In re Batchelor

260 Md. App. 456

310 A.3d 1136

In the MATTER OF Brenda BATCHELOR

No. 490, Sept. Term, 2022

Appellate Court of Maryland.

February 28, 2024

Circuit Court for Montgomery County, Case No. 484282V, Sharon V. Burrell, Judge.

Argued by Michael J. Lentz (Brianna G. Pickhardt, Tydings & Rosenberg LLP, Baltimore, MD), on brief, for Appellant.

Argued by Barton D. Moorstein, Blank, Moorstein & Lipshutz, LLP, Rockville, MD, on brief, for Appellee.

Argued before: Nazarian, Albright, Robert A. Zarnoch (Senior Judge, Specially Assigned), JJ.

Zarnoch, J.

[1] It matters not whether a state law, practice, or court action is fair, equitable, utterly reasonable, supported by cogent policy arguments, and protective of important state interests. If it conflicts with federal law, it must give way, This is such a case.

This appeal stems from a dispute between Brenda Batchelor, personal representative of the estate of Bonnie Campbell (hereinafter the "Estate"), and Ms. Campbell’s former husband, Michael Campbell, over the proceeds of a Thrift Savings Plan ("TSP") that Ms. Campbell had established under the Federal Employees’ Retirement System Act of 1986 ("FERSA") and that named Mr. Campbell as the sole beneficiary. In 2010, Mr. and Ms. Campbell were divorced, and, as part of that divorce, they entered into a property settlement agreement (the "Settlement Agreement") in which Mr. Campbell purportedly waived all rights to the proceeds of Ms. Campbell’s TSP account. Despite that agreement, Ms. Campbell never removed Mr. Campbell as the sole beneficiary of the TSP account. In 2019, Ms. Campbell passed away, and the entirety of the proceeds from the TSP account were subsequently distributed to Mr. Campbell. The Estate thereafter filed, in the Circuit Court for Montgomery County, a civil complaint against Mr. Campbell, claiming that, under the terms of the Settlement Agreement, the proceeds of the TSP account should have gone to the Estate. Mr. Campbell filed a motion to dismiss, arguing that the Estate had failed to state a claim upon which relief could be granted because, pursuant to FERSA, Mr. Campbell, as the named beneficiary, was entitled to sole and exclusive use of the TSP proceeds. The Estate opposed the motion to dismiss and filed a motion for summary judgment. Following a hearing, the circuit court denied Mr. Campbell’s motion to dismiss and granted, in part, the Estate’s motion for summary judgment. Mr. Campbell noted this appeal, raising a single issue:

Did the circuit court err in determining that the Estate’s claims were not preempted by FERSA?

For reasons to follow, we hold that the Estate’s claims were preempted by FERSA and that, consequently, the circuit court erred in denying Mr. Campbell’s motion to dismiss. We therefore reverse the court’s judgment and remand with instructions to dismiss the Estate’s complaint.

BACKGROUND

Mr. and Ms. Campbell were married in 1999. At some point prior to or during the marriage, Ms. Campbell opened and began funding a TSP, a form of retirement plan offered to certain federal employees. 5 U.S.C.A. § 8432. In 2002, Ms. Campbell named Mr. Campbell as the sole beneficiary of her TSP account.

In 2009, Mr. and Ms. Campbell separated. The following year, they entered into the Settlement Agreement. That agreement included a provision in which the parties agreed to waive any right to the other party’s retirement assets.

In July 2010, Mr. and Ms. Campbell were divorced by way of judgment entered in the circuit court. The Settlement Agreement was incorporated, but not merged, into the divorce judgment. It does not appear from the record, however, that Ms. Campbell ever changed her beneficiary designation or otherwise informed the appropriate authority about the Settlement Agreement.¹

In August 2019, Ms. Campbell passed away. At the time of Ms. Campbell’s death, her TSP had not been distributed and was valued at $717,030.29. Shortly thereafter, Mr. Campbell applied to receive those funds as the designated beneficiary. Said funds were ultimately disbursed to Mr. Campbell.

In December 2020, Ms. Campbell’s estate filed a civil suit against Mr. Campbell for specific performance, breach of contract, and conversion. The Estate alleged that Mr. Campbell should not have received the TSP funds under the terms of the Settlement Agreement. The Estate argued that Mr. Campbell had waived his right to the TSP funds and that, consequently, he should be required to repay those funds to Ms. Campbell by way of her estate.

Mr. Campbell filed a motion to dismiss the Estate’s complaint. He maintained that, as the named beneficiary of the TSP account, he was entitled to the funds and that the Estate’s complaint was preempted by FERSA’s statutory scheme concerning the distribution of TSP funds.

