Opinion
No. 1060 MDA 2007.
Filed: May 9, 2008.
Appeal from the Order of May 16, 2007, in the Court of Common Pleas of York County, Orphans Court Division at No. 67-06-01327.
¶ 1 This is an appeal from an order which, in effect, granted Appellee's Petition for Citation ("Petition"). We vacate and reverse.
¶ 2 On February 16, 2007, William Sauers ("Sauers"), the administrator of the Estate of Paul J. Sauers, III ("Estate"), filed the Petition in the Orphans' Court Division of the Court of Common Pleas of York County ("trial court" or "court"). In the Petition, the Estate averred as follows.
¶ 3 Effective June 1, 1997, the Hartford Life Insurance Companies ("Hartford") issued a group insurance plan ("Policy") to C.S. Davidson, which was the policyholder for its employees. Paul J. Sauers, III ("Decedent"), was a C.S. Davidson employee. In June of 1998, Decedent married Appellant. Later that same year, Decedent named Appellant as the primary beneficiary of the Policy and his nephew, Ian Rehn ("Rehn"), as the contingent beneficiary. In June of 2002, Decedent and Appellant divorced. Decedent died in September of 2006. Later that month, Sauers received Letters of Administration from the Register of Wills. On June 8, 2007, a C.S. Davidson representative informed Hartford of 20 Pa.C.S.A. § 6111.2, a provision of the Pennsylvania Probate, Estate, and Fiduciary Code which, the Estate argued, renders ineffective the designation of a decedent's ex-spouse as the beneficiary of, inter alia, the decedent's life insurance policy.
¶ 4 Hartford nonetheless distributed the proceeds of the Policy according to the Policy's plain language, i.e, to Appellant as the named primary beneficiary. The Estate took the position that, pursuant to Section 6111.2, Appellant was required to transfer the proceeds to Rehn. Consequently, in the Petition, the Estate requested the trial court to issue a rule on Appellant to show cause why she should not relinquish her right, title, and interest in the Policy proceeds to the benefit of Rehn.
¶ 5 In response to the Petition, Appellant filed preliminary objections, arguing, inter alia, the Orphans' Court lacked subject matter jurisdiction over this matter and Sauers lacked the capacity to sue on behalf of the Estate. On April 25, 2007, Appellant filed an answer to the Petition, as well as a new matter. In the new matter, Appellant claimed that the Policy is governed by the Employer Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001 et seq. Appellant contended that ERISA preempts 20 Pa.C.S.A. § 6111.2 and, therefore, that she was the proper recipient of the Policy proceeds. In making this contention, Appellant relied upon Egelhoff v. Egelhoff, 532 U.S. 141 (2001). On the same day, Appellant filed a motion to dismiss based, in part, upon the same ground raised in her new matter.
¶ 6 On April 27, 2007, the trial court issued an order overruling Appellant's preliminary objections. On May 11, 2007, the court conducted a hearing at which it denied Appellant's motion to dismiss. On May 16, 2007, the court entered an order, which, in effect, granted the Petition. The order specifically required Appellant to deliver to her counsel the proceeds of the Policy. The order further required Appellant's attorney and the Estate's attorney to establish an interest-bearing account for the benefit of Rehn.
¶ 7 This timely appeal followed. In her brief to this Court, Appellant asks us to consider three questions, which we paraphrase as follows:
1. Whether the trial court erred by determining that ERISA does not preempt 20 Pa.C.S.A. § 6111.2?
2. Whether the trial court erred by denying Appellant's preliminary objection, wherein she claimed that Sauers lacks the capacity to sue on behalf of the Estate?
3. Whether the trial court erred by denying Appellant's preliminary objection, wherein she claimed that the Orphans' Court lacked subject matter jurisdiction over this matter?
¶ 8 Under her first issue, Appellant renews her argument that ERISA preempts 20 Pa.C.S.A. § 6111.2. "The standard of review in a case involving the proper interpretation and interplay of statutes is clear: these are questions of law subject to plenary review." C.B. ex rel. R.R.M. v. Commonwealth, Department of Public Welfare, 786 A.2d 176, 180-81 (Pa. 2001).
¶ 9 ERISA states, in part, that "a fiduciary shall discharge his duties with respect to a plan solely in the interest of the participants and beneficiaries and . . . in accordance with the documents and instruments governing the plan[.]" 29 U.S.C. § 1104(a)(1)(D) (emphasis added). ERISA further provides, "[ERISA] shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan" governed by ERISA. 29 U.S.C. § 1144(a).
¶ 10 The state law at issue in this case, Section 6111.2 of the Pennsylvania Probate, Estate, and Fiduciary Code, states:
Effect of divorce on designation of beneficiaries
If a person domiciled in this Commonwealth at the time of his death is divorced from the bonds of matrimony after designating his spouse as beneficiary of a life insurance policy, annuity contract, pension or profit-sharing plan or other contractual arrangement providing for payments to his spouse, any designation in favor of his former spouse which was revocable by him after the divorce shall become ineffective for all purposes and shall be construed as if such former spouse had predeceased him unless it appears from the wording of the designation, a court order or a written contract between the person and such former spouse that the designation was intended to survive the divorce. Unless restrained by court order, no insurance company, pension or profit-sharing plan trustee or other obligor shall be liable for making payments to a former spouse which would have been proper in the absence of this section. Any former spouse to whom payment is made shall be answerable to anyone prejudiced by the payment.
