In re Jacobs

1

IN RE: DAIMON WILLIAM JACOBS, Debtor.

No. 21-10658-M

United States Bankruptcy Court, N.D. Oklahoma

November 7, 2023

MEMORANDUM OPINION

TERRENCE L. MICHAEL, CHIEF JUDGE

"If at first you don't succeed, try, try again."^[1]

No one likes to lose. When it comes to summary judgment, rarely do the parties take a second, let alone a third, bite at the apple; most judges, this one included, think one try is enough. In this case, however, both parties, having lost part of the battle not only in their first, but also the second summary judgment skirmish, have found what they hope is another path to victory or partial victory at least. Only one is correct. The following conclusions of law are made pursuant to Federal Rules of Bankruptcy Procedure 7056 and 9014.

Procedural Posture

Before the Court is the Trustee's Motion for Partial Summary Judgment on Trustee's Objection to Debtor's Amended Claim of Exemption Relative to a "Solo 401(k): Solera Bank Account Ending in 0319" (the "Motion"),^[2] filed on September 6, 2023, by Patrick J Malloy, III, the Chapter 7 Trustee assigned to this case ("Trustee"). No response was filed on behalf of Daimon William Jacobs, Debtor herein ("Debtor"). As of September 28, 2023, this matter was taken under advisement.

Jurisdiction

This Court has jurisdiction over this matter pursuant to 28 U.S.C § 1334(b),^[3] and venue is proper pursuant to 28 U.S.C § 1409. Reference to the Court of this matter is proper pursuant to 28 U.S.C. § 157(a). The allowance or disallowance of exemptions from property of the estate is a core proceeding as defined in 28 U.S.C. § 157(b)(2)(B). This Court has jurisdiction and authority to enter its findings of fact, conclusions of law, and judgment.

Summary Judgment Standard

The United States Court of Appeals of the Tenth Circuit has held that

Summary judgment is appropriate when "the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a). "An issue is 'genuine' if there is sufficient evidence on each side so that a rational trier of fact could resolve the issue either way." Adler v. Wal-Mart Stores, Inc., 144 F.3d 664, 670 (10th Cir. 1998). "An issue of fact is 'material' if under the substantive law it is essential to the proper disposition of the claim." Id. Put differently, "[t]he question . . . is whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law." Shero v. City of Grove, 510 F.3d 1196, 1200 (10th Cir. 2007) (quotation omitted). "On summary judgment the inferences to be drawn from the underlying facts must be viewed in the light most favorable to the party opposing the motion." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986) (quotation omitted).^[4]

The Court will apply this standard to the Motion.

Background

This Memorandum Opinion relies upon a previous opinion issued by the Court in this matter granting and denying summary judgment in part and making various findings of fact ("Jacobs I").^[5] The Court incorporates the facts found in Jacobs I herein by this reference and need not repeat them. In Jacobs I, the Court determined that it could not make a summary determination whether certain funds held in an account at Solera Bank (i.e., the Disputed Account) were property of the Debtor's bankruptcy estate.^[6] The Court also found that specific funds in the Disputed Account, referred to as the Roth IRA Rollover funds and the 401k Loan Proceeds (collectively, the "Distributions"), had been distributed to Debtor prior to the Petition Date.^[7] The Court determined that, regardless of the exemption status of the Disputed Account, the Distributions are property of Debtor's estate and not protected by the state exemption law cited by Debtor in his original Schedule C, granting summary judgment to Trustee on those issues.^[8]

Undaunted, on March 2, 2023, Debtor filed a first Amended Schedule C, in which he claimed an exemption for the entire Disputed Account, including the Distributions, under § 522(b)(3)(C) of the Bankruptcy Code (the "First Amended Exemption Claim").^[9] In response, the Trustee again sought summary judgment, arguing that Oklahoma law pre-empted Debtor from making the First Amended Exemption Claim.^[10] On May 11, 2023, the Court entered an Order Denying Motion for Summary Judgment ("Jacobs II"),^[11] finding that Trustee's various objections were not warranted by existing law. On June 20, 2023, Debtor filed a second Amended Schedule C, in which he again claimed all funds in the Disputed Account as exempt under § 522(b)(3)(C) (the "Second Amended Exemption Claim").^[12] In an effort to comply with the Court's service requirements, on August 8, 2023, Debtor filed a third Amended Schedule C, in which he repeated his claim that all funds in the Disputed Account are exempt under § 522(b)(3)(C) (the "Third Amended Exemption Claim").^[13] On August 25, 2023, Trustee filed a timely objection to the Third Amended Exemption Claim (the "Objection"), in which he renews his objection to the exemption of the entirety of the Disputed Account.^[14] Trustee subsequently filed the Motion, in which he seeks partial summary judgment regarding Debtor's claim of exemption of the Distributions. In the Motion, Trustee includes a section designated "statement of uncontroverted facts."^[15] Trustee does not make any allegation or argument that the facts presented in the Motion differ in substance from those found by the Court in Jacobs I, or that the Court should reconsider its findings made there.^[16]

