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UNITED STATES COURT OF APPEALS

ELEVENTH CIRCUIT

Appeals Case No: 09-13144-H

In re: Bankruptcy Case No.: 9:08-bk-11158-ALP


Chapter 7
SARAH E. BAKER
District Court Civil Case No: 2:09 CV 238
Debtor.
_____________________________

SARAH E. BAKER

Appellant.

v.

ROBERT E. TARDIF, JR. as Chapter 7 Trustee

Appellee.

APPELLANT’S INITIAL BRIEF

ON APPEAL OF ORDER
FROM THE UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF FLORIDA-FORT MYERS DIVISION

Charles PT Phoenix, Esq.


The Florida Bar No. 535591
Phoenix Law PA
12800 University Drive, Suite 260
Fort Myers, Florida 33907
(239) 461-0101
cptp@Corporationcounsel.com
Attorney for Appellant
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CERTIFICATE OF INTERESTED PERSONS AND CORPORATE
DISCLOSURE STATEMENT

Appellant Sarah E. Baker is a natural person and, therefore, a certificate of

interested persons and corporate disclosure statement does not apply to this brief.

STATEMENT REGARDING ORAL ARGUMENT

Appellant Sarah E. Baker requests oral argument for the reasons that this appeal is

not frivolous, the dispositive issue has not been authoritatively decided, the

arguments are adequately presented in this brief and the record, and the decision

process would be significantly aided by oral argument as the statutes supporting

the argument are technical in nature.

TABLE OF CONTENTS

STATEMENT REGARDING ORAL ARGUMENT ...............................................2

CERTIFICATE OF INTERESTED PERSONS AND CORPORATE


DISCLOSURE STATEMENT ..................................................................................2

TABLE OF CONTENTS...........................................................................................2

TABLE OF AUTHORITIES .....................................................................................3

STATEMENT OF JURISDICTION..........................................................................5

ISSUE PRESENTED.................................................................................................5

STATEMENT OF THE CASE AND FACTS AND SUMMARY OF THE


ARGUMENT .............................................................................................................6
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ARGUMENT .............................................................................................................7

I.  Exemption under FLA. STAT. ch. 222.21(2)(a)(1) ............................. 7 

II.  In re Sutton ........................................................................................... 8 

A.  Internal Revenue Code distinguished from ERISA ............................. 9 

B.  Factual Differences Between In Re Sutton and the Instant Case ....... 11 

C.  The Bankruptcy Court’s Order in the Instant Case ............................ 11 

III.  Public Policy Demands Debtor’s Keogh Plan Be Exempt................. 12 

CONCLUSION........................................................................................................13

CERTIFICATE OF SERVICE ................................................................................14 

TABLE OF AUTHORITIES

Cases

In re Allen, 203 B.R. 786, 794 (Bankr. M.D. Fla. 1996).........................................13

In re Calvert, 907 F.2d 1069, 1071 (11th Cir. 1990)..................................................5

In re Hickenbottom, 143 B.R. 931, 933 (Bankr. W.D. Wash. 1992).......................13

In re Sutton, 272 B.R. 802 (Bankr. M.D. Fla. 2002) .................................................8

In re Yates, 541 U.S. 1, 124 S.Ct. 1330 (2004) .......................................................12

Re Sutton, 272 B.R. 802 (Bankr. M.D. Fla. 2002).....................................................8

State Statutes

FLA. STAT. ch. 222.21(a)(2)(a)................................................................... 8*


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FLA. STAT. ch. 222.21(2)(a)(1) ....................................... 5, 6, 7, 8, 9, 11,12*

FLA. STAT. ch. 222.21(2)(b)............................................................. 7, 9, 10*

Federal Statutes

11 U.S.C. 522(b)(1)....................................................................................................9

11 U.S.C. 522(d) ........................................................................................................9

11 U.S.C. 522(d)(10)................................................................................................11

26 U.S.C. 401; I.R.C. §401 ............................................................................. 5, 8, 11

26 U.S.C. 401(a); I.R.C. §401(a) ............................................................ 5, 6, 7, 8, 12

26 U.S.C. 401(c); I.R.C. §401(c) .................................................................... 7, 8, 12

26 U.S.C. 7701(a)(11)(A); I.R.C. § 7701(a)(11)(A) ...............................................10

26 U.S.C. 7701(a)(11)(B); I.R.C. § 7701(a)(11)(B)..................................................9

26 U.S.C. 7801(a)(1); I.R.C. § 7801(a)(1)...............................................................10

28 U.S.C. 1292...........................................................................................................5

