Amicus Curiae Brief — Patterson v. Shumate

NOTION FILED

3

4

©

Docket No. 91-913

— =

IN THE

upreme Court of the United States

October Term, 1991

JOHN R. PATTERSON, Trustee,

Petitioner,

V.

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 BRIEF AMICUS CURIAE

AND BRIEF FOR RONALD J. WYLES AND REGINA L. WYLES

AS AMICUS CURIAE IN SUPPORT OF RESPONDENT

David H. Adams, Esquire

Counsel of Record

CLARK & STANT, P.C.

One Columbus Center

Virginia Beach, Virginia 23462

(804) 499-8800

Counsel for Amicus Curiae

a

ar

MOTION OF

RONALD J. WYLES AND REGINA L. WYLES

FOR LEAVE TO FILE BRIEF AS

AMICUS CURIAE IN SUPPORT OF RESPONDENT

Motion of Ronald J. Wyles and

Regina L. Wyles for Leave to

File Brief as Amicus Curiae

In Support of Respondent.

, 907 F.2d 1476

(4th Cir . 1990) . * . . . . . . . . . . 2

Court Rules

Supreme Ct. R. 37...

MOTION OF

RONALD J. WYLES AND REGINA L. WYLES

FOR LEAVE TO FILE BRIEF AS

AMICUS CURIAE IN SUPPORT OF RESPONDENT

Ronald J. Wyles and Regina L. Wyles

(collectively "the Wyles") respectfully move

for leave to file a Brief as amicus curiae in

this case in support of respondent, as

provided by Rule 37 of the Rules of this

Court. The written consent of the attorney

for respondent has been obtained. The consent

of the attorney for petitioner was requested

but refused.

The Wyles are the appellees in a

case now pending before the United States

Court of Appeals for the Fourth Circuit.

(Dean W. Sword, Jr., Trustee vy. Ronald J.

Wyles_ and Regina L. Wyles, Record No. 91-

1633). The issue in the Wyles' case is

identical to the issue before the Court in

this case: whether the Employee Retirement

Insurance Security Act of 1974 ("ERISA")

constitutes “applicable nonbankruptcy law"

under 11 U.S.C. § 541(c)(2) so that the non-

alienation and assignment provisions contained

in an ERISA and Internal Revenue Code

qualified pension or profit sharing plan

exclude a debtor's interest in the plan from

the debtor's bankruptcy estate. In both

Shumate's and Wyles' cases, debtors' interests

in ERISA-qualified plans have been held exempt

from inclusion in their bankruptcy estates

under the decision of the Fourth Circuit in In

re Moore, 907 F.2d 1476 (4th Cir. 1990).

Because of the great similarity between this

case and the Wyles' case, the Fourth Circuit

entered an Order on September 26, 1991 holding

the Wyles' case in abeyance pending this

Court's disposition of this case. Thus, the

decision in this case will control the outcome

in the Wyles' case.

While the petitioner and respondent

will concentrate on the peculiar facts of

their own case, the issue presented by this

case is also of monumental importance to

debtors, trustees, the public policy set forth

by Congress in enacting ERISA and the general

public, all being concerned with the funding

of retirement for citizens of the United

States. The supremacy of ERISA over state law

in the area of employee retirement benefits

covered by ERISA depends on the result in this

case. The general public must know whether

Congress intended ERISA protection to lapse

when a beneficiary of an ERISA plan files

bankruptcy. The Brief on behalf of the Wyles

addresses these broader concerns. The Wyles

emphasize the statutory framework of ERISA and

the Bankruptcy Code and requests this Court to

examine the practical impact on retirement

benefit issues that the result of this case

would have. The Wyles believe that their

Brief would assist this Court in making its

decision and in considering the broader

questions affecting the employee retirement

benefits of all citizens of the United States.

The Brief on behalf of the Wyles

requests this Court to affirm the Fourth

Circuit's decision in this case and supports

the position of Joseph B. Shumate, Jr.

For the foregoing reasons, the Wyles

respectfully request that this Motion be

granted.

Respectfully submitted,

RONALD J. WYLES and

REGINA L. WYLES

By

Of Counse

David H. Adams, Esquire

CLARK & STANT, P.C.

