Plunk v. Yaquinto (In Re Plunk)

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.

8
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

10
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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