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Yale-New Haven Hosp. v. Nicholls

United States Court of Appeals, Second Circuit

June 4, 2015

YALE-NEW HAVEN HOSPITAL, Interpleader-Plaintiff,
v.
CLAIRE M. NICHOLLS, Defendant-Cross-Defendant-Appellee,
v.
BARBARA NICHOLLS, Defendant-Cross-Claimant-Appellant.

Argued October 16, 2014.

Page 80

Appeal from an order of the United States District Court for the District of Connecticut (Warren W. Eginton, Judge), granting Claire Nicholls's motion for summary judgment and denying Barbara Nicholls's motion for summary judgment. We hold that the posthumous nunc pro tunc domestic relations orders constitute valid " qualified domestic relations orders" that properly assign plan funds to Claire Nicholls with respect to the three retirement and pension plans specified therein, but that they have no such effect on a fourth plan not so specified. Accordingly, we AFFIRM in part and REVERSE in part the judgment of the District Court.

KENNETH VOTRE, Votre & Associates, P.C., East Haven, CT, for Barbara Nicholls.

SUSAN E. NUGENT, Murphy & Nugent, LLC, New Haven, CT, for Claire M. Nicholls.

Before: KEARSE, STRAUB and WESLEY, Circuit Judges. Judge WESLEY concurs in part and dissents in part, in a separate opinion.

OPINION

Page 81

Straub, Circuit Judge :

Yale-New Haven Hospital brought this interpleader action pursuant to the Employee Retirement Income Security Act of 1974 (" ERISA" ), 29 U.S.C. § 1001 et seq., to resolve competing claims by Barbara Nicholls and Claire Nicholls to certain funds held in the four retirement and pension plans of the late Harold Nicholls. Barbara Nicholls, the surviving spouse of Mr. Nicholls, argues that the funds are payable to her because she is the named beneficiary in the plan documents. Claire Nicholls, the former spouse of Mr. Nicholls, contends that a portion of those funds are instead payable to her. She argues that three state court orders--her divorce settlement agreement and two nunc pro tunc orders entered after Mr. Nicholls's death--constitute qualified domestic relations orders (" QDROs" ) within the meaning of ERISA and thus validly assign those funds to her. The District Court granted summary judgment in favor of Claire Nicholls on the ground that the divorce settlement agreement constitutes a QDRO applicable to all four retirement plans.

We find that the divorce settlement agreement does not constitute a QDRO because the agreement fails to comply with the requirements of 29 U.S.C. § 1056(d)(3)(C). We conclude, however, that the nunc pro tunc orders constitute valid QDROs that assign funds to Claire Nicholls from the three retirement and pension plans named in the orders. But because the nunc pro tunc orders do not clearly specify the fourth plan, we conclude that the orders do not assign funds from that plan to Claire Nicholls. We therefore affirm the judgment of the District Court with respect to the three plans specified in the nunc pro tunc orders, and reverse the judgment as to the fourth plan.

BACKGROUND

At issue here is whether the domestic relations orders identified by Claire Nicholls constitute " qualified domestic relations orders" within the meaning of ERISA. Unless they are QDROs, the orders cannot compel the transfer of funds from Mr. Nicholls's retirement and pension plans to Claire Nicholls. Generally, ERISA precludes the assignment or alienation of benefits under covered plans, 29 U.S.C. § 1056(d)(1), and preempts state laws that " relate to" employee benefits plans, id. § 1144(a). However, ERISA's anti-assignment and -alienation provisions do not apply to, and ERISA does not preempt, " qualified domestic relations orders." Id. § § 1056(d)(3)(A), 1144(b)(7); see also Boggs v. Boggs, 520 U.S. 833, 846-47, 117 S.Ct. 1754, 138 L.Ed.2d 45 (1997).

Page 82

A. Qualified Domestic Relations Orders

The exception of QDROs from ERISA's alienation and preemption provisions was a product of the Retirement Equity Act of 1984 (" REA" ), which took effect for relevant purposes on January 1, 1985. See Pub. L. No. 98-397, 98 Stat. 1426 (1984). Prior to the REA, ERISA had the unintended effect of " disturbing interests and expectations" in state-court matrimonial disputes, in which employment benefits were commonly at issue. Metro. Life Ins. Co. v. Bigelow, 283 F.3d 436, 441 (2d Cir. 2002). One of the REA's " central purposes" was to protect " the spouse and dependent children in the event of divorce or separation" and the " surviving spouse" in " the event of death," Boggs, 520 U.S. at 847, and the REA was thus designed to give effect to divorce decrees and related state-court orders insofar as they pertained to ERISA-regulated plans, see Bigelow, 283 F.3d at 441.

The REA defines a QDRO as a domestic relations order that " creates or recognizes the existence of an alternate payee's right to, or assigns to an alternate payee the right to, receive all or a portion of the benefits payable with respect to a participant under a plan . . . ." [1] 29 U.S.C. § 1056(d)(3)(B)(i)(I). In order to qualify as a QDRO, a domestic relations order must also meet several other requirements. As is relevant here:

(C) A domestic relations order meets the requirements of this subparagraph only if such order clearly specifies--

(i) the name and the last known mailing address

(if any) of the participant and the name and mailing address of each alternate payee covered by the order,

(ii) the amount or percentage of the participant's benefits to be paid by the plan to each such alternate payee, or the manner in which such amount or percentage is to be determined,

(iii) the number of payments or period to which such order applies, and

(iv) each plan to which such order applies.

