Not Married By Definition

A recent decision by a U.S. district court addresses the question of whether a participant’s same-sex surviving spouse can be denied benefits under a private company’s Employee Retirement Income Security Act (ERISA)-covered defined benefit plan.  

Background

In 1984, the election year when Congressional Representative Geraldine Ferraro ran as Walter Mondale’s candidate for vice president, the Retirement Equity Act was passed. Among its provisions was a mandate that pension plans subject to ERISA provide a “qualified joint and survivor annuity” to a surviving spouse, a benefit that could only be defeated by a spouse’s written waiver and consent.¹

The definition of “spouse” has evolved dramatically since then—first among the states, then in federal legislation and, finally, in the U.S. Supreme Court. In 1996, Section 3 of the Defense of Marriage Act (DOMA) redefined “marriage” under 1 U.S.C. Section 7 as “a legal union between one man and one woman as husband and wife” and “spouse” as a reference “only to a person of the opposite sex who is a husband or a wife.”² The Section 7 definition was to be used “[i]n determining the meaning of any Act of Congress, or of any ruling, regulation, or interpretation of the various administrative bureaus and agencies of the United States.” 

In 2008, the California Supreme Court validated the right of same-sex couples to marry on constitutional grounds. In response, voters enacted Proposition 8 (Prop. 8), which again prohibited same-sex marriages from being performed in the state. Prop. 8 was ruled unconstitutional by the U.S. District Court for the Northern District of California in Hollingsworth, et al. v. Perry, et al. in 2010.³ That holding was later challenged in the Supreme Court, but that challenge wasn’t heard because the Supreme Court found that the backers of Prop. 8 lacked standing to pursue their claims. LGBT couples have been free to marry in California ever since, but prior to that—except for a brief period during 2008—that wasn’t the case.

DOMA’s Section 3 marriage definition was ultimately found unconstitutional in U.S. v. Windsor.⁴ The Supreme Court overturned DOMA Section 3, holding that same-sex couples who are validly married under state law are entitled to all of the rights and responsibilities of married couples under federal law. 

Denial of Benefits

In Stacey Schuett v. FedEx Corporation, ⁵ the U.S. District Court for the Northern District of California was asked once again to consider issues related to same-sex marriage, this time not related to the constitutionality of a prohibition against such marriages (since the Supreme Court’s decision in Obergefell v. Hodges,⁶ such laws are a thing of the past, at least in the United States) but rather, a possible retroactive consequence of Windsor.

FedEx Corporation (FedEx) had denied Stacey Schuett’s claim as the surviving spouse of Lesly Taboada-Hall to benefits payable to a participant’s surviving spouse under the company’s ERISA-covered defined benefit plan. The plan administrators denied the benefits on two grounds: (1) FedEx contended that Stacey and Lesly weren’t legally married when Lesly passed away, and (2) Stacey and Lesly were both women, and the plan had adopted DOMA’s Section 3 definition of marriage by direct reference. 

Long-term relationship. Stacey and Lesly were in a committed relationship for 27 years and raised two children together. In November 2001, they entered into a California registered domestic partnership, which, beginning in 2005, entitled them to all of the rights and responsibilities of spouses under California law and which was, at that point, the only way for the couple to legally formalize their relationship in their home state.

Pension plan. Lesly worked for FedEx for 26 years and was a fully vested participant in its pension plan. The pension plan provided for a joint and survivor annuity to the employee and the employee’s surviving spouse, as required by ERISA. Stacey, an artist and children’s book illustrator, primarily stayed home with the couple’s two children. Stacey and Lesly considered getting married during the five-month period in 2008 that marriage licenses were available to same-sex couples in California but decided that they didn’t want to be part of the media circus or to rush this important event in their lives. They understood that their status as registered domestic partners made them “spouses” under California law, and they didn’t have an estate large enough to make the unlimited marital deduction under the federal estate tax rules relevant to them. Stacey and Lesly didn’t consider other ways in which federal recognition of their relationship might be relevant.

On learning that Lesly had metastatic cancer, Stacey and Lesly began reviewing Lesly’s employee benefits in an effort to learn what would be available to Stacey after Lesly’s death. FedEx provided health insurance benefits to registered domestic partners, and the couple was somewhat shocked when Stacey was informed on

June 13, 2013 that no pension benefits would be available to Stacey because of the plan’s definition of marriage. They had assumed that FedEx would provide full benefits to Stacey based on her status as Lesly’s spouse under California law.

