Michigan Supreme Court
Lansing, Michigan 48909
____________________________________________________________________________________________
C h i e f J u s ti c e J u s t ic e s
Maura D. Corrigan Michael F. Cavanagh
Opinion
Elizabeth A. Weaver
Marilyn Kelly
Clifford W. Taylor
Robert P. Young, Jr.
Stephen J. Markman
____________________________________________________________________________________________________________________________
FILED MAY 14, 2003
STATE TREASURER,
Plaintiff-Appellant,
v No. 120803
THOMAS K. ABBOTT,
Defendant-Appellee,
and
AUTO BODY CREDIT UNION and JOANN
A. ABBOTT,
Defendants.
____________________________________
BEFORE THE ENTIRE BENCH
CORRIGAN, C.J.
We granted leave to appeal to consider whether an order
reimbursing the state for the cost of caring for defendant, a
prison inmate, violates the Employee Retirement Income
Security Act (ERISA), 29 USC 1001 et seq. The trial court
ordered defendant to receive his pension benefits at his
prison address and directed the warden to appropriate the
funds from defendant’s prison account under the State
Correctional Facility Reimbursement Act (SCFRA), MCL 800.401
et seq. The Court of Appeals reversed because subsection
1056(d)(1) of ERISA prohibits an assignment or alienation of
pension benefits.
We hold that the trial court’s order did not violate the
federal statute. An order requiring a prisoner to receive his
pension benefits at his current address is not an assignment
or alienation of those benefits. Moreover, once the funds are
in the inmate’s account, the warden may distribute them under
the SCFRA. The federal ban on alienation or assignment of
pension funds does not extend to benefits that the pensioner
has already received. We thus reverse the judgment of the
Court of Appeals and reinstate the trial court’s judgment.
I. Factual background and procedural posture
The State Treasurer filed a complaint under the SCFRA
seeking to recover the costs of confining defendant Thomas K.
Abbott,1 a prisoner under the jurisdiction of the Michigan
Department of Corrections. Plaintiff submitted documentation
of the costs it has incurred and expects to incur in caring
1
We will refer to Thomas Abbott as “defendant.” The
other defendants in this case are not involved in this appeal.
2
for defendant during his incarceration.2 Plaintiff argued
that defendant’s monthly pension payments should be sent to
his prison address, deposited in his prison account, and
appropriated by the warden. The trial court ordered defendant
to show cause why the funds should not be appropriated.
Defendant filed a responsive pleading.
After reviewing the pleadings, the trial court ordered
defendant to direct his monthly pension proceeds to his prison
address. The court further ordered the warden to provide $20
of each payment to defendant, with the remainder divided
between defendant’s wife (sixty-seven percent) and the state
(thirty-three percent). In addition, the court ordered the
pension plan to send the benefit payments to defendant’s “new
address of record” in prison in the event that defendant
failed to direct the plan to do so.
Defendant subsequently filed a pleading entitled a “writ
of mandamus.” The trial court treated the “writ of mandamus”
as a motion for reconsideration and denied it. Defendant
filed a delayed application for leave to appeal, which the
Court of Appeals denied for lack of merit in the grounds
2
The documentation reflects that the state expects to
incur approximately $479,490 in caring for defendant during
his incarceration. Defendant began serving his sentence in
1996. His earliest possible release date is in 2015.
3
presented.3 Defendant then applied for leave to appeal to
this Court. In lieu of granting leave to appeal, we remanded
the case to the Court of Appeals for consideration as on leave
granted.4 In a published opinion, the Court of Appeals held
that ERISA barred the deposit of funds into defendant’s prison
account.5 Plaintiff filed an application for leave to appeal
to this Court, which we granted.6
II. The Court of Appeals opinion
In concluding that the trial court’s order violates
ERISA’s antialienation provision, the Court of Appeals relied
on State Treasurer v Baugh, 986 F Supp 1074 (ED Mich, 1997).
In Baugh, the State Treasurer sought an order under the SCFRA
directing a pension plan to deposit benefits into an inmate
beneficiary’s prison account. The federal district court held
that ERISA preempted such an order:
The Court agrees that once pension benefits
are placed in a personal account, ERISA no longer
operates to protect those funds. However, in the
instant case, defendant Chrysler Corp. would not be
voluntarily depositing the pension funds into [the
inmate’s] personal prisoner account but would be
doing so only by court order. Such an involuntary
transfer clearly constitutes an assignment. [Id. at
3
Unpublished order, entered December 4, 1998 (Docket No.
209836).
4
461 Mich 911 (1999).
5
249 Mich App 107; 640 NW2d 888 (2001).
6
466 Mich 860 (2002).
4
1077 (citation deleted).]
The Court of Appeals followed Baugh:
There is no dispute that directly garnishing
defendant’s pension benefits to reimburse the state
would violate the ERISA’s antialienation provision.
Baugh, supra. Plaintiff attempts to distinguish
Baugh by asserting that plaintiff did not make a
claim against the pension plan in this case and did
not seek an order compelling the plan to do
anything. Plaintiff argues that ordering defendant
to direct his pension to be sent to his prison
address is consistent with Baugh and does not
violate the ERISA. This argument fails for two
reasons. First, defendant did not voluntarily
change his pension address to his prison address
and did not voluntarily have the pension funds
deposited into his personal prisoner account, but
rather was ordered by the court to do so. The
court’s order effectively required the pension fund
to make the pension payment to defendant’s prison
account against defendant’s will. Such an
involuntary transfer clearly constitutes an
assignment and conflicts with the ERISA’s
antialienation provision. Second, if defendant
refuses to direct the pension fund to pay the
benefits to his prison account, the only method of
ensuring that the benefits reach the prison account
is by reliance on the order directing the fund to
send the money to the prison, just as in Baugh.
