Pension & Benefits News District court must reconsider order approving garnishment of purported profit-sharing plan
Tuesday, January 29, 2019

District court must reconsider order approving garnishment of purported profit-sharing plan

By Pension and Benefits Editorial Staff

A district court acted prematurely when it concluded that an investment account was not a tax-qualified ERISA plan and thus could be garnished under Florida law, the U.S. Court of Appeals in Atlanta (CA-11) has ruled. On remand, the district court must, among other things, examine the plan instrument as part of its determination as to whether the investment account is a tax-qualified retirement plan.

Garnishment. Whirlpool Corporation sought to collect a judgment for breach of contract of about $180,000 against Freight Revenue Recovery, one of its service providers. It did so in part by attempting to garnish a Charles Schwab account, valued at over $800,000 and called “Freight Revenue Recovery Sys Inc. Profit Sharing Plan/Schwab One Pension PT—PPLAN.”

Freight Avenue sought to dissolve the writ of garnishment by arguing that the Schwab account was an ERISA profit-sharing plan containing assets Freight Revenue had contributed for the benefit of its owner. Under relevant Florida law (Fla. Stat. §222.21(2)(a)), assets in a tax-qualified plan are exempt from all claims of creditors “of the owner, beneficiary or participant.” Freight Revenue’s owner was the only participant in the plan since at least 2012.

Whirlpool countered that the account was not a qualified profit-sharing plan. It suggested that the account failed to satisfy minimum coverage requirements and that it discriminated in favor of highly compensated employees. In addition, the Freight Revenue’s owner stated he had caused the plan to purchase property he and his wife owned, which Whirlpool argued amounted to a prohibited transaction.

Given all this, a magistrate judge agreed the account was not a qualified plan and recommended that the writ of garnishment remain in effect. The district court agreed, holding that the account was not an employee benefit plan. The district court then concluded that the Schwab account is “simply an account holding Freight Revenue assets” and thus may be garnished to satisfy the judgment.

The appellate court vacated the lower court’s ruling and remanded for further proceedings. The district court’s analysis was incomplete, the court explained. With respect to the ERISA issue, the district court failed to examine the instrument creating the plan to determine whether a valid plan exists. More broadly, even if the district court is correct that no ERISA plan exists, it still must make determinations as to whether (1) Freight Revenue or its owner is the legal owner of the assets in the Schwab account and (2) if the account does not contain Freight Revenue assets, is its owner liable for the company’s debts. Whirlpool made a variety of alternative arguments asserting that Freight Revenue’s owner is personally responsible for Freight Revenue’s debt but the district court either did not consider those arguments or failed to make the relevant findings of fact.

SOURCE: Whirlpool Corporation v. Freight Revenue Recovery of Miami, Inc. (CA-11).

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