Savings and Profit Sharing Fund of Sears Employees v. Gago

• Decision Date: 21 September 1983
• Docket Number: No. 82-1880,82-1880
• Citation: 717 F.2d 1038
• Parties: SAVINGS AND PROFIT SHARING FUND OF SEARS EMPLOYEES, et al., Plaintiffs, v. Rudolph G. GAGO, Defendant-Appellant, and Elizabeth J. Kassa, et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 1038

717 F.2d 1038

SAVINGS AND PROFIT SHARING FUND OF SEARS EMPLOYEES, et al., Plaintiffs, v. Rudolph G. GAGO, Defendant-Appellant and Elizabeth J. Kassa, et al., Defendants-Appellees.

No. 82-1880.

United States Court of Appeals Seventh Circuit.

Argued Jan. 13, 1983.

Decided Aug. 31, 1983.

As Amended Sept. 21, 1983.

David L. Walther, Walther & Halling, Milwaukee, Wis., for defendant-appellant.

David C. Rice, Wis. Dept. of Justice, Madison, Wis., for defendants-appellees.

Before CUDAHY and ESCHBACH, Circuit Judges, and KELLAM, Senior District Judge. ^*

CUDAHY, Circuit Judge.

Appellant Rudolph Gago appeals from the district court's refusal to enjoin a Wisconsin state court order directing Gago's Retirement Fund to pay his former spouse a portion of Gago's retirement monies. ¹ The district court held that the state court order was not preempted by or in conflict with the Employee Retirement Income Security Act of 1974 ("ERISA"). We affirm.

I. Factual Background

A judgment was entered by the Wisconsin Family Court on April 9, 1979, dissolving the marriage of appellant Rudolph Gago and Elizabeth Kassa. As part of the property settlement, and pursuant to state law governing property distribution upon divorce, ² the Wisconsin Family Court awarded Kassa one-half of the value of Gago's vested interest in the Savings and Profit Sharing Fund of Sears Employees (the "Fund"). Notwithstanding the order of the Wisconsin Family Court, however, Gago refused to pay Kassa. Consequently, Kassa demanded that the Fund itself pay her the portion of Gago's pension awarded by the court. The Fund refused to make the requested payment, contending that to do so would violate its ERISA-mandated obligations.

Kassa thereupon filed an action in the Milwaukee County Circuit Court, seeking to compel the Fund to pay her the amount ordered pursuant to the divorce judgment. The Wisconsin court, rejecting the Fund's ERISA arguments, ³ ordered the Fund to make immediate payments directly to Kassa.

The Fund then brought a federal court action seeking to enjoin enforcement of the state court order. The district court decided against the Fund and entered summary judgment for defendants.

Two sections of ERISA are in issue. First, section 514(a), 29 U.S.C. Sec. 1144, may preempt Wisconsin law governing property settlements pursuant to divorce insofar as pension funds are involved. Second, the Wisconsin court's order directing the Fund to pay Kassa may constitute an assignment or alienation prohibited by section 206(d)(1) of ERISA, 29 U.S.C. Sec. 1056(d)(1).

II. Preemption of State Law By ERISA Sec. 514(a), 29 U.S.C.

Sec. 1144(a)

Section 514(a) of ERISA preempts "any and all State laws insofar as they may now or hereafter relate to any employee benefit plan" covered by ERISA. ⁴ We do not write on a clean slate when it comes to interpreting section 514(a). Indeed, the Supreme Court very recently construed this section. In Shaw v. Delta Air Lines, Inc. --- U.S. ----, 103 S.Ct. 2890, 77 L.Ed.2d 490 (1983), the Court held that a New York statute prohibiting discrimination in employee benefit plans on the basis of pregnancy, where otherwise lawful under federal law, is preempted by section 514(a) because the New York statute "relates to" employee benefit plans within the meaning of section 514(a). The Shaw opinion teaches that the key to understanding the scope of section 514(a)'s preemption rests in the language "relates to" and Congress' intent in using these words. The Court concluded that "relates to" should be given a very broad reading: "A law 'relates to' an employee benefit plan, in the normal sense of the phrase, if it has a connection with or reference to such a plan.... In fact, ... Congress used the words 'relate to' in Sec. 514(a) in their broad sense." Shaw, --- U.S. at ----, 103 S.Ct. at 2900.

The Court also recognized, however, that there are necessary limits to the reach of the phrase "relates to." In a footnote that may help to resolve the section 514(a) preemption question in the case before us, the Court stated:

Some state actions may affect employee benefit plans in too tenuous, remote, or peripheral a manner to warrant a finding that the law "relates to" the plan. Cf. American Telephone and Telegraph Co. v. Merry, 592 F.2d 118, 121 (CA2 1979) (state garnishment of a spouse's pension income to enforce alimony and support orders is not pre-empted).

