Amicus Curiae Brief — Pressley v. Pressley

Supreme Court brief1997

Ask Donna

What actually matters in this document.

Text

> eo

| Supreme Court, Us .

: ge ee E D i

J AUS 30 t99¢ i

No. 96-176 CLF |

IN THE

Supreme Court of the Gnited States

OCTOBER TERM, 1996

MARY M. PRESSLEY,

Personal Representative for the Estate

of Alvin J. Pressley, Deceased,

Petitioner,

Vv.

METROPOLITAN LIFE INSURANCE COMPANY

AND BARBARA J. PRESSLEY,

Respondents.

On Petition for a Writ of Certiorari to the

United States Court of Appeals

for the Sixth Circuit

Brief of the American Council of Life Insurance

as Amicus Curiae in Support of the Petition

PATRICIA A. DUNN

Of Counsel STEVEN J. MINTZ

PHILLIP E. STANO (Counsel of Record)

AMERICAN COUNCIL OF JONES, DAY, REAVIS &

LIFE INSURANCE POGUE

1001 Pennsylvania Avenue, N.W 1450 G Street, N.W.

Washington, D.C. 20004 Washington, D.C. 20005

(202) 624-2183 (202) 879-3939

Counsel for Amicus Curiae

RAE OR Sten, =

QUESTION PRESENTED

Whether, as two federal circuits have held, the language of the

Employee Retirement Income Security Act of 1974 (“ERISA”)

determines the proper beneficiary of ERISA-regulated welfare

benefits, such as life insurance benefits, regardless of any conflict

with state domestic relations law, or whether the beneficiary

Should be determined, as five circuits have Suggested, by

reference to federal common law, which might give state domestic

relations orders precedence over the designated ERISA-plan

beneficiary.

fABLE OF CONTENTS

Page

EE TEM ooo so ok i

RN 5 eS a Os oo ee iv

INTEREST OF THE AMICUS CURIAE ............ l

Derspemeen Aly SUCRE... lS oe SS l

SUMMARY OF ARGUMENT .................. 2

REASONS FOR GRANTING THE PETITION ........ 3

I. THE FEDERAL CIRCUIT COURTS ARE

FUNDAMENTALLY DIVIDED ON WHETHER

ERISA ITSELF OR FEDERAL COMMON

LAW DETERMINES THE BENEFICIARY OF

ERISA-REGULATED WELFARE BENEFITS

WHEN A BENEFICIARY DESIGNATION

CONFLICTS WITH STATE DOMESTIC

erie itn cc By OO Te Si arr 3

Il. THE CURRENT CONFUSION IN THE LAW

UNDERMINES THE PURPOSES OF ERISA,

HAMPERS ERISA PLAN ADMINISTRATION,

AND RESULTS IN NEEDLESS LITIGATION ... 8

NINN ok Sr Sy ges oes ee el 2 11

TABLE OF AUTHORITIES

Page

Case3

Brandon v. Travelers Insurance. Co., 18 F.3d 1321

(Sth Cir. 1994), cert. denied, 115 S. Ct. 732

Ee eC Cee ee AE eto be oe

Equitable Life Assurance Society of the United

States v. Crysler, 66 F.3d 944 (8th Cir. 1995) .... 6, 7, 10

Estate of Altobelli v. IBM Corp., 77 F.3d 78

Ce Ce, Be 5k hE PSC eae See 8S 6,7

Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101

4, So ee oe yee a is ee oS ee ee 3

Fort Halifax Packing Co. v. Coyne, 482 U.S. 1 (1987).... 9

Fox Valley & Vicinity Construction Workers

Pension Fund v. Brown, 897 F.2d 275 (7th Cir.)

