Amicus Curiae Brief — Egelhoff v. Egelhoff

MOTION FILED

A™

MAY 15 2000 (d)

No. 99-1529

In The

Supreme Court of the United States

¢

DONNA RAE EGELHOFF,

Petitioner,

SAMANTHA EGELHOFF, a Minor, by and

through her Natural Parent Kate Breiner,

and David Egelhoff,

Respondents.

¢

On Petition For A Writ Of Certiorari

To The Supreme Court Of Washington

¢

MOTION FOR LEAVE TO FILE BRIEF AMICI CURIAE

AND BRIEF OF THE BOEING COMPANY AND THE

NATIONAL ASSOCIATION OF MANUFACTURERS

AS AMICI CURIAE IN SUPPORT OF PETITION

FOR A WRIT OF CERTIORARI

a

Bruce D. Corker

Counsel of Record

Perkins Cor LLP

1201 Third Avenue

Seattle, WA 98101-3099

(206) 583-8888

Attorneys for The Boeing

conan aed the

National Association

of Manufacturers

[Of Counsel Listed On Inside Cover]

Of Counsel:

Paut J. EHLENBACH

Assistant General Counsel

Loretta B. Kepier

Counsel

The Boeing Company

P.O. Box 3707 MC 13-08

Seattle, WA 98124-2707

(206) 655-6000

te...

Of Counsel:

Jan AMUNDSON

General Counsel

QUENTIN RIEGEL

Deputy General Counsel

National Association

of Manufacturers

1331 Pennsylvania

Avenue, NW |

Washington, DC 20004-1790 |

(202) 637-3000

MOTION FOR LEAVE TO FILE

BRIEF AMICI CURIAE

Pursuant to Rule 37 of the Court, amici curiae The

Boeing Company (“Boeing”) and the National Associa-

tion of Manufacturers (the “NAM”) move for leave to file

the accompanying brief amici curiae.

Petitioner has consented to the filing of this brief

amici curiae. The consent letter of Petitioner’s counsel is

filed herewith. Although requested by the amici curiae to

do so, Respondents have not consented to the filing of the

brief amici curiae.

The accompanying brief of the amici curiae brings the

viewpoint of sponsors and administrators of employee

benefit plans governed by the Employee Retirement

Income Security Act, 29 U.S.C. §§ 1001-1461 (“ERISA”),

concerning the issues raised by the Petition for a Writ of

Certiorari in this case.

Boeing is an aerospace company that has business

operations in 45 states and employs approximately

173,000 persons who are covered by various pension

plans and employee welfare benefit plans sponsored by

Boeing and governed by ERISA. Boeing is the sponsor of

the life insurance plan and the pension plan that pro-

vided the employee benefits at issue in this case.

The NAM represents approximately 14,000 member

companies and 350 member associations serving manu-

facturers and employees in every industrial sector in all

50 states. Members of the NAM sponsor a wide range of

employee benefit plans.

2 i

The amici curiae believe that the viewpoint of spon- TABLE OF CONTENTS

sors and administrators of ERISA-governed employee

benefit plans will provide the Court with a perspective on STATEMENT OF INTEREST ...............0-00005: 1

the issues raised in the Petition for a Writ of Certiorari

|r a a sen RS 3

which is different in many respects from the perspective | ented

of benefit claimants such as Petitioner and Respondents | I. DIVISION OF JUDICIAL AUTHORITY AS TO

in this case. WHETHER STATE LAW MAY OVERRIDE ERISA

BENEFICIARY DESIGNATIONS ADVERSELY

IMPACTS ERISA PLANS AND PLAN ADMINIS-

Amsci curlas Cupecinuly Coquadt Sas ie Sale eee eal aie aie meneame icin 3

this motion for leave to file the accompanying brief.

