Opposition Brief — Cox v. DaimlerChrysler Corp (No. 06-273)

9 FILED

No. 06-273 SEP 21 2006

! SUPREME COURT

In The

Supreme Court of the Anited States

*e

bf

MIKE COX, in his official capacity as

Attorney General of the State of Michigan;

ROBERT KLEINE, in his official capacity as

Treasurer of the State of Michigan,

Petitioners,

v.

DAIMLERCHRYSLER CORPORATION;

DAIMLERCHRYSLER-UAW PENSION AGREEMENT,

Respondents.

¢

On Petition For A Writ Of Certiorari

To The United States Court Of Appeals

For The Sixth Circuit

+

BRIEF IN OPPOSITION TO PETITION

FOR A WRIT OF CERTIORARI

*®

w

EDWARD C. HAMMOND

Counsel of Record

STEPHANIE J. CLIFFORD

CLARK HILL PLC

255 S. Old Woodward Ave., 3rd Floor

Birmingham, Michigan 48009

(248) 642-9692

Attorneys for DaimlerChrysler

Corporation and the

DaimlerChrysler-UAW

Pension Agreement

-—: a

COCKLE LAW BRIEF PRINTING CO. (800) 225-6964

OR CALL COLLECT (402) 342-2831

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iI.

QUESTIONS PRESENTED

Should the Petition be denied where Petitioners have

presented no compelling reasons to permit review

since the Sixth Circuit’s holding that Michigan’s State

Correctional Facility Reimbursement Act (SCFRA) is

preempted by ERISA because it constitutes an alien-

ation of benefits enforceable against the Daimler-

Chrysler Pension Plan dces not conflict with an

opinion of this Court or of another Court of Appeals?

Should the Petition be denied where Petitioners have

presented no compelling reasons for review because

enforcement of SCFRA is generally preempted by ER-

ISA since it requires DaimlerChrysler, a Pension Plan

fiduciary, to violate Pension Plan terms which (i) pro-

hibit the assignment and alienation of Pension Plan

benefits, and (ii) permit only its Participants to pro-

vide the Pension Plan with Participants’ address in-

formation and thus, exposes DaimlerChrysler to a

breach of fiduciary duty claim by its Participants?

ii

RULE 29.6 STATEMENT

Pursuant to this Court’s Rule 29.6, Respondents state that

DaimlerChrysler Corporation is a wholly owned subsidiary

of DaimlerChrysler North America Holding Corp., which

is, in turn, a wholly owned subsidiary of DaimlerChrysler

A.G. DaimlerChrysler-UAW Pension Agreement is not a

Corporation.

ill

TABLE OF CONTENTS

Page

QUESTIONS PRESEN ED) ccvvcrsvcvcssesoceserseesovsesensesees i

PEE ST CF EERIE aviientconnsécnccustsintesivescenevscodeats ii

TAs CF ATE scsecnesisccecencssencneesosnessoesces iv

ADDITIONAL STATUTORY PROVISIONS _IN-

PERI TEED siisvcliiiatancsbicdevinddionniiakenicetinnnntvevintiiie

COUNTER-STATEMENT OF THE CASE ................

Bea IS cid ciidnckaccieosasnnsnionnticchiaenssioertnnsnere

as - TI wan cinticredlaitnsinctictiisnicieigeres

REASONS FOR DENYING THE PETITION............

A. The Sixth Circuit Correctly Held that the

SCFRA Scheme Is Preempted by ERISA Be-

cause it Violates ERISA’s Anti-alienation

IN. isiatdcoeiidisvccceiieadidsaieteaniimententieioe

B. Asa “State Law” That “Relates to” a Pension

Plan, SCFRA Is Preempted »y ERISA............

1. ERISA Preempts the SCFRA Scheme Be-

cause the Scheme Runs Afoul of ERISA’s

Objective to Provide a Stream of Retire-

ment Income to Pensioners and Their

I sciisikiis ceectinieniiioiadetdedaiee

2. ERISA Preempts the SCFRA Scheme Be-

cause the Scheme Places an Impermissible

Administrative Burden on DaimlerChrysler,

a Pension Plan Fiduciary, Since It Requires

DaimlerChrysler to Violate Pension Plan

i bai

CPG IT cttincinbetsnddihidudonssinaebancehaielinicstnatlacnsdbiies

17

17

20

24

iv

TABLE OF AUTHORITIES

Page

CASES

Boggs v. Boggs, 520 U.S. 833 (1997) ..........ceeseeeee 2, 7, 18, 15

Bronco v. UFCW-N Cal. Employers Joint Pension

Plan, 279 F.3d ¥154 (9th Cir. 2002) .............ccccccscssesseees 15

DaimlerChrysler Corp. v. Cox, 447 F.3d 967 (6th

CO, ED ickecesisnsvccvinsissiartastetaiinesesiectaadaaeotonena sees Dassim

Egelhoff v. Egelhoff, 532 U.S. 141 (2001) ............ passim

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

CET Tiiséstavssricavsststiceidoudaaencicuaniadonsnadimemanaeia an 17, 18

General Motors Corp. v. Buha, 623 F.2d 455 (6th

Cat Se cca Aadinsccdvncinssatanenteniticicisirbesalaemietn sidan 8

Guidry v. Sheet Metal Workers Nat'l Pension Fund,

GOS WE Fee Le iitiititercenininiibiaminia passim

Reich v. Valley Natl Bank, 837 F.Supp. 1259

TEI, COO antdcicicuhesbcpumemiaraentaad 21

Roberts v. Baugh, 986 F.Supp. 1074 (E.D. Mich.

BE Ei iscsicsisitivtctstiesiaitinnbseyeeiicensientinina: 6, 13, 14, 15

Shaw v. Delta Air Lines, Inc., 463 U.S. 85 (1983)............ 17

State Treasurer v. Abbott, 660 N.W.2d 714 (Mich.

