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Shah v. Baloch

Court of Appeals of Arizona, First Division

October 12, 2017

SYED BASHIR AHMED SHAH, an individual, Plaintiff/Judgment Creditor/Appellant,
ABDUL J. BALOCH aka ZAHID BHURGI, an individual, Defendant/Judgment Debtor/Appellee, WELLS FARGO BANK, N.A., Garnishee/Appellee.

         Appeal from the Superior Court in Maricopa County No. CV2010-013396 The Honorable Michael L. Barth, Judge Pro Tempore

          Windtberg & Zdancewicz, PLC, Tempe By Michael J. Zdancewicz, Marc Windtberg Counsel for Plaintiff/Judgment Creditor/Appellant

          The Collins Law Firm, PLLC, Mesa By Ernest Collins, Jr. Counsel for Defendant/Judgment Debtor/Appellee

          Snell & Wilmer, LLP, Phoenix By Rebekah Elliott, Carlie Tovrea Counsel for Garnishee/Appellee

          Presiding Judge Diane M. Johnsen delivered the opinion of the Court, in which Judge Margaret H. Downie and Judge John C. Gemmill joined. [1]


          JOHNSEN, Judge

         ¶1 Syed Bashir Ahmed Shah appeals the superior court's order quashing garnishment of funds Shah alleges a debtor fraudulently transferred into a retirement plan. Because Shah's claim does not fall within the limited exceptions to the federal law barring recovery from a qualified retirement plan, we affirm.


         ¶2 Shah sued Abdul J. Baloch for breach of contract and fraud and obtained a judgment in 2009 for $411, 505. Attempting to collect on the judgment, Shah served a writ of garnishment on Wells Fargo Bank, N.A., as the trustee of Baloch's 401(k) account.[2] According to the record, Baloch's 401(k) account balance is nearly $50, 000; Shah alleged Baloch fraudulently transferred several thousand dollars into the account after entry of Shah's judgment against him. Wells Fargo objected to the garnishment and the superior court quashed the writ, finding the funds in Baloch's 401(k) account exempt from garnishment under the Employee Retirement Income Security Act ("ERISA").

         ¶3 Shah timely appealed the superior court's order. We have jurisdiction pursuant to Article 6, Section 9, of the Arizona Constitution and Arizona Revised Statutes ("A.R.S.") sections 12-2101(A)(4) and (5)(c) (2017) and 12-120.21(A) (2017).[3]


         ¶4 Under Arizona's version of the Uniform Fraudulent Transfer Act, a creditor may garnish a transfer made with "actual intent to hinder, delay or defraud" the creditor. A.R.S. §§ 44-1004(A) (2017), -1007(A)(1) (2017); see Sackin v. Kersting, 105 Ariz. 464, 465 (1970). Baloch, however, argues state law prohibits a judgment creditor from executing on or attaching a judgment debtor's retirement account. See A.R.S. § 33-1126(B) (2017) (exempting from attachment "money or other assets payable to a participant in or beneficiary of, or any interest of any participant or beneficiary in, a retirement plan [qualified under federal law]"). But with few exceptions, none of which apply here, ERISA preempts state laws that "relate to any employee benefit plan." 29 U.S.C. § 1144(a) (2017). Thus, ERISA preempts A.R.S. § 33-1126(B) as applied to a qualified pension plan. In re Hirsch, 98 B.R. 1, 2 (Bankr. D. Ariz. 1988) ("A.R.S. § 33-1126(B) would undoubtedly be pre-empted in a state court proceeding wherein creditors seek to enforce their claims against an ERISA pension plan."), aff'd sub nom In re Siegel, 105 B.R. 556 (D. Ariz. 1989); see Mackey v. Lanier Collection Agency & Serv., Inc., 486 U.S. 825, 829-30 (1988) (state garnishment provision pertaining to employee pension plan preempted by ERISA).

         ¶5 ERISA grants comprehensive protections to qualified pension plan participants and beneficiaries.[4] At issue in this case is a rule that, to qualify, a pension plan must "provide that benefits provided under the plan may not be assigned or alienated." 29 U.S.C. § 1056(d)(1) (2017). The corresponding Treasury Regulation defines "assignment" and "alienation" to include "[a]ny direct or indirect arrangement . . . whereby a party acquires from a participant or beneficiary a right or interest enforceable against the plan in, or to, all or any part of a plan benefit payment which is, or may become, payable to the participant or beneficiary." Treas. Reg. § 1.401(a)-13(c)(1)(ii) (2017); see Hoult v. Hoult, 373 F.3d 47, 54-55 (1st Cir. 2004) (anti-alienation regulation entitled to deference under Chevron, U.S.A., Inc. v. Nat. Res. Def. Council Inc., 467 U.S. 837, 844 (1984)). Baloch's retirement plan undisputedly is a qualified plan under 26 U.S.C. § 401(k) (2017) and contains the required anti-alienation provision.

         ¶6 ERISA's anti-alienation bar generally prohibits a creditor from garnishing a qualified plan to collect on a judgment against a plan participant. In Guidry v. Sheet Metal Workers Nat'l Pension Fund,493 U.S. 365, 367 (1990), a labor union sought a constructive trust on the pension benefits of an official who had embezzled from the union. The Supreme Court likened a constructive trust to a garnishment, and noted that the anti-alienation provision "erects a general bar to the garnishment of pension benefits from plans covered by" ERISA. Id. at 371. As Wells Fargo argues, under ...

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