Court Opinion

ID: 2804808
Source: CourtListenerOpinion
Date Created: 2015-06-01 20:13:10.617466+00
Date Added: 2024-06-11T11:29:53.614415
License: Public Domain

IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON

THE ESTATE OF CRAIG S. LUNDY,
                                                         No. 71900-9-1              ro

                         Respondent,                                                an

                                                                                         (•»'.
                                                         DIVISION ONE

                                                         PUBLISHED OPINION           -
 KELLY LUNDY,
                                                                                     o
                      Appellant.                         FILED: June 1,2015

      Appelwick, J. — The trial court allowed the Estate to recover Employment

Retirement Income Security Act (ERISA)1 benefits after they had been distributed to the

designated beneficiary, his former wife, Kelly.      The Estate relied on the couple's

dissolution decree and RCW 11.07.010 to assert that Kelly waived her right to the

proceeds. ERISA preempts all claims to funds based on state law. The evidence is

insufficient to establish that Kelly waived by agreement with Craig the right to receive the

proceeds of the ERISA beneficiary designation. We reverse.

                                          FACTS

       Craig and Kelly Lundy2 married in 1984. For most of his career, Craig worked as

a machinist at The Boeing Company.          Kelly worked for the Northwest Network of

Peacehealth, Inc., a large healthcare organization. Both had retirement accounts with

their employers and named each other as the beneficiaries of those accounts. The couple

did not have children.

       Craig and Kelly divorced in 2009. The dissolution decree "awarded [to Craig] as

his separate property . . . [a]ll retirement funds and 401 Ks in his name." It also "awarded

       129U.S.C. §1001,etseq.
       2 Going forward, we refer to the Lundys by their first names for clarity. No
disrespect is intended.
No. 71900-9-1/2

[to Kelly] as her separate property . . . [a]ll retirement funds and 401 Ks in her name."

Neither changed the beneficiary of their retirement account after the divorce.

       Craig died on August 4, 2013, intestate and without issue. His sister was appointed

personal representative of his "Estate."

       At the time of his death, Craig's retirement account was valued at $497,435.77.

The account was controlled by ERISA, a federal scheme for regulating employee benefit

plans. Kelly was listed as the beneficiary of the account.

       On March 3, 2014, the Estate petitioned for recovery of the retirement account

from Kelly. The Estate cited RCW 11.07.010(2)(a), which provides that the designation

of a spouse as beneficiary of a nonprobate asset is automatically revoked upon

dissolution of the marriage. The Estate argued that the trial court should incorporate

RCW 11.07.010 into the dissolution decree to find waiver of Kelly's interest in the

retirement account. Kelly responded that RCW 11.07.010 was preempted by ERISA and

thus did not apply to Craig's retirement account. The trial court ruled in favor of the Estate.

       Kelly appeals.

                                        DISCUSSION

       Kelly argues that the trial court erred in granting the Estate's petition to recover the

retirement account, because ERISA preempts the Estate's state law claims to the

account.3 The Estate acknowledges that, under ERISA, the plan administrator properly

       3The Estate asserts that Kelly failed to preserve her federal preemption argument,
because she conceded below that preemption did not apply. At the hearing, Kelly
conceded that federal law did not preempt the Estate from bringing a postdistribution state
law claim to recover ERISA funds. However, she challenged the Estate's specific state
law claim, arguing that RCW 11.07.010 by its terms does not apply to assets controlled
by federal law. This argument is premised directly on federal preemption. It preserves
Kelly's right to challenge the state law claim on appeal.
No. 71900-9-1/3

distributed the funds to Kelly. However, the Estate challenges Kelly's postdistribution

retention of the funds. The Estate asserts that the language of the dissolution decree,

coupled with the presumption of revocation in RCW 11.07.010, demonstrates that Kelly

waived her right to the benefits of Craig's retirement account.

       In Egelhoff v. Eqelhoff. 532 U.S. 141, 143, 121 S. Ct. 1322, 149 L. Ed. 2d 264

(2001), the United States Supreme Court held that RCW 11.07.010 is preempted "to the

extent it applies to ERISA plans." Eqelhoff presented similar facts to those before us.

While David and Donna Egelhoff were married, David designated Donna as the

beneficiary of his ERISA-govemed life insurance plan and pension plan. id. at 144. The

spouses later divorced and David died intestate soon after. ]o\ He had not changed his

beneficiary, and the life insurance proceeds were paid to Donna, jd. David's children

from a previous marriage, his statutory heirs under state law, sued Donna to recover the

proceeds. Id. In a separate action, they also sued to recover the pension plan benefits.

