Bartch v. Barch

MEMORANDUM OPINION

Brendan A. Hurson, United States District Judge.

After securing a judgment against Mackie A. Barch (“Debtor Barch”) and Trellis Holdings, Maryland, Inc. (“Trellis,” and, collectively, “Debtors”) in the District Court for the District of Colorado in the amount of 6.4 million dollars, Judgment Creditor David Joshua Bartch (“Creditor”) now seeks to enforce the judgment in this Court. ECFs 1,3. Currently pending before the Court is Debtors' renewed motion for release of garnished property, ECF 91. Creditor filed a response in opposition, ECF 92, and Debtors filed a reply in support, ECF 94. The filings include memoranda of law and exhibits.^[1] The Court has reviewed all relevant filings and finds that no hearing is necessary. See Loc. R. 105.6 (D. Md. 2023). For the reasons stated below, Debtors' Motion is DENIED without prejudice, .

I. BACKGROUND

In September 2022, after nearly four years of litigation, Judge R. Brooke Jackson of the United States District Court for the District of Colorado found that Debtors had breached a contract with Creditor and ordered 6.4 million dollars in damages against Debtors. ECF 1-1;

Bartch v. Barch, Civ. No. 18-03016,2022 WL 4092689, at *6 (D. Colo. Sept. 7,2022) (hereinafter “Bartch F). Judge Jackson later amended the judgment to award post-judgment interest to Creditor. ECF .3-1; Barch v. Barch, ^[2] Civ. No. 18-03016, 2022 WL 16924003, at *4 (D. Colo. Nov. 14, 2022).^[3] Creditor filed a registration of the District of Colorado's judgment in this Court on October 31, 2022, ECF 1, and filed the amended judgment awarding Creditor post-judgment interest on November 23,2022, ECF 3.

At Creditor's request, the clerk issued several writs of garnishment in this case, including, as relevant here, to financial institution garnishees Wells Fargo, N.A. (“Wells Fargo”), and Morgan Stanley & Co., LLC (“Morgan Stanley”), regarding the property of Debtor Barch in the possession of the financial institutions. ECFs 18, 21. Garnishees Wells Fargo and Morgan Stanley answered that they respectively held, among other accounts, a joint checking account of Debtor Barch and his wife (the “joint account”) and an inherited traditional individual retirement account that Debtor Bartch received upon the death of his uncle (the “inherited IRA”). ECF 31, at 1; ECF 38, at 1.

Debtor Barch swiftly filed motions for the release of both the joint account and the inherited IRA (the “original motions”). ECFs 35, 37. Creditor opposed the original motions, and after they were fully briefed, Judge Griggsby held a telephone hearing on the original motions. ECFs 83 and

87.^[4] Judge Griggsby denied the original motions without prejudice.^[5] ECF 89. The motion before the Court today is a renewed motion consolidating the requests for release of both the joint account and the inherited IRA. ECF 91.

IL LEGAL STANDARD

Under Federal Rule of Civil Procedure 69, state law' governs the procedure of court proceedings regarding the execution of a money judgment unless a federal statute applies. Thus, this Court applies Maryland state law here. Under Maryland Rule 2-645(i), a debtor may move to release garnished property at any point before judgment is entered. The Court will grant such a motion under specific circumstances, including where “the property is exempt from levy.” Md. Rule 2-643(c). The debtor bears the burden of proving an exemption applies. Johns Hopkins Hosp. V. Post, 321 Fed.Appx. 259,263 (4th Cir. 2009).

III. ANALYSIS

Debtor Barch claims that the joint account and the inherited IRA are both exempt from levy under Maryland law. ECF 91, at 1-2. Creditor argues that Debtor Barch has not met his burden to prove that the claimed exemptions apply. ECF 92-1, at 1-2. According to Debtor Barch, the inherited IRA is exempt under § 11-504 of the Courts and Judicial Proceedings (“CJP”) Article of the Maryland Code. ECF 91, at 3-5. The joint account, Debtor Barch claims, is exempt under CJP § 11-603. ECF 91, at 5-6. The Court will address each of these claims in turn.

A. Debtor Barch has not demonstrated that the inherited IRA is exempt from levy.

Under Maryland law, “any money or other assets payable to a participant or beneficiary from, or any interest of any participant or beneficiary in, a retirement plan qualified under ... § '408,.. shall be exempt from any and all claims of the creditors of the beneficiary or participant.” CJP § 11-504(h)(1). An IRA is a qualified account under 26 U.S.C. § 408(a). The parties appear to agree that the inherited IRA is thus a qualified account for the purposes of the exemption. See ECF 37, at 2 (original motion for release of inherited IRA claiming exemption under CJP §11-504(h)); ECF 91, at 3-5 (addressing how CJP § 11-504(h)(4) applies to the inherited IRA); ECF 92-1, at 8-10 (arguing only that an exception to the exemption in CJP § 11-504(h) should apply, not that the exemption itself does not apply to the inherited IRA). The Court, however, is not persuaded that an inherited IRA is exempt to the same extent as a standard IRA opened and maintained by a debtor.

The Court begins with the arguments in the filings. The parties' arguments center on a carve-out to the retirement account exemption: though retirement accounts are generally exempt from levy, distributions to retirement accounts that exceed the maximum allowable contribution to that account, or the amount deductible, are not. CJP § 11-504(h)(4). According to Creditor, Debtor Barch must show that (1) the contributions Debtor Barch himself made to the account after he inherited it were within the allowable limit; (2) the contributions the decedent made to the account before his death were within the allowable limit; and (3) the contributions the decedent made to any accounts that were rolled over into the account were within the allowable limits. ECF 92-1, at 8-10. Creditor argues that Debtor Barch did not meet this burden. Id. Debtor Barch asserts that he has demonstrated that he made no contributions to the account himself and that he need not demonstrate that the contributions made by the decedent fell within the allowable limits.

ECF 91, at 3-5. Alternatively, he argues that the decedent's contributions were permissible rollover contributions. Id. ECF 94, at 2-5.

To discern what constitutes a permissible contribution to an IRA under the exemption, one must look to 26 U.S.C. § 408, which CJP § 11-504(h)(1) incorporates by reference. Under § 408, contributions are permissible up to a specified amount except in the case of certain rollover contributions. 26 U.S.C. § 408(a)(1). Inherited retirement accounts, however, “shall not be treated as an individual retirement account or annuity for purposes of determining whether any other amount is a rollover contribution.” Id. § 408(d)(3)(c)(i)(II). It seems to reason, then, that there is a question as to whether an inherited IRA is indeed a qualified retirement account at all under § . 408 for the purposes of the exemption laid out in CJP § 11-504(h), given that the incorporated statute limits the benefits and protections that a beneficiary of an inherited IRA account receives.

Useful in answering this question is the Supreme Court's decision in Clark v. Rameker, which held in no uncertain terms that “funds held in inherited IRAs are not ‘retirement funds' .within the meaning of [11 U.S.C.] § 522(b)(3)(C)'s bankruptcy exemption.” 573 U.S. 122, 127 (2014). The statute the Court was interpreting in Clark, 11 U.S.C. §...