Mohr v. Wallace

Filing 9

ORDER affirming the Bankruptcy Court's Order sustaining the Trustee's objections. The Clerk shall terminate all deadlines, and motions and close this case. Signed by Judge J. Randal Hall on 05/16/2016. (thb)

IN THE UNITED STATES
SOUTHERN

DISTRICT COURT

DISTRICT

AUGUSTA

FOR THE

OF GEORGIA

DIVISION
*

IN

*

RE:

*

CHRISTOPHER G.

*

MOHR,

*

*

Debtor.

*

CHRISTOPHER G.

l:15-cv-184

*

MOHR,

Bankruptcy Case

*
*

Appellant,

*

No.

13-11606

v.

A. STEPHENSON WALLACE, Chapter
7 Trustee,

*
*

Appellee,

ORDER

This bankruptcy appeal asks the Court to determine whether
the cash surrender value of Appellant-Debtor Chris Mohr's life-

insurance policy is part of his bankruptcy estate.
that

question

requires

the

resolution

of

Answering

another:

Was

Plaintiff's life-insurance policy a "trust" as used in 11 U.S.C.
§

5429(c)(2)?

Because

the

Court

finds

that

it

was

"trust," the cash surrender value of Debtor-Appellant's
insurance policy is part of his bankruptcy estate.
therefore, AFFIRMS the Bankruptcy Court's ruling.

not

a

life-

The Court,

I.

BACKGROUND

Debtor-Appellant Chris Mohr filed for Chapter 11 bankruptcy
on

August

30,

2013.

Approximately
Chapter

7

case.

amended his

value

one

of

(Record on
year

(Id.

Appeal,

Doc.

later,

his

case

10.)

On

October

at

2,

was

Ex.

1

at

converted

19,

2014,

1.)

to

a

Appellant

Schedule C exemptions to include the cash surrender

his

life-insurance

exempt under O.C.G.A.

policy,

§§ 33-25-11,

valued

at

as

(IcL_ at 53.)

44-13-100.

$18,000.00,

In

particular, Appellant claimed the following exempt amounts:
Law Providing Each Exemption
O.C.G.A.

Value of Claimed Exemption

§ 44-13-100(a)(8)

$5,100.00

O.C.G.A. § ,44-13-100(a)(9)

$2,000.00

O.C.G.A.

§ 44-13-100 (a) (6)

$5,099.94

O.C.G.A.

§ 33-25-11

$6,000.00

(Id.)

The Bankruptcy Trustee objected to the exemptions claimed

under O.C.G.A. §§ 33-25-11 and 44-13-100(a)(8).
At

a

hearing

contended

that

available

under

before

O.C.G.A.

state

Bankruptcy

§

35-25-11(c)

law.

Appellant

was then pending before

argued that 11 U.S.C.

the

the Eleventh

§ 541(c)(2)

(Id^ at 55-56.)1
Court,

creates

an

"exemption"

acknowledged

Circuit.

Appellant

that

issue

Appellant

also

excludes the entire value of

his life-insurance policy from the definition of property of the
estate.

(Id.

1 The

at 68.)

Trustee

also

relevant on this appeal.

objected

to

another

claimed

exemption

not

On October
sustaining
surrender

29,

the

2015,

Trustee's

value

of

the

Bankruptcy Court

objection

Appellant's

and

issued an Order

finding

life-insurance

that

the

policy

cash

over

and

above the amount of $7,099.94 is part of the bankruptcy estate.

The

Bankruptcy Court noted that the

Eleventh Circuit had since

held that life insurance policies are not exempt under O.C.G.A.

§

35-25-11(c).

McFarland,

determined

(Record

790

that

§ 541(c) (2) .

1182

the

Appeal

(11th

policy

at

Cir.

was

74,

n.2

2015))).

not

a

(citing
The

"trust"

In

Court

as

re

also

used

in

(Id^_ at 74-78.)

Appellant

Court denied.
Bankruptcy

F.3d

on

moved

for

reconsideration,

(IcL_ at 79-82, 87.)

Court's

Order

"trust" under § 541(c)(2).
II.

finding

which

the

Bankruptcy

Soon after, he appealed the
that

the

policy

was

not

a

(Id^ at 91-92.)
STANDARD OF REVIEW

This appeal asks whether 11 U.S.C. § 541(c)(2) excludes the
cash surrender value of a life-insurance policy that is subject

to a statutory restriction on transfer from the property of a

bankruptcy estate.

