Walsh v. Montes

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New Mexico Compilation
Commission, Santa Fe, NM
'00'05- 15:23:50 2017.02.02
IN THE COURT OF APPEALS OF THE STATE OF NEW MEXICO
Opinion Number: 2017-NMCA-015Filing Date: November 14, 2016
Docket No. 34,254
RENEE WALSH as PERSONAL
REPRESENTATIVE OF THE ESTATE
OF DONA LU SNYDER and
RENEE WALSH, INDIVIDUALLY and
GEORGE WALSH, INDIVIDUALLY and as
HEIRS and DEVISEES, TO THE ESTATE OF
DONA LU SNYDER,
Plaintiffs-Appellants,
v.
ALEXANDRO MONTES,
Defendant-Appellee.
APPEAL FROM THE DISTRICT COURT OF DOÑA ANA COUNTY
James T. Martin, District Judge
Kenneth L. Beal, P.C.
Kenneth L. Beal
Las Cruces, NM
for Appellants
Estrada Law, P.C.
Michele Ungvarsky
Las Cruces, NM
for Appellee
OPINION
ZAMORA, Judge.
{1} Alexandro Montes (Defendant), as the named beneficiary of Dona Lu Snyder’s
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savings and investment plan, received the proceeds of that plan after Snyder’s death.
Snyder’s estate and children (collectively Plaintiffs), brought suit, seeking recovery of the
proceeds. The parties reached a stipulated agreement. Subsequently, Defendant moved to
strike the stipulated agreement and to dismiss Plaintiffs’ action under Rule 1-012(B)(6)
NMRA for failure to state a claim on which relief could be granted. The district court found
that Plaintiffs’ claims were preempted by the Employee Retirement Income Security Act of
1974 (ERISA), 29 U.S.C. §§ 1001 to 1461 (1974, as amended through 2012), and granted
both motions. We reverse and remand to the district court for enforcement of the stipulated
agreement.
BACKGROUND
{2} Snyder was employed by Raytheon Company beginning in 1979. In 1992, Snyder
and Defendant were married and Snyder designated Defendant as the beneficiary on the
Fidelity Savings and Investment plan (Fidelity plan), offered through Raytheon. In 1997,
Snyder and Defendant divorced. Under their marital settlement agreement, Defendant agreed
that Snyder would retain ownership of her retirement benefits. The marital settlement
agreement was incorporated by reference into the final divorce decree. However, Snyder
never removed or replaced Defendant as the named beneficiary on the Fidelity plan.
{3} Upon Snyder’s death in 2013 Defendant received the proceeds of the Fidelity plan.
On March 24, 2014, Plaintiffs filed suit in the district court attempting to recover the
proceeds. Plaintiffs claimed that they were entitled to the proceeds of the Fidelity plan
because (1) Defendant waived his interest in Snyder’s retirement benefits in the marital
settlement agreement between him and Snyder; (2) under NMSA 1978, Section 45-2-804
(2011), an unaffirmed, pre-divorce beneficiary designation is invalid; and (3) equity justifies
the creation of a constructive trust because Defendant was not the intended beneficiary of
the Fidelity plan.
{4} On April 21, 2014, the parties filed a stipulated agreement in the district court. Under
the agreement, Defendant agreed to transfer the proceeds to Plaintiffs, and Plaintiffs agreed
to dismiss their claim. The parties agreed that the proceeds would be transferred to Plaintiffs
“collectively or individually as directed by [the district c]ourt.” The stipulated agreement
was signed by all parties and filed in the district court. Then, in May 2014 Defendant
obtained new counsel and moved to strike the stipulated agreement. Defendant also moved
to dismiss Plaintiffs’ action under Rule 1-012(B)(6) for failure to state a claim on which
relief could be granted.
{5} At a hearing on the motions, Defendant argued that Plaintiffs’ action was preempted
by ERISA and should be dismissed. Defendant claimed that because he did not know that
Plaintiffs’ action was preempted when he entered into the stipulated agreement, the
agreement should be set aside. The district court agreed with Defendant and granted both of
Defendant’s motions. This appeal followed.
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DISCUSSION
Dismissal Pursuant to Rule 1-012(B)(6)
{6} “A motion to dismiss for failure to state a claim tests the legal sufficiency of the
complaint, not the factual allegations of the pleadings which, for purposes of ruling on the
motion, the court must accept as true.” Herrera v. Quality Pontiac, 2003-NMSC-018, ¶ 2,
134 N.M. 43, 73 P.3d 181 (internal quotation marks and citation omitted). “A district court’s
decision to dismiss a case for failure to state a claim under Rule 1-012(B)(6) is reviewed de
novo.” Delfino v. Griffo, 2011-NMSC-015, ¶ 9, 150 N.M. 97, 257 P.3d 917 (internal
quotation marks and citation omitted). On review, “we accept all well-pleaded factual
allegations in the complaint as true and resolve all doubts in favor of sufficiency of the
complaint.”Id. (internal quotation marks and citation omitted). Under Rule 1-012(B)(6),
dismissal is appropriate only if the non-moving party is “not entitled to recover under any
theory of the facts alleged in their complaint.” Delfino, 2011-NMSC-015, ¶ 12 (internal
quotation marks and citation omitted).
