Brandon v. Travelers Insurance

United States Court of Appeals,

Fifth Circuit.

No. 92-9064.

Wanda Sue BRANDON, Plaintiff-Appellant,

v.

The TRAVELERS INSURANCE COMPANY, and Abbott Laboratories, Abbott
Laboratories, Inc., Defendants-Appellees.

April 20, 1994.

Appeal from the United States District Court for the Northern
District of Texas.

Before GOLDBERG, JONES,* and DUHÉ, Circuit Judges.

GOLDBERG, Circuit Judge:

Richard Brandon designated his wife, Wanda Sue Brandon, as the

beneficiary on a life insurance policy taken out by his employer,

Abbott Laboratories ("Abbott"). The Brandons subsequently

divorced. The divorce decree provided that each spouse would

separately retain his or her own employment benefits. Richard did

not, however, change the beneficiary designation on the life

insurance policy as required by the Summary Plan Documents given to

him by Abbott when the policy was established.

Upon Richard's death, a conflict arose as to whether Wanda was

entitled to receive his life insurance proceeds. When Abbott

refused to pay the insurance proceeds, Wanda filed this suit in

federal court against Abbott and Travelers Insurance Company

("Travelers"), the insurance company from whom Abbott had purchased

*
Judge Jones did not sit for oral argument due to illness
but will participate in the opinion with the aid of the tape
recording.

1
Richard's policy. The district court entered summary judgment

against Wanda, ruling that the divorce decree was res judicata as

to her rights to receive the life insurance proceeds. Although we

disagree with the district court's reasoning, we affirm the

dismissal based on our interpretation of federal common law.

I. BACKGROUND

Richard and Wanda Brandon had been married for twelve years

when, in October of 1986, Richard filed a petition for divorce.

During the couple's separation but prior to finalizing the divorce,

Richard obtained a position with Abbott Laboratories and enrolled

in Abbott's life insurance, annuity retirement, and stock option

programs. These plans were employee welfare benefit plans governed

by the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C.

§§ 1001 et seq. Despite the pending divorce, Richard designated

Wanda as the primary beneficiary under each of the plans.1

According to Wanda, Richard told her that she would remain the

beneficiary on the plans regardless of the divorce.

Although Richard hired an attorney for the divorce

proceedings, held on March 30, 1988, Wanda did not retain an

attorney of her own. Richard and Wanda agreed to a property

division which Richard described to the court at the hearing.

Wanda, for her part, signed a waiver of citation and did not appear

in front of the divorce court. At the conclusion of the hearing,

the judge granted the divorce and accepted the division of property

1
His brother Gary was named as the contingent beneficiary
under all of the plans.

2
agreed to by the parties.

The divorce decree provided that, "Petitioner [Richard] is

awarded the following as Petitioner's sole and separate property,

and Respondent [Wanda] is divested of all rights, title, interest,

and claim in and to such property ... (8) Any and all sums, whether

matured or unmatured, accrued or unaccrued, vested or otherwise,

together with all increases thereof, the proceeds therefrom, and

any other rights relating to any profit-sharing plan, retirement

plan, pension plan, employee stock option plan, employee savings

plan, accrued unpaid bonuses, or other benefit program existing by

reason of Petitioner's past, present, or future employment."2

After their divorce, the Brandons continued to see each other

and sustained many mutual social contacts. The Summary Plan

Document controlling the disposition of Abbott Laboratories

employee benefits, including the life insurance plan, advises

employees that "[y]ou can name anyone as your beneficiary and you

can change your designation at a later date by completing the

appropriate form which is available from and must be submitted to

your local Personnel or Benefits Office." (emphasis added).

Richard never availed himself of the procedures to remove Wanda as

the designated beneficiary. In December of 1989, Richard died

after a two week illness.

After Richard's death, Abbott sent a letter to Wanda

2
The district court relied on this language when it
determined that Wanda could not maintain the present action to
force Abbott and Travelers to pay her the life insurance
proceeds.

