United States Court of Appeals
Fifth Circuit
F I L E D
IN THE UNITED STATES COURT OF APPEALS March 12, 2007
FOR THE FIFTH CIRCUIT
Charles R. Fulbruge III
)))))))))))))))))))))))))) Clerk
No. 06-10426
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In The Matter Of: DON ROYL PLUNK
Debtor.
-------------------------
DON ROYL PLUNK,
Appellant,
v.
ROBERT YAQUINTO, JR. and COMERICA BANK,
Appellees.
Appeal from the United States District Court
for the Northern District of Texas
No. 3:05-CV-1470
Before DAVIS, DENNIS, and PRADO, Circuit Judges.
PRADO, Circuit Judge:
Before us is an appeal by a debtor of the bankruptcy court’s
decision that his pension plan is not exempt under Texas law from
being “property of the estate” because it was not “qualified”
pursuant to 26 U.S.C. § 401(a) (2000). The debtor also appeals
the bankruptcy court’s decision that collateral estoppel
prevented him from challenging whether a creditor owned a
judgment against him. For the following reasons, we AFFIRM.
I. BACKGROUND
On October 12, 2004, Debtor-Appellant Don Royl Plunk
(“Plunk”) filed for Chapter 7 bankruptcy. Plunk listed the Don
R. Plunk P.S. Plan (“the Plan”), a self-administered pension plan
worth $300,000, as personal property on Schedule B. Plunk then
claimed the Plan as exempt property on Schedule C pursuant to
section 42.0021 of the Texas Property Code. Section 42.0021
exempts a pension plan from attachment, execution, or other
seizure if the plan is “qualified” under the Internal Revenue
Code (“I.R.C.”). TEX. PROP. CODE ANN. § 42.0021(a) (Vernon 2000 &
Supp. 2006); see also 11 U.S.C. § 522(b) (incorporating state law
exemptions into bankruptcy proceedings).
In early December 2004, Appellees Robert Yaquinto, Jr. (“the
Trustee”) and Comerica Bank (“Comerica”) (collectively,
“Appellees”) filed objections to Plunk’s claim that the Plan was
exempt. Appellees argued that Plunk had abused Plan assets and,
thus, the Plan was no longer qualified under I.R.C. § 401(a), 26
U.S.C. § 401(a), and could not be exempted in the bankruptcy
proceeding.
Later that month, Comerica filed a motion to lift the
automatic bankruptcy stay to permit Comerica to proceed in a
garnishment case in the 193rd Judicial District Court of Dallas
County, Texas, styled Comerica Bank-Texas, N.A. v. Neighborhood
Credit Union and Don R. Plunk, No. 02-10675-1 (“the state
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garnishment action”). Comerica claimed to own, as the successor
to a series of mergers, a judgment of over $750,000 (“the
judgment”) against Plunk that was originally awarded to BancTexas
Dallas, N.A. (“BancTexas”) in 1989. In the state garnishment
action, Comerica was attempting to garnish a bank account held by
the Plan in order to collect on the judgment. As in the
bankruptcy case, Comerica argued that the Plan was not qualified
under I.R.C. § 401(a) and, thus, was not exempt from garnishment.
At the time Plunk declared bankruptcy, which stayed the
garnishment action, the state court had already held a number of
hearings and was on the verge of trial. Comerica, therefore,
asked that the stay be lifted so that the state court could make
a final determination about the qualified status of the Plan.
The bankruptcy court held a hearing on these issues over a
period of days between February 2005 and April 2005. At the
hearing, Plunk put on evidence that the Internal Revenue Service
(“IRS”) had determined that the Plan was structurally qualified
under § 401(a) when the Plan was created. In response, Appellees
did not argue that the Plan was not qualified structurally, but
contended instead that Plunk had misused Plan assets to the
extent that the Plan was no longer qualified operationally.
With respect to the motion to lift the stay, Comerica
offered evidence that the judgment owned by BancTexas was
transferred to Hibernia National Bank of Texas (“Hibernia”) by
the Federal Deposit Insurance Corporation as the receiver for
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BancTexas in 1990. Subsequently, Hibernia merged into Comerica.