{7} Here, Plaintiffs advanced three theories under which they were entitled to relief: (1)
waiver of Defendant’s right to the Fidelity plan proceeds in the divorce decree; (2)
revocation of Defendant’s beneficiary designation under Section 45-2-804; and (3) creation
of a constructive trust, recognizing Plaintiffs as beneficial owners of the proceeds in equity.
The district court found that state law concerning the distribution of the proceeds of the
Fidelity plan is preempted by ERISA. Specifically, the district court found that “ERISA
preempts the state statute” and that imposing a constructive trust would be an “end run on
the federal law.” Based on these findings, the district court concluded that, as a matter of
law, Plaintiffs could not prevail. We disagree.
{8} Under ERISA, every employee benefit plan must be established and maintained
pursuant to a written instrument that specifies the basis on which payments are made to and
from the plan. 29 U.S.C. § 1102(a)(1), (b)(4). ERISA obligates administrators to pay ERISA
plan benefits to the named beneficiary. See § 1104(a)(1)(D) (requiring ERISA plan
administrators to “discharge [their] duties . . . in accordance with the documents and
instruments governing the plan”). Under ERISA, any and all state laws are preempted
“insofar as they may now or hereafter relate to any employee benefit plan.” § 1144(a), (c)(1).
{9} Here, the district court’s determination that Plaintiffs’ claims were preempted was
based on the United States Supreme Court’s decision in Boggs v. Boggs, that a state law
permitting a testamentary transfer of an interest in the undistributed ERISA plan benefits was
preempted. 520 U.S. 833, 851-52 (1997). Boggs is distinguishable from the case before us.
In Boggs, the plan participant designated his first wife as the beneficiary of his ERISA plan.
Id. at 836. His first wife died, bequeathing her community property interest in the
undistributed pension plan funds to the couple’s sons. Id. at 836-37. The participant
remarried before retiring. Id. at 836. Upon retirement, he received a lump sum distribution
of his pension plan, which he rolled over into an IRA; shares of stock from the company’s
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employee stock ownership plan; and a monthly annuity payment. Id. at 836. After his death,
the participant’s sons contested the right of the second wife to the corpus and interest on the
IRA, arguing that the earlier testamentary gift from the first wife vested ownership of a
portion of the IRA in the sons. Id. at 836-37. The Court held that the state law permitting the
testamentary transfer of a nonparticipant spouse’s community property interest in
undistributed pension plan benefits was preempted by ERISA, explaining that operation of
the state law would have resulted in the diversion of plan benefits without the participant’s
consent. See id. at 851-52. Unlike the case before us, Boggs did not involve a beneficiary’s
waiver of benefits and the Court did not address the issue.
{10} In Kennedy v. Plan Administrator for DuPont Savings & Investment Plan, 555 U.S.
285 (2009), the Court considered whether an ERISA plan administrator had a duty, pursuant
to ERISA’s plan documents rule, to follow the participant’s beneficiary designation where
the designated beneficiary was the participant’s former spouse who signed a waiver of
benefits as part of the divorce decree. See id. at 300-04. The Court held that ERISA required
the plan administrator to distribute the benefits to the named beneficiary in accordance with
the plan documents. Id. at 304. However, the Court explicitly left open the question of
whether, once the benefits are distributed, the participant’s estate may enforce the waiver
against the beneficiary. See id. at 299 n.10 (“[W]e [do not] express any view as to whether
the [participant’s e]state could have brought an action in state or federal court against [the
participant’s former spouse] to obtain the benefits after they were distributed.”). “[C]ourts
interpreting Kennedy have observed that the Court may have closed one door to litigation
against plan administrators but it may well have opened another to litigation between family
or former family members.” Estate of Kensinger v. URL Pharma, Inc., 674 F.3d 131, 134
(2012) (internal quotation marks and citation omitted); see Smalley v. Smalley, 399 S.W.3d
631, 638 (2013) (same); see also Staelens ex rel. Estate of Staelens v. Staelens, 677 F. Supp.
2d 499, 507 (D.Mass. 2010) (same).
