JUDY A. MARETTA v. JACQUELINE HILLMAN
Record No. 102042
Supreme Court of Virginia
January 13, 2012
CHIEF JUSTICE CYNTHIA D. KINSER
Present: All the Justices
FROM THE CIRCUIT COURT OF FAIRFAX COUNTY
Michael F. Devine, Judge
Judy A. Maretta (Maretta), as the named beneficiary of a Federal Employees’ Group Life Insurance (FEGLI) policy, received FEGLI benefits upon the death of her ex-husband. The question on appeal is whether federal law preempts
In the event of a decree of annulment or divorce from the bond of matrimony,
[if
Code § 20-111.1(A) ] is preempted by federal law with respect to the payment of any death benefit, a former spouse who, not for value, receives the payment of any death benefit that the former spouse is not entitled to under this section is personally liable for the amount of the payment to the person who would have been entitled to it were this section not preempted.
In contrast to these statutory provisions, the Federal Employees’ Group Life Insurance Act (FEGLIA),
[T]he amount of group life insurance and group accidental death insurance in force on an employee at the date of his death shall be paid, on the establishment of a valid claim, to the person or persons surviving at the date of his death, in the following order of precedence:
First, to the beneficiary or beneficiaries designated by the employee in a signed and witnessed writing received before death in the employing office . . . .
Second, if there is no designated beneficiary, to the widow or widower of the employee.
The provisions of any contract under this chapter [
5 U.S.C. § 8701 et seq.] which relate to the nature or extent of coverage or benefits (including payments with respect to benefits) shall supersede and preempt any law of any State or political subdivision thereof, or any regulation issued thereunder, which relates to group life insurance to the extent that the law or regulation is inconsistent with the contractual provisions.
Because Congress intended for FEGLI benefits to be paid and to belong to a designated beneficiary, we conclude that FEGLIA preempts
FACTS AND PROCEEDINGS
The relevant facts are not in dispute. In December 1996, Warren Hillman (Warren) named Maretta, his wife at the time, as the beneficiary of his FEGLI policy. The two divorced in December 1998 and Warren married Hillman in October 2002. Warren, however, never changed the beneficiary designation in his FEGLI policy. Hillman and Warren were still married when, in July 2008, Warren died. After her husband‘s death, Hillman filed a claim for benefits under Warren‘s FEGLI policy but was told the proceeds would be distributed to Warren‘s designated beneficiary, Maretta. Maretta filed a claim for and received the death benefits under the FEGLI policy in the amount of $124,558.03.
Hillman then filed an action against Maretta, claiming that pursuant to
We granted Maretta this appeal. The sole issue is whether the circuit court erred in determining that Hillman‘s claim under
ANALYSIS
The Supremacy Clause in the United States Constitution provides that the laws of the United States “shall be the supreme law of the land . . . any thing in the Constitution or laws of any state to the contrary notwithstanding.”
“Pre-emption may be either express or implied, and is compelled whether Congress’ command is explicitly stated in the statute‘s language or implicitly contained in its structure and purpose.” de la Cuesta, 458 U.S. at 152-53 (internal quotation marks omitted). Even when Congress has stopped short of totally displacing state law in a specific area, state law is nevertheless preempted “to the extent that it actually conflicts with federal law. Such a conflict arises when compliance with both federal and state regulations is a physical impossibility, or when state law stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress.” Id. at 153 (citations and internal quotation marks omitted); see also, Dugan v. Childers, 261 Va. 3, 8, 539 S.E.2d 723, 725 (2001) (” ‘The pertinent questions are whether the right as asserted conflicts with the express terms of federal law and whether its consequences sufficiently injure the objectives of the federal program to require nonrecognition.’ “) (quoting Hisquierdo v. Hisquierdo, 439 U.S. 572, 583 (1979)); Metropolitan Life Ins. Co. v. Potter, 533 So.2d 589, 591 (Ala. 1988) (“Preemption may occur from explicit preemptive language in a statute, from implied congressional intent, or where state law stands as an obstacle to the accomplishment of the full purposes and objectives of Congress.“). While there is a presumption against preemption “in areas of traditional state regulation such as family law,” Egelhoff v. Egelhoff, 532 U.S. 141, 151 (2001), “[the] relative importance to the State of its own law is not material when there is a conflict with a valid federal law, for the Framers of our Constitution provided that the federal law must prevail.” Ridgway v. Ridgway, 454 U.S. 46, 54 (1981) (internal quotation marks omitted).