[249 Mich App 107, 113; 640 NW2d 888 (2001).]
III. Standard of review
Whether the trial court’s order effectuates an alienation
or assignment of pension funds under 29 USC 1056(d)(1) is a
question of law. We review questions of law de novo.
Cardinal Mooney High School v Michigan High School Athletic
Ass’n, 437 Mich 75, 80; 467 NW2d 21 (1991).
IV. Principles of interpretation
This case requires us to interpret a federal statutory
5
provision. Where a federal statute clearly addresses the
issue at hand, we apply the statute as written. If, however,
the text is silent or ambiguous regarding the issue before the
Court, we must defer to a federal agency’s interpretation if
it is based on a permissible construction of the statute.
Chevron USA Inc v Natural Resources Defense Council, Inc, 467
US 837; 104 S Ct 2778; 81 L Ed 2d 694 (1984).
V. Discussion
The trial court’s order requires that (1) defendant
receive his monthly pension payments at his prison address and
(2) the warden distribute the funds after their deposit in
defendant’s prison account. We conclude that this arrangement
does not alienate or assign the pension proceeds in violation
of ERISA.
We note initially that the SCFRA permits the trial court
to provide reimbursement to the state from “assets” owned by
a prisoner for expenses incurred in caring for the prisoner.
MCL 800.404(3). The statute defines “assets” to include
“income or payments to such prisoner from . . . pension
benefits . . . .” MCL 800.401a.
It is not disputed that the trial court’s order was
proper under the SCFRA. The question presented is whether
ERISA’s prohibition on assignment and alienation of pension
benefits supersedes the SCFRA in this case.
6
A. Receipt of the funds at defendant’s prison address
ERISA’s antialienation provision states: “Each plan shall
provide that benefits provided under the plan may not be
assigned or alienated.” 29 USC 1056(d)(1).7 To determine
whether the order requiring defendant to receive pension
benefits at his prison address alienates or assigns those
benefits, we must discern the meanings of the statutory terms.
ERISA does not define the terms “alienate” and “assign.”
Because the federal statute is silent on the question
presented, we defer to a federal agency’s definition.
Chevron, supra. The Treasury Department has defined the term
“assignment” as “[a]ny direct or indirect arrangement (whether
revocable or irrevocable) whereby a party acquires from a
participant or beneficiary a right or interest enforceable
against the plan in, or to, all or any part of a plan benefit
payment which is, or may become, payable to the participant or
beneficiary.” 26 CFR 1.401(a)-13(c)(1). This definition
plainly contemplates a transfer of the interest to another
person, i.e., a person other than the beneficiary himself.
Sending a pension payment to a beneficiary at his own address,
and depositing it in his own account, does not assign that
payment. Neither the warden nor any other third person
7
It is not disputed that defendant’s pension plan is
covered by ERISA.
7
acquires a right or interest enforceable against the plan when
the pension proceeds are sent to defendant at his current
address.8
8
Moreover, we note that the accepted legal meanings of
the terms “assignment” and “alienation” are consistent with
the Treasury Department definition of “assignment.” Black’s
Law Dictionary (6th ed) defines “assignment” as:
The act of transferring to another all or part
of one’s property, interest, or rights. A transfer
or making over to another of the whole of any
property, real or personal, in possession or in
action, or of any estate or right therein. It
includes transfers of all kinds of property,
including negotiable instruments. [Emphasis added;
citation omitted.]
See also Allardyce v Dart, 291 Mich 642, 644-645; 289 NW 281
(1939):
In 4 Am Jur, p 229, an assignment in law is
defined as “A transfer or setting over of property,
or some right or interest therein, from one person
to another, and unless in some way qualified, it is
properly the transfer of one’s whole interest in an
estate, or chattel, or other thing. It is the act
by which one person transfers to another, or causes
to vest in another, his right of property or
interest therein.”
The American Law Institute has defined an
assignment of a right in its Restatement of the Law
of Contracts, p 171, § 149(1), as “[a]
manifestation to another person by the owner of the
right indicating his intention to transfer, without
further action or manifestation of intention, the
right to such other person or to a third person.”
This court has defined the word “assignment”
in the language of Webster as meaning “to transfer
or make over to another;” and in the language of
Burrill’s Law Dictionary as “to make over or set
over to another; to transfer.” Aultman, Miller &
Co v Sloan, 115 Mich 151, 153 [73 NW 123 (1897)].
8
A property interest is assigned or alienated when it has
been transferred to another person. The trial court here did
not order defendant to have his pension proceeds sent to
another person’s address. On the contrary, the court ordered
defendant to receive the benefits at his own address.
Moreover, the deposit of the funds into defendant’s prison
account did not transfer any legal title to, or interest in,
the funds to another person. The warden’s access to
defendant’s account does not alter the fact that the account
is in defendant’s name. Legal title was not conveyed to the
warden or to any other person when the funds were deposited in
defendant’s account.9
We respectfully decline to follow the federal district
court’s opinion in Baugh. The Baugh court held that “an order
by this Court forcing [a pension plan] to deposit pension
[Emphasis added.]
The term “alienation” similarly refers to a “conveyance
or transfer of property to another.” Black’s Law Dictionary
(7th ed) (emphasis added).
