27 replies to this topic

[HIPAAdrome]

California courts routinely seek to join plans when QDROs are presented. There is a string of cases where the DOL has argued that ERISA preempts this type of joinder. The courts usually find there is no preemption (with some exceptions). Can anyone point me to a DOL document that sets forth its opinion on this matter? Thanks.

[Kirk Maldonado]

I believe that the DOL took that position in a federal district court case in California that came down about a year ago. Unfortunately, I don't remember the name of it, but I think it was in the Central District.

Being an attorney in California, this issue has come up many times. I simply tell clients to ignore (meaning don't fight) the joinder, for the following reasons.

First, they doesn't have to comply with a court order that doesn't comply with the QDRO rules, and it would be a breach of fiduciary responsibility to ignore one that does comply. Thus, I don't think it matters whether you are joined or not. Accordingly, it isn't worth any effort.

However, I'd be very interested in the perspectives of others on this issue.

[PJK]

I have to disagree with Kirk. Take a look at a recent California Supreme Court decision In Re Oddino, 16 Cal. 4th 67 (1997). Advising clients to take a position that it is inconsistent with recent pronouncements of the state's highest court regarding procedural requirements that relate to the enforceability of a QDRO in state court is problematic to say the least. Actually, the plan benefits from the joinder process. Some of the good things about joinder from the plan's perspective are(1) it requires the parties to provide copies of all motions, briefs, etc to the plan, (2) it gives the plan the right to make an appearance at any hearing in connection with the proceeding and (3) it gives the plan a special right to bring a motion to quash any order or judgment within 30 days of its being granted. If you have never had to represent a plan in a state court proceeding before a family law judge, you might be surprised how inexperienced that part of the judiciary is with respect to ERISA matters and, consequently, how often they would end up issuing orders that are blatantly inconsistent with the plan and/or ERISA or the IRC and, therefore, subject to rejection as a QDRO. This sort of judicial bumbling of complex ERISA matters only creates more litigation and costs. You can certainly argue that California's joinder statute is subject to ERISA preemption, however, it is risky to ignore the long line of California cases that have repeatedly held to the contrary for many years, unless you think forfeiting the right to enforce the order in California courts is no big deal. Even if you hold this position, you might want to consider the benefits to the plan, which in view of the negligible compliance burden, protects the interests of the plan.

[This message has been edited by PJK (edited 06-01-2000).]

[HIPAAdrome]

Well, I actually think Kirk was advising to NOT fight the joinder. So you are saying the same thing.

But, here are some follow up questions and comments. As I read Oddino (and granted I have not studied this case), the CA Sup. Ct. did not rule on whether the joinder statute in particular was preempted. It refused to rule on this issue because this issue was raised for the first time on appeal in an amicus brief by the DOL (see footnote 7).

I agree with both of your sentiments. I think it's a good idea to cooperate in terms of getting a good QDRO in place, and being involved up front saves time and headache down the road. But I am hesitant to allow the plan to be fully joined. For instance, In re Marriage of Tucker, out of the California Superior Court, found that the plan could be joined and thus was subject to state's fee-shifting statute!!!! Not surpisingly, in AT&T Management Pension Plan v. Tucker, a federal district court addressing the same issue found that ERISA preempted the fee-shifting statute.

So, that's my concern -- that there are other potential effects to not fighting the joinder.

Any other thoughts?

