WALSH v. DIVELY et al

Filing 9

MEMORANDUM OPINION & ORDER - upon consideration of Appellant's appeal (ECF No. 1 ), Appellant's brief in support of his appeal (ECF No. 2 ), and Appellee FedEx Corporation's brief in opposition to Appellant's appeal (ECF No. 7 ), IT IS HEREBY ORDERED that Appellant's appeal is DENIED. IT IS FURTHER ORDERED that the decision of the Bankruptcy Court, as memorialized in Walsh v. Dively, 522 B.R. 780, 784-85 (Bankr. W.D. Pa. 2014), and Walsh v. Dively, No. 12-70166-JAD, 2015 Bankr. LEXIS 124 (Bankr. W.D. Pa. Jan. 7, 2015), is AFFIRMED, and as more fully stated in said Memorandum Opinion & Order. Signed by Judge Kim R. Gibson on 2/8/2016. (dlg)

IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF PENNSYLVANIA
JAMES R. WALSH, Trustee of the )
Bankruptcy Estate of Bobbie Jo S. Dively, )
)
Appellant,
)
)
v.
)
)
BOBBIE JO S. DIVELY, SEAN DIVELY,
)
FEDEX CORPORATION, HEWITT
)
ASSOCIATES, LLC,
)
)
Appellees.
)

CIVIL ACTION NO. 3:15-45
JUDGE KIM R. GIBSON

MEMORANDUM OPINION AND ORDER
I.

INTRODUCTION
This matter comes before the Court on Appellant’s Notice of Appeal of the

Bankruptcy Court’s January 7, 2015, order denying Appellant’s motion for authority to
execute a qualified domestic relations order for want of subject-matter jurisdiction. (ECF No.
1; see also Walsh v. Dively, No. 12-70166-JAD, 2015 Bankr. LEXIS 124 (Bankr. W.D. Pa. Jan. 7,
2015).) Appellant appealed the Bankruptcy Court’s decision on February 18, 2015, (ECF No.
1), and filed a brief in support of its appeal on March 4, 2015 (ECF No. 2). Appellee FedEx
Corporation filed its brief in opposition to Appellant’s appeal on April 10, 2015, (ECF No. 7),
and this matter is now ripe for disposition. For the reasons set forth below, this Court will
deny Appellant’s appeal and will affirm the Bankruptcy Court’s decision denying
Appellant’s motion for authority to execute a qualified domestic relations order.
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II.

JURISDICTION
This Court has jurisdiction to hear appeals from the Bankruptcy Court pursuant to 28

U.S.C. § 158(a), which provides:
The district courts of the United States shall have jurisdiction to hear appeals
(1) from final judgments, orders, and decrees . . . of bankruptcy judges entered
in cases and proceedings referred to the bankruptcy judges under section 157
of this title. An appeal under this subsection shall be taken only to the district
court for the judicial district in which the bankruptcy judge is serving.
28 U.S.C. § 158(a). The appeal in this case is taken from the decision rendered by the
Bankruptcy Court of the Western District of Pennsylvania.

This Court therefore has

jurisdiction to hear the appeal from the Bankruptcy Court’s decision. See In re Michael, 699
F.3d 305, 308 n.2 (3d Cir. 2012) (“[A] district court sits as an appellate court to review a
bankruptcy court.”); see also In re Professional Management, 285 F.3d 268 (3d Cir. 2002) (a
district court’s jurisdiction is proper as an appeal of the final order of the bankruptcy court
under 28 U.S.C. §158(a)).
III.