9
The dissent asserts that the warden obtains a property
interest in the funds before depositing them in defendant’s
prison account. The trial court’s order, however, compels the
warden to deposit the funds in defendant’s prison account,
thus ensuring that defendant receives the funds before they
are distributed under the SCFRA. The warden essentially acts
as a bank teller--he must deposit the funds in defendant’s
-
account upon receipt. Thus, the warden does not obtain any
interest in, or title to, the pension funds before depositing
them in defendant’s account and has no discretion or right to
use the funds.
9
funds into an [inmate’s prison] account from which [the state]
may withdraw monies clearly operates as an assignment.”
Baugh, supra at 1077. The Baugh court characterized the
transfer of the funds to the inmate’s prison account as an
assignment because it was “involuntary.” The involuntary
nature of a deposit does not establish an assignment unless a
person other than the beneficiary acquires a right or interest
enforceable against the plan. An assignment does not occur
where the pension proceeds are sent to the pensioner’s current
address and deposited into his own account.
The dissent argues that an assignment or alienation
occurred because the pension fund itself was directed to send
the benefit payments to defendant’s prison address in the
event that defendant did not ask the fund to do so. The
dissent’s argument ignores the Treasury Department’s
definition of the term “assignment.” The federal statute
would be violated if the court had ordered the fund to send
the payments to another person, i.e., to a person other than
defendant, and thereby granted a right or interest enforceable
against the plan to that third person. Thus, if the court had
ordered the pension fund to distribute the payments directly
to the state of Michigan, an assignment or alienation would
result. Here, however, the court ordered the funds to be sent
to defendant himself at his current address and deposited in
10
his own account. Because defendant thus receives the funds,
no assignment or alienation occurs.10
10
The dissent observes that the trial court’s order refers
to the warden as a “receiver.” This language in the order
does not alter our conclusion that an assignment has not
occurred.
Fundamentally, a receiver is not an assignee. The terms
have separate legal meanings. Black’s Law Dictionary (7th ed)
defines a “receiver” as “[a] disinterested person appointed by
a court, or by a corporation or other person, for the
protection or collection of property that is the subject of
diverse claims (for example, because it belongs to a bankrupt
or is otherwise being litigated).” By contrast, an “assignee”
is “[o]ne to whom property rights or powers are transferred by
another.” Id. ERISA does not state that a court may not
protect and preserve funds that are subject to dispute.
Moreover, the warden does not act as a receiver when he
deposits the funds in defendant’s account. We are not bound
by the label used by the trial court when describing the
warden’s role.
A receiver is an officer of the court who protects and
preserves property on behalf of the parties to a pending
lawsuit. 65 Am Jur 2d, Receivers, § 1, p 654. The purpose of
a receivership is to protect the parties’ rights to the
property until a final disposition of the issues. Id., § 6,
p 657. A receiver also may control and manage property. 19
Michigan Law & Practice (1957), Receivers, § 1, p 351.
The characteristics of a receivership are not present
here. The warden does not manage, control, or even preserve
the funds. His legal duty is to place the pension benefits in
defendant’s account.
If the warden were a receiver, he still would not acquire
a property interest:
As a general rule it may be stated that
property in the possession of a receiver is in the
custody of the law, and the receiver’s possession
is the possession of the court for the benefit of
those ultimately entitled.
11
B. Appropriation of the funds
after deposit in defendant’s account
We next consider whether the distribution of pension
funds after they are deposited in defendant’s account
contravenes ERISA. The prevailing view is that ERISA does not
protect pension funds after the beneficiary receives them. We
adopt this view and hold that ERISA does not preclude
distribution pursuant to the SCFRA after the funds are
deposited in an inmate’s account.
The leading case on this subject is Guidry v Sheet Metal
A receiver’s possession of chattels does not
of itself confer title on the receiver, or give the
receiver, as distinguished from the court
appointing him, an absolute right of possession, or
determine or even affect the rights of the parties
except so far as it preserves and retains control
of the property to answer the final judgment. A
receiver’s right, being purely for the purposes of
the suit, cannot outlast the suit or be used for
any purpose not justified thereby. [19 Michigan Law
& Practice, supra, § 41, p 382.]
Also, a receiver “is appointed to subserve the interests of
all persons interested in the subject-matter committed to his
care. A receiver, by his appointment, does not become a
litigant in, or party to, the suit in which he is appointed.”
Id., § 51, p 388. The appointment of a receiver does not
affect parties’ contractual rights. Rowe v William Ford & Co,
257 Mich 646, 650; 241 NW 889 (1932).
Assuming the warden were a receiver, he would have no
greater title or interest than the court itself. The court’s
order merely requires the pension fund to mail the checks to
defendant’s prison address, where the warden deposits the
funds in defendant’s account. The warden does not acquire a
property interest in the funds when they arrive at the prison.
The dissent has not identified any property interest that it
believes the warden acquires.
12
Workers, 10 F3d 700 (CA 10, 1993) (Guidry II), mod on reh 39
F3d 1078 (CA 10, 1994) (Guidry III).11 In these Guidry cases,
a former union official pleaded guilty of embezzling funds
from his union. The union asserted an interest in the
embezzler’s pension benefits. The federal district court
granted the union a constructive trust against the pension
plan, thus preventing the beneficiary from receiving the
funds. On its review, the United States Supreme Court held
that this remedy violated ERISA’s prohibition of alienation
and assignment. Guidry v Sheet Metal Workers, 493 US 365; 110
S Ct 680; 107 L Ed 2d 782 (1990) (Guidry I).
