Marriage of Baker, In re, A038122

Decision Date30 August 1988
Docket NumberNo. A038122,A038122
CourtCalifornia Court of Appeals Court of Appeals
Parties, 10 Employee Benefits Cas. 1094 In re the MARRIAGE OF Dorita and William BAKER. Dorita BAKER, Respondent and Appellee, v. William BAKER, Petitioner, Marine Engineers Beneficial Association Pension Trust, Claimant and Appellant.

Carol Samuelian Gonella, San Mateo, for respondent and appellee.

Jack A. Schwartz, Palo Alto, for petitioner.

Dennis Daniels, San Francisco, for petitioner, claimant and appellant.

KING, Associate Justice.

In this case we hold that when a pension plan has been joined as a party in a marital dissolution action and thereafter, despite receipt of a court order awarding the employee's spouse her community property interest in the plan, pays the entire benefit due under the plan to the employee in a lump sum, the plan must pay the employee's spouse her community interest. In reaching this determination we also hold that federal law does not preempt state court action dividing marital interests in employee benefit plans, nor does it require that an action to enforce a state court order dividing such benefits be brought in federal court. Congress, in providing concurrent state court jurisdiction for division of pension benefits, must have intended that the states would prescribe the procedures to be followed in state court actions. For this reason, we hold that federal law does not preempt California's statutory provisions for giving a notice of adverse interest to the plan and for joinder of the plan as a party in a dissolution action.

The Marine Engineers Beneficial Association (MEBA) Pension Trust appeals from an order requiring it to pay Dorita Baker her community interest in the retirement benefits of her former spouse, William Baker, contending the Employee Retirement Income Security Act of 1974 (29 U.S.C. § 1001 et seq.) (ERISA) precludes the state court from issuing such an order. We affirm.

I. FACTS AND PROCEDURAL HISTORY

William Baker filed for dissolution of marriage to Dorita Baker in August 1979. In October 1982, Dorita obtained an order joining MEBA, William's employee pension benefit plan (29 U.S.C. § 1002(2)(A)(i)), as a party to the dissolution action pursuant to Civil Code section 4363. In December 1982, MEBA filed a notice of appearance and response as allowed by Civil Code section 4363.2, in which it requested, among other things, "That any order directing a divided payment of pension or benefit amounts if any when due be stated in strict percentages per payee respectively and not as a formula or flat amount." On March 5, 1984, by stipulation, William and Dorita's marital settlement agreement dividing their community property was incorporated into a judgment in the California dissolution action. They agreed, apparently in an effort to comply with MEBA's request, to postpone obtaining an order directing MEBA to divide community interests in William's retirement benefits.

The California judgment provided that either party could "request an order from the California court of appropriate jurisdiction that enters its approval of this Agreement directing the MEBA Pension Trust to pay directly to Dorita Baker that percentage of the payment allocable to her community interest calculated as follows: one-half of the product obtained by multiplying the amount of each retirement payment by the ratio of the number of months of William E. Baker's employment as a merchant seaman during his marriage to Dorita Baker and prior to separation, which is 319 months over the total number of months of William E. Baker's employment as a merchant seaman credited by the MEBA Pension Trust, which employment commenced April 1, 1952 according to the MEBA pension trust records."

This in-kind division of benefits is commonly called division by the "time rule" and is often utilized in California to divide community interests in pension plans. (See In re Marriage of Bergman (1985) 168 Cal.App.3d 742, 748, 214 Cal.Rptr. 661, fn. 4.) The time rule is most frequently used either to assure each party a source of income upon retirement, or when the "cash out" 1 method cannot be utilized because it would not result in an equal division of community property. Also, division of pension interests by the time rule makes it unnecessary for either side to employ an actuary for valuation purposes, since the benefits are divided by a formula. Presumably in an effort to comply with MEBA's request that the benefits be divided by a court order "in strict percentages per payee respectively and not as a formula or flat amount," and recognizing that this could not be done until William actually retired, the parties utilized the language set forth in the court order.

Unbeknownst to Dorita, William applied for a lump sum cash out of all retirement benefits on April 2, 1984. On April 5, 1984, Dorita's attorney served MEBA with a copy of the court order (incorporating the stipulated settlement agreement) dated March 5, 1984. Over four months later, on July 10, 1984, MEBA paid William the entire retirement benefit--over $400,000--in a lump sum, without Dorita's knowledge.

In May 1986, Dorita obtained a court order requiring William to pay $165,901.94 as her community share of his pension benefits. In July, unable to collect from William, Dorita sued MEBA for damages in a separate action alleging breach of fiduciary duty, conversion, and negligent and intentional infliction of emotional distress. The trial court sustained MEBA's demurrer on the grounds the complaint failed to state facts sufficient to constitute a cause of action and the court lacked subject matter jurisdiction. No appeal has been filed in that proceeding. Thus there is no issue of damages before us, only Dorita's marital interest in the plan.