A. THE DECISION BELOW PLACES ERISA

Respectfully submitted, PLAN ADMINISTRATORS AT RISK OF LIA-

— BILITY FOR BREACH OF ERISA FIDUCI-

eae ae 3

Counsel of Record

Perkins Core LLP B. THE CURRENT SPLIT OF JUDICIAL

1201 Third Avenue AUTHORITY PLACES EMPLOYEE BENEFIT

Seattle, WA 98101-3099 PLANS AT RISK OF DOUBLE PAYMENT OF

(206) 583-8888 BENEFITS AND/OR ADDITIONAL LEGAL

Attorneys for The Boeing tat cidetnetncébebesegeceeuteuess 6

Company and the

National Association Il. THE DECISION BELOW FRUSTRATES ERISA’S

OBJECTIVE OF ESTABLISHING A UNIFORM

of Manufacturers NATIONAL LAW OF EMPLOYEE BENEFITS

Of Counsel: Of Counsel: | AND ADVERSELY IMPACTS ADMINISTRA-

Paut J. EHLENBACH JAN AMUNDSON | pos Be fF re 8

R — ——— Counsel General Counsel | A. THE DECISION BELOW FORCES A MULTI-

oRETTA B. KEPLER QuenTIN RIEGEL PLICITY OF STATE REGULATIONS ON

Counsel Deputy General Counsel ERISA PLAN ADMINISTRATORS.......... 10

The Boeing Company National Association

P.O. Box 3707 MC 13-08 of Manufacturers B. THE DECISION BELOW THREATENS TO

Seattle, WA 98124-2707 1331 Pennsylvania IMPOSE COMPLEX CONFLICT-OF-LAW

(206) 655-6000 Avenue, NW ISSUES ON EMPLOYEE BENEFIT PLANS.. 11

Washington, DC 20004-1790

(202) 637-3000 CONCLUSION Pee eeeseseeseseseseesesseeeseseseeeeeos 14

a

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TABLE OF AUTHORITIES

Page

Cases

Boggs v. Boggs, 520 U.S. 833 (1997)....... 2... ee eee eee 8

Emard v. Hughes Aircraft Co., 153 F.3d 949 (9th Cir.

1998), cert. denied, 525 U.S. 1122 (1999)............. 8

Fort Halifax Packing Co. v. Coyne, 482 U.S. 1 (1987) ..... 8

Hill v. AT&T Corp., 125 F.3d 646 (8th Cir. 1997) ..12, 13

Krishna v. Colgate Palmolive Co., 7 F.3d 11 (2d Cir.

GRU oo ccconcacccounwassadasgeetbegheegcoddénccdses 4

McMillan v. Parrott, 913 F.2d 310 (6th Cir. 1990)...4, 10

Metropolitan Life Ins. Co. v. Pressley, 82 F.3d 126

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BRIEF OF THE BOEING COMPANY AND THE

NATIONAL ASSOCIATION OF MANUFACTURERS

AS AMICI CURIAE 1N SUPPORT OF PETITION

FOR A WRIT OF CERTIORARI

Amici curiae The Boeing Company (“Boeing”) and the

National Association of Manufacturers (the “NAM”)

respectfully submit this brief in support of Petitioner

Donna Rae Egelhoff’s Petition for a Writ of Certiorari to

review the judgment of the Supreme Court of Washington

in this case.!

STATEMENT OF INTEREST

Boeing is an aerospace company that employs

approximately 173,000 persons in business operations

located in 45 states. Boeing sponsors various pension

plans and employee welfare benefit plans that are subject

to the provisions of the Employee Retirement Income

Security Act, 29 U.S.C. §§ 1001-1461 (“ERISA”), and that

provide benefits t» Boeing’s employees. Boeing, through

delegation of autiority to 4 committee consisting of Boe-

ing employees, acts as the administrator of these ERISA-

governed employee benefit plans. Boeing is the sponsor

of the life inswranee plan and the pension plan that

provided the employee benefits at issue in this case.

1 Counsel for a party did not author this brief in whole or in

part. No one, other than the amici curiae, or their counsel, made a

monetary contribution to the preparation or submission of this

brief. Boeing has provided Petitioner Donna Rae Egelhoff with

financial support in connection with her Petition for a Writ of

Certiorari to review the decision below.

Boeing submits this brief to highlight for the Court

the enormous practical problems created for plan admin-

istration - problems that Congress had foreseen and

sought to avoid — from state-by-state adjudication of plan

beneficiary status as contemplated by the decision below.

The decision below conflicts with ERISA and

threatens the uniformity and predictability of plan

administration. Boeing and other ERISA plan administra-

tors and sponsors are placed in an untenable state of

uncertainty by the continuing split of judicial authority

concerning the extent to which ERISA preemption offers

protection to the beneficiary designation schemes incor-

porated into employee benefit plans. If Boeing adminis-

ters its plans in accordance with the holding of the

decision below, it will place itself at risk of violating

fiduciary duties imposed by ERISA and at risk of double

payment of benefits to competing benefits claimants.