20 Pa.C.S.A. § 6111.2.
¶ 11 Relying principally on the United States Supreme Court's decision in Egelhoff, supra, Appellant maintains that 20 Pa.C.S.A § 6111.2 has an impermissible connection with ERISA-regulated plans and operates in a manner inconsistent with ERISA's objective of uniform plan administration. In particular, Appellant asserts that, under Section 6111.2, an ERISA plan administrator cannot make payments to a beneficiary in accordance with the plain language of the plan document, as required by 29 U.S.C. § 1104(a)(1)(D), but instead, must decide who is the beneficiary by referring to state law, i.e., Section 6111.2. As such, Appellant contends that ERISA preempts Section 6111.2.
In its brief to this Court, the Estate maintains that Appellant raises this argument for the first time on appeal. Appellee's Brief at 5-6. After reviewing the record, we conclude that Appellant preserved her current argument for appellate review by sufficiently presenting the argument in the trial court.
¶ 12 The parties do not dispute that the Policy is governed by ERISA. In Egelhoff, the United States Supreme Court related the following:
ERISA's pre-emption section, 29 U.S.C. § 1144(a), states that ERISA shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan covered by ERISA. We have observed repeatedly that this broadly worded provision is clearly expansive. But at the same time, we have recognized that the term "relate to" cannot be taken to extend to the furthest stretch of its indeterminacy, or else for all practical purposes pre-emption would never run its course.
We have held that a state law relates to an ERISA plan if it has a connection with or reference to such a plan. . . . [T]o determine whether a state law has the forbidden connection, we look both to the objectives of the ERISA statute as a guide to the scope of the state law that Congress understood would survive, as well as to the nature of the effect of the state law on ERISA plans.
Egelhoff, 532 U.S. at 146-47 (quotation marks and citations omitted).
¶ 13 In Egelhoff, the husband obtained an insurance policy and pension plan as part of his employment and named his wife as the beneficiary under both plans. Both the policy and the plan were governed by ERISA. In 1994, the couple divorced, but the husband did not remove his ex-wife as beneficiary of either the policy or the plan. Soon after the divorce, the husband was killed in an automobile accident, and his ex-wife received the proceeds from the life insurance policy and pension plan. The husband's children from a previous marriage then sued the ex-wife in Washington state court, claiming that they should have received the proceeds under a provision of the Washington Code, which provided:
If a marriage is dissolved or invalidated, a provision made prior to that event that relates to the payment or transfer at death of the decedent's interest in a nonprobate asset in favor of or granting an interest or power to the decedent's former spouse is revoked. A provision affected by this section must be interpreted, and the nonprobate asset affected passes, as if the former spouse failed to survive the decedent, having died at the time of entry of the decree of dissolution or declaration of invalidity.
Egelhoff, 532 U.S. at 144 (quoting Wash. Rev. Code § 11.07.010(2)(a)). The ex-wife argued that ERISA preempted the relevant state law. The matter eventually ended up in the United States Supreme Court.
¶ 14 Applying preemption principles, the Supreme Court concluded that the Washington statute had an impermissible "connection with" ERISA plans for two primary reasons. First, the Court found that the express language of the Washington statute compelled ERISA plan administrators to determine beneficiary status, not according to the plan's documents, but instead, based upon the statute itself:
The statute binds ERISA plan administrators to a particular choice of rules for determining beneficiary status. The administrators must pay benefits to the beneficiaries chosen by state law, rather than to those identified in the plan documents. The statute thus implicates an area of core ERISA concern. 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, and that the fiduciary shall administer the plan in accordance with the documents and instruments governing the plan, making payments to a beneficiary who is designated by a participant, or by the terms of [the] plan. In other words, unlike generally applicable laws regulating areas where ERISA has nothing to say, which we have upheld notwithstanding their incidental effect on ERISA plans, this statute governs the payment of benefits, a central matter of plan administration.
Egelhoff, 532 U.S. at 147-48 (footnote, quotation marks, and citations omitted).
¶ 15 Secondly, the Court found that the Washington statute interfered with ERISA's goal of uniform plan administration:
The Washington statute also has a prohibited connection with ERISA plans because it interferes with nationally uniform plan administration. One of the principal goals of ERISA is to enable employers "to establish a uniform administrative scheme, which provides a set of standard procedures to guide processing of claims and disbursement of benefits." Fort Halifax Packing Co. v. Coyne, 482 U.S. 1, 9, 96 L. Ed. 2d 1, 107 S. Ct. 2211 (1987). Uniformity is impossible, however, if plans are subject to different legal obligations in different States.
The Washington statute at issue here poses precisely that threat. Plan administrators cannot make payments simply by identifying the beneficiary specified by the plan documents. Instead they must familiarize themselves with state statutes so that they can determine whether the named beneficiary's status has been "revoked" by operation of law. And in this context the burden is exacerbated by the choice-of-law problems that may confront an administrator when the employer is located in one State, the plan participant lives in another, and the participant's former spouse lives in a third. In such a situation, administrators might find that plan payments are subject to conflicting legal obligations.
Egelhoff, 532 U.S. at 148-49 (footnote omitted).
¶ 16 Based upon this reasoning, the Court concluded that the Washington statute had an impermissible "connection with" ERISA plans and, therefore, was expressly preempted on the ground that it "directly conflicts with ERISA's requirements that plans be administered, and benefits be paid, in accordance with plan documents." Id. at 150. As to the matter sub judice, guided by the rationale employed in Egelhoff, we conclude ERISA preempts Section 6111.2.
¶ 17 The first sentence of Section 6111.2 provides:
If a person domiciled in this Commonwealth at the time of his death is divorced from the bonds of matrimony after designating his spouse as beneficiary of a life insurance policy, annuity contract, pension or profit-sharing plan or other contractual arrangement providing for payments to his spouse, any designation in favor of his former spouse which was revocable by him after the divorce shall become ineffective for all purposes and shall be construed as if such former spouse had predeceased him unless it appears from the wording of the designation, a court order or a written contract between the person and such former spouse that the designation was intended to survive the divorce.