BACKGROUND
A. Factual Background
The Court adopts the facts as set forth in the Bankruptcy Court’s December 4, 2014,

memorandum opinion. See Walsh v. Dively, 522 B.R. 780, 784-85 (Bankr. W.D. Pa. 2014). This
case arose out of a martial settlement agreement that was reached in 2011 between Debtor
Bobbi Jo S. Dively and Sean Dively. Id. at 784. The agreement awarded Ms. Dively a 50%
interest in Mr. Dively’s FedEx pension, and the pension award was incorporated into the
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state court’s October 11, 2011, order. Id. at 785. Ms. Dively filed a bankruptcy petition on
February 22, 2012. Id. at 784. Appellant has accepted the present value of Ms. Dively’s
interest as being $77,646.39 as of the petition date. Id. at 785. On April 29, 2014, Appellant
filed a motion seeking authority to execute a qualified domestic relations order (“QDRO”) in
an effort to liquidate Ms. Dively’s interest in the pension benefits. See id. at 781.
B.

The Bankruptcy Court’s Decision

Relying upon Urmann v. Walsh, 523 B.R. 472 (W.D. Pa. 2014), the Bankruptcy Court
first determined that Appellant had standing to succeed to Ms. Dively’s interest because “a
trustee in bankruptcy may ‘stand in the shoes’ of the debtor pursuant to 11 U.S.C. § 541, and
assert the debtor’s rights to pursue a QDRO (to the extent that the retirement funds at issue
constitute property of the bankruptcy estate).” Dively, 522 B.R. at 783 (quoting Urmann, 523
B.R. at 482). Specifically, the Bankruptcy Court explained that, when read together, Sections
323, 541, and 704 of the Bankruptcy Code provide that: (1) “the trustee succeeds to the
debtor's legal and equitable interests as a general matter;” (2) “the trustee has a duty to
liquidate assets of the estate for the benefit of creditors;” and (3) “the trustee may bring
appropriate legal actions in a court of competent jurisdiction if necessary to liquidate assets
of the bankruptcy estate.” Id. at 784 (citing 11 U.S.C. § 541(a)(1); 11 U.S.C. § 704(a)(1); 11
U.S.C. § 323). The Bankruptcy Court determined that although a bankruptcy trustee is not
specifically identified as an “alternate payee” or “beneficiary” in ERISA, a trustee seeking the
issuance of a QDRO is consistent with the statutes discussed above. Id. (“ERISA . . . does not
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preclude the ability of a bankruptcy trustee to seek the entry of a QDRO if the bankruptcy
trustee has succeeded to the debtor’s pension plan interests by operation of law.”).
After determining that a bankruptcy trustee has standing to succeed to a debtor’s
interest as an “alternate payee” or “beneficiary” under ERISA, the Bankruptcy Court next
analyzed whether a Chapter 7 trustee has standing to liquidate the pension interests
awarded to the debtor. Id. The Bankruptcy Court noted that the Supreme Court has held
that retirement plans containing a legally enforceable “anti-alienation clause” are not
“property of the estate” pursuant to 11 U.S.C. § 541(c)(2). Id. at 785 (citing Patterson v.
Shumate, 504 U.S. 753 (1992)). The Bankruptcy Court also explained that, pursuant to the
Bankruptcy Code, “debtors in bankruptcy have the right to exempt from the reach of the
bankruptcy trustee various retirement funds and pension plan assets.” Id. (citing 11 U.S.C.
§§ 522(b)(3)(C), 522(d)(10)(E), and 522(d)(12)).
In analyzing Patterson and Sections 541(c)(2), 522(b)(3)(C), 522(d)(10)(E), and
522(d)(12) of the Bankruptcy Code, the Bankruptcy Court determined that “retirement funds
in some instances may be outside the ambit of ‘property of the estate.’” Id. (citing Rousey v.
