Kidd v. Pritzel

• Decision Date: 24 December 1991
• Docket Number: No. WD,WD
• Parties: Philip Roger KIDD, et al., Appellants, v. Evelyn L. PRITZEL, et al., Respondents. 44359.
• Court: Missouri Court of Appeals

Page 566

821 S.W.2d 566

Philip Roger KIDD, et al., Appellants, v. Evelyn L. PRITZEL, et al., Respondents.

No. WD 44359.

Missouri Court of Appeals,

Western District.

Dec. 24, 1991.

Application to Transfer Denied

March 13, 1992.

Therese M. Schuele, Kansas City, for appellants.

Nathan M. Nickolaus, Jefferson City, for respondents.

Before LOWENSTEIN, P.J., and FENNER and HANNA, JJ.

HANNA, Judge.

This is an appeal from the trial court's ruling granting the defendants'/respondents' motion for summary judgment. The plaintiffs/appellants are four children of the deceased, Mr. Roger H. Kidd. The defendants are Mr. Kidd's two sisters. Following Mr. Kidd's death the children filed a petition for recovery of trust assets and the removal of the sisters as trustees in the Probate Division at Jackson County, Missouri. The case was transferred to Cole County, Missouri when it was determined that Jackson County was an improper venue. The Cole County court granted defendants' motion for summary judgment ruling that the plaintiffs' claims were barred by the doctrine of pre-emption pursuant to 5 U.S.C. § 8701 et. seq. The plaintiffs appeal.

FACTS

On July 14, 1972, the decedent, Roger H. Kidd, and his present wife, Mary Jane Kidd, entered into a property settlement agreement pursuant to their divorce. The relevant portion of that property settlement agreement included a provision in which the parties agreed that Roger Kidd would maintain his four children of the marriage ¹ as the beneficiaries of his life insurance policy written under 5 U.S.C. §§ 8701 et. seq., the Federal Employees' Group Life Insurance Act ("FEGLIA").

A little over a month later, on August 25, 1972, Mr. Kidd executed a designation of beneficiary form with his employer naming his two sisters, Evelyn L. Pritzel and Darlene A. Schumacher, as beneficiaries of the FEGLIA policy.

Shortly thereafter, on November 7, 1972, Mr. Kidd executed his will which provided among other things as follows:

1) That the entire residue of his estate would go into a trust established by the will;

2) That his sisters would be the trustees of the trust as well as the personal representatives of his estate;

3) That the proceeds from his FEGLIA insurance policy which were payable to his sisters would be included in the trust estate for the benefit of his children;

4) That his children would be sole beneficiaries of the trust; and

5) That the trust was to remain in effect, with his sisters as trustees, until his last child was emancipated, at which time the remainder of the trust property would be divided equally among his children.

Mr. Kidd's last child was emancipated on November 29, 1985. Mr. Kidd died on April 11, 1988.

Sometime after his death, the insurance proceeds from the FEGLIA policy were paid to the sisters in accord with the designation of beneficiary form. The sisters retained the policy proceeds for their own benefit instead of placing the proceeds into the trust or otherwise distributing the proceeds to the surviving children as directed by the will.

On August 15, 1989, the children filed a petition for recovery of the trust assets, the removal of the sisters as trustees and other relief. This petition was filed in the probate division of Jackson County, Missouri. The sisters filed a motion with the probate court to dismiss the petition for lack of venue.

In an order dated February 26, 1990, Judge John Borron concluded that venue was appropriate in either Cole County or Saline County, Missouri, the respective counties of the defendants' residence. The case was then transferred to Cole County.

The sisters filed a motion for summary judgment on May 24, 1990 in Cole County. In response to that motion, attorneys for the children stated that they intended to amend the pleadings to include a constructive trust claim. After a hearing was held on the motion for summary judgment, the court entered an order granting the motion and concluded that the childrens' claims were pre-empted by federal statute (specifically 5 U.S.C. § 8701 et. seq.). This appeal followed.

It is plaintiffs' position that Congress did not intend to exempt state law or equitable actions and that the federal statutes can be read in harmony with equitable state law claims. Plaintiffs concede that the sisters were the proper parties to be paid the policy proceeds from the insurer. However, they argue that nothing in the federal statute prevents the trial court from imposing a constructive trust on those proceeds if it is determined that the children are the persons rightfully entitled. Plaintiffs rely on case law from jurisdictions which refuse to apply the doctrine of pre-emption in the FEGLIA context.