(en banc), cert. denied, 498 U.S. 820 (1990) ...... 5.7

Ingersoll-Rand Co. v. McClendon, 498 U.S. 133

ee 2c 6e see cee SR Mh ee ee ce es 8,9, 10

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

CE So BR ie ns CREME BOCA ES 4.4.9

Lyman Lumber Co v. Hill, 877 F.2d 692

ee Sa rhb ck 6's 3. 2S MCA Sed wh aS 6,7

McMillan v. Parrott, 913 F.2d 310

SE ea rie eter Gata shane Eee arene 4,9, 10

Metropolitan Life Insurance Co. v. Hanslip,

See ie Pe es RED ik ook a ows oie ween 6, 10

Metropolitan Life Insurance Co. v. Pressley,

ee aes Be Gs NE 6 eo oe es ee wa 3,4

Metropolitan Life Insurance Co. v. Wheaton,

ee a Te is BD ek a a ee oe 10

Mohamed v. Kerr, 53 F.3d 911 (8th Cir.),

cert. denied, 116 S. Ct. 185 (1995) ............ 6, 10

National Automobile Dealers and Associates

Retirement Trust v. Arbeitman, 89 F.3d 496

Ge el SE io ca RSS E A ORO ORAR ReR OO 6

ciate,

Pilot Life Insurance Co. v. Dedeaux, 481 U.S. 41

OE ev oS 8 Nas CREO Ua he ed Re. 3, 8

Shaw v. Delta Air Lines, Inc., 463 U.S. 85 (1983) ...... qy

Textile Workers Union of America v. Lincoln Mills

of Alabama, 353 U.S. 448 (1957) ............... 3

Statutes

BP Mees ee CO 25 ss oo ae ate es ee es ]

Se a 6 oe 0 53 + hack ke ee 2

SF re EE kat oa hv vee ko a 4

aes a ED 6 6 9b wok wd we eee 3,8

Legislative Materials

H. Rep. No. 533, 93d Cong., 2d Sess., reprinted

SS SSE We tas SU ssn ek Be a bee 8

siieeeiiaiaiai iii

INTEREST OF THE AMICUS CURIAE!

The American Council of Life Insurance (“ACLI”) is the

largest life insurance trade association in the United States,

representing the interests of 580 member life insurance

companies, including respondent Metropolitan Life Insurance

Company. These companies currently underwrite roughly 90.9

percent of the life insurance in force in legal reserve life

insurance companies in the United States.

ACLI member companies frequently serve as ERISA benefit

pian administrators or fiduciaries. ACLI members therefore have

a vital interest in legal questions affecting the interpretation of

ERISA, in promoting uniform and consistent rules of ERISA plan

administration, and in avoiding needless litigation over ERISA

plan issues.

STATEMENT OF THE CASE

Alvin Pressley, deceased, was an employee of General Motors

Corporation in Michigan. During. his employment, he

participated in a company life insurance plan in which the

insurance was provided by respondent Metropolitan Life

Insurance Company (“Met Life”). The plan is an “employee

welfare benefit plan” as defined by the Employee Retirement

Income Security Act of 1974 (“ERISA”), 29 U.S.C. § 1002(1)

(1994).?

On March 5, 1979, Alvin Pressley designated his wife,

respondent Barbara Pressley, as beneficiary on his life insurance

plan. On September 7, 1984, however, Alvin Pressley and

Barbara Pressley divorced. The divorce decree entered by the

Michigan state court provided, in pertinent part, that Alvin

Pressley and Barbara Pressley thereafter would own any

' The parties’ letters of consent have been filed with the Clerk pursuant

to Rule 37.2 of this Court.

? As defined in 29 U.S.C. § 1002(3), employee benefit plans are of two

types: Welfare benefit plans provide health, legal, vacation, or other

benefits, § 1002(1), and pension benefit plans provide retirement

income, § 1002(2).

ee ee

“insurance policies” “free and clear of any claim thereto by the

other,” and further provided that “any rights of either party in

any policy or contract of life, endowment or annuity insurance of

the other, as beneficiary, are hereby extinguished unless

specifically preserved by this judgment.” Pet. App. 5a-6a.’

Alvin Pressley died on June 10, 1993, without having changed

his designated beneficiary on his insurance plan. Barbara

Pressley then filed a claim with Met Life for the insurance

benefits, and Alvin Pressley’s mother, petitioner Mary Pressley,

also filed a claim for the same benefits with Met Life as Personal

Representative of Alvin Pressley’s estate. On March 30, 1994,

Met Life filed a complaint in interpleader in federal district court

and deposited the life insurance benefits with the court. The

district court granted summary judgment in favor of Barbara

Pressley on the ground that ERISA preempts Michigan domestic

relations law, Pet. App. 14a-18a, and the Sixth Circuit affirmed.

