Supreme Court Action: IRAs and Bankruptcy and One Federal Law Precluding Another

The Supreme Court issued two opinions this morning.  The Hobby Lobby case was not one of them.  The Court’s web site indicates scheduled conference dates through June 30.  The issue in the opinions issued today aren’t very controversial.  The first case is Clark v. Rameker (13-299).  It’s a bankruptcy case concerning whether an inherited IRA can be claimed as an exemption under the Bankruptcy Code §522(b)(3)(C).  That provision shields IRAs from creditors.

The facts of the case are pretty straight forward. Ruth Heffron established an IRA in 2000 with her daughter Heidi as the sole beneficiary.  Ruth died in 2001 and the IRA, then worth some $450,000, passed to Heidi.  She and her husband Brandon Clark filed for Chapter 7 bankruptcy in 2010.  They argued that the money in the account should not be available to their creditors.  The Bankruptcy Court said the account did not qualify as an exemption.  The District Court reviewing the case disagreed, stating that the statute covers all type of IRA accounts.  The Seventh Circuit Court of Appeals reversed, concluding that the rules governing inherited IRAs promote consumption rather than a saving for retirement and thus were not exempt.  The Supreme Court granted certiorari to resolve a split in the Circuits on the issue.

The Court agreed with the Seventh Circuit.  Retirement funds normally mean funds set aside for when an individual stops working.  The rules for inherited IRAs are inconsistent with that purpose.  The holder of the inherited account may not invest money into the IRA; they are required to draw money from the account within five years of the owner’s death irrespective of retirement; and the inheritor may withdraw any or all the money in the account for any reason without penalty.  These rules distinguish inherited retirement accounts from those eligible under the exemption.  Justice Sotomayor delivered the opinion for a unanimous Court.

The other case is POM Wonderful LLC v. Coca-Cola Co. (12-761).  It concerns the intersection of two laws, the Lanham Act which authorizes lawsuits based on unfair competition to private parties, and the Food, Drug, and Cosmetic Act (FDCA) which authorizes the federal government to regulate in the area of health and safety of the public.  The section of the FDCA at issue here concerns the mislabeling of food or drink.

POM sells juice including a pomegranate-blueberry blend.  Coca-Cola sells juice through its Minute Maid division with the words “pomegranate blueberry” prominently displayed on the container’s label.  Minute Maid’s product, however, contains only 0.3% of pomegranate juice and 0.2% of blueberry juice.  POM sued Coca-Cola under provisions of the Lanham Act that allows a competitor to sue another for unfair competition arising from false or misleading product descriptions.  The Ninth Circuit held that the FDCA precluded suit under the Lanham Act.

The Supreme Court reversed.  It held that there is nothing in the statutory language of the FDCA indicating a preclusion of one federal law over another.  The statutory regime, in fact, is complementary.  Any preclusion sections of the FDCA refer to state rather than federal law.  Much of the opinion is devoted to statutory interpretation, concluding that the centralization of regulation in the FDA does not indicate Congress meant to foreclose private enforcements authorized under other federal statutes.  Justice Kennedy issued the opinion of the Court which was joined by all other Justices except for Justice Breyer.  He did not participate in the case.  –Mark

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