Opinion ID: 163873
Heading Depth: 2
Heading Rank: 2

Heading: Constitutional Contract Clauses

Text: 40 Appellees argue that even if, as a matter of statutory construction, § 75-2-804(2) applies here, the summary judgment should be affirmed because applying § 75-2-804(2) to terminate Marilyn's status as the designated beneficiary of the annuities would violate the Contracts Clauses of the United States and Utah Constitutions. Article I, § 10 of the United States Constitution declares that No State shall ... pass any ... Law impairing the Obligation of Contracts.... Similarly, the Utah Constitution states that [n]o ... law impairing the obligation of contracts shall be passed. Utah Const. Art. I, § 18. The Utah clause is patterned after the federal clause. George v. Oren Ltd. & Assocs., 672 P.2d 732, 737 (Utah 1983). 41 In determining whether a statute violates the federal Contracts Clause, a court first ask[s] whether the change in state law has operated as a substantial impairment of a contractual relationship. General Motors Corp. v. Romein, 503 U.S. 181, 186, 112 S.Ct. 1105, 117 L.Ed.2d 328 (1992) (internal quotation marks and citation omitted). This inquiry has three components: whether there is a contractual relationship, whether a change in law impairs that contractual relationship, and whether the impairment is substantial. Id. When a new law does substantially impair contractual relations, the State, in justification, must have a significant and legitimate public purpose behind the [law], such as the remedying of a broad and general social or economic problem. Energy Reserves Group v. Kansas Power & Light Co., 459 U.S. 400, 411-12, 103 S.Ct. 697, 74 L.Ed.2d 569 (1983) (internal citation omitted). The court then asks whether the change in the law [is based] upon reasonable conditions and [is] of a character appropriate to the public purpose justifying [the legislation's] adoption. Id. at 412, 103 S.Ct. 697 (internal quotation marks omitted). As long as the State itself is [not] a contracting party, ... courts properly defer to legislative judgment as to the necessity and reasonableness of a particular measure. Id. at 412-13, 103 S.Ct. 697 (internal quotation marks and citation omitted). 42 Appellees have distinguished support for their Contract Clause contention. In Whirlpool Corp. v. Ritter, 929 F.2d 1318 (8th Cir.1991), the Eighth Circuit held unconstitutional an Oklahoma revocation-upon-divorce statute similar to the one at issue in this case, in the context of a beneficiary designation in a life insurance policy. The court reasoned that the insured party was entitled to expect that his wishes regarding the insurance proceeds, as ascertained pursuant to ... then-existing law, would be effectuated, and that [b]y reaching back in time and disrupting this expectation, the Oklahoma legislature impaired [the insured's] contract. Id. at 1322. Other courts have likewise found that the application of revocation-upon-divorce statutes to preexisting documents violates the federal Contracts Clause and similar state constitutional provisions. See, e.g., Parsonese v. Midland Nat'l Ins. Co., 550 Pa. 423, 706 A.2d 814, 818 (1998) (stating that [t]he very essence of [the insured party's] contract with [the insurance company] was undermined by the operation of [Pennsylvania's] statute, because [s]election of a beneficiary is the entire point of a life insurance policy); Aetna Life Ins. Co. v. Schilling, 67 Ohio St.3d 164, 616 N.E.2d 893, 896 (1993) (stating that the provisions of [Ohio's statute], as applied to [life insurance] contracts entered into before the effective date of the statute, impair the obligation of contracts in violation of the Ohio Constitution). 43 Appellants have failed to respond meaningfully to the Contracts Clause issue in their reply brief. They simply state that they have no space in their brief for an argument on the point and ask for an additional opportunity to brief the matter if we wish to address it. This was a risky gamble by Appellants. We may affirm a district court decision on any grounds for which there is a record sufficient to permit conclusions of law, even grounds not relied upon by the district court. Weitzel v. Div. of Occupational & Prof'l Licensing of Dept. of Commerce of State of Utah, 240 F.3d 871, 876 (10th Cir.2001) (internal quotation marks omitted). The odds of our doing so greatly increase when, as here, the issue is purely one of law and was fully briefed below. 