900 Sovran Bank Building

One Columbus Center

Virginia Beach, Virginia 23462

(804) 499-8800

BRIEF FOR RONALD J. WYLES AND

REGINA L. WYLES AS AMICUS CURIAE

TABLE OF CONTENTS

Page

INTEREST OF RONALD J. WYLES AND

REGINA L. WYLES . . . ° . . . . 7 >. . . 1

SUMMARY OF THE ARGUMENT .....+ « « « 1

ARGUMENT >. > >. . . >. 7 >. >. . >. . >. . >. >. 4

I. THE PHRASE "APPLICABLE

NONBANKRUPTCY LAW" AS USED IN

§ 541(c)(2) APPLIES TO ERISA . 5

A. The Language of §

541(c)(2) Is Clear And

Unambiguous In That It

Refers to Both Federal And

State LOW. « « © © © © © « 5

II. THE FOURTH CIRCUIT'S INCLUSION

OF THE ERISA TRANSFER

RESTRICTIONS WITHIN THE MEANING

OF THE TERM “APPLICABLE

NONBANKRUPTCY LAW" AS USED IN

§ 541(c)(2) FULFILLS CONGRESS'

INTENT REGARDING THE PROTECTION

OF RETIREMENT BENEFITS FOR

CITIZENS OF THE UNITED STATES . 12

A. Interpreting The

ERISA Transfer .

Restrictions As

oe je

"Applicable

Nonbankruptcy Law"

Harmonizes ERISA And

The Bankruptcy Code.

: ee © & 6 a2 6 2 6” Ue

B. The Debtor's

Potential Control

Over The Plan Does

Not Determine Whether

the ERISA Transfer

Restrictions Are

Enforceable As

"Applicable

Nonbankruptcy Law." . 15

Cc. The Standard Set

Forth In This Case

Preserves The Tax

Exempt Status of

ERISA-Qualified

Plans, Ensures

Uniform Treatment Of

Retirement Benefits

Throughout The United

States And Encourages

Businesses To

Establish ERISA

Plans. >eeesee =

CONCLUSION ..++-+-++s+-e+ 2 © © © © © «© 2&9

PROOF OF SERVICE ...++ + «ee © © «© 27

AFFIDAVIT FOR PROOF OF FILING ...... 28

- fi «

TABLE OF AUTHORITIES

Cases Page

, 70 B.R. 113

(Bankr. 9th Cir. 1986) .....++s+ 9

, 481 U.S. 454,

107 S.Ct. 1855, 95 L.Ed.2d

404 (1987) . . * . . . . . . . . . *. . 7

Connolly v. Pension Benefit Guaranty

Corp., 475 U.S. 211, 106 S.Ct. 1018,

89 L.Ed.2d 166 (1986). . . . . . . -24, 25

In re Daniel, 771 F.2d 1352 (9th Cir.

1985), cert. denied, 475 U.S. 1016,

106 S.Ct. 1199, 89 L.Ed.2da 313

(1986) .. «26 «© « «© © © © © © © © © © 6

, 937 F.2d 625

DT MD «oe eee ee eee G

Eisenberg v. Feiner, (In re Ahead

by a Length, Inc.), 100 B.R. 157

(Bankr. S.D. N.Y. 1989) ........ 10

, 498 U.S.

111 S.Ct. 403, 112 L.Ed.2ad

SS

482 U.S. 1, 107 S.Ct. 2211,

OS Gumeeee 6 COONTh ww tt tl tlt tll

,

623 F.2d 455 (6th Cir. 1980) ..... 16

- iii -

Cases Page

, 706 F.2d 574

(5th Cir. 1983) >. > >. >. >. >. >. . . 6

, 726 F.2d 1268

(8th Cir. 1984) > > >. >. — >. >. 6

Giiational Pension Fund. 43) U.S. 365,

110 S.Ct. 680, 107 L.Ed.2d

De 5 6 oo « « «6 c « 086,37,38,39

, 950 F.2d 669

(10th Cir. 1991)... . . 5,6,7,9,15,22,23

, 750 F.2d 1488

(llth Cir. 1985) ......

In re Lucas, 924 F.2d 597 (6th Cir.),

cert. denied, 111 S.Ct. 2275

(1991). . «© «© © © © © © © 65,7,13,15,20,23

In.re Maju], 119 B.R. 118

(Bankr. W.D. Tex. 1990). . . . 13,17,18,19

McLean/ v. Central States, Southeast

& Southwest Areas Pension Fund

762 F.2d 1204 (4th Cir. 1985) ..

, 907 F.2d 1476

21

(4th Cir. 1990). .. . 5,6,7,8,11,12,13,15

© © © «© «© « « « 16,17,18,19,20,21,22,23,25

Morrison-Knudsen Const. Co. vy.