Plunk disputed that Comerica owned the judgment and argued there
was an insufficient chain of title between Hibernia and
BancTexas. Comerica then put on evidence that in 1992, Hibernia
relied on the judgment to bring a garnishment action against some
of Plunk’s assets (“the 1992 garnishment action”). Plunk
responded to the 1992 garnishment action, but did not contest
Hibernia’s ownership of the judgment. Therefore, Comerica argued
that the principles of res judicata and collateral estoppel
prevented Plunk from contesting Hibernia’s ownership of the
judgment in the current proceedings.
On April 15, 2005, the bankruptcy court entered an order
sustaining Appellees’ objections to Plunk’s claim that the Plan
was exempt. The bankruptcy court determined that Plunk had used
Plan assets to pay personal bills and that the Plan was no longer
qualified. The bankruptcy court also lifted the stay on May 10,
2005, to permit the state court garnishment action to proceed.
In making its decision to lift the stay, the bankruptcy court
ruled that collateral estoppel and res judicata precluded Plunk
from arguing that Hibernia, and thus Comerica, did not own the
judgment at issue.
Plunk appealed both rulings to the district court. The
district court affirmed the bankruptcy court’s decisions, and
Plunk now appeals to this court. On appeal, Plunk contends that
this court’s precedent in Youngblood v. Federal Deposit Insurance
4
Corp. (In re Youngblood), 29 F.3d 225 (5th Cir. 1994), prevents
the bankruptcy court from making an independent determination of
whether the Plan was qualified and that res judicata and
collateral estoppel do not bar his claim that Comerica does not
own the judgment. We have jurisdiction to consider Plunk’s
appeal pursuant to 28 U.S.C. § 158(d), and now turn to the merits
of the parties’ arguments.
II. STANDARD OF REVIEW
This court applies the same standard of review to the
decisions of a bankruptcy court as does the district court.
Nesco Acceptance Corp. v. Jay (In re Jay), 432 F.3d 323, 325 (5th
Cir. 2005). Findings of fact are reviewed for clear error, while
conclusions of law are considered de novo. Id.; see also FED. R.
BANKR. P. 8013. We may affirm on any grounds supported by the
record, even if those grounds were not relied upon by the lower
courts. Bonneville Power Admin. v. Mirant Corp. (In re Mirant
Corp.), 440 F.3d 238, 245 (5th Cir. 2006).
III. DISCUSSION
A. Whether the Plan is Qualified
We will first consider Plunk’s appeal regarding the decision
that the Plan was not qualified. Plunk does not argue that the
bankruptcy court erroneously found that he had abused the Plan’s
assets and that such abuse warranted disqualification. Instead,
Plunk argues that the bankruptcy court was required by this
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court’s precedent in Youngblood to defer to the initial IRS
determination that the Plan was qualified. Consequently,
resolution of this case requires an analysis of our decision in
Youngblood.
In Youngblood, Youngblood Builders, Inc., created a defined-
benefit pension trust for its employees. 29 F.3d at 226. The
IRS issued favorable determination letters that the plan was
“qualified” under § 401(a) in 1978 and 1987. Id. In December
1987, the plan was terminated and William Youngblood, a
beneficiary of the plan, had his distribution rolled over into an
IRA. Id. Around that same time, the IRS audited the plan. Id.
at 227. The IRS assessed sanctions against the plan for two
improper loans and questioned several other transactions. Id.
The IRS, however, did not revoke the plan’s qualified status.
Id. When Youngblood went bankrupt in 1989, he claimed his IRA as
exempt property under section 42.0021 of the Texas Property Code.
Id. One of his creditors objected, arguing that because the plan
was not qualified, Youngblood’s IRA was not exempt. Id. The
bankruptcy court agreed and ruled that the plan was not
qualified. Id.
On appeal, Youngblood1 argued that the bankruptcy court was
precluded from finding that the plan was not qualified because
the IRS had already concluded otherwise. Id. This court held
1
During the pendency of the litigation, William Youngblood
died, but the suit was carried on by his wife.