On remand, the district court granted a different remedy:
garnishment of the pension benefits after their deposit in the
beneficiary’s account. The United States Court of Appeals for
the Tenth Circuit affirmed the garnishment order and held that
it did not violate ERISA. Guidry II, supra at 716. The court
determined that the text of subsection 206(d)(1), now
subsection 1056(d)(1), (“[e]ach pension plan shall provide
that benefits provided under the plan may not be assigned or
alienated”) was unclear. The statute was ambiguous regarding
whether the term “benefits” refers to “the right to future
payment or the actual money paid under the plan and received
11
The modification of the opinion on rehearing in Guidry
III did not affect the original panel’s holding regarding the
ERISA issue.
13
by the beneficiary.” Guidry II, supra at 708.
In light of this ambiguity, the Guidry II court deferred
to the Department of Treasury’s reasonable interpretation of
the statute. The department’s ERISA regulations define
“assignment” and “alienation” as “‘any direct or indirect
arrangement (whether revocable or irrevocable) whereby a party
acquires from a participant or beneficiary a right or interest
enforceable against the plan in, or to, all or any part of a
plan benefit payment which is, or may become, payable to the
participant or beneficiary.’” Guidry II, supra at 708,
quoting 26 CFR 1.401(a)-13(c)(1)(ii) (emphasis added). The
regulations refer to a right or interest enforceable against
the plan.
[The union] seeks only to enforce a judgment
against Mr. Guidry by garnishing his bank account
containing pension benefits paid and received; [the
union] does not seek to enforce an interest or
right against the plan. Because garnishment of Mr.
Guidry’s received retirement income is not an
action against the plan, we conclude it is not
prohibited by ERISA 206(d)(1) as implemented by the
ERISA Regulations. [Guidry II, supra at 710.]
The Guidry II court opined that the Treasury Department’s
interpretation was reasonable. The court noted that other
statutes expressly protect benefits after they are received.
For example, the Social Security Act, 42 USC 407(a), provides
that “none of the moneys paid or payable or rights existing
under this subchapter shall be subject to execution, levy,
14
attachment, garnishment, or other legal process, or to the
operation of any bankruptcy or insolvency law.” (Emphasis
added.) Also, the Veterans’ Benefits Act, 38 USC 5301(a),
expressly precludes attachment or seizure of benefits “either
before or after receipt by the beneficiary.” The Guidry II
court concluded:
Because Congress did not include similar
explicit language protecting benefits in the
related context in ERISA, we infer Congress made a
deliberate decision [that] retirement income paid
and received was not thereafter protected from
garnishment. A similar argument was made by then
Judge Kennedy writing for the Ninth Circuit in
denying application of the anti-garnishment
provision of the Consumer Credit Protection Act to
wages that had been paid. Usery [v First Nat’l
Bank of Arizona, 586 F2d 107, 111 (CA 9, 1978)].
Although not conclusive, the absence of explicit
language extending to paid benefits supports the
ERISA Regulations. [Guidry II, supra at 712.12]
Several courts have followed the Guidry II decision.
See, e.g., Trucking Employees of North Jersey Welfare Fund,
Inc v Colville, 16 F3d 52, 56 (CA 3, 1994) (agreeing with
12
The Guidry II court also noted that the law of the case
doctrine did not apply. The Supreme Court’s opinion in Guidry
I “did not explicitly decide in dicta that its holding with
respect to the constructive trust extended as well to benefits
paid from the plan and received by the participant.” Guidry
II, supra at 706.
Also, on rehearing in Guidry III, the Tenth Circuit Court
of Appeals, sitting en banc, “affirm[ed] the primary holding
of the Guidry II panel and conclude[d] ERISA section 206(d)(1)
protects ERISA-qualified pension benefits from garnishment
only until paid to and received by plan participants or
beneficiaries.” Guidry III, supra at 1083.
15
Guidry II that the Treasury Department regulation reasonably
“construes the statute to forbid alienation of rights to
future payments, rather than alienation of the actual money
paid out”), and State v Pulasty, 136 NJ 356; 642 A2d 1392
(1994) (holding that ERISA did not preempt a state restitution
order because received pension benefits are subject to
judgment). But see United States v Smith, 47 F3d 681 (CA 4,
1995) (declining to follow Guidry II and holding that pension
benefits that had been received were not subject to
restitution).
Of particular interest is the decision in Wright v
Riveland, 219 F3d 905 (CA 9, 2000). In Wright, a class of
inmates sued the state of Washington’s department of
corrections, challenging the deduction of pension funds from
the inmates’ accounts to pay for the costs of incarceration
under a state statute. The United States Court of Appeals for
the Ninth Circuit held that ERISA’s antialienation provision
did not prohibit the deductions. The court found that
subsection 206(d)(1) was unclear regarding whether it
prohibits the alienation or assignment of funds after they are
distributed to the beneficiary. The court then discussed the
Treasury Department regulation and Guidry II, Colville, and
Smith, and found Guidry II and Colville more persuasive than
Smith.
16
Accordingly, we follow the lead of the Third
and Tenth Circuits. We conclude that [the Treasury
regulation’s] interpretation of [subsection]
206(d)(1) is not arbitrary, capricious, or
manifestly contrary to the statute and hold, based
on the regulation’s interpretation of [subsection]
206(d)(1), that this section does not preclude the
Department from deducting funds pursuant to the
[state of Washington] Statute from benefits
received from ERISA-qualified pension plans.