Director, OWCP, 461 U.S. 624,

103 S.Ct. 2045, 76 L.Ed.2d

~~~ /~ = «© 6 © « ¢

- iv -

11

Cases Page

Motor Carrier Audit & Collection Co.,

vy. Lighting Prods... Inc., 113 B.R.

424 (N.D. Ill. 1989) ........4-. 10

Pension Benefit Guaranty Corp. vy.

R.A. Gray & Co., 467 U.S. 717,

104 S.Ct. 2709, 81 L.Ed.2d 601

(1964) . «© © es ee es es se es se ew wo © oe eo 8G

In re Ralstin, 61 B.R. 502

se mr PD wo pce eee se 8

, 943 F.2d

362 (4th Cir. 1991). ..... . .13,15,18

Smith v. Mirman, 749 F.2d 181

DC ~~~ « «£§ « ¢ gg eevsse &

Velis v. Kardanis, 949 F.2d 78

(3rd Cir. 1991)... > ee « @ ee

Statutes Page

United States Code:

re, rn ik. «5 66 & © eee i

re ren . «6 é 66 « 6-6..6 eee

OT eS eee ee ee ee

ee eee

11 U.S.C. § 109(C)(2) . . «© «© «© © » w © «© 8

Statutes Page

11 U.S.C. § 522(b)(1) . .

11 U.S.C. § 522(b)(2) . .

11 U.S.C. § 523(a)(5) . .

11 U.S.C. 8 541 . . . . . . . . . . . * . 4

11 U.S.C. § 541(c)(2). . .. . 1,2,4,5,6,7,8

>. >. >. . * . . * . * * > . . >. . -10,11,14

26 U.S.C. § 401(a)(13) . .« «© «© «© «© «© « 16,21

29 U.S.C. § 1056(d)(1) . . «. « « « «12,16,21

Publications Page

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

2d Sess. 369 (1977), reprinted in

1978 U.S. Code Cong. & Admin.

News 5963 > > >. > > . > . > . . . . 7 . 11

S. Rep. No. 989, 95th Cong., 2d Sess.

83, (1978), reprinted in 1978

U.S. Code Cong. & Admin News 5787... 11

- vi -

BRIEF FOR RONALD J. WYLES AND

REGINA L. WYLES AS AMICUS CURIAE

INTEREST OF RONALD J. WYLES AND

REGINA L. WYLES

The interest of Ronald J. Wyles and

Regina L. Wyles (collectively "the Wyles") is

set forth in the Wyles' motion for leave to

file this Brief amicus curiae in support of

the position of Joseph B. Shumate, Jr.

("Shumate").

SUMMARY OF THE ARGUMENT

I. ERISA #£econstitutes “applicable

nonbankruptcy law" under § 541(c)(2) of the

Bankruptcy Code. Nothing in the clear and

unambiguous language of this code section

suggests that the phrase “applicable

nonbankruptcy law" refers exclusively to state

law, much less to state spendthrift trust law.

When Congress intended to refer to state law,

it did so explicitly in other areas of the

Bankruptcy Code. Furthermore, the phrase

“applicable nonbankruptcy law", as used in

other portions of the Bankruptcy Code, clearly

refers to other federal laws. Because of this

clear language there is no need to examine the

legislative history of § 541(c)(2). Even so,

the legislative history does not reflect an

intention to exclude ERISA as "applicable

nonbankruptcy law."

II. The Fourth Circuit's inclusion of the

ERISA transfer restrictions within the meaning

of the term "applicable nonbankruptcy law" as

used in § 541(c)(2) fulfills Congress' intent

regarding the protection of retirement

benefits for citizens of the United States.

The Fourth Circuit in this case harmonized

ERISA and the Bankruptcy Code in a cohesive

manner which gives full effect to both.

Accordingly, if the ERISA non-alienation

provisions are enforceable against general

- 2-

creditors, they are enforceable against

bankruptcy trustees. That the beneficiary may

have potential control over the plan does not

affect this result. Congress' policy choice

to safeguard retirement benefits for ERISA

plan beneficiaries must be upheld, even if the

policy choice prevents others from securing

relief for financial obligations owed them.

The decision by the Fourth Circuit in

this case also preserves the tax-exempt status

of ERISA-qualified plans by preventing

creditors and bankruptcy trustees from

obtaining access to plan benefits. It also

ensures uniform treatment of retirement

benefits throughout the United States by

ensuring the supremacy of ERISA over state law

and preventing state spendthrift law from

nullifying the non-alienation provisions of

ERISA. Finally, excluding ERISA plan

interests from bankruptcy estates encourages

Mt Seinen

closely held corporations and small businesses

to place pension assets in such plans. This

implements Congress’ intent to guaranty

workers a defined pension benefit on

