Rhiel v. OhioHealth Corporation

UNITED STATES BANKRUPTCY COURT
FOR THE SOUTHERN DISTRICT OF OHIO
EASTERN DIVISION AT COLUMBUS
In re: 	:
: 	Case No. 04-55750
HARVEY J. GUIKEMA and 	: 	Chapter 7
DEBRA L. GUIKEMA, 	: 	Judge Hoffman
:
Debtors. 	:
:
:
Susan L. Rhiel, Chapter 7 Trustee, 	:
:
Plaintiff, 	:
:
v. 	: 	Consolidated
: 	Adv. Pro. No. 05-2023
Ohio Health Corporation, 	:
:
Defendant. 	:
OPINION AND ORDER DETERMINING: (1) APPLICABILITY OF
PRECLUSION PRINCIPLES; AND (2) STANDING OF
VARIABLE ANNUITY LIFE INSURANCE COMPANY TO
OPPOSE TRUSTEE’S REQUEST FOR TURNOVER
This document has been electronically entered in the records of the United
States Bankruptcy Court for the Southern District of Ohio.
IT IS SO ORDERED.
Dated: March 19, 2007
____________________________________________________________
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1The debtors in the estate cases are: Tracy R. Hunter (Case No. 03-68413) (Caldwell, J.),
Brigitte Strange (Case No. 03-55454) (Preston, J.), Alean Bell (Case No. 04-51179) (Hoffman, J.),
Kevin and Rebecca Longnecker (Case No. 04-53276) (Preston, J.), David and Bonnie Herrington
(Case No. 04-55753) (Preston, J.), Harvey and Debra Guikema (Case No. 04-55750) (Hoffman, J.),
Roger and Pamela Burns (Case No. 05-59738) (Caldwell, J.), James and Joyce Brown (Case No.
05-69492) (Caldwell, J.), and Kenneth and Jacqueline Hawkins (Case No. 05-71605) (Preston, J.)
(collectively, “Debtors”). Each of the Debtors’ bankruptcy cases was filed before the effective date
of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA”). Under
the BAPCPA amendments to the Bankruptcy Code, 403(b) plan assets are now excluded from a
debtor’s bankruptcy estate. See 11 U.S.C. § 541(a)(7).
2The Consolidation Order designated Susan L. Rhiel, Trustee v. Ohio Health Corp., Adv. Pro.
No. 05-2023 as the lead case for future filings. 	Accordingly, unless otherwise specified, all
references to docket entries (e.g., “Adv. Pro. Doc. __”) will refer to filings listed on the adversary
proceeding docket in the lead case.
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I. Introduction and Procedural History
Three Chapter 7 panel trustees (collectively, “Plaintiffs”) have filed seven separate adversary
proceedings (“Adversary Proceedings”) seeking turnover of the assets contained in the 403(b) plans
of the debtors in the underlying estate cases.1 One or more of the Adversary Proceedings has been
assigned to each judge sitting in the Columbus division of this Court. 	Because the Adversary
Proceedings involve a common question of law—whether the 403(b) plan assets constitute property
of the Debtors’ bankruptcy estates—Judges Caldwell, Hoffman and Preston signed and entered an
order on March 13, 2006, consolidating the Adversary Proceedings for decision (“Consolidation
Order”).2 See Adv. Pro. Doc. 28. Of the seven complaints filed by the Plaintiffs, four name Ohio
Health Corporation (“OHC”) as defendant and three name as defendant the Variable Annuity Life
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3The Court has been informed that two of the three complaints naming VALIC as a
defendant—Ransier v. AIG VALIC (In re Longnecker), Adv. Pro. No. 06-2361, and Rhiel v. VALIC
(In re Herrington), Adv. Pro. No. 05-2202—have been settled, although no settlement documents
have been filed. Further, a review of the docket in the Herrington proceeding reflects a dismissal
as to Grady Memorial Hospital only. Nevertheless, the only active adversary proceeding in which
VALIC is named as a defendant is Rhiel v. VALIC (In re Guikema), Adv. Pro. No. 05-2203.