Pet App. 3a-12a.

SUMMARY OF ARGUMENT

This case raises the extent to which ERISA preempts state

domestic relations law. The petition should be granted for two

reasons. First, seven of the federal circuits are starkly and

fundamentally divided over whether ERISA itself or federal

common law, which in turn might incorporate state law,

determines the proper beneficiary of ERISA-regulated employee

welfare benefits, such as life insurance benefits, when the

employee’s designation of a beneficiary conflicts with state

domestic relations law. If ERISA itself provides the rule of

decision, state law has no role and the employee’s designated

beneficiary will receive the benefits; federal common law,

> The Sixth Circuit accepted as an undisputed fact that the divorce

decree was not a qualified domestic relations order (a “QDRO”) of the

type that is expressly exempt from ERISA preemption. Pet. App. 6a;

29 U.S.C. § 1056(d)(3) (1994). For example, the decree apparently did

not specifically identify Alvin Pressley’s insurance plan or name an

“alternate payee.” 29 U.S.C. § 1056(d)(3)(B), (C).

RN ak Poe prune ee

however, would in some cases give precedence to state domestic

relations orders over the designated beneficiary. Second, the

confusion in the law that results from this circuit split undermines

the purposes of an important federal statute, hampers ERISA plan

administration, and foments needless litigation.

REASONS FOR GRANTING THE PETITION

I. THE FEDERAL CIRCUIT COURTS ARE

FUNDAMENTALLY DIVIDED ON WHETHER

ERISA ITSELF OR FEDERAL COMMON LAW

DETERMINES THE BENEFICIARY OF ERISA-

REGULATED WELFARE BENEFITS WHEN A

BENEFICIARY DESIGNATION CONFLICTS WITH

STATE DOMESTIC RELATIONS LAW

Section 514(a) of ERISA provides that federal lew shall

supersede all state laws that relate to an ERISA plan. See 29

U.S.C. § 1144(a) (1994). Federal courts almost uniformly hold

that a designation of beneficiaries is related to an ERISA plan,

thus preempting state law. See Metropolitan Life Insurance Co.

v. Pressley, 82 F.3d 126, 129 (6th Cir. 1996) (citing cases).

But the federal circuit courts are starkly divided on the

question that logically follows the general determination of

preemption and is crucial to the parties claiming benefits under an

ERISA-regulated plan: When an employee’s designation of a

beneficiary conflicts with a state domestic relations order, does

ERISA itself determine who is the proper beneficiary, or must the

beneficiary be determined by reference to the federal common law

interpreting ERISA? See Firestone Tire & Rubber Co. v. Bruch,

489 U.S. 101, 110 (1989) (“we have held that courts are to

develop a ‘federal common law of rights and obligations under

ERISA-regulated plans’”) (quoting Pilot Life Insurance Co. v.

Dedeaux, 481 U.S. 41, 56 (1987)). Federal common law, in

turn, may incorporate or be guided by state law. See Textile

Workers Union of America v. Lincoln Mills of Alabama, 353 U.S.

448, 457 (1957).

Seven of the federal circuits have faced this question within the

past seven years, and the result is a fundamental split. The

Second and Sixth Circuits hold that ERISA itself determines the

proper beneficiary by reference to the ERISA plan documenis, so

that a divorce settlement has no effect on the decedent’s

designated beneficiary. The Fourth, Fifth, Seventh, Eighth, and

Tenth Circuits hold or suggest that ERISA is silent with respect

to determining the proper beneficiary, so that courts must look to

federal common law for the controlling rules. In some cases,

federal common law would permit a divorce settlement to operate

as a waiver of an ex-spouse’s interest in the decedent’s insurance

plan.

