Source: https://law.justia.com/cases/federal/appellate-courts/F2/717/1038/74796/
Timestamp: 2020-08-13 21:02:30
Document Index: 423928544

Matched Legal Cases: ['§ 1144', '§ 1056', '§ 1056', '§ 1056', '§ 1001', '§ 1001']

Savings and Profit Sharing Fund of Sears Employees, et al., Plaintiffs, v. Rudolph G. Gago, Defendant-appellant,andelizabeth J. Kassa, et al., Defendants-appellees, 717 F.2d 1038 (7th Cir. 1983) :: Justia
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Savings and Profit Sharing Fund of Sears Employees, et al., Plaintiffs, v. Rudolph G. Gago, Defendant-appellant,andelizabeth J. Kassa, et al., Defendants-appellees, 717 F.2d 1038 (7th Cir. 1983)
U.S. Court of Appeals for the Seventh Circuit - 717 F.2d 1038 (7th Cir. 1983) Argued Jan. 13, 1983. Decided Aug. 31, 1983. As Amended Sept. 21, 1983
Two sections of ERISA are in issue. First, section 514(a), 29 U.S.C. § 1144, may preempt Wisconsin law governing property settlements pursuant to divorce insofar as pension funds are involved. Second, the Wisconsin court's order directing the Fund to pay Kassa may constitute an assignment or alienation prohibited by section 206(d) (1) of ERISA, 29 U.S.C. § 1056(d) (1).
Section 514(a) of ERISA preempts "any and all State laws insofar as they may now or hereafter relate to any employee benefit plan" covered by ERISA.4 We do not write on a clean slate when it comes to interpreting section 514(a). Indeed, the Supreme Court very recently construed this section. In Shaw v. Delta Air Lines, Inc., --- U.S. ----, 103 S. Ct. 2890, 77 L. Ed. 2d 490 (1983), the Court held that a New York statute prohibiting discrimination in employee benefit plans on the basis of pregnancy, where otherwise lawful under federal law, is preempted by section 514(a) because the New York statute "relates to" employee benefit plans within the meaning of section 514(a). The Shaw opinion teaches that the key to understanding the scope of section 514(a)'s preemption rests in the language "relates to" and Congress' intent in using these words. The Court concluded that "relates to" should be given a very broad reading: "A law 'relates to' an employee benefit plan, in the normal sense of the phrase, if it has a connection with or reference to such a plan.... In fact, ... Congress used the words 'relate to' in Sec. 514(a) in their broad sense." Shaw, --- U.S. at ----, 103 S. Ct. at 2900.
Shaw, --- U.S. at ---- n. 21, 103 S. Ct. at 2901-02 n. 21.
We find persuasive, as apparently the Supreme Court did in Shaw, the distinction drawn by the Second Circuit in AT & T v. Merry, 592 F.2d 118, 121 (2d Cir. 1979), between state laws which "relate to" an employee benefit plan and state laws which only "in the most remote and peripheral manner touch upon pension plans." In AT & T v. Merry, the Connecticut Superior Court ordered Mr. Merry to pay his former spouse alimony and child support in the amount of one-half his retirement income from the AT & T pension plan. When Merry failed to pay, the Connecticut Court issued an order garnishing his interest in the AT & T plan. AT & T, uncertain of its fiduciary rights and obligations under ERISA, commenced a federal court declaratory judgment action to determine whether it could pay to Mrs. Merry the amount ordered. The district court declared that AT & T was not precluded by ERISA from paying this amount. The Second Circuit affirmed, rejecting the "strict, literal construction" of section 514(a) that "would necessarily lead to the unreasonable conclusion that Congress intended to preempt even those state laws that only in the most remote and peripheral manner touch upon pension plans." Merry. 592 F.2d at 121.