Jacoway, 544 U.S. 320 (2005)). In relation to the instant case, the Bankruptcy Court reasoned
that “if Ms. Dively's pension interests fall under the umbrella of 11 U.S.C. §§ 541(c)(2),
522(b)(3)(C), 522(d)(10)(E) or 522(d)(12), the assets would be excluded from ‘property of the
estate’ and the trustee in this case may not make any claim to the assets for the benefit of
creditors.” Id. (citing Nelson v. Ramette, 322 F.3d 541 (8th Cir. 2003)). In applying the facts,
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the Bankruptcy Court found that Ms. Dively had a pre-bankruptcy vested interest in the
pension plan and that her interest was vested by operation of the marital settlement
agreement, which was incorporated into the prepetition divorce decree. Id. at 786. Because
Ms. Dively’s property interest was in an ERISA qualified pension plan, the Bankruptcy Court
opined that her interest in the FedEx pension “is conceivably outside the scope of ‘property
of the estate.’” Id. Specifically, the Bankruptcy Court stated that if Ms. Dively’s interest in
the pension is superior to the interest of the Chapter 7 trustee, then the Chapter 7 trustee
would have no claim to the assets and would lack an “injury in fact” or a sufficient “personal
stake” in the outcome of the proceeding to warrant the invocation of the Bankruptcy Court’s
limited federal subject-matter jurisdiction. Id. As a result, the Bankruptcy Court concluded
that the disposition of the motion to execute QDRO should be deferred until the Chapter 7
trustee demonstrated that he had standing to liquidate Ms. Dively’s pension interests. Id.
The Bankruptcy Court recognized that Ms. Dively had not claimed an exemption in
the pension but noted that Ms. Dively did not agree to convey her interest in the proceeds of
the FedEx pension to the trustee. Id. at 786-87. The Bankruptcy Court stated that it was
unable to find any persuasive authority supporting the trustee’s argument that he could
surcharge the pension because Ms. Dively wrongfully failed to disclose it and therefore
forfeited her interest in it. Id. at 787. Instead, the Bankruptcy Court’s own research revealed
that the Supreme Court has found no basis for a surcharge of exempt assets by a bankruptcy
trustee, even in instances where the debtor wrongfully failed to disclose the asset, because
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such relief is not included in the Bankruptcy Code. Id. (citing Law v. Siegel, 134 S. Ct. 1188
(2014)). The Bankruptcy Court therefore concluded that the trustee must demonstrate “an
independent basis” for claiming that the pension interests are property of the estate before it
would consider the trustee’s motion to execute QDRO. Id.
Finally, the Bankruptcy Court noted that Ms. Dively disclosed to her counsel her
pension interests for inclusion in the bankruptcy schedules and made all disclosures
required by law. Id. Because Ms. Dively’s counsel withdrew his representation, Ms. Dively
did not file a brief in response to the trustee’s motion to execute QDRO. Id. The Bankruptcy
Court reasoned that Ms. Dively may not have understood the consequences of the trustee’s
motion and found that she should be afforded an opportunity to be heard. Id. at 787-88. As
a result, the Bankruptcy Court ordered the issuance of a rule to show cause as to whether
Ms. Dively’s pension interests should be excluded from the property of the estate and
whether the motion to execute QDRO should be denied for lack of standing by the Chapter 7
trustee. Id. at 788. Following the show-cause hearing, the Bankruptcy Court denied the
trustee’s motion to execute QDRO for want of subject-matter jurisdiction. See Dively, 2015
Bankr. LEXIS 124, at *1.
IV.