20 Pa.C.S.A. § 6111.2 (emphasis added). Thus, when a person domiciled in Pennsylvania is divorced at the time of his or her death, Section 6111.2 clearly and unambiguously renders ineffective for all purposes the designation of the decedent's ex-spouse as the beneficiary of, inter alia, the decedent's life insurance policy. As such, when, as here, a life insurance policy is governed by ERISA, Section 6111.2, like the Washington statute at issue in Egelhoff, binds the ERISA plan administrator to determine beneficiary status in a manner contrary to the plain language of the plan instrument. Therefore, Section 6111.2 "runs counter to ERISA's command . . . that the fiduciary shall administer the plan in accordance with the documents and instruments governing the plan." Egelhoff, 532 U.S. at 147 (internal quotation marks and citation omitted). Moreover, Section 6111.2 interferes with nationwide uniform plan administration, because the statute requires plan administrators to familiarize themselves with a state law to determine beneficiary status. Egelhoff, 532 U.S. at 148-49. Accordingly, we conclude that Section 6111.2 has an impermissible connection with ERISA-governed plans. The remainder of Section 6111.2 does nothing to alleviate this problem.
In order to determine whether ERISA preempts Section 6111.2, we must, inter alia, interpret 6111.2. Such an issue presents a matter of statutory construction; therefore, the Statutory Construction Act ("Act"), 1 Pa.C.S.A. § 1501 et seq., controls. Pennsylvania Associated Builders and Contractors, Inc. v. Commonwealth, Department of General Services, 932 A.2d 1271, 1278 (Pa. 2007). "Under the Act, it is fundamental that `[t]he object of all interpretation and construction of statutes is to ascertain and effectuate the intention of the General Assembly[,]' and that `[e]very statute shall be construed, if possible, to give effect to all its provisions.'" Id. (quoting 1 Pa.C.S.A. § 1921(a)); see 1 Pa.C.S.A. § 1922(2) ("In ascertaining the intention of the General Assembly in the enactment of a statute the following presumptions, among others, may be used . . . That the General Assembly intends the entire statute to be effective and certain."). "In this regard, the Act instructs that `[w]hen the words of a statute are clear and free from all ambiguity, the letter of it is not to be disregarded under the pretext of pursuing its spirit.'" Id. (quoting 1 Pa.C.S.A. § 1921(b)).
¶ 18 The second sentence of Section 6111.2 provides:
Unless restrained by court order, no insurance company, pension or profit-sharing plan trustee or other obligor shall be liable for making payments to a former spouse which would have been proper in the absence of this section. 20 Pa.C.S.A. § 6111.2. While this portion of Section 6111.2 distinguishes the statute from the Washington statute at issue in Egelhoff, this difference does not save Section 6111.2 from preemption.
¶ 19 In Egelhoff, the Supreme Court noted the following:
To be sure, the Washington statute protects administrators from liability for making payments to the named beneficiary unless they have "actual knowledge of the dissolution or other invalidation of marriage," Wash. Rev. Code § 11.07.010(3)(a) (1994), and it permits administrators to refuse to make payments until any dispute among putative beneficiaries is resolved, § 11.07.010(3)(b). But if administrators do pay benefits, they will face the risk that a court might later find that they had "actual knowledge" of a divorce. If they instead decide to await the results of litigation before paying benefits, they will simply transfer to the beneficiaries the costs of delay and uncertainty.
Egelhoff, 532 U.S. at 149 (footnote omitted). The Court nonetheless concluded:
Requiring ERISA administrators to master the relevant laws of 50 States and to contend with litigation would undermine the congressional goal of "minimizing the administrative and financial burdens" on plan administrators — burdens ultimately borne by the beneficiaries. Ingersoll-Rand Co. v. McClendon, 498 U.S. 133, 142, 112 L. Ed. 2d 474, 111 S. Ct. 478 (1990).
Egelhoff, 532 U.S. at 150.
¶ 20 Here, by drafting the second sentence of Section 6111.2, the General Assembly clearly intended to immunize plan administrators from liability if they failed to act in accordance with the mandate of the first sentence of the statute. However, the General Assembly did not employ any language, in Section 6111.2 or elsewhere, suggesting that plan administrators are not required to abide by the mandate enunciated in the statute's first sentence. Thus, pursuant to the clear language of Section 6111.2 and the presumption that the General Assembly intended the entirety of Section 6111.2 to be effective and certain, we reiterate our earlier conclusion that the first sentence of Section 6111.2 inappropriately directs beneficiary redesignation contrary to the plain language of the plan instrument, and we further conclude that the second sentence of Section 6111.2 merely immunizes plan administrators from liability if they fail to act in accordance with the statute's initial directive.
¶ 21 The last sentence of Section 6111.2 states, "Any former spouse to whom payment is made shall be answerable to anyone prejudiced by the payment." 20 Pa.C.S.A. § 6111.2. The last sentence of Section 6111.2 is completely dependent upon the remainder of Section 6111.2; thus, it cannot survive independently. See 1 Pa.C.S.A. § 1925.
Section 1925 of the Statutory Construction Act states:
The provisions of every statute shall be severable. If any provision of any statute or the application thereof to any person or circumstance is held invalid, the remainder of the statute, and the application of such provision to other persons or circumstances, shall not be affected thereby, unless the court finds that the valid provisions of the statute are so essentially and inseparably connected with, and so depend upon, the void provision or application, that it cannot be presumed the General Assembly would have enacted the remaining valid provisions without the void one; or unless the court finds that the remaining valid provisions, standing alone, are incomplete and are incapable of being executed in accordance with the legislative intent.
