* Craig S. Lundy, Resp. vs. Kelly Lundy, App.

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IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
THE ESTATE OF CRAIG S. LUNDY,
Respondent,
KELLY LUNDY,
Appellant.
No. 71900-9-1
DIVISION ONE
ro
an
PUBLISHED OPINION 	-
FILED: June 1,2015 o
(•»'.
Appelwick, 	J. 	— The trial court allowed the 	Estate to 	recover Employment
Retirement Income Security Act (ERISA)1 benefits after they had been distributed to the
designated 	beneficiary, 	his 	former wife, 	Kelly. 	The 	Estate 	relied 	on 	the couple's
dissolution decree and 	RCW 11.07.010 to assert that Kelly waived her right to the
proceeds. 	ERISA preempts all claims to funds based on state law. 	The evidence is
insufficient to establish that Kelly waived by agreement with Craig the right to receive the
proceeds of the ERISA beneficiary designation. We reverse.
FACTS
Craig and Kelly Lundy2 married in 1984. 	For most of his career, Craig worked as
a 	machinist at The 	Boeing 	Company. 	Kelly worked for the 	Northwest Network of
Peacehealth, Inc., a large healthcare organization. 	Both had retirement accounts with
their employers and named each other as the beneficiaries of those accounts. The couple
did not have children.
Craig and Kelly divorced in 2009. 	The dissolution decree "awarded [to Craig] as
his separate property . . . [a]ll retirement funds and 401 Ks in his name." 	It also "awarded
129U.S.C. §1001,etseq.
2 Going forward, we 	refer to the 	Lundys by their first names for clarity. 	No
disrespect is intended.
 	 	 	 	 	 	 	 	 	 	 	 	 	

No. 71900-9-1/2
[to Kelly] as her separate property . . . [a]ll retirement funds and 401 Ks in her name."
Neither changed the beneficiary of their retirement account after the divorce.
Craig died on August 4, 2013, intestate and without issue. His sister was appointed
personal representative of his "Estate."
At the time of his death, Craig's retirement account was valued at $497,435.77.
The account was controlled by ERISA, a federal scheme for regulating employee benefit
plans. 	Kelly was listed as the beneficiary of the account.
On March 3, 2014, the Estate petitioned for recovery of the retirement account
from Kelly. 	The Estate cited RCW 11.07.010(2)(a), which provides that the designation
of a 	spouse 	as 	beneficiary of a 	nonprobate 	asset 	is automatically 	revoked 	upon
dissolution of the marriage. 	The Estate argued that the trial court should incorporate
RCW 11.07.010 into the dissolution decree to find waiver of Kelly's 	interest in the
retirement account. 	Kelly responded that RCW 11.07.010 was preempted by ERISA and
thus did not apply to Craig's retirement account. The trial court ruled in favor of the Estate.
Kelly appeals.
DISCUSSION
Kelly argues that the trial court erred in granting the Estate's petition to recover the
retirement account, 	because 	ERISA preempts the 	Estate's state law claims to the
account.3 	The Estate acknowledges that, under ERISA, the plan administrator properly
3The Estate asserts that Kelly failed to preserve her federal preemption argument,
because she conceded below that preemption did 	not apply. 	At the hearing, 	Kelly
conceded that federal law did not preempt the Estate from bringing a postdistribution state
law claim to recover ERISA funds. 	However, she challenged the Estate's specific state
law claim, arguing that RCW 11.07.010 by its terms does not apply to assets controlled
by federal law. 	This argument is premised directly on federal preemption. 	It preserves
Kelly's right to challenge the state law claim on appeal.
 	 	 	 	 	 	 	 	 	 	 	 	 	