Unfortunately, the "remote and peripheral" language used by the Second Circuit in Merry and the adjective "tenuous" added by the Supreme Court in Shaw do not delimit very precisely the scope of "relates to." As a practical matter, however, we think the close similarity between the facts of Merry and the case before us, coupled with the Supreme Court's apparently approving reference to the Merry result in Shaw, provide us with sufficiently persuasive authority to hold that section 514(a) does not preempt the Wisconsin court order. The only distinction of possible substance between Merry and the case before us is that Merry involved enforcement of alimony and support orders while this case involves property division. We do not see, however, how this distinction as to the character of the ordered payment, provided that it was integral to the dissolution of a marriage, makes any difference with respect to the scope of section 514(a). In any event, the argument need not solely or even primarily concern section 514(a), since there is another ERISA provision that appears to stand more clearly in the way of the Wisconsin court order: section 206(d), 29 U.S.C. § 1056(d).5 III. Conflict Between ERISA Sec. 206(d) and the State Court Order
(d) (1) Each pension plan shall provide that benefits provided under the plan may not be assigned or alienated.
29 U.S.C. § 1056(d) (1). Appellant argues that the plain meaning of section 206(d) prohibits all "assignments and alienations," including the assignment ordered by the Wisconsin court.
We must determine if in fact there is a conflict between the Wisconsin court order and section 206(d). The Supreme Court has articulated two tests for determining whether a sufficient conflict arises when a federal statute appears to clash with state law. The first of these tests provides that there is a sufficient conflict where "compliance with both federal and state regulations is a physical impossibility ...." Florida Lime & Avocado Growers, Inc. v. Paul, 373 U.S. 132, 142-43, 83 S. Ct. 1210, 1217, 10 L. Ed. 2d 248 (1963). The second test provides that a conflict will be found where state law "stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress." Hines v. Davidowitz, 312 U.S. 52, 67, 61 S. Ct. 399, 404, 85 L. Ed. 581 (1941).
The second of the two tests focuses upon the purposes and objectives of Congress. Unfortunately, the legislative history of section 206(d) is rather limited. On the one hand, the general purpose of section 206 is to "ensure that the employee's accrued benefits are actually available for retirement purposes." H.R.REP. NO. 807, 93rd Cong., 2d Sess., reprinted in 1974 U.S.CODE CONG. & AD.NEWS 4639, 4670, 4734. This statement of section 206's purpose can be read as indicating that the retirement fund is to be preserved solely for the worker's benefit and for the benefit of no one else, not even of his spouse and children. On the other hand, one of the stated general purposes of ERISA, as set forth in ERISA's statement of policy, is "the continued well-being and security of millions of employees and their dependents...." 29 U.S.C. § 1001 (emphasis supplied). This, of course, could be read as supporting enforcement of the state court property division order. In fact, the Second Circuit in AT & T v. Merry, 592 F.2d 118, showing insight and realism, did read the anti-alienation provision this way:
Hisquierdo v. Hisquierdo, 439 U.S. 572, 581, 583, 99 S. Ct. 802, 809, 59 L. Ed. 2d 1 (1979) (citations omitted). See also McCarty v. McCarty, 453 U.S. 210, 220, 101 S. Ct. 2728, 2735, 69 L. Ed. 2d 589 (1981).
In two recent cases involving federal pensions (paid in whole or in part out of federal funds), the Supreme Court found that the state domestic relations laws so conflicted with federal objectives that the state laws were preempted. For example, in McCarty v. McCarty, 453 U.S. 210, 101 S. Ct. 2728, 69 L. Ed. 2d 589 (1981), the Court held that state courts were precluded from allocating military retirement pay pursuant to state community property laws upon dissolution of a marriage because these laws conflicted with the federal military retirement scheme. Similarly, in Hisquierdo v. Hisquierdo, 439 U.S. 572, 99 S. Ct. 802, 59 L. Ed. 2d 1 (1979), the Court held that pension benefits afforded under the Railroad Retirement Act of 1974 were not community property subject to division upon dissolution of the marriage because division of the benefits by the state would conflict with Congress' intended allocation of a federal benefit.
