Petelle v. Ersfeld-Petelle (In re Petelle)

515 P.3d 548

In the MATTER OF the ESTATE OF: Michael A. PETELLE, Deceased.

Gloria Petelle, Respondent,

v.Michelle Ersfeld-Petelle, Appellant.

No. 82526-7-I

Court of Appeals of Washington, Division 1.

Filed August 15, 2022

Ann Terese Wilson, Law Offices of Ann T. Wilson, 1420 5th Ave. Ste. 3000, Seattle, WA, 98101-2393, Michael L. Olver, Attorney at Law, 5545 33rd Ave. Ne, Seattle, WA, 98105-2302, Kameron Lee Kirkevold, Helsell Fetterman LLP, 1001 4th Ave. Ste. 4200, Seattle, WA, 98154-1154, for Appellant.

Jason W. Burnett, Reed Longyear Malnati Corwin & Burnett, 801 2nd Ave. Ste. 1415, Seattle, WA, 98104-1517, for Respondent.

PUBLISHED OPINION

Hazelrigg, J.

¶1 As personal representative of her son Michael Petelle's estate, Gloria Petelle¹ brought a declaratory judgment action against Michelle Ersfeld-Petelle seeking interpretation of the separation agreement signed by Michelle and Michael prior to his death. Gloria contended that the language in the agreement constitutes sufficient waiver of Michelle's beneficiary rights to Michael's retirement account. In her written opposition, Michelle countered that the Employment Retirement Income Security Act of 1974² (ERISA) preempts Gloria's attempt to recover the funds and, further, that the agreement is not a sufficient waiver. The superior court commissioner denied Gloria's petition for declaratory judgment both as preempted by ERISA and because he found the waiver in the separation agreement was insufficient. The commissioner also denied Gloria's motion for reconsideration.

¶2 On Gloria's subsequent motion for revision, the reviewing judge reversed in part, expressly finding no preemption under ERISA and that the separation agreement constitutes a sufficient waiver under In re Estate of Lundy v. Lundy.³ Michelle appealed and both parties present the same arguments on appeal as they did in the trial court. Finding no errors, we affirm.

FACTS

¶3 Michelle Ersfeld-Petelle and Michael A. Petelle entered into a separation agreement, formalized under the terms of CR 2A,⁴ on February 14, 2017 in anticipation of the pending dissolution of their marriage. In broad language, the separation agreement divided the couple's assets, established various rights, and bound the parties to execute the terms of the agreement. It also contained a clause noting that the agreement was to remain "valid and enforceable" against each party's estate should either die following the execution of the contract. Michael died intestate on May 1, 2017 before any final dissolution decree was entered. At the time of Michael's death, Michelle remained the named beneficiary on Michael's simplified employee pension-independent retirement account (SEP-IRA).

¶4 The agreement expressly provides for the division of assets, which includes the retirement and investment accounts acquired during the marriage, stating that Michael and Michelle are each entitled to "50% of the total retirement assets acquired during the marriage." This clause is related to the following section of the agreement:

Employment Benefits. Except as otherwise specifically provided herein, each party shall retain as his or her separate property, free from any interest in the other, all rights and benefits which have been derived as a result of past or present employment, union affiliations, military service, or United States, state or other citizenship (except rights the parties are entitled to receive by virtue of this relationship); including but not limited to sick leave benefits, insurance, educational benefits and grants, health or welfare plans and all other contractual, legislated or donated benefits, whether vested or unvested, and whether directly or indirectly derived through the activity of the parties. Except as otherwise specifically provided, each party shall retain all rights and benefits to which he or she is entitled by state or federal law, including Social Security benefits.

¶5 On November 16, 2020, in her capacity as personal representative of Michael's estate, Gloria Petelle petitioned the superior court for "a declaratory judgment construing the Separation Contract ... and a holding that [Michelle] waived any right under Washington law to retain or keep more than 50% of any investment or retirement account acquired during the Petelle marriage." The superior court commissioner denied the petition after finding that Gloria's claim was preempted by ERISA and associated case law. The commissioner later denied Gloria's motion for reconsideration.

¶6 On February 10, 2021, Gloria filed a motion for revision of the commissioner's ruling. On March 17, 2021, after reviewing the various pleadings and taking argument from the parties, a superior court judge issued an "Order Revising Commissioner in Part & Declaring Rights & Liabilities Pursuant to Contract" and granted Gloria's petition. The court expressly found that the agreement was a sufficient waiver under In re Estate of Lundy v. Lundy, 187 Wash. App. 948, 352 P.3d 209 (2015), and was not preempted by ERISA. Michelle timely appeals.