No. 71900-9-1/3
distributed the funds to Kelly. 	However, the Estate challenges Kelly's postdistribution
retention of the funds. 	The Estate asserts that the language of the dissolution decree,
coupled with the presumption of revocation in RCW 11.07.010, demonstrates that Kelly
waived her right to the benefits of Craig's retirement account.
In Egelhoff v. Eqelhoff. 532 U.S. 141, 143, 121 S. Ct. 1322, 149 L. Ed. 2d 264
(2001), the United States Supreme Court held that RCW 11.07.010 is preempted "to the
extent it applies to ERISA plans." 	Eqelhoff presented similar facts to those before us.
While David 	and 	Donna 	Egelhoff were 	married, 	David 	designated 	Donna 	as 	the
beneficiary of his ERISA-govemed life insurance plan and pension plan. id. at 144. The
spouses later divorced and David died intestate soon after. 	]o\ He had not changed his
beneficiary, and the life insurance proceeds were paid to Donna, 	jd. 	David's children
from a previous marriage, his statutory heirs under state law, sued Donna to recover the
proceeds. 	Id. 	In a separate action, they also sued to recover the pension plan benefits.
]d. at 145. 	They alleged that RCW 11.07.010 disqualified Donna as the beneficiary of
both plans. 	Id. at 144-45.
The 	trial 	courts 	both 	concluded 	that 	the 	plans 	should 	be 	administered 	in
accordance with ERISA and granted summary judgment for Donna as to both plans, 	jd.
at 145. 	The Court of Appeals consolidated the two cases and reversed, concluding that
RCW 11.07.010 was not preempted. 	]d
The Washington Supreme Court affirmed, holding that RCW 11.07.010 did not
'"refer to'" or have a significant "'connection with'" ERISA such that preemption was
appropriate. In re Estate of Egelhoff. 139 Wn.2d 557, 579, 989 P.2d 80 (1999). The court
reasoned that RCW 11.07.010 "does not apply immediately and exclusively to an ERISA
 	 	 	 	 	 	 	 	 	 	 	 	 	

No. 71900-9-1/4
plan, nor is the existence of such a plan essential to operation of the statute." 	Id. at 574.
It also emphasized that the statute "does not alter the nature of the plan itself, the
administrator's fiduciary duties, or the requirements for plan administration." 	jd. at 575.
The court concluded that the statute "does not operate to divert benefit plan proceeds
from distribution under terms of the plan documents," but merely alters "the underlying
circumstances to which the distribution scheme of [the] plan must be applied." Id. at 578.
The United States Supreme Court reversed. 	Egelhoff, 532 U.S. at 152. The Court
looked to ERISA's broadly worded preemption provision, 29 U.S.C. § 1144(a), which
provides that ERISA "'shall supersede any and all State laws insofar as they may now or
hereafter relate to any employee benefit plan'" covered by ERISA. 	Id. at 146. The Court
found that RCW 11.07.010 had an "impermissible connection with ERISA plans." 	]g\ at
147. 	In particular, 	the Court emphasized that 	RCW 11.07.010 interfered with the
administration of ERISA plans:
The statute binds ERISA plan administrators to a particular choice of rules
for determining beneficiary status. The administrators must pay benefits to
the beneficiaries chosen by state law, rather than to those identified in the
plan 	documents. 	The statute thus implicates an 	area of core ERISA
concern. 	In particular, it runs counter to ERISA's commands that a plan
shall "specify the basis on which payments are made to and from the plan,"
§ 1102(b)(4), and that the fiduciary shall administer the plan "in accordance
with the documents and instruments governing the plan," § 1104(a)(1)(D),
making payments to a "beneficiary" who is "designated by a participant, or
by the terms of [the] plan." 	§ 1002(8).
Id.
[Differing 	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 directly conflicts with ERISA's requirements that plans
be administered, and benefits be paid, in accordance with plan documents.
 	 	 	 	 	 	 	 	 	 	 	 	 	

