Carolyn Lazar v. Mark Kroncke
2017 U.S. App. LEXIS 12618
| 9th Cir. | 2017Background
- Decedent opened an IRA with Charles Schwab in 1992 and named his then-wife, Carolyn Lazar, as beneficiary; they divorced in Arizona in 2008 and he did not reaffirm or change the beneficiary before his 2012 death.
- Arizona’s revocation-on-divorce (ROD) statute (A.R.S. § 14-2804) automatically revokes post-divorce dispositions to a former spouse unless an express term or post-divorce reaffirmation exists; Schwab froze the IRA after the Estate demanded the funds under Arizona law.
- Lazar sued in federal court in California against Schwab (breach of contract/interpleader) and the Estate (declaratory relief), later amending to assert (1) Contracts Clause challenge to retroactive application of Arizona’s ROD statute, and (2) federal preemption under IRA/IRS rules.
- The California court dismissed on standing grounds as to the Contracts Clause, transferred the case for lack of personal jurisdiction; the Arizona court dismissed on preemption and Contracts Clause merits, stayed distribution pending appeal.
- The Ninth Circuit reversed the dismissal for lack of standing (Lazar had a concrete injury because Arizona law extinguished her expectancy), but affirmed on the merits: (1) Arizona’s choice-of-law statute would displace the IRA’s California choice-of-law clause and (2) federal IRA statutes/regulations do not preempt Arizona’s ROD; Contracts Clause claim failed because Lazar never held a vested contractual right.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Enforceability of IRA choice-of-law clause | Choice-of-law clause in Schwab Plan should govern beneficiary questions; parties can contract around state law | Arizona’s donative-transfers statute (A.R.S. § 14-2703/14-2804) controls and an Arizona court would apply Arizona law despite the Plan’s clause | Choice-of-law clause unenforceable for this issue; Arizona law governs and ROD applies |
| Federal preemption (IRA statutes/regulations) | IRA/IRS regulations and ERISA definitions require honoring plan beneficiary designations and thus preempt state ROD | IRA regulations govern tax/distribution rules, not who is entitled under state probate/domestic-relations law; no express preemption exists | No preemption: IRA regulations do not displace state ROD determining who is entitled to proceeds |
| Contracts Clause challenge (retroactive impairment) | ROD statute enacted after IRA formation impairs contractual beneficiary rights in violation of Contracts Clause | Decedent retained power to change beneficiary; beneficiary interest was only an unvested expectancy, so no substantial contractual impairment | Standing exists, but Contracts Clause fails on merits because Lazar never had a vested contractual right; no substantial impairment |
| Personal jurisdiction / transfer | California courts had specific jurisdiction over the Estate based on IRA contacts | Estate lacked sufficient California contacts and preserved personal-jurisdiction defenses; transfer to Arizona was proper | Transfer to Arizona was not an abuse of discretion; California lacked personal jurisdiction over the Estate |
Key Cases Cited
- Hisquierdo v. Hisquierdo, 439 U.S. 572 (1979) (probate and domestic relations are traditionally state law domains)
- Egelhoff v. Egelhoff ex rel. Breiner, 532 U.S. 141 (2001) (ERISA preemption of state ROD statute for ERISA plans)
- Hillman v. Maretta, 133 S. Ct. 1943 (2013) (FEGLIA preemption and federal regime protecting beneficiary-designation procedures)
- Charles Schwab & Co. v. Debickero, 593 F.3d 916 (9th Cir. 2010) (IRA regulations leave beneficiary designation to account holder; federal rules don’t mandate identity of payee)
- Stillman v. Teachers Ins. & Annuity Ass’n Coll. Ret. Equities Fund, 343 F.3d 1311 (10th Cir. 2003) (no Contracts Clause violation where beneficiary interest was unvested; annuity characterized as partly donative)
- Whirlpool Corp. v. Ritter, 929 F.2d 1318 (8th Cir. 1991) (ROD found to substantially impair contractual beneficiary rights in life-insurance context)
- Gen. Motors Corp. v. Romein, 503 U.S. 181 (1992) (Contracts Clause framework: whether law operates as substantial impairment and, if so, whether state justification is reasonable)
- Energy Reserves Group v. Kan. Power & Light Co., 459 U.S. 400 (1983) (deference to state legislative judgments in Contracts Clause balancing)
- Zinser v. Accufix Research Inst., Inc., 253 F.3d 1180 (9th Cir. 2001) (federal courts sitting in diversity apply forum state choice-of-law rules)