By Pension and Benefits Editorial Staff
A federal trial court had jurisdiction to decide the proper disbursement of a deceased participant’s accrued benefits in an ERISA savings plan where neither the probate exception to federal jurisdiction nor federal abstention doctrines applied, according to the U.S. Court of Appeals in New Orleans (CA-5). The Fifth Circuit affirmed the lower court’s determination that, under the terms of the ERISA plan, the benefits were properly disbursed to the participant’s surviving spouse, and not to his surviving children.
Family dispute. After a participant in an employer’s ERISA savings plan died, his wife and his children filed separate claims with the plan, each seeking disbursement of the accrued benefits. Under plan terms, a participant could make a written beneficiary designation of any person, except that a married participant’s designation of anyone other than his spouse was not valid without the spouse’s consent. Absent any beneficiary designation, the plan would disburse accrued benefits to the participant’s surviving spouse or, if no surviving spouse, to the participant’s surviving children.
The plan determined that because the participant had not provided a valid beneficiary designation, the participant’s spouse was the “default primary beneficiary” under the plan and was entitled to the benefits. The participant’s children used the plan’s appeals process to challenge this determination, but the plan denied their appeal.
All three parties then turned to a federal trial court to resolve the issue. The plan filed an interpleader action, asking the court to declare the lawful beneficiary of the accrued benefits. The children and the wife filed separate counterclaims under ERISA, seeking disbursement of the accrued benefits and a declaration that they were the proper beneficiary. Subsequently, the court granted the plan’s motion to dismiss it from the suit after the plan deposited the accrued benefits in the district court’s registry.
Jurisdiction. The children then argued that the district court lacked jurisdiction over the action because the accrued benefits were an asset of the participant’s estate, over which a state probate court had already asserted jurisdiction. The district court rejected this argument and granted summary judgment to the wife. The court declared the wife to be the only lawful beneficiary of the benefits and disbursed the benefits to her.
The Fifth Circuit affirmed the lower court’s award of the benefits to the surviving spouse. It first rejected the children’s assertion that the probate exception to federal jurisdiction applied in this situation. Under the probate exception, the probate of a will and the administration of a decedent’s estate are generally reserved to state probate courts.
As a threshold matter, the court noted that its precedents relating to the probate exception apparently arose only in diversity jurisdiction and not in federal-question jurisdiction, the type of jurisdiction relevant in this case. However, even assuming that were not an issue, the court concluded that the probate exception did not apply. The probate exception only applies if the dispute concerns property within the custody of a probate court. In this instance, the accrued benefits were initially in the plan’s custody and subsequently were deposited into the district court’s registry before being disbursed to the spouse.
The court also rejected the children’s contention that the federal court should abstain from exercising jurisdiction under the Supreme Court’s holding in Burford v. Sun Oil Co., 319 U.S. 315 (1943). The so-called “Buford abstention” doctrine does not apply where claims arise under ERISA, where ERISA states that federal courts should resolve most types of actions that may be bought pursuant to ERISA, and where the accrued benefits are not in the probate court’s custody.
Spousal award. Turning to the merits, the appellate court upheld the lower court’s award of the accrued benefits to the spouse. The spouse demonstrated that she is the participant’s surviving spouse and that the participant had not designated a beneficiary before he died.
Source: Kinder Morgan, Inc. v. Crout (CA-5).
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