STANDARD OF REVIEW
This Court may exercise appellate jurisdiction over final judgments, orders, and

decrees entered by bankruptcy courts. 28 U.S.C. § 158(a)(1). In reviewing a bankruptcy
court’s decision, a district court must apply several standards of review. First, a bankruptcy
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court’s factual findings are reviewed for clear error and its exercise of discretion for abuse
thereof. In re Trans World Airlines, Inc., 145 F.3d 124, 131 (3d Cir. 1998). A factual finding is
“clearly erroneous” if the reviewing court is “left with a definite and firm conviction that a
mistake has been committed.” In re W.R. Grace & Co., 729 F.3d 311, 319, n.14 (3d Cir. 2011).
Under the clearly erroneous standard, “it is the responsibility of an appellate court to accept
the ultimate factual determination of the fact-finder unless that determination either (1) is
completely devoid of minimum evidentiary support displaying some hue of credibility, or
(2) bears no rational relationship to the supportive evidentiary data.” Coalition to Save Our
Children v. State Bd. of Educ., 90 F.3d 752, 759 (3d Cir. 1996) (internal quotations omitted).
Second, a bankruptcy court’s legal determinations are reviewed de novo. See In re
Ruitenberg, 745 F.3d 647, 650 (3d Cir. 2014); see also Am. Flint Glass Workers Union v. Anchor
Resolution Corp., 197 F.3d 76, 80 (3d Cir. 1999). Third, mixed questions of fact and law must
be differentiated and reviewed under the appropriate standard for each component. See In re
Montgomery Ward Holding Corp., 326 F.3d 383, 387 (3d Cir. 2003). Fourth, a bankruptcy
court’s exercise of discretion must be reviewed for abuse. In re Friedman’s Inc., 738 F.3d 547,
552 (3d Cir. 2013). A bankruptcy court abuses its discretion when its ruling rests upon an
error of law or a misapplication of law to the facts. In re O’Brien Envtl. Energy, Inc., 188 F.3d
116, 122 (3d Cir. 1999).

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V.

ANALYSIS
A.

The Bankruptcy Court’s Factual Findings

As noted above, the Court cannot disturb the factual findings of the Bankruptcy
Court unless they are “clearly erroneous.” In re W.R. Grace & Co., 729 F.3d at 319, n.14. The
only factual findings that were made by the Bankruptcy Court concerned the procedural
history of Mr. and Ms. Dively’s marital settlement agreement, Ms. Dively’s bankruptcy
petition, and Appellant’s motion to execute a QDRO. See Dively, 522 B.R. at 784-85. The
parties’ briefs reiterate the facts as set forth by the Bankruptcy Court, (see ECF No. 2 at 6-8;
ECF No. 7 at 5-6), and the documents attached to Appellant’s appeal confirm these facts, (see
ECF No. 1).

The Court therefore cannot conclude that the Bankruptcy Court’s factual

findings are “completely devoid of minimum evidentiary support displaying some hue of
credibility” or “bear[] no rational relationship to the supportive evidentiary data.”
DiFederico, 201 F.3d at 208. Accordingly, the Court may not disturb the Bankruptcy Court’s
factual findings.
B.

The Bankruptcy Court’s Legal Conclusions

As discussed above, this Court exercises plenary, or de novo, review over any legal
conclusions reached by the Bankruptcy Court. In re Ruitenberg, 745 F.3d at 650 (3d Cir. 2014);
Am. Flint Glass Workers Union, 197 F.3d at 80. The Court must “exercise plenary review of the
court’s interpretation and application of [the] facts to legal precepts.” In re Nortel Networks,
Inc., 669 F.3d 128, 137 (3d Cir. 2011).
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In his brief in support of his appeal, Appellant argues that Ms. Dively’s interest in the
pension became property of the estate upon commencement of the case. (ECF No. 2 at 9.)
Appellant asserts that the Bankruptcy Court erred by holding that Ms. Dively owned a
vested interest in the pension prior to her bankruptcy filing.

(Id. at 10.)

Specifically,

Appellant “candidly admits” that if Ms. Dively had obtained a QDRO before filing her
petition, then the interest in the pension would not be the estate’s property. (Id.) However,
because Ms. Dively did not “perfect” her interest in the pension by seeking a QDRO in state
court before filing her bankruptcy petition, Appellant argues that the pension is the estate’s
property. (Id. at 10-11.)
In support of his argument, Appellant contends that the Bankruptcy Court
improperly distinguished Walsh v. Burgeson, 504 B.R. 800 (Bankr. W.D. Pa. 2014), because the
Bankruptcy Court in Burgeson concluded that a QDRO “provides the basis for a spouse to
assert an entitlement to a benefit under an ERISA-qualified pension.” (Id. at 12-13 (quoting
Burgeson, 504 B.R. at 833).) Appellant further relies upon Clark v. Rameker, 134 S. Ct. 2242
(2014), which held that an inherited IRA could not be claimed as exempt because allowing
such an exemption would constitute a “free pass.” (Id. at 14 (quoting Clark, 134 S. Ct. at 2248
(internal quotations omitted).)

