Ministers & Missionaries Benefit Bd. v. Snow

• Decision Date: 05 March 2015
• Docket Number: Docket No. 14–1021–cv.
• Citation: 780 F.3d 150
• Parties: The MINISTERS AND MISSIONARIES BENEFIT BOARD, Interpleader–Plaintiff–Cross–Defendant–Appellee, v. Leon SNOW, LeAnn Yowell Snow, Interpleader–Defendants–Cross–Claimants–Appellants, v. The Estate of Clark Flesher, Michele Arnoldy, Individually & as Personal Representative of the Estate of Clark Flesher, Interpleader–Defendants–Appellees.
• Court: U.S. Court of Appeals — Second Circuit

780 F.3d 150

The MINISTERS AND MISSIONARIES BENEFIT BOARD, Interpleader–Plaintiff–Cross–Defendant–Appellee

v.Leon SNOW, LeAnn Yowell Snow, Interpleader–Defendants–Cross–Claimants–Appellants

v.The Estate of Clark Flesher, Michele Arnoldy, Individually & as Personal Representative of the Estate of Clark Flesher, Interpleader–Defendants–Appellees.^*

Docket No. 14–1021–cv.

United States Court of Appeals, Second Circuit.

Argued: Jan. 12, 2015.

Decided: March 5, 2015.

Jesse T. Wilkins (Gregory R. Preston, on the brief), Preston & Wilkins, LLC, Levittown, N.Y., for Leon and LeAnn Yowell Snow.

Brian Rosner, (Natalie A. Napierala, on the brief), Carlton Fields Jorden Burt, P.A., New York, N.Y., for the Estate of Clark Flesher and Michele Arnoldy.

Before: KATZMANN, Chief Judge, KEARSE and RAGGI, Circuit Judges.

Opinion

KATZMANN, Chief Judge:

This case raises important, yet unanswered, questions of New York State law. Specifically, its resolution turns on whether a governing-law provision that states that the contract will be governed by and construed in accordance with the laws of the State of New York, in a contract not consummated pursuant to New York General Obligations Law section 5–1401, requires the application of New York Estates, Powers & Trusts Law section 3–5.1(b)(2), a New York statute that may, in turn, require application of the law of another state. For the reasons discussed below, we conclude that this is a threshold issue that is determinative, unsettled, likely to recur, and has important public policy implications. See Osterweil v. Bartlett, 706 F.3d 139, 142 (2d Cir.2013) ; State Farm Mut. Auto. Ins. Co. v. Mallela, 372 F.3d 500, 509 (2d Cir.2004). Accordingly, we CERTIFY two questions concerning this issue to the New York Court of Appeals. See N.Y. Comp.Codes R. & Regs. tit. 22, § 500.27(a) ; 2d Cir. Local R. 27.2(a).

BACKGROUND

Reverend Clark Flesher was a participant in two benefits plans administered by the plaintiff Ministers and Missionaries Benefit Board (“MMBB”), a New York not-for-profit corporation. Flesher entered into the MMBB plans before his divorce from his then-wife, LeAnn Flesher (now LeAnn Snow). Snow, also a reverend and MMBB policyholder, was listed as the primary beneficiary on both of Flesher's MMBB plans. Her father, Leon Snow, was listed as the contingent beneficiary on both plans. When Flesher and LeAnn Snow divorced in 2008 they signed a Marital Settlement Agreement in which each agreed to relinquish all rights to inherit from the other. The Settlement Agreement also expressly permitted them to change the beneficiaries on their respective MMBB plans. Flesher, however, never exercised this option.

Flesher passed away on June 22, 2011. After his death, the two sets of interpleader defendants each claimed entitlement to the benefits of his MMBB plans (what the parties refer to as the “disputed funds”). MMBB was unable to determine how to distribute the disputed funds, and on December 23, 2011, commenced this action against the interpleader defendants: (1) the Estate and Flesher's sister, Michele Arnoldy, individually and as the personal representative of the Estate; and (2) LeAnn and Leon Snow. On September 25, 2012, the United States District Court for the Southern District of New York (Griesa, J. ) granted interpleader relief to the plaintiff and discharged it from all liabilities as to the defendants, dismissed it from the action, and enjoined all other actions to recover any part of the disputed funds from proceeding until the court issued a final judgment resolving which party was entitled to the disputed funds. The case was transferred to Judge Forrest on June 6, 2013, and the parties each moved for summary judgment.

