demonstrates that state spendthrift trust principles are one

example of “applicable nonbankruptcy law" that 1s

enforceable under the Bankruptcy Code. H. Rep. No. 95-

595, supra, 369. See also S. Rep. No. 989, 95th Cong.,

2d Sess. at 82. Nothing in the report suggests that

§ 541(c)(2)'s scope is limited to state spendthrift trusts.“

Indeed, the rationale suggested by the House Report for

excluding from the estate the debtor's interest in a spendthrift

trust is equally applicable, mutatis mutandis, to excluding

ERISA-governed pension plans. After explaining that the bill

would continue to exclude spendthrift trusts from the debtor's

estate, the Report states, “The bankruptcy of the beneficiary

should not be permitted to defeat the legitimate expectations

of the settlor of the trust." H.R. Rep. No. 95-595 at 176.

* Of Perrin, supra, 444 U.S. at 45 ("The record of the hearings and

floor debates fon the Travel Act, 18 U.S.C. § 1952) discloses that

Congress made no attempt to define the statutory term ‘bribery,’ but

relied on the accepted contemporary meaning There are ample

references to the bribery of state and local officials, but there is no

indication that Congress intended to so limit its meaning’)

Both the legitimate expectations of plan sponsors that their

employees will be provided for, and the legitimate expectation

of Congress that pension benefits promised to employees

actually will be paid, are at least as deserving of consideration

as the desire of private settlors to pass on accumulated wealth

to heirs who are (or are feared to be) wastrels.

C. Reading Section 541(c)(2) to Apply to ERISA-

Governed Plans Does Not Render Section

522(d)(10)(E) Superfluous.

Petitioner urges that interpreting Section 541(c)(2) to

exclude the assets of ERISA-governed plans will render

Section 522(d) (10)(E) of the Bankruptcy Code "an effective

nullity," and therefore offend the canon of construction that

counsels against construing one portion of an act so as to

render another portion superfluous. Pet. Br. 29-30. This

argument rests on the misconception that exclusion of pension

plan assets from the debtor’s estate under Section 541(c)(2)

would render Section 522(d)(10)(E) superfluous.

Section 522(d)(10)(E) excludes from the debtor's estate

only certain distributions received from pension plans, and

only in an amount "reasonably necessary for the support of

the debtor and any dependent[s]." See Gladwell, supra,

950 F.2d at 675; Velis, supra, 949 F.2d at 81. Section

541(c)(2), on the other hand, excludes from the debtor's

estate only the undistributed corpus of a pension trust.

Section 541(c)(2) requires the enforcement in bankruptcy of

restrictions on the transfer of the debtor’s beneficial interest

only if that interest is “in a trust"; its protection does not

extend to pension distributions, which are free of the trust.

Cf., e.g., Minot v. Minot, 319 Mass. 253, 66 N.E.2d 5, 15

(1946). Far from being superfluous, Section 522(d)(10)(E)

serves a function separate from that served by Section

541(c)(2). Section 541(c)(2) gives effect to ERISA’s policy

of ensuring the future availability of pension payments by

protecting the fund that someday will finance those payments.

By contrast, Section 522(d)(10)(E) treats current distributions

from pension plans not needed for the debtor's support as

available to creditors.

Petitioner is simply wrong to suggest the language of

Section 522(d)(10)(E) is broad enough to cover a debtor's

right to future payments from a pension fund. Pet. Br. 32.

Just as the debtor’s "interest" in the various kinds of exempt

property listed in Section 522(d)(1)-(9) refers only | to his or

her present possessory interest in such property,” so "the

debtor’s right to receive . . . a payment" under a sled plan

referred to in Section 522(d)(10) clearly means only a right to

current payment. Each item in the list of exemptions should

be interpreted to be of the same kind as the others.”

The legislative history of Section 522(d) confirms that the

pension exemption does not apply to future payments or

undistributed pension funds. Section 522(d)’s exemptions

were “derived in large part from the Uniform Exemptions

Act, promulgated by the Commissioners of Uniform State

Laws in August, 1976." H.R. Rep. No. 95-595 at 361.

However, Section 522(d)(10)(E) omits language that was

contained in Section 6(a) of the Uniform Exemptions Act, the

provision governing pensions, that could have been construed

to subject pension plan assets (in excess of those needed for

> Of White v. Stump, 266 U.S. 310, 312 (1924) (bankruptcy

exemptions to be determined as of the time of filing).