]d. at 145. They alleged that RCW 11.07.010 disqualified Donna as the beneficiary of

both plans. Id. at 144-45.

      The trial courts both concluded that the plans should be administered in

accordance with ERISA and granted summary judgment for Donna as to both plans, jd.

at 145. The Court of Appeals consolidated the two cases and reversed, concluding that

RCW 11.07.010 was not preempted. ]d

      The Washington Supreme Court affirmed, holding that RCW 11.07.010 did not

'"refer to'" or have a significant "'connection with'" ERISA such that preemption was

appropriate. In re Estate of Egelhoff. 139 Wn.2d 557, 579, 989 P.2d 80 (1999). The court

reasoned that RCW 11.07.010 "does not apply immediately and exclusively to an ERISA
No. 71900-9-1/4

plan, nor is the existence of such a plan essential to operation of the statute." Id. at 574.

It also emphasized that the statute "does not alter the nature of the plan itself, the

administrator's fiduciary duties, or the requirements for plan administration." jd. at 575.

The court concluded that the statute "does not operate to divert benefit plan proceeds

from distribution under terms of the plan documents," but merely alters "the underlying

circumstances to which the distribution scheme of [the] plan must be applied." Id. at 578.

       The United States Supreme Court reversed. Egelhoff, 532 U.S. at 152. The Court

looked to ERISA's broadly worded preemption provision, 29 U.S.C. § 1144(a), which

provides that ERISA "'shall supersede any and all State laws insofar as they may now or

hereafter relate to any employee benefit plan'" covered by ERISA. Id. at 146. The Court

found that RCW 11.07.010 had an "impermissible connection with ERISA plans." ]g\ at

147.   In particular, the Court emphasized that RCW 11.07.010 interfered with the

administration of ERISA plans:

       The statute binds ERISA plan administrators to a particular choice of rules
       for determining beneficiary status. The administrators must pay benefits to
       the beneficiaries chosen by state law, rather than to those identified in the
       plan documents. The statute thus implicates an area of core ERISA
       concern. In particular, it runs counter to ERISA's commands that a plan
       shall "specify the basis on which payments are made to and from the plan,"
       § 1102(b)(4), and that the fiduciary shall administer the plan "in accordance
       with the documents and instruments governing the plan," § 1104(a)(1)(D),
       making payments to a "beneficiary" who is "designated by a participant, or
       by the terms of [the] plan." § 1002(8).

Id.

       [Differing state regulations affecting an ERISA plan's "system for
       processing claims and paying benefits" impose "precisely the burden that
       ERISA pre-emption was intended to avoid." And as we have noted, the
       statute at issue here directly conflicts with ERISA's requirements that plans
       be administered, and benefits be paid, in accordance with plan documents.
No. 71900-9-1/5

Hat 150 (quoting Fort Halifax Packing Co. v. Coyne. 482 U.S. 1,10,107 S. Ct. 2211, 96

L. Ed. 2d 1 (1987)). As a result, the Court concluded that the funds were properly

distributed to Donna, the designated plan beneficiary. See 532 U.S. at 145, 152.

       After Egelhoff. there is no doubt that RCW 11.07.010 is inapplicable to ERISA

benefits.   The case makes clear that federal law mandates the distribution of ERISA

benefits to the designated beneficiary, regardless of state law providing otherwise.

However, the Estate asserts that Egelhoff does not definitively resolve the question of

whether the ownership of ERISA benefits may be challenged after their distribution.

       According to Kelly, state law cannot frustrate a federal choice of beneficiary either

before or after distribution. She cites Hillman v. Maretta.     U.S.     , 133 S. Ct. 1943,

1952, 186 L. Ed. 2d 43 (2013), where the Supreme Court found preemption of a

postdistribution state law claim under a different federal benefit program, the Federal

Employees' Group Life Insurance Act (FEGLIA), 5 U.S.C. § 8701 etseq.4 Under FEGLIA,

life insurance benefits are paid according to a specified "order of precedence," accruing

first to the designated beneficiary or beneficiaries, and then, if there is no designated

beneficiary, to the employee's widow or widower, children, parents, executor, or other

next of kin.   5 U.S.C. § 8705(a).    The Hillman Court struck down a Virginia statute

rendering a former spouse liable to a new spouse for insurance policy proceeds the new

spouse would have received were it not for federal law. jd. at 1948, 1953. The Court

observed that the Virginia statute "displaces the beneficiary selected by the insured in