retirement by protecting retirement benefits

from others.

ARGUMENT

Section 541 of the Bankruptcy Code

requires that all beneficial ownership

interests of a debtor be included in the

bankruptcy estate unless the interest contains

"(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) (emphasis

added). The Courts of Appeals for the Third,

Fourth, Sixth and Tenth Circuits have all held

that the Employment Retirement § Insurance

Security Act of 1974 ("ERISA") constitutes

CS i EE ew

“applicable nonbankruptcy law" and that an

interest in a qualified ERISA pension or

profit sharing plan is exempt from a

bankruptcy estate under 11 U.S.C. § 541(c) (2).

See Velis v. Kardanis, 949 F.2d 78 (3rd Cir.

1991); In re Moore, 907 F.2d 1476 (4th Cir.

1990); In re Lucas, 924 F.2d 597 (6th Cir.),

cert. denied, 111 S.Ct. 2275 (1991); and In re

Harline, 950 F.2d 669 (10th Cir. 1991). The

Fourth Circuit's decision in this case was

correctly based on the sound reasoning of

these cases and this Court should affirm to

give effect to the clear meaning of the

language of §541(c)(2) of the Bankruptcy Code.

I. THE PHRASE “APPLICABLE NONBANKRUPTCY LAW"

AS USED IN § 541(c)(2) APPLIES TO ERISA

A. The Language Of § 541(c)(2) Is Clear

And Unambiguous In That It Refers to

Both Federal And State Law.

The Fifth, Eighth, Ninth and

Eleventh Circuits have held that a debtor's

- § «-

interest in an _ ERISA-qualified plan is

excluded from his bankruptcy estate only if

the plan qualifies as a valid spendthrift

trust under state law. In re Goff, 706 F.2d

574 (5th Cir. 1983); In re Graham, 726 F.2d

1268 (8th Cir. 1984); In re Daniel, 771 F.2d

1352 (9th Cir. 1985), cert. denied, 475 U.S.

1016, 106 S.Ct. 1199, 89 L.Ed.2d 313 (1986);

and In re Lichstrahl, 750 F.2d 1488 (11th Cir.

1985). These decisions rely on the

legislative history of § 541(c)(2) which

revealed Congress' desire to continue to

exclude state-recognized spendthrift trusts.

See Harline, supra, at 673. The reliance on

legislative history, however, is

inappropriate. Harline, at 674, Moore, supra,

at 1478-1479.

In the absence of a clearly

expressed legislative intention to the

contrary, the language of the statute itself

oe ON ee er

A nO

must ordinarily be regarded as conclusive in

determining its meaning. Burlington Northern

R.R. v. Oklahoma Tax Commissioner, 481 U.S.

454, 461, 107 S.Ct. 1855, 1860, 95 L.Ed.2d 404

(1987) (citations omitted). Unless

exceptional circumstances dictate otherwise,

when the terms of a statute are unambiguous,

judicial inquiry is complete. Id. Under this

principal, the Third, Fourth, Sixth and Tenth

Circuits have all found that the language of

§ 541(c)(2) is clear and unambiguous. See

Harline, supra, at 674, Lucas, supra, at 600-

601, Moore, supra, at 1477, and Velis, supra,

at 81. In Moore, the Fourth Circuit held:

Applicable non-bankruptcy

law means precisely what

it says: all laws, state

and federal, under which

a transfer restriction is

enforceable. Nothing in

the phrase “applicable

nonbankruptcy law" or in

the remainder of §

541(c)(2) suggests that

the phrase refers

-J-

lng A

exclusively to state law

much less to state

spendthrift trust law.

Moore, at 1477.

The Fourth Circuit based its

conclusion in Moore on a number of factors.

First, other provisions of the Bankruptcy Code

indicate that, when the Congress intended to

specifically refer to state law, it did so

explicitly. Moore, at 1478. For example, 11

U.S.C. § 109(c)(2) limits Chapter 9 filings to

entities authorized to be such debtors under

"State law"; 11 U.S.C. §§ 522(b)(1) and (2)

ties certain debtor's exemptions to "State law

that is applicable"; and 11 U.S.C. § 523(a) (5)

denies discharge of any debt for \ support

pursuant to an order "made in accordance with

State or territorial law." Id. Had Congress

intended § 541(c)(2) to apply only to state

spendthrift trusts, the term "“spendthrift

trust" would have appeared in the statute

rather than the broad phrase “applicable

nonbankruptcy law." In re Ralstin, 61 B.R.

502, 503 (Bankr. D. Kan. 1986).