"The proper construction of the Bankruptcy

Code, whether by the bankruptcy court or the district court, is
a matter of law," subject to de novo review.
F.3d 1209,

1210

(11th Cir.

1997).

In re Meehan, 102

III.

"Under federal law,

property becomes
exposed to

however,

may

the

See

11

exempt

541(b)

bankruptcy
U.S.C.

certain

McFarland,

§§

when a debtor files

of

creditors.

exposure."

Similarly,

part

DISCUSSION

§

for bankruptcy his

estate

and

types

of

thereby

The

541(a)(1)

is

debtor,

property

from

790 F.3d at 1185; see 11 U.S.C. § 522(b).

and

(c)(2)

provide

for

certain

kinds

property that are not property of the bankruptcy estate.
appeal concerns § 541(c)(2).
In full,

§ 541(c) provides:

(c) (1)
of

Except

this

as

provided

subsection,

debtor

in

estate

under

(a) (5)

of

in

an

subsection

this

section

in

an

paragraph

interest

property becomes

provision

property

(a)(1),

of

of

(a)(2),

notwithstanding

agreement,

(2)
the

the
or

any

transfer

instrument, or applicable nonbankruptcy law(A)

that

transfer
debtor;

(B)

restricts

or

such

interest

of

that

is

or

the debtor,
case
under

conditioned

financial

by

the

on

the

trustee

in a

custodian

condition

of

on the commencement of a
this
title,
or
on
the

appointment of or taking
a

conditions

or

insolvency

a

possession by

case under this

before

such

title or

commencement,

and that effects or gives an option to
effect

this

a

forfeiture,

termination
property.

of

the

modification,

debtor's

interest

or
in

of

This

(2)

A

restriction

beneficial

on

interest

of

the
the

transfer

debtor

that
is
enforceable
under
nonbankruptcy law is enforceable
under this

11 U.S.C.

541.27

as well.

§

2010),

applicable
in a case

a trust under

see Collier on Bankruptcy 5

but the section applies to

See Patterson v.

541(c)(2)

a

trust

The paradigmatic example of

is a spendthrift trust,

(16th ed.

of
a

title.

§ 541(c).

§ 541(c)(2)

in

satisfied

Shumate 504

by

an

U.S.

753

other trusts

(1992)

ERISA-qualified

(finding

pension

plan

containing a restriction on transfer).

Appellant argues that the cash surrender value of his lifeinsurance policy constitutes a beneficial interest in a trust.
He contends that O.C.G.A.
of

his

interest

§ 541(c)(2).

Meehan,

and

thereby

creates

a

trust

under

102

F.3d

found

1209

Meehan

in

(11th

Cir.

''determined

[O.C.G.A.

that

1997).

U.S.C.

the

In

§ 18-4-22 (a) ] was

all

The cash surrender values of life insurance

policies

issued upon the lives

residents

of

this

state,

upon

of citizens
whatever

or

form,

shall not in any case be liable to attachment,

garnishment,

or legal process

in favor of any

creditor of the person whose life is so insured
unless the insurance policy was assigned to or
was effected for the benefit of such creditor or

unless the purchase,

policy

is

creditors.

made

with

sale,

the

or transfer of the

intent

to

his

anti-alienation

2 O.C.G.A. § 33-25-11(c):

(c)

11

He bases his argument on a single authority, In re

characterization,

language

§ 33-25-11(c)2 restricts the transfer

defraud

that

was

needed

to

remove

(Appellant's
Appellant's

things:

5

argument

"the

only

Georgia

similarly

3

creates

of

(emphasis

Meehan must

the

conclusion

added)).

have

done

was

at

a

issue

trust

at

here,

by

For

one

of two

In Appellant's

that

referenced in Meehan was
Br.

estate."

created a trust or that

§ 18-4-22 (a)

(Appellant's

statute

property

has no trust requirement.

*trust'

the

at

logical

statute."

as

to work,

§ 541(c)(2)

creating the

that

Doc.

Br.,

IRA]

held that O.C.G.A.

11 U.S.C.

view,

[the

3.)

language

contained in the
Appellant

O.C.G.A.

restricting

the

§

reasons

33-25-11(c),

transfer.