      4 Kelly did not raise her Hillman argument below. However, "the application of
RAP 2.5(a) is ultimately a matter of the reviewing court's discretion." Bennett v. Hardy,
113 Wn.2d 912, 918, 784 P.2d 1258 (1990). We exercise this discretion to address
Hillman to fully review the jurisprudence on this issue.
No. 71900-9-1/6

accordance with FEGLIA and places someone else in her stead." jd. at 1952. The Court

concluded that the statute "thereby 'frustrates the deliberate purpose of Congress' to

ensure that a federal employee's named beneficiary receives the proceeds." Id. (quoting

Wissner v. Wissner. 338 U.S. 655, 659, 70 S. Ct. 398, 94 L. Ed. 424 (1950)).

       Kelly asserts that this holding "establishes that federal law controls all aspects of

designating a beneficiary, whether before or after distribution." Hillman interprets a

different statute than Egelhoff, and the reasoning varies slightly between the two: Egelhoff

focused on the ease of administration, while Hillman focused on ensuring ownership of

proceeds. But, both cases make clear that the account proceeds go to the federally

determined beneficiary regardless of state law to the contrary. Thus, while Hillman does

not directly control here, it suggests that the same outcome would be appropriate in this

situation.

       We therefore turn back to case law addressing ERISA.            Three years before

Egelhoff. the Supreme Court held that ERISA preempted a state law allowing a

nonparticipant spouse to transfer by will an interest in her husband's pension plan benefits

to their sons. Boggs v. Boggs. 520 U.S. 833, 835-36, 841, 117 S. Ct. 1754, 138 L. Ed.

2d 45 (1997). The Court rejected the argument that the state law claim, which affected

only the post-distribution disposition of proceeds, thus failed to implicate the regulatory

concerns of ERISA:

       The statutory object of the qualified joint and survivor annuity
       provisions ... is to ensure a stream of income to surviving spouses....

       ERISA's solicitude for the economic security of surviving spouses would be
       undermined by allowing a predeceasing spouse's heirs and legatees to
       have a community property interest in the survivor's annuity.
No. 71900-9-1/7

]g\ at 843. The Court concluded that

       [i]t would undermine the purpose of ERISA's mandated survivor's annuity
       to allow Dorothy, the predeceasing spouse, by her testamentary transfer to
       defeat in part Sandra's entitlement to the annuity § 1055 guarantees her as
       the surviving spouse. This cannot be. States are not free to change
       ERISA's structure and balance.

\j± at 844.        Boggs demonstrates that ERISA can preempt state law as to the

postdistribution disposition of proceeds.       The difference between that case and the

present is only the nature of the payments made: the Boggs decision involved annuity

benefits, while here there was a lump sum payment from a retirement account.

       The Estate asserts that, in Kennedy v. Plan Administrator for Dupont Savings and

Investment. 555 U.S. 285, 129 S. Ct. 865, 172 L. Ed. 2d 662 (2009), the Court

subsequently suggested that it would permit a postdistribution claim for ERISA benefits

in this scenario.    In Kennedy, the Court considered the effect of an ex-wife's waiver of

ERISA benefits in a dissolution decree. Id. at 288. While William and Liv Kennedy were

married, William designated Liv the beneficiary of his ERISA-govemed savings and

investment plan (SIP). jd. at 289. Upon their divorce, they signed a dissolution decree

that provided: Liv "'is divested of all right, title, interest, and claim in and to . . . [a]ny and

all sums ... the proceeds [from], and any other rights related to any . . . retirement plan,

pension plan, or like benefit program existing by reason of [William's] past or present or

future employment.'" jd. at 289 (alterations in original). When William died, the plan

administrator relied on the designation form and paid the balance of the SIP to Liv. ]d. at

289-90. William's estate sued the plan administrator, claiming that Liv waived her right

to the benefits and that the administrator thus violated ERISA by paying the benefits to

Liv. Id. at 290.
No. 71900-9-1/8

       The Kennedy Court held that the funds were properly paid to Liv, because the

ERISA administrator was not required to honor the waiver in the dissolution decree when

distributing the funds, id, at 299-300. It reasoned that the plan documents "provide that

the plan administrator will pay benefits to a participant's designated beneficiary, with

designations and changes to be made in a particular way. William's designation of Livas

his beneficiary was made in the way required; Liv's waiver was not." jd. at 304. The

Court noted though that it did not "express any view as to whether the Estate could have

brought an action in state or federal court against Liv to obtain the benefits after they were

distributed."   jd. at 299 n.10.      Therefore, Kennedy signals that the propriety of

postdistribution claims for ERISA benefits is an open question.

