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May 2010

Carmona v. Carmona, et al. ? ERISA Benefits Vest At The Time The Participant Retires.

ERISA Benefits Irrevocably Vest In The Surviving Spouse At The Time Of The Participant Spouse's Retirement.

(9th Cir. amended May 4, 2010) 544 F.3d 988; 2008 U.S. App. LEXIS 19724

The Ninth Circuit Court of Appeals amended and affirmed its September 18, 2008 opinion, denying a petition for rehearing en banc, in a case where the Court had held a participant of an ERISA-regulated Qualified Joint and Survivor Annuity ("QJSA") cannot change the surviving spouse beneficiary after the participant has retired, because the benefit irrevocably vests in the participant's spouse at the time of the participant's retirement.  The amended opinion expands the case analysis.

The case involved competing spouses of Lupe Carmona ("Lupe"), who claimed rightful beneficiary status to two of Lupe's ERISA-governed pension plans.  Lupe married Janis in 1988.  While they were married, Lupe designated Janis as his survivor beneficiary under two of his pension plans (which provided QJSA benefits).  Lupe retired in 1992 and began collecting pension benefits.  In 1994, Lupe and Janis began divorce proceedings.  In 1997, the Nevada family court issued a divorce decree, granting both pensions to Lupe as his sole and separate property.  That same year, Lupe married Judy, and petitioned the Nevada family court for a Qualified Domestic Relations Order ("QDRO") to revoke Janis's designation as survivor beneficiary of his pensions and substitute Judy.  Lupe died in 1999.  The day after Lupe's death, the Nevada family court ordered the pension plan administrators to change the survivor beneficiary from Janis to Judy.  Alternatively, it ordered the funds Janis received from the plans to be placed in a constructive trust, with Judy as the beneficiary.

Janis appealed the family court orders to the Nevada Supreme Court.  The Nevada Supreme Court affirmed the orders, concluding ERISA did not preempt them.  The Nevada family court subsequently ordered Janis to deposit the funds into a constructive trust, and directed the plan administrators to pay survivor benefits to Judy, or to the constructive trust for Judy's benefit.

Before the Nevada Supreme Court reached its decision, Janis sued in the Nevada federal district court under 29 U.S.C. §  1132(a)(3) on the grounds the Nevada family court orders violated ERISA.  One of the pension plan administrators ("IATSE") cross-claimed against Judy, seeking declaratory relief of its duties.  The Nevada district court dismissed Janis's claims on grounds it lacked jurisdiction to hear Janis's suit against Judy.  Although the district court held it was not barred from hearing IATSE's claim, it denied IATSE's summary judgment motion, holding ERISA did not preclude a state court from issuing a QDRO substituting an alternate payee for a surviving spouse after a plan participant's retirement.  Janis and IATSE appealed the Nevada district court's decisions.  The Ninth Circuit Court of Appeals considered the appeals together because they arose from the same factual background.

The Ninth Circuit affirmed the district court's holding it lacked jurisdiction to hear Janis's claims, because under the Rooker-Feldman doctrine (Rooker v. Fidelity Trust Co., 263 U.S. 413 (1923) and District of Columbia Court of Appeals v. Feldman, 460 U.S. 462 (1983)), federal district courts lack jurisdiction to hear "de facto appeals" from state court judgments.  A "de facto appeal" is one where the federal plaintiff asserts as a legal wrong an allegedly erroneous state court decision and seeks relief from a state court judgment based on that decision.  The Ninth Circuit held this was what Janis was claiming.  Had Janis argued that either Judy or the plan administrators caused her injury, her claims would have been outside the limits of Rooker-Feldman.

The Rooker-Feldman doctrine did not bar IATSE's cross-claim against Judy.  The claims raised the same legal issues and sought the same relief as in Janis's complaint, but IATSE's interests (in the administration of its pension plans and its fiduciary duties to the proper beneficiary) were distinct from Janis's interests (in receiving the benefits she felt she was entitled to).

The Ninth Circuit, following the Fourth Circuit's reasoning and holding in Hopkins v. ATT Global Info (105 F.3d 153 (4th Cir. 1997)), held the Nevada family court's orders were not a valid QDRO because the surviving spouse benefits pursuant to the QJSA irrevocably vest in the participant's spouse at the time of the participant's retirement.  29 U.S.C. § 1056(d)(3)(F) permits a QDRO to reassign surviving spouse benefits if the QDRO expressly assigns surviving spouse rights to a former spouse, did not apply here.  Judy was a "future" or "subsequent" spouse, rather than a "former spouse," because she married Lupe after his retirement.  ERISA did not contemplate reassignment of benefits for future or subsequent spouses. 

The Ninth Circuit held the Nevada family court violated ERISA by ordering IATSE to reassign the beneficiary of Lupe's pension plans because Janis's right as beneficiary irrevocably vested when Lupe retired.  Additionally, because the reassignment of beneficiary violated ERISA, the Nevada family court could not alternatively create a constructive trust for Judy's benefit.  A state court cannot achieve through a constructive trust on the proceeds of a pension plan what it cannot achieve through a QDRO.  The matter was remanded to the district court for further proceedings.

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This opinion is not final. It may be withdrawn from publication, modified on rehearing, or certiorari may be granted by the United States Supreme Court.  These events would render the opinion unavailable for use as legal authority.
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