The Estate opposed the motion and subsequently filed a motion for summary judgment on the claims set forth in the complaint. In support, the Estate cited Andochick v. Byrd, 709 F.3d 296 (4th Cir. 2013), a case in which the United States Court of Appeals for the Fourth Circuit held that a post-distribution lawsuit regarding funds distributed to a beneficiary under the Employee Retirement Income Security Act of 1974 ("ERISA") was permissible based on the beneficiary’s prior waiver of those funds via a marital settlement agreement. Id. at 301.

Following a hearing, the circuit court denied Mr. Campbell’s motion to dismiss and granted, in part, the Estate’s motion for summary judgment. The court, citing Andochick, determined that the Estate’s complaint was not preempted by federal law.² The court also determined that the Estate was entitled to summary judgment on its breach of contract claim because it was undisputed that Mr. Campbell had breached the terms of the Settlement Agreement by obtaining and then refusing to relinquish the TSP funds following Ms. Campbell’s death. The court granted judgment in favor of the Estate in the amount of $734,334.35.

Mr. Campbell thereafter noted this timely appeal. Additional facts will be supplied as needed below.

DISCUSSION

Mr. Campbell argues that the circuit court erred in denying his motion to dismiss. He maintains that FERSA requires that the TSP funds be paid to him as the named beneficiary and that, in turn, FERSA bars recovery by any other individual. He further maintains that, under FERSA, the TSP funds are his sole property and are not subject to attack by the Estate. He argues, therefore, that any right of action the Estate may have to enforce the Settlement Agreement pursuant to Maryland contract law conflicts with and is preempted by FERSA. Mr. Campbell also asserts that the circuit court’s reliance on Andochick was misplaced because ERISA’s statutory scheme is markedly different from FERSA’s statutory scheme.

The Estate contends that the circuit court’s decision was legally correct. Citing Andochick, the Estate argues that "[t]his jurisdiction has already determined that ERISA does not preempt a post-distribution election different from what was contained in an ERISA beneficiary designation." The Estate insists that that determination should control our decision here given the "substantial[ ] similar[ities]" between ERISA and FERSA. The Estate argues further that any beneficiary designation rules established in FERSA have no impact on post-distribution agreements like the one in the instant case because those rules were designed and implemented to simplify the administration of an undistributed TSP, not to prevent recovery following distribution. The Estate asserts that the Supreme Court cases cited by Mr. Campbell are therefore inapposite because each of those cases involved a pre-distribution lawsuit.

STANDARD OF REVIEW

[2–4] The denial of a motion to dismiss is a matter of law that we review de novo. Greater Towson Council of Cmty. Ass’ns v. DMS Dev., LLC, 234 Md. App. 388, 408, 172 A.3d 939 (2017). In making that determination, we "assume the truth of factual allegations made in the complaint and draw all reasonable inferences from those allegations in favor of the plaintiff." Ceccone v. Carroll Home Servs., LLC, 454 Md. 680, 691, 165 A.3d 475 (2017). "Dismissal is proper only if the complaint would fail to provide the plaintiff with a judicial remedy." Holzheid v. Comptroller of Treasury of Maryland, 240 Md. App. 371, 387, 205 A.3d 43 (2019) (quotation marks and citations omitted).

ANALYSIS

[5, 6] Under the Supremacy Clause of the United States Constitution, when federal law and state law are in conflict or have cross-purposes, federal law will preempt state law. Chateau Foghorn LP v. Hosford, 455 Md. 462, 483, 168 A.3d 824 (2017). There are at least three types of preemption: express, field, and conflict. Id. Relevant here is the third type, conflict preemption.³

[7, 8] Conflict preemption occurs when "the challenged state law ‘stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress[.]’ " Arizona v. United States, 567 U.S. 387, 399, 132 S.Ct. 2492, 183 L.Ed.2d 351 (2012) (quoting Hines v. Davidowitz, 312 U.S. 52, 67, 61 S.Ct. 399, 85 L.Ed. 581 (1941)). Whether such a conflict exists is determined by examining Congress’s purpose in enacting the federal statute at issue. Chateau Foghorn, 455 Md. at 485, 168 A.3d 824. And that intent is discerned primarily by examining the language of the federal statute, the statutory framework surrounding the statute, and, if applicable, the relevant regulatory scheme. Id.

[9–12] That said, "when assessing congressional intent and weighing whether a state law poses an obstacle to congressional purposes or objectives, courts must also apply a presumption that Congress did not intend to preempt state law." Id. at 486, 168 A.3d 824. The presumption against preemption carries heightened force in areas traditionally within the domain of state law, such as domestic relations. Id. at 487, 168 A.3d 824. Thus, when a state domestic relations law purportedly conflicts with federal law, the state law "must...