In re: Eric S. Gilbert v.
Richard J. Corbi
Law Offices of Richard J. Corbi
1501 Broadway
12th Floor
New York, NY 10036
Brian T. Crowley, Esq.
McDonnell Crowley
115 Maple Avenue
Suite 201
Red Bank, NJ 07701
Counsel for Appellant
Andrea Dobin
McManimon Scotland & Baumann
427 Riverview Plaza
Trenton, NJ 08611
Michele M. Dudas
McManimon Scotland & Baumann
75 Livingston Avenue
Suite 201
Roseland, NJ 07068
Counsel for Appellee
AMBRO, Circuit Judge
When Eric Gilbert filed for Chapter 7 bankruptcy, he listed his interest, approaching $1.7 million, in retirement accounts set up under two defined benefit plans (for ease of reference, we refer to the accounts and the plans jointly as the “Retirement Plans” or “Plans“). The question before us is whether Gilbert‘s creditors can collect from them because their operations allegedly flouted federal law. The Bankruptcy Court, in a well-reasoned opinion, concluded they were beyond the creditors’ reach. On appeal, the District Court agreed in an equally well-crafted opinion. We affirm.
I. Background
To understand this dispute, a brief primer on the lаws of retirement benefits and bankruptcy is helpful. We start with the former. At issue here is the Employee Retirement Income Security Act (“ERISA“),
Also at issue in this case is the Bankruptcy Code,
Certain types of assets are categorically excluded from the bankruptcy estate. Excluded assets are not liquidated to pay pre-bankruptcy debts in a Chapter 7 case. A debtor may retain them even as he is discharged from his pre-bankruptcy obligations. This case centers on one exclusion:
II. Analysis
A. The Retirement Plans Are Excluded from Gilbert‘s Bankruptcy Estate.
While this is an appeal of a District Court decision, “we view the bankruptсy court‘s decision unfettered by the district court‘s determination.” In re Energy Future Holdings Corp., 990 F.3d 728, 736 (3d Cir. 2021) (quoting In re Brown, 951 F.2d 564, 567 (3d Cir. 1991)). We review without deference the Bankruptcy Court‘s legal analysis. Id. (citing In re Tribune Co., 972 F.3d 228, 237 (3d Cir. 2020)). So we must affirm its dismissal of McDonnell‘s complaint if we conclude that it does not “contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.‘” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)).
The Bankruptcy Court dismissed Gilbert‘s declaratory judgment claim because “a plain meaning rеading of
But McDonnell claims that Patterson compels us to reverse. There, the Supreme Court stated that
That choice of words has led to confusion, as “ERISA-qualified” is “not a
The meaning of “ERISA-qualified” in Patterson strikes us as beside the point. Even if we assume that McDonnell‘s read of that phrase is right (i.e., a plan is only “ERISA-qualified” if it is tax-qualified) and that the complaint persuasively alleges that the Retirement Plans’ operations were at loggerheads with ERISA and the IRC, Gilbert‘s interests in the Retirement Plans are nonetheless protected by
That conclusion tracks Patterson‘s basic rule of interpretation—the text of the Bankruptcy Code controls. The Court took the case to resolve the circuit split about whether
So, following the Patterson court‘s lead, we ask the question provided by the statutory text: whether, assuming (as McDonnell alleges) that the Retirement Plans did not comply with ERISA and the IRC, the former nonetheless provides an “enforceable” bar to alienation of Gilbert‘s interest in the Plans.
McDonnell argues that ERISA‘s anti-alienation language does not apply to retirement plans operated in violation of its commands.3 He provides no statutory support for this proposition. And we see none in ERISA‘s text. It would be strange if a statute whose “principal object ... is to protect plan participants and beneficiaries[,]” Boggs v. Boggs, 520 U.S. 833, 845 (1997), lowered its shield at the first violation. Simply put, McDonnell confuses two distinct questions: whether ERISA applies to (and so governs) the Retirement Plans and whether the Plans complied with ERISA‘s requirements. It cannot be the case that a retirement plan normally governed by ERISA escapes it by brazenly violating its rules, as McDonnell seems to suggest here. “[I]f extensive violations of a federal law made that law go away, the rules would be chimerical.” In re Baker, 114 F.3d 636, 640 (7th Cir. 1997). So we agree with the decisions that conclude plans governed by ERISA are excluded from the bankruptcy estate under
Reviewing the IRC, we reach the same result: a retirement рlan governed by ERISA that is not tax-qualified is still protected by ERISA‘s anti-alienation bar. “Nowhere in ERISA ... is there a requirement that, to ... be governed by [it], a plan must be tax[-]qualified. Indeed, the converse is true: An ERISA plan that is not or may not be tax[-]qualified nevertheless continues to be governed by ERISA ....” Traina v. Sewell (In re Sewell), 180 F.3d 707, 711 (5th Cir. 1999). McDonnell provides us no authority to the contrary.
