Hoffman v. United States

• Decision Date: 13 March 1968
• Docket Number: No. 21959.,21959.
• Parties: Ruth Iola HOFFMAN, Appellant, v. UNITED STATES of America, and Pearl L. Lechner, Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

391 F.2d 195 (1968)

Ruth Iola HOFFMAN, Appellant, v. UNITED STATES of America, and Pearl L. Lechner, Appellees.

No. 21959.

United States Court of Appeals Ninth Circuit.

March 13, 1968.

Rodman B. Miller (argued), William A. Bowles, Seattle, Wash., for the appellant.

Bruce T. Thurston (argued), Auburn, Wash., Albert E. Stephan (argued), Asst. U. S. Atty., Eugene G. Cushing, U. S. Atty., Seattle, Wash., for appellee.

Before HAMLEY, JERTBERG and BROWNING, Circuit Judges.

JERTBERG, Circuit Judge:

Appellant, Ruth Iola Hoffman, appeals from the judgment entered by the district court, awarding to appellee, Pearl L. Lechner, the proceeds of two National Life Insurance policies.

The material facts are not in dispute.

Frank Hoffman, while a Major in the United States Army, purchased the policies in 1950 and 1951, naming as beneficiary his then wife, Ruth Iola Hoffman.

In 1962, Major Hoffman filed suit for divorce against appellant in the Superior Court of the State of Washington, in and for King County. In that suit he also requested a division of the community property. The divorce was granted and the court in its divorce decree entered in March, 1963, stated:

"The said plaintiff Major Hoffman is further ordered and directed to at all times designate, keep and maintain RUTH IOLA HOFFMAN as the sole beneficiary in each of said policies during her lifetime * * *."

On August 23, 1963, Major Hoffman executed a change of beneficiary for each policy, designating Pearl L. Lechner as principal beneficiary under both policies.

In 1964, Major Hoffman died, with the above policies in full force and effect.

Following the death of Major Hoffman, appellant filed with the Veterans Administration a claim to the proceeds of said policies as the designated beneficiary of record. A claim for said proceeds was also filed with the Veterans Administration by appellee, Pearl L. Lechner, as the designated beneficiary therein. Upon consideration of said claims the Veterans Administration rendered a decision on March 22, 1966, holding that appellee was entitled to the proceeds of said policy. Notice of denial of appellant's claim was forwarded by mail, dated March 22, 1966.

Appellant instituted suit in the district court against appellees, claiming in her complaint as stated in appellant's brief:

"that she was owner of and entitled to the insurance money by order of the court state court which had adjudicated her the irrevocable beneficiary in the said policies, and that Franklin A. Hoffman\'s right to designate a change of beneficiary in said policies had been judicially taken away from him."

In her answer, appellee denied the claim of appellant that she was entitled to the proceeds, and claimed the proceeds to be appellee's property.

Appellee, United States of America, admitted liability under said policies, and in order to avoid possible subjection of the United States to double liability under said policies, requested the court to determine whether the appellant or the appellee was entitled to receive the proceeds of said policies, and stands ready to pay the proceeds in accordance with the determination made by the district court.

The district court decided that the appellee was entitled to the proceeds of both policies and entered judgment accordingly, holding, in substance, that 38 U.S.C. § 3101(a) rendered the proceeds of such policies outside the reach of the state court in entering the property settlement decree, and

"that the Superior Court attempted, in its order to assert dominion over an asset which the United States Congress had put beyond its reach."

Appellant specifies that the district court erred in five particulars: claiming (a) that the judgment of the state court is res judicata; (b) that appellees are in privity with the decedent and each is bound by the state court judgment; (c) that the right to the insurance money was a vested property right and a community asset, and disposable as such by the divorce decree; (d) that state law, and not federal law, governs; and (e) that the judgment of the district court deprives appellant of her property in violation of the Fifth Amendment to the Constitution of the United States of America.

We believe that appellant's specifications of error may be compressed into a single issue which may be stated as follows:

DOES A STATE COURT HAVE THE POWER TO EFFECTIVELY REQUIRE AN UNWILLING VETERAN TO MAINTAIN HIS FORMER WIFE AS BENEFICIARY ON HIS NATIONAL SERVICE LIFE INSURANCE POLICIES?

In our view the answer to such question must be in the negative.

Two federal statutes apply here. The first is 38 U.S.C. § 3101(a), which the district court found controlling, and which provides:

"(a) Payments of benefits due or to become due under any law administered by the Veterans\' Administration shall not be assignable except to the extent specifically authorized by law, and such payments made to, or on account of, a beneficiary shall be exempt from taxation, shall be exempt from the claim 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."

The other statute is 38 U.S.C. § 717(a), which provides:

"(a) The insured shall have the right to designate the beneficiary or beneficiaries of insurance maturing on or after August 1, 1946, and shall, subject to regulations, at all times have the right to change the beneficiary or beneficiaries of such insurance without the consent of such beneficiary or beneficiaries."

In its memorandum opinion, the district court cited, in support of its decision, the following cases: Eldin v. United States, 157 F.Supp. 34 (S.D.Ill.1957); Kaske v. Rothert, 133 F.Supp. 427 (S.D. Cal.1955); Heifner v. Soderstrom, 134 F.Supp. 174 (N.D.Iowa 1955), in each of which the insurance proceeds from National Service Life Insurance policies were awarded in accordance with the beneficiary designation at the time of the death of the insured, notwithstanding a state divorce decree approving and incorporating a property settlement awarding the policies to someone other than such designated beneficiary.

Similar results were reached by state courts in similar cases where the proceeds of such policies had been paid to the beneficiary designated at the time of the death of the insured. Fleming v. Smith, 64 Wash.2d 181, 390 P.2d 990, aff'd 69 Wash.2d 277, 418 P.2d 147 (1966); Williams v. Williams, 255 N.C. 315, 121 S.E.2d 536 (1961); Kauffman v. Kauffman, 93 Cal.App.2d 808, 210 P. 2d 29 (1949).

Basically the theory of all the recited cases, whether overtly stated or merely implicit in the reasoning of the court, is the Supremacy Clause of the United States Constitution. The leading case in this field is Wissner v. Wissner, 338 U.S. 655, 70 S.Ct. 398, 94 L.Ed. 424 (1950). In Wissner, decedent's wife claimed, by virtue of the California community property law, that notwithstanding the fact decedent named his mother as beneficiary under his National Service Life...