[PJK]

I guess Kirk's use of the term "ignore" to mean "comply with" through me off. But I don't agree that it doesn't matter whether the plan is joined or not. The plan gets certain procedural benefits and the petitioner ultimately protects his right to enforce the order in state court. I take it you represent the plan and you have been served with a Pleadings on Joinder, Summons(Joinder), Notice of Acknowledgement and Receipt and a blank Notice of Appearance and Response. Please note that by filing the Notice of Appearance with the court, the plan is deemed to controvert every factual allegation made in the pleadings. There is also no fee for filing the Notice. I don't think the plan has any responsibility to notify or advise the parties of the ramifications of being joined or not being joined, but joinder is automatic when granted. The Plan is not in a position to "fight it," unless it wants to attack the joinder collaterally by making an ERISA preemption argument. But really it's not worth all the fuss, which is probably why no one other than the DOL gets all that excited about the ERISA preemption argument. Filing the Notice of Appearance and Response and serving it on the petitioner, just protects the plan's interests, not filing it has no legal effect on the plan's status as a party to the domestic relations proceeding, but it compromises its position as a procedural matter. A 1988 Court of Appeal decision is more on point and is cited favorably by the 1997 California Supreme Court decision. In Re Baker, 204 Cal. App. 3d 206 (1988).

[This message has been edited by PJK (edited 06-01-2000).]

[This message has been edited by PJK (edited 06-01-2000).]

[Kirk Maldonado]

My point is that the domestic relations court has no power to make a plan comply with an order that doesn't satisfy the requirements to be a QDRO. So why spend any legal fees associated with the proceedings?

When the plan gets the QDRO, the plan makes a determination as to whether or not it qualifies. If it doesn't qualify, the plan tells the parties to fix it.

If it does qualify, then the plan complies with the order.

What's the need for participating in the court proceedings?

[HIPAAdrome]

It seems to me that if you are forced to become a party to the proceedings, you darn well better be aware of what's going on in them and participate to protect yourself.

But I guess what I'm hearing both of you saying is that ordinarily it's business as usual, even though the plan technically is a party to the action. I suppose if the court tried to do anything weird like make the plan pay the attorneys' fees (like happened in Tucker) you could raise a preemption argument then.

Thanks for your thoughts on this.

[PJK]

If you work with plans that process a high volume of QDROs, you know that family law attorneys, not to mention the paralegals and parties in pro per that want a cheap QDRO, almost never prepare a DRO that is a QDRO without assistance from the plan administrator or its legal counsel. Many plans determine that it's cheaper to educate the parties on the nuances of their plan than engage in a process of iterative rejection until the drafter gets it right. Many plans provide model QDRO language as a starting point and engage legal counsel to review and analyze the draft orders before the parties ask the court to enter them.

Alas, however, the parties sometimes rush to have the court enter the order without understanding critical aspects of the plan and the plan has to reject the order for technical reasons. Now the parties face the expense of going back to court to modify the entered order or bringing a separate law suit to enjoin the plan's enforcement of it. The lawyers for the parties have a greater exposure to malpractice liability, the court may be embarrassed, and the plan may have to bear the expense of defending its position that the DRO is not a QDRO.
Compliance with the joinder rules helps to avoid this unpleasantness and expense, by giving the plan the opportunity to be extra vigilant about developments that impinge on the operation of the plan.

[P A Weick]

Not only is fighting joinder problematic, it can be very costly to the employer who tries. See In Re: The Marriage of Nasca, 1999 U.S. Dist. LEXIS 13140 (ND Cal., 1999) where the federal court assessed the divorcing couple's attorney fees of $65,000 against an employer who removed the case to federal court and vigorously argued for preemption.

------------------

[Beth N]

I'm counsel for a plan that has just been served with its first notice of joinder from a California court. My first reaction was "they can't do that!" but then I read the Nasca decision and this thread. I tend to agree with Kirk because I can't bring myself to tell my client it would be worth it to hire an attorney licensed in California to babysit the divorce action, when it's all going to come down to the QDRO itself anyway. Does anyone have any recent thoughts, insights or experience with this topic?

[QDROphile]

Here is what I do:

Fill out and send back the paperwork. Include a statement that the plan asserts that the court does not have jurisdiction, but that the plan will not distribute any amounts pending further orders of the court or other applicable process. By the way, this is what the DOL recommended. The DOL is still sort of looking for the right case to get a decision that the joinder is pre-empted, sou you can be their test case if you preserve all rights. I think they have really given up. California is a sovereign nation that will never admit that its laws are limited, and even the federal courts in California think this way.