In addition to the order of precedence set forth in
Contrary to these provisions,
Unlike
Hillman argues, and courts have generally agreed, that FEGLIA manifests a congressional intent for administrative convenience. See, e.g., Kidd v. Pritzel, 821 S.W.2d 566, 569-70 (Mo. Ct. App. 1991) (holding that purpose of
In Ridgway, the insured serviceman named his wife as the beneficiary of his SGLIA benefits. 454 U.S. at 48. When the parties subsequently obtained a divorce, the state-law judgment ordered the insured to keep in force any existing life insurance policies for the benefit of his children. Id. The insured remarried and, contrary
On a writ of certiorari, the Supreme Court first described the history and terms of SGLIA, including its specified order of precedence for paying benefits,
In Wissner, the trial court held that benefits paid under the National Service Life Insurance Act (NSLIA), which allowed an insured to designate and change a beneficiary and contained an anti-attachment provision, were community property. Wissner, 338 U.S. at 658-59. Although the insured service member named his parents as beneficiaries of his NSLIA policy, the trial court nevertheless directed that proceeds be paid to the insured‘s widow. Id. at 657-58. The Supreme Court in Wissner reversed, finding that the trial court‘s judgment “nullifie[d] the soldier‘s choice and frustrate[d] the deliberate purpose of Congress.” Id. at 659.
Quoting that language from Wissner, the majority in Ridgway then held:
The present case, we feel, is controlled by Wissner. [J]ust as . . . in Wissner, the insured service member possesses the right freely to designate the beneficiary and to alter that choice at any time by communicating the decision in writing to the proper office. Here, as there, it appropriately may be said: “Congress has spoken with force and clarity in directing that the proceeds belong to the named beneficiary and no other.”
Ridgway, 454 U.S. at 55-56 (quoting Wissner, 338 U.S. at 658). Finding that a state law imposing a constructive trust on SGLIA benefits was preempted by SGLIA, the Court explained: “Federal law and federal regulations bestow upon the service member an absolute right to designate the policy beneficiary. That right is personal to the member alone. [O]nly [the insured] had the power to create and change a beneficiary interest in his SGLIA insurance.” Id. at 59-60.
Under a separate heading, the Supreme Court then held that placing a constructive trust on the policy proceeds was also inconsistent with SGLIA‘s anti-attachment provision. Id. at 60-62. Notably, the Court pointed out that it had similarly invoked NSLIA‘s identical anti-attachment provision as an independent ground for the result reached in Wissner. Id. at 60.