No. 71900-9-1/5
Hat 150 (quoting Fort Halifax Packing Co. v. Coyne. 482 U.S. 1,10,107 S. Ct. 2211, 96
L. Ed. 2d 1 (1987)). 	As a result, the Court concluded that the funds were properly
distributed to Donna, the designated plan beneficiary. 	See 532 U.S. at 145, 152.
After Egelhoff. there is no doubt that RCW 11.07.010 is inapplicable to ERISA
benefits. 	The case makes clear that federal law mandates the distribution of ERISA
benefits to the designated 	beneficiary, 	regardless of state law providing otherwise.
However, the Estate asserts that Egelhoff does not definitively resolve the question of
whether the ownership of ERISA benefits may be challenged after their distribution.
According to Kelly, state law cannot frustrate a federal choice of beneficiary either
before or after distribution. 	She cites Hillman v. Maretta. 	U.S. 	, 133 S. Ct. 1943,
1952, 	186 L. 	Ed. 	2d 	43 	(2013), where the Supreme Court found 	preemption of a
postdistribution state law claim under a different federal benefit program, the Federal
Employees' Group Life Insurance Act (FEGLIA), 5 U.S.C. § 8701 etseq.4 Under FEGLIA,
life insurance benefits are paid according to a specified "order of precedence," accruing
first to the designated beneficiary or beneficiaries, and then, if there is no designated
beneficiary, to the employee's widow or widower, children, parents, executor, or other
next of kin. 	5 U.S.C. § 8705(a). 	The Hillman Court struck down a Virginia statute
rendering a former spouse liable to a new spouse for insurance policy proceeds the new
spouse would have received were it not for federal law. 	jd. at 1948, 1953. 	The Court
observed that the Virginia statute "displaces the beneficiary selected by the insured in
4 Kelly did not raise her Hillman argument below. 	However, "the application of
RAP 2.5(a) is ultimately a matter of the reviewing court's discretion." 	Bennett v. Hardy,
113 Wn.2d 912, 918, 784 P.2d 1258 (1990). 	We exercise this discretion to address
Hillman to fully review the jurisprudence on this issue.
 	 	 	 	 	 	 	 	 	 	 	 	 	

No. 71900-9-1/6
accordance with FEGLIA and places someone else in her stead." jd. at 1952. The Court
concluded that the statute "thereby 'frustrates the deliberate purpose of Congress' to
ensure that a federal employee's named beneficiary receives the proceeds." Id. (quoting
Wissner v. Wissner. 338 U.S. 655, 659, 70 S. Ct. 398, 94 L. Ed. 424 (1950)).
Kelly asserts that this holding "establishes that federal law controls all aspects of
designating a beneficiary, 	whether before or after distribution." 	Hillman interprets a
different statute than Egelhoff, and the reasoning varies slightly between the two: Egelhoff
focused on the ease of administration, while Hillman focused on ensuring ownership of
proceeds. 	But, both cases make clear that the account proceeds go to the federally
determined beneficiary regardless of state law to the contrary. Thus, while Hillman does
not directly control here, it suggests that the same outcome would be appropriate in this
situation.
We therefore turn 	back to case law addressing 	ERISA. 	Three years before
Egelhoff. 	the 	Supreme 	Court 	held 	that 	ERISA 	preempted 	a 	state 	law allowing a
nonparticipant spouse to transfer by will an interest in her husband's pension plan benefits
to their sons. 	Boggs v. Boggs. 520 U.S. 833, 835-36, 841, 117 S. Ct. 1754, 138 L. Ed.
2d 45 (1997). 	The Court rejected the argument that the state law claim, which affected
only the post-distribution disposition of proceeds, thus failed to implicate the regulatory
concerns of ERISA:
The 	statutory 	object 	of 	the 	qualified 	joint 	and 	survivor 	annuity
provisions ... is to ensure a stream of income to surviving spouses....
ERISA's solicitude for the economic security of surviving spouses would be
undermined by allowing a predeceasing spouse's heirs and legatees to
have a community property interest in the survivor's annuity.
 	 	 	 	 	 	 	 	 	 	 	 	 	

