Gendreau v. Gendreau (In Re Gendreau)

191 B.R. 798

• Court: United States Bankruptcy Appellate Panel for the Ninth Circuit
• Decided: January 31, 1996
• Docket: BAP No. NV-94-1832-HaMeAs. Bankruptcy No. 93-31897-JHT. Adv. No. 93-3119
• Status: Published

Opinions

AMENDED OPINION

MEYERS, Bankruptcy Judge:

I

Chapter 7 bankruptcy debtor William Gen-dreau (“Debtor”) filed a complaint against his former spouse Colleen Gendreau (“Appellee”) for a declaratory judgment that his obligation to pay pension plan benefits to her pursuant to their divorce decree was a dis-chargeable debt. On opposing motions for summary judgment, the bankruptcy court held that the Appellee’s right to a portion of the Debtor’s pension benefits was not subject to discharge.

We AFFIRM.

II

FACTS

The Debtor has been employed by United Airlines, Inc. (“United”) since 1966. The Debtor and the Appellee were married in 1985.

A divorce decree was entered by the Family Court for Loudoun County, Virginia on October 2, 1992. The decree determined that a portion of the Debtor’s two pension plans provided by United was marital property, and awarded 50 percent of this marital property to the Appellee. On January 25, 1993, the court entered an order entitled “Qualified Domestic Relations Order” (the “Order”). The Order provided that it was intended to be a qualified domestic relations order (“QDRO”) pursuant to 29 U.S.C. § 1056(d). The Order also stated: “This court specifically retains jurisdiction to establish or maintain this Order as a Qualified Domestic Relations Order.”

The administrator of the United pension plans was served with a copy of the Order. On May 17, 1993, Scott Zapel, Senior Counsel for the United pension plans, sent a letter to the Appellee stating that the Order was not a QDRO as defined in the statutes. The letter outlined the reasons for this conclusion: (1) the official plans’ names were wrong; (2) the Appellee’s address appeared to be wrong; and (3) there were two methods for calculating payments due the Appellee, both of which were ambiguous, with no indication as to which method to use if the two methods led to differing results. The letter provided that the Appellee could commence benefits within 60 days after a clarified QDRO was approved by the pension plan administrator.

The Debtor filed a Chapter 7 bankruptcy petition on November 15, 1993. The Appel-lee had not obtained a clarified QDRO. On November 29, 1993, the Debtor filed a complaint seeking a declaratory judgment that the Appellee’s right to payment from the United pension plans was a debt dischargea-ble in bankruptcy. The Debtor subsequently filed a motion for summary judgment and the Appellee filed a cross-motion for summary judgment.

The bankruptcy court denied the Debtor’s motion and granted the Appellee’s cross-motion for summary judgment. The Debtor appeals.

III

STANDARD OF REVIEW

Given that the court granted summary judgment on a legal question of statutory interpretation, and the essential facts are undisputed, we review the court’s decision de novo. Matter of Pacific Far East Line, Inc., 713 F.2d 476, 478 (9th Cir.1983).

IV

DISCUSSION

The issue of whether the Appellee’s right to a portion of the Debtor’s pension plans benefits is dischargeable centers on whether this right should be characterized as a pre-petition claim against the Debtor. 11 U.S.C. § 727(b) states that, except as provided in 11 U.S.C. § 523(a), a discharge under Section 727(a) discharges a debtor from all debts that arose before bankruptcy.¹ The Bankruptcy Code defines a “debt” as a “liability on a claim.” 11 U.S.C. § 101(12). Pursuant to 11 U.S.C. § 101(5), a “claim” is defined as:

(A) right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured; or

(B) right to an equitable remedy for breach of performance if such breach gives rise to a right to payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured, or unsecured.

Congress intended by the language used in Section 101 to adopt the broadest available definition of the term .“claim.” Johnson v. Home State Bank, 501 U.S. 78, 83, 111 S.Ct. 2150, 2153, 115 L.Ed.2d 66 (1991). We must decide whether the Appellee has a discharge-able claim against the Debtor.