In the instant case, the Sixth Circuit acknowledged that “the

courts of appeals are split regarding the manner in which a

beneficiary is then determined,” Metropolitan Life, 82 F.3d at

129, but then held squarely that “ERISA itself supplies the rule

of law.” Jd. at 130. Because ERISA requires a plan

administrator to act “in accordance with the documents and

instruments governing the plan,” 29 U.S.C. § 1104(a)(1)(D)

(1994), the plan documents always control. The court based its

decision on the reasoning of McMillan v. Parrott, 913 F.2d 310

(6th Cir. 1990), where it held that “This clear statutory command

[29 U.S.C. § 1104(a)(1)(D)], together with the plan provisions,

answer the question; the documents control, and those name [the

divorced spouse].” /d. at 311-312.

The Second Circuit similarly has held that the beneficiary

designation in ERISA plan documents controls. In Krishna v.

Colgate Palmolive Co., 7 F.3d 11 (2d Cir. 1993), the court

reversed a summary judgment on the ground that the district court

should have applied the terms of an ERISA-regulated life

insurance policy rather than New York law. The Second Circuit

differed from the Sixth Circuit’s reasoning by finding that

“ERISA is indeed silent on the matter of which party shall be

deemed beneficiary among disputing claimants,” id. at 14

(internal quotation omitted), but it reached the same conclusion by

holding that, in light of the interest in uniform administration of

ERISA plans, “It would be counterproductive to compel the

Policy administrator to look beyond those [plan] designations into

varying state laws regarding wills, trusts and estates, or domestic

relations to determine the proper beneficiaries of Policy

distributions.” Jd. at 16.

In contrast, five other circuits hold or suggest that the language

of ERISA does not resolve who is the proper beneficiary, and

these courts therefore look to federal common law for the rule of

decision. This approach originated in Fox Valley & Vicinity

Construction Workers Pension Fund v. Brown, 897 F.2d 275, 280

(7th Cir.) (en banc), cert. denied, 498 U.S. 820 (1990), where

the Seventh Circuit reasoned that “ERISA is silent on the issue of

what constitutes a proper waiver” of an interest in a pension plan,

thus compelling the court to fashion a rule of federal common

law. Jd. at 280-81. The Seventh Circuit ruled that a divorced

wife effectively waived any interest in her husband’s pension plan

in a state-court divorce decree and thus was not entitled to

payment of his death benefits.

The Fifth Circuit applied the Seventh Circuit’s approach to life

insurance benefits in Brandon v. Travelers Insurance Co., 18

F.3d 1321 (Sth Cir. 1994), cert. denied, 115 S. Ct. 732 (1995).

The Fifth Circuit recognized the division of authority, stating:

“Courts . . . have split as to whether ERISA itself supplies the

rule of law or whether judges must look to federal common law

for the controlling principles.” Jd. at 1325. The Fifth Circuit

rejected the Sixth Circuit’s approach in McMillan and concluded

that “the federal common law approach outlined by the court in

Fox Valley [is] the most persuasive resolution of the issues of this

case.” Jd. at 1326. In Brandon, the federal common law

approach again resulted in a determination that a divorce decree

constituted an effective waiver of the ex-spouse’s interest in the

decedent’s life insurance.‘

* The Fifth Circuit differs from the other circuits that follow the federal

common law approach, however, because the Brandon court selected

that approach not because it found ERISA to be silent, but because

“When courts face a potential conflict between state domestic relations

The Fourth Circuit also has noted the circuit split. See Estate

of Altobelli v. IBM Corp., 77 F.3d 78, 81 (4th Cir. 1996). The

Fourth Circuit rejected the Sixth and Second Circuit approach and

“join{ed] the Seventh Circuit in holding as a matter of federal

common law that such a waiver [of ERISA plan insurance

benefits] is to be given full effect.” id. at 82.

Likewise, in the Eighth Circuit “a settlement entered into

pursuant to a judgment of dissolution may divest a former spouse

of beneficiary rights to life insurance proceeds, even when the

beneficiary designation has not been changed before the death of

the insured.” Mohamed v. Kerr, 53 F.3d 911, 914 (8th Cir.),

cert. denied, 116 §. Ct. 185 (1995). The Eighth Circuit reasoned

that it was “compelled to look to federal common law” for this

rule. Id. at 913.°

The Tenth Circuit similarly has suggested that a divorce

settlement can override an ERISA plan beneficiary designation.