2° Cf. Dole v. United Steelworkers of America, 110 S. Ct. 929, 935

(1990) ("The traditional canon of construction, noscitur a sociis, dictates

that ‘words grouped in a list should be given related meaning’") (citation

omitted). But see American Honda Fin. Corp. v. Dairyland Ins. Agency

(In re Cilek), 115 B.R. 974, 978-79 (Bankr. W.D. Wis. 1990) (11

U.S.C. § 522(d)(10)(E) limited by debtor’s right to receive payments, not

by actual receipt).

support) to creditors’ claims.*” Congress omitted the

Uniform Exemption Act's reference to pension plan assets

when it drafted Section 522(d)(10)(E), because that section

did not concern plan assets, and merely conferred a limited

exemption on the right to receive pension payments.”

D. The Exclusion from the Debtor’s Estate of Assets

Held in a Trust Other Than a Spendthrift Trust is

Not a Departure From Pre-Code Law.

In several cases, this Court has held that a provision of the

Bankruptcy Code will not be interpreted to alter pre-Code law

absent clear evidence of congressional intent to accomplish

such an alteration. See Midlantic National Bank v. New

Jersey Dept. of Environmental Protection, 474 U.S. 494,

501 (1986); Kelly v. Robinson, 479 U.S. 36 (1986). Petition-

er seizes on these cases, and on the dissent in Ron Pair

Enterprises, supra, 489U.S. at252 (O'Connor, J.,

dissenting), to argue that Section 541(c)(2) cannot be

interpreted to apply to any circumstances other than state law

spendthrift trusts absent a clear indication of congressional

intent to so expand pre-Code law.”

7”

Compare || U.S.C. § 522(d)(10)(E) (1988) with Uniform Exemptions

Act § 6, 13 U.L.A. 224 (1986) ("[a}n individual is entitled to ee

of the following property to the extent reasonably necessary for the

support of him and his dependents: . . . (5) assets held, payments made,

and amounts payable under a stock bonus, pension, profit-sharing,

annuity, or similar plan .. . .") (emphasis added).

* Even Section 6(a) of the Uniform Exemptions Act does not permit

levy on all assets of an ERISA-governed plan. See Comment 5 to § 6(a).

* It is not clear that the approach of Midlantic and i

Section 541(c)(2), since Section 541 represented a tn S pal .

from pre-Code law. “Section 54] reflects a new concept concerning

property of the estate under the Code. This new concept is the

substantial departure under the Code from the extensive reliance of the

Bankruptcy Act on nonbankruptcy law, usually state law, to determine

what property will come in the estate." 4 Collier on Bankruptcy

Amici have been unable to find any opinion written before

adoption of the Bankruptcy Reform Act deciding whether the

assets of an ERISA-governed trust were excluded from the

bankrupt’s estate under Section 70 of the Bankruptcy Act,

formerly codified at 11 U.S.C. § 110. However, several

decisions under the Bankruptcy Act rendered after the

enactment of the Bankruptcy Code held that assets in an

ERISA-governed plan, which the debtor had no present right

to receive, did not become assets of the estate.” Similarly,

in Tennessee Valley Authority v. Kinzer, 142 F.2d 833 (6th

Cir. 1944), the Sixth Circuit held that an employee's

contributions to a plan (which contained restrictions imposed

under federal law prohibiting transfer, assignment or encum-

brance of the plan assets) were not assets of the bankruptcy

estate, notwithstanding that those contributions would have

been reachable by creditors under state spendthrift trust

principles, because the employee had no immediate right to

receive payment from the fund on the date he was adjudicated

§ 541.02{1] (15th ed. 1992).

Even if it were clear that the approach taken by those cases applied,

as Petitioner himself notes, under pre-Code law "[whether) property of a

debtor [was] subject to the reach of his creditors in bankruptcy depended

on whether a particular asset was either in alienable or leviable form.”

Pet. Br. at 20 (citing Segal v. Rochelle, 382 U.S. 375, 379 (1966)). The

assets of an ERISA-governed plan are not in “alienable or leviable form.”

See Guidry, supra, 493 U.S. at 371-72.

” See Turpin v. Wente (Matter of Turpin), 644 F.2d 472, 474 (Sth Cir

1981); Mason v. Eastman Kodak Co. (Matter of Parker), 473 F. Supp.

746, 751 (W.D.N.Y. 1979) (employee savings plan assets payable upon

termination, but employee had power, as limited by the Interna] Revenue

Code, to borrow against the fund and to withdraw funds in the event of

hardship). But see Dunlavey v. Newnum (In re Newnum), 2 B.R. S00

(Bankr. D. Ariz. 1980).