Secondly, an interpretation of

“applicable nonbankruptcy law" to include both

federal and state law is consistent with

Congress' use of the same term in other

sections of the Bankruptcy Code. In 11 U.S.C.

§ 101(56) it used the phrase "applicable

nonbankruptcy law" to refer to federal laws

concerning trade secrets, patents and plant

varieties. Harline, supra, at 674. In

addition, courts have held that the phrase

“applicable nonbankruptcy law" in §§ 108(a),

(b) and (c) of the Bankruptcy Code refers to

federal law. MHarline, supra, citing Eagle-

Picher Industries, Inc. v. United States, 937

F.2d 625, 639-40 (D.C. Cir. 1991) (Federal

Tort Claims Act as “applicable nonbankruptcy

law" under § 108(b)); In re Brickley, 70 B.R.

113, 115-116 (Bankr. 9th Cir. 1986) (IRC

statute of limitation, 26 U.S.C. §6503, as

“applicable nonbankruptcy law" under §

108(c)); Motor Carrier Audit & Collection Co.,

a Division of Delta Traffic Seryv., Inc. v.

Lighting Prods., Inc., 113 B.R. 424, 425-426

(N.D. Ill. 1989) (Interstate Commerce Act as

“applicable nonbankruptcy law" under

§ 108(a)); and Eisenberg v. Feiner, (In re

Ahead by A Length, Inc.), 100 B.R. 157, 162

(Bankr. S.D. N.Y. 1989) (RICO as “applicable

nonbankruptcy law" under § 108(a)).

Accordingly, narrowly interpreting

§541(c)(2) to only include state spendthrift

law would be inconsistent with uses of the

identical phrase throughout the Bankruptcy

Code. Because words are presumed to have the

same meaning in all subsections of the same

statute, it would be incongruous to construe

identical phrases in a single comprehensive

- 10 -

statute differently. Moore, at 1478 citing

Morrison-Knudsen Constr. Co. v. Director,

OWCP, 461 U.S. 624, 633, 103 S.Ct. 2045, 2050

76 L.Ed.2d 194 (1983).

Finally, even were legislative

history relevant, the Fourth Circuit found it

inconclusive. Moore, at 1479. The

legislative history reveals an express desire

to preserve protection of state spendthrift

trusts under bankruptcy law, but there is no

express rejection of federal law including

ERISA. See, H.R. Rep. No. 595, 95th Cong., 2d

Sess. 369 (1977), reprinted in 1978 U.S.Code

Cong. & Admin. News pp. 5963, 6325 and S.Rep.

No. 989, 95th Cong., 2d Sess. 83, (1978),

reprinted in 1978 U.S.Code Cong. & Admin. News

pp. 5787, 5869. At most, these passages

suggest Congress intended state spendthrift

law to be included within the meaning of

applicable nonbankruptcy law; however, nothing

- ll -

in the legislative history indicates that

Congress meant "applicable nonbankruptcy law"

to refer exclusively to state spendthrift

trust law. See Moore, at 1479.

II. THE FOURTH CIRCUIT'S INCLUSION OF THE

ERISA TRANSFER RESTRICTIONS WITHIN THE

MEANING OF THE TERM “APPLICABLE

NONBANKRUPTCY LAW" AS USED IN § 541(c) (2)

FULFILLS CONGRESS' INTENT REGARDING THE

PROTECTION OF RETIREMENT BENEFITS FOR

CITIZENS OF THE UNITED STATES

29 U.S.C. § 1056(da)(1) provides "(e)jach

pension plan shall provide that benefits

provided under the plan may not be assigned or

alienated." The Fourth Circuit held this non-

alienation provision enforceable in bankruptcy

and Shumate's pension plan interest not

includable in Shumate's bankruptcy estate.

This ruling is correct for these reasons.

A. Interpreting The ERISA Transfer

Restrictions As “Applicable

Nonbankruptcy Law" Harmonizes ERISA

And The Bankruptcy Code.

- 12 «-

In this case, the Fourth Circuit

followed its previous decision in Moore by

interpreting ERISA and the Bankruptcy Code to

give full effect to both statutes. Shumate v.

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

In Moore, the Fourth Circuit discussed the

interaction of ERISA and bankruptcy law at

length and as the Sixth Circuit observed in

Lucas, gave full effect to the express

language of both the Bankruptcy Code and

ERISA. Lucas, at 603. Moreover, the Moore

decision harmonized bankruptcy law and ERISA.

Lucas, at 603; In re Maju], 119 B.R. 118, 123

(W.D. Tex. 1990). The Fourth Circuit

thoroughly justified its ruling in light of

bankruptcy and ERISA law:

We see no evidence that

