United States Court of Appeals,
Eleventh Circuit.
No. 94-6072.
In re Lawrence William SLOMA, Debtor.
FIRST BANK OF LINDEN, Plaintiff-Appellant,
v.
Lawrence William SLOMA, Defendant-Appellee.
Jan. 30, 1995.
Appeal from the United States District Court for the Southern
District of Alabama. (No. 93-0577-T-S), Daniel H. Thomas, Judge.
Before HATCHETT and ANDERSON, Circuit Judges, and DYER, Senior
Circuit Judge.
DYER, Senior Circuit Judge:
The district court affirmed the judgment of the bankruptcy
court in an adversary proceeding filed by the Chapter 7 debtor
Lawrence William Sloma. This dispute concerns the issue of Sloma's
assignment of payments under an annuity to First Bank of Linden as
security for a loan, seven years prior to filing his bankruptcy
petition, and claiming an exemption under the Longshore and Harbor
Workers' Compensation Act.
Background
Sloma injured his shoulder in a work-related accident. He was
employed by Gulf Coast Catering Company which provided catering
services to offshore oil rigs. Damages for the injuries were
governed by the Longshore and Harbor Workers' Compensation Act, 33
U.S.C. 901, et seq.
Gulf Coast and its insurer, National Union Fire Insurance
Company, negotiated a settlement with Sloma to fulfill his rights
under the Act pursuant to which Sloma was to be paid $180,000.00,
structured as follows:
$10,000.00 to be paid immediately
$ 5,000.00 to be paid after 5 years
$10,000.00 to be paid after 10 years
$15,000.00 to be paid after 15 years
$20,000.00 to be paid after 20 years
$ 500.00 per month to be paid for 20 years.
Upon payment of the $180,000, Sloma's employer and its carrier
were discharged of any further obligation or liabilities to Sloma.
The settlement was approved as an Award by the United States
Department of Labor, pursuant to 33 U.S.C. § 908(i).
The employer's insurance carrier, National Fire Insurance
Company, paid the $180,000.00 award to Sloma by the payment of
$10,000.00 in cash to him and the purchase from Manufacturers Life
Insurance Company of an annuity, naming Sloma as the Annuitant, for
which National paid Manufacturers a single premium. Sloma agreed
that he should be paid as follows:
$500.00 per month for 20 years certain until 240 payments have
been made, and after that for the remaining life of the annuitant.
$ 5,000.00 on October 1, 1989
$10,000.00 on October 1, 1994
$15,000.00 on October 1, 1999
$20,000.00 on October 1, 2004.
On December 8, 1984, Sloma obtained a loan from the First Bank
of Linden for $85,000.00 for the purpose of acquiring and operating
a Western Auto Store. Sloma executed an absolute collateral
assignment of the annuity payments (provided to the Bank by
Manufacturers) to secure the loan. The loan was structured to be
repaid in accordance with the annuity payments that were assigned
to the Bank.
The Bank continued to receive monthly payments from
Manufacturers pursuant to the assignment until Sloma's business
venture failed and, in violation of the security agreement
contained within the note to the Bank, Sloma directed that
Manufacturers forward all future payments to him personally.
Due to the default under the terms of the note and the
conversion by Sloma of the monthly payments subject to the security
interest and assignment in favor of the Bank, the Bank filed suit
against Sloma in the Circuit Court of Morengo County, Alabama.
Judgment was entered against Sloma for the amount due under the
note. The Bank then caused the issuance of a garnishment against
Manufacturers to enforce payments under the assignment to satisfy
the judgment. The Circuit Court issued a final order directing
that Manufacturers fulfill the obligation under the assignment to
the Bank and pay all future annuity payments until the judgment
held by the Bank against Sloma was paid.
Procedural History
Sloma filed a Chapter 7 bankruptcy petition on January 8,
1992, seven years after the assignment by Sloma to the Bank of his
annuity payments. Sloma asserted a claim of exemption as to the
payments due from Manufacturers. The Bank did not file objections
to Sloma's claim of exemption within 30 days. After the petition
was filed, the Bank continued to receive the monthly payments from
Manufacturers pursuant to the final judgment of the State Circuit
Court.