Of course, amici do not suggest that Section 541(c)(2) represents a

codification of the results in Turpin and Parker. Cf. Midlantic, supra,

474 U.S. at 498. However, Turpin and Parker illustrate principles of

pre-Code law that are consistent with Respondent's interpretation of

Section 541(c)(2).

a bankrupt.*’ The current exclusion of the assets of ERISA-

governed plans can be viewed as a continuation (as well as an

amplification) of these cases.

fl. THE NARROW INTERPRETATION OF SECTION

541(c)(2) ADVOCATED BY THE PETITIONER

CONFLICTS WITH FUNDAMENTAL NATIONAL

RETIREMENT INCOME POLICIES.

An interpretation of Section 541(c)(2) that limits its

operation to only those trusts qualifying as spendthrift trusts

under state law would do violence not only to the ordinary

language Congress used and the standards for statutory

construction this Court has delineated, but also to the two

fundamental bases of national retirement income policy that

inform ERISA: that promised retirement benefits will be paid,

and that all employee benefit plans, including pension

plans,” will be regulated exclusively by federal law. The

consequences of weakening those principles could be far-

reaching, both for plan participants and plan fiduciaries. In

view of those consequences, it is difficult to believe that

Congress intended the Bankruptcy Code to expose plan

participants to loss of their pension funds under state law,

especially when to do so merely confers a windfall on

- In Standard Oil Co. v. Blane (In re Baxter), 104 F.2d 318 (1939),

the Sixth Circuit reached the same result on the same rationale in the case

of a private pension pian.

* ERISA divides employee benefit plans into ion

—s plan{s}," = | er health. accident, oes eee

orms of non-pension ts. See 29 U.S.C. §§ 1002(1)-(3)(1988). OF

ERISA § 3(34)-(35), 29 U.S.C. § 1002(34)-35), forthe dividing An

plans into “individual account" or “defined contribution” plans (in which

benefits are determined solely by contributions to each Participant's

account and allocable income and expenses, gains and losses, and

forfeitures from other individual accounts), and “defined benefit” plans

(in which pay-out generally is made in accordance with a formula

prescribed by the terms of the plan).

bankruptcy creditors by giving them access to funds otherwise

unavailable to them.

1. If § 541(c)(2) is interpreted to apply only to spendthrift

trusts, and § 522(b)(2) is not interpreted to exempt assets of

an ERISA-governed trust, then inevitably some American

workers — those unlucky enough to be participants in plans

that do not satisfy state-law spendthrift trust principles — will

lose their pensions, and for some this loss may come when

age or disability will prevent their ever again building up a

retirement fund.» Yet ERISA was enacted precisely to

prevent the “great personal tragedy" involved in the loss of

retirement funds. Nachman Corp. v. Pension Benefit Guar.

Corp., 446 U.S. 359, 374 (1980) (quoting Sen. Bentsen, 3

Leg. Hist. 4793).°* ERISA was designed in part to ensure

In large measure, the impetus for adopting ERISA stemmed from the

often horrifying accounts of middle-aged and elderly employees who

suddenly found themselves without the pension benefits on which they

had been counting. See, e.g., 3 Legislative History of the Employee

Retirement Income Security Act of 1974, 94th Cong., 2d Sess. (Comm.

Print 1976)("Leg. Hist."), 4811-12 (remarks of Sen. Ribicoff), 3 Leg.

Hist. 4698 (remarks of Rep. Annunzio) and see esp. 2 Leg. Hist.

1865-71 (remarks of Sen. Kennedy).

* See also Nachman, supra, 446 U.S. at 375 (one purpose of ERISA is

to "mak{e] sure that if a worker has been promised a defined pension

benefit upon retirement — and if he has filled whatever conditions are

required to obtain a vested benefit — that he actually will receive it").

The protections of ERISA are equally important for defined contribution

plans. ERISA was enacted because Congress saw a need for "responsible

and comprehensive pension reform .. . to ensure that every American

working person covered by a pension plan can depend upon that plan to

pay benefits to which that person is entitled after retirement." 3 Leg.

Hist. 3583 (remarks of Rep. Price) (emphasis added). ERISA’s anti-

alienation provision and the congressional statement of purposes

contained in 29 U.S.C. § 1001 do not distinguish between defined

contribution and defined benefit plans.

that upon retirement workers would not become dependent

upon public support.**

In particular, the purpose of ERISA’s anti-alienation

provision is to “further ensure that the employee’s accrued

benefits are actually available for retirement purposes... ."

