Kinlaw v. Harris
364 N.C. 528
| N.C. | 2010Background
- Plaintiff obtained a 2004 judgment for $567,000 against Kinlaw; Kinlaw sought to exempt property.
- Trial court (July 2004) declared Kinlaw's two Fidelity IRAs exempt from the judgment and later attempted to levy against the IRAs.
- Kinlaw reportedly withdrew $50,000 (2004) and $55,555.55 (2005) from IRAs to satisfy a Medicare fraud settlement and other expenses.
- Plaintiff argued withdrawals changed the nature of the IRAs, threatening their exempt status; Kinlaw argued exemptions remained.
- At a 25 June 2008 hearing, the parties proposed an escrow mechanism for future withdrawals; the court endorsed an escrow arrangement and held the IRAs exempt.
- Court of Appeals affirmed exemption of the IRA corpus but vacated the escrow requirement; Supreme Court granted discretionary review.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Are Kinlaw's IRAs exempt from execution under 1C-1601(a)(9)? | Withdrawals show non-exemption; IRAs may lose protection. | IRAs retain exempt status despite withdrawals. | Yes; the IRAs' corpus remains exempt. |
| May the trial court order an escrow mechanism for future IRA withdrawals to determine exempt status? | Escrow is improper and unnecessary; would undermine exemption. | Equitable mechanism is appropriate to preserve the exemption while monitoring withdrawals. | Yes; the escrow mechanism was permissible under equity. |
| Did the trial court act within its equitable powers in fashioning relief for this dispute? | Escrow and monitoring exceed permissible equitable relief. | Broad equity power allows tailoring relief to protect the judgment while preserving exemptions. | Yes; the court did not abuse its discretion. |
Key Cases Cited
- Lankford v. Wright, 347 N.C. 115 (1997) (trial court's broad discretion in equitable remedies)
- Sara Lee Corp. v. Carter, 351 N.C. 27 (1999) (trial court may fashion equitable relief to protect creditors)
- White v. White, 312 N.C. 770 (1985) (abuse-of-discretion review of equitable decisions)
- Whitacre P'ship v. Biosignia, Inc., 358 N.C. 1 (2004) (judicial estoppel and discretion in equity applications)
- Rousey v. Jacoway, 544 U.S. 320 (2005) (withdrawal protections and exemptions under retirement accounts (federal law context))