A. There Was No Claim Against the Debtor

In In re Teichman, 774 F.2d 1395 (9th Cir.1985), a dissolution decree ordered the debtor to pay his former wife a percentage of his retirement benefits. The debtor failed to pay her $14,000 of the benefits he received prepetition and refused to pay her any benefits given to him postpetition. The debtor argued that his obligations to his ex-wife were discharged. The Court of Appeals held that the $14,000 debt owed by the debt- or to his wife prepetition was discharged, but that the right to a percentage of the debtor’s monthly pension benefits postpetition was not a debt subject to discharge. The court explained that under the dissolution decree, the wife had an ownership interest in a portion of the retirement fund. Since the post-petition payments were not debts under the Code, the court concluded that they were not subject to discharge. 774 F.2d at 1398. The court in Bush v. Taylor, 912 F.2d 989, 993 (8th Cir.1990), also held that the former spouse’s interest in postpetition pension payments was not dischargeable, for the reasons given in Teichman.

In this case, the Appellee is not asking for any monies paid to the Debtor prepetition. In fact, the Debtor did not receive any pension benefits prepetition. Under the rationale in Teichman and Bush, the right to a portion of these postpetition payments is not a debt owed by the Debtor and therefore not subject to discharge under Section 727(b).

As both Teichman and Bush involved government pensions, the Employee Retirement Income Security Act of 1974 (“ERISA”) did not apply in those eases. The Dissent attempts to distinguish Teichman and Bush on this basis, and also on the ground that those decisions noted that a property interest had been created in the pension plans prepetition. As explained below, we do not find the distinctions material. The decisions were premised on the fact that payment from the pension was not owed by the Debtor at the time the bankruptcy petition was filed and therefore there was no debt to discharge. Here, also, the Debtor had no liability to the Appel-lee. Under the Teichman and Bush holdings, there was no debt for the Debtor to discharge.²

Regardless of when the payments came due, no debt was created because the Appel-lee did not have a claim against the Debtor. We disagree with the Debtor’s argument that because the Appellee did not have a QDRO when the bankruptcy petition was filed, the pension funds were the Debtor’s property against which the Appellee merely had a claim.

The Debtor points out that the anti-alienation provision in ERISA precludes assignment of the pension benefits to the Appellee unless she has a valid QDRO. See 29 U.S.C. § 1056(d)(1) (“[e]aeh pension plan shall provide that benefits provided under the plan may not be assigned or alienated”). ERISA’s prohibition on the assignment or alienation of pension benefits has been strictly enforced. Patterson v. Shumate, 504 U.S. 753, 760, 112 S.Ct. 2242, 2247, 119 L.Ed.2d 519 (1992); Guidry v. Sheet Metal Workers Pension Fund, 493 U.S. 365, 372, 110 S.Ct. 680, 685, 107 L.Ed.2d 782 (1990).

A QDRO is an express exception to ERISA’s anti-alienation provision. See ERISA § 1056(d)(3)(B)(i)(I); In re Abbata, 157 B.R. 201, 205 (N.N.Y.1993). Domestic relations orders which are not QDRO’s are subject to the anti-assignment provision. 29 U.S.C. § 1056(d)(3)(A); Ablamis v. Roper, 937 F.2d 1450, 1454 (9th Cir.1991). 29 U.S.C. § 1056(d)(3)(B)(i) defines a “qualified domestic relations order” as a domestic relations order

(I) which creates or recognizes the existence of an alternate payee’s right to, or assigns to an alternate payee the right to, receive all or a portion of the benefits payable with respect to a participant under a plan, and

(II) with respect to which the requirements of subparagraphs (C) and (D) are met....

Subparagraphs (C) and (D), referenced above, specify what details the order must include, such as the name and address of the participant and alternate payee, the amount of benefits to be paid and the method of payment.

The pension plan administrator is charged with the initial responsibility to determine whether an order is a QDRO. See 29 U.S.C. § 1056(d)(3)(G). Here, although the Virginia state court originally deemed the order a QDRO, the pension plan administrator did not.³ The Debtor argues that rather than having a property right in the pension plans, the Appellee had a contingent right to payment, which was a claim as broadly defined in the Bankruptcy Code. Under the Debt- or’s analysis, his liability on the claim was discharged under 11 U.S.C. § 727(d).