Congress intended to

invite a creditor to push

a debtor into involuntary

bankruptcy in order to

reach his ERISA funds.

- 13 -

Because ERISA Clearly

prevents general creditors

from reaching a debtor's

interest in this

ERISA-qualified trust, it

constitutes “applicable

nonbankruptcy law” under

which restrictions on the

transfer of pension

interests may be enforced.

"Under the plain and

simple language of Section

541(c)(2), if the ERISA

anti-alienation provisions

are enforceable against

general creditors, they

are enforceable against

the bankruptcy trustee."

In addition to being

faithful to the language

of both the Bankruptcy

Code and_ ERISA, this

conclusion furthers

ERISA's broader purpose of

ensuring uniform treatment

of pension benefits

throughout the

country. .

We can best harmonize

ERISA, the Bankruptcy

Code, and the Internal

Revenue Code by reading

“applicable nonbankruptcy

law," 11 U.S.C. &

541(c) (2), to include

ERISA.

- 14 =

ek Ree ee ee

Moore, at 1480-1481 (citations omitted). This

harmonious reading of the statutes was also

noted and followed in Lucas, at 603, and

Harline, at 675-676.

B. The Debtor's Potential Control Over

The Plan Does Not Determine Whether

the ERISA Transfer Restrictions Are

Enforceable As "Applicable

Nonbankruptcy Law."

In this case the Fourth Circuit held

that Shumate's interest was excludable even

though he could potentially control the

pension plan. Based on the policy reasons of

ERISA, the Fourth Circuit concluded that its

decision did not rest on the beneficiary-

settlor-trust relationship, but instead on the

status of the plan as_ ERISA-qualified.

Shumate, at 364-365. The public policy

— choices of Congress reflected in ERISA support

this conclusion.

ERISA requires a qualified plan to

have non-alienation provisions. 29 U.S.C. §

- 15 -

<8 on eee erent Ot on artes eames aot )

ae ——

1056(d)(1); 26 U.S.C. § 401(a) (13). Both

voluntary and involuntary encroachments on

vested benefits are prohibited by these

restrictions. General Motors Corp. v. Buha,

623 F.2d 455, 460 (6th Cir. 1980). Neither

plan participants nor general creditors may

reach benefits under ERISA-qualified plans.

Moore, supra, at 1480. These restrictions

reflect a “strong public policy against the

alienability of an ERISA plan participant's

benefits." Smith v. Mirman, 749 F.2d 181, 183

(4th Cir. 1984). Recently, this Court

recognized this strong public policy against

alienability in Guidry v. Sheet Metal Workers

National Pension Fund, 493 U.S. 365, 110 S.Ct.

680, 107 L.Ed.2d 782 (1990):

Section 206(d) reflects a

considered congressional

policy choice, a decision

to safeguard a stream of

income for pensioners (and

their dependents, who may

be, and perhaps usually

- 16 -

a ly lal lt ct lS GP dh Vet Naha

NE ee -

are, blameless), even if

that decision prevents

others from securing

relief for the wrongs done

then. If exceptions to

this policy are to be

made, it is for Congress

to undertake that task.

Guidry, at 493 U.S. 376 (footnote omitted).

In In re Majul, 119 B.R. 118 (Bankr.

W.D. Tex. 1990), the Bankruptcy Court

protected self-settled trusts based on these

same policy reasons. Majul, at 118. Majul

involved pension and profit sharing plans

created by a professional corporation. The

debtor was the sole shareholder and director

of the corporation. The court held that the

debtor's interests in the plans were not

property of his bankruptcy estate even if the

plans constituted self-settled trusts under

state spendthrift law. Majul, at 124. In so

deciding, the court followed the Moore

decision and was heavily influenced by the

- 17 -

Ot lia tag Bt

policy issues discussed in Moore and Guidry,

stating that the broad construction placed on

206(da) of ERISA by this Court indicated a

policy prohibition against alienation of

pension benefits, rather than merely a

requirement for ERISA qualification. Majul,

at 121-122. The court concluded that "ERISA

qualified pension plans, even if they would be

settlor trusts under state spendthrift trust

