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Vanderkam v. Pension Benefit Guaranty Corporation

United States District Court, District Circuit

May 7, 2013

JOHN VANDERKAM and GAYLYN DIERINGER, Plaintiffs,
v.
PENSION BENEFIT GUARANTY CORPORATION and MELISSA VANDERKAM, Defendants.

MEMORANDUM OPINION

ROBERT L. WILKINS, District Judge.

Upon his retirement from the Huffy Corporation in August 1994, John VanderKam began receiving benefits under the Huffy Corporation Retirement Plan in the form of a Joint and 100% Survivor Annuity. At that time, John was married to Melissa VanderKam, whom he had designated as the survivor beneficiary under the Plan. John and Melissa divorced eight years later, and, after remarrying Gaylyn Dieringer in February 2003, John sought to substitute Gaylyn as the survivor beneficiary under his retirement plan through a Domestic Relations Order ("DRO") entered by a Texas state court.[1] The Plan initially approved the DRO as a Qualified Domestic Relations Order ("QDRO") and substituted Gaylyn as an alternate survivor beneficiary. In 2005, however, the Pension Benefit Guaranty Corporation ("PBGC") became statutory trustee of the Plan, and in the course of reviewing John's benefit payments, PBGC determined that Gaylyn's purported substitution as an alternate beneficiary was invalid and that Melissa remained the survivor beneficiary under the Plan.

Through this action, John and Gaylyn (collectively, "Plaintiffs") seek reversal of PBGC's determination under Section 502(a)(1)(B) of the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. § 1132(a)(1)(B), arguing that PBGC's decision was arbitrary and capricious in violation of the Administrative Procedure Act ("APA"), 5 U.S.C. §§ 551, et seq. Alternatively, Plaintiffs argue that, even if the Court upholds PBGC's decision, the Court should impose a constructive trust under Texas common law on any survivor benefits received by Melissa under the Plan. In response to Plaintiffs' summary judgment motion, both PBGC and Melissa have cross-moved for summary judgment, urging the Court, respectively, to uphold PBGC's determination and to reject Plaintiffs' alternative claims for relief.

Upon careful consideration of the parties' briefing and a thorough review of the Administrative Record, and based on the arguments of counsel during the hearing on April 29, 2013, the Court concludes that PBGC's decision is both reasonable and reasonably explained, and the Court also finds that Plaintiffs' claims against Melissa under Texas state common law are preempted by ERISA's statutory scheme. As a result, and for the reasons more fully set forth herein, the Court will DENY Plaintiffs' Motion for Summary Judgment (Dkt. No. 43), and will GRANT PBGC's and Melissa's Cross-Motions for Summary Judgment (Dkt. Nos. 46, 47).

BACKGROUND

On August 1, 1994, John retired from his employment with the Huffy Corporation. (Administrative Record ("AR") 34). Through his position with Huffy, John was a participant in the Huffy Corporation Retirement Plan (the "Plan"), and, prior to his retirement, he elected to receive his Plan benefit as a joint-and-100%-survivor annuity and designated his then-wife, Melissa, as the survivor beneficiary. (AR 34-36). This benefit is a considered a "Qualified Joint and Survivor Annuity" ("QJSA") for purposes of ERISA and the Internal Revenue Code. See 29 U.S.C. § 1055(a)(1).[2] Upon retirement, John began receiving payouts under the Plan.

John and Melissa divorced approximately eight years later, in March 2002, and a final decree of divorce was entered in Texas state court. (AR 232). Pursuant to this decree, John was awarded "as his sole and separate property" all rights "related to any... pension plan... existing by reason of [his] past, present, or future employment." (AR 250).

In March 2003, John married Gaylyn, and he sought to designate Gaylyn as an alternate payee for the survivor benefits under the Plan. To this end, John petitioned a Texas state court for a DRO-the substance of which had been drafted by the Plan's legal counsel. (AR 24-26, 274). Melissa objected to and opposed John's efforts in those proceedings, arguing that she did not disclaim any interest in the Plan as part of the prior divorce decree. The Texas court ultimately approved the DRO, concluding that Melissa "waived her entitlement to the survivor annuity" as part of the divorce decree; that the divorce decree "divested [Melissa] of all interest and rights to [John's] Retirement Benefit with the Huffy Corporation, including specifically the survivor annuity portion of the Retirement Benefit"; and that John "wishes to designate a beneficiary with respect to the survivor annuity portion of the Retirement Benefit." (AR 24). The DRO proceeded to name Gaylyn as an alternative payee, explaining that she "is entitled to the survivor annuity portion of the Retirement Plan distribution in accordance with the provisions of the Plan. The survivor annuity portion of the Retirement Benefit remains unchanged and is calculated based upon the life expectancies of [John] and [Melissa]." (AR 24).

The Plan's legal counsel determined that the DRO issued by the Texas state court was a valid QDRO for purposes of ERISA, and the Plan administrator thus designated Gaylyn as an alternate payee with respect to the survivor benefits in August 2003. (AR 43).

