NORTHERN DISTRICT OF CALIFORNIA
DEPAK and KUSUM STOKES, No. 99-12603
Memorandum re Pension Plans
Debtors Depak and Kussum Stokes are both medical doctors. In the latest version of their
schedules, they listed as assets two pension plans: the Kusum Stokes, M.D. Corporate Pension Plan and
the Center for Women Health Care Pension Plan. The debtors are the sole beneficiaries of both plans.
The debtors claimed both plans exempt pursuant to California Code of Civil Procedure § 704.115 as a
private retirement plan. Creditor Northwest Farm Credit Services objects.
The applicable law is clearly stated in In re Phillips
, 218 B.R. 520, 522 (N.D.Cal.1998):
[I]t is well settled that a "private retirement plan" is not exempt by mere virtue of its
name. Bloom v. Robinson (In re Bloom)
, 839 F.2d 1376, 1378 (9th Cir.1988); Yaesu
Electronics Corp. v. Tamura
, 28 Cal.App.4th 8, 14, 33 Cal.Rptr.2d 283 (1994)
). The Ninth Circuit has interpreted the statute as requiring that a
retirement plan be "designed and used" for retirement purposes. Id.
See also In re Daniel
, 771 F.2d 1352 (9th
In this case, the evidence was convincing that the debtors did not use the Corporate Pension Plan
for retirement purposes. They took loans from the plan without properly documenting them, repaying
them or providing for interest on them, forgave debts owed to the plan, caused the plan to loan money
to controlled corporations, and transferred assets in and out of the plan as it suited them. Having failed
to use the plan properly, they cannot exempt it. The objection to the claim of exemption in the
Corporate Pension Plan must accordingly be sustained.
Similarly, the debtors used the Center for Womens Care Pension Plan for non-retirement
purposes including the satisfaction of personal debts. The objection to the exemption of this plan must
also be sustained.
As a fall-back position, the debtors rely on In re Moses
, 167 F.3d 470 (9th
Cir. 1999), and argue
that the pension plans are not property of the bankruptcy estate. The court in Moses
held that if a
pension plan contains a spendthrift provision enforceable under state law, then the plan is excluded from
the bankruptcy estate by § 541(c)(2). However, the evidence established that the spendthrift provisions
in the plans are not enforceable. According to Moses
, a spendthrift provision in a pension plan does not
remove the plan from the estate if the debtors created the plan, administered the plan, had the ability to
terminate or amend the plan, or had unfettered access to the plan assets. 167 F.3d at 473. The debtors'
arguments probably fail on all counts. At the very least, the debtors' unrestrained and improper use of
the pension plan assets renders their spendthrift provisions unenforceable under Moses
Counsel for Northwest shall submit an appropriate form of order sustaining its objection to the
exemption of the two scheduled pension plans and directing the debtors to turn over the assets of the
plans to the trustee.
Dated: December 18, 2001 ___________________________