Shah v. Baloch
418 P.3d 902
| Ariz. Ct. App. | 2017Background
- Shah obtained a $411,505 judgment (2009) against Baloch for breach of contract and fraud and attempted to collect by garnishing funds in Baloch’s Wells Fargo–administered 401(k).
- Baloch’s 401(k) balance was roughly $50,000; Shah alleged Baloch fraudulently transferred several thousand dollars into the plan after the judgment.
- Wells Fargo objected, and the superior court quashed the writ of garnishment, finding the funds exempt under ERISA’s anti‑alienation rule for qualified plans.
- Shah appealed, arguing fraudulent transfers into the 401(k) should be recoverable under Arizona’s Uniform Fraudulent Transfer Act.
- The court considered ERISA preemption, the statutory anti‑alienation requirement for qualified plans, and whether equitable or common‑law exceptions apply to fraudulent participant transfers.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether a judgment creditor can garnish funds a debtor fraudulently transferred into an ERISA‑qualified 401(k) | Shah: fraudulent transfers into the plan are void and collectible under state fraudulent transfer law | Baloch/Wells Fargo: ERISA’s anti‑alienation provision (qualified plan) bars garnishment and preempts state law | Court: Anti‑alienation bars garnishment of participant contributions; fraudulent participant transfers are not an exception absent Congressional authorization |
Key Cases Cited
- Guidry v. Sheet Metal Workers Nat'l Pension Fund, 493 U.S. 365 (1990) (ERISA anti‑alienation provision generally bars garnishment and courts may not create equitable exceptions)
- Mackey v. Lanier Collection Agency & Serv., Inc., 486 U.S. 825 (1988) (state garnishment provision as applied to employee pension plan preempted by ERISA)
- Patterson v. Shumate, 504 U.S. 753 (1992) (refusal to recognize implied exceptions to ERISA anti‑alienation rule)
- In re Loomer, 198 B.R. 755 (Bankr. D. Neb. 1996) (fraudulent transfer by participant to qualified plan not recoverable because ERISA anti‑alienation precludes enforcement)
- In re Hirsch, 98 B.R. 1 (Bankr. D. Ariz. 1988) (state exemption provision would be preempted in proceedings to enforce claims against an ERISA pension plan)