1 Pa.C.S.A. § 1925 (emphasis added).
¶ 22 For the above reasons, we hold that ERISA preempts 20 Pa.C.S.A. § 6111.2. See Metropolitan Life Insurance Co. v. Walsh, 892 F.Supp. 671 (W.D.Pa. 1995) (holding that ERISA preempts 20 Pa.C.S.A. § 6111.2). This conclusion, however, does not end our inquiry.
¶ 23 The Estate contends that Section 6111.2 fits within ERISA's "savings clause" found at 29 U.S.C. § 1144(b)(2)(A). In Metropolitan Life Insurance Co., the United States District Court for the Western District of Pennsylvania rejected such a contention. We find that court's disposition of the issue to be persuasive and, therefore, adopt its rationale, which we quote below, as our own:
Defendant Walsh also asserts that the "insurance savings clause" of ERISA, 29 U.S.C. § 1144(b)(2)(A), also provides for an exception to preemption in this case. That section provides that preemption shall not apply to state laws regulating insurance. In Pilot Life Insurance Co. v. Dedeaux, 481 U.S. 41, 107 S.Ct. 1549, 95 L.Ed.2d 39 (1987), the Supreme Court set forth two tests for determining if the saving clause applies to a particular state statute. First, the court should apply a common sense test:
A common-sense view of the word `regulates' would lead to the conclusion that in order to regulate insurance, a law must not just have an impact on the insurance industry, but must be specifically directed toward that industry.
481 U.S. at 50, 107 S.Ct. at 1554. Here, as in [ Metropolitan Life Insurance Company v. Hanslip, 939 F.2d 904 (10th Cir. 1991)], the provision in question is not located among other provisions in Pennsylvania law which regulate insurance, but is, instead, contained in the Estates section. Further, the statute does not dictate the terms of an insurance contract, or require insurers to take or refrain from taking any action with respect to insurance contracts. Rather, the statute in question regulates the insured's actions in designating beneficiaries. Thus, the statute fails the common-sense test, and is preempted.
Even if the statute did not fail the common-sense test, it would fail the second test set forth in Pilot Life, the "business of insurance test" which requires the court to determine whether the practice has the effect of spreading a policyholder's risk, whether the practice is an integral part of the policy relationship, and whether the practice is limited to entities within the insurance industry. The statute does not purport, nor does it have the effect, of spreading policyholder risk. Its only effect is to change the designation of who will receive benefits due. Second, although the designation of a beneficiary may be part of the relationship between the insurer and the insured, since it addresses the insured's ability to name a beneficiary, it does not strike at the heart of the policy relationship. Finally, the statute by its own terms applies to pensions, annuities, profit-sharing plans or "other contractual arrangements," and, hence, is not limited in application to insurance contracts. Therefore, the statute also fails the business of insurance test, and is not saved under § 1144(b)(2)(A).
Metropolitan Life Insurance Co., 892 F.Supp. at 675.
¶ 24 For the above-stated reasons, we find the trial court erred by denying Appellant's motion to dismiss. Due to this determination, we need not examine the merits of Appellant's remaining issues. We, however, note that the Estate takes the position that Appellant waived her last two issues by failing to cite to any legal authority in her arguments in support of these issues. See, e.g., Slappo v. J's Development Associates, Inc., 791 A.2d 409, 418 (Pa.Super. 2002) ("Arguments that are not appropriately developed by citation to authority are waived."). The Estate's observations and conclusions in this regard are accurate.
¶ 25 Accordingly, we vacate the May 16, 2007, order of the trial court and reverse the court's May 11, 2007, order from the bench denying Appellant's motion to dismiss.
¶ 26 May 16, 2007, order vacated. Order denying motion to dismiss reversed. Jurisdiction relinquished.
¶ 27 Judge Allen files a dissenting opinion.
¶ 1 I dissent. Relying primarily on the United States Supreme Court's decision in Egelhoff v. Egelhoff, 532 U.S. 141 (2001), the Majority concludes that 20 Pa.C.S. § 6111.2 is preempted by the Employer Retirement Income Security Act ("ERISA"). 29 U.S.C. § 1001 et seq. Unlike the Majority, I conclude that 20 Pa.C.S. § 6111.2 is distinguishable from the statute struck down in Egelhoff. In my view, the last sentence of 20 Pa.C.S. § 6111.2, the "remedy provision," operates outside the scope of ERISA's preemptive reach. Therefore, the Estate of Paul J. Sauers, III, ("the Estate") properly stated a claim for return of the insurance policy's proceeds under 20 Pa.C.S. § 6111.2, since the statute, as applied to the facts of this case, is not preempted by ERISA. Finding no merit in Appellant's remaining contentions on appeal, I would affirm the trial court's order in its entirety. Hence, I dissent.
¶ 2 The Hartford Life Insurance Company ("Hartford") issued an insurance group benefit plan to C.S. Davidson, an employer and policyholder for its employees. Paul J. Sauers, II, ("Decedent") was an employee of C.S. Davidson and received a life insurance policy ("the Policy") through his employer, the benefit for which was the sum of $40,000. On June 27, 1998, Decedent married Jodie L. Sauers ("Appellant.") On October 13, 1998, Decedent named Appellant primary beneficiary of the Policy and his nephew, Ian Rehn ("Rehn"), contingent beneficiary. On June 11, 2002, a decree in divorce was entered terminating the marriage between Appellant and Decedent. Thereafter, Decedent did not change Appellant's status as primary beneficiary of the Policy. On September 19, 2006, Decedent passed away.