2003), cert. den., 540 U.S. 1112 (2004)... ee ceeeeees 10

United States v. Tyson, 242 F. Supp. 2d 469 (E.D.

Mich. 2003), order sustained in part, overruled in

part, 265 F. Supp. 2d 788 (E.D. Mich. 20038)...........:000 12

Walters v. Cox, 342 F.Supp. 2d 670 (E.D. on

| ESS Oe OER INSU: MCN OP ODIO ADORE Hw Ie 14

TABLE OF AUTHORITIES — Continued

Page

FEDERAL STATUTES

gE 1 REIL cee a aR cA ee ET 12

A hl perpen tsb diate 19

0 Se RSET ES SS ene oO oa 19

a OE TOP OIL cisscdetincies bsendanibiiovesnsairecdnsomncepeieneincinnens 1

ras EIAT GOINEE GOD cvicaesexsnccorevesnsccincserworbeutinssannesie 18

I a 19

IN i aa 18, 19

a 2 | SSSR a ane Res ee NE er passim

I a I ca th SasdRintnieGeaibacsinnnoebicminaieen 13

dla uluciaseill 12

SEF Grea © PIAS cic oreccasccesececcosssensennessveesesressacbaers 13

Be Vo. F AGT G) GING £6). eecsivcccsseceseivvnnvivvenecevscivecene 12

29 U.S.C. § 1104(a)(1) and 1104(a)(1MD) nrrcecscccsssesseeen 21, 23

iE POTEET UIs sscd aah cian cadhanininnsgnicecetaaneunseeaniubeee 23

gt SR |) Rees Or ER ENCODE Oe OO ONO 17, 18

8 5 | SRR etal Sl PT 17

Retirement Equity Act of 1984, Pub. L. No. 98-397,

EERE A Sr nNs Soe Doane Reem et pate 19

STATE STATUTES

Mich. Comp. Laws Ann. § 800.401 et seq. ............:cceeceseeeees 1

Mich. Comp. Laws Ann. § 800.403........0.000ccccceeeeeeeeeeees 1,3,9

Mich. Comp. Laws Ann. § 800.404..........ccccccccssesesrsees passim

TABLE OF AUTHORITIES - Continued

REGULATIONS

Treas. Reg. § 1.401(a)-13; 26 C.F.R. § 1.401(a)-13(c)(1)....... 8, 10

OTHER AUTHORITIES

Mich. Dep’t of Corr. Directive PD 04.02.105.................0008 16

ADDITIONAL STATUTORY

PROVISIONS INVOLVED

Mich. Comp. Laws Ann. § 800.404(6), of the Michigan

State Correctional Facility Reimbursement Act, provides:

If the person, corporation, or other legal entity

shall neglect or refuse to comply with an order

under subsection (3), the court shall order the

person, corporation, or other legal entity to ap-

pear before the court at such time as the court

may direct and to show cause why the person,

corporation, or other legal entity should not be

considered in contempt of court.

4

COUNTER-STATEMENT OF THE CASE

The Employee Retirement Income Security Act, as

amended (ERISA), 29 U.S.C. § 1001 et seq., is designed to

protect the interests of participants and beneficiaries in

employee benefit plans. One of the methods by which

ERISA protects participants and beneficiaries is through

its anti-alienation provision. This provision generally

prohibits any party from obtaining nghts to a participant’s

pension benefits that are enforceable against the pension

plan. 29 U.S.C. § 1056(d)(1).

The Michigan State Correctional Facility Reimburse-

ment Act (SCFRA), Mich. Comp. Laws Ann. § 800.401 et

seq., in effect allows the warden of any Michigan correc-

tional institution to garnish up to 90% of a prisoner’s

pension benefits. Mich. Comp. Laws Ann. §§ 800.401(a) and

800.403(3). The garnished funds are allegedly used to -

reimburse the State of Michigan for the cost incurred in

supporting the prisoner. When a prisoner does not voluntar-

ily assign his pension benefits to his prison account, the

statute requires that the facility warden send notice to the

relevant pension plan directing the plan to send benefits to

the institutional address. Failure to follow this directive can

subject the plan to a contempt action. Mich. Comp. Laws

Ann. § 800.404(6). Upon receipt, the funds are deposited

directly into the prisoner’s account, from which the war-

den may garnish 90% of each deposit pursuant to SCFRA.

Faced with conflicting statutory responsibilities under

ERISA and SCFRA, Respondents DaimlerChrysler and

the DaimlerChrysler Corporation-UAW Pension Agree-

ment (the “Pension Plan” or “Plan”) sought, and the

district court granted, a declaratory ruling that the Plan

did not have to comply with the SCFRA orders and notices

compelling it to send pension benefits to an incarcerated

Participant’s institutional account unless directed to do so

by the Participant. On appeal, the Sixth Circuit affirmed

the district court’s ruling and held that when under

SCFRA, a warden directs a pension plan to send pension

assets to a certain address, rather than the Participant,

then this scheme constitutes an alienation of benefits in

violation of ERISA.

Contrary to Petitioner’s representations, this ruling

presents no new issues for this Court. In fact, the holding

is in line with decisions of this Court in Guidry v. Sheet

Metal Workers Nat'l Pension Fund, 493 U.S. 365 (1990),

Boggs v. Boggs, 520 U.S. 833 (1997), and Egelhoff v.

Egelhoff, 532 U.S. 141 (2001). Petitioners argue that the

Sixth Circuit has engrafted an additional element onto the

Treasury definitions of “assignment” and “alienation” by

concluding that an alienation occurs when the prisoner

does not voluntarily designate receipt of his pension

3

benefit at a particular place. Petitioners argue, further,

that this results in the prisoner’s ability to disregard

prison directives and maintain a private bank account

outside the prison.

