DocketNumber： 3-95-0763
Filed Date： 2/27/1997
Status： Precedential
Modified Date： 10/22/2015
No. 3 95 0763
_________________________________________________________________
IN THE
APPELLATE COURT OF ILLINOIS
THIRD DISTRICT
A.D., 1997
NATIONAL BANK OF MONMOUTH, ) Appeal from the Circuit Court
) of the 9th Judicial Circuit
Plaintiff-Appellee, ) Warren County, Illinois
)
v. )
)
MULTI NATIONAL INDUSTRIES, ) No. 83 L 35
INC., MONTY P. McCLELLAN, )
)
Defendants-Appellants, )
)
MARSHA FESLER NEWMAN, ) Honorable
) Patricia A. Walton
Garnishee. ) Judge, Presiding.
)
_________________________________________________________________
JUSTICE LYTTON delivered the opinion of the court:
_________________________________________________________________
This case involves an intricate maze of legal maneuvering in
the state and federal courts. We are now faced with putting the
final piece of this puzzle into place.
PROCEDURAL HISTORY
Monty P. McClellan is a physician who worked at the M & S
Medical Center, S.C. (Center). He had a vested interest in the
Center's pension and profit-sharing qualified plans (plan); the
plan was subject to the provisions of the federal Employee
Retirement Income Security Act of 1974 (ERISA) (29 U.S.C. §1001 et
seq. (1975)).
The bank received a $150,145.53 default judgment against
McClellan on February 9, 1984, and subsequently obtained a non-wage
garnishment order. A few days later, both McClellan and the Center
filed for bankruptcy, and a bankruptcy trustee was appointed. The
bankruptcy court ordered the plan's custodian to turn the plan
funds over to the trustee, who used them, in part, to satisfy
claims from other employees of the Center.
On August 7, 1992, McClellan filed a "Motion for Distribution
of Exempt Property" seeking recovery of the remaining plan funds
from the trustee. The bank objected, claiming that the
distribution request was barred by the garnishment order. The
bankruptcy court denied McClellan's motion, finding that the funds
were part of the bankruptcy estate. Both parties appealed this
decision to the United States District Court, which affirmed.
McClellan then appealed to the United States Court of Appeals for
the Seventh Circuit, and the bank cross-appealed.
On January 6, 1995, the Seventh Circuit reversed the district
court, retroactively applying the decision in Patterson v. Shumate,
504 U.S. 753, 119 L. Ed. 2d 519, 112 S. Ct. 2242 (1992). In
Patterson, the Supreme Court held that assets in ERISA-qualified
plans never become part of a bankruptcy estate. Patterson, 504
U.S. at 759, 119 L. Ed. 2d at 528, 112 S. Ct. at 2247.
Accordingly, the Seventh Circuit held that the bankruptcy court did
not have subject matter jurisdiction over the plan or its assets
and could not order the funds to be turned over to the trustee.
On March 29, 1995, the trustee had $81,281.44 of the original
plan funds. The bank revived its default judgment against
McClellan and filed an affidavit for a non-wage garnishment.
McClellan then filed a motion in the bankruptcy court seeking a
direct rollover of the funds into his individual retirement account
(IRA). On June 13, 1995, the bankruptcy judge found that the
trustee had no interest in the funds and ordered her to turn them
over as directed by the Illinois trial court in the garnishment
action. An appeal was taken to the federal district court.
Meanwhile, on September 25, 1995, the state trial court
ordered that the funds be turned over to the bank. McClellan
appealed the trial court's order to this court.
On October 31, 1995, the federal district court vacated the
bankruptcy court's order as void for want of jurisdiction.
McClellan appealed that decision to the Seventh Circuit; we stayed
the instant appeal until after the Seventh Circuit affirmed the
district court on November 7, 1996.