H.R. Rep. No. 807, 93rd Cong., 2d Sess. 68 (1974). The

anti-alienation provision was designed not only to prevent a

participant from improvidently bargaining away his or her

retirement benefits voluntarily, but also to protect those

benefits against the claims of general creditors. Cf H.R.

Rep. No. 1280, 93rd Cong., 2d Sess. 280 (1974). “Section

206(d) represents a considered congressional policy choice, a

decision to safeguard a stream of income for pensioners . . .

and their dependents... ." Guidry, supra, 493 US. at

376.*° Amici submit that ERISA’s anti-alienation provision

is one of the safeguards included in ERISA "‘to completely

secure the rights and expectations brought into being by this

landmark reform legislation,"" Ingersoll-Rand Co. vy.

_ McClendon, 111 S. Ct. 478, 482 (1990), citing and quoting

S. Rep. No. 93-127, p. 36 (1973). See H.R. Rep. No. 779,

93d Cong., 2d Sess. 28 (1974), reprinted in 2 Leg.

Hist. 2617.

In considering ERISA, Congress knew it was concerning

itself with the financial security of “literally millions of

working men and women." 3 Leg. Hist. 4707 (remarks of

Rep. Mathias). ERISA was intended to usher in "a new era”

* See, e.g., 2 Leg. Hist. at 3371 (remarks of Rep. Perkins)(noting the

need for adequate pension regulation and minimum Federal standards to

“reduce pressure on the Social Security System and reduce the enormous

costs of public welfare").

** Congress's concern to protect the interests of dependents was

manifested again in 1984, when the Retirement Equity Act of 1984, Pub.

L. No. 98-397, 98 Stat. 1440-41, amended I.R.C. § 401(a)(11) and

added 1.R.C. § 417 to protect the rights of spouses to joint and survivor

annuities and pre-retirement survivor annuities.

for them by “providing new guarantees that the funds set

aside for their retirement — from their own and their

employer's contributions — will in fact be available for their

retirement years." 3 Leg. Hist. 4819 (remarks of Sen.

Packwood). Given the seriousness of Congress's purposes in

enacting ERISA, it is difficult to believe that within four

years Congress would subvert those purposes in the

Bankruptcy Reform Act. It is still more difficult to believe

that Congress would undo major premises of national pension

policy not by what it said explicitly in the text of the

Bankruptcy Reform Act, but sub silentio, by failing to

mention the protection of pension benefits in a commitice

report.

2. If Sections 541(c)(2) and 522(b)(2)(A) are interpreted

not to apply to ERISA-governed plans, the availability of a

participant's plan assets to satisfy the claims of creditors in

bankruptcy will depend entirely on state law. To permit state

law to control creditors’ access to plan assets 1s to permit

state law to regulate pension plans, and ultimately to permut

state law to determine the pay-out of benefits to plan

participants. That result is inconsistent with Alessi v.

Raybestos-Manhattan, Inc., 451 U.S. 504, 524-25 (1981),

where this Court struck down a New Jersey statute

prohibiting the reduction of pension benefits by workers

compensation awards, because the statute purported to

regulate the pay-out of benefits in a fashion inconsistent with

federal law.

In addition, if the immunity of plan assets from

bankruptcy claims hinges on state law, plan administration

will become needlessly more complex, and plan fiducianes

will be burdened with extra duties and exposed to additional

hazards. If state spendthrift trust law governs whether

pension assets are available to creditors in bankruptcy,

employers will feel compelled to design or redesign their

plans, if possible,” to take advantage of the protection

afforded to spendthrift trusts under state law, and fiduciaries

may find themselves exposed to liability for not having taken

whatever steps are available to qualify their plans as

spendthrift trusts under applicable state law (or for failing to

have done so quickly enough to protect all their participants).

As a result, state law, rather than ERISA, will supply the

minimum standards for plan design.

Furthermore, to defend the interest of plan ici .

prudent fiduciaries may find themselves forced Ran ge

extensive litigation over the state-law status of their plan. A

favorable outcome on the issue of the plan's status as a spend-

thrift in one bankruptcy proceeding cannot be pled as res

Judicata in a subsequent bankruptcy proceeding against

different parties. See Hansberry v. Lee, 311 U.S. 32 (1940).

Therefore, plan sponsors will be in and out of bankruptcy

courts on a regular basis, relitigating the state-law status of

their plans, at least until they lose under circumstances where

an adverse ruling can be raised against them as collateral

estoppel. Typically, plan documents treat such litigation costs

as an administrative expense, so that even solvent participants

will pay part of the cost of such litigation. This result is at

odds with this Court’s holding in FMC Corp. v. Holliday,

111 S. Ct. 403, 408 (1990), where a state anti-subrogation

law was held preempted by ERISA because the costs

associated with being subject to differing state regulations

would “produc(e] inefficiencies that employers might offset

with decreased benefits.”