However, the Sixth Circuit has not expanded the

definition of assignment at all. Its holding states that the

diversion of pension benefits to the State of Michigan before

the inmate actually receives them, under SCFRA, consti-

tutes an alienation under ERISA, 29 U.S.C. § 1056(d)(1)

and federal case law interpreting that provision. Moreover,

there is nothing in the Sixth Circuit’s decision or in the

Plan that allows inmates to maintain private bank ac-

counts in violation of prison directives.

A. Background

DaimlerChrysler established and maintains the

Pension Plan for the benefit of eligible participants, former

employees, and their beneficiaries. Alvin Jenkins, Harold

Swanson, Gerald Cotter, and Jessy Mathews (collectively,

“Participants”) who are Participants in the Pension Plan

are incarcerated at Michigan State correctional facilities.

DaimlerChrysler is a Pension Plan fiduciary with a duty to

comply with Pension Plan terms and to act in the best

interest of the Participants.

Petitioner, State Treasurer, currently Robert Kleine,

filed separate actions against Participants pursuant to

SCFRA, Mich. Comp. Laws Ann. §§ 800.403, 800.404,

seeking Participants’ Pension Plan benefits to reimburse

expenses incurred by the State while Participants are

incarcerated. Respondents were not named in these actions.

The State’s courts issued four separate orders requiring

Participants to notify DaimlerChrysler Corporation of their

4

current legal addresses for purposes of receiving pension

benefits, and requiring that all pension benefits be mailed

by check made payable to the Participant at his Michigan

correctional facility address. DaimlerChrysler Corp. v. Cox,

447 F.3d 967, 969 (6th Cir. 2006); Pet. App. 4a. If a Par-

ticipant fails or refuses to follow the court’s order, the

order requires the warden at such facility to serve a copy

of the order on “Chrysler Corporation” along with a certifi-

cation of the Participant’s address. Each order provides

that such “certification” from the warden to Daimler-

Chrysler is to “serve as notification to Chrysler Corpora-

tion of the [Participant’s] legal address” where he is to

receive Pension Plan benefits. Jd. at 970; Pet. App. 5a.

Finally, each order states that the warden is ordered to

make monthly distributions to the State of Michigan from

the Participant’s prison account. in an amount equal to

90% of any assets (including pension benefits) which are

received and deposited into the account. Jd.; Pet. App. 5a.

The sole purpose of the orders, as correctly determined by

the Sixth Circuit, is to direct the Participants’ Pension Plan

benefits directly to the warden (via the Participant’s prison

account) for the State’s use. /d. at 975; Pet. App. 15a.

After State court orders were issued, Michigan’s

Attorney General, Mike Cox, acting in his official capacity,

sent DaimlerChrysler three notices, along with each

respective order. The notices indicated that Participants

Jenkins, Swanson, and Mathews “refused to sign the

certification of [their] legal address as required by the

[attached] Court’s Order” and therefore, the warden is

notifying DaimlerChrysler of their prison address. Jd. at

970; Pet. App. 5a-6a. The notices direct DaimlerChrysler

to send all Pension Plan benefits to a Participant’s prison

address. /d., Pet. App. 6a.

5

Throughout this litigation, Petitioners have raised the

State’s ability to enforce the notices against the Plan.

Indeed, SCFRA’s penalty provision states:

If the person, corporation, or other legal entity

shall neglect or refuse to comply with an order

under subsection (3), the court shall order the

person, corporation, or other legal entity to ap-

pear before the court at such time as the court

may direct and to show cause why the person,

corporation, or other legal entity should not be

considered in contempt of court.

Mich, Comp. Laws Ann. § 800.404(6). And, Petitioner’s

lower court pleadings have also referenced and acknowl-

edged DaimlerChrysler’s obligation to comply by stating,

“Plaintiffs should be held in contempt of Court,” “Plaintiffs

are obligated to follow the written notice of address change

. ,” and “(T]he Plan is expected to acknowledge the

address change, whether that notice is received from the

prisoner or the warden.” See, R. 10, Defendants’ Answer to

Complaint, 7; R. 29, Defendants’ Response to Plaintiffs’

Motion for Declaratory Judgment, p. 3; Defendants-

Appellants’ Brief on Appeal to the Sixth Circuit, p. 21, § 1.3.

Rather than comply with the Attorney General’s

notices, DaimlerChrysler continued to follow ERISA and

Pension Plan terms which (i) prohibit the assignment and

alienation of benefits and (ii) provide that only a Partici-

pant may direct DaimlerChrysler to change kis address.

DaimlerChrysler, 447 F.3d at 970; Pet. App. 6a. Relevant

Pension Plan terms in Section 14 provide, “[a]ny attempt

to alienate, sell, transfer, assign, pledge or otherwise

encumber [benefits payable under the Pension Plan],

whether presently or thereafter payable, shall be void.” Jd.

6

at 971; Pet. App. 7a. The Pension Plan states that benefits

cannot “devolve upon anyone else.” Jd.; Pet. App. 7a.

B. Proceedings Below

_ Faced with conflicting obligations under ERISA and

SCFRA, Respondents sought a declaratory judgment to

clarify their responsibilities. The Sixth Circuit affirmed

the district court’s ruling granting Respondents’ Motion for

Declaratory Judgment on the basis that the SCFRA orders

and notices are preempted by ERISA’s anti-alienation

provision; 29 U.S.C. § 1056(d)(1). The Sixth Circuit stated:

We therefore affirm the district court’s holding

that the SCFRA orders and notices are void to

the extent that they direct DaimlerChrysler to

send benefits to an address not designated by a

beneficiary. The state may still send the notices,

but DaimlerChrysler is not obligated to comply

with them.