29 U.S.C. 1001(a) ....................................................................................................10

29 U.S.C. 1001(b) ....................................................................................................10

29 U.S.C. 1001(c) ....................................................................................................10

29 U.S.C. 1002(13) ..................................................................................................10

29 U.S.C. 1132(b) ....................................................................................................10

29 U.S.C. 1134.........................................................................................................10

29 U.S.C. 1135.........................................................................................................10

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STATEMENT OF JURISDICTION

The Judgment of the United States Bankruptcy Court for the Middle District

of Florida, Fort Myers Division, was entered on 29 January 2009. The Order of

the United States District Court for the Middle District of Florida, Fort Myers

Division was signed on May 4, 2009. The Order Denying Debtor’s Motion for

Reconsideration was signed on May 13, 2009. This Appeal was recorded on June

22, 2009. This court has jurisdiction to hear this Appeal pursuant to 28 U.S.C.

158(d)(1).

ISSUE PRESENTED

Issue: Does a debtor’s Keogh plan qualify for an exemption in bankruptcy

based on FLA. STAT. ch. 222.21(2)(a)(1), which specifically exempts qualified

plans under I.R.C. §401(a) where the debtor is self-employed and the Internal

Revenue Service approved the prototype plan as a qualified retirement plan?

STANDARD OF REVIEW

In considering this appeal, the standard of review is de novo because the

facts are undisputed and this is an issue of law. In re Calvert, 907 F.2d 1069, 1071

(11th Cir. 1990).

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STATEMENT OF THE CASE AND FACTS AND SUMMARY OF THE

ARGUMENT

Sarah Baker (“Debtor”) filed a Chapter 7 bankruptcy case and claimed her

Keogh retirement plan as an exempt asset under FLA. STAT. ch. 222.21(2)(a)(1).

The trustee objected to the exemption and the bankruptcy court found that the

Keogh plan was not exempt and directed Debtor to turn over the Keogh plan’s

assets to the trustee for administration (the order on Trustee’s Objection to

Debtor’s Claim of Exemption, dated January 28, 2009 (Docket Number 35) is

attached to this brief as EXHIBIT A). On 6 February 2009, Debtor filed a Motion

for Reconsideration of Order on Trustee’s Objection to Debtor’s Claim of

Exemption (Docket Number 37; attached to this brief as EXHIBIT B), which the

bankruptcy court denied without hearing on 10 February 2009. Debtor, then,

appealed to the United States District Court. The United States District Court

affirmed the bankruptcy court’s order without allowing for the submission of

briefs.

FLA. STAT. ch. 222.21(2)(a)(1) specifically exempts retirement plans

“maintained in accordance with a … prototype plan … pre-approved by the

Internal Revenue Service” and qualified under I.R.C. §401(a) from creditor claims.

Debtor’s Keogh plan is a cash or deferred arrangement “Prototype

Standardized Profit Sharing Plan”. The Internal Revenue Service issued letter
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rulings indicating that “the form of the plan … is acceptable under of the Internal

Revenue Code” (the letter rulings are attached to this brief as EXHIBIT C).

Therefore, the bankruptcy court’s order should be overturned as Debtor’s

Keogh plan assets are exempt from administration in her bankruptcy case.

ARGUMENT

I. Exemption under FLA. STAT. ch. 222.21(2)(a)(1)

FLA. STAT. ch. 222.21(2)(a)(1) specifically exempts retirement plans

“maintained in accordance with a … prototype plan … pre-approved by the

Internal Revenue Service” and qualified under I.R.C. §401(a) from creditor claims.

FLA. STAT. ch. 222.21(2)(b) goes on to clarify that the exemption under

FLA. STAT. ch. 222.21(2)(a)(1) does not require that the plan’s underlying

account “be maintained in accordance with a plan … that is covered by any part of

the Employee Retirement Income Security Act” in order “to be exempt from

claims.”

I.R.C.§401(a) provides the requirements for qualification: “a trust created

… for the exclusive benefit of his employees … shall constitute a qualified trust

under this section,” so long as it meets the requirements outlined in I.R.C. §401(a)

(emphasis added). I.R.C. §401(c) specifically states that “for purposes of this

section [being 26 U.S.C. 401 in its entirety, including I.R.C. §401(a) and I.R.C. §
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401(c),] … the term ‘employee’ includes … a self-employed individual” (emphasis

added).