4The parties have filed the following briefs: OHC brief (Adv. Pro. Doc. 34), VALIC brief
(“VALIC Br.”) (Adv. Pro. Doc. 35) , joint reply of all Plaintiffs (“Joint Reply”) (Adv. Pro. Doc. 41)
and VALIC’s response to the Joint Reply (“VALIC Reply”), which was attached to its Motion for
Leave to file Reply Brief Instanter (See Adv. Pro. Doc. 45, Ex. 1).
5In the estate cases, the Plaintiffs objected to the Debtors’ respective claims that the property
held in their 403(b) plans was exempt. In the exemption litigation, the Debtors did not challenge
the Plaintiffs’ assertion that the assets in their 403(b) plans constituted property of their bankruptcy
estates. Because the Debtors conceded that the funds held in their 403(b) plans was property of their
respective bankruptcy estates, the Consolidation Order required OHC and VALIC to brief the issue
of whether preclusion principles barred them from litigating this issue in the Adversary Proceedings.
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Insurance Corporation (“VALIC”).3 This matter is before the Court following briefing,4 at the
Court’s request (Adv. Pro. Doc. 30), on the issues of standing, res judicata and collateral estoppel.5
Several of the Plaintiffs initially took the position that OHC and VALIC lacked standing to
assert that the property contained in the 403(b) plans does not constitute property of the Debtors’
bankruptcy estates and that preclusion principles barred them from raising this argument. 	See
Plaintiff, Susan L. Rhiel, Trustee’s Motion for Summary Judgment (Adv. Pro. Doc. 20) at 5. But
the Court was later apprised—in a telephonic status conference conducted on October 27, 2006, and
by way of the Joint Reply submitted by Susan L. Rhiel, Chapter 7 Trustee (“Rhiel”) on behalf of all
Plaintiffs—that there is no longer any dispute as to OHC’s standing to assert that the Debtors’
interests in their 403(b) plans do not constitute property of their bankruptcy estates. Rhiel, however,
continues to challenge VALIC’s standing to litigate this issue. While VALIC’s standing remains
in dispute, in the Joint Reply Rhiel conceded—on behalf of all Plaintiffs—that OHC and VALIC
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6Section 541(c) of the Bankruptcy Code (which was not modified by the amendments to the
Code effected by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005) provides:
(c)(1) Except as provided in paragraph (2) of this subsection, an
interest of the debtor in property becomes property of the estate under
subsection (a)(1), (a)(2), or (a)(5) of this section notwithstanding any
provision 	in 	an 	agreement, 	transfer 	instrument, 	or 	applicable
nonbankruptcy law—
(A) that restricts or conditions transfer of such interest by the
debtor; or
(B) that is conditioned on the insolvency or financial
condition of the debtor, on the commencement of a case
under this title, or on the appointment of or taking possession
by a trustee in a case under this title or a custodian before
such commencement, and that effects or gives an option to
effect a forfeiture, modification, or termination of the debtor’s
interest in property.
(2) A restriction on the transfer of a beneficial interest of the debtor
in a trust that is enforceable under applicable nonbankruptcy law is
enforceable in a case under this title.
11 U.S.C. § 541(c).
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are not barred by principles of res judicata or collateral estoppel from asserting in the Adversary
Proceedings that the 403(b) plan assets are excluded from the Debtors’ bankruptcy estates by
11 U.S.C. § 541(c)(2).6
II. Legal Analysis
The Guikema adversary proceeding was commenced on May 6, 2005, by the filing of a
complaint (“Complaint”) by Rhiel seeking turnover from VALIC and Grady Memorial Hospital
(“Grady”) of funds held in Debtor Debra Guikema’s 403(b) plan. The Complaint followed this
Court’s Memorandum Opinion and Order Sustaining Objection to the Claim of Exempt Property,
entered April 14, 2005, in the Guikemas’ underlying Chapter 7 case, holding that the interest of Mrs.