The statement that the plan will not make distributions is what the joinder is really trying to accomplish, so probably no one will get excited about the other statement. By not making distributions (and perhaps not loans) the plan is not obeying the joinder because of California law (the plan is asserting no jurisdiction). Instead, the plan is obeying ERISA and 414(p) of the tax code because it has received a domestic relations order (the joinder). You and I both know that the joinder is not a QUALIFIED domestic relations order, but the plan administrator has a "reasonable" amount of time to decide qualification. Even if the plan disqualifies the order, the Tise case (9th Circuit) says that the would-be alternate payee has a reasonable time to cure qualification defects. What this all boils down to in most cases is that it is "reasonable" for the plan to sit on the joinder order, not make distributions, and wait for a "real" domestic relations order that it can process in the usual fashion.

It gets a littel sticky if the participant is eligible for a distribution and asks for a distribution or loan. That will trigger the 18 month periond, and you might have to start communication with the parties at some point if the divorce proceeding drags on.

I realize that this is artificial and a stretch, but it is my best effort to reconcile the applicable law with the inapplicable law and stay out of controversy. Maybe I am just lucky, but this has never been a problem over quite a few years and a large number of joinder orders. At one time I sent letters to at least one of the divorce lawyers so I could get the lawyer to buy in to the scheme, but I quit doing that years ago. They don't want extra trouble either.

The only problem has arisen when the divorce got completed and they decided not to divide the retirement benefits, so no QDRO. Then the poor participant asked for a distribution and we had to tell him tha the plan needed some appropriate evidence that the proceeding had resolved and that there would be no further orders concerning the plan benefits. That turned out to be tricky.

[Kirk Maldonado]

While I am in general agreement with what QDROphile says, I differ in one respect.

I think that saying that the court does not have jurisdiction may be a bit overbroad. It might be a bit more precise to say that the court does not have jurisdiction to order the distribution of plan assets other than pursuant to a Qualified Domestic Relations Order. I would be somewhat concerned about unnecessarily alienating the court.

Also, I can't get too excited about this issue. I don't think that allowing the plan to be joined as a party obligates the plan to comply with an order that does not satisfy all of the requisite conditions. I can't imagine the DOL challenging a plan because it didn't resist a joinder action. I think that the DOL has much better ways to expend its scarce resources.

[QDROphile]

The DOL is not looking to go after the plan for failing to resist the order. The DOL is looking (maybe) for the right case to get the court to rule that the joinder has no effect and the plan should not have to pay any attention to the formalities or consequences of being a party. By being "overbroad" in the assertion of no jurisdiction, the plan preserves all issues. The DOL has complained about its failures in its endeavors in past California cases by explaining that it got caught in the wrong procedureal posture. The DOL implied that if it saw the right case, it might jump in on the side of the plan.

In the hyperbolic world of litigation, a response to a pleading that is overbroad is par for the course. Also, I do not think it is overbroad, because I do not think the plan can be joined as a party to a state court action and I think the state court has no power over the plan or the determination of qualification (contrary to the California Supreme Court's hilarious decision). The state court divides the benefit to determine the relative rights of the individuals under state law and that is the end of its authority. The order is presented to the plan and whether or not the plan gives it effect is a matter for the plan and federal law.

However, I agree 100% that even if a court has no powers, you don't want to get crosswise with the court to test the proposition. Although I think no one (least of all the court) reads the response to the joinders because they are essentially meaningless except as a device to preserve the retirement benefits for later division. The statement that the plan will not distribute should defuse any adverse reaction by anyone who actually reads the response. As a practical matter, one could just return the form without special response and forget about it and everything would proceed without problems.