[Wright, supra at 921.13]
We also prefer the approach adopted by the overwhelming
majority of federal courts. Once pension funds are deposited
in an inmate’s account, ERISA does not protect them. We agree
with the Guidry II court that the text of subsection 206(d)(1)
does not address whether benefits that the pensioner has
already received are protected. The statute’s silence on this
issue requires deference to the reasonable interpretation set
forth in the Treasury Department regulation. Guidry II,
supra; Chevron, supra. That regulation clarifies that the
statute protects against the alienation or assignment of
rights against the plan itself. Other statutory schemes,
including the Social Security Act, clearly protect benefits
after their receipt. Congress did not include such expansive
language in ERISA.
The Ninth Circuit Court of Appeals decision in Wright
directly supports our decision. It expressly rejected an
13
See also anno: Effect of anti-alienation provisions of
[ERISA] on rights of judgment creditors, 131 ALR Fed 427-463
(collecting authorities).
17
ERISA challenge to a state statute that permitted deduction of
pension funds from an inmate’s account to pay for the costs of
incarceration.
While courts may not create exceptions to ERISA’s
prohibition on assignment and alienation, Guidry II and its
progeny do not create exceptions. They hold merely that the
statutory prohibition does not apply after the funds have been
received. The dissent asserts without any apparent basis that
we have created an exception. In truth, we merely follow the
prevailing federal authorities and hold that the appropriation
of funds that have been received does not alienate or assign
those funds. Where no alienation or assignment has occurred,
the statutory prohibition does not apply. We have no occasion
or need to “carve out exceptions” to a statutory prohibition
that does not apply.
Defendant received the pension funds when they were sent
to his current address and deposited in his prison account.
At that point, ERISA did not protect the funds, and the state
was free to seize and distribute the funds in accordance with
the procedures set forth in the SCFRA and the trial court’s
order in this case.14
14
The dissent suggests that the trial court’s order is
similar to the scheme struck down by the United States Supreme
Court in Guidry I. Guidry I, however, involved a constructive
trust imposed on the pension fund itself. Guidry II and its
progeny make clear that funds that are appropriated after the
18
VI. Conclusion
The SCFRA sets forth procedures to reimburse Michigan
taxpayers for the costs of caring for prison inmates under the
jurisdiction of the Department of Corrections. An inmate’s
pension benefits in his account are “assets” that are subject
to the SCFRA. The federal prohibition on alienation and
assignment of pension benefits is not violated where an inmate
is directed to receive pension benefits at his own address.
Further, prevailing federal authorities establish that ERISA
beneficiary receives them are no longer protected by ERISA’s
antialienation clause. In this case, the pension fund itself
is not garnished, nor is a constructive trust imposed on the
fund. Rather, the fund is merely required to send the pension
funds to defendant himself at his current address, where the
funds are then deposited directly in defendant’s own account.
At that point, defendant has received the funds, and, as the
overwhelming majority of federal courts have held, the funds
are no longer protected by ERISA.
The United States Supreme Court’s reasoning in Guidry I
supports the distinction drawn by federal courts between
garnishments from plans and appropriation of funds that the
beneficiary has already received. The Guidry I Court noted
that the policy underlying the antialienation clause is “to
safeguard a stream of income for pensioners . . . .” Guidry
I, supra at 376. Once the benefits are received, the stream
of income has safely reached the pensioner. In light of this
language, the Tenth Circuit Court of Appeals in Guidry II
determined that the law of the case did not preclude the
garnishment of funds deposited in the beneficiary’s bank
account: “As [Guidry I] refers only to a ‘stream of income’
that must be received, and not to the disposition of the
income after it was received, we fail to see how the ‘law of
the case’ bars garnishment of received income. The payments
do not lose their character as income because they are used to
satisfy debts.” Guidry II, supra at 706. Nearly every
federal court has adhered to this view.
19
does not protect pension proceeds that an inmate has already
received. The state may distribute the funds after they are
deposited in the inmate’s account to the extent permitted
under the SCFRA. Accordingly, we reverse the judgment of the
Court of Appeals and reinstate the trial court’s decision.
Maura D. Corrigan
Elizabeth A. Weaver
Clifford W. Taylor
Robert P. Young, Jr.
20
S T A T E O F M I C H I G A N
SUPREME COURT
STATE TREASURER,
Plaintiff-Appellant,
v No. 120803
THOMAS K. ABBOTT,
Defendant-Appellee,
and
AUTO BODY CREDIT UNION and
JOANN A. ABBOTT,
Defendants.
___________________________________
KELLY, J. (dissenting).
The issue in this case is whether the Employee Retirement
Income Security Act (ERISA)1 prevents the State Treasurer from
implementing its restitutive scheme under the State
Correctional Facility Reimbursement Act (SCFRA). MCL 800.401
et seq. The restitutive scheme in this case has as its object
to require defendant, an inmate at a state correctional
1
29 USC 1001 et seq.
facility, to reimburse the state for the cost of his
incarceration. Through court order, defendant's former
employer was directed to send defendant's pension checks to
defendant's prison account rather than to his credit union.
The warden was made receiver for the checks and empowered to
deposit them in the account, then disburse part of the
proceeds to the state.
I conclude that the scheme effects an assignment of
defendant's pension benefits under ERISA, violating that act’s
antialienation provision. 29 USC 1056(d)(1). Consequently,
I would affirm the decision of the Court of Appeals.
I. Factual & Procedural Background
After the circuit court implemented the restitutive
scheme, defendant petitioned the Court of Appeals, which
denied leave to appeal. We remanded to that Court as on leave
granted. On remand, the Court of Appeals reversed and held
that the trial court orders violate ERISA's antialienation
provision because they constitute an assignment of defendant's
pension benefits. 249 Mich App 107; 640 NW2d 888 (2001). The
decision was grounded in the United States District Court
opinion in State Treasurer v Baugh, 986 F Supp 1074 (ED Mich,
1997).