Guikema in her 403(b) plan was not exempt under Ohio Revised Code § 2329.66(A)(10)(b). See
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Case No. 04-55750, Docs. 38 and 39. 	VALIC was not served with Rhiel’s objection to Mrs.
Guikema’s exemption, nor did VALIC receive notice of or participate in the evidentiary hearing
conducted in that matter. VALIC is not challenging the Court’s ruling disallowing Mrs. Guikema’s
exemption, nor could it since the assertion of an exemption is personal to the debtor. See Taunt v.
Gen. Ret. Sys. (In re Wilcox), 225 B.R. 151, 155 (Bankr. E.D. Mich. 1998), rev’d on other grounds,
233 F.3d 899 (6th Cir. 2000). VALIC does, however, assert that it is a proper party to contest the
turnover of Mrs. Guikema’s 403(b) plan assets—on the ground that the assets are excluded from her
bankruptcy estate by § 541(c)(2) of the Code.
VALIC filed a timely answer to the Complaint. A motion for default judgment was filed by
Rhiel against Grady. In response, Grady filed a motion for leave to file an untimely answer and an
objection to the motion for default judgment. In Paragraph 6 of its answer, Grady admitted that it
is the administrator of the Grady Memorial Hospital 403(b) Plan. Approximately one month after
Grady’s belated filing of its answer and its response to the motion for default judgment, Grady
withdrew those pleadings and in its Notice of Withdrawal stated: “[T]here is no ‘Grady Memorial
Hospital 403(b) Plan.’ See letter to Plaintiff, attached hereto as Exhibit A.” 	Grady Notice of
Withdrawal, Adv. Pro. No. 05-2203, Doc. 23 at 1. Exhibit A to Grady’s Notice of Withdrawal is
a letter to Rhiel from Grady’s counsel stating:
Please be advised that to the best of our knowledge, there is
no “Grady Memorial Hospital 403(b) Plan.” Employees of Grady
Memorial Hospital may make contributions pursuant to a tax-
sheltered annuity contract with The Variable Annuity Life Insurance
Company (“VALIC”). However, Grady Memorial Hospital does not
have control of any assets in a plan known as the Grady Memorial
Hospital 403(b) Plan. 	Presumably, the funds you seek are in the
control of VALIC.
Id., Exhibit A.
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Rhiel argues that because Grady acknowledges that there is no “plan” known as the “Grady
Memorial Hospital 403(b) Plan,” VALIC, unlike OHC, does not have the duties of an ERISA
fiduciary, is not itself a plan administrator and, accordingly, has no standing to assert that Mrs.
Guikema’s interest in her tax-sheltered 403(b) account should be excluded from her estate. Rhiel’s
argument is set forth in its entirety below:
VALIC, as a mere provider of investment vehicles and not an ERISA
fiduciary, lacks standing to challenge whether the Debtor’s interest
is property of the bankruptcy estate. As noted by OhioHealth in its
Brief, standing is a jurisdictional issue. In re Troutman Enters., Inc.,
286 F.3d 359 (6th Cir. 2002). VALIC’s limited role does not equate
with the role of the sponsor of a Plan or the administrator of a plan,
each of which owes certain fiduciary duties to the participants.
VALIC’s duties, instead, are owed to the plans themselves and the
sponsors and/or administrators of those plans.
Joint Reply at 9.
Rhiel offers no statutory or case law to support her argument. Nor has the Court found any
authority for the proposition that one must be an ERISA fiduciary, plan administrator or plan
sponsor in order to have standing to assert that a debtor’s interest in a 403(b) account is not property
of his/her bankruptcy estate. 	While Grady may not be the administrator of a retirement plan
denominated “Grady Memorial Hospital 403(b) Plan,” there is no question that Grady established
a tax-deferred annuity arrangement under Internal Revenue Code § 403(b) through which its
employees are permitted to make voluntary contributions by way of salary deferrals. See VALIC
Amended Response to Trustee’s Motion for Summary Judgment (“Response”), Adv. Pro. No. 05-
2203, Doc. 35, Ex. C, Aff. of Mary C. Birmingham. Nor is there any dispute that the contributions
made by Grady employees under this arrangement—including Mrs. Guikema—are invested through
annuity contracts issued by VALIC. 	Id. 	Mrs. Guikema completed an annuity application, was
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issued an annuity contract by VALIC, and entered into a voluntary salary reduction agreement with
Grady in order to contribute to the annuity. Id.
