14-1021-cv

Ministers & Missi onaries v. Snow

UNITED STATES COURT OF APPEALS

F OR THE S ECOND C IRCUIT

_______________

August Term, 2014

(Argued: January 12, 2015 Decided: March 5, 2015)

Docket No. 14

‐ 1021

‐ cv

_______________

T HE M INISTERS AND M ISSIONARIES B ENEFIT BOARD

,

Interpleader

‐ Plaintiff

‐ Cross

‐ Defendant

‐ Appellee

,

—v.—

L EON S NOW

, L E A NN Y OWELL S NOW

,

Interpleader

‐ Defendants

‐ Cross

‐ Claimants

‐ Appellants

,

—v.—

T HE E STATE OF C LARK F LESHER

, M ICHELE A RNOLDY

, Individually & as Personal

Representative of the Estate of Clark Flesher,

Interpleader

‐ Defendants

‐ Appellees

. *

* The Clerk of Court is directed to amend the caption.2 _______________

B e f o r e:

K ATZMANN

, Chief Judge

, K EARSE and R AGGI

, Circuit Judges

.

_______________

Appeal from a final judgment entered on March 26, 2014, by the United

States District Court for the Southern District of New York (Forrest, Judge )

granting summary judgment for the Estate of Clark Flesher and Michele

Arnoldy, and denying summary judgment for Leon and LeAnn Yowell Snow.

Because we conclude that the case implicates threshold questions of New York

State law that are unsettled, important, and determinative, we CERTIFY these

questions to the New York Court of Appeals.

_______________

J ESSE T. W ILKINS (Gregory R. Preston, on the brief)

, Preston & Wilkins, LLC,

Levittown, NY, for Leon and LeAnn Yowell Snow

.

B RIAN R OSNER

, (Natalie A. Napierala, on the brief ), Carlton Fields Jorden Burt,

P.A., New York, NY, for the Estate of Clark Flesher and Michele Arnoldy.

_______________

K ATZMANN

, Chief Judge :

This case raises important, yet unanswered, questions of New York State

law. Specifically, its resolution turns on whether a governing

‐ law provision that

states that the contract will be governed by and construed in accordance with the

laws of the State of New York, in a contract not consummated pursuant to New3 York General Obligations Law section 5

‐ 1401, requires the application of New

York Estates, Powers & Trusts Law section 3

‐ 5.1(b)(2), a New York statute that

may, in turn, require application of the law of another state. For the reasons

discussed below, we conclude that this is a threshold issue that is determinative,

unsettled, likely to recur, and has important public policy implications. See

Osterweil v. Bartlett

, 706 F.3d 139, 142 (2d Cir. 2013); State Farm Mut. Auto. Ins. Co.

v. Mallela

, 372 F.3d 500, 509 (2d Cir. 2004). Accordingly, we CERTIFY two

questions concerning this issue to the New York Court of Appeals. See N.Y.

Comp. Codes R. & Regs. tit. 22, § 500.27(a); 2d Cir. Local R. 27.2(a).

BACKGROUND

Reverend Clark Flesher was a participant in two benefits plans

administered by the plaintiff Ministers and Missionaries Benefit Board

(“MMBB”), a New York not

‐ for

‐ profit corporation. Flesher entered into the

MMBB plans before his divorce from his then

‐ wife, LeAnn Flesher (now LeAnn

Snow). Snow, also a reverend and MMBB policyholder, was listed as the primary

beneficiary on both of Flesher’s MMBB plans. Her father, Leon Snow, was listed

as the contingent beneficiary on both plans. When Flesher and LeAnn Snow

divorced in 2008 they signed a Marital Settlement Agreement in which each4 agreed to relinquish all rights to inherit from the other. The Settlement

Agreement also expressly permitted them to change the beneficiaries on their

respective MMBB plans. Flesher, however, never exercised this option.

Flesher passed away on June 22, 2011. After his death, the two sets of

interpleader defendants each claimed entitlement to the benefits of his MMBB

plans (what the parties refer to as the “disputed funds”). MMBB was unable to

determine how to distribute the disputed funds, and on December 23, 2011,

commenced this action against the interpleader defendants: (1) the Estate and

Flesher’s sister, Michele Arnoldy, individually and as the personal representative

of the Estate; and (2) LeAnn and Leon Snow. On September 25, 2012, the United

States District Court for the Southern District of New York (Griesa, J. ) granted

interpleader relief to the plaintiff and discharged it from all liabilities as to the

defendants, dismissed it from the action, and enjoined all other actions to recover

