Ragan v. Ragan
| Decision Date | 27 May 2021 |
| Docket Number | Court of Appeals No. 20CA0038 |
| Court | Colorado Court of Appeals |
| Parties | Rozalyn RAGAN, Personal Representative of the Estate of Charles Phillip Ragan, Deceased, Plaintiff-Appellant, v. Melissa RAGAN, a/k/a Melissa Hudson, Defendant-Appellee. |
The Drexler Law Group, LLC, Matthew B. Drexler, Brian Melton, Stephen A. Brunette, Colorado Springs, Colorado, for Plaintiff-Appellant
The Gasper Law Group, PLLC, Kenneth H. Gray, Jack Roth, Colorado Springs, Colorado, for Defendant-Appellee
Opinion by JUDGE YUN
¶ 1 At the time of Charles Phillip Ragan's death, his ex-wife, Melissa Ragan, a/k/a Melissa Hudson, remained the named beneficiary of his employer-sponsored life and accidental death insurance policies. After the insurance proceeds were distributed to Ms. Ragan, Mr. Ragan's estate (Estate) sued her to recover those proceeds.
¶ 2 The Estate's case implicates the interplay between Colorado's divorce revocation statute, section 15-11-804, C.R.S. 2020, and the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. §§ 1001 - 1461, which the parties agree governs the insurance policies. On one hand, ERISA provides that an employee benefit plan "shall ... specify the basis on which payments are made to and from the plan," 29 U.S.C. § 1102(b)(4), and that the fiduciary shall administer the plan "in accordance with the documents and instruments governing the plan," 29 U.S.C. § 1104(a)(1)(D), and make payments to a beneficiary who is "designated by a participant, or by the terms of an employee benefit plan," 29 U.S.C. § 1002(8). ERISA also provides that it "shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan" covered by ERISA. 29 U.S.C. § 1144(a).
¶ 3 On the other hand, section 15-11-804(2)(a)(i) ( subsection (2) ) of Colorado's divorce revocation statute provides that any beneficiary designation of a then-spouse is automatically revoked upon divorce. Section 15-11-804(8)(b) ( subsection (8)(b) ) further provides that if "any part of this section is preempted by federal law," a former spouse "who ... received a payment ... to which that person is not entitled under this section is obligated to return that payment" or "is personally liable for the amount of the payment ..., to the person who would have been entitled to it were this section or part of this section not preempted."
¶ 4 The Estate concedes that ERISA preempts subsection (2) and that the plan administrator properly distributed the insurance proceeds to Ms. Ragan. But the Estate argues that subsection (8)(b) allows the Estate to recover those proceeds from Ms. Ragan, who, by operation of subsection (2), was not entitled to those proceeds. The district court disagreed, concluding that subsection (8)(b), like subsection (2), is preempted by ERISA and that the Estate therefore had "no legal interest" in the insurance proceeds.
¶ 5 We affirm the district court's judgment. In In re Estate of MacAnally , 20 P.3d 1197, 1203 (Colo. App. 2000), a division of this court held that ERISA preempts Colorado's divorce revocation statute in the "pre-distribution" context by requiring an ERISA plan administrator to distribute plan proceeds to the beneficiary named in the plan. We now recognize that ERISA preemption extends to post-distribution lawsuits. Based on our analysis of legal authority from other jurisdictions, we conclude as a matter of first impression in Colorado that, absent an express waiver of rights to the proceeds, ERISA precludes a lawsuit against a former spouse to recover insurance proceeds that were distributed to him or her as the named beneficiary.
¶ 6 Charles and Melissa Ragan were married in 2012 and divorced in December 2016. Less than five months later, on May 13, 2017, Mr. Ragan died in a car-bicycle accident. Before the dissolution of the Ragans’ marriage, Mr. Ragan took out several life and accidental death insurance policies through his employer, Federal Express, all of which named Ms. Ragan as the beneficiary. Mr. Ragan did not change the beneficiary of these policies after his divorce from Ms. Ragan.