VALIC points out that it provides investment vehicles for the “Portfolio Director annuity
contract” that it issued to Mrs. Guikema (“Annuity Contract”) and also renders non-discretionary
administrative services to her employer—Grady. VALIC Br. at 9. VALIC also asserts that it is
prohibited from transferring Mrs. Guikema’s beneficial interest in the Annuity Contract because of
certain transfer restrictions in the contract, and that to turn over the assets in the absence of a
“distributable event,” as that term is defined in its participants’ annuity contracts, would violate the
integrity of its contract with thousands of other retirement plan participants and place it at continuing
risk of breaching statutorily-mandated restrictions on transfers. Id. According to VALIC, an order
requiring the turnover of Mrs. Guikema’s interest in the plan to Rhiel also would place it in non-
compliance with § 403(b) of the Internal Revenue Code.
Rhiel has not disputed any of these contentions. 	Rather, Rhiel argues that because there is
no plan document memorializing Grady’s tax-deferred annuity arrangement, then VALIC does not
occupy the same position as OHC—an ERISA fiduciary—and thus lacks standing to challenge her
demand for turnover. VALIC counters by asserting that the presence or absence of a plan document
should not be determinative of its standing to oppose Rhiel’s request for turnover. VALIC also
submits that a plan document does in fact exist, noting that “Section 5.1 of the Annuity Contract
[explains that] because the [Grady arrangement] is a voluntary employee contribution Section 403(b)
retirement plan, the Annuity Contract serves as the Plan Document.” 	Response at 4. 	This
contractual provision states: “Your Purchase Payments are made under a voluntary salary reduction
agreement with Your Employer as part of a Tax-Deferred Annuity arrangement under Section
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403(b) of the Code, (i) there may not be a separate plan document, in which case the Contract is the
Plan . . . .” See Response, Ex. D, Aff. of Michael Baldwin, Ex. 1, Annuity Contract § 5.01 at 17.
“A party in interest has standing to challenge whether a debtor’s asset is excluded from the
estate.” 	In re Benton, 237 B.R. 353, 355 n.1 (Bankr. E.D. Mich. 1999) (holding that county
retirement system had standing to litigate the issue of whether retirement and deferred compensation
plan assets were excluded from debtor’s bankruptcy estate by operation of 11 U.S.C. § 541(c)(2)).
See also S. Cal. Permanente Med. Group v. Ehrenberg (In re Moses), 215 B.R. 27, 34–35 (B.A.P.
9th Cir. 1997) (finding that both partnership in which the debtor was a partner, and partnership’s
retirement committee had standing to appeal bankruptcy court’s order sustaining Chapter 7 trustee’s
objection to debtor’s claimed exemption in Keogh plan because appellants “clearly ha[d] an interest
in maintaining the tax qualified status of th[e] plan”). “Although the term ‘party in interest’ appears
many times in the Bankruptcy Code, it is not [statutorily] defined . . . .” 	In re Cowan, 235 B.R.
912, 915 (Bankr. W.D. Mo. 1999).
[Party in interest] has been described as an expandable concept
depending on the particular factual context in which it is applied. In
various contexts, a “party in interest” has been held to be one who
has an actual pecuniary interest in the case, anyone who has a
practical stake in the outcome of a case, and those who will be
impacted in any significant way in the case.
Id. at 915 (citations and internal quotation marks omitted). 	See also Morton v. Morton (In re
Morton), 298 B.R. 301, 306–07 (B.A.P. 6th Cir. 2003) (applying the Cowan court’s definition of
party in interest).
