Patterson v. Shumate

Joseph Shumate (debtor) was the president of Coleman Furniture Corporation (Coleman) (debtor). Shumate and other Coleman employees participated in Coleman’s pension plan (the plan), which was a qualified plan under the Employee Retirement Income Security Act of 1974 (ERISA). The plan contained an ERISA-required anti-alienation provision stating that plan benefits could not be assigned or alienated. In 1982, Coleman filed for bankruptcy. The court converted Coleman’s case to a Chapter 7 proceeding and appointed Roy Creasy as trustee. In 1984, Shumate filed for bankruptcy. The court converted Shumate’s case to a Chapter 7 proceeding and appointed John Patterson as trustee. In Coleman’s bankruptcy, Creasy liquidated the plan and made full distributions to all plan participants except Shumate. Patterson sought to recover Shumate’s interest in the plan for inclusion in Shumate’s bankruptcy estate. Shumate then asked a federal district court to compel Creasy to make the plan distribution directly to Shumate, rather than Patterson. Shumate asserted that his interest in the plan should be excluded from his estate under 11 U.S.C. § 541(c)(2), which provided that a debtor’s property subject to a transfer restriction enforceable under “applicable nonbankruptcy law” was excluded from the estate. Shumate contended that the plan’s anti-alienation provision was such a transfer restriction. The district court rejected Shumate’s argument and ordered Creasy to pay Shumate’s interest in the plan to Shumate’s estate. The Fourth Circuit reversed, holding that an anti-alienation provision in an ERISA-qualified pension plan was an enforceable restriction on transfer under applicable nonbankruptcy law and thus, that the interest should be excluded from the estate under § 541(c)(2). The United States Supreme Court granted certiorari to resolve a circuit split on this issue. Patterson argued to the Supreme Court that § 541(c)(2)’s reference to “applicable nonbankruptcy law” should be limited to state spendthrift-trust laws, not to and should not include federal laws like ERISA.