In February 1987, Dorita requested and obtained from the court in the dissolution action an order that MEBA pay her $165,901.94 plus ten percent interest thereon commencing July 10, 1984, until paid in full "as and for her community interest in the pension plan held in the name of William Baker."

II. CALIFORNIA COMMUNITY PROPERTY LAW NOT PREEMPTED BY ERISA

MEBA asserts federal substantive law applies to Dorita's claim under the preemption provision of ERISA, which states 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).) It is well established, however, that section 1144 does not preempt California community property law in general, nor prohibit state courts in dissolution actions from ordering pension plans 2 to pay part of a participant's benefits directly to a former spouse. (Stone v. Stone (N.D.Cal.1978) 450 F.Supp. 919, 931-933, affd. (9th Cir.1980) 632 F.2d 740, 742, cert. den. 453 U.S. 922, 101 S.Ct. 3158, 69 L.Ed.2d 1004; Carpenters Pension Trust, etc. v. Kronschnabel (C.D.Cal.1978) 460 F.Supp. 978, 980-982, affd. (9th Cir.1980) 632 F.2d 745, cert. den. 453 U.S. 922, 101 S.Ct. 3159, 69 L.Ed.2d 1004; Johns v. Retirement Fund Trust (1978) 85 Cal.App.3d 511, 513, 149 Cal.Rptr. 551; In re Marriage of Johnston (1978) 85 Cal.App.3d 900, 905-912, 149 Cal.Rptr. 798; In re Marriage of Campa (1979) 89 Cal.App.3d 113, 120-125, 152 Cal.Rptr. 362, app. dism. for want of substantial federal question 444 U.S. 1028, 100 S.Ct. 696, 62 L.Ed.2d 664; In re Marriage of Pilatti (1979) 96 Cal.App.3d 63, 157 Cal.Rptr. 594; In re Marriage of Lionberger (1979) 97 Cal.App.3d 56, 64-66, 158 Cal.Rptr. 535; In re Marriage of Mantor (1980) 104 Cal.App.3d 981, 985, 164 Cal.Rptr. 121; In re Marriage of Williams (1985) 163 Cal.App.3d 753, 761-762, 209 Cal.Rptr. 827.)

As noted in Kronschnabel, the United States Supreme Court's action in dismissing the appeal in Campa for want of a substantial federal question is a decision on the merits that ERISA does not preempt state court orders directing a plan to pay a community property share of a participant's benefits to his or her ex-spouse. As a decision on the merits by our nation's highest court, it is binding on all state and federal courts.

MEBA cites no cases holding that the California court order awarding Dorita her community property interest in William's pension is preempted by ERISA.

MEBA also claims ERISA's provision that "Each pension plan shall provide that benefits provided under the plan may not be assigned or alienated" (29 U.S.C. § 1056(d)(1)) prohibits it from complying with the trial court's order. Numerous cases have held, however, that the general anti-alienation provision does not prohibit the division of pension benefits under community property laws. (Stone v. Stone, supra, 450 F.Supp. at pp. 924-931, Carpenters Pension Trust, etc. v. Kronschnabel, supra, 460 F.Supp. at p. 982, Johns v. Retirement Fund Trust, supra, 85 Cal.App.3d at p. 513, 149 Cal.Rptr. 551, In re Marriage of Johnston, supra, 85 Cal.App.3d at pp. 912-913, 149 Cal.Rptr. 798, In re Marriage of Campa, supra, 89 Cal.App.3d at pp. 125-126, 152 Cal.Rptr. 362, In re Marriage of Pilatti, supra, 96 Cal.App.3d at p. 67, 157 Cal.Rptr. 594, In re Marriage of Williams, supra, 163 Cal.App.3d at pp. 760-762, 209 Cal.Rptr. 827.)

ERISA defined an employee, and it defined a beneficiary as one designated by the employee or the terms of the plan who may become entitled to receive benefits under the plan. (29 U.S.C. § 1002.) A former spouse was not included in either definition, nor was there a reference specifically to a former spouse. Thus it could have been argued that under ERISA, as originally enacted, "Technically, an employee's former spouse, whose interest in the benefits arise by operation of community property law, is neither an employee nor a beneficiary. Distribution to such persons therefore may run afoul of the exclusive benefit rule." (Solomon, Beyond Preemption: Accommodation of the Nonemployee Spouse's Interest Under ERISA (1980) 31 Hastings L.J. 1021, 1041.)

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