44 Nevertheless, Appellants lucked out. We reject Appellees' Contracts Clause argument. Application of § 75-2-804(2) does not impair any contract right. The Whirlpool line of cases has been persuasively criticized by other distinguished authorities. After Whirlpool was decided, the Joint Editorial Board for the Uniform Probate Code issued a statement asserting that the opinion was manifestly wrong. Statement of Joint Editorial Board, supra, at 1. The Board wrote: 45 A life insurance policy is a third-party beneficiary contract. As such, it is a mixture of contract and donative transfer. The Contracts Clause of the federal Constitution appropriately applies to protect against legislative interference with the contractual component of the policy. In [ Whirlpool ] and in comparable cases, there is never a suggestion that the insurance company can escape paying the policy proceeds that are due under the contract. The insurance company interpleads or pays the proceeds into court for distribution to the successful claimant. The divorce statute affects only the donative transfer, the component of the policy that raises no Contracts Clause issue. 46 Id. at 3. 47 We agree. TIAA-CREF served two functions with respect to the annuities at issue. First, it funded the annuities, agreeing to make the payments called for in the annuity contracts. Second, it was to act in essence as an escrow agent, making the payments as directed by the annuitant, Dale. The contract between TIAA-CREF and Dale with respect to the second function calls for TIAA-CREF to follow proper instructions regarding where to make the payments. 48 Section 75-2-804(2) has no effect on the first function performed by TIAA CREF. As for the second function, the impact of § 75-2-804(2) on TIAA-CREF's escrow-agent role does not constitute the impairment of a contractual right. Dale's choice of beneficiaries is a donative transaction, not a contractual arrangement. That the donative transfer must be effectuated with the assistance of a party in a contractual relationship with the donor does not transmute the donative transfer into the performance of a contractual obligation. Section 75-2-804(2) does not impair the contractual relationship between Dale and TIAA-CREF. What it does is change the import of the donative instructions from Dale-instructions that TIAA-CREF has an obligation to follow. There is no more an impairment of a contract than if Dale had made the beneficiary designation in his will, providing no instructions directly to TIAA-CREF. 49 The Contracts Clause addresses contracts, not donative transfers. Because no contractual obligation is impaired by § 75-2-804(2), there is no violation of the federal Contracts Clause in applying the statute here. See In Re Estate of DeWitt, 54 P.3d 849, 859-60 (Colo.2002) (ruling, based largely on the reasoning set forth in the Statement of the Joint Editorial Board, that the Colorado version of U.P.C. 2-804 does not violate the Contracts Clause); In re Estate of Dobert, 192 Ariz. 248, 963 P.2d 327, 332 (1998) (rejecting a Contracts Clause challenge to the Arizona version of U.P.C. 2-804 because, inter alia, the statute did not impair the insurer's obligat[ion] to pay the proceeds of [the decedent's] life-insurance policy to the legal beneficiary); cf. Allstate Life Ins. Co. v. Hanson, 200 F.Supp.2d 1012, 1019-20 (E.D.Wis.2002) (upholding Wisconsin version of U.P.C. 2-804 against a Contracts Clause claim, because the claimant lacked a vested interest in continuing as the beneficiary of the life insurance policy; the change in the law brought about by [the statute] was foreseeable; and the statute did not prevent [the decedent] from maintaining [his ex-spouse] as his beneficiary). 50 There is also no violation of Utah's contract clause. Although there may be differences in some aspects of the analysis to be conducted under the state and federal provisions, the threshold question of whether a contract was in fact impaired is analyzed the same under both. Trail Mountain Coal Co. v. Utah Div. of State Lands & Forestry, 921 P.2d 1365, 1371 n. 10.