Marriage. Finally realizing that they had to get married for Stacey to be financially secure after Lesly passed, the couple focused on when and where to get that done. They considered flying to another state, such as Washington or Iowa, but both of those states had waiting periods for marriage licenses, and they were worried that Lesly wouldn’t survive the trip. They ultimately decided to proceed with a wedding in California—hopefully after the Supreme Court’s decision in Perry, which was expected to strike down Prop. 8 any day. Stacey and Lesly completed a marriage license application, submitted it to the Sonoma County Clerk and were told that a license would be issued the same day that the Perry decision was announced (assuming it went their way).  

Lesly’s health began to deteriorate rapidly, and the couple knew they shouldn’t wait to marry. Stacey and Lesly were wed at their home on June 19, 2013, in a civil ceremony attended by their families and officiated by a county supervisor, who presented them with a signed marriage certificate. 

Lesly died the next day. 

Post-Death Developments 

The Supreme Court decisions in both Windsor and Perry were issued on June 26, 2013⁷—just six days after Lesly’s death. With same-sex marriage now legal in California, Stacey took the next steps to pursue formal recognition of her marriage to Lesly by the state. On Aug. 6, 2013, Stacey’s attorneys filed a petition in the Superior Court of California, County of Sonoma to gain that recognition. Notice was given to both the FedEx pension plan trustees and the plan, among others. The court found in Stacey’s favor and issued an order that recognized Stacey and Lesly’s marriage as occurring on June 19, 2013.  

Having established the legality of her marriage under California law, Stacey then filed a claim for a qualified pre-retirement survivor annuity under the plan as Lesly’s surviving spouse. The plan denied the claim. In support of its action, the plan cited the provision defining marriage by reference to Section 3 of DOMA. Stacey filed an appeal on June 27, 2014. The FedEx Corporation Retirement Appeals Committee (FedEx RAC) denied the appeal. In their letter dated Aug. 25, 2014, the committee stated that “for purposes of the Plan,” Lesly was unmarried at the time of her death and had no surviving spouse.

Stacey’s Causes of Action

To enforce her claim to benefits as a surviving spouse, Stacey sued FedEx, the plan and FedEx RAC, asserting three causes of action: (1) a claim for benefits under ERISA against all three defendants; (2) a claim for breach of fiduciary duty against FedEx and FedEx RAC for failure to administer the plan in accordance with applicable law, and (3) a claim for breach of fiduciary duty under ERISA against FedEx for failure to inform and/or providing misleading communications. 

In the first two causes of action, Stacey sought payment of surviving spouse benefits under the plan or in the alternative, equitable relief; in the third cause of action, Stacey sought an equitable remedy in the form of the payment of non-spousal survivor benefits (which Stacey could have qualified for as a non-spouse beneficiary if Lesly had retired prior to her death and named Stacey as a beneficiary). The defendants moved for judgment on the pleadings on all three claims, asserting that, even if all of Stacey’s pleaded facts were accurate, they were still entitled to judgment in their favor as a matter of law. 

Court’s Ruling

In connection with the first claim, the court confronted the threshold question raised by the defendants regarding whether the case could go forward based on the standing of the putative spouse. The court reviewed the requirements under California law for a valid marriage (consent of the parties, issuance of a license solemnization and authentication by returning the license to the county recorder) and found that based on the order of the Sonoma County Superior Court and the issuance of a marriage license, the couple was legally married on June 19, 2013—the day before Lesly died. The court noted that Sonoma County’s inability to issue a marriage license to Stacey and Lesly when they applied for one was the direct result of California’s application of an unconstitutional law prohibiting same-sex marriage; if Prop. 8 hadn’t been in effect, the couple would clearly have been legally married when Lesly died. In any event, the court wasn’t willing to disturb the Sonoma County Superior Court’s holding, which is entirely consistent with the federal government’s policy of deferring to the states when it comes to the question of whether a marriage is valid—as long as the states don’t attempt to enforce laws that are unconstitutional under federal law.  

After finding that Stacey had plausibly alleged that she and Lesly were married at the time of Lesly’s death, the court went on to consider whether FedEx abused its discretion by interpreting the plan as not requiring payment of a spousal survivor benefit to Stacey and found that it didn’t. At the time that Lesly died,

Article 3 of DOMA was in effect, and this was the definition of “spouse” that the plan incorporated. The court granted FedEx’s motion and dismissed the first cause of action, finding that Stacey hadn’t alleged facts sufficient to show that FedEx abused its discretion in denying benefits to Stacey—the rule was clear: same-sex spouses weren’t spouses entitled to benefits under the plan.

