Raymond B. Yates, M. D., P. C. Profit Sharing Plan v. Hendon

PETITIONER: Raymond B. Yates, M.D., P.C. Profit Sharing Plan, and Raymond B. Yates, Trustee
RESPONDENT: William T. Hendon, Trustee
LOCATION: Pennsylvania General Assembly

DOCKET NO.: 02-458
DECIDED BY: Rehnquist Court (1986-2005)
LOWER COURT: United States Court of Appeals for the Sixth Circuit

CITATION: 541 US 1 (2004)
GRANTED: Jun 27, 2003
ARGUED: Jan 13, 2004
DECIDED: Mar 02, 2004

Conrad M. Troutman - argued the cause for Respondent
C. Mark Troutman - argued the cause for respondent
James A. Holifield, Jr. - argued the cause and filed briefs for petitioners
James Al Holifield, Jr. - argued the cause for Petitioners
Matthew D. Roberts - argued the cause for Petitioners, on behalf of the United States, as amicus curiae
Mark E. Schmidtke - for UNUMProvident Corporation as amicus curiae urging reversal
William J. Kayatta, Jr. - for UNUMProvident Corporation as amicus curiae urging reversal

Facts of the case

Raymond Yates owned a corporation with a profit sharing/pension plan. Yates borrowed money from the plan at a set interest. After he had repaid the loan to his profit sharing/pension plan, Yates' creditors filed an involuntary bankruptcy petition against him. They asked the bankruptcy court to set aside the repayment (interest included) and give it to the creditors.

Yates argued that under the Employee Retirement Income Security Act (ERISA), the interest from the profit sharing/pension plan could not be seized (except for loans to participants). The bankruptcy court disagreed and granted Yates' creditors' requests. The court reasoned that as the sole owner of the business, Yates was an employer under ERISA, not a "participant." The plan's prohibition on interest seizure therefore did not apply. A federal district court and a Sixth Circuit Court of Appeals panel both affirmed.


Is the owner of a business a "participant" in a profit sharing/pension plan established under the Employee Retirement Income Security Act (ERISA)?

Media for Raymond B. Yates, M. D., P. C. Profit Sharing Plan v. Hendon

Audio Transcription for Oral Argument - January 13, 2004 in Raymond B. Yates, M. D., P. C. Profit Sharing Plan v. Hendon

Audio Transcription for Opinion Announcement - March 02, 2004 in Raymond B. Yates, M. D., P. C. Profit Sharing Plan v. Hendon

William H. Rehnquist:

The opinion of the Court in No.02-458, Yates against Hendon will be announced by Justice Ginsburg.

Ruth Bader Ginsburg:

This case presents the question, may the working owner of a business qualify as a participant in a pension plan sheltered by the Employee Retirement Income Security Act of 1974, familiarly known as ERISA?

The answer we hold is yes.

Provided that the plan harbors one or more employees other than the working owner and his or her spouse, the owner may participate in the plan on equal terms with other participants.

We reject the position taken by the Courts below that a working owner ranks only as an employer, never also as an employee for purposes of plan participation.

Enacted to protect employee benefit plant participants and their beneficiary, ERISA comprises four Titles.

This case concerns Title I's definition and coverage provision.

In particular, Title I defines participant to encompass any employee eligible to receive a benefit from an employee benefit plan, an employee circularly as any individual employed by an employer.

Dr. Raymond Yates was sole shareholder and president of a professional medical care corporation that maintained a profit sharing plan.

From the plan’s inception, at least one person other than Yates and his wife participated in the plan.

In December 1989, Yates borrowed $20,000 from another pension plan that later merged into the profit sharing plan.

For nearly seven years, Yates made not even one of the monthly payments the loan required.

In November 1996, just three weeks before other creditors filed an involuntary Chapter 7 Bankruptcy petition against Yates, he paid off the loan in full with the proceeds of the sale of his house.

The bankruptcy trustee filed a complaint against the profit sharing plan and Yates as the plan’s trustee to recover the loan repayments for the bankruptcy estate.

Awarding summary judgment to the bankruptcy trustee, the Bankruptcy Court held that the plan and Yates as trustee could not rely on the anti-alienation provision that every ERISA sheltered plan must contain a provision that shields plan assets from creditor’s reach.

That holding was dictated by Sixth Circuit precedent, under which a self-employed owner may not participate as an employee in his company’s pension plan and thus it may not involved ERISA's protection to block creditors from reaching his investment in the plan.

The District Court in this case and the Sixth Circuit affirmed on the same ground.

We granted certiorari in view of the division of opinion among the Circuits on the question whether a working owner may qualify as a participant in an ERISA protected plan.

Answering yes, we reverse the Court of Appeals’ judgment.

ERISA's definition of the employee and in turn, participant, are informative we therefore looked at other provisions of the Act for instruction.

Because ERISA's text contains multiple indications that Congress intended working owners to qualify as plan participants, we need not resort to common law to decide this case.

Title I includes several exemptions from ERISA's requirements the plans in which working owners participate.

Those exemptions would be unnecessary if working owners were categorically excluded from participating in ERISA protected plans in the first place.

Title I also cross-references several Internal Revenue Code provisions that plainly contemplate the participation of working owners intacts qualified pension plan.

Other ERISA Titles are corroborative moreover a 1999 Department of Labor advisory opinion accords with our understanding of Title I's relevant provisions.

Because Yates failed to honor his loan’s monthly repayment requirement, the following questions remain open to be addressed on remand.

First, did the 1996 close-to-bankruptcy loan repayment become part of Yates' interest in the profit sharing plan has ordinarily shielded from the bankruptcy estate under the plan’s entity alienation provision?

And second, even if the answer to the first question is yes, was the repayment beyond the reach of the bankruptcy trustee’s power to undo transfers benefiting particular creditors.

Both Justice Scalia and Justice Thomas have filed opinions concurring in the judgment.