Shaw, --- U.S. at ---- n. 21, 103 S.Ct. at 2901-02 n. 21.

We find persuasive, as apparently the Supreme Court did in Shaw, the distinction drawn by the Second Circuit in AT & T v. Merry, 592 F.2d 118, 121 (2d Cir.1979), between state laws which "relate to" an employee benefit plan and state laws which only "in the most remote and peripheral manner touch upon pension plans." In AT & T v. Merry, the Connecticut Superior Court ordered Mr. Merry to pay his former spouse alimony and child support in the amount of one-half his retirement income from the AT & T pension plan. When Merry failed to pay, the Connecticut Court issued an order garnishing his interest in the AT & T plan. AT & T, uncertain of its fiduciary rights and obligations under ERISA, commenced a federal court declaratory judgment action to determine whether it could pay to Mrs. Merry the amount ordered. The district court declared that AT & T was not precluded by ERISA from paying this amount. The Second Circuit affirmed, rejecting the "strict, literal construction" of section 514(a) that "would necessarily lead to the unreasonable conclusion that Congress intended to preempt even those state laws that only in the most remote and peripheral manner touch upon pension plans." Merry. 592 F.2d at 121.

Unfortunately, the "remote and peripheral" language used by the Second Circuit in Merry and the adjective "tenuous" added by the Supreme Court in Shaw do not delimit very precisely the scope of "relates to." As a practical matter, however, we think the close similarity between the facts of Merry and the case before us, coupled with the Supreme Court's apparently approving reference to the Merry result in Shaw, provide us with sufficiently persuasive authority to hold that section 514(a) does not preempt the Wisconsin court order. The only distinction of possible substance between Merry and the case before us is that Merry involved enforcement of alimony and support orders while this case involves property division. We do not see, however, how this distinction as to the character of the ordered payment, provided that it was integral to the dissolution of a marriage, makes any difference with respect to the scope of section 514(a). In any event, the argument need not solely or even primarily concern section 514(a), since there is another ERISA provision that appears to stand more clearly in the way of the Wisconsin court order: section 206(d), 29 U.S.C. Sec. 1056(d). ⁵

III. Conflict Between ERISA Sec. 206(d) and the State Court Order

Even though not generally preempted by section 514, state law may still be preempted because of a direct conflict with a more specific section of ERISA. ERISA contains an express provision against assignment and alienation, section 206(d):

(d)(1) Each pension plan shall provide that benefits provided under the plan may not be assigned or alienated.

29 U.S.C. Sec. 1056(d)(1). Appellant argues that the plain meaning of section 206(d) prohibits all "assignments and alienations," including the assignment ordered by the Wisconsin court.

We must determine if in fact there is a conflict between the Wisconsin court order and section 206(d). The Supreme Court has articulated two tests for determining whether a sufficient conflict arises when a federal statute appears to clash with state law. The first of these tests provides that there is a sufficient conflict where "compliance with both federal and state regulations is a physical impossibility ...." Florida Lime & Avocado Growers, Inc. v. Paul, 373 U.S. 132, 142-43, 83 S.Ct. 1210, 1217, 10 L.Ed.2d 248 (1963). The second test provides that a conflict will be found where state law "stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress." Hines v. Davidowitz, 312 U.S. 52, 67, 61 S.Ct. 399, 404, 85 L.Ed. 581 (1941).

First, compliance with the letter of both ERISA and the state court order is not a physical impossibility. Section 206 requires that a plan must "provide that benefits provided under the plan shall not be assigned or alienated." 29 U.S.C. 1056(d) (emphasis supplied). As the Ninth Circuit noted in Operating Engineers' Local 428 Pension Trust Fund v. Zamborsky, 650 F.2d 196, 201 (1981), the plan can be drafted to conform with section 206, but a state court may still effectively require that the trustees of a plan not follow, or comply with, the plan's provision, as drafted. We agree with the Ninth Circuit that state law is not preempted under the first of these tests.

The second of the two tests focuses upon the purposes and objectives of Congress. Unfortunately, the legislative history of section 206(d) is rather limited. On the one hand, the general purpose of section 206 is to "ensure that the employee's accrued benefits are actually available for retirement purposes." H.R.REP. NO. 807, 93rd Cong., 2d Sess., reprinted in 1974 U.S.CODE CONG. & AD.NEWS 4639, 4670, 4734. This statement of section 206's purpose can be read as indicating that the retirement fund is to be preserved solely for the worker's benefit and for the benefit of no one else, not even of his spouse and children. On the other hand, one of the stated general purposes of ERISA, as set forth in ERISA's statement of policy, is "the continued well-being and security of millions of employees and their dependents...." 29 U.S.C. Sec. 1001 (emphasis supplied). This, of course, could be read as supporting enforcement of the state court property division order. In fact, the Second Circuit in AT & T v. Merry, 592 F.2d 118,...