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that the key issue in deciding the case was whether the Texas
legislature, in enacting section 42.0021, “contemplated that its
courts would independently decide whether particular violations
were sufficiently serious to merit the ultimate sanction of
disqualification especially when the IRS has made a contrary
determination.” Id. at 229. We decided the Texas legislature
intended that courts defer to the IRS in determining whether a
plan is qualified. Id. In so holding, we stated:
We see no reason that the legislature would want its
courts, which are inexperienced in federal tax matters,
to second-guess the IRS in such a complex, specialized
area. We find it much more reasonable to assume that the
legislature contemplated creating an exemption from
seizure for a debtor’s retirement funds that could be
simply and readily determined by referring to the federal
tax treatment of those funds. Moreover, we do not
believe that the legislature wanted to adopt a scheme
that invites frequent, unseemly, conflicting decisions
between the state court or bankruptcy court, and the IRS,
such as occurred in this case.
Id.
This case, then, hinges on this court’s decision in
Youngblood--whether it stands for the proposition that a
bankruptcy court can never question an IRS determination that a
plan is qualified, as contended by Plunk, or whether it permits a
bankruptcy court, in limited circumstances, to undertake its own
analysis of a plan’s qualified status, as urged by Appellees. We
have found no other circuit court case considering this question,
nor has any Texas court addressed this issue. But see Jones v.
Am. Airlines, Inc., 131 S.W.3d 261, 270 (Tex. App.-Fort Worth
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2004, no pet.) (determining that Youngblood did not apply to the
situation in that case).
Appellees argue that the instant appeal is distinguishable
from Youngblood because the IRS in Youngblood had considered the
misconduct at issue and decided not to disqualify the plan.
Here, the IRS has not audited the Plan or ruled whether Plunk’s
abuse of Plan assets warrants disqualification. We agree that
this distinction is significant.
As a review of the Youngblood decision shows, our two
primary concerns in requiring deference to the IRS were (1) the
conflicting results that might be reached if the courts and the
IRS made separate, independent determinations of a plan’s
qualified status; and (2) the IRS’s greater experience and
familiarity with the I.R.C. and related regulations. See
Youngblood, 29 F.3d at 229. Our desire to avoid conflicting
results is not implicated when, as here, the IRS has never ruled
whether certain conduct requires a plan to be disqualified.
Instead, the courts will be able to make that determination based
on the evidence presented to them, without fear of inconsistency
with a previous IRS decision.
Our remaining concern that the IRS is more familiar with the
tax code and regulations is not sufficient to require deference
to an out-dated IRS decision. Both state and federal courts
routinely interpret IRS rules and regulations. See, e.g.,
Coppola v. Beeson (In re Coppola), 419 F.3d 323, 327-29 (5th Cir.
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2005) (interpreting provisions of the I.R.C. and various
regulations); Beard v. Beard, 49 S.W.3d 40, 69-70 (Tex. App.-Waco
2001, pet. denied) (same).
We, therefore, hold that when disqualifying events occur
after the IRS has last determined that a plan is qualified, a
court may, under section 42.0021 of the Texas Property Code,
determine that a plan is no longer qualified based on those
events. See Dzikowski v. Blais (In re Blais), 220 B.R. 485, 489
(S.D. Fla. 1997) (considering Youngblood and reaching a similar
result under Florida law).
Turning to the facts of this case, it had been years since
the IRS determined the Plan was qualified, and then only as to
its structure. The IRS never considered Plunk’s abuse of Plan
assets or audited the Plan to determine whether it was
operationally qualified despite Plunk’s actions. Therefore, the
bankruptcy court and district court were permitted to reach an
independent decision regarding the Plan’s qualified status and
were not bound by the previous IRS determination under
Youngblood. As a result, we affirm the district court’s decision
on this point.2
B. Whether Res Judicata or Collateral Estoppel Preclude Plunk’s
Ownership Argument
2
Because we have decided that the lower courts were not
bound by the IRS’s previous statement, we do not reach Appellees’
argument that Plunk’s inability to participate in the IRS’s
Voluntary Compliance Program renders the Plan unqualified.