3
confirming that she was the primary beneficiary on the benefits

plans. Wanda filled out and returned the various forms sent to her

by Abbott. Subsequently, she learned that Gary Brandon, the

contingent beneficiary, had received a check for $110,000 from

Travelers under Richard's life insurance policy. Abbott had

determined that under the Texas Family Code, a life insurance plan

participant must redesignate an ex-spouse after divorce in order to

maintain that ex-spouse as the designated beneficiary.

Tex.Fam.Code Ann. § 3.632 (West 1987). Because Richard had failed

to redesignate his wife, Abbott concluded that Wanda could no

longer collect the insurance policy proceeds under Texas law.

Therefore, Abbott requested that Travelers pay the insurance

proceeds to the contingent beneficiary, Gary Brandon.

Wanda instituted this action in the United States District

Court for the Northern District of Texas eighteen months later

against both Abbott and Travelers to recover the proceeds of the

insurance policy and the other benefits arising out of Richard's

employment. The district court granted the defendant's summary

judgment motion against Wanda on the grounds that the divorce

decree was res judicata as to any rights Wanda might have in

Richard's employment benefits. This is an appeal from that

judgment.3

II. DISCUSSION

3
Although Wanda noticed an appeal as to Abbott's denial of
all Richard's employment benefits, the only plan with any value
was the life insurance. Therefore, we have chosen to focus, in
accordance with Wanda's argument on appeal, on the insurance
policy proceeds alone.

4
 As an initial matter, we note that the Supreme Court in

Firestone Tire and Rubber Co. v. Bruch, 489 U.S. 101, 115, 109

S.Ct. 948, 956, 103 L.Ed.2d 80 (1989), held that when an

administrator's denial of benefits is challenged, the decision is

reviewed under a de novo standard unless the plan gives the

administrator discretionary authority as to this decision. In the

instant case, the plan requires that the company pay the insurance

proceeds to the designated beneficiary unless for specified reasons

the administrator determines that the contingent beneficiary should

be paid. Because there is no discretionary authority in the

administrator's decision, we review the denial of benefits to Wanda

Brandon under a de novo standard. See Carland v. Metropolitan Life

Ins. Co., 935 F.2d 1114, 1118 (10th Cir.) cert. denied, --- U.S. --

--, 112 S.Ct. 670, 116 L.Ed.2d 761 (1991) (de novo standard applies

when plan compels "the company to pay proceeds to the beneficiary

of record.")

The district court addressed two principal issues in

disposing of the present case. First, the court held that the

anti-alienation provision of ERISA did not prevent Wanda from

waiving any rights she may have had to her husband's insurance

benefits. Fox Valley & Vicinity Constr. Workers' Pension Fund v.

Brown, 897 F.2d 275, 280 (7th Cir.1990) (en banc), cert. denied,

498 U.S. 820, 111 S.Ct. 67, 112 L.Ed.2d 41 (1990).4 ERISA's

4
We have previously held that "a controversy between
good-faith adverse claimants to pension plan benefits is subject
to settlement like any other, and that an assignment made
pursuant to a bona fide settlement of such a controversy is not
invalidated by the anti-alienation provision of ERISA, 29 U.S.C.

5
anti-alienation provision, 29 U.S.C. § 1056(d)(1), states that,

"[e]ach pension plan shall provide that benefits provided under the

plan may not be assigned or alienated." The language of this

portion of ERISA applies only to pension plans while the life

insurance policy purchased by Abbott on Richard's behalf was a

welfare plan under 29 U.S.C. § 1002(1)(A).5 The anti-alienation

provision of ERISA does not, therefore, apply to the present case.

Although the lower court's determination of this question

confirms that the anti-alienation provision of ERISA will not

prevent a waiver of benefits in the instant case, this holding does

not terminate our inquiry. The question remains whether the

divorce decree is sufficient to affirmatively deny Wanda of any

rights she may have had to Richard's insurance benefits.