There have been cases in California where the court has awarded attorneys fees against the plan because the plan had the audacity to tell the divorce lawyers that their orders did not qualifiy and needed some more work. The lawyers wanted attorneys fees to compensate them for having to fix the order. Faced with such a situation, I would prefer to have submitted a pleading that states that the court has no jurisdiction. It would give the plan more grounds for defense and the DOL might even jump in to help. Although the cases I know about finally got straighted out, it was a lot of work. At least a few California practioners remain apprehensive about the possibility.

[mbozek]

It appears from the above discussion that from the plan's perspective there is little difference (other than incurring some legal fees) between becoming a party to the divorce through joinder (with the reservation that assets will be transferred to the spouse only under a valid QDRO) or ignoring the proceeding and waiting for the issue of a DRO. Perhaps the only reason for a plan to participate in the proceedings would be to guide the parties in drafting a valid QDRO as part of the divorce which would eliminate the need for a review by counsel after the decree is issued.

[Kirk Maldonado]

MBozek: I think it would be more expensive to be involved in the divorce proceedings than it would be to simply review the DRO.

QDROphile: Do you have any citations to court decisions where they have awarded fees? I've worked on dozens of attempted QDROs and nobody has dared to ask for attorneys' fees.

I can't imagine an attorney who obviously screwed up and drafted an order that didn't comply with Section 414(p) asking the court to order another party to pay the costs of fixing his or her malpractice, much less the court awarding it. That is truly incomprehensible.

Any plan that got such fees awarded against them should appeal it. Any court decision like that is so flagrantly bad as to be laughable.

[QDROphile]

Mr. Maldonado:

An earlier published federal opinion allowed joinder and attorneys fees in a case where the plan seriously misbehaved, but I did no go back to find it. A more recent federal Central District decison supports your view, which is the correct one. AT&T Management Pension Plan v. Tucker, No. CV ABC 95-2263, 1995 WL 590256. After that decison was issued, I thought that the Califonia decisions were shaping up and I became less paranoid about attorney's fees. The confidence was undercut by an article published 2 to 3 years ago by lawyers who battled attorneys fees more recently. Although they won, it took a lot of effort and they claimed that the attorneys fees statute allowed the state judges to be a bit indiscriminate in awards. I regret that I could not find my copy to provide the publication reference. I have heard similar complaints informally from personal contacts. Until the state judges catch on, there is some risk that a plan will have to defend against a request for fees. The plan should win, but I still like the idea that the plan starts from the proposition that the state court has no jurisdiction over the plan. The Oddino decison is pretty scary, even though it, too, falls into your category of laughable.

[QDROphile]

The more I think about it, the published decison that allowed attroney's fees was probably a state cocurt decison.

[gaboy]

10th Circuit of Appeals just ruled on April 23, 2003 Patton vs Denver Post that post death QDRO if follows plans and fed guidelines as to order structure is ok.

[QDROphile]

I am sorry, but I don't see the connection in Patton v Denver Post. Could you explain?

[Fourohonekay]

So...where did everyone come out on this issue? We have just received a set of CA Joinder documents and I recalled this string and so came back to visit.

Not to be contrary, and with great respect for the opinions made last year on this topic, but do the Joinder docs really constitute a domestic relations order? The Joinder docs are not a judgment, decree, or order "made pursuant to a State domestic relations law" are they? The docs are procedural documents relating to who shall ultimately be a party to the underlying action. If there's no domestic relations order, then there's no review necessary, is there (i.e., to determine if it's a QDRO)? If there's no DRO, there can never be a QDRO.

What does a plan do if the participant wants a distribution after the Joinder is received and the plan denies that request (even if it has responded that the court has no jurisdiction over the matter)? If the Joinder docs don't rise to the level of being a domestic relations order, and the plan denies the distribution, then hasn't the plan breached its fiduciary obligation to the participant by allowing a non-DRO to hold up a distribution to which the participant is otherwise entitled?

I'm frustrated trying to determine a practical, yet legally sound, way to deal with these documents. Any additional thoughts would be great.