Sloma filed an adversary proceeding against the Bank asserting
that the payments due from Manufacturers were exempt property.
After a trial the bankruptcy court entered a final judgment in
which it determined that the annuity payments due from
Manufacturers constituted an assignment of the right to receive
compensation under the Longshore and Harbor Workers' Act, and that
such assignment was void ab initio, as a matter of law.
The district court affirmed the judgment of the bankruptcy
court that the benefits under the Act were not assignable and that
the annuity payments were the exempt property of Sloma. This
appeal ensued.
Standard of Review
The facts are undisputed. The issues in this appeal are
questions of law, therefore the standard of review is de novo. In
Re Club Associates, 956 F.2d 1065, 1069 (11th Cir.1992).
Discussion
Two questions are posed in this appeal. First, was the
assignment of the annuity payments to the Bank by Sloma in payment
of his note for $85,000.00 valid, or was the assignment barred
under the anti-assignment provision of the Longshore and Harbor
Workers' Act. Second, did the Bank's failure to file a timely
objection in bankruptcy to the claim of the property as exempt by
Sloma prevent the Bank from challenging the validity of the
exemption.
The Assignment
We start with the Award made to Sloma under the Longshore and
Harbor Workers' Act. It states:
The employer, Gulf Coast Catering Company, and the insurance
carrier, National Union Fire Insurance Company, shall pay to
Lawrence Sloma, the claimant employee, compensation in the
amount of $180,000.00, in a structured settlement as specified
herein above, the payment of which will discharge the
liability of the employer and insurance carrier from all
future installments of compensation and the file of Lawrence
Sloma will be closed.
To satisfy the Award, Gulf Coast's insurance carrier, National
Union, paid Sloma $10,000.00 in cash and obtained a $170,000.00
annuity from Manufacturers in favor of Sloma as the annuitant,
payable in installments as set forth supra. Sloma subsequently
assigned the payments under the annuity to the Bank to obtain a
loan which the Bank would not have made absent such assignment. To
determine the validity of this assignment, we must focus on the
proper interpretation of 33 U.S.C. § 916 of the Longshore and
Harbor Workers' Act, which provides:
No assignment, release, or commutation of compensation or
benefits due or payable under this chapter, except as provided
by this chapter, shall be valid, and such compensation and
benefits shall be exempt from all claims of creditors and from
levy, execution, and attachment or other remedy for recovery
or collection of a debt, which exemption may not be waived.
(Emphasis added).
Neither we nor counsel have found any helpful precedent to
guide us in the application of this section to the unusual facts of
this case. There can be no doubt that had the employer paid Sloma
$180,000.00 in cash, he could have used it in any way he desired.
Cf. Guidry v. Sheet Metal Workers' Nat'l Pension Fund, 39 F.3d 1078
(10th Cir.1994) (en banc) (ERISA anti-alienation analysis). Here
the employer paid Sloma $180,000.00, $10,000.00 in cash and the
purchase of an annuity for $170,000.00. We see no material
difference whether the employer paid for the annuity or whether the
employer paid Sloma $170,000.00 with which he purchased the
annuity. The annuity is a payment under a contract where for a
gross sum paid by the employer, Manufacturers became liable to pay
certain sums to Sloma. The right to receive payments was purchased
and paid for prior to Sloma's adjudication in bankruptcy. The
payments are essentially repayments in installments of the sum with
which the annuity was purchased. See In Re Power, 115 F.2d 69, 73
(7th Cir.1940). Sloma received benefits of $180,000.00 under the
Act by the purchase of the annuity for $170,000.00 and $10,000.00
in cash.
The payments received by Sloma under the annuity contract
were not due and payable under the Act; they were payments made to
him by a third party, Manufacturers. What the Supreme Court said
in McIntosh v. Aubrey, 185 U.S. 122, 125, 22 S.Ct. 561, 563, 46
L.Ed. 834 (1902), sums up the issue in this case, that "the
exemption provided by the act protects the fund only while in the
course of transmission to the pensioner [annuitant]. When the
money has been paid to him it has "inured wholly to his benefit,'
and is liable to seizure as opportunity presents itself. The
pensioner, however, may use the money in any manner, for his own
benefit and to secure the comfort of his family, free from the
attacks of creditors...."