No. 71900-9-1/7
]g\ at 843. The Court concluded that
[i]t would undermine the purpose of ERISA's mandated survivor's annuity
to allow Dorothy, the predeceasing spouse, by her testamentary transfer to
defeat in part Sandra's entitlement to the annuity § 1055 guarantees her as
the surviving spouse. 	This cannot be. 	States are not free to change
ERISA's structure and balance.
\j± 	at 	844. 	Boggs 	demonstrates 	that 	ERISA can 	preempt 	state 	law 	as 	to 	the
postdistribution disposition of proceeds. 	The difference between that case and the
present is only the nature of the payments made: the Boggs decision involved annuity
benefits, while here there was a lump sum payment from a retirement account.
The Estate asserts that, in Kennedy v. Plan Administrator for Dupont Savings and
Investment. 	555 	U.S. 	285, 	129 	S. 	Ct. 865, 	172 	L. 	Ed. 	2d 	662 	(2009), 	the Court
subsequently suggested that it would permit a postdistribution claim for ERISA benefits
in this scenario. 	In Kennedy, the Court considered the effect of an ex-wife's waiver of
ERISA benefits in a dissolution decree. 	Id. at 288. While William and Liv Kennedy were
married, William designated Liv the beneficiary of his ERISA-govemed savings and
investment plan (SIP). 	jd. at 289. 	Upon their divorce, they signed a dissolution decree
that provided: Liv "'is divested of all right, title, interest, and claim in and to . . . [a]ny and
all sums ... the proceeds [from], and any other rights related to any . . . retirement plan,
pension plan, or like benefit program existing by reason of [William's] past or present or
future employment.'" 	jd. at 289 (alterations in original). 	When William died, the plan
administrator relied on the designation form and paid the balance of the SIP to Liv. ]d. at
289-90. 	William's estate sued the plan administrator, claiming that Liv waived her right
to the benefits and that the administrator thus violated ERISA by paying the benefits to
Liv. 	Id. at 290.
 	 	 	 	 	 	 	 	 	 	 	 	 	

No. 71900-9-1/8
The Kennedy Court held that the funds were properly paid to Liv, because the
ERISA administrator was not required to honor the waiver in the dissolution decree when
distributing the funds, 	id, at 299-300. 	It reasoned that the plan documents "provide that
the plan administrator will pay benefits to a participant's designated beneficiary, with
designations and changes to be made in a particular way. William's designation of Liv as
his beneficiary was made in the way required; Liv's waiver was not." 	jd. at 304. 	The
Court noted though that it did not "express any view as to whether the Estate could have
brought an action in state or federal court against Liv to obtain the benefits after they were
distributed." 	jd. 	at 	299 	n.10. 	Therefore, 	Kennedy 	signals 	that 	the 	propriety 	of
postdistribution claims for ERISA benefits is an open question.
However, the Ninth Circuit has indicated that such claims cannot be premised on
avoiding ERISA's mandates. See Carmona v. Carmona. 603 F.3d 1041,1062 (2008). 	In
Carmona. the court discussed a pre-Egelhoff case, Emard v. Hughes Aircraft. Inc.. 153
F.3d 949 (9th Cir. 1998). abrogated by Egelhoff. 532 U.S. 141. 	See 603 F.3d at 1061-
62. 	The Emard court held that ERISA did not preempt California law permitting the
imposition of a constructive trust on insurance proceeds after their distribution to the
designated beneficiary. 	153 F.3d at 954-55. 	It reasoned that "ERISA is designed to
ensure that benefits are paid out. It is silent as to the disposition of those funds after their
receipt by the beneficiary." 	jd. at 955. 	The court further concluded that ERISA did not
preempt state law reguiring distribution of ERISA insurance proceeds to a person other
than the designated beneficiary. 	Id, at 956. 	It reasoned:
In enacting ERISA, Congress intended to safeguard the 	rights of plan
participants 	and 	beneficiaries 	as 	against 	employers, 	insurers 	and
administrators of employee benefit plans. 	See 29 U.S.C. § 1001 (setting
8
 	 	 	 	 	 	 	 	 	 	 	 	 	

