Comunity Lending, Inc. v. Suzanne Decker

FILED
NOT FOR PUBLICATION OCT 08 2010
MOLLY C. DWYER, CLERK
UNITED STATES COURT OF APPEALS U .S. C O U R T OF APPE ALS
FOR THE NINTH CIRCUIT
In the Matter of: COMUNITY LENDING, No. 09-15302
INC.,
D.C. Nos. 5:08-cv-00201-JW
Debtor, 5:07-cv-05436-JW
MAI CHRISTINA PHAM; JANENE MEMORANDUM *
TOWNER; PHYLLIS CHRISTRICH;
JOHN PHAM; MAI NGUYEN; HUNG
PERRY NGUYEN; JOYCE FREEMAN;
CHRISTOPHER HAKE; JOHN
NELSON; KATHERINE BUCKMEYER;
JACK FERGUSON; JEANNE RUPERT;
PHYLLIS HEINRICHS,
Plaintiffs-counter-claim-
defendants - Appellees,
v.
SUZANNE L. DECKER, Chapter 7
Bankruptcy Trustee for debtor ComUnity
Lending, Inc.,
Defendant-counter-claimant -
Appellant.
*
This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.
In the Matter of: COMUNITY LENDING, No. 09-16191
INC.,
D.C. Nos. 5:08-cv-00201-JW
Debtor, 5:07-cv-05436-JW
MAI CHRISTINA PHAM; JANENE
TOWNER; PHYLLIS CHRISTRICH;
JOHN PHAM; MAI NGUYEN; HUNG
PERRY NGUYEN; JOYCE FREEMAN;
CHRISTOPHER HAKE; JOHN
NELSON; KATHERINE BUCKMEYER;
JACK FERGUSON; JEANNE RUPERT;
PHYLLIS HEINRICHS,
Plaintiffs-counter-claim-
defendants - Appellees,
v.
SUZANNE L. DECKER, Chapter 7
Bankruptcy Trustee for debtor ComUnity
Lending, Inc.,
Defendant-counter-claimant -
Appellant.
Appeal from the United States District Court
for the Northern District of California
James Ware, District Judge, Presiding
Submitted October 6, 2010 **
**
The panel unanimously concludes this case is suitable for decision
without oral argument. See Fed. R. App. P. 34(a)(2).
-2-
San Francisco, California
Before: THOMPSON, FERNANDEZ and SILVERMAN, Circuit Judges.
Suzanne Decker, Chapter 7 Trustee for Debtor ComUnity Lending, Inc.,
appeals the district court’s order entering summary judgment in favor of Plaintiffs,
certain participants in a “top hat” plan established by ComUnity Lending. We
have jurisdiction under 28 U.S.C. § 1291 and we reverse.
In interpreting a benefit plan under ERISA, “courts should first look to
explicit language of the agreement to determine, if possible, the clear intent of the
parties.” Gilliam v. Nev. Power Co., 488 F.3d 1189, 1194 (9th Cir. 2007) (quoting
Richardson v. Pension Plan of Bethlehem Steel Corp., 112 F.3d 982, 985 (9th Cir.
1997)). There can be no doubt that the plan at issue was intended to be a top hat
plan. Article 10.2 of the plan states that it “was designed and intended to be a Top-
Hat plan.” ERISA “defines a top hat plan as one ‘which is unfunded and is
maintained by an employer primarily for the purpose of providing deferred
compensation for a select group of management or highly compensated
employees.’” Id. at 1192-93 (quoting 29 U.S.C. §§ 1051(2), 1081(a)(3),
1101(a)(1)).
“Unfunded plans do not confer a present taxable economic benefit.” Minor
v. United States, 772 F.2d 1472, 1475 (9th Cir. 1985). Therefore, if an employer
-3-
places plan participants’ deferred compensation into a separate trust, the plan
remains “unfunded” only if “the employee’s interest is unsecured or not otherwise
protected from the employer’s creditors.” Minor, 772 F.2d at 1475. The plan at
issue includes numerous provisions stating that all employee contributions remain
subject to claims by the company’s creditors in the event of insolvency. Most
specifically, Article 10.6 states that the “vested Account balance of a Participant
shall be paid from the Trust only to the extent the Employer is not at the time of
payment insolvent.”
Despite these provisions, the district court concluded that because ComUnity
Lending had terminated the plan, the company had to distribute the funds to
Plaintiffs even if it was insolvent. However, if the company can terminate the plan
and distribute the funds to participants when it is insolvent, the plan is not
“unfunded.” The district judge’s interpretation of the agreement would allow the
company to distribute fund assets to participants at a time when the company is
insolvent simply by terminating the plan. Such a plan would not qualify as
unfunded because the funds in the plan would not be subject to the claims of
creditors in the event of insolvency.
Yet the very provision relied upon by the district court—Article 10.2
governing plan termination—expressly states that the plan is intended to be an
-4-
unfunded top hat plan. By including this language in Article 10.2, the plan’s
drafters explicitly provided that the termination provisions do not supercede the
unfunded status of the plan. The district judge’s interpretation therefore
contravenes the fundamental principle that the plan must be interpreted according
to the “clear intent of the parties” as conveyed by the “explicit language of the
agreement.” Gilliam, 488 F.3d at 1194. In accordance with the parties’ express
intent to create an unfunded top hat plan, Article 10.6’s prohibition on distributing
fund assets when the company is insolvent must be interpreted to apply even in the
event of plan termination.
This interpretation does not conflict with any other provision of the plan.
Just because the funds become eligible for distribution, or “payable,” upon plan
termination does not mean that the employer may actually pay the participants if
the company is insolvent at the time of payment. The plan provides that the
employer may not distribute the plan’s assets to participants if the company is
insolvent “at the time of payment.” Likewise, although the participants’ account
balances were fully vested at all times, meaning that the participants had earned the
right to be paid the amounts shown on their statements, the funds set aside by the
company remained subject to claims by creditors until distributed to the
participants. Nor did ComUnity Lending violate the trust agreement, which allows
-5-
the plan’s trustee to disburse funds to the company “for the benefit of” the
participants. Upon receiving the funds, the company placed them in a segregated
account pending further inquiry into its financial condition. It did not
misappropriate the funds for its own use.
ComUnity Lending’s insolvency remains a question of fact for trial. The
Chapter 7 Trustee provided a declaration from ComUnity’s Lending’s former CFO
stating that the company was insolvent at the time of payment. The CFO reviewed
the company’s books and prepared a statement of assets and liabilities for the
period from May to December 2007. That balance statement shows that the
company’s total liabilities exceeded its estimated liquidity beginning in May 2007.
The CFO concluded that “the Company (based upon my analysis) was insolvent as
of July 2007, and probably earlier.” Plaintiffs are therefore incorrect that the
CFO’s declaration lacks foundation. Because the company did not terminate the
plan and submit the distribution requests until September 2007, there is a genuine
issue of material fact regarding its solvency at the time of payment. The district
court erred in granting Plaintiffs’ motion for summary judgment.
The district court’s order granting Plaintiffs’ summary judgment is
REVERSED, the court’s judgment and the order awarding Plaintiffs their
attorneys’ fees are VACATED, and the case is REMANDED.
-6-