There is good reason to doubt that plans can fully transform

themselves into state-law spendthrift trusts, to the extent they are not

already spendthnft trusts. ERISA’s ‘“anti-cutback" rule generally

prohibits the imposition of new restrictions on a participant's ability to

san ere A TT 2 cane under the plan. See ERISA

. S.C. § 1054(g)(2)(B), I1.R.C.

Treas. Reg. § 1.411(d)-4. ee ee

Most significantly, if Section 541(c) is denied its full

meaning, fiduciaries also will run the risk that their plans will

be disqualified under some circumstances if they make

distributions of plan assets to bankruptcy trustees. In a series

of private letter rulings, the Internal Revenue Service has

opined that a turnover of a participant's accrued benefits to a

bankruptcy trustee will result in plan disqualification under

LR.C. § 401(a)(13).*% The effect of plan disqualification on

the retirement income security of employees is disastrous:

further contributions to their plans are taxable when made,

and under certain circumstances, vested participants are taxed

on their funded benefits, even if those benefits are not in pay

status. I.R.C. § 402(b). Furthermore, in all cases the plan

will become taxable on its investment income. Cf LR.C.

§ 501(a). In addition, the employer may not deduct its

contributions to a disqualified defined benefit plan, and

therefore is unlikely to continue such a plan. See LR.C.

§ 404(a)(5) and Treas. Reg. § 1.404(a)-12. Nor are these

catastrophes confined to the debtor: since plan disqualification

imposes these burdens on all participants, the bankruptcy of a

single participant could destroy the hopes of thousands of

others for a secure retirement.

Subjecting the rights of plan participants and the duties of

plan fiduciaries to state law is utterly inconsistent with this

” See, e.g., Private Letter Rulings 8131020 (May 5, 1981); 9109051

(December 5, 1990); 9011037 (December 20, 1989); 8951067

(September 28, 1989); and 8829009 (April 6, 1988).

The IRS might have ruled that it would disqualify a plan because of

distributions to debtors’ estates only if the plan was a state-law spendthnift

trust. Even if the IRS had taken this more limited position, a plan

administrator would nonetheless risk causing an inadvertent disquali-

fication if it turned over plan assets on the assumption that the plan was

not a spendthrift trust under applicable state law, and subsequently the

IRS determined that the plan was a spendthrift trust.

Court’s understanding of the fundamental premises of

ERISA.” Preserving pension and welthse plan benefits from

the threat of conflicting inconsistent State and local regu-

lation” was described as “the crowning achievement" of

ERISA. 120 Cong. Rec. 29197 (1974) (remarks of Rep.

Dent). So strong was Congress's intention to preempt the

field of benefit plan regulation that this Court has read

ERISA’s preemption clause, ERISA § 514(a), 29 U.S.C.

§ 1144(a), to preempt ‘state regulation of matters on which

ERISA is silent, Shaw v. Delta Air Lines, Inc., 463 U.S. 85

96-97 (1983), and even to preempt state regulation seemingly

designed to promote ERISA’s purposes, Mackey v. Laniez

Collection Agency & Service, 486 U.S. 825, 829-30 (1988).

3. The substantial deviations from national retirement in-

come policy entailed iled in denying Section 541(c)(2) its plain

meaning are unjustified. To permit a lender to reach pension

eS ee eee ee "a windfall

y by reason happenstance of bankruptcy." Lewis

v. Manufacturers Nat'l Bank, 364 U.S. 603, 609 (1961).

Outside bankruptcy, creditors cannot look to the assets of an

—— pension plan. Guidry, supra, 493 U.S. at

4. Finally, the prospect that some plan beneficiaries might

be able to shield substantial sums in pension plans before

filing for relief under the Bankruptcy Code has played a

* Time after time, this Court has upheld C ‘si i

: 7 ongress’s intention that

pension plan regulation [be] exclusively a federal concern.” Alessi

supra, 451 U.S. at 523. “In the past, we have not hesitated to apply

ERISA’s Preemption clause to state laws that risk subjecting plan

inistrators to conflicting state regulations.” Corp lolliday

111 S. Ct. 403, 408 (1990). a

“ See also id. at 29,933 (Remarks of Sen. Willi

. illiams) and esp.

