Barnett v. Barnett

• Decision Date: 06 December 2001
• Docket Number: No. 99-0313.,99-0313.
• Citation: 67 S.W.3d 107
• Parties: Dora Ernestine Luck BARNETT, et al., Petitioners, v. Marleen Kovalchik BARNETT, Respondent.
• Court: Texas Supreme Court

67 S.W.3d 107

Dora Ernestine Luck BARNETT, et al., Petitioners, v. Marleen Kovalchik BARNETT, Respondent.

No. 99-0313.

Supreme Court of Texas.

Argued January 12, 2000.

Decided December 6, 2001.

Rehearing Overruled February 14, 2002.

George W. Dana, Houston, Robin V. Dwyer, Seguin, Maria Angela Flores Beck, La Grange, for Petitioner.

Lois Watson, Watson & Watson, Luling, for Respondent.

Justice OWEN delivered the opinion of the Court in Parts I, II, III, and V, in which Justice HECHT, Justice ENOCH, Justice JEFFERSON, and Justice RODRIGUEZ joined, and an opinion in Part IV in which Justice HECHT, Justice JEFFERSON, and Justice RODRIGUEZ joined.

The principal issues in this case are whether a life insurance policy obtained through an employee benefit plan was community property and, if so, whether the Employee Retirement Income Security Act (ERISA) preempts a surviving wife's community property rights or the imposition of a constructive trust on policy proceeds to remedy a constructive fraud on the community. The court of appeals held that the policy was community property and that ERISA does not preempt the wife's state-law claims. While we agree that the policy was community property, we hold that the wife's claim for constructive fraud on the community and a constructive trust are preempted by ERISA. We accordingly reverse the court of appeals' judgment in part to eliminate recovery by Marleen Barnett of the proceeds of the policy at issue. The judgment of the court of appeals is otherwise affirmed, and this case is remanded to the trial court for further proceedings.

I

There were a number of issues decided by the court of appeals that have not been pursued in this Court. We therefore set forth only the facts pertinent to the issues that we must resolve.

Christopher Barnett had been employed by a company formerly known as Houston Industries for eleven years when he married Marleen Barnett. The parties and the court of appeals referred to Christopher's employer as HL & P, which was a subsidiary of Houston Industries, and we follow their lead to avoid confusion. As part of an ERISA employee benefits plan, HL & P procured life insurance policies for Christopher throughout his employment. The first was a policy issued by Great Southern Life. That policy was allowed to expire after several years when HL & P changed carriers and the terms of coverage. HL & P obtained a new policy from Metropolitan Life. When Christopher and Marleen were married, that policy was in effect. During the marriage, however, that policy was not renewed by HL & P, and a new policy was issued by Metropolitan Life with different terms. Then, again during the marriage, HL & P did not renew the Metropolitan Life policy and instead procured insurance from Prudential Life Insurance Company. The Prudential policy, like the one it replaced, was a term life policy. The premiums for the Prudential policy were paid by deductions from Christopher's payroll.

While the Prudential policy was in effect, Christopher and Marleen began to experience marital discord, they separated, and divorce proceedings were commenced. Christopher changed the beneficiary of the life insurance policy at issue from Marleen to his estate. He also executed a new will in which he named his mother Dora Barnett as the executrix and principal beneficiary of his estate. Other than a bequest to his sister of certain real property and a devise of $1.00 to each of his two children to be paid on their eighteenth birthdays, Christopher bequeathed his estate to his mother.

Before the divorce proceedings between Christopher and Marleen concluded, Christopher died. The Prudential policy proceeds were $169,770.93. There were other policies insuring Christopher's life, which together with the Prudential policy, totaled $637,955.93 in proceeds. Those other policies are not at issue in this Court. All proceeds were paid to Christopher's mother, Dora Barnett. Dora then made gifts to a number of family members and friends (none of whom were Christopher's children). Marleen brought suit asserting that the policies were community property, that Christopher committed a fraud on the community when he gave all the proceeds to Dora under his will, and that a constructive trust should be imposed on one half of all policy proceeds. Among Marleen's other claims was a request for a family allowance under the Texas Probate Code, and she sought to recover attorney's fees from Dora in connection with a claim that Dora had converted and wasted community property.