¶ 3 On September 26, 2006, William F. Sauers, Administrator of Decedent's Estate, received Letters of Administration. On January 8, 2007, Linda Davidson, Treasurer of C.S. Davidson, notified Hartford of a provision of the Pennsylvania Probate, Estate and Fiduciary Code, 20 Pa.C.S. § 6111.2, which states that if a person is divorced at the time of death, any designation to his/her former spouse as beneficiary will become ineffective by deeming the former spouse as predeceasing the decedent. In turn, Hartford, on February 12, 2006, notified Davidson that it was going to pay the Policy's proceeds to Appellant because she was the named beneficiary in the Policy. Hartford then paid Appellant the $40,000 in life insurance proceeds, in accordance with the plain language of the Policy naming her primary beneficiary.
¶ 4 On February 16, 2007, William F. Sauers, as administrator of the Estate, filed a petition in the Orphans' Court Division of the Court of Common Pleas of York County. In that petition, the Estate sought a rule to show cause why Appellant should not relinquish her right and interest in the Policy's proceeds to the Estate for the benefit of Rehn. The Estate argued that under 20 Pa.C.S. 6111.2, Appellant is considered to have predeceased Decedent and, therefore, her right of ownership to the Policy's proceeds is legally ineffective. As such, the Estate claimed that Rehn was the rightful owner of the Policy's proceeds and that the remedy provision contained in 20 Pa.C.S. § 6111.2 allows the Estate to recover the proceeds from Appellant. The trial court ultimately granted the Estate's petition and directed Appellant's attorney to deliver the proceeds to the Estate's attorney of record, who would then establish a bank account for Rehn.
¶ 5 Citing Egelhoff, Appellant argues that she is entitled to the Policy's proceeds, despite the fact that she and Decedent were divorced at the time of Decedent's death and the last sentence of 20 Pa.C.S. § 6111.2, which provides that "anyone prejudiced" by the payment to the divorced spouse can initiate suit to collect it from the divorced spouse. Brief for Appellant at 8-9. After review, I conclude that under Egelhoff, ERISA preempts 20 Pa.C.S. § 6111.2 to the limited extent that the statute can be deemed to direct a plan administrator to choose beneficiary status in a manner inconsistent with the plan documents. I further conclude, however, that the doctrine enunciated in Egelhoff cannot be extended to preempt the Estate's claim pursuant to the remedy provision contained in the latter portion of 20 Pa.C.S. § 6111.2
¶ 6 Initially, I believe that resolution of this issue involves a comparative analysis of the Washington statute held invalid in Egelhoff and 20 Pa.C.S. § 6111.2. These statutes provide:
§ 11.07.010. Nonprobate assets on dissolution or invalidation of marriage or termination of state registered domestic partnership
If a marriage is dissolved or invalidated, a provision made prior to that event that relates to the payment or transfer at death of the decedent's interest in a nonprobate asset in favor of or granting an interest or power to the decedent's former spouse is revoked. A provision affected by this section must be interpreted, and the nonprobate asset affected passes, as if the former spouse failed to survive the decedent, having died at the time of entry of the decree of dissolution or declaration of invalidity.
Wash. Rev. Code § 11.07.010(2)(a).
§ 6111.2. Effect of divorce on designation of beneficiaries
If a person domiciled in this Commonwealth at the time of his death is divorced from the bonds of matrimony after designating his spouse as beneficiary of a life insurance policy, annuity contract, pension or profit-sharing plan or other contractual arrangement providing for payments to his spouse, any designation in favor of his former spouse which was revocable by him after the divorce shall become ineffective for all purposes and shall be construed as if such former spouse had predeceased him unless it appears from the wording of the designation, a court order or a written contract between the person and such former spouse that the designation was intended to survive the divorce. Unless restrained by court order, no insurance company, pension or profit-sharing plan trustee or other obligor shall be liable for making payments to a former spouse which would have been proper in the absence of this section. Any former spouse to whom payment is made shall be answerable to anyone prejudiced by the payment.
20 Pa.C.S. § 6111.2 (emphasis added).
¶ 7 As a threshold matter, the Majority is correct in concluding that the first sentence of 20 Pa.C.S. § 6111.2, the redesignation clause, is preempted by ERISA. Majority Opinion at 9-11. I agree with the Majority that to the extent the first sentence of 20 Pa.C.S. § 6111.2 mandates beneficiary redesignation contrary to the plain language of the plan instrument for the purpose of benefit distribution, it "relates to" an ERISA plan and is therefore preempted. See 20 Pa.C.S. § 6111.2 (". . . any designation in favor of his former spouse which was revocable by him after the divorce shall become ineffective for all purposes and shall be construed as if such former spouse had predeceased him. . ."), and compare with Wash. Rev. Code § 11.07.010(2)(a) ("A provision affected by this section must be interpreted . . . as if the former spouse has failed to survive the decedent . . ."). Similar to the Washington statute in Egelhoff, this portion of 20 Pa.C.S. § 6111.2 "runs counter to ERISA's command . . . that the fiduciary shall administer the plan in accordance with the documents and instruments governing the plan." Egelhoff, 532 U.S. at 147 (internal quotation marks and citation omitted). Moreover, by directing payment to a beneficiary not listed in the plan document, the first sentence of 20 Pa.C.S. § 6111.2, in part, interferes with nationwide uniform plan administration, because plan administrators would be required to familiarize themselves with potentially conflicting state statutes to determine beneficiary status. Egelhoff, 532 U.S. at 178-89.