He nonetheless offers cases suggesting that the Retirement Plans are not protected by
That court did not perform its own statutory analysis, instead announcing that it agreed with other decisions’ reading of the relevant law. It relied on In re Hall, which is distinguishable: the pension plan there was “not subject tо ERISA.” 151 B.R. 412, 421 (Bankr. W.D. Mich. 1993). And while Hall‘s analysis of Patterson and Sixth Circuit caselaw suggests that “ERISA-qualified” plans, as the term was used by the Supreme Court, must be both tax-qualified and governed by ERISA, id. at 417-20, that does not answer whether
Goldschein also looked to In re Harris, which emphasized that the debtor, who was also the plan administrator, “use[d] the [retirement p]lan as a personal bank[,]” which “justifie[d]” concluding that
Instead, it cites cases dealing with retirement plans that were not governed by ERISA. Id. at 450.5 In fact, it appears that ERISA‘s anti-alienation rule extends to malefactors in charge of retirement plans. Guidry v. Sheet Metal Workers Nat‘l Pension Fund, 493 U.S. 365, 376-77 (1990).
Finally, McDonnell makes an appeal to equity. If we affirm, Gilbert “will receive a windfall of over $1 million in a sham retirement account while living in Puerto Rico at the expense of his creditors.” McDonnell Reply Br. 5. but the Supreme Court informs us that equity cannot be used to override bankruptcy‘s detailed scheme delineating the property of the bankruptcy estate, Law v. Siegel, 571 U.S. 415, 421-22 (2014), or ERISA‘s anti-alienation bar, Guidry, 493 U.S. at 376-77.
This result follows our rules of statutory interpretation. While
exempt “[r]etirement funds to the extent that those funds are in a fund or account that is exempt from taxation under the [IRC]“). This “shows that Congress knew how to draft the kind of statutory language that [McDonnell] seeks to read into”
To recap, the Supreme Court told us in Patterson that
B. McDonnell‘s Other Arguments Are Unpersuasive.
1. Dismissals of Avoidance Actions.
The amended complaint also sought to unwind various transactions related to the Retirement Plans. First, it targets Gilbert‘s 2020 divorce settlement with his ex-wife. It awarded Gilbert his ex-wife‘s share of the Plans (over $800,000). McDonnell claims this was a preferential transfer, an actual fraudulent conveyance, and a constructive fraudulent convеyance. It must be noted that McDonnell does not claim that the divorce settlement as a whole was avoidable; he solely objects to Gilbert‘s receipt of his ex-wife‘s share of the Plans because (McDonnell claims) she “had no right to ... award her share of the Retirement [Plans] to” Gilbert. App. 1181. McDonnell also sought to unwind all transfers
The Bankruptcy Court dismissed these counts of McDonnell‘s initial complaint because “[t]here are no facts pled to establish that” the transactions at issue were “transfer[s from Gilbert] to a third party that must be clawed back.” App. 1206. It dismissed these counts of the amended complaint for much the same reason, as none of those transactions could be avoided because they were not transfers of Gilbert‘s “interest ... in property[.]”
McDonnell‘s argumеnt before us simply does not address these issues, and that is fatal to his claims. To state a claim for a preferential transfer or fraudulent conveyance, a complaint must allege a “transfer” of the debtor‘s interest in property.
2. Denial of Leave to Amend.
The Bankruptcy Court dismissed McDonnell‘s claims with prejudice in light of the “pervasive problems” it saw with his initial and amended complaints, including “faulty logic[.]” App. 884. That Court found it “disquieting that at many points ... the Trustee‘s [McDonnell‘s] complaint and brief ... fail[] to recognize ... crucial distinctions” in fact and law. Id. at 855. The District Court affirmed because McDonnell “does not suggest that there are facts that could have been plead that would have altered the ... analysis” of the proposed avoidance actions or creditors’ ability to recover from the Retirement Plans. Id. at 33. Before us, he asks permission to file a further amended complaint “after additional formal discovery” and emphasizes our general policy allоwing litigants to amend their complaints. McDonnell Br. 80.