DaimlerChrysler, 447 F.3d at 975; Pet. App. 15a. The Sixth

Circuit found it unnecessary to rule on Respondents’

argument that the SCFRA scheme was generally pre-

empted by ERISA because it related to the terms of the

Pension Plan. Moreover, the Sixth Circuit did not agree

with Respondents’ arguments of stare decisis, collateral

estoppel, and res judicata, in light of Roberts v. Baugh, 986

F. Supp. 1074 (E.D. Mich. 1997), a case involving the same

parties and deciding the same issues as are raised in this

case.

REASONS FOR DENYING THE PETITION

The Sixth Circuit’s opinion held that, as applied in

this case, SCFRA is preempted by ERISA because it

constitutes an alienation of benefits enforceable against

the Pension Plan in violation of ERISA. This holding

presents no new issues to this Court. Contrary to Petition-

ers’ assertion, the Sixth Circuit’s decision conforms with

precedent of this Court and other Courts of Appeals.

Moreover, the SCFRA scheme constitutes a state law that

relates to an ERISA plan and is thus, generally preempted

by ERISA.

A. The Sixth Circuit Correctly Held that the

SCFRA Scheme Is Preempted by ERISA Be-

cause it Violates ERISA’s Anti-alienation pro-

vision.

ERISA prohibits the assignment end alienation of a

pension plan benefit. ERISA’s anti-alienation provisions

provide, in part:

Each pension plan shall provide that benefits

provided under the plan may not be assigned or

alienated.

29 U.S.C. § 1056(d)(1). As more fully explained below, thi

SCFRA scheme reflected in the orders and notices violates

the above provisions because: (i) it is an “assignment”

pursuant to the applicable Treasury Regulation interpret-

ing ERISA’s anti-alienation provisions; and (ii) it is an

assignment pursuant to Guidry and Boggs, decisions of

this Court, interpreting ERISA’s anti-alienation provi-

sions.

8

Pursuant to its authority to promulgate regulations

interpreting ERISA’s anti-alienation provision, the Secre-

tary of the Treasury issued Regulation § 1.401(a)-13.

General Motors Corp. v. Buha, 623 F.2d 455, 462 (6th Cir.

1980) (explaining that the Department of Treasury has

authority to promulgate regulations under ERISA and

that Treas. Reg. § 1.401(a)-13 is the applicable definition

of “assignment” when construing ERISA’s anti-alienation

provisions). The Treasury Department regulation defines

“assignment” to include direct as well as indirect ar-

rangements and states:

(ii) Any direct or indirect arrangement (whether

revocable or irrevocable) whereby a party ac-

quires from a participant or beneficiary a right or

interest enforceable against the plan in, or to, all

or any part of a plan benefit payment which is, or

may become, payable to the participant or benefi-

ciary. ae

26 C.F.R. 1.401(a)-13(c)1) (emphasis added). The SCFRA

scheme effectuates an “assignment” according to the above

definition.

First, the SCFRA scheme reflected in the notices and

related orders is an “indirect arrangement whereby [the

warden (a State representative)] acquires from a partici-

pant or a beneficiary a right or interest ... in, or to, all or

part of a plan benefit which is, or may become, payable to

the participant or beneficiary.” 26 C.F.R. § 1.401(a)-

13(c(1). Upon receipt of the notices, DaimlerChrysler is

required to change the Participant’s address to the Par-

ticipant’s prison address or be held in contempt of Court.’

' DaimlerChrysler, pursuant to Plan terms, does not change

Participant’s address information (even if it has knowledge that the

(Continued on following page)

9

Mich. Comp. Laws Ann. § 800.404(6). If, pursuant to the

notices, DaimlerChrysler is required to change the Par-

ticipant’s address, then all subsequent Pension Plan

payments to the prison address constitute a direct (or at a

minimum, an indirect) “transfer” of benefits directly into

the hands of the State of Michigan before distribution to

the Participant. This is illustrated by the language in the

order which states that the warden is required to make

monthly distributions to the State of Michigan from the

prison account in an amount equal to 90% of any assets

which are received_and deposited in the account. Daimler-

Chrysler, 447 F.3d at 970; Pet. App. 5a; see also, Mich.

Comp. Laws. Ann. § 800.403(3). The inescapable conclu-

sion is that if the orders and notices are enforced against

the Pension Plan, the State Treasurer receives 90% of the

Pension Plan benefit and neither the Participant nor his

dependents ever receive or have access to that portion of the

benefits.

Petitioners argue that because the funds are deposited

into a prison account in the name of the prisoner and then

disbursed to the State, there is no alienation. Petitioners

do not dispute that the benefits ultimately end up in the

hands of the State. Yet, they have never explained why

this does not constitute an indirect arrangement pursuant

to the Treasury Regulation. The Sixth Circuit rejected

Petitioners’ position and held that the SCFRA scheme

“operate[s] on plan benefits before they are sent.” Daim-

lerChrysler, 447 F.3d at 974; Pet. App. 13a. The appeals

court explained that if the notices are enforced they divert

Participant’s address has changed) without direction from the Partici-

pant to do so.

ee ee te me oe ee ee ee ee

' 10

benefits against the participants’ wishes prior to distribu-

tion. Id.’

Petitioners contend that the Sixth Circuit’s disregard

of State Treasurer v. Abbott, 660 N.W.2d 714 (Mich. 2003),

cert. den., 540 U.S. 1112 (2004), was misguided. In Abbott,

the Michigan Supreme Court held that money deposited in

the prison account had not been transferred to another

person and thus no alienation occurred. The Sixth Circuit

found Abdott unpersuasive since the prisoners did not

want to receive benefits at the prison address and upon

receipt at the prison the state owned 90% of the payments

before they were effectively received by the prisoner.

Abbott declined to follow the Treasury Department’s

definition of “assignment” and clear precedent from this

Court in Guidry v. Sheet Metal Workers Nat’l Pension

Fund, 493 U.S. 365 (1990), discussed later in this section.