No. 71900-9-1/9
forth 	Congress' 	findings 	and 	declaration 	of policy). 	ERISA therefore
preempts state laws that concern those matters. 	But we see no indication
that Congress intended to safeguard an individual beneficiary's rights to the
proceeds of an ERISA insurance plan as against another person claiming
superior rights, under state law, to those proceeds.
jd at 958.
As the Carmona court observed, Emard was abrogated by Egelhoff. 	603 F.3d at
1062; see also Egelhoff. 532 U.S. at 146 (noting the lower courts' split over whether
ERISA preempts state laws and citing Emard as finding no preemption). 	Thus, the
Carmona court said, "to the extent [Emard] can be interpreted as an end-run around
ERISA's mandates, [it] no longer survives." 603 F.3d at 1062.
Like the Emard court, the Carmona court considered the propriety of a state law
constructive trust on the proceeds of an ERISA account. See id at 1061. Lupe Carmona
designated his then-wife, Janis, as his survivor beneficiary under two pension plans which
provided qualified joint and survivor annuity benefits, 	jd. at 1048. 	While they were still
married, Lupe retired and began collecting pension benefits, 	jd. When the pair divorced
two years later, Lupe sought to revoke Janis's designation as the survivor beneficiary. Id.
The 	plan administrators 	refused 	to change the 	beneficiary and 	indicated that the
designation was irrevocable upon Lupe's retirement. 	Id, 	In the couple's dissolution
decree, the Nevada family court awarded Lupe both pension 	plans as his separate
property. 	Id.
When Lupe remarried, he petitioned the family court to revoke Janis's designation
as survivor beneficiary and substitute his new wife, Judy. ]d at 1049. After Lupe's death,
the Nevada state court concluded that Janis waived her right to the plan benefits by virtue
of the divorce decree and 	that she would be 	unjustly enriched if she remained the
 	 	 	 	 	 	 	 	 	 	 	 	 	

No. 71900-9-1/10
beneficiary, 	jd. 	The court ordered the plan administrators to change the survivor
beneficiary from Janis to Judy, or, in the alternative, ordered the funds Janis received to
be placed in a constructive trust with Judy as beneficiary. ]d 	The Ninth Circuit held that
the plan administrator was not required to redirect the surviving spouse benefits to Judy.
Jd at 1061. 	It further held that the constructive trust was impermissible:
In this case, the constructive trust that the state court created was explicitly
an attempt to avoid ERISA's QDRO [(qualified domestic relations order)],
preemption, and antialienation provisions. We conclude that Congress did
not intend to permit the reassignment of surviving spouse benefits and,
therefore the constructive trust remedy that the state court tried to impose
is also preempted by ERISA. 	It may not be that all constructive trusts
instituted by state courts, particularly those that seek to recover ill-gotten
gains, will have a sufficient connection with or reference to an ERISA plan
to trigger ERISA's preemption provision.
But when a state court creates a constructive trust with the explicit purpose
of avoiding ERISA's rules, it too must be preempted.
|d at 1062.
Egelhoff establishes that ERISA preempts RCW 11.07.010 and other similar state
statutes. 	Boggs indicates that ERISA preemption can apply both to pre- and post-
distribution state law actions. And, Carmona explicitly disapproves of state law "end-runs"
around 	ERISA 	imposed 	by 	state 	courts. 	In 	sum, 	state 	law 	claims 	to 	recover
postdistribution ERISA benefits have been thus far rebuffed. Kennedy does not recognize
an open question in the context of a state-law-based claim to postdistribution of ERISA
benefits, but only in the context of waiver by private agreement between the parties.
Here, the Estate can establish no such agreement. 	It argues that the court should
look to RCW 11.07.010 to discern the parties' intent. 	But, as Carmona made clear, state
law "cannot be used to contravene the dictates of ERISA." 603 F.3d at 1061. The Estate
10
 	 	 	 	 	 	 	 	 	 	 	 	 	