¶ 7 Shortly after Mr. Ragan's death, Ms. Ragan was notified of the existence of the policies and received benefits in the amount of approximately $535,000. Ms. Ragan contends, and the Estate does not dispute, that she was unaware of the existence of the policies before Mr. Ragan's death. No party asserts that Ms. Ragan waived or voluntarily relinquished her right to receive the insurance proceeds.
¶ 8 Following a hearing, a domestic relations court found that the insurance proceeds were not a material asset or liability of the marital estate, that no maintenance or child support obligations had to be secured with the proceeds, and that, therefore, the Estate's claim for recovery of the proceeds from Ms. Ragan was not within that court's continuing jurisdiction.
Thus, the Estate alleges that "FORMER SPOUSE was not entitled to receive the insurance benefits specified above, and is obligated to return or repay same to the ESTATE, together with any benefits arising from payment of said benefits to her, under C.R.S. § 15-11-804(8)."
¶ 10 Ms. Ragan filed a motion for declaratory relief pursuant to C.R.C.P. 57 and a motion to dismiss pursuant to C.R.C.P. 12(b)(5). She argued that because ERISA preempts subsection (2) by requiring the insurance proceeds to be distributed to her, it likewise preempts subsection (8)(b) by precluding a post-distribution lawsuit against her to recover those proceeds. In response, the Estate argued that although ERISA preempts subsection (2), it does not preempt subsection (8)(b) because attempting to recover benefits before they have been distributed to the beneficiary differs from attempting to recover benefits from the beneficiary after they have been disbursed.
¶ 11 The district court granted both of Ms. Ragan's motions. It concluded that precedent from the United States Supreme Court and other courts, including a division of this court, makes clear that ERISA preempts any revocation statute — like section 15-11-804 — that automatically revokes a beneficiary designation upon divorce. The only exception, the court explained, is in the context of waiver by private agreement between the parties. Because "no facts have been pled in this case that such an agreement exists" and "the Estate does not reference any such waiver in this case," the court concluded that ERISA preempts the Estate's post-distribution claims against Ms. Ragan to recover funds that were properly distributed to her as the named beneficiary.
¶ 12 The Estate filed a motion to alter or amend the judgment. The court denied the motion, noting that "all of the cases cited by [the Estate] involve a purported voluntary relinquishment of a claim by the beneficiary" while this case, in contrast, involves the revocation of a beneficiary's interest by operation of state law.
¶ 13 The Estate contends that the district court erred by concluding that ERISA preempts subsection (8)(b).2 Specifically, the Estate argues that ERISA does not preempt its claims because they are "for post-distribution recovery of insurance proceeds paid to a decedent's former spouse, and [are] not an action against an ERISA plan administrator to attempt to recover insurance proceeds prior to distribution by the ERISA plan administrator." Ms. Ragan contends that the Estate's appeal is frivolous and requests an assessment of fees and costs as sanctions pursuant to C.A.R. 38(b). After setting out the standard of review, we turn first to Colorado's divorce revocation statute, then to ERISA and the body of case law surrounding ERISA preemption. We then address Ms. Ragan's request for sanctions.
¶ 14 We review the district court's summary judgment ruling on a declaratory judgment claim under C.R.C.P. 57 de novo. Fire House Car Wash, Inc. v. Bd. of Adjustment for Zoning Appeals , 30 P.3d 762, 766 (Colo. App. 2001). We also review the district court's ruling on a motion to dismiss under C.R.C.P. 12(b)(5) de novo. Scott v. Scott , 2018 COA 25, ¶ 17, 428 P.3d 626. And we review the district court's statutory interpretation de novo. In re Estate of Johnson , 2012 COA 209, ¶ 8, 304 P.3d 614.
¶ 15 Subsection (2) provides that, with certain exceptions not applicable here, a divorce revokes any revocable disposition or appointment of property made by a divorced individual to the individual's then-spouse in a governing instrument, including a beneficiary designation in an insurance policy. § 15-11-804(2)(a)(i) ; Estate of Johnson , ¶ 9.
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