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Savings and Profit Sharing Fund of Sears Employees v. Gago

: August 31, 1983.

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.



Appeal from the United States District Court for the Eastern District of Wisconsin. No. 81 C 552 -- Robert W. Warren, Judge.

Author: Cudahy

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

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.*fn1 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,*fn2 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,*fn3 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 secitons of ERISA are in issue. First, section 514(a), 29 U.S.C. § 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. § 1056(d)(1).

II. Preemption of State Law By ERISA § 514(a), 29 U.S.C. § 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.*fn4 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., 463 U.S. 85, 51 U.S.L.W. 4968, 77 L. Ed. 2d 490, 103 S. Ct. 2890 (U.S. June 24, 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 § 514(a) in their broad sense." Shaw, 51 U.S.L.W. at 4971.

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, 51 U.S.L.W. at 4972 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 ...


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