John Hill v. AT&T Corp.

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
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No. 96-4166
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John Hill, *
*
Appellant, * Appeal from the United States
* District Court for the
v. * Western District of Missouri.
*
AT&T Corporation, *
*
Appellee. *
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Submitted: June 10, 1997
Filed: September 18, 1997
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Before BOWMAN, FLOYD R. GIBSON, and MORRIS SHEPPARD ARNOLD,
Circuit Judges.
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BOWMAN, Circuit Judge.
John Hill appeals from the decision of the District Court granting summary
judgment to AT&T Corporation on Hill's claim under the Employee Retirement Income
Security Act (ERISA) for benefits allegedly due him as beneficiary of his former wife's
employee savings plan. We reverse.
Judy and John Hill were married in 1970 in Missouri. At the time, Judy had
been an AT&T employee for a short time. The couple moved to Washington state in
1978, where Judy continued her employment with AT&T. On July 31, 1979, Judy
executed a beneficiary designation form for her employee savings plan (at that time
called the Bell System Savings and Security Plan), naming John as primary beneficiary
and Sharron Long, Judy's sister, as contingent beneficiary.
In July 1986 the couple separated and John returned to Missouri. Judy filed for
divorce and a Washington state court granted a decree of dissolution in November
1986. John acknowledged in his deposition taken in this case that he was dealing with
a drug problem when the couple separated, which in turn was causing financial
difficulties for the couple. John was unrepresented by counsel during the dissolution
proceedings and did not appear or contest the divorce. In other words, the dissolution
was granted as to him by default. After the divorce, Judy was diagnosed with breast
cancer, and she died on June 17, 1991, in Rhode Island, where she had moved. She
still was employed by AT&T at the time of her death.
After Judy's death, both John Hill and Sharron Long claimed they were entitled
to all the funds in Judy's employee savings plan. Hill based his claim on the beneficiary
designation form completed by Judy in 1979. Long's competing claim apparently was
based on the Hills' divorce decree and the fact that Hill was not Judy's spouse at the
time of her death. Notwithstanding the obvious conflict between two parties claiming
the right to collect the same funds, AT&T did not file for judgment in interpleader as
it indicated it would in correspondence to Hill dated October 1991. Instead, in May
1992, AT&T advised Long that it would be paying the funds to her, citing the Hills'
divorce decree. By the time Hill was notified of the decision in September 1992,1
1
On June 11, 1992, AT&T sent a registered letter to Hill informing him of its
decision to pay the funds to Long, but because Hill accepts registered mail from no one,
the letter was returned to the company. When Hill wrote AT&T on August 26, 1992,
to check on the status of his request for payment, and at that time advised the company
that he did not accept registered mail, a copy of the June letter was sent to him via
ordinary mail.
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AT&T had disbursed the funds, approximately $19,000.2
In June 1995, Hill brought an action in three counts against AT&T in circuit court in Jackson
County, Missouri. AT&T removed the case to federal court, and the District Court dismissed Counts
II and III, Hill's pendent state law claims, holding that they were preempted by ERISA. Hill does
not appeal from that ruling. On cross-motions for summary judgment, the District Court granted
AT&T's motion, holding that, under the law of this Circuit, the divorce decree operated as Hill's
waiver of his beneficiary rights to the money in Judy's employee savings plan. Hill appeals, claiming
that the divorce decree lacks the specificity necessary to divest him of his beneficiary rights.3 Upon
de novo review, we agree with Hill's position.
The issue of whether and how a divorce decree may divest a person of beneficiary rights is
not explicitly considered in ERISA and thus is a question of federal common law.4 See Mohamed
v. Kerr, 53 F.3d 911, 913 (8th Cir.), cert. denied, 116
2
It is unclear whether the check actually was made out to Judy Hill's estate or to Sharron
Long. The parties do not agree; AT&T claims it paid the estate and Hill claims AT&T paid
Long, who was designated as the contingent beneficiary. Although the canceled check is not
in the record, it appears that the check was mailed to Long, who was the executrix and sole
legatee of Judy's estate. Whether or not Long as an individual was the payee is another
matter. Resolution of the question is not necessary to our decision, however, as AT&T will
be responsible for paying Hill, regardless of whom they paid in 1992.
3
Hill also claims the District Court erred when it disregarded as hearsay certain statements
Judy made in post-divorce conversations between Judy and John Hill wherein she allegedly
told him it was her intent that he receive the money in her employee savings plan upon her
death. It strikes us that the District Court likely was correct, but because of our holding on
the merits we need not and do not reach the issue.
4
Hill would have us adopt as controlling authority Washington state law, which
recognizes divestiture of beneficiary interests upon divorce only if the dissolution
decree specifically so states and "the policy owner formally executes this previously
stated intention to change the beneficiary within a reasonable time (but no longer than
1 year) after dissolution." Aetna Life Ins. Co. v. Wadsworth, 689 P.2d 46, 47 (Wash.