See Metropolitan Life Insurance Co. v. Hanslip, 939 F.2d 904,

907 (10th Cir. 1991) (stating that “absent any applicable divorce

decree dictating otherwise,” a former spouse who was the

designated beneficiary was entitled to the decedent’s life insurance

proceeds).

The different approaches adopted by the various federal circuits

are irreconcilable. Either ERISA is silent on the determination of

the proper beneficiary, or it is not. ERISA either provides the

rule for determining the proper beneficiary, or it does not. If

law and federal law, the strong presumption is that state law should be

given precedence[.]” 18 F.3d at 1326.

° Accord, National Automobile Dealers and Associates Retirement Trust

v. Arbeitman, 89 F.3d 496, 500-01 (8th Cir. 1996); Equitable Life

Assurance Society of the United States v. Crysler, 66 F.3d 944, 948 (8th

Cir. 1995) (“29 U.S.C. § 1104(a)(1) . . . does not prescribe how to

resolve conflicting claims that the plan administrator has interpleaded”);

Lyman Lumber Co. v. Hill, 877 F.2d 692, 693 (8th Cir. 1989) (“None

of ERISA’s express provisions addresses the issue presented.”).

ERISA does provide the rule of decision by reference to the plan

documents, there can be no role for federal common law.

But plan documents versus federal common law is not the only

division of authority among the federal circuits on the issue

presented by this case. The circuits that follow the federal

common law approach are themselves inconsistent in how they

determine the proper federal common law rule.

To illustrate, the Seventh Circuit in Fox Valley reasoned that

“ERISA is silent on the issue of what constitutes a proper waiver

in this situation, and the existing body of federal common law

interpreting ERISA gives little guidance on this point.” 897 F.2d

at 280. The Seventh Circuit then adopted state law through

federal common law and followed the Illinois rule on the effect of

a divorce decree on the rights of a divorced spouse. See id. at

281. In Equitable Life Assurance Society of the United States v.

Crysler, 66 F.3d 944 (8th Cir. 1995), the Eighth Circuit similarly

adopted a rule of following the relevant state law, holding “that

the federal common law to be applied is (i) a choice-of-state-law

issue, and then (ii) an application of the relevant state law.” Jd.

at 949.

By comparison, a different panel of the Eighth Circuit

fashioned its federal common law rule not by following the law

of the relevant state, Minnesota, but by discerning the “general

rule” across multiple states. Lyman Lumber Co v. Hill, 877 F.2d

692, 693 (8th Cir. 1989). The Fifth Circuit followed Lyman

Lumber Co. “in utilizing a modified state law to breathe life into

the federal common law.” Brandon, 18 F.3d at 1326. And in

yet another variation, the Fourth Circuit apparently does not

consider state law at all, but simply follows the Seventh Circuit

rule announced in Fox Valley as the federal common law rule.

See Estate of Altobelli, 77 F.3d at 81-82.

The state of the law thus presents a classic scenario for review

by this Court: multiple federal circuits in a state of fundamental

conflict over the proper interpretation of an important federal

statute. Only this Court can resolve whether ERISA speaks to or

controls the determination of the proper beneficiary and what

role, if any, state law can have when a beneficiary designation

conflicts with a state domestic relations order.

Il. THE CURRENT CONFUSION IN THE LAW

UNDERMINES THE PURPOSES OF ERISA,

HAMPERS ERISA PLAN ADMINISTRATION, AND

RESULTS IN NEEDLESS LITIGATION

By enacting ERISA, Congress intended to subject employer

pension and welfare plans to a uniform body of federal law and

to promote efficiency and simplicity in the administration of

benefit plans.

These purposes appear most obviously in ERISA’s preemption

language, which provides that, with only a few exceptions,

ERISA “shall supersede any and all State laws insofar as they

may now or hereafter relate to any employee benefit plan[.]” 29

U.S.C. § 1144(a). This broad preemption provision is “deliber-

ately expansive, and designed to establish pension plan regulation

as exclusively a federal concern.” Pilot Life Ins. Co. v. Dedeaux,

481 U.S. at 46 (internal quotation omitted). The legislative

history of ERISA similarly makes clear that federal regulation was

intended to “eliminate[] the threat of conflicting or inconsistent

State and local regulation of employee benefit plans.” Jd.