The NAM is the nation’s oldest and largest broad-

based industrial trade association. The NAM represents

14,000 members (including 10,000 small and mid-sized

companies) and 350 member associations serving manu-

facturers and employees in every industrial sector and all

50 states.

The NAM‘s mission is to enhance the competitive-

ness of manufacturers and improve American living stan-

dards by shaping a legislative and regulatory

environment conducive to U.S. economic growth and to

imecrease understanding about the importance of manufac-

turing to America’s economic strength. To this end, the

NAM participates in cases as amicus curiae to promote

fairness and efficiency in the litigation process. The inter-

pretation of legal obligations under federal statutes like

ERISA is important to all companies that must compete in

an increasingly global economy.

Boeing and the NAM also have strong interests in

having the Court review whether the decision below

erroneously constricts the scope of the uniform national

law of employee benefits intended by Congress when it

enacted ERISA. They are concerned that an overly restric-

tive application of ERISA preemption will force employee

benefit plans to use more resources on administration

and litigation costs, with fewer resources available for

benefits.

S

ARGUMENT

I. DIVISION OF JUDICIAL AUTHORITY AS TO

WHETHER STATE LAW MAY OVERRIDE ERISA

BENEFICIARY DESIGNATIONS ADVERSELY

IMPACTS ERISA PLANS AND PLAN ADMINIS-

TRATORS.

A. THE DECISION BELOW PLACES ERISA PLAN

ADMINISTRATORS AT RISK OF LIABILITY

FOR BREACH OF ERISA FIDUCIARY DUTIES.

Plan administrators, to the extent they exercise dis-

cretionary authority or control over management of

ERISA-governed plans, are fiduciaries with respect to

such plans. 29 U.S.C. § 1002(21)(A); 29 C.F.R. § 2509.75-8,

at D-3 (U.S. Department of Labor regulation stating that a

plan administrator by “the very nature of his position”

has discretionary authority and is an ERISA fiduciary).

ee

\ 4

Among the fiduciary duties expressly stated in

ERISA is the requirement that fiduciaries discharge their

duties with respect to a plan “in accordance with the

documents and instruments governing the plan insofar as

such documents and instruments are consistent with the

provisions of [ERISA].” 29 U.S.C. § 1104(a)(1)(D) (here-

inafter “Section 1104(a)(1)(D)”). Plan administrators who

breach their fiduciary duties are personally liable for any

loss to the plan and subject to such other equitable or

remedial relief as a district court may deem appropriate.

29 U.S.C. § 1109(a). With respect to a breach of fiduciary

duty, the Secretary of Labor and plan beneficiaries are

authorized to bring civil actions in district court for

appropriate relief against breaching fiduciaries. 29 U.S.C.

§ 1132(a)(3), (e)(1).

In this case, the beneficiary designation system estab-

lished in the Boeing plans is similar to such systems

commonly incorporated into ERISA plans. See, e.g.,

Krishna v. Colgate Palmolive Co., 7 F.3d 11, 12 (2d Cir.

1993); McMillan v. Parrott, 913 F.2d 310, 311 (6th Cir.

1990). That system provides for benefit payments to bene-

ficiaries designated on official beneficiary designation

forms filed with the plan administrator. Pet. App. 9a &

n.39.2

The decision of the Washington Supreme Court

below does not take issue with Petitioner’s contention

that, in the absence of the state statute at issue, Wash.

Rev. Code § 11.07.010 (hereinafter “RCW 11.07.010”), she

2 “Pet.” references pages in the Petition for a Writ of

Certiorari filed in this case, and “Pet. App.” references p2ges in

the Appendix to the Petition.

would be entitled to the plan benefits: under documents

and instruments that govern the Boeing plans. The Wash-

ington Supreme Court decision, however, minimizes the

significance of the fact that application of RCW 11.07.010

results in the payment of plan benefits to persons differ-

ent from those to whom plan benefits would be paid if

the plan documents and instruments were followed pur-

suant to Section 1104(a)(1)(D). Without further analysis,

the Washington Supreme Court observed:

Benefits under the plan remain to be distributed

in accord with the plan documents under

ERISA. While a state statute such as RCW

11.07.010 may bring the default distribution pro-

visions into effect, it does not alter the nature of

the plan itself, the administrator’s fiduciary

duties, or the requirements for plan administra-

tion.

