Northwest Airlines, Inc. v. Roemer

• Citation: 603 F. Supp. 7
• Decision Date: 15 March 1984
• Docket Number: Civ. No. 4-83-662.
• Parties: NORTHWEST AIRLINES, INC.; Northwest Airlines, Inc., Pilots' Pension Plan; and State Street Bank and Trust Company, Plaintiffs, v. Arthur ROEMER, in his official capacity as Commissioner, Minnesota Department of Revenue; and Steven A. Felak, Jr., Defendants.
• Court: U.S. District Court — District of Minnesota

603 F. Supp. 7

NORTHWEST AIRLINES, INC.; Northwest Airlines, Inc., Pilots' Pension Plan; and State Street Bank and Trust Company, Plaintiffs, v. Arthur ROEMER, in his official capacity as Commissioner, Minnesota Department of Revenue; and Steven A. Felak, Jr., Defendants.

Civ. No. 4-83-662.

United States District Court, D. Minnesota, Fourth Division.

March 15, 1984.

Edward J. Pluimer, and Joseph M. Musilek, Dorsey & Whitney, Minneapolis, Minn., for plaintiffs.

Neil F. Scott, Sp. Asst. Atty. Gen., Revenue Div., St. Paul, Minn., Steven Felak, pro se, for defendants.

DIANA E. MURPHY, District Judge.

Plaintiffs Northwest Airlines, Inc. (NWA), Northwest Airlines, Inc., Pilots' Pension Plan, and State Street Bank and Trust Company (State Street Bank) have filed a complaint for interpleader and declaratory judgment. Plaintiffs also seek an award of their costs and attorneys' fees. Jurisdiction is invoked pursuant to 28 U.S.C. §§ 1332(a)(2) and 1335. The matter is now before the court upon cross motions for summary judgment filed by plaintiffs and defendant Arthur Roemer.

Background

Plaintiffs and defendant Roemer have submitted a signed stipulation of facts. A request for admissions, containing the identical facts set forth in the stipulation, was served upon defendant Steven A. Felak, Jr. He neither objected to nor denied any of the Requests for Admissions, and the matters are therefore deemed admitted. Fed. R.Civ.P. 36(a). The facts set forth below are based on the stipulation and request for admissions.

NWA is a Minnesota corporation with its principal place of business in St. Paul, Minnesota. The Pilots' Pension Plan is a qualified employee pension plan subject to federal regulation under the Employment Retirement Security Act of 1974 (ERISA), as codified at 29 U.S.C. § 1001 et seq. and subject to the tax laws of the United States as codified at 26 U.S.C. § 401 et seq. NWA is the Plan Administrator for the Pilots' Pension Plan, while State Street Bank is the Trustee.

Defendant Roemer is a resident of the State of Minnesota and is the Commissioner of the Minnesota Department of Revenue (MDR), an agency of the State of Minnesota. Defendant Felak is a retired pilot of NWA and a participant in the Pilots' Pension Plan. Felak is presently a resident of the State of Washington.

Felak retired as a pilot for NWA in the Spring of 1983. Based upon his past earnings as a pilot for NWA, Felak is entitled to receive a monthly employee pension from the Pilots' Pension Plan in the amount of $5,205.17. The payment is to be made by the State Street Bank as Trustee at the direction of NWA as Plan Administrator. The first payment was sent to Felak at his residence on May 31, 1983.

A tax assessment has been made against Felak by Roemer in his official capacity for $128,719.19. Roemer asserts that Felak owes this amount for unpaid Minnesota state income taxes, interest and penalties. A default judgment was entered in the District Court of the State of Minnesota against Felak in favor of the MDR for this amount on May 24, 1983. The Commissioner and the MDR are vested with authority pursuant to Minn.Stat. § 290.92, subd. 23 to administer the collection of delinquent Minnesota state income taxes.¹

On or about April 1, 1983, after Felak had retired as a pilot for NWA and had begun accruing his monthly pension benefit, NWA and State Street Bank received a Notice to Employer from the MDR, pursuant to Minn.Stat. § 290.92, subd. 23. The notice demanded that NWA and State Street Bank withhold from the monthly pension payment to Felak one quarter of the total pension payment, or $1,301.29 each month. The notice directed NWA and State Street Bank to remit the withheld monies to the MDR in partial payment of the $128,719.19 allegedly owed by Felak. The notice further stated that if plaintiffs willfully failed to comply with the requirements set forth in the Notice, they themselves would be liable for the amount demanded plus accrued interest.

At the hearing on this matter and in a letter sent by Felak to M.J. Lapensky, Chairman and Chief Executive Officer of Northwest, Felak denied owing any Minnesota state income taxes and claimed that he is entitled to the full amount of the monthly pension benefit. Under the terms of the Pilots' Pension Plan, he is to continue receiving his monthly pension payment for the duration of his life.