The district court addressed this question in its second

holding, ruling that the present action to collect the insurance

policy benefits was barred by the res judicata effect of Wanda's

prior divorce decree. Baxter v. Ruddle, 794 S.W.2d 761, 762

(Tex.1990) (final divorce judgment precludes a collateral attack on

the divorce court's disposition of property even if the divorce

decree improperly divides the marital property). We decline to

§ 1056(d)(1)." Stobnicki v. Textron, Inc., 868 F.2d 1460, 1465
(5th Cir.1989).
5
29 U.S.C. § 1002 provides that the "terms "employee welfare
benefit plan' and "welfare plan' mean any plan, fund, or program
... established or maintained by an employer or by an employee
organization, or by both, to the extent that such plan, fund, or
program was established or is maintained for the purpose of
providing its participants or their beneficiaries, through the
purchase of insurance or otherwise ... benefits in the event of
sickness, accident, disability, [or] death."

6
reach the substantive merits of this holding because we are

persuaded that under federal common law, the divorce decree was an

effective waiver of Wanda's rights.

The district court failed to confront the question of whether

Texas law will govern the designation of an ERISA plan beneficiary

under these circumstances or whether any such law would be

preempted by ERISA. Because the case law in this area is clear, we

proceed to an analysis of the questions raised by ERISA preemption.

The difficult circumstances presented by the facts of the

present case have been confronted with surprising frequency by a

variety of our sister circuits. While these issues have not been

previously faced by this court, we find some consistency in the

treatment afforded by other circuits.

Appellees contend that the Texas Family Code requires a

re-designation of an ex-spouse after divorce in order to maintain

the ex-spouse as the designated beneficiary on a life insurance

policy. Tex.Fam.Code Ann. § 3.632 (West 1987). In the instant

case, for this redesignation statute to apply of its own accord,

however, it must survive the wide preemptive sweep of ERISA.

Congress mandated that ERISA "shall supersede any and all

State laws insofar as they may now or hereafter relate to any

employee benefit plan" covered by the statute. 29 U.S.C. §

1144(a). The Supreme Court has held that "the express pre-emption

provisions of ERISA are deliberately expansive, and designed to

"establish pension plan regulation as exclusively a federal

concern.' " Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 45-46,

7
107 S.Ct. 1549, 1552, 95 L.Ed.2d 39 (1987) (quoting Alessi v.

Raybestos-Manhattan, Inc., 451 U.S. 504, 523, 101 S.Ct. 1895, 1906,

68 L.Ed.2d 402 (1981)). In Shaw v. Delta Air Lines Inc., the Court

clarified the meaning of the "relates to" language of the statute

by stating that a "law "relates to' an employee benefit plan, in

the normal sense of the phrase, if it has a connection with or

reference to such a plan." 463 U.S. 85, 96-97, 103 S.Ct. 2890,

2900, 77 L.Ed.2d 490 (1983); see also Rodriguez v. Pacificare of

Tex., Inc., 980 F.2d 1014, 1017 (5th Cir.) cert. denied, --- U.S.

----, 113 S.Ct. 2456, 124 L.Ed.2d 671 (1993). ERISA will be found

to preempt a related state law even where the state law is not

specifically intended to regulate ERISA covered plans. Ingersoll-

Rand Co. v. McClendon, 498 U.S. 133, 111 S.Ct. 478, 483, 112

L.Ed.2d 474 (1990).

Without exception, courts have held that ERISA preempts the

application of state law under the circumstances of this case.

Facing a situation similar to the one under consideration here, the

Sixth Circuit held that the "designation of beneficiaries plainly

relates to these ERISA plans, and we see no reason to apply state

law on this issue." McMillan v. Parrott, 913 F.2d 310, 311 (6th

Cir.1990); see also Brown v. Connecticut General Life Ins. Co.,

934 F.2d 1193, 1195 (11th Cir.1991) (citing McMillan for the

proposition that "[t]he determination of the beneficiary of the

proceeds of an insurance policy plainly relates to an employee

benefit plan"). The Second, Seventh, and Eighth Circuits have all

made similar decisions finding that the designation of

8
beneficiaries is well within the area of state law preempted by

ERISA. Krishna v. Colgate Palmolive Co., 7 F.3d 11, 15 (2nd

Cir.1993); MacLean v. Ford Motor Co., 831 F.2d 723 (7th Cir.1987);

Lyman Lumber Co. v. Hill, 877 F.2d 692, 693 (8th Cir.1989). We

agree with the reasoning of these cases and hold that the

designation of a beneficiary "relates to" the provision of an ERISA

plan to a sufficient degree to be preempted by that statute.6

Having passed upon preemption, we next move to the second step

in the determination of a parties' rights in an ERISA plan.