120 Cong. Rec. 29,942 (Remarks of Sen. Javits) ("the interests of

uniformity with respect to interstate plans require{s] . . . the displacement

of State action in the field of private employee benefit programs").

disproportionately large part in the jurisprudence of Section

541(c)(2).*' The typical pension plan participant — whether

a participant in a plan sponsored by a major employer or in a

plan of modest size — has little contrcl over the amount or

timing of contributions to his or her plan.“ A more

narrowly tailored remedy, use of the power to avoid

fraudulent conveyances under 11 U.S.C. § 548, is available in

the rare instances of abuse.“ The protection given by

ERISA § 206(d), 29 U.S.C. § 1056(d), to employee contribu-

“' See, ¢.g., Goff, supra, 706 F.2d at 577, 588; Daniel, supra, 771

F.2d at 1357. See also Graham, supra, 726 F.2d at 1270 (plan amended

three days before bankruptcy to make benefits unavailable to debtor

except upon total disability or at age 65).

Internal Revenue Code. See I1.R.C. §§ 401(a)(4), 401(k), 401(m),

402(g), 404, 415 and 4972 (1988). Employee contributions are typically

made under rules that assume that the plan will comply with the Internal

Revenue Code limits. Excess distributions and excess contributions are

subject to excise taxes. 1.R.C. §§ 4980A and 4972 (1988).

Congress tightened ERISA’s contribution limits in the Tax Equity and

Fiscal Responsibility Act of 1982, Pub. L. No. 97-248, 96 Stat. 324

(1982), see generally Notice 83-10, Questions and Answers Relating to

Amendments to Employee Plans Provisions of the Internal Revenue Code

by the Tax Equity and Fiscal Responsibility Act of 1982, 1983-1 C.B.

§36-38, and again in the Tax Reform Act of 1986, Pub. L. No. 99-514,

100 Stat. 2085, see generally Notice 87-21, Employee Plans — New

Limitations on Contributions and Benefits Under Section 415, 1987-1

C.B. 458-66, and Notice 89-45, Employee Plans — Application of

Section 415(b)(5)(D), 1981-1 C.B. 684.

“ Of Pulaski Highway Express Co. v. Central States, S.E. & 5 Ww.

Areas Health & Welfare and Pension Funds, 41 B.R. 305, 308-12

(Bankr. D. Tenn. 1984).

Guidry, supra, 493 U.S. at 371-72, need not be read as prohibiting

recovery of fraudulently transferred plan contributions. Guidry applies

only to remedies for judgments against a plan participant in personam,

not to a judgment that property was transferred with the intent to hinder,

delay or defraud creditors, the operation of which ordinarily is limited to

recovery of the property from the transferee. See generally 37 C.J.S.

Fraudulent Conveyances § 444 (1943).

tions that are within the limits established by Congress can be

regarded as the result of "a considered congressional policy

choice ... to safeguard a stream of income for pensioners

(and their dependents, who may be, and perhaps usually are,

blameless), even if that decision prevents others from securing

relief for the wrongs done them." Guidry, supra, 493 U.S. at

376.

CONCLUSION

There is no basis in the language of Title 11, nor in any

rule of construction or consideration of policy, for failing to

read Section 541(c)(2) literally. To the contrary, limiting

Section 541(c)(2) guarantees that some plan participants will

lose their pensions and that plan administration will be

governed in part by various conflicting state laws — results

completely at odds with national retirement income policy

established by ERISA and upheld repeatedly by this Court.

For the foregoing reasons, amici request that the judgment

below be affirmed.

Respectfully submitted,

JOHN M. VINE

(Counsel of Record)

THOMAS M. CHRISTINA

COVINGTON & BURLING

1201 Pennsylvania Avenue

P.O. Box 7566

Washington, D.C. 20044

(202) 662-6000

Attorneys for Amici Curiae

The ERISA Industry Committee

and the Association of Private

Pension and Welfare Plans, Inc.

March 31, 1992

APPENDIX

Ball Corporation

Bankers Trust Company

Becton Dickinson & Co.

Bell Atlantic Corporation

Bell Communications Research

BellSouth Corporation

Bethlehem Steel Corporation

The Boeing Company

BP America Inc.

Bristol-Myers Squibb Company

Buck Consultants, Inc.

Caterpillar Inc.

Champion International Corporation

The Chase Manhattan Bank N.A.

Chevron Corporation

Chrysler Corporation

CIBA-GEIGY Corp.

CIGNA Corp.

Citibank, N.A.

—- A ATO a il, CE is Bt as oe

Coopers & Lybrand

Dana Corporation

Deere & Company

Delta Air Lines Inc.

