Evans v. Diamond ( 2020 )

FILED
United States Court of Appeals
Tenth Circuit
PUBLISH April 28, 2020
Christopher M. Wolpert
UNITED STATES COURT OF APPEALS Clerk of Court
TENTH CIRCUIT
HILLARY ANN DIAMOND EVANS,
as Executor of the Estate of Gregory
C. Diamond and Trustee of the
Gregory C. Diamond Family Living
Trust; THE ESTATE OF GREGORY
C. DIAMOND; THE GREGORY C. No. 19-4083
DIAMOND FAMILY LIVING
TRUST,
Plaintiffs - Appellants,
v.
BETTY EILEEN DIAMOND,
Defendant - Appellee.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF UTAH
(D.C. NO. 2:18-CV-00722-CW-PMW)
Brittany Frandsen (James W. McConkie III with her on the briefs), Workman
Nydegger, Salt Lake City, Utah, for Appellants.
Daniel S. Sam, Sam, Reynolds & Van Oostendorp, P.C., Vernal, Utah, for
Appellee.
Before BACHARACH, BALDOCK, and MURPHY, Circuit Judges.
MURPHY, Circuit Judge.
I. Introduction 1
Plaintiffs-Appellants, (collectively referred to as the “Estate”), brought this
action against Defendant-Appellee, Betty Eileen Diamond (“Diamond”), the
former wife of Gregory Diamond (the “Decedent”). The complaint alleges the
Decedent was a federal employee who had a Thrift Savings Plan account (the
“TSP Account”) administered by the Federal Retirement Thrift Investment Board
(“FRTIB”). TSP accounts are a “type of retirement savings account offered to
federal employees.” Woody v. U.S. Dep’t of Justice (In re Woody), 494 F.3d 939,
945 n.4 (10th Cir. 2007). During Diamond’s marriage to the Decedent, she was
the named beneficiary of Decedent’s TSP Account. When Diamond and the
Decedent divorced in 2013, they entered into a divorce decree containing the
following provision relevant to the Decedent’s TSP Account: “The parties have
acquired an interest in retirement accounts during the course of the marriage.
[Diamond] waive[s] her interest in [Decedent’s] retirement accounts. Therefore,
[Decedent] is awarded any and all interest in his retirement accounts, free and
clear of any claim of [Diamond].” When the Decedent died in 2017, however,
Diamond was still designated as the beneficiary of the TSP Account.
1
Any facts set out in this opinion were not found by the district court but
were presumed to be true for purposes of resolving Diamond’s motion to dismiss.
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The Estate requested that Diamond waive all her interest in any distribution
she received from the TSP Account. After Diamond refused and indicated her
intent to retain any monies distributed to her, the Estate filed a declaratory
judgment action against her in Utah’s Third Judicial District Court. Diamond
removed the case to federal district court and filed a motion to dismiss the
Estate’s complaint. The district court granted the motion, concluding the Estate’s
breach of contract claims against Diamond are preempted by federal law
governing the administration of TSP accounts. Evans v. Diamond, 389 F. Supp.
3d 979, 985 (D. Utah 2019).
Exercising jurisdiction pursuant to 28 U.S.C. § 1291, we affirm the ruling
of the district court. The court correctly concluded the relevant provisions of the
Federal Employee Retirement Systems Act (“FERSA”), 5 U.S.C. §§ 8401-8480,
preempt any conflicting Utah state property rights.
II. Discussion
A district court’s dismissal of a complaint for failure to state a claim is
reviewed de novo by this court. Doe v. Woodard, 912 F.3d 1278, 1299 (10th Cir.
2019). “The court’s function on a Rule 12(b)(6) motion is not to weigh potential
evidence that the parties might present at trial, but to assess whether the
plaintiff’s . . . complaint alone is legally sufficient to state a claim for which
relief may be granted. We accept all well-pled factual allegations as true and
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view these allegations in the light most favorable to the nonmoving party.”
Peterson v. Grisham, 594 F.3d 723, 727 (10th Cir. 2010) (quotation and citation
omitted). The Estate alleges that Diamond’s retention of any monies she receives
from the Decedent’s TSP Account would be a breach of the agreement set out in
the Utah divorce decree. Diamond argues that any state claim related to
distributions from the TSP Account is preempted by FERSA. Thus, the question
presented in this appeal is purely legal. If the claims raised in the Estate’s
complaint, even assuming they can be proved, are preempted by federal law, the
Estate’s complaint must be dismissed.