A bankruptcy discharge operates to discharge all debts that were the personal liability of the debtor. 11 U.S.C. § 524; In re Raiman, 172 B.R. 933, 936 (9th Cir. BAP 1994). The Debtor incorrectly assumes that he had an unlimited right to all the pension funds, and that the Appellee’s purported “contingent right to payment” was from the Debtor, rather than from United’s pension plans. This also seems to be the premise relied upon by the Dissent. What the Debt- or and the Dissent fail to recognize is that United, not the Debtor, controlled the funds. The Order provides that the amounts awarded to the Appellee by the Order “shall be separately accounted for ... until the benefits are distributed....” The Order further states: “The benefits awarded by this Order shall not be assigned, pledged, or otherwise transferred, voluntarily or involuntarily, before [the Appellee] has received those benefits.”

Moreover, the ERISA statute itself precluded the Debtor from reaching that part of the pension in dispute. 29 U.S.C. § 1056(d)(3)(H)(i) provides that during any period in which the issue of whether an order is a QDRO is being determined by the plan administrator, by a court of competent jurisdiction or otherwise, the plan administrator shall segregate in a separate account the amounts which would be payable to the alternate payee if the order is determined to be a QDRO. Section 1132(a)(1)(B) and (e)(1) of the ERISA statute provides that a beneficiary may bring a civil action in state or district court to recover pension benefits, enforce her rights or clarify her rights to future benefits under the pension plans.

Here, the family court’s order and the ERISA statute expressly limited the Debt- or’s right to the disputed funds. The plan administrator was to safeguard the disputed pension funds until a determination was made as to whether the Order was a QDRO. The Debtor was not entitled to the funds until such a determination was made. To obtain the pension funds, the Appellee would file a civil court action against the administrator. The Appellee’s claim is against United, not the Debtor. Accordingly, there is no claim subject to discharge in bankruptcy.

It is true that under 11 U.S.C. § 541(c)(2), as construed in Patterson v. Shu-mate, supra, a debtor may exclude his interest in an ERISA-qualified pension plan from the property of the bankruptcy estate. Yet the Debtor’s interest in the United pension plans was limited under the state court order and the ERISA statute. When a debtor’s ultimate right to receive property is measured by or dependent upon orders which would be issued by a state court, the bankruptcy estate is subject to these rights and the bankruptcy filing cannot enlarge them. In re Keller, 185 B.R. 796, 799 (9th Cir. BAP 1995). The Bankruptcy Code neither creates nor enhances the property rights a debtor brings into the bankruptcy estate. In re Braker, 125 B.R. 798, 801 (9th Cir. BAP 1991). A debtor may not discharge debts against property in which he does not have a legal or equitable interest. See 11 U.S.C. § 541(a)(1). In this case, on the petition filing date the Debtor was entitled to only a percentage of the pension funds, with the remaining portion of the pension subject to the Appellee’s right to obtain a QDRO. The ERISA statute recognizes this in § 1056(d)(3)(H), by ordering that pension funds be segregated for up to 18 months while the status of an order as a QDRO is being determined and by acknowledging that this process may take longer than 18 months.

The Debtor’s property right in the pension funds did not increase upon filing the bankruptcy petition. A debtor’s interest in property which was divided in a dissolution judgment prepetition is “fixed and limited by the divorce decree.” Matter of Paderewski, 564 F.2d 1353, 1357 (9th Cir.1977) (Bankruptcy Act case). The debtor “cannot claim title to a greater interest than that awarded” him in the divorce decree. 564 F.2d at 1356-57. “Once dissolution has been accomplished ... the final judgment is res judicata as to the division of property and is binding on the bankruptcy trustee.” In re Keller, supra, 185 B.R. at 800. In Keller, we held that once the family eourt ordered the debtor’s residence sold and retained jurisdiction to approve disbursement of the proceeds, “those proceeds were for all practical purposes held in custodia legis by that court.” Id. As such, the Panel deemed the proceeds “beyond the reach of the debtor” and “not part of the bankruptcy estate.” Id. Here, at the time the Debtor filed his bankruptcy petition, the pension proceeds were, according to both the ERISA procedures and the Virginia family court’s order, beyond the reach of the Debtor.

In sum, the Debtor argues that the ERISA statute abrogates the Appellee’s interest in the pension plans awarded under state court order because the Appellee did not have a QDRO on the date the Debtor filed for bankruptcy relief. Because ERISA anticipates that entry of a QDRO may be a time-consuming process and provides for segregation of funds during the first 18 months of that process, we do not believe Congress ever meant to allow a pensioner to bypass that process and essentially nullify a state court order by filing a bankruptcy petition. The ERISA statute respects state court orders. We will not, in the guise of complying with ERISA, invalidate the Order.