The SCFRA scheme also meets the second part of

Tres. Reg. § 1.401(a)-13(c)(1), “assignment” definition

because the State’s interest in the Participants’ pension

benefits is “enforceable against the plan” through the

notices, related orders and SCFRA’s contempt provision.

As the Sixth Circuit held:

* Petitioners confuse the Court by representing that the issue is

whether an illegal assignment of benefits under ERISA can occur after

distribution. Respondents recognize that there is a circuit court split on

that issue. Whether an alienation can occur after distribution of

benefits was not the issue before the Sixth Circuit and is not the issue

before this Court. The parties in this case dispute whether a procedure

for distribution of benefits that is forced onto the Plan by a non-

participant and subsequent garnishment of benefits, constitute a

violation of ERISA’s anti-alienation provision.

11

If we were to hold that DaimlerChrysler must

comply with the SCFRA nctices, we would be

creating a legal obligation enforceable against

the Pension Plan. The state’s interest in 90% of

the pension benefits would then be enforced

through notices instructing the Pension Plan to

send the prisoner’s benefit payments to an ac-

count controlled by the warden, which would con-

stitute an alienation of plan assets.

DaimlerChrysler, 447 F.3d at 975; Pet. App. 15a. Indeed,

Petitioners also admit that the “State court orders affect{ |

where the Plan delivers benefits ...” Pet. 7. In addition,

SCFRA, provides, in part:

(6) if the person, corporation, or other legal en-

tity shall neglect or refuse to comply with an or-

der ... , the court shall order the person,

corporation, or other legal entity to appear before

the court at such time as the court may direct

and to show cause why the person, corporation,

or other legal entity should not be considered in

contempt of court.

Mich. Comp. Laws Ann. § 800.404(6). In accordance with

this provision of SCFRA, DaimlerChrysler could be held in

contempt for failing to follow the SCFRA orders and

notices. Thus, the Sixth Circuit found that SCFRA through

the orders and notices is an alienation of benefits that is

enforceable against the Plan.

This Court’s holding in Guidry also supports this

conclusion. In Guidry, this Court held that a constructive

trust imposed by the district court on a participanis

pension benefits violated ERISA’s anti-alienation provi-

sions because the trust ran contrary to the policy of

Congress to protect a stream of income for the participant

12

and his beneficiaries. Guidry, 493 U.S. at 372. The dispute

arose after the participant embezzled a large sum of

money from a union. The union obtained a judgment

against the participant and the district court imposed a

constructive trust on the participant’s pension plan bene-

fits. The participant argued that the constructive trust

violated ERISA’s anti-alienation provisions.

This Court agreed with the participant and reasoned

that ERISA’s anti-alienation provisions reflect a “consid-

ered congressional policy choice, a decision to safeguard a

stream of income for pensioners (and their dependents,

who may be, and perhaps usually are, blameless)[.]” Jd. at

376. It concluded that carving out any exception to ER-

ISA’s anti-alienation provisions should be left to Congress

— even in instances of employee malfeasance or criminal

misconduct — and held that the imposition of a construc-

tive trust on the participant’s pension plan benefits vio-

lated ERISA’s anti-alienation provisions. Jd. at 376.°

The Pension Plan, like the plan in Guidry, is an

ERISA plan that includes the anti-alienation provision

required by ERISA. In Guidry, the constructive trust was

imposed before the benefits were received essentially

* Congress has not carved out an exception to ERISA’s anti-

alienation provisions for SCFRA. Congress has carved out some

exceptions, but none of those exceptions apply to this case. See, e.g., 29

U.S.C. § 1056(d)(4) and (5) (permitting an ERISA plan fiduciary,

pursuant to a judgment or settlement, to offset benefits due to a

participant’s wrongdoing involving the ERISA plan); 29 U.S.C.

§ 1056(d)(3) (providing for an exception to ERISA’s anti-alienation

provisions for a “qualified domestic relation order”), United States v.

Tyson, 242 F. Supp. 2d 469 (E.D. Mich. 2003), order sustained in part,

overruled in part, 265 F. Supp. 2d 788 (E.D. Mich. 2003) (holding that

Congress had created an exception to ERJSA’s anti-alienation provi-

sions pursuant to Mandatory Victims Restitution Act, 18 U.S.C. § 3613).

13

forcing the plan to assign the benefits to a third party. In

this case, the SCFRA scheme is also imposed on the Plan

before the benefits are received by the Participant result-

ing in an assignment of benefits to the State. The SCFRA

orders and notices attempt to carve out an exception to

ERISA’s anti-alienation clause, which Guidry expressly

prohibits. Jd. at 376. Because the notices require Respon-

dents to send a Pension Plan benefit into the hands of a

State representative (if the Participants do not notify

Petitioners of their prison address), they run contrary to

ERISA’s anti-alienation provisions and are preempted by

ERISA. To follow the analysis of this Court in Guidry,

there is “no meaningful distinction between a writ of

garnishment and [the SCFRA scheme] imposed in this

case.” Id. at 372.

The Sixth Circuit’s decision is also in accord with this

Court’s decision in Boggs v. Boggs, 520 U.S. 833 (1997). In

Boggs, this Court held that a testamentary transfer of

certain undistributed pension benefits violated ERISA’s

anti-alienation provision. In so holding, this Court stated,

“ERISA’s pension plan anti-alienation provision is manda-

tory and contains only two explicit exceptions, see

§§ 1056(d)(2), (d)(3)(A), which are not subject to judicial

expansion.” Jd. at 851. The Sixth Circuit correctly prohib-

ited Petitioners from attempting a judicial expansion of

exceptions to the ERISA anti-alienation provision through

enforcement of the SCFRA scheme against the Pension

Plan.

The Eastern District of Michigan followed the Guidry

decision in Roberts v. Baugh, 986 F.Supp. 1074 (E.D.

Mich. 1997), which (like the Sixth Circuit) held that the

14

SCFRA scheme is an assignment and alienation and is

preempted by ERISA.’ The reasoning in Baugh served as

the basis for the district court’s ruling in the case at hand.