The majority now reverses the decision of the Court of
Appeals and holds that the trial court orders are not an
2
assignment under the provisions of ERISA.
II. Discussion
We interpret a federal statute in such manner as to give
effect to the purpose for which Congress drafted it. If the
United States Supreme Court has construed the language, we
defer to its interpretations. Moreover, we defer to any
reasonable construction given the statute by a federal agency
empowered by Congress to interpret it. Yellow Transportation,
Inc v Michigan, ___ US ___; 123 S Ct 371, 377; 154 L Ed 2d 377
(2002), citing Chevron USA Inc v Natural Resources Defense
Council, Inc, 467 US 837, 842-843; 104 S Ct 2778; 81 L Ed 2d
694 (1984); Barnhart v Walton, 535 US 212, 217-218; 122 S Ct
1265; 152 L Ed 2d 330 (2002). In addition, although they are
not binding on us, we give respectful consideration to the
decisions of lower federal courts. Yellow Freight System, Inc
v Michigan, 464 Mich 21, 29 n 10; 627 NW2d 236 (2001).
A. Defining ERISA's antialienation provision
ERISA expansively regulates employee benefit programs.
Shaw v Delta Air Lines, Inc, 463 US 85, 90; 103 S Ct 2890; 77
L Ed 2d 490 (1983); Baugh, 986 F Supp 1076 (1997). In so
doing, it preempts "any and all state laws" that "relate to"
a program covered by ERISA. 29 USC 1144(a).
3
1. Federal interpretation of ERISA's antialienation
provision
ERISA subsection 206(d)(1), 29 USC 1056(d)(1), requires
that "[e]ach pension plan shall provide that benefits provided
under the plan may not be assigned or alienated." The
Secretary of the Treasury has defined "assignment" as:
(ii) Any direct or indirect arrangement
(whether revocable or irrevocable) whereby a party
acquires from a participant or beneficiary a right
or interest enforceable against the plan in, or to,
all or any part of a plan benefit payment which is,
or may become, payable to the participant or
beneficiary. [26 CFR 1.401(a)-13(c)(1).]
The United States Supreme Court has held that garnishment
of benefits from a covered plan constitutes an assignment for
the purpose of subsection 206(d)(1)2 Guidry v Sheet Metal
Workers Fund, 493 US 365, 371-372; 110 S Ct 680; 107 L Ed 2d
782 (1990)(Guidry I), citing Mackey v Lanier Collection Agency
& Service, Inc, 486 US 825, 836-837; 108 S Ct 2182; 100 L Ed
2d 836 (1988); see also United Metal Products Corp v Nat'l
Bank of Detroit, 811 F2d 297 (CA 6,1987). Thus, in order to
avoid the prohibition on assignments in subsection 206(d)(1),
any court ordered remedy that relates to an ERISA plan must be
2
A garnishment is a legal device that allows a person to
obtain control over the property of another while it is in the
hands of a third party. See Black's Law Dictionary (7th ed);
Ballentine's Law Dictionary (3d ed). See, generally, MCL
600.4011; Ward v Detroit Automobile Inter-Ins Exch, 115 Mich
App 30, 35; 320 NW2d 280 (1982), citing Johnson v Kramer Bros
Freight Lines, Inc, 357 Mich 254; 98 NW2d 586 (1959).
4
meaningfully distinct from a court ordered garnishment.
Guidry I, 493 US 372. In Baugh, a federal district court in
Michigan found no meaningful distinction between the
restitutive scheme used by the plaintiff in this case and the
garnishment plans invalidated in Guidry I and United Metal
Products. 986 F Supp 1076-1078.
2. The majority's interpretation of ERISA's antialienation
provision
The majority recognizes that this Court must defer to a
federal agency's interpretation of a federal statute. Ante at
6. Nonetheless, it fails to properly apply the definition of
"assignment" expounded by the United States Treasury
Department. Instead, it concludes that there is no meaningful
distinction between the definition of "assignment" in the
treasury regulation and other accepted legal meanings of the
term.
After reviewing some legal definitions,3 the majority
concludes that the treasury regulation "plainly contemplates
a transfer of the interest to another person, i.e., a person
other than the beneficiary himself." Ante at 7 (emphasis in
original). Thus, it reasons, "[a] property interest is
assigned or alienated when it has been transferred to another
person." Ante at 9. Applying this understanding, the
3
Ante at 8-9 n 8.
5
majority concludes that plaintiff’s restitutive scheme does
not effect an assignment because the warden never obtains
title to or an interest in defendant's pension benefits. Ante
at 9.
The majority asserts that there are two bases for its
conclusion that the trial court orders do not constitute an
assignment or alienation: (1) the court ordered defendant to
receive benefits at the prison, which is his current address,
and (2) title to the benefits does not pass under the orders
until after defendant receives them in his prison account.
However, as I will show, these conclusions rest on a
misunderstanding of the treasury regulation.
B. Application
1. Garnishment
The majority claims that Guidry II4 and Wright v Riveland5
support its conclusions that plaintiff's restitutive scheme
does not violate ERISA's antialienation provision. In Guidry
II, the United States Court of Appeals for the Tenth Circuit
held that subsection 206(d)(1) does not apply to benefits once
a beneficiary receives them. Guidry II, 10 F3d 710.
Accordingly, it found that the defendant's creditors could
4
Guidry v Sheet Metal Workers Fund, 10 F3d 700 (CA 10,
1993) (Guidry II), mod on reh 39 F3d 1078 (CA 10, 1994)(Guidry
III).