“State law is pre-empted to the extent of any conflict with a federal
statute.” Hillman v. Maretta, 569 U.S. 483, 490 (2013) (quotation omitted). Such
conflict preemption occurs “where it is impossible for a private party to comply
with both state and federal law” and where state law “stands as an obstacle to the
accomplishment and execution of the full purposes and objectives of Congress.”
Crosby v. Nat’l Foreign Trade Council, 530 U.S. 363, 372-73 (2000) (quotation
omitted). Whether a state-law claim over the distribution from a decedent’s TSP
account is preempted by FERSA is a matter of first impression in this Circuit.
Materially similar issues involving other federal statutes, however, have been
addressed several times by the United States Supreme Court. In those cases, the
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Court repeatedly struck down state court judgments having the effect of diverting
proceeds from designated beneficiaries.
In 1950, the Supreme Court addressed whether the National Service Life
Insurance Act of 1940 (“NSLIA”) preempted a state-law action by an insured’s
widow to recover a portion of the proceeds paid to the insured’s designated
beneficiary. Wissner v. Wissner, 338 U.S. 655, 656 (1950). The Court considered
the “controlling section of the Act,” to be the one regulating the insured’s power
to designate a beneficiary. Id. at 658. That provision of NSLIA directed that the
insured “shall have the right to designate the beneficiary or beneficiaries of the
insurance (within a designated class) . . . and shall . . . at all times have the right
to change the beneficiary or beneficiaries.” Id. (quotation omitted). The Court
concluded this language showed “Congress ha[d] spoken with force and clarity in
directing that the proceeds belong to the named beneficiary and no other.” Id. It
further concluded that ordering a portion of the proceeds to be transferred to the
insured’s widow pursuant to state community property law would improperly
“substitute[]” the widow for “the beneficiary Congress directed shall receive the
insurance money.” Id. at 658-59. The Court determined any such order would
impermissibly “nullif[y] the [insured’s] choice and frustrate[] the deliberate
purpose of Congress,” regardless of whether the order was “directed at the very
money received from the Government [by the designated beneficiary] or an
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equivalent amount.” Id. at 659. Further, because NSLIA contained an anti-
attachment provision, 2 the Court held that future payments made to the designated
beneficiary could not be subject to a state-court order without also thwarting
congressional intent. Id. at 659-60. Its analysis of the relevant provisions of
NSLIA led the Court to conclude “that the chosen beneficiary of the life
insurance policy shall be, during life, the sole owner of the proceeds.” Id. at 660.
In Ridgway v. Ridgway, the Supreme Court applied the reasoning in
Wissner to the distribution of life insurance proceeds under the Servicemen’s
Group Life Insurance Act of 1965 (“SGLIA”). 454 U.S. 46, 47 (1981). It held
that SGLIA and its implementing regulations preempted the imposition of a
state-law constructive trust upon any policy proceeds paid to the properly
designated beneficiary. Id. at 62-63. In reaching this conclusion, the Court relied
on SGLIA’s statutory “order of precedence,” which provided that “the proceeds of
a policy are paid first to such beneficiary or beneficiaries as the member . . . may
have designated by [an appropriately filed] writing.” Id. at 52 (quotation
omitted). If no such beneficiary was designated, the statute directed the proceeds
be paid to the individuals in the order set out in the order-of-precedence
2
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 v. Wissner, 338 U.S. 655, 659
(1950).
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provision. Id. (“If there be no such designated beneficiary, the proceeds go to
the widow or widower of the service member or, if there also be no widow or
widower, ‘to the child or children of such member . . . and descendants of
deceased children by representation.’ Parents, and then the representative of the
insured’s estate (an obvious bow at this point in the direction of state law), are
next in order.”). The Court held that the order-of-precedence provision showed
“‘Congress has spoken with force and clarity in directing that the proceeds belong
to the named beneficiary and no other.’” Id. at 56 (quoting Wissner, 338 U.S. at
658). The Court recognized “small differences” between SGLIA and NSLIA with
respect to how to designate and change a beneficiary, but concluded SGLIA’s
“unqualified directive to pay the proceeds to the properly designated beneficiary”
per the statutory order of precedence “clearly suggests that no different result was
intended by Congress.” Id. at 57.