Baugh held that the same SCFRA scheme in this case

violated ERISA’s anti-alienation provisions and was

preempted by ERISA. Baugh, 986 F. Supp. at 1077. The

Baugh Court stated:

The Court agrees that once pension benefits are

placed in a personal account, ERISA no longer

operates to protect those funds. * * * However, in

the instant case, defendant Chrysler Corp. would

not be voluntarily depositing the pension funds

into [the participant’s] personal prisoner account

but would be doing so only by court order. Such

an involuntary transfer clearly constitutes an as-

signment. |

Moreover, the United States Supreme Court held

that the involuntary transfer of ERISA benefits

is prohibited under the anti-alienation clause.

* * * Because ERISA does not permit an invol-

untary assignment, plaintiffs’ request for reim-

bursement under SCFRA violates ERISA and is

therefore preempted.

Baugh, 986 F. Supp. at 1077 (emphasis added) (citations

omitted). Just as in Baugh, Petitioners attempt, by way of

the SCFRA scheme, to require DaimlerChrysler to send a

- See also, Walters v. Cox, 342 F. Supp. 2d 670 (E.D. Mich. 2004). In

Walters, Mike Cox, in his official capacity as Attorney General for the

State of Michigan, was a named defendant. The court pointed out that a

Michigan Circuit Court Order under SCFRA (like the orders at issue

here) “violates the anti-alienation provisions of ERISA and is therefore

preempted.” Jd. at 675 (citing Baugh) (other citation omitted).

15

Pension Plan payment to the warden through the Partici-

pants’ prison acc -*nts, Id.

In accordar. with Guidry, Boggs, and Baugh, the

Sixth Circuit properiy determined that the SCFRA scheme

reflected in the orders and notices effectuates alienation of

the Participants’ Pension Plan benefits into the hands of

the Petitioners prior to distribution and is therefore,

preempted by ERISA. See, 29 U.S.C. § 1056(d)(1) and

Bronco v. UFCW-N Cal. Emplrs. Joint Pension Plan, 279

F.3d 1154, 1160 (9th Cir. 2002) (court order preempted

because it conflicted with ERISA’s anti-alienation provi-

sion).

Petitioners rely on the holding in Wright v. Riveland,

219 F.3d 905, 910-911 (9th Cir. 2000), to argue there is a

circuit split that should concern this Court. Petitioner’s

argument is without merit because the Wright case is

easily distinguished from the facts at hand. In Wright,

neither an ERISA fiduciary or an ERISA plan (like Re-

spondents in this case) was subject to the garnishment

action or was otherwise being ordered to take any action

prior to or at the time benefits were distributed. Therefore,

no enforceable interest against the plan existed. Instead,

the garnishment at issue occurred after distribution and

the Ninth Circuit found this fact determinative. Jd. at 921.

Unlike Wright, Respondents are being ordered (pursuant

to the notices and orders) to act prior to distribution, and if

they do not act, may be subject to a contempt action

brought by the Attorney General, creating an enforceable

interest against the Pension Plan.

Petitioners misstate the facts and the law of this case

by stating that the Participant’s prison address is “the

only place he can physically and legally receive [benefits].”

16

Pet. 17. While Michigan Department of Corrections

Directive PD 04.02.105 provides that prisoners are to have

an institutional account and no other bank accounts, it

does not state that the only place a prisoner may receive

pension benefits is at the institution. Going even a step

further, Petitioners argue that the Sixth Circuit provides

prisoners with “additional rights” by allowing them to

maintain a private bank account. Pet. 5. This conclusion is

simply unsupported. The Sixth Circuit ruling makes no

affirmative statement regarding maintenance of private

bank accounts. It only addressed the present SCFRA

scheme and found it violated ERISA. DaimlerChrysler

sends pension benefit checks as directed by the Partici-

pant, not necessarily to a private bank account. In fact the

Sixth Circuit stated:

[Wle are not rendering the state incapable of

seeking reimbursement using a prisoner’s pen-

sion benefits. Once the benefit payments are re-

ceived, even if the prisoner tries to conceal them

in an illegal account, the state can take action

against the prisoner by placing a constructive

trust on those already-paid funds. The state

must, however, wait for the Pension Plan to send

the benefit payments at the direction of the pris-

oner before the state encumbers those payments.

To do otherwise would violate both the letter and

the spirit of ERISA’s anti-alienation provision

(which, at a minimum, prohibits the attachment

of a debtor’s pension plan benefits while still con-

trolled by the pension plan) and the terms of the

Pension Plan forbidding the benefits from devolv-

ing upon others.

DaimlerChrysler, 447 F.3d at 976; Pet. App. 16a.

2 a —_ —

17

The Sixth Circuit properly determined that the

SCFRA scheme reflected in the orders and notices effectu-

ates an illegal assignment of the Participants’ Pension

Plan benefits into the hands of the Petitioners. Accord-

ingly, this Court should deny the Petition.

B. As a “State Law” That “Relates to” a Pension

Plan, SCFRA Is Preempted by ERISA.

ERISA expressly provides that its provisions shall

“supercede any and all State laws insofar as they may now

or hereafter relate to any employee benefit plan [subject to

ERISA].” 29 U.S.C. § 1144(a) (emphasis added). A “State

law” includes “all laws, decisions, rules, regulations, or

other State action having the effect of law, of any State.”

29 U.S.C. § 1144(c)(1). This Court has made clear that the

words “relate to” should be construed expansively and that

a “law ‘relates to’ an employee benefit plan ... if it has a

connection with or reference to such a plan.” Shaw v. Delta

Air Lines, Inc., 463 U.S. 85, 96-97 (1983). Egelhoff v.

