Brandon v. Travelers Ins. Co.

• Decision Date: 20 April 1994
• Docket Number: No. 92-9064,92-9064
• Citation: 18 F.3d 1321
• Parties: 18 Employee Benefits Cas. 1239 Wanda Sue BRANDON, Plaintiff-Appellant, v. The TRAVELERS INSURANCE COMPANY, and Abbott Laboratories, Abbott Laboratories, Inc., Defendants-Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 1321

18 F.3d 1321

18 Employee Benefits Cas. 1239

Wanda Sue BRANDON, Plaintiff-Appellant, v. The TRAVELERS INSURANCE COMPANY, and Abbott Laboratories, Abbott Laboratories, Inc., Defendants-Appellees.

No. 92-9064.

United States Court of Appeals, Fifth Circuit.

April 20, 1994.

Joyce A. Keating and Bruce A. Coane, Coane & Associates, Houston, TX, for plaintiff-appellant.

James K. Peden, III and Michael R. Buchanan, Strasburger & Price, Dallas, TX, for Travelers Ins. Co.

Catharina J.H.D. Haynes and Robert W. Kantner, Baker & Botts, Dallas, TX, for Abbott Laboratories.

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

Before GOLDBERG, JONES, ^* and DUHE, 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 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. Secs. 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 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 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. Sec. 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

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 anti-alienation provision, 29 U.S.C. Sec. 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. Sec. 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 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. Sec. 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. Sec. 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,...