We think both McCarty and Hisquierdo are quite distinguishable from the case before us. In both those cases very specific federal concerns about the goals and administration of federal programs were identified, requiring the preemption of state law. That no similarly identifiable federal concerns seem to be protected by section 206 makes it at least more likely that Congress, in enacting section 206 of ERISA, did not intend to rebut the presumption of nonpreemption of state domestic relations law. In McCarty, for example, the Court relied in part on the fact that the military retirement system was designed "to meet the personnel management needs of the active military forces," by serv [ing] as "an inducement for enlistment and re-enlistment, creat [ing] an orderly career path and ensur [ing] 'youthful and vigorous' military forces." McCarty, 453 U.S. at 232-33, 234, 101 S. Ct. at 1741, 1742. The McCarty Court also found that the state law would interfere with the military retirement system by "reduc [ing] the amounts that Congress has determined are necessary for the retired [service] member." Id. at 233, 101 S. Ct. at 2741. Similarly in Hisquierdo, the Court noted that Railroad Retirement Act benefits are financed by federal taxes and are "carefully targeted" toward "an amount thought appropriate to support an employee's old age and to encourage the employee to retirement." Hisquierdo, 439 U.S. at 584, 585, 99 S. Ct. at 810. Accordingly, the Railroad Retirement Act's anti-assignment clause "shields the distribution of benefits from state decisions that would actually reverse the flow of incentives Congress originally intended." Id. at 585, 99 S. Ct. at 810.
Different considerations might well apply where Congress has remained silent on the subject of benefits for spouses, particularly when the pension program is a private one which federal law merely regulates. See Employee Retirement Income Security Act of 1974, 88 Stat. 829, 29 U.S.C. § 1001 et seq. Our holding intimates no view concerning the application of community property principles to benefits payable under programs that possess these distinctive characteristics.
Hisquierdo, 439 U.S. at 590 n. 24, 99 S. Ct. at 813 n. 24 (emphasis supplied). Since Congress has not spoken to the particular subject before us here and since we perceive no federal interest in ERISA that would require nonrecognition of Wisconsin's property distribution law, we think the presumption that state domestic relations law is preserved is not rebutted.
We are in accord with the Second and Ninth Circuits in concluding that state domestic relations law survives sections 514 and 206 of ERISA. See, e.g., AT & T v. Merry, 592 F.2d 118 (2d Cir. 1979) (alimony and support payments); Operating Engineers' Local 428 Pension Trust Fund v. Zamborsky, 650 F.2d 196 (9th Cir. 1981) (spousal maintenance payments); Carpenters Pension Trust v. Kronschnabel, 632 F.2d 745 (9th Cir. 1980) (division of community property), cert. denied, 453 U.S. 922, 101 S. Ct. 3159, 69 L. Ed. 2d 1004 (1981).
We are also supported by the Supreme Court's dismissal, for want of a substantial federal question, of the appeal in Carpenters Pension Trust Fund v. Campa, 89 Cal. App. 3d 113, 152 Cal. Rptr. 362 (1979), appeal dismissed, 444 U.S. 1028, 100 S. Ct. 696, 62 L. Ed. 2d 664 (1980). The effect of such a dismissal is to leave the decision of the lower court undisturbed and "without doubt [to] reject the specific challenges presented in the statement of jurisdiction" Mandel v. Bradley, 432 U.S. 173, 97 S. Ct. 2238, 53 L. Ed. 2d 199 (1977). See also 16 C. Wright, A. Miller, E. Cooper & E. Gressman, FEDERAL PRACTICE AND PROCEDURE Sec. 4014 at 638-39 (1977). In Campa, the state court held that ERISA did not preclude the states from dividing pension rights in marital dissolution proceedings. The questions presented to the Supreme Court in Campa were framed as follows:
Second, although the appellant is, of course, correct that Wisconsin is not a community property state, the fact that the property division cases upholding state law in the face of ERISA are community property cases is not controlling. Wisconsin law does not recognize community property but it does provide for equitable distribution of property upon divorce. Distribution of property upon divorce is governed by section 767.255 of the Wisconsin Family Code. That statute provides that, after certain statutory exceptions, " [t]he court shall presume that all other property is to be divided equally between the parties ...." (Emphasis supplied). The court may, however, alter such a distribution without regard to marital misconduct after considering certain criteria. WIS.STAT.ANN. Sec. 767.255 (West 1981).