Egelhoff, 532 U.S. 141, 147 (2001), explained that a state

law “relates to” an ERISA plan and therefore ERISA

preemption of a state law exists, if the nature and effect of

the state law stands as an obstacle to the objectives of

ERISA. Id. at 147.

1. ERISA Preempts the SCFRA Scheme Be-

cause the Scheme Runs Afoul of ERISA’s

Objective to Provide a Stream of Retire-

ment Income to Pensioners and Their De-

pendents.

As aptly stated by this Court in Fort Halifax Packing

Co. v. Coyne, 482 U.S. 1, 8-9 (1987) (citations omitted), “in

18

any pre-emption analysis, ‘the purpose of Congress is the

ultimate touchstone.’” The intent of Congress in enacting

ERISA’s broad preemption provision was to “‘round out

the protection afforded participants by eliminating the

threat of conflicting and inconsistent State and local

regulations.’” Fort Halifax, 482 U.S. at 9 (citing 120 Cong.

Rec. 29197 (1974)). Congress intended that all state laws

which “relate to” ERISA plans be preempted so that

ERISA fiduciaries can meet their obligations under ERISA

without having to contend with state laws which conflict

or are contrary to such obligations. Jd.

The Pension Plan is an “employee benefit plan”

subject to ERISA. 29 U.S.C. § 1002(2) and (3). The SCFRA

orders and notices are “State laws” that “relate to” the

Pension Plan. The effect of the SCFRA scheme is to (i)

assign the Participants’ Pension Plan benefits to the State

in violation of ERISA, and (ii) require DaimlerChrysler, a

Pension Plan fiduciary to breach its fiduciary duty te

comply with Pension Plan terms. The SCFRA scheme

stands as an obstacle to ERISA’s objective to provide a

stream of income for the Participants and their beneficiar-

ies. The SCFRA scheme also stands as an obstacle to

ERISA’s objective to provide ERISA fiduciaries with a

uniform administrative scheme by superceding all “State

laws” which conflict with ERISA. 29 U.S.C. § 1144(a);

Egelhoff, 532 U.S. at 147; Guidry, 493 U.S. at 376.

Petitioner’s emphasis on Michigan’s interest in obtain-

ing reimbursemc.it for the cost of housing inmates ignores

the fact that Congress enacted ERISA to protect not only

participants, but also their beneficiaries. It is a fundamen-

tal tenet of ERISA that earned pensions be available at

retirement for pensioners and dependents. 29 U.S.C.

§ 1056(d); Guidry, 493 U.S. at 376. ERISA accomplishes

19

that policy by requiring that ERISA pension plans include

anti-alienation provisions.” 29 U.S.C. §1056(d). The

Pension Plan at the center of this case does so. Guidry

reiterated the clear intent of Congress that such pensions

may not be assigned or alienated:

Section 206(d) reflects a considered congressional

policy choice, a decisior. to safeguard a stream of

income for pensioners (and their dependents who

may be, and perhaps usually are, blameless),

even if that decision prevents others from secur-

ing relief from the wrongs done them. If excep-

tions to policy are to be made, it is for Congress

to undertake that task.

Guidry, 493 U.S. at 376.

The importance of protection of dependents is also

reflected in the Retirement Equity Act of 1984 (“REA”),

Pub. L. No. 98-397, 98 Stat. 1426. REA amended ERISA

and the Internal Revenue Code to require that tax quali-

fied defined benefit pension plans (as is the Pension Plan)

provide benefits to a participant’s spouse in the f- -n of a

joint and 50% survivor annuity (i.e., “qualified joint and

survivor annuity”), unless waived by the spouse. 29 U.S.C.

§ 1055(d); 26 U.S.C. § 417.

In this case, the SCFRA scheme reflected in the orders

and notices may deprive a Participant’s spouse of “joint”

Pension Plan benefits to which they may be entitled under

ERISA’s qualified joint and survivor annuity provisions,

ignoring the economic partnership of marriage and the

* The Internal Revenue Code also governs the Pension Plan and

such qualified pension plans contain anti-alienation provisions. 26

U.S.C. § 401(a)(13)

20

contribution of the spouse. The orders assign up to 90% of

the Participants’ undistributed pension benefits to the

State and may unduly punish a spouse for the actions of

the Participant.

In sum, the SCFRA scheme reflected in the orders and

notices runs contrary to congressional intent to protect a

stream of income for the Participants and their depend-

ents through ERISA’s anti-alienation provisions (as well as

its joint annuity provisions), and is thus preempted.

2. ERISA Preempts the SCFRA Scheme Be-

cause the Scheme Places an Impermissible

Administrative Burden on DaimlerChrys-

ler, a Pension Plan Fiduciary, Since It Re-

quires DaimlerChrysler to Violate Pension

Plan Terms.

Pension Plan terms prohibit the assignment and

alienation of a Pension Plan benefit. Additionally, Pension

Plan terms require the Participant to provide Daimler-

Chrysler with address information. Relevant Pension Plan

terms are quoted at Pet. 23-24 and DaimlerChrysler, 447

F.3d at 971; Pet. App. 6a-7a. If DaimlerChrysler changes a

Participant’s address to his prison address, it breaches its

fiduciary duty to follow Pension Plan terms prohibiting the

assignment and alienation of a Pension Plan benefit. The

notices, therefore, place an impermissible administrative

burden on DaimlerChrysler, since they bind Daimler-

Chrysler to a particular set of state rules (contrary to

Pension Plan terms and ERISA) to determine where a

Pension Plan payment is sent. Egelhoff, 532 U.S. at 147-

148.

21

ERISA requires a fiduciary, such as DaimlerChrysler,

to follow Pension Plan terms and act in the sole interest of

the Participants. 29 U.S.C. §§ 1104(a)(1) and 1104(a)(1)(D);

Egelhoff, 532 U.S. at 147. More than one court has noted

that a “fiduciary’s duties under ERISA are ‘the highest

known to the law’” Reich v. Valley Nat'l Bank, 837 F. Supp.