       However, the Ninth Circuit has indicated that such claims cannot be premised on

avoiding ERISA's mandates. See Carmona v. Carmona. 603 F.3d 1041,1062 (2008). In

Carmona. the court discussed a pre-Egelhoff case, Emard v. Hughes Aircraft. Inc.. 153

F.3d 949 (9th Cir. 1998). abrogated by Egelhoff. 532 U.S. 141. See 603 F.3d at 1061-

62.   The Emard court held that ERISA did not preempt California law permitting the

imposition of a constructive trust on insurance proceeds after their distribution to the

designated beneficiary. 153 F.3d at 954-55. It reasoned that "ERISA is designed to

ensure that benefits are paid out. It is silent as to the disposition of those funds after their

receipt by the beneficiary." jd. at 955. The court further concluded that ERISA did not

preempt state law reguiring distribution of ERISA insurance proceeds to a person other

than the designated beneficiary. Id, at 956. It reasoned:

       In enacting ERISA, Congress intended to safeguard the rights of plan
       participants and beneficiaries as against employers, insurers and
       administrators of employee benefit plans. See 29 U.S.C. § 1001 (setting

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No. 71900-9-1/9

      forth Congress' findings and declaration of policy).        ERISA therefore
      preempts state laws that concern those matters. But we see no indication
      that Congress intended to safeguard an individual beneficiary's rights to the
      proceeds of an ERISA insurance plan as against another person claiming
      superior rights, under state law, to those proceeds.

jd at 958.

      As the Carmona court observed, Emard was abrogated by Egelhoff. 603 F.3d at

1062; see also Egelhoff. 532 U.S. at 146 (noting the lower courts' split over whether

ERISA preempts state laws and citing Emard as finding no preemption). Thus, the

Carmona court said, "to the extent [Emard] can be interpreted as an end-run around

ERISA's mandates, [it] no longer survives." 603 F.3d at 1062.

       Like the Emard court, the Carmona court considered the propriety of a state law

constructive trust on the proceeds of an ERISA account. See id at 1061. Lupe Carmona

designated his then-wife, Janis, as his survivor beneficiary under two pension plans which

provided qualified joint and survivor annuity benefits, jd. at 1048. While they were still

married, Lupe retired and began collecting pension benefits, jd. When the pair divorced

two years later, Lupe sought to revoke Janis's designation as the survivor beneficiary. Id.

The plan administrators refused to change the beneficiary and indicated that the

designation was irrevocable upon Lupe's retirement. Id, In the couple's dissolution

decree, the Nevada family court awarded Lupe both pension plans as his separate

property. Id.

       When Lupe remarried, he petitioned the family court to revoke Janis's designation

as survivor beneficiary and substitute his new wife, Judy. ]d at 1049. After Lupe's death,

the Nevada state court concluded that Janis waived her right to the plan benefits by virtue

of the divorce decree and that she would be unjustly enriched if she remained the
No. 71900-9-1/10

beneficiary,   jd. The court ordered the plan administrators to change the survivor

beneficiary from Janis to Judy, or, in the alternative, ordered the funds Janis received to

be placed in a constructive trust with Judy as beneficiary. ]d The Ninth Circuit held that

the plan administrator was not required to redirect the surviving spouse benefits to Judy.

Jd at 1061. It further held that the constructive trust was impermissible:

       In this case, the constructive trust that the state court created was explicitly
       an attempt to avoid ERISA's QDRO [(qualified domestic relations order)],
       preemption, and antialienation provisions. We conclude that Congress did
       not intend to permit the reassignment of surviving spouse benefits and,
       therefore the constructive trust remedy that the state court tried to impose
       is also preempted by ERISA. It may not be that all constructive trusts
       instituted by state courts, particularly those that seek to recover ill-gotten
       gains, will have a sufficient connection with or reference to an ERISA plan
       to trigger ERISA's preemption provision.

       But when a state court creates a constructive trust with the explicit purpose
       of avoiding ERISA's rules, it too must be preempted.

|d at 1062.