¶ 8 Although the redesignation clause, as applied to an ERISA plan administrator's disbursement of insurance proceeds, is preempted by federal law, the first sentence of 20 Pa.C.S. § 6111.2 is inapplicable to the matter at hand. Majority Opinion at 9-11. Here, the Estate is not basing its claim on the redesignation clause. Rather, the Estate's claim is premised on the statute's final sentence, the "remedy provision," which provides a cause of action for a person to collect insurance proceeds after the plan administrator distributed them to the divorced spouse in accordance with the plan documents. See 20 Pa.C.S. § 6111.2 ("Any former spouse to whom payment is made shall be answerable to anyone prejudiced by the payment."). Because the remedy provision does not implicate a plan administrator's initial distribution of plan benefits, but operates only after such benefits are paid, I conclude that application of this statutory proviso does not interfere with ERISA plan administration. In my view, the remedy provision is the defining characteristic that distinguishes 20 Pa.C.S. § 6111.2 from the Washington statute challenged in Egelhoff. Consequently, in distinguishing 20 Pa.C.S. § 6111.2 from the Washington statute in Egelhoff, I conclude that the remedy provision operates outside the preemptive scope of ERISA regulations. See 29 U.S.C. § 1144(a) (stating that ERISA preempts "State laws insofar as they . . . relate to any employee benefit plan.") (emphasis added). Therefore, the Estate's claim under the remedy provision is not preempted by ERISA.
The remedy clause also distinguishes 20 Pa.C.S. § 6111.2 from those redesignation statutes that the Courts have held were preempted by ERISA. See, e.g., Manning v. Hayes, 212 F.3d 866 (5th Cir. 2000) (concluding that ERISA preempts Texas Family Code § 9.301(a)-(b)); Metropolitan Life Ins. Co. v. Hanslip, 939 F.2d 904 (10th Cir. 1991) (concluding that ERISA preempts 15 Okl. St. § 178[ 15-178](A)).
¶ 9 "The purpose of ERISA is to provide a uniform regulatory regime over employee benefit plans." Aetna Heath Inc. v. Davila, 542 U.S. 200, 208 (2004). In furtherance of the goal of uniformity, 29 U.S.C. § 1144(a) preempts "any and all State laws insofar as they may now or hereafter relate to any employee benefit plan" covered by ERISA. 29 U.S.C. § 1144(a). A state law relates to an ERISA plan "in the normal sense of the phrase, if it has a connection with or reference to such a plan." Ingersoll-Rand Co. v. McClendon, 498 U.S. 133, 138-39 (1990). "[T]o determine whether a state law has the forbidden connection, we look both to the objectives of the ERISA statute as a guide to the scope of the state law that Congress understood would survive, as well to the nature of the effect of the state law on ERISA plans." California Div. of Labor Standards Enforcement v. Dillingham Constr., N.A., Inc., 519 U.S. 316, 325 (1997) (internal quotation marks and citation omitted). In Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 97 (1983), the United States Supreme Court recognized that "some State actions may affect employee benefit plans in too tenuous, remote, or peripheral a manner to warrant a finding that the law `relates to' the plan." 463 U.S. at 100.
¶ 10 Unlike the Washington Statute at issue in Egelhoff, 20 Pa.C.S. § 6111.2 contains a remedy provision that allows a claimant to collect insurance proceeds from the divorced spouse. In Egelhoff, the United States Supreme Court concluded that ERISA preempted a Washington statute that automatically invalidated a plan's designation of beneficiary upon divorce. See 532 U.S. at 143. While the Washington statute in Egelhoff and 20 Pa.C.S. § 6111.2 seek to achieve the same end result, i.e., revocation, the manner in which they do so is dramatically dissimilar. The Washington statute compels a plan administrator to make payment to a third-party that is not listed in the plan document by automatically revoking the named beneficiary's status upon divorce. Conversely, 20 Pa.C.S. § 6111.2's remedy provision is applicable after a plan administrator makes payment to a beneficiary listed in the plan document and accomplishes revocation by providing a third-party with a cause of action directly against that beneficiary. Ultimately, the Washington and Pennsylvania statutes have their own distinct enforcement mechanism; as such, each statute has a different impact on an ERISA plan's express designation of a beneficiary.
¶ 11 For example, the only way in which the Washington statute can attain its stated goal of revocation is to replace, as the named beneficiary in the ERISA plan, the divorced spouse with the decedent's heir for purposes of benefit distribution. To enforce its mandate, the Washington statute imposed liability on plan administrators for making payments to named beneficiaries with "actual knowledge" of the divorce. Wash. Rev. Code §§ 11.07.010(3)(a). The plain language of the Washington statute ultimately compelled a plan administrator, without exception, to pay the decedent's heir instead of the divorced spouse. In terms of its enforcement design, the Washington statute imposed its sole duty on the plan administrator and sought to rectify a plan administrator's breach of that duty. Thus, the Washington statute, in order to be operable, effectively required the plan administrator to pay the proceeds to the decedent's heir in the first instance. Stated another way, if a divorced spouse received a policy's proceeds and a heir later sued for ownership of those proceeds under the Washington statute, a court order granting the heir the proceeds would, in effect, hold that the plan administrator violated the statute and should have paid the heir when initially disbursing the benefits. Hence, the Washington statute interfered with ERISA's goal of uniform plan administration by ordering plan administrators to pay beneficiaries "chosen by state law, rather than to those identified in the plan documents." Egelhoff, 532 U.S. at 147.
¶ 12 On the other hand, 20 Pa.C.S. § 6111.2 permits a plan administrator to make a designation to a divorced spouse by granting the administrator immunity from liability except in the rare circumstance where the designation would violate a prior court order. 20 Pa.C.S. § 6111.2 ("Unless restrained by court order, no . . . obligor shall be liable for making payments to a former spouse which would have been proper in the absence of this section."). Consequently, in sharp contrast to the Washington statute's scheme, 20 Pa.C.S. § 6111.2 postulates that a plan administrator will disburse a policy's proceeds to a divorced spouse, despite the redesignation clause, which mandates that the divorced spouse be construed as if he/she predeceased the decedent. For this reason, the statutory structure of 20 Pa.C.S. § 6111.2 deviates from the Washington statute. Unlike the Washington statute, 20 Pa.C.S. § 6111.2 clearly envisions the situation where, as here, the plan administrator makes payment to a divorced spouse in accordance with the terms of the ERISA plan document.