Pet. App. 21a (footnote omitted). Having concluded that

payment of benefits to persons other than the designated

beneficiary is, nonetheless, “in accord with the plan docu-

ments under ERISA,” the Washington Supreme Court

held that Respondents “are entitled to receive the bene-

fits.” Id.; Pet. App. 28a. Without acknowledging that it

does so, the Washington Supreme Court decision finds

that RCW 11.07.010 overrides and invalidates provisions

of plan documents.

The Secretary of Labor, the federal officer mandated

to interpret and enforce the fiduciary duty provisions of

Title I of ERISA, see Pet. App. 50a, however, takes a

position contrary to that of the Washington Supreme

Court. In her amicus brief to the court below, the Secretary

stated her agreement with the line of cases represented

by Metropolitan Life Ins. Co. v. Pressley, 82 F.3d 126, 130

(6th Cir. 1996), which finds that Section 1104(a)(1)(D)

establishes “a clear mandate that plan administrators fol-

low plan documents to determine the designated bene-

ficiar’” The Pressley line of cases requires plan

administrators to follow a beneficiary designation scheme

set forth in plan documents. Pet. App. 58a. Under Press-

ley, failure to do so would violate the fiduciary obligation

stated in Section 1104(a)(1)(D).

The dilemma for ERISA plan administrators is stark.

If they comply with state laws such as RCW 11.07.010 to

override the plan’s beneficiary designation procedures,

administrators will subject themselves to risk of liability

for breach of Section 1104(a)(1)(D) fiduciary duties in

civil actions that may be brought by the Secretary of

Labor or by persons claiming benefits under the plan’s

beneficiary designation. Given the array of potential

venues open to plaintiffs under 29 U.S.C. § 1132(e)(2),

there is also @ considerable risk that such litigation may

be brought in a district court within a judicial circuit that

has adopted the rule established in the Pressley line of

cases.

B. THE CURRENT SPLIT OF JUDICIAL

AUTHORITY PLACES EMPLOYEE BENEFIT

PLANS AT RISK OF DOUBLE PAYMENT OF

BENEFITS AND/OR ADDITIONAL LEGAL

COSTS.

ERISA plan administrators are charged with the

fiduciary duty to provide benefits to plan beneficiaries |

pursuant to the provisions of the plan. 29 U.S.C.

§ 1104(a)(1)(A)(i) and (D). Administrators have the duty

to interpret plan provisions and to make decisions as to

who is entitled to receive benefits. However, in situations

' similar to those presented by the facts of this case, a

decision by an administrator to pay benefits to one com-

peting claimant puts the plan at risk of double payment

of benefits.

As pointed out by Petitioner, Pet. 26, this case pro-

vides a clear illustration of this risk. Aetna Life Insurance

Company (“Aetna”), the insurer and claims administrator

for the Boeing life insurance plan in this case, paid

$46,000 in life insurance benefits to Petitioner Donna Rae

Egelhoff in August 1994. Pet. App. 4a. This payment was

made pursuant to David Egelhoff’s beneficiary designa-

tion form and in compliance with Aetna’s ERISA obliga-

tion to act in accordance with the documents and

instruments governing the plan. Aetna is now faced with

pending litigation in which Respondents in this case are

seeking to recover the life insurance plan benefits that

Aetna paid to Petitioner more than five and a half years

ago. See Pet. 26 & n.8. If Respondents are successful in

obtaining a second payment of these benefits, there is no

certainty that Aetna will be able to recover the first

payment.

The additional costs from such double payments and

from related litigation will inevitably be reflected in

increased costs for benefit plans and an inevitable reduc-

tion in economic resources available for benefit pay-

ments.

Although employee benefit plans can avoid double

payment risks by filing interpleader actions and naming

the competing claimants as interpleader defendants, see

28 U.S.C. § 2201, interpleader actions themselves impose

economic costs and risks. As Judge Hall observed in the

Emard decision,

even this [reduced interpleader] burden might,

in the aggregate, discourage the use of inter-

pleader or similar procedural devices, disrupt

the uniform administration of ERISA plans, and

perhaps lead employers to reduce plan benefits

or eliminate some benefits altogether.