{11} Defendant relies on Hillman v. Maretta, ___U.S. ___, 133 S. Ct. 1943 (2013), for the
proposition that neither state law nor waiver can frustrate a federal choice of beneficiary
either before or after distribution, suggesting that the Court answered in Hillman the question
it expressly left open in Kennedy. We are not persuaded. In Hillman, the Supreme Court
considered whether a post-distribution state law claim was preempted by the Federal
Employees’ Group Life Insurance Act (FEGLIA), 5 U.S.C. § 8701 (2012). Under FEGLIA,
federal employees’ 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 determined that the
FEGLIA order of precedence preempted a Virginia statute that allowed the plan participant’s
new spouse to recover insurance policy proceeds from the plan participant’s former spouse
who was the named beneficiary. Hillman, ___ U.S. at ___,133 S. Ct. at 1948-49, 1953. The
Court observed that the state statute “displaces the beneficiary selected by the insured in
accordance with FEGLIA and places someone else in her stead[,]” thereby frustrating “the
deliberate purpose of Congress to ensure that a federal employee’s named beneficiary
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receives the proceeds.” Id. at 1952 (internal quotation marks and citation omitted).
{12} Because Hillman required an analysis of a post-distribution claim under FEGLIA,
it is readily distinguishable. FEGLIA includes a statutory order of precedence, intended by
Congress to achieve the substantive goal of making sure that employees enjoy complete
freedom in designating a beneficiary to whom death benefits would belong. Hillman, ___
U.S. at ___, 133 S. Ct. at 1952. “FEGLIA’s implementing regulations further underscore that
the employee’s right of designation cannot be waived or restricted.” Id. (internal quotation
marks and citation omitted); see 5 C.F.R. § 843.205(e) (2016). By contrast, ERISA does not
include a statutory order of precedence, and its regulations do not expressly prohibit the
waiver or restriction of beneficiary designations. See 29 U.S.C. § 1104; 29 C.F.R. §
2590.606-1 (2015). This reflects ERISA’s distinct purpose, which is to simply ensure that
employers and plan administrators act in accordance with the plan’s written terms. See
Kennedy, 555 U.S. at 301 (“The point is that by giving a plan participant a clear set of
instructions for making his own instructions clear, ERISA forecloses any justification for
enquiries into nice expressions of intent, in favor of the virtues of adhering to an
uncomplicated rule: simple administration, avoiding double liability, and ensuring that
beneficiaries get what’s coming quickly, without the folderol essential under less-certain
rules.” (alterations, internal quotation marks, and citation omitted)).
{13} Moreover, Hillman like Boggs involved the preemption of a state statute but did not
address whether a waiver of benefits can be enforced against the beneficiary once the ERISA
plan benefits are distributed. Thus, it appears that the question of whether Plaintiffs can sue
to enforce Defendant’s waiver of benefits in the present case is still open. See Estate of
Lundy v. Lundy, 352 P.3d 209, 213-14 (Wash. Ct. App. 2015) (recognizing that “in the
context of waiver by private agreement between the parties[,]” Kennedy still “signals that
the propriety of postdistribution claims for ERISA benefits is an open question”), review
denied, 361 P.3d 746 (Wash. 2015).
{14} We conclude that Plaintiffs’ theory—that Defendant waived his right to the Fidelity
plan proceeds in the divorce decree—remains a viable legal theory and a valid claim against
Defendant. Taking all facts in Plaintiffs’ complaint as true, Plaintiffs have stated a claim
under their waiver theory on which they can proceed in this case. Accordingly, we conclude
that the district court erred in determining that Plaintiffs could not prevail as a matter of law.
Because Plaintiffs have stated a claim against Defendant under the waiver theory, which is
sufficient to defeat a Rule 1-012(B)(6) motion, we need not address whether Plaintiffs’ other
asserted theories are viable. See Delfino, 2011-NMSC-015, ¶ 12 (“Dismissal on [Rule 1-
012(B)(6)] grounds is appropriate only if the plaintiff is not entitled to recover under any
theory of the facts alleged in their complaint.” (alteration, internal quotation marks, and
citation omitted)).
{15} We further conclude that the district court erred in setting aside the parties’ stipulated
agreement. In support of his motion to strike the stipulated settlement agreement, Defendant
asserted that he only entered into the agreement because he believed that Plaintiffs had a
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viable claim to the Fidelity plan proceeds. The district court found that Plaintiffs’ claim was
not viable, and as a result, it concluded that the stipulated settlement agreement was based
on a mistake of law that rendered the settlement agreement unenforceable and that the
agreement lacked consideration. Plaintiffs have stated a valid claim and preemption was not
a valid basis to set aside the parties’ settlement agreement. We therefore conclude that the
district court erred in granting Defendant’s motion to strike the stipulated agreement since
the sole basis for that decision was the district court’s erroneous conclusion that Plaintiffs’
stated claim was not viable.
CONCLUSION
{16} For the foregoing reasons, we reverse the district court’s dismissal under Rule 1-
012(B)(6), and remand to the district court for further proceedings consistent with this
Opinion.
{17} IT IS SO ORDERED.
___________________________________
M. MONICA ZAMORA, Judge
WE CONCUR:
____________________________________
RODERICK T. KENNEDY, Judge
____________________________________
TIMOTHY L. GARCIA, Judge
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