B. Other Decisions Have Rejected the Debt- or’s Argument

The two reported decisions concerning a bankruptcy petition filed before entry of a QDRO have rejected the argument that the right to receive a QDRO was a claim against the debtor subject to discharge. Like the instant case, In re Long, 148 B.R. 904 (Bankr.W.D.Mo.1992), involved a domestic relations order which did not meet all the technical requirements of a QDRO. The eourt found a property right created in the decree of dissolution, namely the right to obtain a QDRO and transfer legal ownership of a portion of the debtor’s pensions. 148 B.R. at 908. The court held that the right to secure a QDRO was fixed when the divorce decree became final, and could not be discharged as a debt. Id. The court explained that entry of the QDRO would not alter the amount of marital property awarded or otherwise affect the finality of judgment. The court concluded that because there was no debtor-creditor relationship between the parties arising from the property settlement, entry of a QDRO was more akin to enforcement of a property right than to collection of a prepetition debt. 148 B.R. at 907-08.

The other decision adopting this view is In re Brown, 168 B.R. 331 (Bankr.N.D.Ill.1994). In that case, the court held that although the debtor’s ex-wife had no recognizable legal right under ERISA to the debtor’s pension benefits because she was unable to obtain the QDRO prepetition, she did have an equitable interest in the debtor’s pensions arising from entry of the decree of dissolution. 168 B.R. at 335-36 n. 6. The eourt ruled that the former spouse’s equitable interest in the pension fund was neither property of the debtor at the time the bankruptcy petition was filed, nor property of the bankruptcy estate. 168 B.R. at 336.

We agree with the above-cited decisions: the right to the pension benefits arose when the divorce decree was entered, and was not, as the Debtor argues, dependent on an order satisfying the technical requirements detailed by the plan administrator.⁴

C. Our Ruling Is Consistent with Congressional Intent

Construing the Order as awarding a property right rather than a claim is consistent with the legislative history of 29 U.S.C. § 1056. One of Congress’s primary purposes in enacting the QDRO exception to ERISA’s prohibition on assignment and alienation was to safeguard the financial security of women dependent on their husbands’ earnings in the case of divorce or separation. Ablamis v. Roper, supra, 937 F.2d at 1453, 1456-57. Congress intended that a former spouse could obtain an enforceable pension interest with a QDRO and presumably realized that processing of the QDRO could be slow. In re Long, supra, 148 B.R. at 909. As stated in Bush v. Taylor, supra, 912 F.2d at 994: “We doubt that Congress ever intended that a former wife’s judicially decreed sole and separate property interest in a pension payable to her former husband should be subservient to the Bankruptcy Code’s goal of giving the debtor a fresh start.”

The purpose of the detailed statutory language in defining QDRO’s is to spare ERISA plan administrators who, due to ambiguities as to the identity of the beneficiaries designated in a divorce decree, pay the wrong person and are sued by a rival claimant. Metropolitan Life Ins. Co. v. Wheaton, 42 F.3d 1080, 1084 (7th Cir.1994). The Debt- or is attempting to misapply the statute to achieve a result Congress certainly never intended: to gain a windfall for himself in contravention of a state court order and at the expense of his former wife.⁵ The Appel-lee’s right to receive a portion of the pension funds should not be forfeited merely because the Debtor filed his bankruptcy petition before the right paperwork was submitted. The ruling urged by the Debtor in this case could encourage other debtors to frustrate a state court’s pension award to the former spouse by manipulating the timing of bankruptcy to stay entry of a QDRO. In re Long, supra, 148 B.R. at 910. A debtor’s attempt to use the bankruptcy discharge as a “sword” to take unfair advantage, rather than as a “shield” to protect him with a fresh start, should not be countenanced. See In re Pieri, 86 B.R. 208, 213 (9th Cir. BAP 1988).