VALIC claims that it meets the definition of a party interest and thus has standing to
challenge Rhiel’s request for turnover of Mrs. Guikema’s interest in the Annuity Contract. As the
provider of the investment vehicles for the Grady 403(b) arrangement in which Mrs. Guikema
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participates, VALIC maintains that “[it] has an interest in enforcing the non-transferability
provisions of its annuity contracts and in ensuring that it faithfully discharges its contractual
obligations to all plan participants.” VALIC Br. at 2. VALIC also submits that it “is responsible
for maintaining the integrity of the annuity plans and for complying with all IRS regulations with
respect to plan distributions.” 	VALIC Reply at 4. 	According to VALIC, a ruling that Mrs.
Guikema’s interest in the Annuity Contract is subject to turnover “would cause VALIC to be in non-
compliance with Section 403(b) of the Internal Revenue Code” and could “significantly affect
VALIC’s liabilities and duties with respect to the annuities.” Id. And VALIC also points out that
Rhiel has failed to offer a shred of authority for the proposition that its standing necessarily turns
on whether it occupies the status of an ERISA fiduciary.
The Court concludes that because the outcome of this case could have a “direct and
immediate impact on [VALIC’s] obligations and liabilities[,]” see Benton, 237 B.R. at 355 n.1, it
is a party in interest with standing to challenge whether the assets held in Mrs. Guikema’s annuity
account are property of her bankruptcy estate. For the reasons stated by VALIC in its briefing, it
is clear that VALIC “has a practical stake in the outcome of [this] case,” and “[could] be impacted
in [a] significant way” by an adverse ruling in these Adversary Proceedings. Cowan, 235 B.R. at
915.
III. Conclusion
For the foregoing reasons, the Court holds that VALIC has standing to assert that Mrs.
Guikema’s interest in the Annuity Contract is not property of the estate. 	And, as noted above,
Plaintiffs have now conceded that OHC and VALIC are not barred by preclusion principles from
opposing Plaintiffs’ demand for turnover of the Debtors’ 403(b) plan assets.
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IT IS SO ORDERED.
Copies to:
Susan L. Rhiel, Attorney for Chapter 7 Trustee for Bankruptcy Estates of Hunter, Strange,
Herrington, Guikema, Burns and Hawkins, 124 S. Washington Avenue, Columbus, OH 43215
Brenda K. Bowers, Attorney for Chapter 7 Trustee for Bankruptcy Estates of Bell, Brown
and Longnecker, 52 East Gay Street, P.O. Box 1008, Columbus, OH 43216-1008
Peter W. Hahn and Charles E. Ticknor, III, Attorneys for Variable Annuity Life Ins. Co.,
191 West Nationwide Boulevard, Columbus, OH 43215
Jack Pigman, Attorney for OhioHealth Corporation, 41 South High Street,
Columbus, OH 43215-6194
Ann M. Caresani and Suzana K. Koch, Attorneys for OhioHealth Corporation,
925 Euclid Avenue, Suite 1700, Cleveland, OH 44115
Robert D. Bergman, Attorney for Debtor Tracy R. Hunter, 3099 Sullivant Avenue,
Columbus, OH 43204
Nicholas W. Jones, Attorney for Debtors David & Bonnie Herrington and Harvey & Debra
Guikema, 2 West Winter Street, Suite 31, Delaware, OH 43015-1977
Larry M. Maley, Attorney for Debtors Kevin & Rebecca Longnecker, 123 S. Broad Street,
Suite 234, Lancaster, OH 43130
Samuel Calig, Attorney for Debtors Brigitte Strange and Alean Bell, 854 East Broad Street,
Columbus, OH 43215
Aaron Glasgow, Attorney for Debtors Kenneth & Jacqueline Hawkins, 35 E. Gay Street,
Suite 406, Columbus, OH 43215
Roger L. Weaver, Attorney for Debtors Roger & Pamela Burns, 3 S. High Street,
Canal Winchester, OH 43110
Norman Brusk, Attorney for Debtors James & Joyce Brown, 7100 East Livingston Avenue,
Reynoldsburg, OH 43068
Office of the United States Trustee, 170 N. High Street, Suite 200, Columbus, OH 43215
# 	# 	#
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