The Court reaffirmed the principles set out in Wissner and Ridgway in
Hillman v. Maretta, 569 U.S. 483 (2013). Hillman involved a life insurance
policy governed by the Federal Employees’ Group Life Insurance Act of 1954
(“FEGLIA”). Id. at 485. The insured named his first wife as the beneficiary of
his insurance policy. Id. at 488. Several years after the couple divorced, the
insured remarried but failed to change the beneficiary designation. Id. at 489.
When the insured died, the policy benefits were paid to his first wife in
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accordance with the governing federal statute. Id. The insured’s second wife
sued the designated beneficiary, raising a Virginia state-law claim that, if
successful, would have made the beneficiary personally liable for the amount the
beneficiary received in insurance proceeds from the FEGLIA policy. Id. The
Supreme Court held the Virginia statute was preempted, concluding:
“[A]pplicable state law substitutes the widow for the beneficiary Congress
directed shall receive the insurance money, and thereby frustrates the deliberate
purpose of Congress to ensure that a federal employee’s named beneficiary
receives the proceeds.” Id. at 494 (citation and quotation omitted). Directly
relevant to the issue before this court, the Supreme Court further explained: “It
makes no difference whether state law requires the transfer of the proceeds . . . or
creates a cause of action[] . . . that enables another person to receive the proceeds
upon filing an action in state court. In either case, state law displaces the
beneficiary selected by the insured in accordance with FEGLIA and places
someone else in her stead.” Id. Also relevant is the Court’s description of
FEGLIA as “strikingly similar” to the statutes it analyzed in Wissner and Ridgway
because all three “create[d] a scheme that gives highest priority to an insured’s
designated beneficiary.” Id. at 493. The Court described FEGLIA’s “order of
precedence” as “nearly identical” to the order of precedence in Ridgway because
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“[b]oth require that the insurance proceeds be paid first to the named beneficiary
ahead of any other potential recipient.” Id. at 493-94.
TSP accounts are governed by FERSA. See 5 U.S.C. §§ 8401–8480. In
light of the Supreme Court precedent discussed above, the provisions of FERSA
relevant to the matter before this court are those governing beneficiary
designations. FERSA permits an employee 3 to “designate one or more
beneficiaries.” Id. § 8424(c). It then expressly sets out an “order of precedence,”
dictating how distributions must be made:
(d) Lump-sum benefits . . . shall be paid to the individual or
individuals surviving the employee or Member and alive at the date
title to the payment arises in the following order of precedence, and
the payment bars recovery by any other individual:
First, to the beneficiary or beneficiaries designated by the employee
or Member in a signed and witnessed writing received in the Office
before the death of such employee or Member. For this purpose, a
designation, change, or cancellation of beneficiary in a will or other
document not so executed and filed has no force or effect.
Second, if there is no designated beneficiary, to the widow or
widower of the employee or Member.
Third, if none of the above, to the child or children of the employee
or Member and descendants of deceased children by representation.
Fourth, if none of the above, to the parents of the employee or
Member or the survivor of them.
3
The term “employee” is defined in 5 U.S.C. § 8401(11).
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Fifth, if none of the above, to the duly appointed executor or
administrator of the estate of the employee or Member.
Sixth, if none of the above, to such other next of kin of the employee
or Member as the Office determines to be entitled under the laws of
the domicile of the employee or Member at the date of death of the
employee or Member.
Id. § 8424(d). Thus, if a beneficiary is designated in a signed and witnessed
writing delivered to the Office of Personnel Management, FERSA’s “order of
precedence” provision requires that the decedent’s benefits “shall be paid” to that
beneficiary. Id. Furthermore, payment “bars recovery by any other individual.”
Id.