Digital Equipment Corp.

The Dow Chemical Company

Dresser Industries Inc.

Du Pont Company

Eastman Kodak Company

Eli Lilly and Company

Enron Corp.

Equitable Life Assurance Society of the United States

Exxon Corporation

Federated Department Stores, Inc.

FMC Corporation

Ford Motor Company

A. Foster Higgins & Co., Inc.

Genera! Electric Company

General Motors Corporation

—@wn“ ltt

4a Sa

W. R. Grace & Co. Manufacturers Hanover Trust Co.

Grand Metropolitan PLC The Mead Corporation

Grumman Corporation William M. Mercer, Incorporated

GTE Corporation Merck & Co. Inc.

Frank B. Hall & Co., Inc. ~ Metropolitan Life Insurance Co.

John Hancock Mutual Life Ins. Co. Minnesota Mining & Manufacturing Co.

Hazlehurst & Associates, Inc. Mobil Oil Corp.

The Hearst Corporation MONY Financial Services

Hewitt Associates J. P. Morgan & Co. Incorporated

Hewlett-Packard Co. Motorola, Inc

Honeywell Inc. Navistar International Corporation

ICI Americas Inc. NYNEX Corp.

International Business Machines Corporation Occidental Petroleum Corporation

International Paper Company Olin Corporation

International Telephone & Telegraph Corporation Pacific Gas & Electric Company

Johnson & Johnson 7 Pacific Telesis Group

Kraft Inc. J. C. Penney Co., Inc.

Lincoln National Corporation . Pennzoil Company

LTV Corp. Pfizer Inc

Price Waterhouse

Procter & Gamble Co.

The Prudential Insurance Company of America

Ralston Purina Co.

Reynolds Metals Co.

Rockwell International Corporation

Ryder System, Inc.

Schering - Plough Corporation

ASSOCIATION OF PRIVATE PENSION AND WELFARE

PLANS, INC.

MEMBERSHIP LIST

March 23, 1992

A. Foster Higgins & Company, Inc.

Abarta, Inc.

Actuarial Sciences Associates, Inc.

Aeroyet Headquarters

Aetna Life Insurance Company

Alexander & Alexander Consulting Group

Allied-Signal, Inc.

Aluminum Company of America

American Express Company

American Family Insurance Group

Ameritas Life Insurance Corp.

Amoco Corporation

Arthur Andersen & Company

Associated Benefits Corporation

The Associated Group

a ey A Ree

ACTI

Association of Investment Management Sales Executives

ARA Services

ARMCO Inc.

B. Green & Company, Inc.

Bank of America

Bankers Trust Company

Baxter Healthcare Corporation

Bechtel Investments, Inc.

Bell Atlantic

BellSouth Corporation

Benefit Controls of S.C, Inc.

Blue Cross Blue Shield of Illinois

Blue Cross Blue Shield of Virginia

Boeing Company

Booke & Company

The Boston Company

Bryan, Pendieton, Swats, et al

Buck Consultants, Inc.

10a

Cutwtnank

The Coasta! Cenporation

The Coca-Cola Company

Colgate-Palmolive Company

Columia Gas Sysiem Service Corp.

Connecticut Mutual Life ins. Co.

ConAgra, Inc.

Cooper Industries, Inc.

Coopers & Lybrand

“Coors Brewing Company

lla

Council of Smaller Enterprises

Cox Enterprises, Inc

Crane Plastics Company

Crestar Bank

CBI Industries

CIGNA Corporation

CNA Insurance Companies

Daughters of Charity NHS

Digital! Equipment Corporation

Dover Corporation

Dow Chemical Company USA

Duff & Phelps Financia) Consulting

The Du Pont Company

Dyatron Corporation

Eastman Kodak Company

Empire Blue Cross & Blue Shield

Enron Corp.

Energy Services, Inc.

Epler Company

12a

Equitable Life Assurance Society

Ernst & Young

Ethyl Corp.

Exxon Company, U.S.A.

Faegre & Benson

Federal Express

Fidelity Investments

Findley, Davies & Co.

First Interstate Bank

First Southern Trust Company

First Wachovia Corporation

Flagship Benefit Consultants, Inc.

Foley & Lardner

Food Marketing Institute

Gardner, Carton & Douglas

Gast Ma wufacturing Corporation

GenCorp

Gilbert, Segall & Young

Godwins, Inc.

13a

Grand Aerie Fraternal Order of Eagles

Greenebaum Doll & McDonald

Group Health Coop. of Puget Sound

Grubbs and Company, Inc.

