American Tel. & Tel. Co. v. Merry

Decision Date29 January 1979
Docket NumberD,451,Nos. 450,s. 450
Citation592 F.2d 118
Parties1 Employee Benefits Ca 1585 AMERICAN TELEPHONE AND TELEGRAPH COMPANY and Chemical Bank, Plaintiffs- Appellants-Cross Appellees, v. Ann R. MERRY and Addison D. Merry, Defendants, Ann R. Merry, Defendant-Appellee-Cross Appellant. ockets 78-7484, 78-7518.
CourtU.S. Court of Appeals — Second Circuit

Scott J. Macey, Saul Scheier, Basking Ridge, N. J., Maurice T. Fitzmaurice, Hartford, Conn. (Reid & Reige, P. C., Hartford, Conn., F. Mark Garlinghouse, New York City, and James A. DeBois, San Francisco, Cal., of counsel), for plaintiffs-appellants.

Whitman & Ransom, Greenwich, Conn. (Joseph Mitchell Kaye, William A. Phillips, Jennifer Boyd, and Michael R. Zients, Greenwich, Conn., of counsel), for defendant-appellee, cross-appellant Ann R. Merry.

M. Carr Ferguson, Asst. Atty. Gen., Washington, D. C. (William A. Friedlander, Leonard J. Henzke, Jr., Jo-Ann Horn, Washington, D. C., and Richard Blumenthal, U. S. Atty., New Haven, Conn., of counsel), for United States, amicus curiae.

Before MANSFIELD and OAKES, Circuit Judges, and WERKER, District Judge. *

WERKER, District Judge:

This is an appeal from a judgment of the Connecticut District Court (Newman, J.), declaring that the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001 Et seq. does not prohibit enforcement of a state court's garnishment order directed at pension payments to satisfy a spouse's court ordered support obligations, and dismissing without prejudice appellee's cross claim as not within the appropriate jurisdiction of the court. For the reasons set forth below the judgment of the District Court is affirmed.


In 1965, after nineteen years of marriage, Addison and Ann Merry entered into a separation agreement; shortly thereafter they obtained a divorce decree from the Connecticut Superior Court. The agreement and decree required Mr. Merry to pay Mrs. Merry alimony and child support in the amount of one-half his retirement income from the pension plan of appellant American Telephone and Telegraph Company ("AT&T"). 1 These payments were to commence on the first day of the first month following retirement from AT&T after September 13, 1973. Subsequently, Mr. Merry moved from the state of Connecticut and discontinued alimony and support payments to Mrs. Merry. He is apparently a Florida resident at present, although he advised the District Court below by letter that he is currently in the Bahamas. Due to delinquencies in his payment obligations to his former wife, Mr. Merry was adjudged in contempt by the Superior Court on September 16, 1977 and determined to be in arrears through August 31, 1977 in the amount of $17,508.02. In January of 1978 Mrs. Merry, in an attempt On April 21, 1978 appellants, uncertain of their fiduciary rights and obligations under ERISA, commenced this action to obtain a declaratory judgment as to whether Mr. Merry, or rather Mrs. Merry, is entitled to receive the pension payments as they become due. Jurisdiction was predicated upon diversity of citizenship, 28 U.S.C. § 1332, federal question, 28 U.S.C. § 1335, and ERISA § 502, 29 U.S.C. § 1132. While this federal action was pending, Mrs. Merry obtained a supplemental state court judgment against Mr. Merry for additional arrearages and counsel fees aggregating $32,373.92. Thereafter, claiming an entitlement to pension payments until the supplemental judgment was satisfied, Mrs. Merry asserted the supplemental judgment as a cross claim against her former husband in her answer in the District Court. This was done in the hopes of obtaining a federal judgment against Mr. Merry for the entire amount of the state court supplemental judgment; Mr. Merry, however, was not served with the cross claim in the manner contemplated by Fed.R.Civ.P. 5. 2

to recover that sum plus the amount of payments that had accrued in the interim together with attorney's fees, moved the Superior Court for a judgment and garnishment order. The requested relief was granted, and on February 3, 1978 the court issued an order garnisheeing Mr. Merry's interest in the AT&T pension plan in the amount of $22,422.34 for arrearages in support payments. AT&T was then served with the order of garnishment.

Two issues are presented on appeal. Appellants AT&T and Chemical Bank argue that the District Court erred in holding that a state court order of garnishment directed against a pension plan to satisfy court ordered alimony and child support obligations is an implied exception to ERISA's prohibition against assignment and alienation of benefits. Secondly, appellee Ann Merry contends that the District Court improperly declined jurisdiction over her cross claim against her former husband for the amount of the supplemental state court judgment.