Because we have determined that state law is preempted in this

case, we must now ascertain the law that is applicable to the

controversy. Therefore, we "look to either the statutory language

or, finding no answer there, to federal common law which, if not

clear, may draw guidance from analogous state law." McMillan, 913

F.2d at 311. Courts that have faced the issues presented by this

case have split as to whether ERISA itself supplies the rule of law

or whether judges must look to federal common law for the

controlling principles.

The Sixth Circuit in McMillan decided that Section

1104(a)(1)(D) of ERISA specifically addressed the instant

situation. McMillan, 913 F.2d at 311-12. That section requires

6
Because our interpretation of federal common law provides a
satisfactory resolution of the issues of this case, we find it
unnecessary to determine whether the divorce decree here is
exempted from the pre-emption provisions of ERISA as a qualified
domestic relations order ("QDRO"). 29 U.S.C. §
1056(d)(3)(B)(i)(I). See Carland, 935 F.2d at 1120 (QDRO
exception will apply to exempt both pension and welfare benefit
plans from ERISA preemption).

9
that a plan administrator administer the plan "in accordance with

the documents and instruments governing the plan...." 29 U.S.C. §

1104(a)(1)(D) (1985). The McMillan court held that Section 1104 of

ERISA is clear in requiring that plan administrators follow the

plan documents and therefore the court in that case required the

administrator to follow the plan documents in making beneficiary

designation determinations. The ex-husband in McMillan, as here,

never removed his former wife as the designated beneficiary on his

ERISA profit-sharing plan and a conflict arose between the plan

documents requiring all changes be filed with the plan

administrator and the divorce decree divesting the ex-wife of any

interest in the plan. The court held that the "clear statutory

command, together with the plan provisions, answer the question;

the documents control, and those name [the ex-wife]." McMillan at

311-312.

The alternative approach taken by courts faced with a similar

problem to the one we face today is to look to federal common law

to resolve the question of how beneficiaries are designated. See

Fox Valley 897 F.2d at 281; Lyman Lumber, 877 F.2d at 693. The

courts in Fox Valley and Lyman Lumber asked whether there was a

valid, specific waiver of benefits in the divorce decree to which

the court, under the auspices of federal common law, could give

effect. Id.

The Fox Valley court looked to state law for guidance in

determining whether to give effect to a waiver of benefits through

a divorce decree. The court, in fashioning federal common law,

10
looked to Illinois family law which provided that a divorce decree

will not effect the pension rights of a designated beneficiary

unless the property settlement specifically included a termination

of those rights. Fox Valley, 897 F.2d at 281-82. The Fox Valley

court held that under Illinois state law, the divorce settlement in

that case was sufficient to divest the wife of her rights to her

ex-husband's employment benefits. The court asserted that the

"ability of a spouse to waive rights to a benefit through a

specific waiver in a divorce settlement has been recognized by many

[state] courts and we adopt that rule for purposes of ERISA." Id.

at 281. The Seventh Circuit adopted state law through federal

common law and determined that the provision in the divorce decree

divesting the wife of her rights to the benefits in question,

should be enforced. Id.

We find that the federal common law approach outlined by the

court in Fox Valley to be the most persuasive resolution of the

issues of this case. Federal respect for state domestic relations

law has a long and venerable history. When courts face a potential

conflict between state domestic relations law and federal law, the

strong presumption is that state law should be given precedence:

The scope of a federal right is, of course, a federal
question, but that does not mean that its content is not to be
determined by state, rather than federal law.... This is
especially true where a statute deals with a familial
relationship; there is no federal law of domestic relations,
which is primarily a matter of state concern.