       Egelhoff establishes that ERISA preempts RCW 11.07.010 and other similar state

statutes.   Boggs indicates that ERISA preemption can apply both to pre- and post-

distribution state law actions. And, Carmona explicitly disapproves of state law "end-runs"

around ERISA imposed by state courts.             In sum, state law claims to recover

postdistribution ERISA benefits have been thus far rebuffed. Kennedy does not recognize

an open question in the context of a state-law-based claim to postdistribution of ERISA

benefits, but only in the context of waiver by private agreement between the parties.

       Here, the Estate can establish no such agreement. It argues that the court should

look to RCW 11.07.010 to discern the parties' intent. But, as Carmona made clear, state

law "cannot be used to contravene the dictates of ERISA." 603 F.3d at 1061. The Estate

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No. 71900-9-1/11

cannot revive a preempted statute simply by applying it in a postdistribution argument

that does not directly implicate ERISA.

       Moreover, waiver is not apparent on the face of the dissolution decree. Kelly did

not expressly disavow any interest in the proceeds of the account as beneficiary. The

decree says only that the retirement account is "awarded [to Craig] as his separate

property." Disclaiming an ownership interest in not the same as disclaiming future rights

as a beneficiary. By contrast, in many cases cited by the Estate, the ex-spouse explicitly

waived the right to receive ERISA proceeds. See, e.g.. Kennedy. 555 U.S. at 289 (ex-

spouse divested of "'all right, title, interest, and claim in'" ERISA accounts); Andochick v.

Bvrd. 709 F.3d 296, 297 (2013) (ex-spouse waived "any interest, including but not limited

to any survivor benefits" and "'released and relinquished any future rights as a beneficiary

under"' ERISA plans), cert, denied. 134 S. Ct. 235, 187 L. Ed. 2d 145 (2013); Estate of

Kensinger v. URL Pharma. Inc.. 674 F.3d 131, 132-33 (2012) (ex-spouse agreed to

"waive, release, and relinquish any and all right, title and interest" in ERISA accounts).

       In the absence of an express agreement, waiver requires "unequivocal acts or

conduct evincing an intent to waive." Wagner v. Wagner. 95 Wn.2d 94, 102, 621 P.2d

1279 (1980). Here, there was no such clear conduct demonstrating Kelly's intent to waive

her rights as beneficiary of Craig's retirement account. The only evidence the Estate cites

regarding intent is Kelly and Craig's lack of closeness after their divorce. But, we cannot

infer intent from "doubtful or ambiguous factors." Jd

       Federal law preempts a party's reliance on RCW 11.07.010(2)(a) for recovery of

ERISA funds in the hands of the designated beneficiary. If Kennedy would allow recovery

of funds from the designated beneficiary on the basis of waiver by private agreement, the

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No. 71900-9-1/12

agreement here does not establish an express waiver of the rights to receive those funds

as a beneficiary. The Estate has not established a valid postdistribution claim to recover

ERISA benefits.5

       We reverse.6

WE CONCUR:

     /-J J.                                              6trf,J.

       5 In addition to waiver, the Estate argues that awarding Kelly the account would
constitute unjust enrichment, because the "circumstantial evidence supports that Craig
intended to leave the retirement funds to his family and not his ex-wife." Though the
parties dispute whether Craig truly intended to leave the account to Kelly, the only actual
evidence as to his intent was the beneficiary designation. The Estate does not
demonstrate that it would be inequitable to follow Craig's designation. We find no merit
in the unjust enrichment claim. Unjust enrichment is an equitable remedy not dissimilar
to the constructive trust imposed by the trial court and disapproved of by the Ninth Circuit
in Carmona. 603 F.3d at 1062.
       6 We also deny the parties' various motions to strike and impose sanctions. Both
parties engaged in practices that we discourage. Motions to strike sentences or sections
out of briefs waste everyone's time. O'Neill v. City of Shoreline, 183 Wn. App. 15, 24,
332 P.3d 1099 (2014). The citations to unpublished cases in the briefing was in violation
of our rules. GR 14.1(a): Johnson v. Allstate Ins. Co.. 126 Wn. App. 510, 519, 108 P.3d
1273 (2005). However, we do not welcome motions from the parties seeking sanctions
for doing so. This court is aware of its authority to award sanctions and can determine
on its own when to do so. See RAP 18.9(a) ("The appellate court on its own
initiative . . . may order a party or counsel [who] fails to comply with these rules to pay
terms or compensatory damages to any other party who has been harmed by the delay
or the failure to comply or to pay sanctions to the court.").

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