In enacting ERISA Congress established a comprehensive federal scheme for the protection of pension plan participants and their beneficiaries. Finding "that the continued well-being and security of millions of employees and their dependents are directly affected by these plans . . . ," ERISA § 2(a), 29 U.S.C. § 1001(a), Congress prescribed various disclosure and reporting requirements, 3 participation and vesting standards, 4 fiduciary obligations, 5 criminal penalties, 6 and civil enforcement provisions 7 to effectuate the statute's policy of protecting "interstate commerce and the interests of participants in employee benefit plans and their beneficiaries . . . ." ERISA § 2(b), 29 U.S.C. § 1001(b). We are asked on appeal to construe two particular sections of ERISA.

The first relevant section is ERISA § 206(d)(1), 29 U.S.C. § 1056(d)(1). It states that "(e)ach pension plan shall provide that benefits provided under the plan may not be assigned or alienated." 8 A provision almost identical to ERISA § 206 is found in Internal Revenue Code § 401(a)(13), 26 U.S.C. § 401(a)(13), wherein assignment or alienation of benefits is also prohibited if a pension plan is to be considered a tax qualified plan. 9 The other ERISA provision that bears on the present issue is section 514(a) which provides that ERISA "shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan . . . ." 29 U.S.C. § 1144(a). AT&T, relying on the plain language of these statutory sections and silent legislative history surrounding the question of whether an implied exception exists for garnisheeing pension payments to meet court ordered family support obligations, urges a literal reading of these statutory provisions.

Turning to ERISA's preemption clause, appellants argue that those state laws preempted by ERISA are broadly defined to include "all laws, decisions, rules, regulations, or other State action having the effect of law . . . ." ERISA § 514(c)(1), 29 U.S.C. § 1144(c)(1). They contend that Mrs. Merry's state court garnishment order is such a state law and that therefore it must be regarded as preempted absent an express statutory exception. Such a strict, literal construction, however, would necessarily lead to the unreasonable conclusion that Congress intended to preempt even those state laws that only in the most remote and peripheral manner touch upon pension plans. See Stone v. Stone, 450 F.Supp. 919, 932 (N.D.Cal.1978), Appeal pending, No. 78-2313 (9th Cir.). And, in this particular instance, that interpretation would include placing a limitation on state authority to enforce alimony and support orders where the monetary source to be garnisheed is a spouse's income derived from pension payments.

We reject appellants' proffered statutory construction and believe the more reasonable interpretation to be that a garnishment order used to satisfy court ordered family support payments is impliedly excepted from preempted state law relating "to any employee benefit plan," ERISA § 514(a), 29 U.S.C. § 1144(a) and also from the alienation and assignment proscription of ERISA § 206(d)(1), 29 U.S.C. § 1056(d)(1). Two District Courts in this circuit have already so concluded. Cartledge v. Miller, 457 F.Supp. 1146 (S.D.N.Y.1978); Cody v. Riecker, 454 F.Supp. 22 (E.D.N.Y.1978), Appeal pending, No. 78-7460 (2d Cir.).

In Cartledge, a state court order of garnishment issued against the pension fund of a husband to meet support obligations, including arrearages, owed to his wife. Pension administrators of the husband's plan sought to enjoin enforcement of the state court order on the same grounds asserted here. Judge Weinfeld determined that the "generalized proscriptions" of ERISA's anti-alienation and assignment provision and the statute's preemption clause were "not sufficient to infer that Congress meant to preclude the ancient family law right of maintenance and support and the issuance of process to enforce that right." 457 F.Supp. at 1154. This construction is consistent, the court continued, with the "fundamental principle of statutory interpretation (whereby) courts have presumed that the basic police powers of the States, particularly the regulation of domestic relations, are not superseded by federal legislation unless that was the clear and manifest purpose of Congress." Id. (footnote omitted). 10 Two months prior to the Cartledge decision the same result was reached in Cody v. Riecker, 454 F.Supp. 22 (E.D.N.Y.1978). There a woman obtained a Family Court judgment against her husband for support arrears. When the county sheriff attempted to levy on his pension benefits to enforce the judgment, trustees of the pension plan sought an injunction, contending that ERISA barred execution upon the benefits. Judge Nickerson also refused to presume congressional intent under the statute to preempt and prevent court ordered enforcement of the state-created spousal obligation of support "in the absence of an unambiguous declaration of intent." 454 F.Supp. at 24. Thus an exception to ERISA's provisions was implied in the limited...

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