(quoting legislative history). Accord, e.g., Ingersoll-Rand Co. v.

McClendon, 498 U.S. 133, 142 (1990) (preemption “was intended

to ensure that plans and plan sponsors would be subject to a

uniform body of benefits law; the goal was to minimize the

administrative and financial burden of complying with conflicting

directives among States or between States and the Federal

Government”).

ERISA’s legislative history and the decisions of this Court and

the federal circuit courts likewise show that Congress sought to

promote efficiency and simplicity in benefit plan administration.

“The uniformity of decision which [ERISA] is designed to foster

will help administrators, fiduciaries and participants to predict the

legality of proposed actions without the necessity of reference to

varying state laws.” H. Rep. No. 533, 93d Cong., 2d Sess.

(1973), reprinted in 1974 U.S.C.C.A.N. 4639, 4650. See also,

e.g., Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 105 n.25

(1983) (ERISA “was meant to minimize this sort of interference

with the administration of employee benefit plans”); McMillan,

913 F.2d at 312 (Congress’ intent was “that ERISA plans be

uniform in their interpretation and simple in their application”);

Krishna, 7 F.3d at 16 (“There is a strong interest in uniform,

uncomplicated administration of ERISA plans, many of which

function in a number of states.”).

The consequence of the current split in federal circuit court

authority is a state of confusion in the law that undermines the

purposes of ERISA. Most obviously, whether a former spouse

will be the proper beneficiary may vary with state domestic

relations law, even where the employer conduct is the same in

every state. “Such an outcome is fundamentally at odds with the

goal of uniformity that Congress sought to implement.”

Ingersoli-Rand, 498 U.S. at 142.

In addition, in cases where an employee divorces and then dies

without having changed his or her beneficiary designation, the

plan administrator must now examine both federal circuit court

law and, at least in several circuits, state domestic relations law

in order to determine the proper beneficiary. But this process

frustrates the statutory goals of efficiency in administration and

certainty in expectations. As this Court has explained, the costs

associated with these inefficiencies might well “lead those

employers with existing plans to reduce benefits, and those

without such plans to refrain from adopting them.” Fort Halifax

Packing Co. v. Coyne, 482 U.S. 1, 11 (1987).

The confusion in the law also works a particular hardship on

ERISA plan administrators, including the life insurance company

members of the ACLI. The benefit plans of large employers like

General Motors Corporation typically are multistate or national in

scope. ACLI member companies must thus track and discern the

law of virtually every state to determine the rule that might apply

to a particular deceased employee. But employers or plan

administrators should not have to “tailor{] plans and employer

conduct to the peculiarities of the law of each jurisdiction.”

Ingersoll-Rand, 498 U.S. at 142.

Finally, the uncertainty in the law compels rival claimants to

ERISA plan benefits, in case after case, to sue the plan

administrator or, as in this case, force the administrator to file an

interpleader or declaratory judgment action to determine the

proper beneficiary. Plan administrators must thus waste

resources on legal costs, and plan assets repeatedly are mired in

needless litigation. A clear rule would “avoid[] expensive

litigation as has occurred in the case before us.” McMillan, 913

F.2d at 312 (footnote omitted).

Only this Court can resolve the confusion created by the

federal circuits’ conflicting interpretations of ERISA. Moreover,

the issue presented by this case should be decided now: allowing

it to fester further, after seven circuits have issued conflicting

decisions, wiil only destroy any remaining uniformity of ERISA

plan administration when domestic relations issues arise and

foment additional needless litigation.

® See, e.g., Metropolitan Life Ins. Co. v. Wheaton, 42 F.3d 1080 (7th

Cir. 1994) (interpleader by insurance company); Mohamed v. Kerr,

supra (same); Equitable Life Assurance Co. v. Crysler, supra (same);

McMillan v. Parrot, supra (declaratory judgment); Metropolitan Life

Ins. Co. v. Hanslip, supra (same).

CONCLUSION

The petition for writ of certiorari should be granted.

Respectfully submitted,