ANALYSIS

I. ERISA Preemption of State Law & Beneficiary Rights Under ERISA

¶7 Michelle avers that the superior court erred in its ruling on revision. She argues that ERISA requires the plan administrator to distribute funds according to the plan documents and that the estate cannot compel the plan administrator to do otherwise. She asserts that to do so would undermine ERISA's stated purpose: the reliable and orderly payout of retirement accounts to their named beneficiaries. See 29 U.S.C. § 1001. In briefing, Gloria correctly identifies this as a conflation of the issues: "Michelle's argument that ERISA preempts state law with respect to beneficiary designations of retirement plans governed by ERISA is irrelevant, because the declaratory judgment action did not seek an adjudication with respect to beneficiary designations of retirement plans governed by ERISA."⁵ Gloria did not bring an action under state law to compel a plan administrator to take any action, instead she sought clarification of the terms of the CR 2A agreement which governs Michelle's handling of the funds following distribution by the plan administrator.

¶8 Interpretation of the CR 2A agreement is not preempted by federal law, nor is enforcement of the language the Petelles drafted into their separation agreement. The preemption authority Michelle emphasizes in briefing addresses the distribution of funds by the plan administrator, not contractual agreements by private parties. See Kennedy v. Plan Adm'r for DuPont Sav. & Inv. Plan, 555 U.S. 285, 129 S. Ct. 865, 172 L. Ed. 2d 662 (2009) ; Egelhoff v. Egelhoff ex rel. Breiner, 532 U.S. 141, 121 S. Ct. 1322, 149 L. Ed. 2d 264 (2001) ; Boggs v. Boggs, 520 U.S. 833, 117 S. Ct. 1754, 138 L. Ed. 2d 45 (1997) ; Carmona v. Carmona, 603 F.3d 1041 (9th Cir. 2010). The United States Supreme Court made clear the intent underlying ERISA in Egelhoff:

[D]iffering state regulations affecting an ERISA plan's "system for processing claims and paying benefits" impose "precisely the burden that ERISA pre-emption was intended to avoid." And as we have noted, the statute at issue here [ RCW 11.07.010 ] directly conflicts with ERISA's requirements that plans be administered, and benefits be paid, in accordance with plan documents.

532 U.S. at 150, 121 S.Ct. 1322 (citation omitted) (quoting Fort Halifax Packing Co. v. Coyne, 482 U.S. 1, 10, 107 S. Ct. 2211, 96 L. Ed. 2d 1 (1987) ). A declaratory judgment by the state court as to the terms of the CR 2A agreement does nothing to burden ERISA requirements with regard to how the plan administrator distributes the retirement funds.

¶9 In Lundy, this court sought to clarify the current landscape as to ERISA preemption of state law. 187 Wash. App. at 953-59, 352 P.3d 209. We held that though state regulation "cannot be used to contravene the dictates of ERISA," waiver by private agreement between the parties can be appropriate. Id. at 959, 352 P.3d 209. This position is further supported by federal case law. The United States Supreme Court's opinion in Kennedy expressly allows for state court enforcement of a contract such as the CR 2A agreement in the present case:

Nor do we express any view as to whether the Estate could have brought an action in state or federal court against [surviving ex-spouse] to obtain the benefits after they were distributed. Compare Boggs v. Boggs, 520 U.S. 833, 853 [117 S. Ct. 1754, 138 L.Ed.2d 45] (1997) ("If state law is not pre-empted, the diversion of retirement benefits will occur regardless of whether the interest in the pension plan is enforced against the plan or the recipient of the pension benefit"), with Sweebe v. Sweebe, 474 Mich. 151, 156–159, 712 N.W.2d 708, 712–713 (2006) (distinguishing Boggs and holding that "while a plan administrator must pay benefits to the named beneficiary as required by ERISA," after the benefits are distributed "the consensual terms of a prior contractual agreement may prevent the named beneficiary from retaining those proceeds"); Pardee v. Pardee, 2005 OK CIV App 27, ¶¶ 20, 27, 112 P.3d 308, 313–314, 315–316 (2004) (distinguishing Boggs and holding that ERISA did not preempt enforcement of allocation of ERISA benefits in state-court divorce decree as "the pension plan funds were no longer entitled to ERISA protection once the plan funds were distributed").

555 U.S. at 299 n.10, 129 S.Ct. 865. The purpose of Gloria's current action is to clarify the scope of Michelle's waiver of rights as to a 50 percent portion of the funds in Michael's SEP-IRA as stipulated in the CR 2A agreement.⁶ Nothing in the declaratory judgment directs the plan administrator to do anything with regard to Michael's account, therefore ERISA is not implicated. It merely confirms that

[t]he Separation Contract and CR2A Agreement requires [Michelle] to perform acts necessary or convenient to evenly divid[e] every investment account or retirement account acquired during the Petelle

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