Guardian Industries Corp.

GATX Corporation

GTE Investment Management Corp.

Hallmark Cards, Inc.

Harris Trust & Savings Bank

Hay/Huggins Co., Inc.

Hazelhurst & Associates

Hershey Foods Corporation

Hewitt Associates

Hillyard Chemical Company

Holy Cross Shared Services, Inc.

Hooker & Holcombe, Inc.

Houston Lighting & Power Company

Hutchison & Associates, Inc.

Ingersoll-Rand Company

14a

Insurer Central Services

Integrated Marketing Services

Inter-Local Pension Fund GCIU

ICI Americas, Inc.

IDS Financial Services

ITT/Hartford Insurance

Jenner & Block

John Hancock Mutual Life Ins. Co.

Johnson & Gibbs

Kraft General Foods

Kwasha Lipton

KPMG-Peat Marwick

Lawson Mardon Group Limited

Leggette & Company, Inc.

LeBoeuf, Lamb, Leiby & MacRae

Liberty Mutual Insurance Company

Litton Industries, Inc.

Lockheed Corporation

Loyola University of Chicago

1Sa

Lynch, Jones, & Ryan

Mockenhaupt, Mockenhaupt, Cowden & Parks, Inc.

Maritime Overseas Corporation

Marriott Corporation

Massachusetts Financial Services

Massachusetts Mutual Life Ins. Co.

McCready and Keene, Inc.

McDermott, Will & Emery

McDonalds Corporation

The Mead Corporation

Mercedes-Benz of North America

Merck & Co., Inc.

Merrill Lynch

Metropolitan Life Insurance Co.

Miller Mason & Dickenson

Milliman & Robertson, Inc.

Mobil Oil Corporation

Money Market Directories, Inc.

Monsanto Company

16a

Montgomery, McCracken, Walker et al

The Moore Company

Motorola Inc.

Mrs. Baird’s Bakeries, Inc.

MAPCO Inc.

National Life Insurance Company

National Manufacturing Company

Nationwide Insurance Company

New England Investment Market, Inc.

New York GIC Exchange

New York Life Insurance Co.

Noble Lowndes

The Northern Trust Company

Nyhart-Company, Inc.

National Automobile Dealers & Associates Retirement

Ogle & Waters

ORYX Energy Company

Pacific Enterprises

Pacific Telesis Group

17a

Paducah Newspapers, Inc.

Paine Webber

Patterson, Belknap, Webb & Tyler

PCI, Inc.

Pension Associates, Inc.

Pension Planning Co., Inc.

Philip Morris

Phillips Petroleum Company

Premark International, Inc.

The Principal Financial Group

Providence Journal Company

Provident Capital Management

Prudential Asset Management Co.

Purity Dairies, Inc.

The Putnam Companies

Raleigh Schwarz & Powell, Inc.

Reid and Reige, P.C.

Retirement System Group Inc.

Rock-Tenn Company

18a

Rogers Benefit Group, Inc.

RJR Nabisco, Inc.

Sedgwick James Consulting Group

The Segal Company

Shell Oil Company

Shields Asset Management Inc.

Siegel Benefit Consultants, Inc.

Siemens Corporation

Signet Banking Corporation

The Southern Company

Southwestern Bel) Corp.

Springs Industries, Inc.

Standard Insurance Company

Star Enterprise

State of Maryland, Personnel Dept.

State Mutual Companies

State Street Bank & Trust Co.

Steptoe & Johnson

Sun Company, Inc.

19a

SAFECO Life Insurance Company

Tektronix, Inc.

Toshiba America, Info Systems, Inc.

Towers Perrin

Transamerica Life Ins. & Annuity Co

The Travelers Insurance Companies

Union Labor Life Insurance Co.

United Parcel Service, Inc.

United Telecommunications, Inc.

University of California

UIU Pension Trust

UNISYS Corporation

UNUM Life Insurance Company

USAA

US West, Inc.

Valero Energy Corporation

Vermont American Corp.

Vulcan Materials Company

VASA Brougher Inc.

W F Corroon

W.R. Grace & Co.

Washington Post

Webcrafters, Inc.

Westinghouse Electric Corporation

Weyerhaeuser Company

William M. Mercer, Incorporated

Willis Corroon Corporation

Willse & Associates, Inc.

Winn, Beaudry & Virden

Winthrop, Stimson, Putman & Roberts

Wm. Wrigley Jr. Company

The Wyatt Company

Y.M.C.A. Retirement Fund

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.