1984) (en banc). It is true that we "may look to state law for guidance in developing
federal common law" unless it "conflicts with ERISA or its underlying policies."
Mohamed v. Kerr, 53 F.3d 911, 913 (8th Cir.), cert. denied, 116 S. Ct. 185 (1995).
But it is unnecessary for us to decide whether the holding of the Washington Supreme
Court should be incorporated into the federal common law of this Circuit, as we reach
the same conclusion that Washington state law would compel without adopting the per
se rule of Wadsworth.
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S. Ct. 185 (1995). In the Eighth Circuit, as regards ERISA-governed pension plans,
life insurance, and profit sharing plans, it is the law that a former spouse may be
divested of a beneficiary interest, notwithstanding a written beneficiary designation
naming the former spouse, if the former spouse was designated before the dissolution
of marriage and a property settlement agreed to pursuant to the dissolution operates as
a waiver of beneficiary rights. See National Auto. Dealers & Assocs. Retirement Trust
v. Arbeitman, 89 F.3d 496, 500 (8th Cir. 1996); Mohamed, 53 F.3d at 914; Lyman
Lumber Co. v. Hill, 877 F.2d 692, 693 (8th Cir. 1989). The language of any such
provision in a dissolution decree, while not required to include the term "beneficiary,"
nevertheless must be sufficiently specific to convey the intent of the parties to divest
one or the other, or both, of a beneficiary interest. See Mohamed, 53 F.3d at 915. Our
review of the cases and of all the relevant "facts and circumstances before us,"
Arbeitman, 89 F.3d at 500, convinces us that the Hills' dissolution decree did not divest
Hill of his beneficiary interest in Judy's employee savings plan. We first review the
case law.
In Lyman Lumber, the divorce decree stated that the husband "shall have as his
own, free of any interest of [the wife], his interest in the profit-sharing plan of his
employer." Lyman Lumber, 877 F.2d at 693 (quoting divorce decree) (alteration
added). Few other details of the circumstances surrounding the marriage and divorce
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were noted in the opinion, but the Court held that this language did not divest the
former spouse, that is, the named beneficiary, of her beneficiary interest in the plan.
Compare the language of the termination agreement in Mohamed:
That each of the parties shall be awarded full right, title, interest and
equity in and to the bank accounts, stocks, bonds, savings accounts,
pensions, retirement plans, combined IRAs, mutual funds, life insurance
policies with any cash value thereon, limited and general partnership
interests, and any other assets which are held in their name or for their
benefit as of the date of this Marriage Termination Agreement, free and
clear of any claim by the other party.
Mohamed, 53 F.3d at 912-13 (quoting Marriage Termination Agreement). We quote
the provision in full to demonstrate that this language is significantly more inclusive
than that in Lyman Lumber. The spouses in Mohamed were mutually awarded "full
right, title, interest and equity in and to" their own assets as enumerated, "free and clear
of any claim by the other party" (emphasis added). The Court concluded that the
termination agreement divested the parties of "any beneficiary interests or rights,
notwithstanding that they are not expressly mentioned." Id. at 915. Moreover, the
facts and circumstances in Mohamed were "especially compelling for our conclusion
that the agreement evidenced a mutual intent to divest." Id. at 916. The wife, who
claimed the right to the proceeds of the life insurance policy at issue, divorced her
husband after just a little more than three years of marriage, a few months after he was
diagnosed with Alzheimer's disease. The couple had no children and the wife was not
responsible for the costs of her husband's last illness or for his funeral expenses. In
fact, she remarried soon after the divorce and apparently never saw her former husband
or spoke to him after she divorced him. As the Court noted, "[S]he abandoned him to
his illness." Id.
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In a 1996 case from this Court, the parties "agreed to relinquish 'any right, title
or interest in and to any earnings, accumulations, pension plans, profit sharing plans,
future investments, money or property of the other.'" Arbeitman, 89 F.3d at 498
(quoting separation agreement). The former wife, who had custody of the couple's two
children, was the designated beneficiary of one of her former husband's pension plans.
(She actually received only half the value of the pension under the terms of the plan;
the current wife received the rest.). The divorced couple had maintained a friendly
relationship, notwithstanding the former husband's remarriage, and he provided support
to the family beyond his legal obligations. The Court held that "[t]he separation
agreement did not waive [the former wife's] rights as the designated plan beneficiary"
and concluded from its review of the record that the deceased intended his former wife
to be the beneficiary of the retirement plan. Id. at 501.
We consider now the relevant facts and circumstances of this case. We begin
with the language of the Hills' dissolution decree, which is not at all expansive.