The Florida legislature, by incorporating I.R.C. §401(a) into STAT. ch.

222.21(2)(a)(1), contemplated that Keogh plans would be exempt when a claimant

is the sole shareholder and sole participant as clearly spelled out where I.R.C.

§401(c) states that “the term ‘employee’ includes … a self-employed individual.”

Debtor’s Keogh plan is a cash or deferred arrangement “Prototype -

Standardized Profit Sharing Plan” that received letter rulings from the Internal

Revenue Service indicating, “in our opinion, the form of the plan identified above

is acceptable under I.R.C. § 401” (see EXHIBIT C).

For these reasons, Debtor’s Keogh plan and its underlying accounts are

exempt from Trustee’s claim under FLA. STAT. ch. 222.21(2)(a)(1).

II. In re Sutton

The ruling in In Re Sutton, 272 B.R. 802 (Bankr. M.D. Fla. 2002) should be

reviewed de novo and overruled by a ruling under the instant case because its

holding is contrary to the plain meaning under FLA. STAT. ch. 222.21(2)(a)(1) as

it errantly focuses the operative rule on the Employee Retirement Income Security

Act (“ERISA”) while ignoring the Internal Revenue Code. Additionally, the

instant case is distinguishable from In re Sutton, 272 B.R. 802 on factual grounds.

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A. Internal Revenue Code distinguished from ERISA

As the bankruptcy court noted in In re Sutton, the bankruptcy Code, 11

U.S.C. 522(b)(1), authorizes a state to opt-out of the federal exemptions. These

exemptions are set forth in 11 U.S.C. 522(d). Florida opted out of the federal

exemptions and enacted FLA. STAT. ch. 222.21(2)(a)(1).

In making its ruling, the bankruptcy court quoted FLA. STAT. ch.

222.21(2)(a), stating “any ... plan that is qualified under Section 401(a)”, but

erroneously referenced an exception in FLA. STAT. ch. 222.21(2) under

“paragraph (b),” rather than “paragraph (d).” In re Sutton, 272 B.R. 802, 806.

This error is important for two reasons.

First, the bankruptcy court goes on to write that “it is apparent that the

exemption under this Statute is limited to monies … qualified under ERISA and

applicable provisions of the IRS [sic] Code”. Id at 806. But, there is absolutely no

reference whatsoever to ERISA under FLA. STAT. ch. 222.21(2)(a)(1). The only

reference to ERISA is in FLA. STAT. ch. 222.21(2)(b), the section erroneously

referenced in the In re Sutton decision, where the legislature did not limit, but

augmented, FLA. STAT. ch. 222.21(2)(a)(1) by expressly clarifying that the

exemption does not require that the plan’s underlying account “be maintained in

accordance with a plan … that is covered by any part of the Employee Retirement

Income Security Act (“ERISA)” in order “to be exempt from claims” (emphasis
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added). FLA. STAT. ch. 222.21(2)(b). In short, the bankruptcy court erroneously

read “ERISA and Internal Revenue Code” when the statute only states “Internal

Revenue Code.”

The Internal Revenue Code and ERISA are distinct in many ways beyond

the facts that the Internal Revenue Code was enacted in 1986 as Title 26 of the

U.S. Code, while ERISA was enacted in 1974 as Title 29, Chapter 18. The main

purpose of the Internal Revenue Code is to provide for certain tax revenues and it

is administered by the Secretary of the Treasury (see I.R.C. § 7701(a)(11)(A) and

(B); see also I.R.C. § 7801(a)(1)). On the other hand, the Secretary of Labor

enforces ERISA (see 29 U.S.C. 1002(13), 29 U.S.C. 1132(b), 29 U.S.C. 1134, and

29 U.S.C. 1135). Congress enacted ERISA to encourage the development of

single-employer retirement plans, to increase the likelihood that plan participants

will receive benefits, and for other reasons (see 29 U.S.C. 1001(a), (b) and (c)).

