When an individual or company files for bankruptcy protection, a duly-authorized trustee takes control of the estate. So long as the bankruptcy action continues, the trustee on the case has the standing to seek to recover any assets or funds he or she believes to be part of the estate. Last year the federal bankruptcy court held in the case of In re Vaughan Co., Realtors, 493 BR 597 (Bankr. Court, D. New Mexico 2013) that the trustee had the authority to seek recovery of certain funds paid by the debtor (Vaughn), as part of an alleged Ponzi scheme, to a pension plan (defined benefits plan) called Ultima Plan. The trustee of the plan also owns Ultima Homes which agreed to build a home for Mr. Vaughn. The bankruptcy trustee contends that the Vaughn Company may have fraudulently transferred funds to the Ultima Plan in exchange for Ultima Homes constructing a home for him personally.
After bringing a complaint to recover the transferred from funds from Ultima Plan and other entities (the “defendants”), the defendants moved the Court to grant a summary judgment dismissing the claims of the bankruptcy trustee. The defendants claimed that pension plans under the ERISA law cannot be sued for recovery of funds because the funds belong to the beneficiary. The Court disagreed noting that it was not sure from the facts presented thus far whether the plan was a benefits program under ERISA, and even if it was, only the beneficiaries, an employer or participant in the plan would have the standing to so object.
The ERISA statute prohibits agreements which convey the right of a beneficiary to grant the right to someone else. The defendants argued that this “anti-alienation” rule would be violated if the bankruptcy trustee were allowed to recover funds from the Plan. The Court also rejected this argument stating that “Because the anti-alienation provision only prohibits alienation of benefits to become payable to a plan participant or beneficiary, those provisions do not limit the Trustee’s right to recover fraudulent transfers from the corpus of the Ultima Plan”. The bankruptcy court also does not view the anti-alienation rule as superseding bankruptcy fraudulent transfer rules voiding prior transactions. For all of these reasons, the fraudulent transfer case can continue to a trial where the bankruptcy trustee will have to prove his or her case.
The attorneys at Giddens & Gatton Law, PC handle bankruptcy cases including Chapter 7, Chapter 11 and Chapter 13 bankruptcies. Giddens & Gatton Law, PC is located at 10400 Academy Road N.E., Suite 350 in Albuquerque, New Mexico. Call the office at (505) 633-6298 to set up an appointment or visit the firm’s website at giddenslaw.com.