Yates v. Henton
Yates was the sole owner of a corporation that maintained a profit sharing/pension plan. In accordance with the Employee Retirement Income Security Act (ERISA), the plan provided that except for loans to participants, no interest available under the plan would be subject to alienation or assignment. Yates borrowed $20,000 from the plan and paid it back in full, with interest, seven years later. Three weeks after the repayment, an involuntary bankruptcy proceeding was filed against Yates. The trustee in bankruptcy asked the court to set aside Yates' repayment and make the money available to Yates' creditors. Relying on Sixth Circuit precedent stating that a sole shareholder of a business is an employer and not an employee under ERISA, the bankruptcy court held that Yates was not a "participant" in ERISA and therefore could not enforce the restraint on alienation in the profit sharing/pension plan. Under the Bankruptcy Code, if a restriction on transfer is not enforceable in non-bankruptcy law, it cannot be used in bankruptcy proceedings to protect a debtor from his creditors. Therefore, the court granted summary judgment in favor of the trustee, and the district court and court of appeals affirmed.
Question Presented:
Whether the working owner of a business (here, the sole shareholder of a corporate employer) is precluded from being a "participant" under Section 3(7) of ERISA in an ERISA plan.