We review the Bankruptcy Court‘s decision to dismiss McDonnell‘s complaint with prejudice for abuse of discretion. United States ex rel. Zizic v. Q2Administrators, LLC, 728 F.3d 228, 234 (3d Cir. 2013). A court abuses its discretion when it makes an error of law (reviewed without deference), Equal Emp. Opportunity Comm. v. City of Long Branch, 866 F.3d 93, 98 (3d Cir. 2017) (citing Chao v. Cmty. Tr. Co., 474 F.3d 75, 79 (3d Cir. 2007)), or makes a “clear error of judgment,” which requires an appellant to show more than merely “a different result [could have] arguably be[en] ... obtained when applying the law tо the facts of the case,” Coleman v. Home Depot, Inc., 306 F.3d 1333, 1341 (3d Cir. 2002) (quoting SEC v. Infinity Grp. Co., 212 F.3d 180, 195 (3d Cir. 2000)). If “no new factual allegations” could result in a viable claim, then a court does not abuse its discretion by concluding that “amendment would be futile.” Pacira BioSciences, Inc. v. Am. Soc‘y of Anesthesiologists, Inc., 63 F.4th 240, 249-50 (3d Cir. 2023).
As discussed above, the Retirement Plans are excluded from the bankruptcy estate even if they were operated in violation of ERISA and the IRC, so no further allegations of rulebreaking wоuld result in a viable claim on that count. And McDonnell cannot plead any facts turning Gilbert‘s ex-wife‘s interest in the Retirement Plans into his property or transforming his receipt of those funds into a “transfer”
3. Order Shortening Time.
On August 26, 2022, McDonnell filed a notice of appeal to the District Court challenging the Bankruptcy Court‘s decision dismissing his claims. He submitted a designated record on September 8. In response, Gilbert filed a motion to strike certain items from the record on September 16. He subsequently filed a motion to shorten time on September 20. Gilbert noted that the first brief in the appeal was due on October 11 and hoped to resolve the scope of the record before appellate briefs were submitted to the District Court. The Bankruptcy Court granted the motion and held оral argument on October 4. McDonnell says the motion should have been denied because there was no emergency requiring expedited briefing.
A bankruptcy court has discretion to manage its docket by shortening a notice period.
4. Order Striking Items.
The Bankruptcy Court granted Gilbert‘s motion to strike certain items from McDonnell‘s proposed aрpellate record. It concluded that the documents at issue were “irrelevant” because they “could not have formed the basis of [its] ruling” on the motion to dismiss, and including them “would only serve to potentially confuse” reviewing courts about “the very limited nature” of the dismissal ruling. App. 680. McDonnell asserts this was error because “an expansive record is warranted in these proceedings[,]” McDonnell Br. 29, and all the documents were “presented by [him] in [his] pleadings[.]” Id. at 22.
McDonnell argues that the Bankruptcy Court abused its discretion for two reasons. First, he claims that Court ignored our decision in Nantucket Investors II v. Cal. Fed. Bank (In re Indian Palms Assocs., Ltd), 61 F.3d 197 (3d Cir. 1995). He reads it to require that a bankruptcy appellate record include any designated item in either “the contested matter at issue” or “the underlying bankruptcy case” itself. McDonnell Br. 22-23. Not so. While Indian Palms discussed the outer limits of the bankruptcy record, it did not require that every item in the record of a contested
Second, McDonnell claims that the Bankruptcy Court erred because, when considering disputes over the appellate record, “it is better to err on the side of caution, include the items, and allow the appellate court to determine the relevance of the designated items.” Church Joint Venture, L.P. v. Blasingame (In re Blasingame), 559 B.R. 692, 701 (B.A.P. 6th Cir. 2016). But here we are asked to review an order granting a motion to dismiss for failure to state a claim. It is generally incorrect to consider “evidence extrinsic to the complaint” in this posture. In re Asbestos Prods. Liab. Litig. (No. VI), 822 F.3d 125, 134 (3d Cir. 2016). Accordingly, the Bankruptcy Court did not make a “clear error of judgment[,]” Coleman, 306 F.3d at 1341, by striking portions of McDonnell‘s proposed record.
Estoppel and Due Process.
McDonnell alleges that Gilbert disclosed his 2012 W-2 only “at the conclusion of mediation, despite representing to the Bankruрtcy Court ... that he had produced all the documents required and requested.” McDonnell Br. 28. Accordingly, McDonnell asks us to use judicial or equitable estoppel to “bar [Gilbert] from using any evidence ... that relied on ... documents not previously disclosed to [McDonnell.]” Id. at 84.
Despite repeated requests, Gilbert also declined to tell McDonnell the identity of an administrator of the Retirement Plans. McDonnell claims that this violated his due process rights.
Both issues suffer the same defect. Our review as an appellate court is generally limited to the decisions identified in the notice of appeal, which we may construe liberally.
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We therefore affirm in all respects the District Court‘s order rejecting McDonnell‘s challenges to the Bankruptcy Court‘s decisions.