In applying this rationale to the instant case, Appellant

argues that allowing Ms. Dively to obtain a QDRO to effectuate the property settlement
agreement after the discharge and closing of her bankruptcy petition “would clearly result in
a ‘free pass’ and a windfall to [her].” (Id. at 14-15.)
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Appellant discusses ERISA’s provisions and asserts that Ms. Dively is not an
“alternate payee” because she failed to obtain a QDRO and therefore cannot be considered to
be a “beneficiary” under the pension. (Id. at 16-18.) Appellant contends that the Bankruptcy
Court’s reliance upon Patterson, 504 U.S. 753, and Rousey, 544 U.S. 320, was misplaced
because Patterson involved a pension plan that contained anti-alienation provisions for tax
qualification, and Rousey involved an IRA. (Id. at 18.) Appellant further claims that the
Bankruptcy Court erred by holding that Ms. Dively possessed a vested interest in the
pension as a result of the entry of the property settlement agreement because “with the entry
of the [agreement], [Ms. Dively] was merely granted rights as against [Mr. Dively]; the
[agreement] itself, did not confer rights vis-à-vis third parties, in this instance the [p]ension.”
(Id. at 19-20.)
In response, FedEx argues that the state court’s divorce decree fully vested Ms.
Dively in her portion of the pension benefits. (ECF No. 7 at 8.) Relying upon Crawford v.
Hertzberg, No. 13-23753-JAD, 2014 Bankr. LEXIS 4692 (Bankr. W.D. Pa. Nov. 13, 2014), FedEx
asserts that the marital settlement agreement awarded Ms. Dively a portion of the pension
benefit, and this award was incorporated into the divorce decree. (Id. at 9-10.) FedEx
contends that Ms. Dively therefore had a fully vested interest in the pension benefits upon
entry of the divorce decree. (Id. at 10-11.)
Regarding the absence of a QDRO, FedEx argues that “[w]hile a QDRO is certainly a
way to obtain a vested interest in pension benefits, thereby excluding them from a
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bankruptcy estate, it is by no means the only way such an interest is obtained.” (Id. at 12.) In
support of its argument, FedEx explains that in Patterson, the Supreme Court concluded that
nonbankruptcy laws, which include state laws, exist to create the necessary interest to
exclude property from the estate. (Id. at 12-13.) Because the divorce decree was entered
pursuant to Pennsylvania state law, FedEx contends that the absence of a QDRO is irrelevant
and that Ms. Dively’s interest in the pension benefits vested months before she filed her
bankruptcy petition. (Id. at 13-14.)
Having conducted a de novo review of the law, the Court concludes that the
Bankruptcy Court did not err in denying Appellant’s motion to execute QDRO.

In

conducting its de novo review, the Court finds the reasoning in the recent decision of
Crawford v. Hertzberg, No. 15-CV-240, 2015 U.S. Dist. LEXIS 170724 (W.D. Pa. Dec. 22, 2015)
(Bissoon, J.), to be persuasive. In Crawford, Mr. and Ms. Hertzberg both filed for bankruptcy
after reaching a marriage-settlement agreement. Id. at *2. The trustee sought to recover
funds that were held in an ERISA-qualified retirement account and that were owed to Ms.
Hertzberg under the marriage settlement agreement. Id. at *2. Relying upon Patterson, the
Bankruptcy Court recognized that retirement funds properly may be excluded from the
property of a bankruptcy estate and scheduled a show-cause hearing. Id. at *2-3. After the
trustee was unable to explain why the Patterson exclusion did not apply, the Bankruptcy
Court dismissed the trustee’s proceeding. Id. at *3.