Emard v. Hughes Aircraft Co., 153 F.3d 949, 963 (9th Cir.

1998* (Hall, J., concurring in part and dissenting in part),

cert. denied, 525 U.S. 1122 (1999).

In addition to the costs of bringing interpleader law-

suits, employee benefit plans may face claims for recov-

ery of attorneys’ fees by prevailing claimants in

interpleader actions. 29 U.S.C. § 1132(g)(1).

Furthermore, if the current split of authority on the

issues in this case encourages employee benefit plans to

routinely pass the administrative decision-making tasks

to the courts through interpleader lawsuits, there will be

added social costs in the form of increased burdens on

the courts.

Il. THE DECISION BELOW FRUSTRATES ERISA’S

OBJECTIVE OF ESTABLISHING A UNIFORM

NATIONAL LAW OF EMPLOYEE BENEFITS AND

ADVERSELY IMPACTS ADMINISTRATION OF

ERISA PLANS.

In Boggs v. Boggs, 520 U.S. 833, 841 (1997), the Court

recognized that ERISA’s preemption clause, 29 U.S.C.

§ 1144, will preempt state law that “conflicts with the

provisions of ERISA or operates to frustrate its objects.”

In enacting ERISA and ERISA’s broad preemption clause,

Congress intended to provide plan sponsors and plan

administrators with the advantages of a nationally uni-

form law of employee benefits and a uniform set of

administrative procedures governed by a single set of

regulations. Fort Halifax Packing Co. v. Coyne, 482 U.S. 1,

12 (1987).

In New York State Conference of Blue Cross & Blue Shield

Plans v. Travelers Ins. Co., 514 U.S. 645, 656-57 (1995), the

Court observed:

We have found that in passing § 514(a), Con-

gress intended

“to ensure that plans and plan sponsors

would be subject to a uniform body of bene-

fits law; the goal was to minimize the

administrative and financial burden of com-

plying with conflicting directives among

States or between States and the Federal

Government . . . , [and to prevent] the

potential for conflict in substantive law . - .

requiring the tailoring of plans and

employer conduct to the peculiarities of the

law of each jurisdiction.” Ingersoll-Rand [Co.

v. McClendon], 498 U.S. [133,] at 142, 111

S.Ct. at 484 [1990].

. The basic thrust of the pre-emption clause,

then, was to avoid a multiplicity of regulation in

order to permit the nationally uniform adminis-

tration of employee benefit plans.

10

Under ERISA, a plan sponsor has discretion to incor-

porate administrative procedures into the plan docu-

ments, as long as those procedures are consistent with

ERISA’s provisions. Section 1104(a)(1)(D). Where plan

documents provide for payment of benefits to the bene-

ficiary designated on a form on file with the plan, plan

administrators merely have to review the plan’s files to

determine the proper beneficiary. The courts have recog-

nized the efficiency of this simple approach. See, e.g.,

McMillan, 913 F.2d at 312 (Pursuant to ERISA, “adminis-

trators and courts need look no further than the plan

documents to determine the beneficiary, thus avoiding

expensive litigation.”).

By taking a purported “signal” from the Court for a

“significant retreat” from ERISA preemption, Pet. App.

12a, the decision below threatens employee benefit plans

with the added burdens of the multiplicity of state regu-

lations that Congress sought to avoid.

A. THE DECISION BELOW FORCES A MULTI-

PLICITY OF STATE REGULATIONS ON

ERISA PLAN ADMINISTRATORS.

If, as the decision below finds, state law may be used

to override ERISA beneficiary designations, the adminis-

trators of employee benefit plans with participants and

beneficiaries in multiple states will be required to

develop and maintain a functional knowledge of the

applicable law of numerous states. The Boeing plan

administrators, by way of example, would need to deter-

mine whether state laws in at least 45 different states

operate to override plan beneficiary designations. The

11

administrators would need to be knowledgeable of judi-

cial and administrative interpretations of such state laws.

They would need to keep current on changes in these

laws and interpretations of these laws.

Given the mobility of the American workforce and

population, it is inevitable that even small ERISA plans

covering participants employed in a single state would

face similar burdens of multiplicity of state regulations.