Conclusions of Law

To review, in Jacobs I, the Court found that the Distributions are property of the Debtor's bankruptcy estate.^[17] That legal conclusion is unaffected by the Debtor's filing of amended schedules. The Court also found that state law did not provide a valid exemption from the estate for those funds.^[18] The only issue before the Court today is whether, as of the Petition Date, the Distributions were exempt under § 522(b)(3)(C) of the Bankruptcy Code. In the absence of a valid exemption, the assets will be available for administration by Trustee.^[19]

A debtor's right to an exemption in property is determined on the date of filing the petition.^[20] State and federal exemptions apply to property for which there is a present right of exemption on the petition date.^[21] Exemptions do not protect "property which would or might be exempt if some condition not performed were performed."^[22] In Jacobs II, this Court discussed the availability of federal exemptions for all debtors for certain retirement funds.^[23] For debtors that claim federal exemptions under § 522(b)(2) and (d), the exemption is found in § 522(d)(12). For debtors otherwise limited to claiming exemptions under state law, as in this case, the exemption is found in § 522(b)(3)(C). Both sections provide for an exemption for

retirement funds to the extent that those funds are in a fund or account that is exempt from taxation under section 401, 403, 408, 408A, 414, 457, or 501(a) of the Internal Revenue Code of 1986.^[24]

To qualify for an exemption under § 522(b)(3)(C), the U.S. Supreme Court, in Clark v. Rameker, required funds to meet two conditions: 1) they must be "retirement funds"; and 2) they must be held in an account exempt from taxation under one of the enumerated Internal Revenue Code sections.^[25] The Bankruptcy Code does not define the term "retirement funds" as used in § 522(b)(3)(C). The Supreme Court tells us the term is "properly understood to mean sums of money set aside for the day an individual stops working."^[26] Whether funds meet this definition requires an objective inquiry; courts must "look to the legal characteristics of the account in which the funds are held, asking whether, as an objective matter, the account is one set aside for the day when an individual stops working."^[27] The Supreme Court identified three legal characteristics of ordinary or "quintessential" retirement funds: 1) account holders can make regular additional contributions to the accounts over time; 2) account holders are under no obligation to withdraw the funds before a certain age;^[28] and 3) account holders incur a penalty to withdraw funds, with narrow exceptions, prior to age 59 1/2.^[29]

The Bankruptcy Code provides additional guidance regarding funds that have been distributed or transferred from a fund or account that would otherwise qualify for exemption under § 522(b)(3)(C):

(4) For purposes of paragraph (3)(C) and subsection (d)(12) the following shall apply:

. . . .

(C) A direct transfer of retirement funds from 1 fund or account that is exempt from taxation under section 401, 403, 408, 408A, 414, 457, or 501(a) of the Internal Revenue Code of 1986, under section 401(a)(31) of the Internal Revenue Code of 1986, or otherwise, shall not cease to qualify for exemption under paragraph (3)(C) or subsection (d)(12) by reason of such direct transfer.

(D)(i) Any distribution that qualifies as an eligible rollover distribution within the meaning of section 402(c) of the Internal Revenue Code of 1986 or that is described in clause (ii) shall not cease to qualify for exemption under paragraph (3)(C) or subsection (d)(12) by reason of such distribution.

(ii) A distribution described in this clause is an amount that--

(I) has been distributed from a fund or account that is exempt from taxation under section 401, 403, 408, 408A, 414, 457, or 501(a) of the Internal Revenue Code of 1986; and

(II) to the extent allowed by law, is deposited in such a fund or account not later than 60 days after the distribution of such amount.^[30]

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