As the Supreme Court did in Hillman, we first ascertain the “nature of the
federal interest” at issue. 569 U.S. at 491. FERSA’s order-of-precedence
provision clearly and unequivocally states that any balance in an employee’s TSP
account at the time of his death shall be paid to his designated beneficiary. This
express directive is not materially different from the order-of-precedence
provisions examined by the Court in Ridgway and Hillman. Thus, we can
confidently conclude that the federal interest at issue in this matter is the
“authority of Congress to control payment of the proceeds” of TSP accounts. See
Ridgway, 454 U.S. at 56. Other language in FERSA bolsters our conclusion
Congress intended that the beneficiary properly designated by an employee before
his death shall receive the monies in the employee’s TSP account free and clear of
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any claim by any other individual or entity. FERSA’s order of precedence
expressly bars any claim to a TSP account based on “a designation, change, or
cancellation of beneficiary in a will or other document.” 5 U.S.C. § 8424(d). The
statute, accordingly, restricts the method by which an employee may designate his
beneficiary and prohibits distributions to anyone other than the properly
designated beneficiary. 4 The order-of-precedence provision also expressly states
that payment to the designated beneficiary “bars recovery by any other
individual.” Id. FERSA also contains the following anti-attachment provision
applicable to distributions made pursuant to the order-of-precedence provision:
“Any amount payable under subchapter II . . . of this chapter is not assignable,
either in law or equity, except under the provisions of section 8465 or 8467, or
subject to execution, levy, attachment, garnishment or other legal process, except
as otherwise may be provided by Federal laws.” Id. § 8470(a).
The Estate argues the order-of precedence and anti-attachment provisions in
FERSA are for administrative convenience only and do not show a congressional
intent to ensure Diamond receives the proceeds free of its competing claim.
According to the Estate, its state-law claims will not usurp the Decedent’s
beneficiary designation because it is not seeking payment directly from the TSP
4
For purposes of Diamond’s motion to dismiss, she was presumed to be the
designated beneficiary. Evans v. Diamond, 389 F. Supp. 3d 979, 985 (D. Utah
2019).
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Account. Instead, it is seeking the imposition of a constructive trust on any
monies the beneficiary receives. Thus, as the argument goes, there is no longer a
federal interest at stake once Diamond, the designated beneficiary, receives the
benefits. This argument was considered and rejected by the Supreme Court in
Hillman.
In Hillman, the plaintiff pursued claims based on a Virginia state statute
that imposed liability on the designated beneficiary for the amount the beneficiary
received from the decedent’s FEGLIA insurance policy. 569 U.S. at 494. Like
the Estate argues here, the plaintiff asserted FEGLIA’s order of precedence was
for “administrative convenience” only and permitting a state “cause of action
[that] takes effect only after benefits have been paid, . . . would not necessarily
impact the Government’s distribution of insurance proceeds.” Id. at 491. Relying
on Wissner 5 and Ridgway, 6 and referencing the provision of FEGLIA that “gives
5
In Wissner, the Supreme Court concluded NSLIA preempted state law even
though the question before the Court was whether a judgment could be entered
against the designated beneficiary for the amount of benefits that had been (and
would be) paid to her. 338 U.S. at 658. The Court explained its reasoning very
clearly, stating: “Whether directed at the very money received from the
Government [by the designated beneficiary] or an equivalent amount” in the form
of a judgment against her, such a judgment would “nullif[y] the [insured’s] choice
and frustrate[] the deliberate purpose of Congress.” Id. at 659.
6
In Ridgway, the Supreme Court alternatively relied on the anti-attachment
provision in SGLIA to conclude a constructive trust could not be imposed on
insurance proceeds that had already been distributed to the properly designated
beneficiary. Ridgway v. Ridgway, 454 U.S. 46, 61 (1981) (“We find nothing to
(continued...)
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highest priority to an insured’s designated beneficiary,” id. at 493, the Court
rejected the plaintiff’s argument, concluding the “deliberate purpose of Congress
[was] to ensure that a federal employee’s named beneficiary receives the
proceeds.” Id. at 494 (quotation omitted). It concluded the Virginia law at issue
“interferes with Congress’ scheme, because it directs that the proceeds actually
‘belong’ to someone other than the named beneficiary by creating a cause of
action for their recovery by a third party.” Id. The Court clearly held that when a
federal statute requires that an amount be distributed to a properly designated
beneficiary, Congress intended “that the beneficiary can use them,” id. at 495, and
any monies owed to the beneficiary “cannot be allocated to another person by
operation of state law,” id. at 497.
The Estate argues Wissner, Ridgway, and Hillman are inapposite with
respect to the question of whether a post-distribution lawsuit is preempted
because those cases involved insurance proceeds, not retirement benefits. The
6
(...continued)
indicate that Congress intended to exempt claims based on property settlement
agreements from the strong language of the anti-attachment provision.”).