law, are not included within the ‘property of

the estate.'" Id., at 124. (emphasis

added).

Given the strong public policy

against alienability, no further inquiry is

required to determine whether the plan trust

is controlled by the debtor. Shumate, at 364-

365. The status of the plan as

ERISA-qualified is all that is required. Id.

Even if the debtor could potentially control

the plan, his interest in the plan is

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:

:

:

:

:

protected from inclusion in the bankruptcy

estate. Surely, if this Court could hold,

however distasteful the result, that the

public policy expressed in ERISA protects the

plan interests of a confessed embezzler, see

Guidry, supra, at 493 U.S. 367, 377, it should

hold that the interests of an innocent debtor

with potential control over the plan are also

protected. See Majul, supra, at 123, n.5.

c. The Standard Set Forth In This Case

Preserves The Tax Exempt Status Of

ERISA-Qualified Plans, Ensures

Uniform Treatment Of Retirement

Benefits Throughout The United

States And Encourages Businesses To

Establish ERISA Plans.

The Fourth Circuit adopted the rule

in Moore after a careful consideration of the

effects of its decision and after closely

reviewing the decisions of other courts which

do not follow the Moore rule. The Moore

decision leads to favorable results on several

policy issues.

- 19 -

a ne

First, it harmonizes the

Bankruptcy Code, ERISA,

and the Internal Revenue

Code and gives full effect

to the express language of

those statutes. Second,

it prevents a (qualified

retirement } plan from

being subject to

disqualification and loss

of tax-exempt status when

a bankruptcy trustee seeks

turnover of a_- single

debtor's interest in a

plan. Finally, it

guarantees uniform

treatment of (retirement }

benefits throughout the

country.

Lucas, supra, at 603 (citation omitted).

If the holding of Moore is reversed

by this case, every ERISA-qualified plan in

the country would be subject to

disqualification and loss of tax-exempt

status. By seeking turnover of a single

bankrupt's interest in a plan, bankruptcy

trustees would disqualify entire plans. When

a plan's interest is included in a bankrupt's

- 20 -

estate, the plan's anti-assignment provisions

required by 26 U.S.C. § 401(c)(13) and

29 U.S.C. § 1056(d)(1) are violated. This

could lead to disqualification of every such

plan and loss of tax-exempt status. See

Moore, at 1480-1481; Mclean v. Central States,

Southeast & Southwest Areas Pension Fund, 762

F.2d 1204, 1206 (4th Cir. 1985) (position of

IRS is that payover of ERISA funds to Chapter

13 bankruptcy trustee causes the plan to lose

its ERISA qualification and tax-exempt

status). Furthermore, including ERISA plan

interests in the bankruptcy estate would

invite creditors to push debtors’ into

involuntary bankruptcy to reach their ERISA

funds. Congress certainly did not intend

these results. Moore, at 1480, 1481.

The Fourth Circuit's holding in this

case furthers ERISA's purpose of ensuring

uniform treatment of pension benefits

- 21 <-

ar

throughout the country. See Moore, at 1480

citing Fort Halifax Packing Co. v. Coyne, 482

U.S. 1, 15-17, 107 S.Ct. 2211, 2219-2220, 96

L.Ed.2d 1 (1987). ERISA overrides state law

in the area of employee retirement benefits

and its preemption feature has been broadly

construed. Harline, at 672 citing FMC Corp.

v. Holliday, 498 U.S. , 111 S.Ct. 403, 407

112 L.Ed.2d 356 (1990).

In jurisdictions not following the

Moore rule, there must be a trial almost every

time a trustee asserts an interest in a

retirement plan, which will result’ in

inconsistent rulings in cases with similar

facts. The Fourth Circuit intended to protect

the security of employee retirement benefits

from the vagaries of state spendthrift laws.

Moore, at 1480. If this case is not upheld

the particularities of state spendthrift law

could nullify the non-alienation provisions of

- 22 -

ERISA. This would contradict the statutory

scheme protecting ERISA from state and local