Congress crafted the retirement plan provisions contained in the Internal

Revenue Code with a focus on plan taxability. Congress wrote ERISA with a

vastly different provenance – Congress did not want employers to adopt plans that

favor certain individuals versus others. In other words, ERISA prevents employers

from taking advantage of the favorable tax environment provided under the

Internal Revenue Code by benefiting only owners and officers, while leaving other

employees out of the plan. In short, the Internal Revenue Code and ERISA are
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separate laws, with distinct purposes, and enforced by different cabinet secretaries.

They cannot be used interchangeably.

Secondly, FLA. STAT. ch. 222.21(2)(b) supports Debtor’s argument by

reinforcing the Internal Revenue Code as the operative rule under FLA. STAT. ch.

222.21(2)(a)(1). It essentially states that regardless of ERISA compliance, the

exemption is available, so long as I.R.C. §401 is satisfied. The Internal Revenue

Code is satisfied as expressed above and, therefore, Debtor’s retirement plan is

exempt from creditors.

B. Factual Differences Between In Re Sutton and the Instant Case

Furthermore, the bankruptcy court’s analysis of 11 U.S.C. 522(d)(10) is incorrect

with regard to Debtor’s Keogh plan for the reasons stated above and because the

facts in the instant case demonstrate that Debtor is not of retirement age and has no

right to payment under the plan, unlike the debtor in In re Sutton.

C. The Bankruptcy Court’s Order in the Instant Case

The bankruptcy court cites the case of In re Yates, 541 U.S. 1, 124 S.Ct.

1330 (2004) in its Order. The In re Yates analysis is based solely on ERISA, not
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the Internal Revenue Code. Since the primary issue in this case requires this court

to interpret I.R.C. §401(a) and I.R.C. §401(c) (by way of the reference to I.R.C.

§401(a) in FLA. STAT. ch. 222.21(2)(a)(1)), In re Yates is not relevant and should

not be considered -- FLA. STAT. ch. 222.21(2)(a)(1) does not even mention

ERISA at all. The other cases cited by the bankruptcy court are also not controlling

under the analysis outlined in this brief.

III. Public Policy Demands Debtor’s Keogh Plan Be Exempt

Public policy also favors individual’s need to have the necessary resources

to pay for basic care and maintenance when he or she retires. In re Lazin, 217 B.R.

332, 336 (Bankr. M.D. Fla. 1998). Exemption policy favors giving honest debtors

a fresh start:

More specifically, the policy behind the pension exemption is to

protect a debtor's future income stream. Congress' commitment to this

policy is well illustrated in the favorable tax treatment given on

account of funds devoted to retirement plans, as well as the anti-

assignment protection afforded other ERISA-qualified plans. IRAs are

often the only source of retirement funds which self-employed

individuals have been able to put together.

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In re Hickenbottom, 143 B.R. 931, 933 (Bankr. W.D. Wash. 1992). Additionally,

exemptions under state law rest on consideration of public policy and should be

liberally construed in favor of the debtor. In re Allen, 203 B.R. 786, 794 (Bankr.

M.D. Fla. 1996).

Debtor, responsibly and in good faith, funded her Keogh plan to provide for

her basic care and maintenance in retirement. This court should overturn the

bankruptcy court’s order to comply with public policy, that an individual needs to

have the necessary resources to pay for her basic care and maintenance when she

retires, to give an honest debtor a fresh start, and to liberally construe state

exemption laws in favor of the debtor.

CONCLUSION

Wherefore, Debtor respectfully moves the court to overrule the United States

Bankruptcy Court’s Order and to declare that Debtor’s Keogh plan assets are

exempt under FLA. STAT. ch. 222.21(2)(a)(1) and not subject to administration

by the Chapter 7 Trustee.

Dated: ____ July 2009

Respectfully submitted,

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______________________________
Charles PT Phoenix, Esq.
The Florida Bar No. 535591
Phoenix Law PA
12800 University Drive, Suite 260
Fort Myers, FL 33907
(239) 461-0101
cptp@corporationcounsel.com
Attorney for Appellant

CERTIFICATE OF SERVICE

I HEREBY CERTIFY that a true and correct copy of the foregoing has been
furnished to the United States Trustee and Robert E. Tardif, Jr., Trustee via
electronic transmission or US Mail on ___ July 2009.

______________________________
Charles PT Phoenix, Esq.
The Florida Bar No. 535591
Phoenix Law PA
12800 University Drive, Suite 260
Fort Myers, FL 33907
(239) 461-0101
cptp@Corporationcounsel.com
Attorney for Appellant

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