Raymond B. Yates, MD, PC Profit Sharing Plan v. Hendon
The Supreme Court ruled that a doctor who owned his medical practice and was the sole shareholder could still count as a plan "participant" protected by federal pension law, because his retirement plan also covered other employees.
The decision rejects the view that a business owner can only be an "employer" and never also an "employee" for pension-law purposes, reopening the door for the doctor to argue his retirement funds were shielded from his bankruptcy creditors.
“The answer, we hold, is yes: If the plan covers one or more employees other than the business owner and his or her spouse, the working owner may participate on equal terms with other plan participants.”
The Court's core holding on when a business owner counts as a plan participant.
How it got here: The bankruptcy court and district court ruled for the trustee under binding Sixth Circuit precedent; the Sixth Circuit affirmed, and Yates asked the Supreme Court to resolve a circuit split.
The Case in Depth
What happened
Dr. Raymond Yates was the sole shareholder of his medical practice and set up a profit-sharing retirement plan covering himself and at least one other employee. He borrowed money from the plan, stopped making payments for years, then repaid it all shortly before his creditors forced him into bankruptcy. The bankruptcy trustee sought to claw back that last-minute repayment as an improper preference to a creditor.
The question before the Court
If a business owner is the only person running the company but the company's retirement plan also covers other workers, does a federal pension law protect the owner's own retirement savings too?
Why it matters
Small-business owners — doctors, lawyers, shop owners — who set up retirement plans covering themselves and their staff can now claim the same federal protections their employees get, including safeguards against creditors reaching retirement funds. This affects how bankruptcy trustees, insurers, and business owners handle disputes over small-business retirement plans nationwide.
What changes now
The case returns to the lower courts to decide two unresolved questions: whether Yates's last-minute loan repayments became part of his protected retirement interest excluded from his bankruptcy estate, and if so, whether they were still beyond the bankruptcy trustee's power to claw back as a preferential transfer. This is a final ruling on the participant-status question but not a final resolution of Yates's own case.
What this does not decide
The Court did not decide whether Yates's specific loan repayments were actually protected from the bankruptcy trustee, nor did it resolve whether working owners can qualify as plan \"beneficiaries\" (a related but separate status). Those questions were left for the lower courts on remand.
Concurrences and dissents
Concurrence — Justice Scalia
“The Court uses a sledgehammer to kill a gnat”Scalia's criticism that the majority's lengthy analysis was unnecessary given the agency's own reasonable interpretation.
Justice Scalia agreed the judgment should be reversed but on a different basis: he would have simply deferred to the Department of Labor's reasonable interpretation of the statute as controlling, rather than have the Court conduct its own lengthy textual analysis. He argued the majority's approach undermines agencies' ability to resolve statutory questions promptly and adapt to changing circumstances.
Concurrence — Justice Thomas
Justice Thomas agreed the judgment should be reversed but found the majority's textual arguments unpersuasive, arguing the cited statutory exemptions were equally consistent with excluding some working owners from "employee" status. He would have remanded for the lower court to apply the common-law definition of "employee" to determine whether Yates himself qualifies.
How the Court got there
The legal reasoning, step by step
- The Court examined the pension law's definitions of "employee" and "participant" and found them circular and unhelpful on their own, so it looked to how other parts of the same law and related tax provisions treated business owners.
- It found that Congress had long allowed shareholders, partners, and sole proprietors to join tax-favored retirement plans before the pension law existed, and that several provisions of the law only make sense if working owners can also be plan participants — for example, rules exempting certain owner-heavy plans from fiduciary duties, and rules about loans to "highly compensated employees," a category that includes some owners.
- The Court concluded that the law's text treats a working owner as having 'dual status' — able to be both the employer who set up the plan and an employee who participates in it — pointing to provisions that explicitly describe sole proprietors and partners as their own employers under the law.
- The Court rejected the Sixth Circuit's reliance on a Department of Labor regulation defining 'employee,' finding that the regulation only decides whether a plan qualifies as a covered plan in the first place, not who counts as a participant once a plan already covers other employees.
- The Court also rejected reliance on the law's anti-inurement rule (barring plan money from flowing back to the employer), reasoning that rule stops self-dealing and abuse but does not bar an owner from receiving legitimate benefits as a participant alongside other employees.
- Having concluded working owners can be participants when the plan covers other employees too, the Court held Yates could invoke the plan's protections, leaving unresolved questions about his specific loan repayments for the lower courts to address on remand.