Id. § 1056(d)(3)(C).

B. Harold Nicholls and Claire Nicholls's Divorce and Settlement Agreement

On September 5, 2008, the Connecticut Superior Court for the Judicial District of New Haven divorced Harold Nicholls and Claire Nicholls by entering a Judgment for Dissolution of Marriage. A " Settlement Agreement/Stipulation To Judgment" (" Settlement Agreement" ), also dated September 5, 2008, was incorporated by reference into the Judgment for Dissolution of Marriage.

The Settlement Agreement provided, inter alia, that: " The Husband shall transfer to the wife one half of that portion of his PENSION and RETIREMENT ACCOUNTS, which were accumulated during the marriage. This will include the marital portion of annual deposit, if any, for the year 2008, which has not yet been made." App'x at 26 ¶ 16.2. The Settlement Agreement also provided that:

Since the division of [the pension and retirement plans] is as of the date of the final decree for dissolution of marriage, the wife shall share, in proportion to her ownership interest in the asset, in all earnings, gains, losses, appreciation,

Page 83

and/or depreciation, due to market activity from the date of the final decree for dissolution of marriage to the date of the actual assignment and transfer.

Id. at 26 ¶ 16.2(B).

The Settlement Agreement further provided that:

The parties agree that the Court granting the dissolution of their marriage shall retain jurisdiction to amend the aforesaid orders regarding the assignment and transfers to the wife from said retirement plans or retirement accounts for the purposes of establishing or maintaining a Qualified Domestic Relations Order under the Retirement Equity Act of 1984 acceptable to plan administrators and with provisions which carry out the intent of the division of the parties' retirement assets.

Id. at 27 ¶ 16.6. No funds were transferred from Mr. Nicholls's pension and retirement plans to Claire Nicholls during his lifetime.

C. Mr. Nicholls's Remarriage and Death

In 2009, Mr. Nicholls married Barbara Nicholls. Mr. Nicholls died on February 11, 2012. At the time of his death, Mr. Nicholls was a participant in four retirement and pension plans: (1) the Yale-New Haven Hospital Cash Account Pension Plan (" CAP Plan" ), (2) the Yale-New Haven Hospital Matching Tax Shelter Annuity Plan (" Matching Plan" ), (3) the Yale-New Haven Hospital Section 403(b) Tax-Sheltered Annuity Plan (" 403(b) Plan" ), and (4) the Yale-New Haven Hospital and Tax-Exempt Affiliates 457 Non-Qualified Deferred Compensation Plan (" 457 Plan" ). Barbara Nicholls was the named beneficiary of each of these plans.

D. The Posthumous Domestic Relations Orders

On June 18 and August 1, 2012, Judge Bernadette Conway of the Connecticut Superior Court for the Judicial District of New Haven signed two nunc pro tunc [2] " Qualified Domestic Relations Order[s]" directing the plan administrator to distribute to Claire Nicholls her benefit in three of the late Mr. Nicholls's retirement and pension plans: (1) the CAP Plan, (2) the Matching Plan, and (3) the 403(b) Plan. The fourth plan in which Mr. Nicholls was a participant, the 457 Plan, was not named in either order. Each order specified that " the Court intends that this Order shall be a Qualified Domestic Relations Order . . . as that term is used in Section 206(d) of the Employee Retirement Income Security Act of 1974." App'x at 41, 46.

E. Procedural History

The plan administrator, Yale-New Haven Hospital, received competing claims from Barbara Nicholls and Claire Nicholls for certain funds in the three retirement and pension plans specified in the nunc pro tunc orders, as well as the fourth plan not specified therein. To resolve those claims, the plan administrator filed an interpleader complaint in the U.S. District Court for the District of Connecticut.

The District Court granted summary judgment in favor of Claire Nicholls and denied Barbara Nicholls's motion for summary judgment. In so ordering, the District Court found the September 5, 2008 dissolution of marriage judgment " to be a qualified domestic relations order in that it substantially complies with 29 U.S.C. § 1056(d)(3)(B)(i)."

Page 84

Yale-New Haven Hosp. v. Nicholls, No. 3:12-cv-01319, 2013 WL 6331256, at *3 (D. Conn. Dec. 5, 2013).

This timely appeal followed.

DISCUSSION

Barbara Nicholls raises two arguments on appeal. We agree with her first argument, but reject her second. First, Barbara Nicholls asserts that the divorce settlement agreement between Claire Nicholls and Mr. Nicholls does not constitute a QDRO because it fails to fully comply with the requirements of 29 U.S.C. § 1056(d)(3)(C). Claire Nicholls, relying on our holding in Metropolitan Life Insurance Co. v. Bigelow, 283 F.3d 436 (2d Cir. 2002), responds that the Settlement Agreement is a QDRO because it substantially complies with the statute. Because the " substantial compliance" rule announced in Bigelow does not apply to domestic relations orders--like this one--which were entered after the 1985 effective date of the REA, the Settlement Agreement does not constitute a QDRO.

Second, Barbara Nicholls argues that the two nunc pro tunc orders do not constitute valid QDROs because they were entered after the death of Mr. Nicholls. However, Congress has made clear that domestic relations orders are not invalid simply because they were entered after the death of the plan participant. We therefore hold that the nunc pro ...


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