¶ 13 To address the scenario where a plan administrator makes payment to the divorced spouse, 20 Pa.C.S. § 6111.2, unlike the Washington statute, contains a remedy provision that grants "anyone prejudiced by the payment" the right to recover it from the divorced spouse. See 20 Pa.C.S. § 6111.2 ("Any former spouse to whom payment is made shall be answerable to anyone prejudiced by the payment."). Because the remedy provision of 20 Pa.C.S. § 6111.2 does not dictate the plan administrator's initial payment to a beneficiary (the divorced spouse), but instead, exposes the beneficiary to liability once payment is made, the section ultimately functions independent of ERISA regulations.
¶ 14 In this case, the Estate is not arguing that the plan administrator was obligated to make the initial payment to Rehn under the redesignation provision of 20 Pa.C.S. § 6111.2 and its impact upon Appellant's status as the beneficiary listed in the plan document. Instead, the Estate bases its claim against Appellant squarely on the remedy provision, asserting that Appellant is a "former spouse to whom payment [was] made" and, thus, is "answerable" to Rehn because he was "prejudiced by the payment." 20 Pa.C.S. § 6111.2. Given the plain language of 20 Pa.C.S. § 6111.2, the remedy provision is only operable after the plan administrator makes a payment to the divorced spouse in accordance with the plan documents. The divorced spouse's legal right to maintain ownership of the proceeds is subject to the remedy provision, which takes affect by making the divorced spouse directly liable to the claimant. Viewed in this context, 20 Pa.C.S. § 6111.2 does not conflict with ERISA's requirement that benefits be paid according to the plan documents, nor does it interfere with the national, uniform administration of ERISA plans. Rather, the remedy provision of 20 Pa.C.S. § 6111.2 presupposes that the plan administrator already made payment to the named beneficiary, the divorced spouse, and then transfers the legal rights to the proceeds from the divorced spouse to the claimant by operation of law. Cf. Cent. States, S.E. S.W. Areas Pension Fund v. Howell, 227 F.3d 672, 678-79 (6th Cir. 2000) ("[W]e hold that once the benefits of an ERISA employee's welfare benefit plan have been distributed according to the plan documents, ERISA does not preempt the imposition of a constructive trust on those benefits."); Sweebe v. Sweebe, 712 N.W.2d 708, 713 (Mich. 2006) ("There is no invasion into the requirements of ERISA because the plan administrator distributed the proceeds to the named beneficiary, as required by ERISA. However, after the plan administrator distributed the proceeds as required by ERISA, a claim could then be filed against the named beneficiary alleging that she waived her right to retain the proceeds."); Pardee v. Pers. Representative for Estate of Pardee, 112 P.3d 308, 314 (Okla.Civ.App. 2004) ("The prevailing view is that ERISA does not protect pension funds after the beneficiary receives the funds.") (discussing cases). Therefore, the remedy provision of 20 Pa.C.S. § 6111.2 provides for an additional duty that is not found in the Washington statute, i.e., a duty on the part of the divorced spouse to transfer the policy's proceeds to a prejudiced claimant after the divorced spouse received the proceeds.
Indeed, the language of the remedy provision, similar to that of section 2-804(h)(2) of the Uniform Probate Code ("UPC"), functions as a sort of "constructive trust," requiring the divorced spouse who has received payment to then convey it to the person entitled to payment pursuant to the revocation-by-divorce doctrine and the concept of unjust enrichment. Sarabeth A. Rayho, Note, Divorcees Turn About in Their Graves as Ex-Spouses Cash In: Codified Constructive Trusts Ensure Equitable Results Regarding ERISA-Governed Employee Benefits Plans, 106 MICH. L. REV. 373, 376-379, 392-396 (2007) (stating that the drafters of section 2-804(h)(2) of the UPC codified the constructive trust doctrine in response to preemption concerns and arguing that ERISA does not preempt the imposition of a constructive trust under that section). See 20 Pa.C.S. § 6111.2 ("Any former spouse to whom payment is made shall be answerable to anyone prejudiced by the payment."), and compare with UPC § 2-804(h)(2) ("[A] former spouse . . . who, not for value, received a payment . . . to which that person is not entitled under this section is obligated to return that payment . . . to the person who would have been entitled to it were this section or part of this section not preempted."). See also Egelhoff, 532 U.S. at 159 (Breyer, J., dissenting, joined by Stevens, J.) (noting that by preempting a state revocation-by-divorce statute, "the Court permits a divorced wife who already acquired, during the divorce proceeding, her fair share of the couple's community property, to receive in addition the benefits that the divorce court awarded to her former husband."). "Several states have adopted statutes similar or identical to section 2-804(h)(2). As [of] yet, [November, 2007,] no one has tested any of these statutes in the courts." Rayho, supra, at 378.