No. 71900-9-1/11
cannot revive a preempted statute simply by applying it in a postdistribution argument
that does not directly implicate ERISA.
Moreover, waiver is not apparent on the face of the dissolution decree. 	Kelly did
not expressly disavow any interest in the proceeds of the account as beneficiary. 	The
decree says only that the retirement account is "awarded [to Craig] as his separate
property." 	Disclaiming an ownership interest in not the same as disclaiming future rights
as a beneficiary. 	By contrast, in many cases cited by the Estate, the ex-spouse explicitly
waived the right to receive ERISA proceeds. 	See, e.g.. Kennedy. 555 U.S. at 289 (ex-
spouse divested of "'all right, title, interest, and claim in'" ERISA accounts); Andochick v.
Bvrd. 709 F.3d 296, 297 (2013) (ex-spouse waived "any interest, including but not limited
to any survivor benefits" and "'released and relinquished any future rights as a beneficiary
under"' ERISA plans), cert, denied. 134 S. Ct. 235, 187 L. Ed. 2d 145 (2013); Estate of
Kensinger v. URL Pharma. Inc.. 674 F.3d 131, 132-33 (2012) (ex-spouse agreed to
"waive, release, and relinquish any and all right, title and interest" in ERISA accounts).
In the absence of an express agreement, waiver requires "unequivocal acts or
conduct evincing an intent to waive." 	Wagner v. Wagner. 95 Wn.2d 94, 102, 621 P.2d
1279 (1980). Here, there was no such clear conduct demonstrating Kelly's intent to waive
her rights as beneficiary of Craig's retirement account. The only evidence the Estate cites
regarding intent is Kelly and Craig's lack of closeness after their divorce. 	But, we cannot
infer intent from "doubtful or ambiguous factors." Jd
Federal law preempts a party's reliance on RCW 11.07.010(2)(a) for recovery of
ERISA funds in the hands of the designated beneficiary. If Kennedy would allow recovery
of funds from the designated beneficiary on the basis of waiver by private agreement, the
11
 	 	 	 	 	 	 	 	 	 	 	 	 	

No. 71900-9-1/12
agreement here does not establish an express waiver of the rights to receive those funds
as a beneficiary. The Estate has not established a valid postdistribution claim to recover
ERISA benefits.5
We reverse.6
WE CONCUR:
/-J 	J. 	6trf,J.
5 In addition to waiver, the Estate argues that awarding Kelly the account would
constitute unjust enrichment, because the "circumstantial evidence supports that Craig
intended to leave the retirement funds to his family and not his ex-wife." 	Though the
parties dispute whether Craig truly intended to leave the account to Kelly, the only actual
evidence 	as 	to 	his 	intent was the 	beneficiary designation. 	The 	Estate 	does 	not
demonstrate that it would be inequitable to follow Craig's designation. 	We find no merit
in the unjust enrichment claim. 	Unjust enrichment is an equitable remedy not dissimilar
to the constructive trust imposed by the trial court and disapproved of by the Ninth Circuit
in Carmona. 603 F.3d at 1062.
6 We also deny the parties' various motions to strike and impose sanctions. 	Both
parties engaged in practices that we discourage. 	Motions to strike sentences or sections
out of briefs waste everyone's time. 	O'Neill v. City of Shoreline, 183 Wn. App. 15, 24,
332 P.3d 1099 (2014). 	The citations to unpublished cases in the briefing was in violation
of our rules. 	GR 14.1(a): Johnson v. Allstate Ins. Co.. 126 Wn. App. 510, 519, 108 P.3d
1273 (2005). 	However, we do not welcome motions from the parties seeking sanctions
for doing so. 	This court is aware of its authority to award sanctions and can determine
on 	its own 	when 	to 	do 	so. 	See 	RAP 	18.9(a) 	("The 	appellate 	court on 	its own
initiative . . . may order a party or counsel [who] fails to comply with these rules to pay
terms or compensatory damages to any other party who has been harmed by the delay
or the failure to comply or to pay sanctions to the court.").
12