The court also disposed of Stacey’s third cause of action on the grounds that Stacey had no standing to bring it. Here, Stacey alleged that FedEx breached its fiduciary duty to Stacey and Lesly in that it failed to inform them prior to Lesly’s death that, if Lesly had actually retired (which would have had an impact on her medical coverage), Stacey would have been eligible for a smaller but still valuable non-spousal death benefit, provided Lesly had named her as death beneficiary. Only participants and beneficiaries of a plan are eligible to bring an action for breach of fiduciary duty under ERISA. When Stacey filed her court action, she fit into neither category. She was, of course, not a participant. She also wasn’t actually named as a beneficiary. The court found it couldn’t be inferred that, had Lesly been so informed, Lesly would have retired, so that a non-spouse beneficiary could be named as beneficiary.  Because Lesly wasn’t a named beneficiary, she had no standing to assert the third cause of action.  

But, the court reached a different conclusion with respect to Stacey’s second cause of action, which was that FedEx and FedEx RAC breached their fiduciary duty to her by failing to administer the plan in accordance with applicable law. Here, Stacey successfully thwarted the company’s efforts to have her claim thrown out and set the stage for an important finding regarding the retroactivity of Windsor.  

In her second claim, Stacey asserted that FedEx and FedEx RAC were required to interpret the plan under controlling federal law and that, if the plan conflicts with federal law, it must be interpreted in accordance with federal law rather than on it own terms. While in the first cause of action, Stacey claimed that she was entitled to benefits under the plan, in this cause of action, Stacey sought a survivor benefit as mandated by ERISA, even if the plan were found to foreclose the benefit under its terms. Stacey’s argument was that the plan’s definition of “spouse” under Section 3 of DOMA is actually in conflict with federal law because Section 3 was declared to be unconstitutional in Windsor. In her petition, Stacey cited the fact that, post-Windsor, the Department of Labor issued guidance saying that, under ERISA, the Internal Revenue Code and IRC regulations, the term “spouse” includes same-sex couples, as long as they’re lawfully married under any state law.⁸ Because the definition of “spouse” contained in the plan conflicts with ERISA, Stacey argued that FedEx and FedEx RAC were required to ignore that unlawful definition and instead interpret the plan in accordance with current federal law, which provides that a surviving spouse may be of the same gender as an employee, as long as the couple is validly married under state law.

Similarly, in Cozen O’Connor P.C. v. Tobits,⁹ a case cited by Stacey in her claims against FedEx, the court applied Supreme Court decisions, including Windsor, retroactively. In that case, Jean Tobits, who had married Sarah Ellyn Farley (a retirement plan participant) some years before in Canada, made a claim for a surviving spouse annuity under ERISA after Sarah died. In that case, the court held that when a state recognizes a party as a surviving spouse, the federal government must do so also when considering whether the party is entitled to benefits under a plan governed by ERISA. 

FedEx attempted to distinguish Cozen on the grounds that the plan in that case didn’t contain its own definition of “spouse,” and as a result, there was no choice but to rely on the definition under federal law. The company also cited the provisions of Revenue Ruling 2014-19, which provides if a plan sponsor chooses to apply the plan’s rules to reflect the outcome of Windsor prior to June 26, 2013, the plan must be amended. 

But, the court rejected these arguments, and Stacey prevailed. The court found that Stacey had adequately alleged that FedEx violated Title I of ERISA by action contrary to federal law and its refusal to provide her with an ERISA-mandated benefit and that she’s entitled to pursue equitable relief as a remedy. Importantly, the court found that “[it] is not persuaded at this stage of the case and under the facts alleged in the complaint that there is any basis for denying retroactive application of Windsor.”¹⁰ 

Next Phase

The court will presumably now go forward and hear Stacey’s action to compel payment of joint and survivor pension benefits under the plan.

There’s well-established authority for the proposition that when the Supreme Court announces a new rule of law, the presumption is that the rule of law applies retroactively. This was the case in Windsor itself: Edith Windsor sued for (and received) the estate tax that she paid in connection with the death of her wife, Thea Spyer, even though, at the time of Thea’s death, the federal government didn’t recognize their marriage.      

Endnotes

1 Retirement Equity Act of 1984 Section 103, P.L. 98-397. 

2. Defense of Marriage Act of 1996, P.L. 104-199.

3. Hollingsworth, et al. v. Perry, et al., 704 F. Supp.2d 921 (2010).

4. U.S. v. Windsor, 133 S.Ct. 2675 (2013).

5. Stacey Schuett v. FedEx Corporation, No. 15-cv-0189-PJH, U.S.D.C, N.D. Calif. (Jan. 4, 2016).

6. Obergefell v. Hodges, 576 U.S. ___ (2015).

7. See supra note 4. 

8. U.S. Dept. of Labor, Employee Benefits Sec. Admin., Technical Release No. 2013-4 (issued Sept. 18, 2013). 

9. Cozen O’Connor P.C. v. Tobits, 2013 U.S. Dist. LEXIS 105507, 2013 WL 3878688 (E.D. Pa. July 29, 2013).

10. Schuett, supra note 5 at p. 16.