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State Farm Mutual Automobile Insurance Co., et al v. Arnold Lincow

June 16, 2011

STATE FARM MUTUAL AUTOMOBILE INSURANCE CO., ET AL., PLAINTIFFS,
v.
ARNOLD LINCOW, ET AL., DEFENDANTS.



The opinion of the court was delivered by: Eduardo C. Robreno, J.

MEMORANDUM

I. INTRODUCTION

On March 26, 2009, judgment was entered in favor of Plaintiffs State Farm Mutual Automobile Insurance Company and State Farm Fire and Casualty Company ("Plaintiffs") against several defendants. (See doc. no. 593.) Pursuant to 28 U.S.C. § 636(b)(3), the Court referred "all matters concerning execution of the judgment" to Chief Magistrate Judge Rueter. (See doc. no. 843.) Asset discovery was undertaken, and one of the defendants, Arnold Lincow ("Defendant"), subsequently filed claims for exemption under 42 Pa. Cons. Stat. § 8124(b)(1)(ix). These claims seek to exempt from execution of judgment two separate individual retirement accounts ("IRAs") which contain funds that have been held in various other accounts. On August 24 and August 25, 2010, Judge Rueter conducted an evidentiary hearing on Defendant's claims. After inviting the parties to submit proposed findings of facts and conclusions of law, Judge Rueter issued a memorandum and order granting Defendant's claims for exemption. Plaintiffs object to Judge Rueter's ruling.

For the reasons set forth below, Plaintiffs' objections will be overruled in part and sustained in part.

II. BACKGROUND

Defendant, in accordance with 42 Pa. Cons. Stat. § 8124(b)(1)(ix), seeks exemption from execution of Plaintiffs' judgment as to: (1) an AXA Equitable Accumulator IRA (the "AXA Account"); and (2) a TD Ameritrade IRA (the "TD Account"). Plaintiffs argue that Defendant did not adequately demonstrate his entitlement to the exemption. Defendant, of course, disagrees. However, while predicated on the sufficiency of the evidence presented before Judge Rueter, the parties' disagreement stems from their divergent interpretations of section 8124(b)(1). That statute provides that the following funds are exempt from the execution of 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 paragraph 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. § 8124(b)(1)(ix).

Plaintiffs contend that section 8124's "provided for under" language refers to tax qualification under the Internal Revenue Code provisions set forth in the statute, and that a party seeking the exemption must therefore prove that the relevant funds have consistently been qualified. See id. (exempting funds "provided for under [certain sections of the Internal Revenue Code] . . . and transfers and rollovers between such funds" (emphasis added)); In re Willis, 07-11010, 2009 WL 2424548, at *11 (S.D. Fla. Bankr. Aug. 6, 2009) ("Under the IRC, IRA funds rolled over from a non-qualified account retain non-qualified status."). Defendant, on the other hand, urges that "'provided for under' is broader than 'qualified under' and thus a non-qualified plan is exempt unless or until the IRS makes a determination that a plan is disqualified." (Def.'s Resp. to Pls.' Objections ¶ 24.)

III. DISCUSSION

A. Standard of Review

Broadly speaking, the Federal Magistrates Act "distinguishes between two categories of matters that a district judge can refer to a magistrate judge." Nat'l Labor Relations Bd. v. Frazier, 966 F.2d 812, 816 (3d Cir. 1992). Namely, pretrial matters and dispositive matters. See id.; 28 U.S.C. § 636(b)(1)(A) (stating a magistrate judge may "determine any pretrial matter . . . except a motion for injunctive relief, for judgment on the pleadings, for summary judgment, to dismiss or quash an indictment or information made by the defendant, to suppress evidence in a criminal case, to dismiss or to permit maintenance of a class action, to dismiss for failure to state a claim upon which relief can be granted, and to involuntarily dismiss an action"). Pretrial matters, which magistrate judges may decide, are reviewed under a clearly erroneous standard. See 28 U.S.C. § 636(b)(1)(A). Dispositive matters, by contrast, may only be resolved by way of a report and recommendation which is reviewed de novo. Id. § 636(b)(1)(B).

Here, Judge Rueter resolved Defendant's claims of exemption under a referral invoking the additional duties clause in section 636(b)(3). See id. ยง 636(b)(3) ("A magistrate judge may be assigned such additional duties as are not inconsistent with the Constitution and laws of the United States."). Under these circumstances, the appropriate standard of review is determined by reference to whether the case more closely resembles a pretrial matter or one of the dispositive matters in the statute which can be so characterized by virtue of their "preclusive effect on the parties." Frazier, 966 F.2d at 816. Notwithstanding Defendant's attempts to analogize the parties' dispute to a routine pretrial discovery matter, this case plainly calls for de novo review because resolution of Defendant's ...


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