In August 2005, the Plan terminated, at which time PBGC became its statutory trustee.[3] Around that time, it appears that PBGC reduced the amount of John's monthly benefit payment, and John subsequently requested a review of his benefit payments by letter dated February 15, 2006. (AR 360). Ultimately, PBGC completed its review of John's benefits and notified him of its determination in September 2008. (AR 277-283). PBGC increased John's monthly benefit payment from $2, 839.45 to $4, 317.09, but in the course of examining John's file, PBGC also determined that Melissa, and not Gaylyn, was the proper beneficiary for the survivor annuity benefits under the Plan. (AR 277-283). John contacted PBGC seeking clarification on this beneficiary determination, and PBGC responded via letter on December 11, 2008, explaining:

PBGC policy is as follows: The survivor annuity that becomes payable under this policy to a surviving spouse will only be paid to the spouse if he or she was married to the participant on the participant's annuity starting date. The participant's spouse continues to be entitled to the survivor annuity even if the participant and that spouse are not married on the date of the participant's death. A participant may designate any living person as the beneficiary of an optional joint-life annuity form. The beneficiary may not be changed after the first payment date.

(AR 284).[4] In February 2009, John formally requested an "initial determination" from PBGC, under 29 C.F.R. §§ 4003.21 and 4003.51, "concerning its change to [his] beneficiary designation for the survivor portion of his annuity retirement benefits." (AR 287-290). PBGC responded via letter on February 26, 2009, advising John as follows:

As mentioned in our previous letter dated 12/11/2008, PBGC is unable to change the designation of beneficiary made by the Participant. At the time of the participant's retirement which was 08/01/1994, he elected a Joint and 100% Survivor Annuity with Melissa VanderKam.
A spousal waiver can only occur at the participant's date of retirement in order to be a valid waiver. Once the benefit election is implemented, it cannot be changed or waived after the first payment has been made. Therefore, the Divorce Decree dated 03/15/2002, the Order for Clarification and Modification dated 7/30/2003, all of which are dated after the participant's date of retirement have no affect [sic] on Melissa VanderKam's entitlement and eventual receipt of the survivor annuity.

(AR 310-311).

John and Gaylyn then initiated this lawsuit against PBGC on October 7, 2009. (Dkt. No. 1). About two months later, on December 18, 2009, PBGC formally responded to John's request for an "initial determination, " advising that although it "initially declined to issue such a determination, ... upon further consideration, PBGC has decided that your request for issuance of a determination is reasonable." (AR 27-33). Therein, PBGC explained its conclusion that the domestic relations order issued by the Texas state court did not constitute a valid QDRO under ERISA, and that Melissa's purported waiver and disclaimer of the survivor annuity benefit under the Plan was ineffective. (AR 27-33). This action was then stayed while Plaintiffs exhausted their administrative remedies with PBGC, ( see Dkt. Nos. 7, 8), until the PBGC Appeals Board ultimately upheld the initial determination in a letter dated November 24, 2010, (AR 2-22). Plaintiffs then filed a First Amended Complaint, (Dkt. No. 10), and PBGC moved to join Melissa as a required party under Federal Rule of Civil Procedure 19, (Dkt. No. 20). The Court granted PBGC's motion on February 7, 2012, (Dkt. No. 30), and Plaintiffs then filed a Second Amended Complaint adding Melissa as a defendant on February 21, 2012, (Dkt. No. 32).

Through their Second Amended Complaint, Plaintiffs challenge and seek reversal of the PBGC Appeals Board's determination pursuant to 29 U.S.C. § 1303(f)(1) ( Count I ), and they also allege that the Appeals Board's determination violates ERISA's "anti-cutback rule, " 29 U.S.C. § 1054(g) ( Count II ). In addition, Plaintiffs assert a number of claims against Melissa under Texas state common law: a claim seeking a declaratory judgment, pursuant to 28 U.S.C. § 2201(a), that John has equitable title to the survivor annuity benefits under the Plan ( Count III ); a claim for unjust enrichment, asking the Court to impose a constructive trust on any survivor benefits received by Melissa under the Plan ( Count IV ); and a claim for anticipatory breach of contract ( Count V ). The parties settled on a briefing schedule for cross-motions for summary judgment, and the Court subsequently heard arguments from the parties during a hearing on April 29, 2013, at which time it took the matter under advisement.

ANALYSIS

This action presents two distinct sets of issues for the Court's review. First, the Court must consider Plaintiffs' challenge to the PBGC Appeals Board's decision, determining whether the Appeals Board reasonably and appropriately concluded that Melissa, and not Gaylyn, remains the proper beneficiary of the survivor annuity benefits under the Plan, based on ERISA's statutory framework and the terms of the Plan itself. Second, if the Court upholds the Appeals Board's determination, the Court must consider whether it can and should impose a constructive trust, under Texas common law, over any benefits received by Melissa pursuant to the Plan. The Court takes each of these issues in turn.

A. The PBGC Appeals Board's Determination

Several aspects of the Appeals Board's decision are implicated by Plaintiffs' claims. First, Plaintiffs challenge PBGC's determination that the DRO they obtained is not a valid QDRO because it would provide a "type of form of benefit... not otherwise provided under the plan, " in contravention of ERISA section 206(d)(3)(D)(i). See 29 U.S.C. § 1056(d)(3)(D)(i). Second, Plaintiffs challenge PBGC's conclusion that Melissa could not have waived her survivor benefit through a QDRO, in any event, because her survivor benefits irrevocably vested upon the annuity starting date and therefore could not be divested through a subsequent DRO. While PBGC addressed these issues in this sequence-and while the parties' briefing largely adheres to the same structure-the Court believes it more appropriate to first resolve the issue of whether Melissa's survivor benefits were vested (and, consequently, not waivable or assignable), before turning to analyze whether the DRO issued by the Texas state court was a valid QDRO. Finally, the Court considers Plaintiffs' ...


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