any part of the disputed funds from proceeding until the court issued a final

judgment resolving which party was entitled to the disputed funds. The case was

transferred to Judge Forrest on June 6, 2013, and the parties each moved for

summary judgment.5 On their cross

‐ motions for summary judgment, the district court held that

the Estate of Clark Flesher is entitled to the disputed funds. See Ministers &

Missionaries Benefit Bd. v. Estate of Clark Flesher

, No. 11 Civ. 9495 (KBF), 2014 WL

1116846, at *6 (S.D.N.Y. Mar. 18, 2014). In reaching this conclusion, the district

court reasoned that: (1) the parties agreed that “[t]he relevant choice

‐ of

‐ law rules

are the rules of the forum state, here, New York,” id. at *5 (internal quotation

marks omitted); (2) the disputed funds constituted Flesher’s personal property

,

and under New York Estates, Powers & Trusts Law section 3

‐ 5.1(b)(2), the

“revocation or alteration of a testamentary disposition of personal property, and

the manner in which such property devolves when not disposed of by will, are

determined by the law of the jurisdiction in which the decedent was domiciled at

death”; (3) Rev. Flesher was domiciled in the state of Colorado at his death; and

(4) under Colorado’s revocation law, Colo. Rev. Stat. § 15

‐ 11

‐ 804(2)(a)(i), the

divorce terminated both Snows’ claims to the disputed funds. 1 See 2014 WL

1116846, at *5–*6. New York’s analogous revocation law prevents only an ex

‐

1 Colorado’s statute“[r]evokes any revocable

. . . disposition or appointment of property

made by a divorced individual to his or her former spouse in a governing instrument

and any disposition or appointment created by law or in a governing instrument to a

relative of the divorced individual’s former spouse.” Colo. Rev. Stat. § 15

‐ 11

‐ 804(2)(a)(i)

.6 spouse from recovering a revocable disposition, but not an ex

‐ spouse’s family

member. See N.Y. Est. Powers & Trusts Law § 5

‐ 1.4.

The Snows filed a timely appeal, and we review the district court’s

decision de novo. Fieger v. Pitney Bowes Credit Corp.

, 251 F.3d 386, 393 (2d Cir.

2001). Before we can consider the district court’s decision to award the disputed

funds to the Estate, however, we must first consider a threshold issue with which

the district court did not specifically grapple: whether the contracts’ governing

‐

law provisions require the application of New York Estates, Powers & Trusts

Law section 3

‐ 5.1(b)(2), a New York statute that may require application of the

law of another state.

The two MMBB contracts at issue in this case each include a governing law

provision stating: “The provisions of this Plan shall be governed by and

construed in accordance with the laws of the State of New York.” J.A. 101; see J.A.

95. Yet it is unclear how these provisions should be interpreted. The provisions

could be read to require a court to apply both New York substantive law and

New York choice

‐ of

‐ law principles. They could also be read to require only the

application of New York substantive law. Under the first reading, implicitly

adopted by the district court, the governing

‐ law provisions in the MMBB plan7 contracts would have no effect on the outcome of the case. Because the case was

brought in federal court in New York, New York substantive law and choice

‐ of

‐

law principles would apply even absent a governing law provision specifically

directing the court to apply New York law. See Fieger

, 251 F.3d at 393. Under the

second reading, by contrast, the district court would apply only New York

substantive law without reference to New York choice

‐ of

‐ law principles—what

the Restatement (Second) of Conflict of Laws refers to as “local law,” “the body

of standards, principles and rules [of a state], exclusive of its rules of Conflict of

Laws .” Restatement (Second) of Conflict of Laws § 4(1) (1971) (emphasis added).

There is also a third possible reading of the governing

‐ law provisions; namely,

that they preclude the application of New York common

‐ law conflict

‐ of

‐ laws

analysis, but not the application of a choice

‐ of

‐ law directive in a New York

statute.

In a recent case, the New York Court of Appeals expressly approved the

second reading, albeit in a statutory context not at issue in this case. See IRB

‐

Brasil Resseguros, S.A. v. Inepar Invs., S.A.

, 982 N.E.2d 609, 612 (N.Y. 2012). In that

case, IRB

‐ Brasil Resseguros, S.A. (“IRB”) purchased $14 million in notes issued

by Inepar Investments, S.A. (“Inepar”), a subsidiary of a Brazilian power8 company. When interest payments and returns of its principal to IRB ceased, it

sued Inepar in New York State court. Id. at 610. The underlying guarantee

contract between the parties was consummated pursuant to New York General

Obligations Law section 5

‐ 1401 (“Large Contract Statute”), a statute which

expressly permits parties in contracts concerning amounts greater than $250,000

to select New York law as the governing law. 2 Id. at 611–12.