laws and frustrate the goals of _ ERISA,

contrary to its general preemption provisions.

As the Tenth Circuit noted in Harline:

We are also persuaded by

the incongruity inherent

in the narrower

interpretation which would

result in ERISA's

antialienation provisions

trumping state law until

bankruptcy, but

withdrawing that

protection upon bankruptcy

unless state law would

give it.

Harline, at 675. See, also, Moore, at 1480;

Lucas, at 603.

Finally, if ERISA plan interests are

included in bankruptcy estates, many small and

closely held corporations would not establish

such plans. If these businesses could not

place pension assets beyond the reach of

creditors in bankruptcy, many plans would be

- 23 -

cancelled or never established. This result

runs counter to the intent of Congress as

noted by this Court in Connolly _v. Pension

Benefit Guaranty Corp., 475 U.S. 211, 106

S.Ct. 1018, 89 L.Ed.2d 166 (1986):

In addition to prescribing

standards for the funding,

management, and benefit

provisions of these plans,

ERISA also established a

system of pension benefit

insurance. This

"comprehensive and

reticulated statute” was

designed to ensure that

employees and their

beneficiaries would not be

deprived of anticipated

retirement benefits by the

termination of pension

plans before sufficient

funds have been

accumulated in the plans.

- «+ Congress wanted to

guarantee that “if a

worker has been promised

a defined pension benefit -

upon retirement~-and if he

has fulfilled whatever

conditions are required to

obtain a vested benefit-

he will actually receive

it.®

- 24 -

Connolly, 475 U.S. at 214, 106 S.Ct. at 1029

(quoting Pension Benefit Guaranty Corp. v.

R.A. Gray & Co., 467 U.S. 717, 720, 104 S.Ct.

2709, 2713, 81 L.Ed.2d 601 (1984) (citation

omitted)).

CONCLUSION

Under Moore and its progeny,

Shumate's interest in the plan is not an asset

of his bankruptcy estate. The clear language

of the Bankruptcy Code indicates that ERISA

constitutes “applicable nonbankruptcy law."

The Fourth Circuit's holding of ERISA as

"applicable nonbankruptcy law" fulfills the

public policy considerations expressed by

Congress and clearly establishes that

interests in ERISA-qualified plans are not

part of a debtor's bankruptcy’ estate.

Therefore, this Court should affirm the Fourth

Circuit and hold that Shumate's interest in

- 25 -

the plans are not assets of his bankruptcy

estate.

Respectfully submitted,

RONALD J. WYLES and

REGINA L. WYLES

By

David H. Adams, Esquire

CLARK & STANT, P.C.

One Columbus Center

Virginia Beach, Virginia 23462

(804) 499-8800

- 26 -

PROOF OF SERVICE

I, David H. Adams, counsel for

Amicus Curiae and a member of the bar of the

Supreme Court of the United States, hereby

certify that three (3) true copies of the

foregoing Motion for Leave to File Brief

Amicus Curiae and Brief for Ronald J. Wyles

and Regina L. Wyles as Amicus Curiae in

Support of Respondent were mailed, first class

postage prepaid, to James R. Sheeran, Esquire,

Post Office Drawer 69, Portsmouth, VA 23705;

Debera F. Conlon, Assistant U.S. Trustee, Room

433, Federal Building, 200 Granby Mall,

Norfolk, Virginia 23510; Robert A. Lefkowitz,

Esquire, Maloney, Yeatts & Barr, P.C., 600

Ross Building, 801 East Main Street, Richmond,

Virginia 23219-2906; and G. Steven Agee,

Esquire, Osterhoudt, Ferguson, Natt, Aheron &

Agee, P.C., 1919 Electric Road, S.W., Roanoke,

- 27 -

Virginia 24018 on this 3,;% day of March,

AFFIDAVIT FOR PROOF OF FILING

I, David H. Adams, counsel for

1992.

Amicus Curiae and a member of the bar of the

Supreme Court of the United States, hereby

certify that I hand delivered by courier to

the Clerk of the Supreme Court of the United

States within the time allowed for filing, the

foregoing Motion for Leave to File Brief

Amicus Curiae and Brief for Ronald J. Wyles

and Regina L. Wyles as Amicus Curiae in

Support of Respondent on March 3/** 1992.

- 28 -

Signed and sworn before me, at

Virginia Beach, Virginia, this 31m aay of

Heag Hine

My Commission expires: 5/30/95

March, 1992.