This

interpretation of Meehan is incorrect.

Appellant
beneficial

interest

restriction

question
contained

document.

confuses

on

and
in

its

held
a

a

issues:
trust

transfer.

that

102

enforceable because

the document").3

in

statute

Meehan,

two

it

the
and

and

Meehan

does

not

1212

on

need

to

is

a

is

a

there

addressed

the

transfer
be

in

latter

can

the

("a restriction is no

located in the

statute

be

trust

less

rather than in

Meehan did not resolve the first question and

did not hold that the nonbankruptcy statute at

§ 18-4-22 (a),

there

whether

restriction

F.3d at
is

whether

created a trust.

Instead,

the

issue,

O.C.G.A.

Eleventh

Circuit

3 Other circuits recognize this as Meehan's holding.
See In re
Lowenschuss, 171 F.3d 679, 683 (9th Cir. 1999).
In fact, the question
of

whether

restrictions

on

transfer

must

be

included

in

the

trust

document or whether statutory restrictions are alone sufficient is the

subject of a circuit split.

See id.

(recognizing the circuit split);

Meehan, 102 F.3d at 1212; In re Yuhas, 104 F.3d 612 (3d. Cir 1997).

assumed

the

stipulated
defines

IRA

the

it

was

IRA

as

a

an

395871,

same

support

a

that

(citing 26 U.S.C.
WL

was

at

*6,

trust

or

because

trust.

§ 408(a));
n.13

M.D.

102

Ga.

other

argument

the

at

4,

1211,

n.4

2010

2010)

Meehan
cash

Code

10-50827,

No.

Oct.

parties

Revenue

F.3d

words,

that

the

Internal

see In re Allen,

In

for Appellant's

because

the

Meehan,

(Bankr.

conclusion).4

either

(drawing

provides

no

surrender value

of his life-insurance policy is a "beneficial interest ... in
a trust."

11 U.S.C.

Moreover,
transfer

in

restriction

541(c)(2).
interest

read

§ 541(c) (2) .

alone

Section
in

property

"notwithstanding
instrument,

or

its

any

entirety,

§

does

create

not

541(c)(1)(A)
becomes

applicable

provides

part

provision

541(c)

of

in

the

an

nonbankruptcy

is

a

clear

that

a

restrictions

are

Section 541(c)(2)

transferring
Collier

on

In other
not

words,

in

§

debtor's

bankruptcy

agreement,
law that

as a general

enforceable

a

under

"trust"

transfer
or

11 U.S.C.

rule,

bankruptcy

estate

restricts

conditions transfer of such interest by the debtor."

§ 541(c)(1)(A).

that

transfer

proceedings.

is an exception that enforces restrictions on

a debtor's
Bankruptcy

beneficial
1

541.27

interest

(16th

ed.

in a trust.

See

2010)

one

("[t]he

4 Similarly, the Supreme Court appears to have assumed that the
ERISA-qualified pension plan at issue in Patterson was a trust because
the IRS defines such an account to be a trust.
2247 (quoting 26 U.S.C. § 401 (a) (13) (A)) .

Patterson 504 U.S. at

express exception to the general rule that every [restriction on
transfer]

is invalid is stated in

[11 U.S.C.

§ 541(c)(2)],

which

preserves restrictions on the transfer of a beneficial interest
of the debtor in a trust").

The Third Circuit,

in an IRA,

in a case involving a debtor's interest

explained that § 541(c)(2)

contained the following

elements:

(1) the IRA must constitute a 'trust' within
the meaning of 11 U.S.C. § 541(c)(2); (2)
the

funds

in

debtor's

trust;

IRA

must

"beneficial

(3)

Section

(4)

the

the

408

the

statute]

interest"

IRA must

of

the

of

that

the

in

that

qualified

be

under

Revenue

Code;

New

Jersey

Internal

provision

stating

represent

[the

property

held

in

a

qualifying IRA is 'exempt from all claims of
creditors'
must
be
transfer' of the IRA
restriction
must
be
nonbankruptcy law.'

a
'restriction
on
funds; and (5) this
'enforceable
under

In re Yuhas, 104 F.3d 612, 614 (3d. Cir. 1997). Meehan concerns

the fourth requirement above and does not address the first.
The Court now turns to whether Appellant's life-insurance policy
constitutes

a

trust.

