Korneff v. Downey Regional Medical Center-Hospital, Inc. (In Re Downey Regional Medical Center-Hospital, Inc.)
441 B.R. 120
| 9th Cir. BAP | 2010Background
- Downey Regional Medical Center-Hospital, Inc. sought Chapter 11 relief and deposited about $1.6 million in an ING account funded by its deferred compensation plan.
- The ING account was held in Downey's name and included approximately $1.4 million attributable to Allen Korneff, Downey's former CEO, with about $200,000 for other doctor participants.
- The Master Compensation Deferral Plan allowed employees to defer compensation; the plan remained unfunded and the employer’s obligation was purely contractual.
- Downey argued the ING funds were property of the bankruptcy estate; Korneff asserted the funds were his and should be excluded under § 541(b)(7).
- The bankruptcy court ruled the funds were estate property, declined to proceed via adversary proceeding, and approved a stipulation to turnover the funds to Downey.
- Korneff appealed to the Bankruptcy Appellate Panel, arguing due process and improper exclusion under § 541(b)(7); the panel affirmed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether an adversary proceeding was required | Korneff—adversary needed to determine ownership. | Downey—contested matter sufficed for legal ruling. | Harmless error; no prejudicial impact. |
| Whether 541(b)(7) excludes ING funds from the estate | Korneff—funds were withheld under ERISA top-hat plan and excluded. | Downey—deferral differs from withholding; not excluded. | Not excluded; funds part of the estate. |
Key Cases Cited
- Southland Corp. v. Emerald Oil Co., 789 F.2d 1441 (9th Cir. 1986) (interpretation of written contracts is a question of law)
- McHugh v. United Serv. Auto. Ass'n, 164 F.3d 451 (9th Cir. 1999) (interpretation of contracts and legal meaning are legal questions)