¶ 15 Although ERISA regulates the establishment and operation of plan administration and the distribution of benefits, it does not govern the rights to and ownership of benefits once they are disbursed to the named beneficiary. As such, the remedy provision of 20 Pa.C.S. § 6111.2, on its face and as applied to the particular facts of this case, does not have an impermissible "connection with" ERISA plans. The remedy provision of § 6111.2 solely governs a divorced spouse's right to retain insurance proceeds after the divorced spouse received them from the plan administrator; consequently, this statutory clause fails to operate in a manner that alters the administrator's ability to make payment to a named beneficiary or interferes with the overall goal of uniform plan administration. As the underlying concerns espoused in Egelhoff are not implicated in this case, I conclude that any impact the remedy provision has on an ERISA plan is too tenuous and peripheral to warrant the conclusion that it is preempted. Therefore, I conclude that ERISA does not preempt the Estate's claim pursuant to the remedy provision contained in 20 Pa.C.S. § 6111.2.
¶ 16 The Majority cites Metropolitan Life Ins. Co. v. Walsh, 892 F. Supp. 671, 673-75 (W.D. Pa. 1995), for the proposition that ERISA preempts 20 Pa.C.S. § 6111.2. Majority Opinion at 13. In that case, the magistrate judge concluded that ERISA preempted 20 Pa.C.S. § 6111.2 and recommended that an order be issued declaring that the divorced spouse is entitled to receive payment of the life insurance proceeds as the named beneficiary of an ERISA plan. The procedural posture of Walsh, however, involved a declaratory judgment action where the claimant challenged the validity of the divorced spouse's designation as the named beneficiary in the plan before the proceeds where disbursed; the Walsh court determined that under ERISA, the plan administrator would be justified in making the initial payment to the divorced spouse. See 892 F.Supp. at 673. Consequently, the Walsh court did not address, let alone implicate, the application of the remedy clause to the situation where the plan administrator already made payment to the named beneficiary and a prejudiced claimant latter sought to recover that payment. Hence, while I conclude that Walsh was correctly decided under the procedural posture of that case, I find that it is neither persuasive nor instructive in the matter at hand.
¶ 17 The Majority also concludes that the remedy provision is "completely depended" upon the remainder of 20 Pa.C.S. § 6111.2. Majority Opinion at 13. Presumably, the Majority concludes that the redesignation clause, as that proviso is preempted under Egelhoff, is incapable of being severed from the remedy provision and the remaining portions of 20 Pa.C.S. § 6111.2. Unlike the Majority, I conclude that a severability analysis is not required because 20 Pa.C.S. § 6111.2., as applied to the facts of this case, is not preempted by ERISA. Although there may be factual scenarios where ERISA does preempt 20 Pa.C.S. § 6111.2, such as the declaratory judgment action presented in Walsh, that is not the case here.
¶ 18 Even if a severability analysis were warranted, I would still conclude that ERISA does not preempt 20 Pa.C.S. § 6111.2 in its entirety. "A statute may be invalid as applied to a certain class and still be generally valid[.]" Com., Dept. of Ed. v. First School, 370 A.2d 702, 705 n. 11 (Pa. 1977). Here, the redesignation clause contains a broad pronouncement of law: "[A]ny designation in favor of his former spouse which was revocable by him after the divorce shall become ineffective for all purposes and shall be construed as if such former spouse had predeceased him, unless it appears from the wording of the designation, a court order or a written contract between the person and such former spouse that the designation was intended to survive the divorce." 20 Pa.C.S. § 6111.2. In a particular contextual setting, language is capable of attaining different meaning. Upon review, I conclude that the redesignation clause, in its general, non-preempted meaning is applicable to the execution of the remedy provision.
¶ 19 Under Egelhoff, the redesignation clause is preempted only to the limited extent the proviso is specifically applied to an ERISA plan administrator's initial distribution of insurance proceeds; that is, the language of the redesignation clause cannot be employed to mandate beneficiary redesignation contrary to the plan instrument for the purpose of a plan administrator's disbursement of proceeds. Pursuant to the plain language of the redesignation clause, the rule that a designation to a former spouse is "ineffective for all purposes" extends to the execution of the remedy provision, encompassing the situation where the plan administrator already tendered payment to the divorced spouse in accordance with the plan document. However, when the redesignation clause is viewed in relation to the execution of the remedy provision, the redesignation clause obtains a non-preempted meaning since it is not used to dictate the plan administrator's choice of beneficiary status pursuant to the plan document. Rather, in this context, the redesignation clause obtains a general, non-preempted meaning that serves as the foundation for the trial court's independent determination of "prejudice" under the remedy provision. In order for a trial court to determine whether a contingent beneficiary/heir was "prejudiced by the payment" under the remedy provision, a trial court must conclude either: (1) the designation is ineffective and must be construed as though the divorced spouse predeceased the decedent, or (2) the designation is valid because an enumerated instrument or court order demonstrates that the designation was intended to survive the divorce. 20 Pa.C.S. § 6111.2. Therefore, in no way or manner does application of the remedy provision depend upon the redesignation clause in the narrow sense that the redesignation clause is preempted by ERISA; instead, in applying the remedy provision, the trial court employs the redesignation clause as the guidepost to determine whether a claimant suffered prejudice. See First School, 370 A.2d at 704-06 (holding Act 109 constitutional as applied to nonsectarian, nonpublic schools and severing the statute from its unconstitutional application to sectarian, nonpublic schools). Therefore, to any extent the remedy provision and the resignation clause have a consequential relationship, that relationship does not interfere with a plan administrator's disbursement of insurance proceeds to a divorced spouse in accordance with the terms of an ERISA plan document. I conclude accordingly that the redesignation clause, as preempted by Egelhoff, is severable from the remaining portions of 20 Pa.C.S. § 6111.2.
¶ 20 For the above-stated reasons, I conclude that the Estate's claim for ownership of the Policy's proceeds under 20 Pa.C.S. § 6111.2 is not preempted by ERISA. I further conclude that Appellant's remaining assertions of error are either waived or lack merit. Therefore, I would affirm the trial court's order in its entirety. Because the Majority declines this course, I register my dissent.