5
219 F3d 905 (CA 9, 2000).
6
garnish the defendant's pension benefits that he had
voluntarily deposited into his personal bank account. Id.
Wright concerned a prison inmate in the state of
Washington. A Washington statute provided
When an inmate . . . receives any funds in
addition to his or her wages or gratuities, the
additional funds shall be subject to the deductions
in RCW 72.09.111(1)(a). . . . [Wash Rev Code
72.09.480(2).]
The Washington Department of Corrections took thirty-five
percent of the defendant's pension payments pursuant to Wash
Rev Code 72.09.111. The United States Court of Appeals for
the Ninth Circuit found no violation of ERISA because the
department had obtained control over the prisoner's benefits
only after the prisoner had received them. Wright, 219 F3d
921.
These cases are inapplicable here. The restitutive
programs at issue in Wright and Guidry II lack two fundamental
components of plaintiff's scheme. First, no one was made a
receiver of the defendants' benefits before they were
deposited into the defendants' accounts.6 Second, the courts
6
The majority argues that the warden is not a receiver
because he does not manage or exercise control over
defendant's pension funds. Ante at 11-12 n 10. I disagree
with this characterization of the warden's role in this
scheme.
Random House Webster's College Dictionary (2000) states
that "manage" means: "to take charge of; supervise." To
(continued...)
7
did not order the defendants' benefit plans to deliver the
defendants' funds into specified accounts.
The majority reads the trial court orders in this case as
requiring that: "(1) defendant receive his monthly pension
payments at his prison address and (2) the warden distribute
the funds after their deposit in defendant's prison account."
Ante at 6. However, the majority fails to acknowledge that
one of the orders does much more. It requires General Motors
to disburse defendant's pension benefits to his prison address
in the event defendant refuses to request it.7 In fact,
6
(...continued)
"control" is "to exercise restraint or direction over." Id.
The trial court orders charge the warden with the
responsibility of supervising and directing the deposit of
defendant's pension benefits. Thus, it is evident that the
warden retains these characteristics of a receiver.
Moreover, the warden also fulfills the ultimate function
of a receiver. In his capacity as receiver, he collects
defendant's pension benefits to ensure that they remain
available to satisfy the diverse claims on them created by
this litigation. If this assurance were not the purpose of
the scheme, I see no reason why plaintiff would not simply
attach the funds after they were deposited into defendant's
credit union account. Although we are not bound by the trial
court's characterization of the warden's function, we should
not abandon the dictates of common sense in evaluating that
function.
7
A March 10, 1997 order states:
* * *
3. Defendant Thomas K. Abbott shall
immediately direct General Motors Corporation, it's
[sic] subsidiary or designee, to cause any pension
(continued...)
8
without awaiting defendant's compliance, on the same day the
primary order was entered, the trial court entered a second
order directing:
1. General Motors shall send all pension
proceeds payable to Thoms K. Abbott . . . to Thomas
K. Abbott's new address of record . . . .
These orders implicate a factor overlooked by the
majority: subsection 206(d)(1) prohibits any indirect, as
well as direct, assignment of benefits. The orders'
provisions making the warden receiver for defendant of his
pension benefits and directing General Motors to send
defendant's pension checks to the warden make them an indirect
assignment.
Contrary to the majority's assertion, the fact that the
7
(...continued)
payments due Defendant Thomas K. Abbott to be made
payable to "[defendant]" at: PRISON ADDRESS, or
Thomas K. Abbott's then current prison address. If
defendant should refuse to so direct, this order
shall be treated as the direction of the defendant
to General Motors that the pension payments shall
be made as directed above. Payments shall be made
in this manner until Defendant Thomas K. Abbott is
released from the physical custody of the
Department of Corrections, or until further order
of this Court.
4. This Court shall issue a separate Order
directing General Motors to distribute the funds as
described in paragraph 3 above should defendant
Thomas K. Abbott refuse, or for any other reason
fail, to comply with the provisions of paragraphs 3
above.
9
warden is made receiver of defendant's benefits is
dispositive. According to the majority's own analysis, "'. .
. property in the possession of a receiver is in the custody
of the law, and the receiver's possession is in the possession
of the court for the benefit of those entitled.'" Ante at 11
n 10, quoting 19 Michigan Law and Practice, Receivers, § 41,
p 382. The majority claims that this definition of a
receivership takes this case out of the reach of ERISA's
prohibition on assignments.
At a minimum, plaintiff’s restitutive scheme must be
meaningfully distinct from an order of garnishment. Guidry I,
supra. A constructive trust is not meaningfully distinct from
an order of garnishment. Id.
We have held that "'"[t]rusts," in the broadest sense of
the definition, embrace, not only technical trusts, but also
obligations arising from numerous fiduciary relationships,
such as agents, partners, bailees, et cetera.'" Fox v Greene,
289 Mich 179, 183; 286 NW 203 (1939), quoting Rothschild v
Dickinson, 169 Mich 200; 134 NW 1035 (1912). Thus, a trustee
is "'a person in whom some estate, interest, or power in or
affecting property of any description is vested for the
benefit of another.'" Equitable Trust Co v Milton Realty Co,
263 Mich 673, 676; 249 NW 30 (1933), quoting Jones v Byrne,
149 F 457, 463 (CC WD Ark, 1906)(emphasis supplied). We have
10
also held that possession and control are fundamental
incidents of ownership. Orel v Uni-Rak Sales Co, Inc, 454
Mich 564, 568; 563 NW2d 241 (1997); Merritt v Nickelson, 407
Mich 544, 552; 287 NW2d 178 (1980); Rassner v Fed Collateral
Society, Inc, 299 Mich 206, 213; 300 NW 45 (1941); James S
Holden Co v Connor, 257 Mich 580, 592-594; 241 NW 915
(1932)(and cases cited therein); Brown v Fifield, 4 Mich 322,
327, 328 (1856).