Because New York conflict

‐ of

‐ laws principles might have required the

application of Brazilian rather than New York law, the New York Court of

Appeals was faced with deciding “whether a conflict

‐ of

‐ laws analysis must be

undertaken when there is an express choice of New York law in the contract

2 The Court of Appeals opinion briefly surveyed the legislative history and purpose of

the law:

The Legislature passed the statute in 1984 in order to allow parties without New

York contacts to choose New York law to govern their contracts. Prior to the

enactment of section 5

‐ 1401, the Legislature feared that New York courts would

not recognize “a choice of New York law [in certain contracts] on the ground that

the particular contract had insufficient ‘contact’ or ‘relationship’ with New

York.” Instead of applying New York law, the courts would conduct a conflicts

analysis and apply the law of the jurisdiction with “‘the most significant

relationship to the transaction and the parties.’” As a result, parties would be

deterred from choosing the law of New York in their contracts, and the

Legislature was concerned about how that would affect the standing of New

York as a commercial and financial center.

IRB

‐ Brasil Resseguros, S.A

, 982 N.E.2d at 611 (brackets in original and internal citations

omitted).9 pursuant to General Obligations Law § 5

‐ 1401.” Id. at 610. The Court of Appeals

concluded that it was not permitted to look to Brazilian law. It reasoned, first,

that “[t]he plain language of [the Large Contract Statute] dictates that New York

substantive law [alone] applies.” Id. at 612. Moreover, it emphasized,

[u]nder the Restatement (Second) [of Conflict of Laws] the parties’ decision

to apply New York law to their contract results in the application of New

York substantive law, not New York’s conflicts principles.

It strains credulity that the parties would have chosen to leave the question

of the applicable substantive law unanswered and would have desired a

court to engage in a complicated conflict

‐ of

‐ laws analysis, delaying

resolution of any dispute and increasing litigation expenses.

Id.

The key differences between IRB

‐ Brasil Resseguros and this case are that (1)

the MMBB contracts were not consummated pursuant to the Large Contract

Statute, and (2) the MMBB contracts might implicate another New York statute,

New York Estates, Powers & Trusts Law section 3

‐ 5.1(b)(2). Accordingly, in

order to reach a conclusion in this case, we must first determine how the Court of

Appeals would interpret governing law provisions in non

‐ Large Contract Statute

contracts, particularly in the context of New York Estates, Powers & Trusts Law

section 3

‐ 5.1(b)(2). See Michalski v. Home Depot, Inc.

, 225 F.3d 113, 116 (2d Cir.10 2000) (“Absent law from a state’s highest court, a federal court sitting in diversity

has to predict how the state court would resolve an ambiguity in state law.”)

DISCUSSION

Under Second Circuit Local Rule 27.2, we may certify questions of New

York law to the New York Court of Appeals. See N.Y. Comp. Codes R. & Regs.

tit. 22, § 500.27(a) (“Whenever it appears to

. . . any United States Court of

Appeals

. . . that determinative questions of New York law are involved in a case

pending before that court for which no controlling precedent of the [New York]

Court of Appeals exists, the court may certify the dispositive questions of law to

the Court of Appeals.”) Our decision whether to certify such questions is

discretionary. See 10 Ellicott Square Court Corp. v. Mountain Valley Indem. Co.

, 634

F.3d 112, 125 (2d Cir. 2011). In this regard, our analysis is “principally guided by

three factors.” Id. They are: “(1) whether the New York Court of Appeals has

addressed the issue and, if not, whether the decisions of other New York courts

permit us to predict how the Court of Appeals would resolve it; (2) whether the

question is of importance to the state and may require value judgments and

public policy choices; and (3) whether the certified question is determinative of a

claim before us.” Barenboim v. Starbucks Corp.

, 698 F.3d 104, 109 (2d Cir. 2012).11 Applying this rubric to the present case, we conclude that two questions warrant

certification to the New York Court of Appeals.

First, the New York Court of Appeals has not expressly considered the

specific questions at issue in this case. 3 As we explained above, the New York

Court of Appeals has considered similar questions in the context of contracts

consummated pursuant to the Large Contract Statute in IRB

‐ Brasil Resseguros

.

However, it is not clear from that decision whether the New York Court of

Appeals would apply the same reasoning outside of that statutory context.

There, the Court of Appeals relied not only on the general conflict

‐ of

‐ laws

principles embodied in the Restatement (Second) of Conflict of Laws, but also on

the specific legislative purpose of the Large Contract Statute. In addition, in that

decision, the Court of Appeals rejected the application of common

‐ law conflict

‐

of

‐ laws principles, whereas the contracts in this case may implicate a choice

‐ of

‐

3 The Appellate Division considered a somewhat similar question in McCarthy v. Aetna

Life Ins. Co.