De Sylva v. Ballentine, 351 U.S. 570, 580, 76 S.Ct. 974, 980, 100

L.Ed. 1415 (1956) (citations omitted).

The law of family relations has been a sacrosanct enclave,

11
carefully protected against federal intrusion. One way our

federalist system maintains the integrity of the folkways and mores

of localities is through the conservation of state control over the

creation and separation of families. We do not, however, mean to

infer that this sacrosanctity should be impenetrable.

In this case, as urged by Abbott, we adopt the Texas rule

creating a presumption of waiver absent redesignation following

divorce. Tex.Fam.Code Ann. § 3.632. However, in looking to state

family law for guidance, we recognize that wholesale adoption of

the Texas redesignation statute will not sufficiently protect the

interests of beneficiaries. Thus, in our fashioning of federal

common law, we modify the adoption of state law to require that any

waiver be voluntary and in good faith. Our approach is bolstered

by Lyman Lumber in which the Eighth Circuit took a similar tact in

utilizing a modified state law to breathe life into the federal

common law.

In that case the court concluded that a divorce decree which

stated that the husband "shall have as his own, free of any

interest of [his ex-wife], his interest in the profit-sharing plan

of his employer" was not sufficient to revoke the wife's interest.

877 F.2d at 693. The Lyman court ruled that the wife had not

effectively waived her rights to his employment benefits under this

language because there were no terms "specifically divesting the

spouse's rights as a beneficiary under the policy or plan." Id.

The holding in Lyman is such as to require that courts look with

great perspicacity in finding a waiver of benefits by a divorce

12
decree.

In Fox Valley, the Seventh Circuit took a similar approach to

the waiver. The waiver executed by the wife in the divorce

settlement at issue in that case provided that "[t]he parties each

waive any interest or claim in and to any retirement, pension,

profit-sharing and/or annuity plans resulting from the employment

of the other party." 897 F.2d at 277. The court in Fox Valley

held that "[u]nlike the factual setting in Lyman, [the spouses] in

the present case signed a voluntary property settlement agreement

that included an explicit mutual waiver of any rights each might

have had in the other's pension plan." Id. at 280.

Thus, we follow the courts in Fox Valley and Lyman Lumber by

requiring under federal common law that any waiver of ERISA

benefits be explicit, voluntary, and made in good faith. Although

the district court in the instant case did not reach the question

of ERISA preemption and therefore never made findings as to whether

the decree is the sort of good faith waiver which should be

enforced, we are able, from the record as it is before us, to make

the required determinations.

The appellant Wanda Brandon has made various allegations as

to her lack of knowledge about the specifics of the settlement and

as to the fact that she was neither represented by a lawyer during

the divorce nor was she present at the divorce proceedings.

However, it is clear that it was her choice not to hire an attorney

and to stay away from the divorce court. The settlement was quite

generous to her interests as she received a considerable portion of

13
the community estate, including both the house and car jointly

owned by the Brandons. Her representations simply are insufficient

to raise a genuine issue as to the voluntary nature and good faith

basis of the waiver, and, we therefore find no reason to alter the

judgment in this case.

Factually, the situation of this case is not unusual to the

experience of the nation's divorce courts. Parties in divorce

litigation often trade and exchange their property with one

another. The state courts of our country often oversee the type of

agreement signed by the Brandons, which, in the ordinary case,

offer sufficient protection of the rights of the parties. The

oversight of the family courts is suitably armored to protect the

rights at stake in this case and we find the approach of this

opinion preferable to asserting that ERISA should act as a

surrogate law of divorce.

The divorce decree was a bona fide waiver of her rights to the

insurance policy proceeds and we are bound to carry out the

provisions of the agreement signed by the parties. We find that

summary judgment was the proper disposition of Wanda Brandon's suit

and although our reasoning may differ, we find no objection to the

result.

III. CONCLUSION

The order granting summary judgment is AFFIRMED.

14