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We next consider whether the bankruptcy and district courts
properly determined that res judicata and collateral estoppel
precluded Plunk from challenging Hibernia’s, and thus Comerica’s,
ownership of the judgment against him. Because we may affirm the
lower courts on any ground supported by the record, In re Mirant,
440 F.3d at 245, we first turn to collateral estoppel.
Texas rules of preclusion apply, as we are dealing with the
effect of a state court judgment. See Fielder v. King (In re
King), 103 F.3d 17, 19 n.2 (5th Cir. 1997). Under Texas law,
collateral estoppel is used to prevent a party from relitigating
an issue that it previously litigated and lost. Quinney Elec.,
Inc. v. Kondos Entm’t, Inc., 988 S.W.2d 212, 213 (Tex. 1999) (per
curiam). The party invoking collateral estoppel must establish
“(1) the facts sought to be litigated in the second action were
fully and fairly litigated in the first action; (2) those facts
were essential to the judgment in the first action; and (3) the
parties were cast as adversaries in the first action.” John G. &
Marie Stella Kenedy Mem’l Found. v. Dewhurst, 90 S.W.3d 268, 288
(Tex. 2002). Here, by seeking to use the judgment in the 1992
garnishment action to prevent Plunk from arguing that Comerica
does not own the judgment in the instant case, Comerica is
seeking to invoke collateral estoppel in an offensive, as opposed
to defensive, manner. See Fletcher v. Nat’l Bank of Commerce,
825 S.W.2d 176, 177 (Tex. App.-Amarillo 1992, no writ)
(discussing difference between offensive and defensive collateral
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estoppel).
On appeal, Plunk’s only contention is that the fact of
Hibernia’s ownership of the judgment was not fully and fairly
litigated in the 1992 garnishment action. He cites to precedent
identifying the following factors that a court is to take into
account in deciding whether to apply offensive collateral
estoppel:
(1) Whether use of collateral estoppel will reward a
plaintiff who could have joined in the previous action
but chose to “wait and see” in the hope that the first
action by another plaintiff would result in a favorable
judgment;
(2) Whether the defendant in the first action had the
incentive to litigate the previous suit fully and
vigorously;
(3) Whether the second action affords the defendant
procedural opportunities unavailable in the first action
that could readily cause a different result; and
(4) Whether the judgment in the first action is
inconsistent with any previous decision.
Scurlock Oil Co. v. Smithwick, 787 S.W.2d 560, 563 (Tex. App.-
Corpus Christi 1990, no writ); see also Parklane Hosiery Co. v.
Shore, 439 U.S. 322, 330-31 (1979) (listing similar factors).
Texas courts are given discretion in applying these factors. See
Scurlock, 787 S.W.2d at 563. Plunk’s arguments fall primarily
under the second factor, and the remaining three factors do not
weigh in his favor.
Plunk argues that he had little incentive to contest the
1992 garnishment action because it only concerned a nominal
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amount of money. He also contends that there was no express
finding that Hibernia owned the judgment. We have reviewed the
evidence of the 1992 garnishment action submitted to the
bankruptcy court. The amount at issue was not large, but Plunk
did file an answer through counsel and contested whether some of
the money belonged to him or his wife. This level of
participation suggests that Plunk did not consider the amount
nominal enough to refrain from participating in the suit
altogether.
With respect to Plunk’s argument that there was no express
finding that Hibernia owned the judgment, we note that, under
Texas garnishment law, the plaintiff must own a judgment against
the defendant in order to obtain a writ of garnishment. See TEX.
CIV. PRAC. & REM. CODE ANN. § 63.001. Further, agreed judgments in
Texas have the same degree of finality and binding force as
judgments reached at the end of adversary proceedings. Forbis v.
Trinity Universal Ins. Co. of Kan., Inc., 833 S.W.2d 316, 319
(Tex. App.-Fort Worth 1992, writ dism’d) (finding an agreed
judgment binding for collateral estoppel purposes). Therefore,
the agreed judgment entered in the 1992 garnishment action
necessarily required that Hibernia own the judgment at issue.
Consequently, the lower courts were correct in determining
that the 1992 garnishment action may be used to collaterally
estop Plunk from contesting Hibernia’s ownership of the judgment.
As a result, we affirm the decision to lift the stay to permit
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the state garnishment action proceed.
IV. CONCLUSION
For the reasons above, we affirm the decisions of the lower
courts.
AFFIRMED.
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