In light of the virtually identical language used in FEGLIA and SGLIA, we conclude pursuant to Ridgway that it is Congress’ intent that “only [the insured] [has] the power to create and change a beneficiary interest,” that the right to do so cannot be waived or restricted, and that the FEGLI benefits belong to the named beneficiary. Ridgway, 454 U.S. at 60; see Christ, 979 F.2d at 579 (state‘s divorce decree and constructive trust conflicted with the rights of the insured specified under FEGLIA). Just as with SGLIA, “Congress has spoken with force and clarity in directing that the [FEGLI] proceeds belong to the named
We are aware, as Hillman argues on brief, that our decision today stands in contrast to a majority of state court decisions. Unlike federal courts, state courts have generally held that FEGLIA does not preempt a state-law constructive trust on FEGLI proceeds for the benefit of someone other than the named beneficiary. See generally McCord v. Spradling, 830 So.2d 1188, 1202 (Miss. 2002) (citing cases and finding persuasive state court holdings that the “distinction between beneficiary status and ultimate equitable entitlement obviates any issue of federal preemption of state-court action“); Fagan v. Chaisson, 179 S.W.3d 35, 42 (Ct. App. Tex. 2005) (citing cases); but see, Potter, 533 So.2d at 593 (holding that FEGLIA preempted state court divorce judgment ordering insured to maintain ex-wife as beneficiary of existing life insurance policies). In doing so, however, these courts have misconstrued Ridgway, specifically its reliance on Wissner, and the separate, independent discussion of SGLIA‘s anti-attachment provision. See Christ, 979 F.2d at 581 (“SGLIA‘s anti-attachment provision . . . was a separate ground” for finding preemption); Metropolitan Life Ins. Co. v. McShan, 577 F. Supp. 165, 169 (N.D. Cal. 1983) (“In both Wissner and Ridgway the existence of an anti-attachment provision was an independent basis upon which the Supreme Court found preemption.“). In Fagan, for example, the court stated that ”Ridgway was decided on two points,” the first being that SGLIA‘s order of precedence for the payment of benefits merely conferred a right on the insured to designate a beneficiary. 179 S.W.3d at 44; see also Kidd, 821 S.W.2d at 570 (same). That interpretation is incorrect. The Court‘s first holding in Ridgway, made in reliance on its decision in Wissner, emphasized that the insured‘s right to designate a beneficiary and to alter that choice at any time evinced Congress’ intent for the policy proceeds to “belong to the named beneficiary and no other.”4 Ridgway, 454 U.S. at 56 (internal quotation marks omitted). Hillman, and the courts on which she relies, fail to account for Ridgway‘s reliance on Wissner. According to the Supreme Court, Wissner controlled the outcome in Ridgway, id. at 55, and we conclude that Ridgway, in turn, controls the result in the case now before us.
attachment provision was a separate, independent basis for the result. See, e.g., McCord, 830 So.2d at 1197 (distinguishing Ridgway solely on the grounds that SGLIA contained an anti-attachment provision). Ridgway‘s discussion of SGLIA‘s anti-attachment provision began with the statement: the “imposition of a constructive trust is also inconsistent with the anti-attachment provision.” Ridgway, 454 U.S. at 60 (emphasis added). In other words, Ridgway is not distinguishable on the basis that FEGLIA does not contain an anti-attachment provision.
In sum, the circuit court erred in concluding that
CONCLUSION
For these reasons, we will reverse the judgment of the circuit court. Because we conclude that FEGLIA preempts
Reversed and final judgment.
JUDY A. MARETTA v. JACQUELINE HILLMAN
Record No. 102042
Supreme Court of Virginia
January 13, 2012
JUSTICE McCLANAHAN, with whom JUSTICE MILLETTE joins, dissenting.
I.
The constitutional standard governing preemption under the Supremacy Clause, as contained in
Thus, as the United States Supreme Court has stated, ” ‘when state family law has come into conflict with a federal statute,’ ” courts should limit their Supremacy Clause review to a determination of ” ‘whether Congress has “positively required by direct enactment” that state law be pre-empted.’ ” Id. (quoting Hisquierdo, 439 U.S. at 581 (quoting Wetmore v. Markoe, 196 U.S. 68, 77 (1904))). Indeed, “[b]efore a state law governing domestic relations will be overridden,” the Supreme Court has further explained, the state law ” ‘must do “major damage” to “clear and substantial” federal interests.’ ” Id. (quoting Hisquierdo, 439 U.S. at 581 (quoting Yazell, 382 U.S. at 352)) (emphasis added).1
In my opinion, this high threshold for imposing preemption in the instant case has not been met. That is, I do not believe
II.
Subsection A of
In revoking the beneficiary designation of a former spouse to a life insurance policy upon divorce,
Addressing the latter statute, this Court has explained that its passage was “a statutory declaration of public policy concerning wills of divorced testators, which provided . . . that a divorced spouse is to be denied any benefits under a will executed prior to divorce” based on the testator‘s presumed change of intent upon divorce. Papen v. Papen, 216 Va. 879, 882-83, 224 S.E.2d 153, 155 (1976). “The General Assembly, in evaluating the advisability of [enacting
Id. at 883, 224 S.E.2d at 155-56. The General Assembly no doubt adhered to a similar conclusion in subsequently enacting
As appellant correctly asserts, however,
holder‘s widow, appellee, would have received the insurance proceeds from her deceased husband‘s FEGLI policy.