On their cross-motions for summary judgment, the district court held that the Estate of Clark Flesher is entitled to the disputed funds. See Ministers & Missionaries Benefit Bd. v. Estate of Clark Flesher, No. 11 Civ. 9495(KBF), 2014 WL 1116846, at *6 (S.D.N.Y. Mar. 18, 2014). In reaching this conclusion, the district court reasoned that: (1) the parties agreed that “[t]he relevant choice-of-law rules are the rules of the forum state, here, New York,” id. at *5 (internal quotation marks omitted); (2) the disputed funds constituted Flesher's personal property, and under New York Estates, Powers & Trusts Law section 3–5.1(b)(2), the “revocation or alteration of a testamentary disposition of personal property, and the manner in which such property devolves when not disposed of by will, are determined by the law of the jurisdiction in which the decedent was domiciled at death”; (3) Rev. Flesher was domiciled in the state of Colorado at his death; and (4) under Colorado's revocation law, Colo.Rev.Stat. § 15–11–804(2)(a)(i), the divorce terminated both Snows' claims to the disputed funds.¹ See 2014 WL 1116846, at *5–*6. New York's analogous revocation law prevents only an ex-spouse from recovering a revocable disposition, but not an ex-spouse's family member. See N.Y. Est. Powers & Trusts Law § 5–1.4.

The Snows filed a timely appeal, and we review the district court's decision de novo. Fieger v. Pitney Bowes Credit Corp., 251 F.3d 386, 393 (2d Cir.2001). Before we can consider the district court's decision to award the disputed funds to the Estate, however, we must first consider a threshold issue with which the district court did not specifically grapple: whether the contracts' governing-law provisions require the application of New York Estates, Powers & Trusts Law section 3–5.1(b)(2), a New York statute that may require application of the law of another state.

The two MMBB contracts at issue in this case each include a governing law provision stating: “The provisions of this Plan shall be governed by and construed in accordance with the laws of the State of New York.” J.A. 101; see J.A. 95. Yet it is unclear how these provisions should be interpreted. The provisions could be read to require a court to apply both New York substantive law and New York choice-of-law principles. They could also be read to require only the application of New York substantive law. Under the first reading, implicitly adopted by the district court, the governing-law provisions in the MMBB plan contracts would have no effect on the outcome of the case. Because the case was brought in federal court in New York, New York substantive law and choice-of-law principles would apply even absent a governing law provision specifically directing the court to apply New York law. See Fieger, 251 F.3d at 393. Under the second reading, by contrast, the district court would apply only New York substantive law without reference to New York choice-of-law principles—what the Restatement (Second) of Conflict of Laws refers to as “local law,” “the body of standards, principles and rules [of a state], exclusive of its rules of Conflict of Laws. ” Restatement (Second) of Conflict of Laws § 4(1) (1971) (emphasis added). There is also a third possible reading of the governing-law provisions; namely, that they preclude the application of New York common-law conflict-of-laws analysis, but not the application of a choice-of-law directive in a New York statute.

In a recent case, the New York Court of Appeals expressly approved the second reading, albeit in a statutory context not at issue in this case. See IRB–Brasil Resseguros, S.A. v. Inepar Invs., S.A., 20 N.Y.3d 310, 958 N.Y.S.2d 689, 982 N.E.2d 609, 612 (2012). In that case, IRB–Brasil Resseguros, S.A. (“IRB”) purchased $14 million in notes issued by Inepar Investments, S.A. (“Inepar”), a subsidiary of a Brazilian power company. When interest payments and returns of its principal to IRB ceased, it sued Inepar in New York State court. Id. , 958 N.Y.S.2d 689, 982 N.E.2d at 610. The underlying guarantee contract between the parties was consummated pursuant to New York General Obligations Law section 5–1401 (“Large Contract Statute”), a statute which expressly permits parties in contracts concerning amounts greater than $250,000 to select New York law as the governing law.² Id. , 958 N.Y.S.2d 689, 982 N.E.2d at 611–12.

Because New York conflict-of-laws principles might have required the application of Brazilian rather than New York law, the New York Court of Appeals was faced with deciding “whether a conflict-of-laws analysis must be undertaken when there is an express choice of New York law in the contract pursuant to General Obligations Law § 5–1401.” Id. , 958 N.Y.S.2d 689, 982 N.E.2d at 610. The Court of Appeals concluded that it was not permitted to look to Brazilian law. It reasoned, first, that “[t]he plain language of [the Large Contract Statute] dictates that New York substantive law [alone] applies.” Id. , 958 N.Y.S.2d 689, 982 N.E.2d at 612. Moreover, it emphasized,

[u]nder the Restatement (Second) [of Conflict of Laws] the parties' decision to apply New York law to their contract results in the application of New York substantive law, not New York's conflicts principles.

It strains credulity that the parties would have chosen to leave the question of the applicable substantive law unanswered and would have desired a court to engage in a complicated conflict-of-laws analysis, delaying resolution of any dispute and increasing litigation expenses.

Id.

The key differences between IRB–Brasil Resseguros and this case are that (1) the MMBB contracts were not consummated pursuant to the Large Contract Statute, and (2) the MMBB contracts might implicate another New York statute, New York Estates, Powers & Trusts Law section 3–5.1(b)(2). Accordingly, in order to reach a conclusion in this case, we must first determine how the Court of Appeals would interpret governing law provisions in non-Large Contract Statute contracts, particularly in the context of New York Estates, Powers & Trusts Law section 3–5.1(b)(2). See Michalski v. Home Depot, Inc., 225 F.3d 113, 116 (2d Cir.2000) (“Absent law from a state's highest court, a federal court sitting in diversity has to predict how the ...