ILLINOIS APPELLATE COURT JURISDICTION
The Seventh Circuit's November 7 ruling vacated the bankruptcy
court's June 13, 1995, order, holding that the court lacked subject
matter jurisdiction to order the transfer of the funds. The
Seventh Circuit concluded, "[A]ll that remains is the Bank's
original state court garnishment action. *** When all is said and
done, the proper forum to hear [McClellan's] appeal of the state
court's decision is the Illinois Appellate Court." We agree and
now address the merits of the instant appeal.
THE PLAN FUNDS
McClellan argues that the plan funds remain protected from
garnishment by the anti-alienation provisions of ERISA. See 29
U.S.C. §1056(d) (1982). The bank objects, contending that since
the funds were taken by the trustee, they are no longer protected
by ERISA and may be garnished.
"The anti-alienation provision required for ERISA
qualification *** constitutes an enforceable transfer restriction
for purposes of *** exclusion of property from the bankruptcy
estate." Patterson, 504 U.S. at 760, 119 L. Ed. 2d at 528, 112 S.
Ct. at 2248. A bankruptcy court thus has no subject matter
jurisdiction over ERISA funds. See, e.g., In re Hagel, 171 B.R.
686, 688 (Bankr. D. Mont. 1994), aff'd, 184 B.R. 793 (Bankr. 9th
Cir. 1995). Every act of a court without subject matter
jurisdiction is void. In re M.M., 156 Ill. 2d 53, 64, 619 N.E.2d
702, 709 (1993). Void orders are a complete nullity from their
inception and have no legal effect. In re Application of Cook
County Collector, 228 Ill. App. 3d 719, 731, 593 N.E.2d 538, 547
(1991). Such orders may not change the status of a case. See In
re Marriage of Hale, 278 Ill. App. 3d 53, 56, 662 N.E.2d 180, 183
(1996).
Here, the plan funds never became part of the bankruptcy
estate. The bankruptcy court lacked subject matter jurisdiction
over the plan and exceeded its authority by ordering the assets
turned over to the trustee. The bankruptcy court's void transfer
order did not and could not vitiate the anti-alienation protection
provided by ERISA. See Ellis National Bank of Jacksonville v.
Irving Trust Co., 786 F.2d 466, 468 n.2 (2d Cir. 1986) (stating in
dicta that ERISA protection does not end even if the funds are
moved under court order). The bank is not entitled to possession
of the remaining funds.
Plan funds can lose their protection if they are distributed
without being rolled over into another ERISA-qualified account
within the requisite time (see Tenneco, Inc. v. First Virginia Bank
of Tidewater, 698 F.2d 688, 691 (4th Cir. 1983)). However, the
funds in this case have not been distributed to McClellan or his
representative. McClellan's motion for distribution requested a
rollover directly into his IRA, which is not subject to garnishment
in Illinois. See 735 ILCS 5/12-1006 (West 1992). Under the
circumstances of this case, this option remains viable.
Congress intended ERISA "to safeguard a stream of income for
pensioners (and their dependents, who may be, and perhaps usually
are, blameless), even if that decision prevents others from
securing relief for the wrongs done them. If exceptions to this
policy are to be made, it is for Congress to undertake that task."
Guidry v. Sheet Metal Workers National Pension Fund, 493 U.S. 365,
376, 107 L. Ed. 2d 782, 795, 110 S. Ct. 680, 687 (1990).
CONCLUSION
For the reasons stated, the judgment of the circuit court of
Warren County is reversed and remanded.
Reversed and remanded.
HOLDRIDGE and McCUSKEY, JJ., concur.
Guidry v. Sheet Metal Workers National Pension Fund , 110 S. Ct. 680 ( 1990 )
In Re Hagel , 34 Collier Bankr. Cas. 2d 271 ( 1994 )
In Re Application of Cook County Collector , 228 Ill. App. 3d 719 ( 1991 )
Hagel v. Drummond (In Re Hagel) , 95 Daily Journal DAR 11151 ( 1995 )
In Re MM , 156 Ill. 2d 53 ( 1993 )
ellis-national-bank-of-jacksonville-v-irving-trust-company-bache-group , 786 F.2d 466 ( 1986 )
In Re Marriage of Hale , 278 Ill. App. 3d 53 ( 1996 )