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November 30, 2010


The opinion of the court was delivered by: Thomas J. Rueter Chief United States Magistrate Judge


On March 26, 2009, judgment in the amount of $4,049,741.00 was entered in favor of plaintiff ("State Farm") and against defendant Arnold Lincow, D.O. ("Lincow") and several other defendants. The court molded the verdict to $12,149,223.00 after trebling. Punitive damages in the amount of $5,000,000.00 also were assessed against Lincow. Lincow has not satisfied the judgment. Lincow filed a Claim for Exemption (Doc. Nos. 812, 876, 1014). State Farm contends that two specific assets listed on Lincow's Claim for Exemption are not exempt under Pennsylvania state law. The two assets at issue here are: (1) AXA Equitable Accumulator IRA Rollover Account # XXXXX-5023 ("AXA Equitable IRA"), and (2) TD Ameritrade IRA Account # XXXXX-0199 ("TD Ameritrade IRA").

A hearing on this issue was held on August 23 and 24, 2010. The parties submitted Proposed Findings of Fact and Conclusions of Law on October 18, 2010 (Doc. Nos. 1066 (Lincow), 1067 (State Farm)). At the court's request, the parties submitted Supplemental Proposed Findings of Fact and Conclusions of Law (State Farm's submitted on November 15, 2010 and Lincow's submitted on November 16, 2010). The parties agree that the relevant statutory provision is 42 Pa. Cons. Stat. Ann. § 8124(b)(1)(ix), which states, in pertinent part, as follows:

(b) Retirement funds and accounts. --

(1) Except as provided in paragraph (2), the following money or other property of the judgment debtor shall be exempt from attachment or execution on a judgment:

(ix) Any retirement or annuity fund provided for under section 401(a), 403(a) and (b), 408, 408A, 409 or 530 of the Internal Revenue Code of 1986 . . ., the appreciation thereon, the income therefrom, the benefits or annuity payable thereunder and transfers and rollovers between such funds. This subparagraph shall not apply to:

(B) Amounts contributed by the debtor to the retirement or annuity fund in excess of $15,000 within a one-year period. This shall not include amounts directly rolled over from other funds which are exempt from attachment under this subparagraph.

42 Pa. Cons. Stat. Ann. § 8124(b)(1)(ix).

Generally, the party asserting the exemption bears the burden of proving that the exemption applies. Alliance Home of Carlisle v. Bd. of Assessment Appeals, 919 A.2d 206, 225 (Pa. 2007). Cases addressing 42 Pa. Cons. Stat. Ann. § 8124(b)(1) specifically have held that the party seeking the exemption must submit proof to support the claim that the exemption applies; the party opposing the exemption bears the burden to challenge its application. Marine Midland Bank v. Surfbelt, Inc., 532 F. Supp. 728, 730 (W.D. Pa. 1982). See also Navistar Fin. Corp. v. Hrobuchak, 2009 WL 483123, at *2 (M.D. Pa. Feb. 25, 2009) (party claiming exemption under § 8124(b)(1)(ix) must submit evidence to trigger the application of the exemption; onus on party opposing the exemption to prove existence of exception under the statute). Exemption statutes "have as their object the protection of the judgment debtor, not the protections of creditors." In re Lowenthal, 203 B.R. 576, 582 (Bankr. E.D. Pa.1996) (citing Mayhugh v. Coon, 331 A.2d 452, 455 (Pa. 1975)). "Consistent with the overall trend nationally, exemption statutes in Pennsylvania are to be liberally construed so as to effect the remedial purposes for which citations omitted).

State Farm urges, inter alia, that these IRAs are not tax qualified, or have been disqualified, and, therefore, they are not exempt under Section 8124(b)(1)(ix). Lincow disagrees, arguing that the plans only need be "provided for under" the relevant provisions of the Internal Revenue Code ("IRC") in order to be exempt under the statute. In Kaplan v. First Options of Chicago, Inc., 189 B.R. 882 (E.D. Pa. 1995), the court, considering Section 8124(b)(1)(ix) and an account under Section 401(a) of the IRC, concluded that "[l]anguage such as 'provided for under' seems to indicate that in order to establish a valid exemption under the Pennsylvania statute, the pension plan would have to comport with I.R.C. §401(a). Thus, the Pennsylvania statute seemingly requires a plan to be tax qualified in order to be exempt noted, however, that "[n]otwithstanding this language . . . there is evidence to suggest that the intent of the Pennsylvania legislature in enacting the statute was to create a provision which would grant broad protection to pension plans." Id. Considering these competing interests, the court in Kaplan concluded that it "is not entirely persuaded that tax qualification under the I.R.C. is essential to establishing a valid exemption, for bankruptcy purposes, pursuant to the Pennsylvania statute." Id.

This court need not balance these competing interests as it finds that Lincow sufficiently proved that the IRAs are exempt under the statute, and State Farm did not prove that an exception to that exemption is applicable.

1. MMC and 7622 Medical Center

Several corporate and partnership entities are among the named defendants in this lawsuit. Two of these defendants are relevant to the discussion herein: Medical Management Consulting, Inc. ("MMC") and 7622 Medical Center, P.C. ("7622 Medical Center"). MMC was formed in August 20, 1979 (Ex. L-24) and Lincow was employed by MMC from 1979 to 2006. (N.T., 8/24/10, at 38.) At all times relevant hereto, Lincow was the president and sole shareholder of MMC. (N.T., 8/23/10, at 21.) Lincow also was employed by 7622 ...

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