1259, 1273 (S.D.N.Y. 1993). DaimlerChrysler, an ERISA

Pension Plan fiduciary, is bound by the terms of the Pen-

ston Plan. DaimlerChrysler cannot change a Participant’s

address to his prison address (or to any other address)

unless directed to do so by the Participant.

In Egelhoff, this Court held that ERISA preempted a

Washington statute which, upon divorce, automatically

divested an ex-spouse of any ERISA plan benefits to which

she may be entitled pursuant to a participant’s beneficiary

designation. Egelhoff, 532 U.S. at 143. The dispute in

Egelhoff arose when a divorced plan participant died

without having changed his beneficiary designation, which

named his ex-spouse. The participant’s heirs and the

participant’s ex-spouse both claimed the pension plan

benefits. The Washington statute would have entitled the

participant’s heirs to his pension benefits, because it

operated to automatically revoke the participant’s benefi-

ciary designation upon divorce. The pension plan, however,

provided that benefits were to be distributed to the par-

ticipant’s designated beneficiary, which entitled the ex-

spouse to the participant’s pension benefits. Jd. at 146-147.

This Court concluded that the Washington statute

was preempted because it attempted to force ERISA plan

fiduciaries to follow a particular choice of rules in deter-

mining a participant’s beneficiary. Jd. at 147. Specifically,

this Court stated:

22

The administrators must pay benefits to the

beneficiaries chosen by state law, rather than

~~ those identified in the plan documents. The stat-

ute thus implicates an area of core ERISA con-

cern. 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 in-

struments governing the plan,” § 1104(a)(1)(D), mak-

ing payments to a beneficiary “who is designated by

a participant, or by the terms of [the] plan.”

§ 1002(8).

Egelhoff, 532 U.S. at 147-148 (citations omitted) (emphasis

added).

In this case, relevant Pension Plan terms in Section

14 provide; “[aJny attempt to alienate, sell, transfer,

assign, pledge or otherwise encumber {benefits payable

under the Pension Plan], whether presently or thereafter

payable, shall be void.” Daimler€hrysler, 447 F.3d at 971;

Pet. App. 7a. The Pension Plan states that benefits cannot

“devolve upon anyone else.” Jd. The Summary Plan De-

scription provided to each Participant provides that if a

Participant’s address changes he “should notify Benefit

Express at 1-800-409-3300 ... ” Jd. The Participant must

have a password to pass through the Benefit Express

phone system and accomplish the address change. Id.

As in Egelhoff, this Court should conclude that ERISA

preempts the SCFRA scheme because it attempts to bind

DaimlerChrysler to a particular choice of state rules

(which are contrary to Pension Plan terms) in determining

a Participant’s address. Egelhoff, 532 U.S. at 147-148. As

Petitioner states, “it is the prison security restrictions that

dictate where to send the funds.” Pet. 7. But, Pension Plan

23

terms require the Participant (and no one else) to provide

an address to the Pension Plan. Finally, Pension Plan anti-

alienation terms expressly provide that no benefit payable

shall “devolve upon anyone else.” Jd.

Petitioners cite Michigan Department of Correction

Directives in support of their position that the orders and

notices do no more than provide DaimlerChrysler with a

Participant’s “legal” address. Because ERISA preempts all

“State laws” which “relate to” the Pension Plan, 29 U.S.C.

§ 1144, it is irrelevant what the orders and notices and the

Michigan Directive provide regarding a Participant’s

“legal” address.” Pension Plan terms govern Daimler-

Chrysler’s actions with respect to a Participant’s address.

29 U.S.C. § 1104(a)(1) and 1104(a)(1\D); Egelhoff, 532

U.S. at 147-148.

Petitioners’ position also ignores DaimlerChrysler’s

fiduciary duty under ERISA to follow Pension Plan terms

that expressly prohibit “any attempt” to effectuate an

assignment of “any kind.” DaimlerChrysler cannot change

a Participant’s address because to do so would effectuate

an assignment in violation of Pension Plan anti-alienation

terms and ERISA. Thus, the SCFRA scheme relates to the

Plan by forcing it to take some action contrary to ERISA

and Pension Plan terms. SCFRA is, therefore, preempted

by ERISA.

a

* Aclose look at the cited Directives shows that while they prohibit

an inmate from holding a bank account outside of the institution, they

do not-prohibit benefits sent to a home address from being kept by the

inmate’s spouse or dependents. Therefore, Petitioners’ assertion that

the Sixth Circuit’s ruling allows an inmate to maintain an illegal bank

account, does not logically follow.

24

CONCLUSION

This Court should deny the Petition because the Sixth

Circuit properly held that ERISA preempts SCFRA orders

and notices, and any similar orders or directives, because

they violate ERISA and Pension Plan terms which prohibit

the assignment and alienation of a Pension Plan benefit.

Because the SCF'RA scheme reflected in the orders and

notices is a “State law” that “relates to” the Pension Plan

and the nature and effect of the notices and orders stands

as an obstacle to, or runs contrary to, ERISA’s anti-

alienation provisions (to protect a stream of income for the

Participants and their dependents), it is preempted by

ERISA. Egelhoff, 532 U.S. at 147. Alternatively, the

SCFRA scheme is preempted by ERISA since it requires

DaimlerChrysler, a Pension Plan fiduciary, to violate

Pension Plan terms and could subject DaimlerChrysler to

a breach of fiduciary duty claim by its Participants.

Respectfully submitted,

EDWARD C. HAMMOND

(admission pending)

Counsel of Record

STEPHANIE J. CLIFFORD

(admission pending)

CLARK HILL PLC

255 South Old Woodward Ave.,

3rd Floor

Birmingham, MI 48009-6179

(248) 642-9692

Attorneys for DaimlerChrysler

Corporation and the DaimlerChrysler-

UAW Pension Agreement