The purpose of the anti-assignability provisions of the Act to
benefit an injured employee was served and ended once the amount of
the award of $180,000.00 was paid to Sloma by the payment of
$10,000.00 and the purchase, in his behalf, of an annuity for
$170,000.00. Sloma's assignment to the Bank of the payments under
the annuity in repayment of his loan of $85,000, made long prior to
the bankruptcy, was valid and the Bank is entitled to the payments
until its loan is fully repaid. The Bank was substituted for Sloma
to receive annuity payments over the period of time established by
Sloma's loan repayment schedule. During that time, Sloma had no
existing right to redirect the payments to himself.
Failure to Object to Claim of Exemption
The second issue concerns the lack of objection by the Bank
to Sloma's claim of exemption within the 30-day time limit pursuant
to Bankruptcy Rule 4003(b). Sloma argues that the Bank's failure
to do so prevents it from now challenging the validity of the
exemption. We disagree.
The validity of the assignment to the Bank of payments under
the annuity and the necessity for objecting to it in the bankruptcy
proceedings are interrelated. We have held that the assignment is
valid and not barred by the Act. Since Sloma's lack of interest in
the assigned property does not establish a basis for a proper claim
of exemption, there was no need for the Bank, a secured creditor,
to object. The consensual lien establishes the creditor's interest
in the property. It is well established law that the trustee in
bankruptcy takes only the title of the debtor in property of the
estate. Pearlman v. Reliance Insurance Co., 371 U.S. 132, 135, 83
S.Ct. 232, 234, 9 L.Ed.2d 190 (1962). Having transferred his
property interest to a creditor, a debtor cannot claim as exempt
property that he does not own.
Conclusion
The assignment by Sloma to the Bank of Linden of the payments
under the annuity was valid and not barred by the anti-assignment
provisions of the Longshore and Harbor Workers' Act.
There was no need for the Bank to file an objection to Sloma's
claim of an exemption because he did not own the property claimed
to be exempt.
REVERSED.
HATCHETT, Circuit Judge, dissenting:
The majority states that there is no "helpful precedent to
guide us in the application of this section to the unusual facts of
this case." I, however, believe that a recent case from the Tenth
Circuit, In Re Delgado, 967 F.2d 1466 (10th Cir.1992), is
instructive. In Delgado, an injured employee received a lump sum
workman's compensation settlement which she placed in a certificate
of deposit maturing in five years. She also took out a loan in
which she granted the bank a security interest in the certificate
and assigned the certificate as collateral. The Tenth Circuit held
that the bank's security interest in the certificate was not
enforceable under Kansas's statute prohibiting assignment of
worker's compensation benefits. The Tenth Circuit explained that:
the Kansas provision defines compensation as including the
actual payments and nowhere is there a limitation that the
exemption applies only to security interests or assignments
entered into before the compensation is actually paid....
[W]e recognize that [the injured employee] will receive a
windfall by recovering the certificate of deposit funds after
having spent the loan proceeds which have not been repaid. To
avoid such a situation, a bank would need to inquire
concerning the source of funds which will serve as security
for a loan. In this case, though, the Bank was fully aware
that the workmen's compensation award was placed in the
certificate of deposit which served as security. By
structuring the transaction so as to control the compensation
funds before extending credit to its long-time customer, the
Bank took a risk.
Delgado, 967 F.2d 1466, 1468. Similarly, I believe that the
assignment in this case was not valid. Sloma may "receive a
windfall by recovering [the annuity installments] after having
spent the loan proceeds which have not been repaid." But, just as
the injured employee in Delgado was entitled to the windfall, Sloma
is entitled to the windfall under 33 U.S.C. § 916. When it secured
Sloma's loan with an assignment of the annuity that he received as
compensation under the Longshore and Harbor Workers' Compensation
Act, the First Bank of Linden simply took a risk that did not pay
off.