The effect of the Wisconsin statute is that upon divorce, all non-excepted property is, at least initially, presumptively subject to equal distribution. The rationale underlying this scheme of distribution is that, since both spouses contributed to the marriage and the property associated with it, both are entitled to an equal share of the property upon divorce. This rationale is strikingly similar to the "contribution to the community" theory that informs full-blown community property concepts in those states which follow that tradition. See Operating Engineers' Local 428 Pension Trust Fund v. Zamborsky, 650 F.2d 196 (9th Cir. 1981); Carpenters Pension Trust Fund v. Kronschnabel, 460 F. Supp. 978 (C.D. Cal. 1978), aff'd, 632 F.2d 745 (9th Cir. 1980), cert. denied, 453 U.S. 922, 101 S. Ct. 3159, 69 L. Ed. 2d 1004 (1981). Indeed, "the mutuality of enterprise" concept is a key factor underlying Wisconsin's requirement of equitable distribution of property. See, e.g., Leighton v. Leighton, 81 Wis.2d 620, 627, 261 N.W.2d 457 (1977). With respect in particular to recognizing the rights of the non-employee spouse in the pension plan of the employee spouse, "Wisconsin ... is in the forefront of common-law-property states recognizing the rights of the non-employee spouse." Bloomer v. Bloomer, 84 Wis.2d 124, 267 N.W.2d 235, 238 (1978). We think, therefore, that the conceptual differences between the division of what is technically community property and the division of property in Wisconsin after divorce are not so great as to warrant different conclusions about the relationship of state law to ERISA in Wisconsin as opposed to community property states.
Third, the appellant argues that we should not follow prior cases upholding the domestic relations exception because in those cases the plan was in pay status and here it is not. This argument is not persuasive. We note at the outset that we need not even decide the question because it was established at oral argument that the plan before us is now in pay status. Were we to address this point, however, we would find that the prerequisite to upholding the domestic relations exception is not strictly that the pension fund be in pay status (i.e., actually paying out benefits). Rather, the distinction is properly whether the beneficiary has a current right to the proceeds of the plan. In the case presently before us, the appellant had only to sign a withdrawal application directed to the fund in order to receive the proceeds of the plan. Although appellant cites Monsanto Co. v. Ford, 534 F. Supp. 51 (E.D. Mo. 1981), in support of its position that the domestic relations exception does not apply if the fund is not in pay status, that case itself defines "pay status" as "currently due and payable to the employee." Id. at 53. The plan involved in the case now before us is clearly distinguishable from the Monsanto plan, which provided that the employee could receive nothing prior to age sixty-five. Id. By contrast, the plan involved here will pay proceeds to the appellant simply upon his signing a withdrawal application.
The Ninth Circuit recently held in a similar case that a pension fund's federal court action to enjoin enforcement, on preemption grounds, of a state court's award was barred by the doctrine of res judicata. Bd. of Trustees of Carpenters Pension Trust Fund v. Reyes, 688 F.2d 671, 673 (9th Cir. 1982), cert. denied, --- U.S. ----, 103 S. Ct. 3088, 77 L. Ed. 2d 1349 (1983)
Subsequent to the McCarty decision, Congress enacted the Uniformed Service Former Spouse Protection Act. 10 U.S.C.A. Sec. 1408 (West Supp.1983). Under the terms of that provision, " [t]reatment of retired pay--with certain limitations--generally would be dependent on the divorce and property laws applied by the courts of the jurisdiction in which a divorce or other related decree is issued." S.Rep. No. 502, 97th Cong., 2d Sess., reprinted in 1982 U.S.CODE CONG. & AD.NEWS 1555, 1596, 1598. Further, "the committee intend [ed] the legislation to restore the law to what it was when the courts were permitted to apply State divorce laws to military retired pay." Id. at 1599