D. Our Ruling Is in Accord with Nortr-ERISA Decisions

Having ruled that ERISA should not be interpreted to let the Debtor discharge the Appellee’s right to pension benefits in bankruptcy, we also note that under state law the Debtor could not discharge this right in bankruptcy. Because nonbankruptcy law determines the nature and extent of the debt- or’s interest in property, Butner v. United States, 440 U.S. 48, 54-55, 99 S.Ct. 914, 917-18, 59 L.Ed.2d 136 (1979), courts have looked at how state law and the divorce decree define the interest in pension benefits. In In re Chandler, 805 F.2d 555, 556 (5th Cir.1986), the court recognized that the divorce decree awarded the pension benefits as the former wife’s sole and separate property, which was permissible under Texas law. The court held that the portion of the debtor’s monthly Army retirement benefits awarded to his former wife pursuant to a divorce decree was not dischargeable as debt because it was the sole property of the debtor’s former spouse. Similarly, in In re Zick, 123 B.R. 825, 829 (Bankr.E.D.Wis.1990), the court held that “the divorce court did not create an obligation of the husband to the wife as part' of a property division that he can now discharge. The court awarded Peggy Zick a portion of the pension fund in her husband’s name; it became her property, not his.” And in In re Thomas, 47 B.R. 27, 33 (Bankr.S.D.Cal.1984) (Meyers, J.), the court found military pension benefits nondisehargeable, for the reason that they were deemed to be the property of the debtor’s former wife under California law. See also In re Brown, supra, 168 B.R. at 334 (applying Illinois law to find a property right in the debtor’s pension).

In the case at hand, the divorce decree and the Order granted the Appellee a property right in the pension. The Virginia family court directed the pension plan administrator to award the Appellee her portion of the benefits. There was no implication that the Debtor owed money to the Appellee. Furthermore, the plan administrator’s assertion that there were technical problems with the Order does not alter the fact that the Appellee was awarded a portion of the pension. Under Virginia law, the substantive terms of a final divorce decree dividing a pension are not subject to modification. Caudle v. Caudle, 18 Va.App. 795, 796, 447 S.E.2d 247, 248-49 (1994). A trial court may modify a final decree to effectuate its expressed intent regarding pension benefits, but any adjustment must be consistent with the substantive provisions of the original decree. 18 Va.App. at 798, 447 S.E.2d at 249. Accordingly, under Virginia law the Appellee could ask the state court to modify the Order to comply with the plan administrator’s technical requirements. Indeed, the Order reserved jurisdiction for the family court to establish it as a QDRO. The Debtor has not argued that the Appellee is time-barred from either requesting that the Order be modified to alleviate the United plan administrator’s concerns, or from bringing suit in state or district court to establish that the Order as it presently reads is a QDRO.

V

CONCLUSION

Our reading of the relevant provisions of the Bankruptcy Code and the ERISA statute, along with the legislative history and policy behind their enactment, leads us to conclude that the Appellee’s property right in the pension is not dischargeable, despite any technical deficiencies in the Order.

Because the Debtor did not owe a debt to the Appellee, there was nothing to discharge. The court’s summary judgment in favor of the Appellee is AFFIRMED.

1 . The parties agree that Section 523(a)(5) would not except the obligation from discharge, as the pension benefit award was not in the nature of maintenance or support. Also, Section 523(a)(15), established by the Bankruptcy Reform Act of 1994, does not apply because this case was fried before the effective date of the Act. Bankruptcy Reform Act of 1994, Pub.L. No. 103-394, 108 Stat. 4106, Sec. 702.

2 . The Dissent misinterprets our reliance on Teichman and Bush. We do not cite these cases for the invalid proposition that debts are not subject to discharge if they are contingent or unmatured. Rather, we believe Teichman and Bush support our determination that a right to pension benefits is not a claim against the debt- or.

3 . We need not decide whether the Order is a QDRO, but see no reason to question the Dissent’s thoughtful analysis of the issue.

4 . The Dissent, focusing on the QDRO procedures in ERISA, appears to view these procedures as akin to lien perfection. Under the Dissent's reasoning, until a beneficiary perfects her interest by obtaining a QDRO, she has no recognizable interest in the pension benefits. In contrast, our understanding of ERISA is that it acknowledges the beneficiary's interest in the pension benefits even before she has complied with the detailed provisions for obtaining a QDRO.

5 . Because the pension funds are exempt assets, a determination that the right to pension benefits is dischargeable would not increase estate assets for the benefit of creditors.