Addressing such conflicts with state law, FEGLIA provides under
The majority thus concludes, and I agree, that
III.
The issue on appeal is thus whether
The General Assembly amended
“If this section is preempted by federal law with respect to the payment of any death benefit, a former spouse who, not for value, receives the payment of any death benefit that the former spouse is not entitled to under this section is personally liable for the amount of the payment to the person who would have been entitled to it were this section not preempted.” See 2007 Acts ch. 306.
Passage of this amendment no doubt reflects the General Assembly‘s recognition that subsection A of
Thus, as the majority acknowledges, unlike subsection A, subsection D “does not alter the direct payment of FEGLI benefits to a designated beneficiary” in establishing the equitable remedy against the former spouse. After assessing this key factor against the limited federal interest implicated under
Viewed through the prism of our governing standard of review, FEGLIA simply does not evince congressional intent to shield a former spouse from liability against a third party claim involving FEGLI proceeds that have already been paid to the former spouse. Rather, as the majority also acknowledges,
[section] 8705 serves a valuable and worthwhile purpose by keeping the OPM and the insurance company out of legal entanglements. It fulfills the congressional intention by reducing their administrative and legal hassles. Regardless of what claims are brought to recover the proceeds once they are paid out to the designated beneficiary, the purpose of § 8705 has been served. Neither the insurance carrier nor the government can be burdened by participation in a state judicial proceeding to recover the proceeds.
Id. at 572 (emphasis added). And this administrative convenience – the ability of the OPM and the insurer to simply pay the life insurance proceeds to the named beneficiary as directed by
I thus agree with the majority of state courts in other jurisdictions that have addressed the issue of preemption under FEGLIA and have similarly concluded that their
Unlike my colleagues, my view of congressional intent reflected in FEGLIA is not altered by Ridgway v. Ridgway, 454 U.S. 46 (1981), or Wissner v. Wissner, 338 U.S. 655 (1950) (the case that the United States Supreme Court relied upon in deciding Ridgway), where the Court imposed post-payment protection for the life insurance proceeds paid to the respective armed services member‘s designated beneficiary in each of those cases. I believe Ridgway, a Servicemen‘s Group Life Insurance Act (SGLIA) case, and Wissner, a National Service Life Insurance Act (NSLIA) case, are distinguishable from the instant FEGLIA case.
NSLIA, as the predecessor to SGLIA, placed into effect a system of life insurance benefits specifically designed for our armed services members shortly before the beginning of World War II. It then lapsed at the end of the Korean War, when private commercial insurance generally became available for service members. Ridgway, 454 U.S. at 50-51. SGLIA was subsequently enacted in response to private carriers’ restrictions on coverage for service members as a result of the escalating Vietnam conflict. Id. at 50. Like federal employees under FEGLIA, armed services members possessed the right under both NSLIA and SGLIA to designate the beneficiaries of their choice. Id. at 55-56. Both NSLIA and SGLIA, however, contained an identical anti-attachment provision that was not included in FEGLIA. Id. at 60. Under the anti-attachment provision, “[p]ayments to the named beneficiary ‘shall be exempt from the claims of creditors, and shall not be liable to attachment, levy, or seizure by or under any legal or equitable process whatever, either before or after receipt by the beneficiary . . . .’ ” Wissner, 338 U.S. at 659 (quoting
Assessing the beneficiary designation and anti-attachment provisions together, the Supreme Court in Ridgway explained: ” ‘Possession of government insurance, payable to the relative of his choice, might well directly enhance the morale of the serviceman. The exemption provision is his guarantee of the complete and full performance of the contract to the exclusion of conflicting claims. The end is a legitimate one within the congressional powers over national defense, and the means are adapted to the chosen end.’ ” Ridgway, 454 U.S. at 56-57 (quoting Wissner, 338 U.S. at 660-61 (emphasis added)). The Supreme Court then concluded its analysis by explaining that, with the anti-attachment clause, “Congress has insulated the proceeds of SGLIA insurance from attack or seizure by any claimant other than the beneficiary designated by the insured or the one first in line under the statutory order of precedence. That is Congress’ choice. It remains effective until legislation providing otherwise is enacted.” Id. at 63.
