The 9th Circuit Court of Appeals has ruled that state courts can determine that a domestic relations order (DRO) is a qualified domestic relations order (QDRO). Mack v. Kuckenmeister, Nos. 09-15290, 15291 (2010).
Facts. “Mike and Sarah Jones” were in the midst of divorce proceedings during 2005 and the early part of 2006. Mike had agreed that the court would execute an order naming Sarah as the alternate payee of his 401(k) plan account. The court instructed Sarah’s attorney to write an order to that effect for the court’s signature. Before the signing of the order, however, Mike murdered Sarah. No written order was entered by the state court before Sarah’s death.
Sarah’s estate was allowed to stand in for Sarah in the remainder of the divorce proceedings. The estate moved for the court to issue an order incorporating oral orders made by the original divorce judge before Sarah’s death. The motion was granted, and in June 2007, the state court entered a retroactive order that a DRO be issued creating a QDRO transferring $500,000 from the 401(k).
Mike appealed to the Nevada Supreme Court, where he argued that the order violated ERISA. While his state appeal was pending, Mike threatened to sue the 401(k) trustee if she paid Sarah’s estate. The trustee filed a complaint in federal court seeking to determine to whom the $500,000 belonged.
Mike answered the complaint and filed a cross-claim against the administrator of Sarah’s estate, claiming the right to the $500,000. The administrator filed a motion to dismiss the trustee’s complaint, and a second motion to dismiss Mike’s cross-claim because the issue of who has the right to the 401(k) funds had already been resolved by the state court and that relitigation was barred.
The trustee and Mike argued that while the state court did purport to determine who would be entitled to the retirement fund under state law, the issue before the federal court was whether that order was a QDRO under federal law.
The district court concluded that the issue at hand was the rights of the various parties to the retirement funds. Because that was decided in the prior state court action, the court dismissed the complaint and the cross-claim. While an appeal of the dismissal was pending, the Nevada Supreme Court ruled that the DRO was valid under state law and that the order was in fact a QDRO under federal law. Mike and the trustee appealed, claiming that only a federal court could determine the validity of a QDRO.
Ruling. If an issue has already been fully litigated in one court, it generally cannot be relitigated in another court. This rule applies if the first court had jurisdiction to decide the issue. In this case, the state court determined that the DRO was a QDRO. The federal appeals court had to determine if a state court has jurisdiction to make that determination.
The plan trustee argued that the determination of whether a DRO was a QDRO was an action to enforce ERISA over which only federal courts have jurisdiction. The appeals court disagreed. Because a DRO creates or describes a beneficiary’s right to benefits under an ERISA plan, a party named an alternate payee in a DRO wishing to get paid must obtain a determination if the rights are enforceable.
Therefore, in the course of proceedings to collect on a DRO, a court may be called upon to determine whether the DRO is a QDRO. Because a state court has concurrent jurisdiction over a suit for payment of benefits under ERISA Sec. 502(a)(1)(B), it follows that it has jurisdiction to decide the intermediate question of whether a DRO is a QDRO. Because Mike was a party to the state court case, he was bound by that determination. The plan trustee was ordered to deposit the $500,000 with the district court so that it could be awarded to Sarah’s estate.
Why get involved? Plan trustees generally should stay as far away as possible from divorce cases. Getting involved can be expensive and dangerous and serve no purpose but to run up legal bills. The 401(k) trustee likely would have stayed out of this case except that she is Mike’s mother.