In re Stern, No. 00-56431
(9th Cir. 02/04/2003) Feb. 6, 2003
TRANSFER OF
ASSETS INTO EXEMPT PROFIT-SHARING RETIREMENT PLAN ON EVE OF
BANKRUPTCY WAS NOT FRAUDULENT
David A. Gill, Bankruptcy Trustee ("Trustee"), appeals the
district court's decision affirming the bankruptcy court's
order, which granted summary judgment in favor of the debtor
Steven Stern ("Stern"). Stern cross-appeals the district
court's determination that Stern's pension plan funds are not
excluded from the bankruptcy estate.
Stern filed for bankruptcy after
the entry of a sizeable judgment against him in an arbitration
proceeding. We must determine whether the transfer of proceeds
from an Individual Retirement Account ("IRA") into a Profit
Sharing Pension Plan was a fraudulent conveyance, subject to
avoidance by the Trustee.
Constrained by our precedent, we
AFFIRM the district court's holding that, although the pension
plan was properly included within the bankruptcy estate, the
pension plan assets were exempt from distribution to Stern's
creditors.
In 1978, Stern terminated the 1974
Plan and created a qualified, defined benefit pension plan
("1978 Plan"). In 1989, Stern terminated the 1978 Plan and
transferred the plan assets into an IRA account ("IRA").
We are controlled by our prior
opinion in Wudrick v. Clements, 451 F.2d 988 (9th Cir. 1971).
In that case, we ruled "that the purposeful conversion of
nonexempt assets to exempt assets on the eve of bankruptcy is
not fraudulent per se." In reversing the district court's
determination that Wudrick engaged in a fraudulent conveyance,
we clarified that "[t]he finding of fraud was based solely on
the fact that nonexempt assets were deliberately converted to
exempt assets just prior to filing the bankruptcy petition."
Id. at 990. We explained that this "evidence was insufficient
as a matter of law to establish fraud." Id. Our analysis was
impliedly affected by the clarification that a different
conclusion might be reached "if on the eve of bankruptcy a
debt were created with no intention of repaying the creditor .
. . ." We also noted that a finding of fraud must be
established by "clear and convincing" evidence.
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