On the other hand, defendants maintain that the trial court's ruling was correct because the federal law has pre-empted all state law claims, including the imposition of a constructive trust. Defendants rely on the language contained in FEGLIA (specifically §§ 8705 and 8709) as well as the underlying regulation 5 C.F.R. § 870.902 and case law which has applied the doctrine of pre-emption to FEGLIA.

The first and dispositive issue on this appeal is whether FEGLIA and the regulations promulgated thereunder were intended to pre-empt the equitable state law claims which Mr. Kidd's children may have against his sisters.

Federal law pre-empts state law in several instances: When a federal statute contains specific language of pre-emption; when federal regulation is so persuasive that Congress left no room to supplant it; or when state law stands as an obstacle to congressional intent. Tectonics, Inc. of Florida v. Castle Constr. Co., 753 F.2d 957, 961 (11th Cir.1985). See also Derenco, Inc. v. Benjamin Franklin Federal Savings and Loan Assn., 281 Or. 533, 577 P.2d 477, 483-84 (1978).

At the outset we note that Congressional intent is the guidepost to judicial interpretation of federal statutes. Stribling v. U.S., 419 F.2d 1350, 1352 (8th Cir.1969). Therefore, an examination of the legislative history behind FEGLIA is necessary to determine whether Congress intended FEGLIA to pre-empt state law claims.

FEGLIA was first proposed in 1954 for the purpose of providing low cost group life insurance to federal employees. 1954 U.S.Code Cong. & Admin.News., Volume 2, p. 3052. See also Rollins v. Metropolitan Life Ins. Co., 863 F.2d 1346, 1350 (7th Cir.1988). The Congressional committee which introduced the bill felt it was one of the important new proposals necessary to provide federal employees with a well-rounded personnel program and that the bill carried out the plan outline by President Eisenhower in his message to Congress of May 19, 1954. 1954 U.S.Code Cong. & Admin.News, Volume 2 at 3053. In that message President Eisenhower noted that there were two predominant features which made the plan especially advantageous to government and its personnel. First, it allowed federal employees to "carry out their responsibilities to their families," and secondly, it made available group life insurance which was an "essential element in the development of a comprehensive personnel program that applies to Government service the best practices of progressive, private employers." Id. at 3056.

The relevant sections of the Act upon which the trial court and respondent's rely are §§ 8705 and 8709 as well as 5 C.F.R. § 870.092. For clarity we will address these two statutory provisions of FEGLIA and the underlying regulation individually in the sections that follow as well as the cases cited by the parties in support of their respective positions.

I. SECTION 8705

Section 8705 of FEGLIA provides the order of precedence in which the life insurance proceeds from a FEGLIA policy are to be paid upon the death of a policyholder. Respondents claim this section not only mandates who is initially to receive the FEGLIA policy proceeds, but also that Congress would not have included this section unless it intended for § 8705 to pre-empt state law claims. We disagree.

There has been a split in the jurisdictions about whether § 8705 should preempt all state law claims or whether the statute merely provides a simple procedure for payment of the policy's benefits. However, from its inception, the sole purpose of this section has been to provide for the speedy and economical settlement of claims. ²

In 1966, the first item of the order of precedence in Section 4, ³ to be applied by the insurer when paying the proceeds from a FEGLIA policy, was amended to read:

First, to the beneficiary or beneficiaries as the employee may have designated by a signed and witnessed writing received prior to death in the employing office.... For this purpose, a designation, change, or cancellation of beneficiary in a will or other document not so executed and filed shall have no force or effect. ⁴ Pub.L. 89-373, 1966 U.S.Code Cong. & Admin.News., Volume I, p. 91. (Emphasis added to indicate amended language).

The 1966 amendment was expressly proposed in response to a California case entitled Sears v. Austin, 292 F.2d 690 (9th Cir.1961). See Pub.L. No. 89-373, 1966 U.S.Code Cong. & Admin.News, Volume 2, p. 2071. In Sears no beneficiary had been named on the insurance contract. The funds were deposited into the court registry and the contest was between competing beneficiaries of the Act and the will. The court found that the decedent's holographic will was sufficient to designate a beneficiary and should mandate who was to receive the proceeds of the insurance policy rather than the order of precedence set out in the federal statute. The legislative history suggests that if this equitable precedent is generally followed the result could lead to administrative difficulties for the Civil Service Commission, ⁵ the insurance companies and, more importantly, serious delay in paying benefits to the survivors of federal employees. Id.

Jurisdictions both for and against pre-emption agree that Congress' intent in amending Section 4 of the Act in 1966...