For ease of reference, we, like the court of appeals, will refer to the recipients of Dora's beneficence in groups, as the West defendants,¹ the Gosch defendants,² and Dyess.³ These defendants and Dora disputed all of Marleen's claims, except her claim for reimbursement of one half the community funds spent to pay the premiums on Christopher's insurance policies. The defendants contended that all the life insurance policies, including the Prudential policy, were Christopher's separate property. They further asserted that even if the policies were community property, Marleen's community property interest and her claim for fraud on the community were preempted by ERISA.

Marleen moved for partial summary judgment. She asked the trial court to declare that the policies were community property, that ERISA did not preempt her interest in the policies, and that a constructive fraud had been committed. Dora, the West defendants, and the Gosch defendants also moved for partial summary judgment with regard to the insurance policies, asserting that they were separate property and that ERISA preempted any community interest. The trial court denied Marleen's motion and granted the defendants' motions. The case then proceeded to a jury trial. At the close of Marleen's evidence, the trial court granted a directed verdict in favor of Dora on the constructive trust issue and for all defendants on all claims that had not been resolved by the partial summary judgment. The trial went forward on the remaining claims against Dora, and the jury found for Marleen on several claims that are not at issue in this Court. The trial court rendered judgment on that verdict and incorporated the prior partial summary judgments.

Marleen, Dora, the West defendants, and Dyess appealed. The court of appeals held that the policies that are not at issue in this Court were Christopher's separate property.⁴ However, it reversed the trial court's judgment with regard to the Prudential policy.⁵ The court of appeals held that the policy was community property,⁶ and that ERISA did not preempt Marleen's claims.⁷ The court then held that Christopher's gift of the proceeds of the Prudential policy to Dora was constructive fraud, and that Marleen was entitled to summary judgment against all defendants, jointly and severally, for one half the proceeds.⁸ The court also concluded that section 286 of the Probate Code required the trial court to establish a family allowance for Marleen, and it remanded that claim to the trial court.⁹ The court of appeals affirmed the award of attorney's fees to Marleen.¹⁰ The remaining issues considered by the court of appeals were not raised in this Court, and we therefore will not unduly lengthen this opinion by recounting their disposition.

The Gosch defendants have settled their dispute with Marleen. However, Dora Barnett, the West defendants, and Dyess filed petitions for review in this Court, which we granted. We first consider whether the Prudential policy was separate or community property.

II

The facts in this case are undisputed. The Prudential policy was a term life policy issued during the marriage of Christopher and Marleen Barnett. It was not a renewal of the Great Southern or Metropolitan Life policies that had been issued when Christopher was single, nor was it a renewal of the second Metropolitan Life policy that was issued after Christopher married Marleen. The premiums on the Prudential policy were paid with community funds. Dora and Marleen agree that Christopher's employer was the actual owner of all the policies, but that Christopher was the beneficial owner.

The Texas Family Code provides that "[c]ommunity property consists of the property, other than separate property, acquired by either spouse during marriage."¹¹ Separate property includes "the property owned or claimed by the spouse before marriage."¹² There is a presumption under the Family Code that property held during marriage is community property: "[p]roperty possessed by either spouse during or on dissolution of marriage is presumed to be community property."¹³ Generally, whether property is separate or community is determined by its character at inception, and this general rule applies to life insurance policies.¹⁴ In McCurdy, an opinion adopted by this Court, the court of appeals was called upon to determine whether a life insurance policy was separate or community property. It held that the inception of title rule, "though arbitrary, is more conducive to uniformity and a degree of certainty."¹⁵ Applying the principles enunciated in McCurdy to this case, the Prudential policy is presumed to be community property because it was issued during the marriage of Christopher and Marleen.

Dora contends, however, that the Prudential policy was a mutation of the prior policies that Christopher had obtained through his employer when he was a single man. We disagree. The policies issued from time to time insuring Christopher's life had no value once they were terminated. They provided coverage only during the time that they were in effect. There was no property remaining when the policies terminated. The premiums that Christopher paid when he was a single man for the Great Southern and Metropolitan Life policies purchased coverage only for the time that those policies were in effect. When those policies were not renewed, there was nothing which could mutate into other...