Trusts come in many varieties, and a precise definition of
"trust"

in

§

542(c)(2)

may

prove

elusive.

The

Court

is

satisfied, however, the life-insurance policy at issue here is
not one.

The Revised Georgia

Trust

Code of 2010 defines

a

"trust" as "an express trust or an implied trust but shall not
include

trusts

created

by

statute

8

or

the

Constitution

of

Georgia."

O.C.G.A.

§

53-12-2(13).

An

express

trust

"(1) An intention by a settlor to create such a trust,
property,

(3)

ascertainable

reasonably

(4)

A

...
at

either

by

a

time

ascertainable

trustee;

provided

the

a

and

law."

who

of

the

of

within

trust

§

or

creation

the

Trustee

O.C.G.A.

resulting

§ 53-12-2(5).

(5)

beneficiary

rule

duties

a

An

constructive

Trust

reasonably

such

a

trust

or

perpetuities;

specified

53-12-20.

(2)

is

against

requires

in

writing

implied
trust.

trust

or
is

O.C.G.A.

Georgia courts have long described a trust as

an equitable obligation either express or
implied resting upon a person by reason of a
confidence reposed in him, to apply or deal
with property for the benefit of some other
person or for the benefit of himself and
another
or
others
according
to
such
confidence.

Peach

Consol.

Ct. App.
(Ga.

2006)

1965)

1898)));

Props.,

LLC

v.

Carter,

(quoting Smith v.

(quoting McCreary v.

see also

Trust,

628

Francis,

Gewinner,

S.E.2d

144

680,

S.E.2d 439,

29 S.E.

Black's Law Dictionary

682

960,

963

(Ga.

444
(Ga.

(10th ed. 2014)

("A fiduciary relationship regarding property and

charging the

person with title to the property with equitable duties to deal
with it for another's benefit.").

By contrast, the Georgia Insurance Code defines "insurance"
as

"a

contract

distributing

which

individual

is

an

losses

integral

whereby

part

one

of

a

plan

undertakes

for

to

indemnify another or to pay a specified amount of benefits upon

determinable
added);

contingencies."

see

2014)

Insurance,

also

contract

("A

by

relationship

confidential

Crumpton,
& Cas.
Walsh

v.

In

an

fiduciary in

Campbell,

Accordingly,
contract

between

Fordham,

a

and not

a

.

.

(emphasis

nature.

657,

(emphasis

.

(10th

an

ed.

undertakes

added)).

and

to

Further,

insurer

is

not

Modern Woodmen of Am.

(Ga. Ct. App.

S.E.2d

33-1-2(2)
Dictionary

party

250 S.E.2d 843,

202

§

Law

insured

life-insurance

conclusion,

§ 541(c)(2)

one

. . . ."

487 S.E.2d 47, 49

Co.
v.

or

Black's

which

indemnify another party
the

O.C.G.A.

1997);

845
661

policy

(Ga.
(Ga.

v.

State Farm Fire
Ct.

1978);

App.

1973).

a

Ct.

App.

typical

resembles

trust.

to

be

excluded

from the

bankruptcy

estate,

requires that the property at issue be "a beneficial

interest of the debtor in a trust."

11 U.S.C.

Court

O.C.G.A.

agrees

nonbankruptcy

with
law

Appellant
that

that

restricts

the

§

transfer

surrender value of a life-insurance policy.

Georgia's insurance code does

§

541(c)(2).

33-25-11
of

is

not create a "trust."

and the cash surrender value

cash

Because a
§ 541(c)(2)

of the policy is

property of the bankruptcy estate under 11 U.S.C. § 541(a) (1).

10

a

But that section of

life-insurance policy is a contract and not a trust,

does not apply,

the

The

IV.

As
Court's

discussed
Order

above,

sustaining

CONCLUSION

the
the

Court

Trustee's

AFFIRMS

the

Bankruptcy

objections.

The

Clerk

shall terminate all deadlines and motions and CLOSE this case.
The

Clerk

shall

terminate

all

deadlines

and

motions

and

CLOSE this case.

ORDER ENTERED at Augusta, Georgia, this _/j£^ day of May
2016.

HONORABLE J.
UNITED

STATES

RANDAL HALL
DISTRICT

JUDGE

'HERN DISTRICT OF GEORGIA

11