According to the order of the Washington state court entering the decree of dissolution,
Judy was to receive "[a]ny retirement, social security, or pension benefits earned by
[her] through her employment" and "[a]ny checking, savings or other accounts in her
name." (Hill received the same, as to benefits earned through his employment and
accounts in his name.) If Judy's employee savings plan comes within one of these
categories, there nevertheless is no indication in this perfunctory language dividing
community property that her beneficiary designation to Hill was waived by operation
of the decree. Under the terms of the decree, Judy did retain the plan and upon the
occurrence of certain events (e.g., the end of her employment with AT&T) she would
have received the funds; Hill would have had no claim to them. But her interest in the
savings plan also left her free to maintain Hill as the designated beneficiary, or to name
anyone else. There was no inclusive release of future "claims" to the plan, as we saw
in Mohamed.
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In addition, the circumstances of the case support our reading of the dissolution
decree. Just prior to the issuance of the Hills' final decree of dissolution, Judy
designated her sister as primary beneficiary of the life insurance policy that she had
acquired as a benefit of her employment with AT&T.5 Notwithstanding this deliberate
act, Judy did not change the beneficiary on the savings plan.6 Further, the savings plan
was valued at approximately $19,000. Sharron Long received the proceeds of Judy's
$100,000 life insurance policy and was the sole legatee named in Judy's will. In other
words, Long received the bulk of Judy's assets upon her death. Thus she was in a
position to pay the expenses of Judy's last illness and her funeral (although there is no
5
Hill's brief states that Judy actually changed the beneficiary designation on her
life insurance from Hill to Long. Although this seems likely, the original form naming
Hill is not in the record. Hill's counsel also told the Court at oral argument that Judy
changed the beneficiary of an AT&T stock ownership plan from Hill to Long, but this
is not in the record either.
6
At oral argument, counsel for AT&T represented to the Court that, under
ERISA, Judy could not legally have removed Hill as beneficiary of the plan at the time
she changed the insurance beneficiary, and that this explains why she did not do so.
He stated that she needed Hill's permission to remove him as beneficiary for so long as
the couple was still legally married. It is true that ERISA requires spousal consent
before a participant may "waive the qualified joint and survivor annuity form of benefit
or the qualified preretirement survivor annuity form of benefit" available under certain
employee benefit plans. 29 U.S.C. § 1055(c)(1)(A)(i) (1994); see id. § 1055(c)(2)
(1994). The official plan documents are not part of the record, and we are not prepared
to conclude, based on the information we do have, that the employee savings plan at
issue here is a plan to which § 1055 applies. But even if it is, Judy could have changed
the beneficiary on the plan ten days later, when the divorce was final, or any time after
that. There is no indication in the record that Judy was not competent after the divorce.
She executed her last will and testament on July 20, 1987, eight months after the
divorce, and could have changed the savings plan beneficiary at that time. As her
illness progressed, she certainly had both the opportunity and the incentive to get her
affairs in order so that her wishes regarding the disposition of her assets would be
honored upon her death. Therefore we reject AT&T's explanation for Judy's failure to
change the beneficiary on the employee savings plan.
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indication in the record that she did so). While it is true that Judy had no post-divorce
obligations to Hill that might explain why she would choose to allocate these funds to
him, we think, "based on the record before us in this fact-driven determination,"
Mohamed, 53 F.3d at 915, it is most likely that Judy did not intend that Hill be divested
of that interest by operation of the dissolution decree.
In sum, we hold that Hill was entitled to summary judgment on his claim that
AT&T should have paid the money in Judy Hill's employee savings plan to him upon
Judy's death, and that the District Court erred in granting summary judgment to AT&T.
Under the law of this Circuit, the Hills' dissolution decree was not sufficiently specific
to divest Hill of his beneficiary interest in Judy's employee savings plan. Those funds
should have gone to John Hill, the person Judy had designated as the primary
beneficiary of the savings plan.
In an argument not raised in the District Court, AT&T contends that we owe
deference to the decision of the plan administrator and should reverse only for an abuse
of discretion. See Donaho v. FMC Corp., 74 F.3d 894, 898 (8th Cir. 1996). Under
that standard of review, the plan administrator's discretionary decisions as regards the
savings plan are reversible if they are "without reason, unsupported by substantial
evidence or erroneous as a matter of law." Id. at 900 (quoted cases omitted). As
discussed above, the decision to give Long the funds in Judy Hill's employee savings
plan despite a properly executed beneficiary designation naming someone else, if that
is indeed a discretionary decision, is nevertheless a misapplication of federal common
law in this Circuit and thus erroneous as a matter of law.
The judgment of the District Court is reversed and the case is remanded for
further proceedings consistent with our opinion.
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A true copy.
Attest:
CLERK, U. S. COURT OF APPEALS, EIGHTH CIRCUIT
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