Under the trial court's orders, defendant is never
allowed to exercise control over his pension benefits.8 The
majority finds this fact irrelevant, but it is the determining
factor that renders the trial court orders a violation of
subsection 206(d)(1). Transferring possession and control of
defendant's pension benefits to the warden before the benefits
are deposited in defendant's prison account strips defendant
of the ability to exercise the interests he has in his
benefits.
Plaintiff's restitutive scheme is no less onerous than
the constructive trust arrangement or garnishment struck down
8
The first order directs that:
5. Upon receipt of any such pension check,
the Warden of the institution in the continuing
capacity as receiver shall deposit the pension
check into the account of Defendant Thomas K.
Abbott . . . . The funds from that pension check
shall be distributed as follows . . . .
11
in Guidry I and United Metal Products.9 The practical effect
of the trial court orders is that the warden is able to
control defendant's benefits before defendant receives them.
The circuit court, on behalf of the Department of Corrections,
obtained control of the benefits while they were still in the
possession of defendant's employer, a third party. This is a
garnishment and is prohibited by ERISA's antialienation
provision.10
2. Assignment of a right enforceable against the plan
Although I find that plaintiff's restitutive scheme is
not meaningfully distinct from an order of garnishment, the
finding is not necessary to my ultimate conclusion that the
9
In her opinion, the Chief Justice asserts that "the
overwhelming majority of federal courts have held [that] the
funds are no longer protected by ERISA." Ante at 21 n 14.
However, the only federal court that has put thought into the
specific issues presented in this case concluded that
plaintiff’s restitutive scheme is an assignment. Baugh,
supra. Therefore, all federal courts that have considered the
issues presented in this case are in disagreement with the
majority.
10
The majority's focus on transfer of title evidences its
limited reading of the treasury regulation. As I have noted,
and the majority recognizes, constructive trusts are
prohibited by ERISA's antialienation provision. Guidry I,
supra. However, title does not pass in a constructive trust.
Rather, a constructive trust is a "'formula through which the
conscience of equity finds expression.'" Kent v Klein, 352
Mich 652, 656; 91 NW2d 11 (1958), quoting Beatty v Guggenhein
Exploration Co, 225 NY 380, 386; 122 NE 378 (1919). It leaves
title in the original holder but gives possession and control
to another. Thus, the fact that title to defendant's pension
benefits does not pass to the warden does not distinguish this
case from Guidry I.
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scheme violates ERISA. ERISA's prohibition on alienation is
not limited to payments. ERISA also prohibits alienation of
any right, separate from the right to payment, that is
enforceable against the plan.
Under the Uniform Commercial Code, defendant never
becomes a holder of the instruments used to deliver his
benefits. MCL 440.1201(20). Rather, the warden acquires a
right enforceable against the plan when he takes control of
defendant's pension check This is because the court orders
give the warden the authority to enforce the withdrawal of
funds from the plan. MCL 440.3301(ii).
This transfer of authority constitutes an "assignment"
under the United States Department of Treasury's definition of
the term. It is irrelevant that, afterward, the warden
deposits the funds into defendant's prison account. Before
the funds reach the account, rights that defendant is entitled
to enforce against the plan are assigned to the warden in
contravention of ERISA. See, generally, Shinehouse v Guerin,
20 E B C 1302 (ED Pa, 1996), aff'd 107 F3d 8 (CA 3, 1997).
Conclusion
Plaintiff's restitutive scheme accomplishes by
indirection what it cannot do by direction. It is an indirect
assignment of pension benefits that is prohibited by ERISA.
In Guidry I, the United States Supreme Court held that a
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restitutive scheme could not overcome Congress's express
intent to protect employee retirement benefits. This was true
even where the employee's embezzlement had caused harm to the
plan's beneficiaries.
In United Metal Products, the United States Court of
Appeals for the Sixth Circuit held that there was no exception
to ERISA's antialienation provision for fraud or criminal
conduct. In Baugh, the United States District Court for the
Eastern District of Michigan, relying on Guidry I and United
Metal Products, concluded that plaintiff's restitutive scheme
constituted an assignment under subsection 206(d)(1).
In each case, the court flatly refuted the contention
that courts may carve out exceptions to ERISA's antialienation
provision when it would serve public policy. Yet the majority
carves out an exception by this decision.
The trial court's orders transfer a portion of
defendant's pension benefits from the pension plan to the
state. The orders accomplish this by acting on defendant's
benefits before he receives them. That the orders run the
pension benefits through defendant's prison account is of no
legal significance. Defendant at no time has possession or
receipt of the benefits. They might as well be run through
the warden's account. As receiver for the benefits, the
warden controls them until he distributes them according to
14
the orders. The provision requiring the funds to be placed in
defendant's prison account is a thinly veiled device to defeat
the provisions of ERISA.
Neither plaintiff nor the majority has provided a
meaningful distinction between the plaintiff's restitutive
scheme and an order of garnishment. Moreover, the scheme goes
too far because, rather than constraining itself to acting on
defendant’s benefits themselves, it usurps a right only
defendant is entitled to enforce against the plan.
Consequently, the scheme is prohibited by ERISA.
I would affirm the decision of the Court of Appeals.
Marilyn Kelly
Michael F. Cavanagh
Stephen J. Markman
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