FEGLIA, by contrast, simply made group life insurance available to federal employees so as to ” ‘appl[y] to Government service the best practices of progressive, private employers.’ ” Fagan, 179 S.W.3d at 45 (quoting Kidd, 821 S.W.2d at 568; some internal quotation marks omitted). Manifestly, its passage was “not attended by the exigenc[ies] that motivated” Congress when passing NSLIA and SGLIA in the context of national defense. Id. The omission of an anti-attachment clause in FEGLIA should thus be viewed as answering in the negative the question of whether Congress intended to preempt a state law like
I also find support for my position in both federal and state court decisions addressing preemption under the federal Employee Retirement Income Security Act of 1974 (ERISA),
Like FEGLIA‘s “order of precedence” under
Addressing this statutory framework under ERISA, the Sixth Circuit held in Central States that ERISA did not preempt the imposition of a constructive trust, under state law, on the life insurance benefits provided under an ERISA employee welfare benefit plan once those benefits had been distributed to the designated beneficiary according to the plan documents. Central States, 227 F.3d at 678-79. More specifically, as the Sixth Circuit explained:
In this case, [appellee] seeks to impose a constructive trust on [her former husband‘s] ERISA welfare benefit plan benefits. [He] changed the beneficiary designation in accordance with the plan documents [thereby removing appellee as the beneficiary]. On this issue, our precedents are clear – the beneficiary card controls the person to whom the plan administrator must pay the benefits. However, we hold today that once the benefits have been released to the properly designated beneficiary, the district court has the discretion to impose a constructive trust upon those benefits in accordance with applicable state law if equity so requires.
The Supreme Court of Michigan reached the same conclusion in Sweebe v. Sweebe, 712 N.W.2d 708 (Mich. 2006). There, the appellant/former wife and the decedent/former husband entered into an agreement at the time of their divorce giving up any interest in any insurance policy of the other. The decedent had a life insurance
In Guidry v. Sheet Metal Workers Nat‘l Pension Fund, 39 F.3d 1078 (10th Cir. 1994), the Tenth Circuit reached a similar conclusion even as to ERISA pension benefits. There, the Court held that, while the anti-alienation provision of ERISA precluded a state claim for garnishment against pension benefits before their distribution to a plan participant or beneficiary, nothing in the legislative scheme protected the benefits following their distribution to such participant or beneficiary. Id. at 1082-83. That is, a creditor could “collect directly from the participant or beneficiary or, as [there], initiate an enforce[ment] procedure against a third-party bank [that held] the funds paid to the participant or beneficiary.” Id.; see Pardee v. Pardee, 112 P.3d 308, 315-16 (Okla. Civ. App. 2005) (holding that ERISA did not preempt allocation of a percentage of the pension plan funds to appellee pursuant to state law following distribution of the funds, as the funds “were no longer entitled to ERISA protection once [they] were distributed“); Hoult v. Hoult, 373 F.3d 47, 54-55 (1st Cir. 2004) (holding that the anti-alienation provision under ERISA applies to pension funds “only while held by the plan administrator and not after they reach the hands of the beneficiary“); Wright v. Riveland, 219 F.3d 905, 919-21 (9th Cir. 2000) (same); Trucking Employees of North Jersey Welfare Fund, Inc. v. Colville, 16 F.3d 52, 54-56 (3rd Cir. 1994) (same); see also DaimlerChrysler Corp. v. Cox, 447 F.3d 967, 974 (6th Cir. 2006) (recognizing principle).
IV.
For the above-stated reasons, I would affirm the judgment of the circuit court in this case. In my opinion, the circuit court, in a thorough and well-reasoned opinion, correctly concluded that