, 231 A.D. 2d 211, 214, (N.Y. App. Div. 1997), rev’d on other grounds

, 704

N.E.2d 557 (1998), and concluded, notwithstanding New York Estates, Powers & Trusts

Law section 3

‐ 5.1(b)(2), that the governing

‐ law provision required the application of

Delaware law. See id. That case does not help us accurately predict how the Court of

Appeals would interpret the contractual provisions in the case, however, because: (1)

the Appellate Division’s decisions are not binding on the Court of Appeals; (2)

McCarthy predates IRB

‐ Brasil Resseguros ; (3) McCarthy does not squarely apply to the

specific facts of the present case; and (4) in reaching its decision, the Court of Appeals

stated that “it need not decide [the] question” of which state’s law applied, McCarthy

,

704 N.E.2d at 560.12 law directive in a New York State statute. We therefore cannot confidently

predict whether the New York Court of Appeals would apply the holding of

IRB

‐ Brasil Resseguros to the contracts at issue here. Moreover, if the New York

Court of Appeals would apply the holding in IRB

‐ Brasil Resseguros to these

contracts, we are unaware of any New York Court of Appeals decision that

dictates whether a person’s entitlement to the proceeds of a death benefit or

retirement plan constitutes “personal property

. . . not disposed of by will”

within the meaning of New York Estates, Powers & Trusts Law § 3

‐ 5.1(b)(2).

Accordingly, this factor supports the certification of these sequential questions to

the New York Court of Appeals. See Osterweil

, 706 F.3d at 143.

Second, these questions are of great importance to New York State contract

law and implicate significant issues of public policy. Many contracts select New

York law as their governing law, and the New York legislature has decided that

there is value in allowing parties to choose to do so. The State Legislature

adopted the Large Contract Statute for just this reason. That said, it is not clear

whether the legislators wanted to provide this opportunity for all contracts or

whether the decision to require a $250,000 statutory threshold indicates their

intention to treat contracts concerning lesser amounts differently.13 Moreover, the questions are likely of great importance to the New York

Estates, Trusts & Powers Law as well. The New York legislature enacted a new

version of section 5

‐ 1.4 in 2008 to provide that a divorce automatically revokes

retirement and death benefit plan beneficiary designations in favor of an ex

‐

spouse, and the relationship between governing

‐ law provisions in such plans

and section 3

‐ 5.1(b)(2) has yet to be addressed by the courts. Both plan

administrators and participants have significant interests in determining which

state’s law applies to a beneficiary designation if a policyholder dies while

domiciled outside of New York. For example, while New York’s revocation

statute applies only to an ex

‐ spouse, several other states in addition to Colorado

have enacted statutes that revoke certain non

‐ probate beneficiary designations of

an ex

‐ spouse’s relatives upon divorce. See, e.g.

, N.J. Stat. Ann. § 3B:3

‐ 14(a); Mass.

Gen. Laws ch. 190B, § 2

‐ 804(b); Haw. Rev. Stat. § 560:2

‐ 804(b). Thus the issue of

whether another state’s revocation statute applies may often be determinative

where the deceased has designated an ex

‐ spouse’s relative as a beneficiary.

Third, the answer to these questions could resolve this case. If the Court of

Appeals were to conclude that the governing

‐ law provisions preclude the

application of New York Estates, Powers & Trusts Law section 3

‐ 5.1(b)(2) or that14 section 3

‐ 5.1(b)(2) does not apply to the payment of proceeds under the MMBB

plans, that could have a decisive impact on which party would be awarded the

disputed funds.

For all of these reasons, we deem it appropriate to certify the following

questions to the New York Court of Appeals:

(1) Whether a governing

‐ law provision that states that the contract will be

governed by and construed in accordance with the laws of the State of

New York, in a contract not consummated pursuant to New York

General Obligations Law section 5

‐ 1401, requires the application of

New York Estates, Powers & Trusts Law section 3

‐ 5.1(b)(2), a New York

statute that may, in turn, require application of the law of another state?

(2) If so, whether a person’s entitlement to proceeds under a death benefit

or retirement plan, paid upon the death of the person making the

designation, constitutes “personal property

. . . not disposed of by will”

within the meaning of New York Estates, Powers & Trusts Law section

3

‐ 5.1(b)(2)?

“Consistent with our usual practice, we do not intend to limit the scope of the

Court of Appeals’ analysis through the formulation of our question[s], and we

invite the Court of Appeals to expand upon or alter [these] question[s] as it

should deem appropriate.” Nguyen v. Holder

, 743 F.3d 311, 317 (2d Cir. 2014)

(internal quotation marks omitted).15 CONCLUSION

It is hereby ORDERED that the Clerk of Court transmit to the Clerk of the

New York Court of Appeals a Certificate in the form attached, together with a

copy of this opinion and a complete set of the briefs, appendices, and record filed

by the parties in this Court. This panel will retain jurisdiction to decide the case

once we have had the benefit of the views of the New York Court of Appeals, or

once that court declines certification. Finally, we order the interpleader

defendants to bear equally any fees and costs that may be requested by the New

York Court of Appeals.