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On appeal, the trustee argued, for the first time, that Ms. Hertzberg’s interest in the
funds was unperfected because a QDRO was not entered in the state-court proceedings. Id.
at *4. After finding that the trustee had waived this argument, the District Court determined
that the trustee’s argument “brushes over one incredibly important fact in this case, namely,
that there existed a Court Order, entered prior to both . . . Bankruptcy Cases, which
approved and incorporated the terms of the Marriage Settlement Agreement.” Id. at *6
(internal quotations and alterations omitted). The District Court explained that “a ‘QDRO or
divorce decree’ pre-dating the bankruptcy petition is sufficient to invoke the Patterson
exclusion” and concluded that “[t]he Court of Common Pleas’s divorce decree, entered well
before either ex-spouse filed a bankruptcy petition, brings this case within the confines of
Patterson, and the ERISA-plan proceeds permissibly were excluded from her bankruptcy
estate.” Id. at *6-7 (citing Urmann, 523 B.R. at 477; In re Burgeson, 504 B.R. at 804).
In the instant case, Ms. Dively had a pre-bankruptcy vested interest in the pension
plan. Her interest was vested by operation of the marital settlement agreement, which was
incorporated into the prepetition divorce decree. Because Ms. Dively’s property interest was
in an ERISA qualified pension plan, her interest in the FedEx pension invokes the Patterson
exclusion. The Bankruptcy Court therefore properly excluded the ERISA-plan proceeds
from Ms. Dively’s bankruptcy estate.

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C. The Bankruptcy Court's Exercise of Discretion
Finally, the Court reviews a bankruptcy court’s exercise of discretion for abuse. In re
Friedman’s Inc., 738 F.3d at 552. A bankruptcy court abuses its discretion when its ruling
rests upon an error of law or a misapplication of law to the facts. In re O’Brien Envtl. Energy,
Inc., 188 F.3d at 122. Because the Court concurs with the Bankruptcy Court’s application of
the relevant law to Appellant’s motion for authority to execute a QDRO, no error of law or
misapplication of the law to the facts is present in the Bankruptcy Court’s decision.
Accordingly, the Court finds that the Bankruptcy Court did not abuse its discretion.
VI.

CONCLUSION
For the foregoing reasons, the Court will deny Appellant’s appeal and will affirm the

decision of the Bankruptcy Court, as memorialized in Walsh v. Dively, 522 B.R. 780, 784-85
(Bankr. W.D. Pa. 2014), and Walsh v. Dively, No. 12-70166-JAD, 2015 Bankr. LEXIS 124 (Bankr.
W.D. Pa. Jan. 7, 2015).
An appropriate order follows.

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IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF PENNSYLVANIA
JAMES R. WALSH, Trustee of the
Bankruptcy Estate of Bobbie Jo S. Dively,

)
)
)

Appellant,

)

v.

CIVIL ACTION NO. 3:15-45

)

JUDGE KIM R. GIBSON

)
)

BOBBIE JO S. DIVELY, SEAN DIVELY,
FEDEX CORPORATION, HEWITT
ASSOCIATES, LLC,

)

)
)
)

Appellees.

)

ORDER
AND NOW, this 8th day of February, 2016, upon consideration of Appellant's appeal
(ECF No. 1), Appellant's brief in support of his appeal (ECF No. 2), and Appellee FedEx
Corporation's brief in opposition to Appellant's appeal (ECF No. 7), IT IS HEREBY
ORDERED that Appellant's appeal is DENIED.

IT IS FURTHER ORDERED that the

decision of the Bankruptcy Court, as memorialized in Walsh v. Dively, 522 B.R. 780, 784-85
(Bankr. W.O. Pa. 2014), and Walsh v. Dively, No. 12-70166-JAD, 2015 Bankr. LEXIS 124 (Bankr.
W.O. Pa. Jan. 7, 2015), is AFFIRMED.

BY THE COURT:

KIM R. GIBSON
UNITED STATES DISTRICT JUDGE