Section 916 provides: "No assignment ... of compensation or
benefits due or payable ... shall be valid." The majority
emphasizes the words "due or payable." Apparently, it believes
that these three words mean that section 916 only invalidates an
assignment of compensation that is to be received in the future.
I disagree for the reasons explained in Delgado.1
Even under the majority's interpretation of section 916, I
believe that the assignment in this case was invalid. The majority
explains:
There can be no doubt that had the employer paid Sloma
$180,000.00 in cash, he could have used it in any way he
desired. Here the employer paid Sloma $180,000.00, $10,000.00
in cash and the purchase of an annuity for $170,000.00. We
see no material difference whether the employer paid for the
1
Admittedly, the Kansas statute in Delgado expressly
provided: " "no ... compensation ... paid[ ] shall be
assignable.' " Delgado, 967 F.2d 1466, 1467. It expressly
included " "claim[s] for compensation, or compensation agreed
upon, awarded, adjudged or paid.' " Delgado, 967 F.2d 1466,
1468. Thus, the Tenth Circuit emphasized the past tense in
arriving at its holding.
annuity or whether the employer paid Sloma $170,000.00 with
which he purchased the annuity.... The payments received by
Sloma under the annuity contract were not due and payable
under the Act.
Thus, the majority argues that because Sloma's employer purchased
an annuity for him, thereby satisfying its obligations, Sloma was
able to assign the installments of that annuity. 2 That, however,
is not what happened in this case.
In its findings of fact, the bankruptcy court found: "The
settlement provided for the establishment of an annuity issued by
Manufacturers Life Insurance Company ("Manufacturers"). The
annuity policy provided that Sloma would receive monthly payments
... and lump sum payments ... The policy expressly provided that
National Union was the owner of the policy." 3 Thus, the employer
never purchased an annuity for Sloma; instead, the employer's
insurance carrier, National Union, purchased an annuity in which it
maintained ownership. Because of this subtle difference, I believe
that Sloma was still in the course of receiving compensation "due
or payable" under the majority's interpretation of section 916.
The annuity policy was the result of a settlement that was
approved by the United States Department of Labor pursuant to 33
2
"An annuity contract is the exact inverse of a life
insurance contract. In return for a lump sum, the insurance
company typically promises the annuitant periodic payments that
will continue until the death of the annuitant. The lump sum is
determined by the life expectancy of the annuitant, and, in this
case, the insurance company gambles that the annuitants will die
prior to the actuarial predictions." Variable Annuity Life Ins.
Co. v. Clarke, 998 F.2d 1295, 1301 (5th Cir.1993).
3
"The bankruptcy court's factual determinations are subject
to review under the clearly erroneous standard." In Re Club
Associates, 956 F.2d 1065, 1069 (11th Cir.1992). No showing of
clear error regarding this fact has been made.
U.S.C. § 908(i). Section 908(i)(3) provides: "A settlement
approved under this section shall discharge the liability of the
employer or carrier, or both." Thus, the majority was correct when
it stated: "Upon payment of the $180,000, Sloma's employer and its
carrier were discharged of any further obligation or liabilities to
Sloma." Sloma's employer, however, and its carrier, National
Union, had not made the full payment of the $180,000 because
National Union owned the annuity policy. Sloma merely stood as an
intended third party beneficiary of the annuity contract between
National Union and Manufacturers. As a result, the $180,000 had
not been paid (past tense) to Sloma. Sloma was simply entitled to
the installments of the annuity contract, which National Union
owned; thus, he was still in the process of receiving
"compensation or benefits due or payable." Therefore, the
compensation could not be assigned to the First Bank of Linden.
In sum, I believe that the majority has incorrectly
interpreted 33 U.S.C. § 916 as only invalidating assignments of
compensation that has not been paid (past tense). Instead, the
statute should be read in accordance with the Tenth Circuit's
approach in Delgado. I also believe that even under the majority's
interpretation of section 916, the facts of this case indicate that
the compensation had not been paid (past tense), and therefore, the
assignment was not valid.