Although the statute at issue in Hillman did not contain an anti-attachment
provision, the Court nonetheless held that a state post-distribution claim was
preempted. Hillman v. Maretta, 569 U.S. 483, 497-98 (2013). As set out infra,
FERSA contains an anti-attachment provision. 5 U.S.C. § 8470(a). This
provision, coupled with the reasoning in Ridgway, is sufficient to support our
conclusion that the Estate’s post-distribution claims are preempted. Hillman,
however, settles the question.
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Estate advocates for the approach suggested in Kennedy v. Plan Administrator for
DuPont Savings & Investment Plan, a Supreme Court case addressing post-death
payments from a plan governed by the Employee Retirement Income Security Act
(“ERISA”). 555 U.S. 285 (2009). In Kennedy, the Court held that the
administrator of a decedent’s ERISA plan correctly distributed benefits to the
beneficiary designated by the decedent in the plan documents even though the
beneficiary had previously waived her right to those benefits in a divorce decree.
Id. at 288. The Court, however, left open the possibility of a post-distribution
lawsuit, stating it was not “express[ing] any view as to whether the [decedent’s]
Estate could have brought an action in state or federal court against [the
beneficiary] to obtain the benefits after they were distributed.” Id. at 299 n.10.
According to the Estate, both FERSA and ERISA involve retirement
benefits and the primary purpose of a retirement fund is to provide benefits to the
employee during his lifetime, not to provide a distribution to the designated
beneficiary upon the employee’s death. Thus, it argues, Kennedy stands for the
proposition that post-distribution suits would not frustrate the purpose of FERSA
because they do not frustrate the purpose of ERISA. This argument ignores the
fact that unlike FERSA, ERISA does not contain a statutory order of precedence
relating to the distribution of plan benefits upon the death of a participant. Thus,
the Estate’s position is inconsistent with Supreme Court precedent holding that
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congressional purpose is embodied in order-of-precedence provisions and
permitting a post-distribution lawsuit would “frustrate[] the deliberate purpose of
Congress to ensure that a federal employee’s named beneficiary receives the
proceeds.” Hillman, 569 U.S. at 494 (quotation omitted). Accordingly, we
conclude Kennedy is not relevant to statutes like FERSA that contain clear order-
of-precedence provisions.
Because, as discussed above, FERSA contains a provision requiring that
distributions be made to the employee’s designated beneficiary that is materially
identical to the one addressed by the Supreme Court in Hillman, we conclude the
Court’s holding in Hillman with respect to post-distribution lawsuits resolves the
Estate’s argument. Any order requiring Diamond to hold monies she receives
from the TSP Account in a constructive trust is the economic equivalent of an
order directing that those monies be distributed to the Estate. Such an order
would frustrate the scheme adopted by Congress in FERSA. As in Hillman, this
is true even though the Estate is seeking the imposition of a constructive trust and
not a direct distribution from the TSP Account. Moreover, the fact this case
concerns a beneficiary’s waiver, rather than the policyholder’s breach of an
agreement or a surviving spouse’s statutory cause of action, is of no significance.
Because any relief obtained by the Estate under Utah law would interfere with the
express federal interest of ensuring that Diamond, the properly designated
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beneficiary, retain the entirety of the distribution she receives, the Estate’s post-
distribution claims are preempted.
The Estate raises an additional argument that merits discussion. It asserts
there is a presumption against federal preemption in family law cases. See
Hisquierdo v. Hisquierdo, 439 U.S. 572, 581 (1979) (“State family and
family-property law must do major damage to clear and substantial federal
interests before the Supremacy Clause will demand that state law be overridden.”
(quotations omitted)). While the Supreme Court has expressly recognized “the
limited application of federal law in the field of domestic relations generally,” it
has nonetheless held that “a state divorce decree, like other law governing the
economic aspects of domestic relations, must give way to clearly conflicting
federal enactments.” Ridgway, 454 U.S. at 54, 55. The Supreme Court’s holdings
in Wissner, Ridgway, and Hillman, clearly establish that any presumption in favor
of state family law is overcome when the federal statute at issue expressly
requires that benefits be paid to a properly designated beneficiary. As we
concluded above, FERSA contains such clear language.
III. Conclusion
The judgment of the district court granting Diamond’s motion to dismiss
the Estate’s complaint is affirmed.
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