At the outset of this case plaintiffs obtained an order from this court, dated July 26, 1983, permitting them to deposit $1,301.29 into the registry of the court for the month of June, and an equal amount for each subsequent month, pending a final judgment. This represents the amount claimed by the MDR. The funds on deposit are thus subject to conflicting claims of Felak and the MDR.

Plaintiffs and defendant Roemer have filed motions for summary judgment.² Plaintiffs seek an order declaring that ERISA preempts the MDR's efforts to levy on Felak's monthly pension benefit. Plaintiffs further move the court for an order, pursuant to 28 U.S.C. § 1335, directing that the money deposited into the registry of the court be delivered to defendant Felak. They also seek to be discharged from all liability to defendants relating to past pension payments. Defendant Roemer seeks an order requiring the plaintiffs to comply with the Notice to Employer of additional withholding tax served on or about April 1, 1983 and ordering that the funds deposited in the registry of the court be paid to him.

Discussion

The focal issue to be resolved is whether ERISA preempts the authority of Roemer to levy upon an ERISA-covered employee pension plan, pursuant to Minn.Stat. § 290.92, subd. 23, to satisfy the state income tax liability of one of the plan's participants.

Preemption is a question of Congressional intent. Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 103 S.Ct. 2890, 2899, 77 L.Ed.2d 490 (1983). "Preemption may be either express or implied, and `is compelled whether Congress' command is explicitly stated in the statute's language or implicitly contained in its structure and purpose'...." Id. (citations omitted). The starting point for the analysis is the language of the statute itself. Greyhound Corp. v. Mount Hood Stages, Inc., 437 U.S. 322, 98 S.Ct. 2370, 57 L.Ed.2d 239 (1978).

The two relevant provisions of ERISA are 29 U.S.C. §§ 1056(d) and 1144(a). Section 1056(d) requires that "each pension plan shall provide that benefits provided under the plan may not be assigned or alienated."³ 29 U.S.C. § 1056(d). Section 1144(a) provides that ERISA "supercedes any and all State laws insofar as they may now or hereafter relate to any employee benefit plan ...." 29 U.S.C. § 1144(a).

A. Section 1056(d)

Defendant Roemer argues that § 1056(d) specifically addresses only voluntary transfers of beneficial rights and does not expressly prohibit the enforcement of judgments against a pensioner's benefits by levy, garnishment, or attachment. He contends ERISA is thus different from other Congressional acts where benefits are exempted from execution or levy in explicit terms. See 42 U.S.C. § 407 (Social Security benefits); 45 U.S.C. § 231m (Railroad Retirement benefits); 38 U.S.C. § 3101(a) (Veteran's benefits). Roemer argues that the intent of § 1056(d) is merely to prevent employees and families from bargaining away pension benefits.

The only available legislative history on § 1056 is an interpretive comment by the Joint House and Senate Conference Committee which states in part:

Under the conference substitute, a plan must provide that benefits under the plan may not be assigned or alienated. However, the plan may provide that after a benefit is in pay status, there may be a voluntary revocable assignment (not to exceed 10 percent of any benefit payment) by an employee which is not for purposes of defraying the administrative costs of the plan. For purposes of this rule, a garnishment or levy is not to be considered a voluntary assignment.

House Conference Rep. 93-1280, 93d Congress, 2d Session, U.S.Code Cong. & Admin.News, 1974 pp. 4639, 5061. This comment, as well as the language of the statute, indicate that Congress intended the prohibition against assignments to include both voluntary and involuntary assignments. The general prohibition against assignments stated in the first sentence of the statutory provision contains no qualification. By contrast, references to voluntary assignments in both the statute and the Conference Committee's comment are explicit. The final sentence of the comment clearly indicates that Congress intended to distinguish between the general prohibition, which includes garnishments and levies, and the limited exception for voluntary transfers of 10% or less. See Commercial Mortgage Insurance Inc. v. Citizens National Bank of Dallas, 526 F.Supp. 510 (N.D.Tex.1981); cf. General Motors Corporation v. Buha, 623 F.2d 455 (6th Cir.1980) (legislative history inconclusive).

The Internal Revenue Service has adopted regulations which are consistent with this interpretation. The regulations provide, in part, as follows:

(b) No assignment or alienation — (1) General Rule. Under section 401(a)(13) a trust will not be qualified unless the plan of which the trust is part provides that benefits provided under the plan may not be anticipated, assigned (either at law or in equity), alienated or subject to attachment, garnishment, levy, execution or other legal or equitable process.

26 C.F.R. § 1.401(a)-(13)(b)(1). Significantly, these regulations provide an exception for levies in aid of federal tax collection. 26 C.F.R. § 1.401(a)-(13)(b)(2).⁴ There is no comparable provision for state tax levies.⁵

The Internal Revenue Service is jointly charged with the Department of Labor with administering ERISA. See General Motors Corp. v. Buha, 623 F.2d 455, 461 (6th Cir.1980); Commercial Mortgage Insurance, Inc. v. Citizens National Bank, 526 F.Supp. 510, 519 (N.D.Tex.1981). The regulation prohibiting assignments and...