Retirees with vested pension benefits often relocate in

different states with their spouses. If such a couple later

divorces and the pension plan participant dies without

changing a previously filed beneficiary form designating

the spouse, the administrator of the plan would be

required to become knowledgeable of state law of the

state of residence, with which the sponsoring employer,

the plan and the administrator may have had no previous

connection.

By contrast, a uniform national rule that allows

administrators to follow the beneficiary designation pro-

cedures adopted in governing plan documents will avoid

these burdens. This is the uniformity that Congress

intended and incorporated into the provisions of ERISA.

Section 1104(a)(1)(D); 29 U.S.C. § 1144(a).

B. THE DECISION BELOW THREATENS TO

IMPOSE COMPLEX CONFLICT-OF-LAW

ISSUES ON EMPLOYEE BENEFIT PLANS.

By finding that state law may be used to override

ERISA beneficiary designations, the decision below

threatens to impose complicated conflict-of-law issues on

ERISA plan administrators. In many instances, the facts

12

and circumstances presented to plan administrators

would provide little guidance as to which state laws

concerning beneficiary designations should be applied.

Although a seemingly endless array of hypothetical

situations could be developed, the actual facts in the case

of Hill v. AT&T Corp., 125 F.3d 646 (8th Cir. 1997), illus-

trate the potential complications that ERISA plan admin-

istrators would face if ERISA’s uniformity principle is

abandoned. The facts in Hill include the following:

(1) John and Judy Hill were married in the

State of Missouri in 1970;

(2) while married and a resident of Missouri,

Judy was employed by AT&T;

(3) thereafter the couple moved to the State of

Washington where Judy continued her

employment with AT&T;

(4) in 1979, Judy designated John as her pri-

mary beneficiary under the AT&T savings

plan on the plan’s beneficiary aed

form;

(5) in July 1986, the couple separated and John

returned to Missouri;

(6) Judy filed for divorce and a Washington

court granted a default divorce decree in

November 1986;

(7) Judy never modified her designation of

John as her beneficiary under the plan;

(8) following the divorce, Judy moved to the

State of Rhode Island, where she died in

1991 while still employed by AT&T;

13

(9) John and the contingent beneficiary listed

on the plan’s beneficiary designation form

both claimed entitlement to Judy’s plan

benefits;

(10) despite receiving notice cf these competing

claims, the plan paid benefits to the contin-

gent beneficiary;

(11) John then filed a lawsuit in Missouri, claim-

ing the benefits under the provisions of

Washington law, as it existed prior to the

adoption of RCW 11.07.010.

Id. at 647-48.

These and similar sets of facts present little adminis-

trative difficulty for plan administrators if they are able

to follow ERISA’s directive to use the beneficiary desig-

nation procedures of the plan documents. Section

1104(a)(1)(D). By contrast, if state law is permitted to

override ERISA beneficiary designation procedures, plan

administrators would repeatedly face difficult conflict-of-

law issues. Which state law would govern? What facts

would administrators have to develop to make this deter-

mination? How are those facts to be weighed? Which

state’s rules of conflicts will govern? These conflict-of-

law burdens would be in addition to whatever further

burdens may be imposed by application of substantive

state law — once the applicable state law has been deter-

mined.

To allow state law to override ERISA’s beneficiary

designation procedures will significantly erode Con-

gress’s intended national uniformity of employee benefits

law, and will impose significant administrative burdens

on plan administrators.

CONCLUSION

For the foregoing reasons, Boeing and the NAM

respectfully request the Petition for a Writ of Certiorari be

granted.

Of Counsel:

Paut J. EHLENBACH

Assistant General Counsel

P.O. Box 3707 MC 13-08

Seattle, WA 98124-2707

(206) 655-6000

May 16, 2000

Respectfully submitted,

Bruce D. Corker

Counsel of Record

Perxins Cor LLP

1201 Third Avenue

Seattle. WA 98101-3099

(206) 583-8888

Attorneys for The Boeing

Company and the

National Association

of Manufacturers

Of Counsel: _

JAN AMUNDSON

General Counsel

QuENTIN RIEGEL

Deputy General Counsel

National Association

of Manufacturers

1331 Pennsylvania

Avenue, NW

Washington, DC 20004-1790

(202) 637-3000

a ry ar a