SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
A-3800-97T5
JOHN R. JOHNSON, III,
Plaintiff-Respondent,
v.
SHARON JOHNSON,
Defendant-Respondent.
_____________________________
Submitted March 24, 1999 - Decided April 9,
1999
Before Judges King, Wallace and Newman.
On appeal from the Superior Court of New
Jersey, Chancery Division, Camden County.
Tomar, Simonoff, Adourian, O'Brien, Kaplan,
Jacoby & Graziano, attorneys for appellant
United Association of Journeyman Plumbers and
Pipe Fitters Local Union 322 Annuity Fund
(Mark E. Belland and Deborah L. Mains, on the
brief).
No brief filed on behalf of the respondents.
The opinion of the court was delivered by
KING, P.J.A.D.
This is an appeal by the United Association of Journeyman Plumbers and Pipe Fitters Local 322 Annuity Fund (Annuity Fund) from orders requiring it to pay the Johnsons' attorneys' fees in their divorce action. Plaintiff John R. Johnson, III, is the participant spouse in the union's Annuity Fund which contends the provisions in paragraph fifteen of the Johnsons' dual final judgment of divorce and the post-judgment orders which require payment of attorneys' fees from the fund constitute an assignment of benefits expressly prohibited by the Employee Retirement Income Security Act of 1974 (ERISA), the Internal Revenue Code (IRC), and the Annuity Plan. We agree with the Annuity Fund and reverse the orders compelling payment of the parties' attorneys' fees by the ERISA-qualified retirement plan.
On March 28, 1996 a dual final judgment of divorce was entered in the Family Part, Camden County dissolving the marriage of the parties, Sharon Johnson, age 41, and John R. Johnson, III, age 39. Paragraph four of the divorce judgment stated the value or balance of plaintiff-husband John Johnson's interest in the Annuity Fund totalled $17,840.08 in September 1995. There was also an $8,510.54 separate account balance in the Annuity Fund in defendant-wife Sharon Johnson's name as of September 1995. Paragraph four of the divorce judgment also required that Sharon Johnson transfer this $8,510.54 balance to John Johnson and that she sign any and all waivers or execute any Qualified Domestic Relation Orders (QDRO's) to effect that transfer, together with any accumulated interest or dividends on the balance.
Paragraph fifteen of the divorce judgment stated:
From the annuity which has been refunded
to the plaintiff, JOHN R. JOHNSON, III,
$8000.00 shall be withdrawn and shall be paid
to the attorneys in the following sums:
(a) Louise D. Donaldson, Esquire $4000.00
(b) Leslie J. Jandoli, Esquire $4000.00
Mr. Jandoli represented plaintiff John Johnson and Ms. Donaldson
represented defendant Sharon Johnson in the divorce proceedings.
Sharon Johnson filed a notice of motion to enforce litigant's
rights returnable December 13, 1996 requesting, among other things,
an order requiring John Johnson to pay her attorney's fees pursuant
to paragraph fifteen of the divorce judgment. On February 24, 1997
the judge entered an order which required
That the administrator of the pension/annuity
fund of the plaintiff, John R. Johnson, III,
through Local 322, Plumbers and Steamfitters
Union, shall pay to Louise D. Donaldson,
Esquire, attorney for the defendant, Sharon
Johnson, the sum of Four Thousand ($4,000.00)
Dollars and to Leslie J. Jandoli, Esquire,
attorney for the plaintiff, John R. Johnson,
III, the sum of Four Thousand ($4,000.00)
Dollars, after deduction of $800.00 per
payment, to satisfy the required income tax
and penalty assessments. Said payment shall
be made within 30 days.
This judicial order for counsel fees was obviously a result of the
settlement of the matrimonial litigation which involved the marital
home, child support, alimony, debts, visitation, custody, personal
property, and other customary issues.
On April 18, 1997 the Annuity Fund's then-attorneys, Brown &
Connery, sent a letter to the judge stating the Annuity Fund could
not comply with his order. The letter, in pertinent part, said:
Neither ERISA nor Local 322's Pension and
Annuity Fund Plans permit the disbursement of
Fund assets to pay for attorneys' fees
incurred in a divorce action. Complying with
this Order could jeopardize the tax exempt
status of our Plan.
We are therefore unable to comply with Your
Honor's Order.
In response to the Annuity Fund's April 18, 1997 letter, the
judge held a conference with the Annuity Fund's and the Johnsons'
attorneys on June 3, 1997. The judge reaffirmed his earlier
direction of payment of attorney's fees from the Annuity Fund. On
June 9, 1997 the Annuity Fund's attorney sent a confirming letter
to the judge summarizing the outcome of the June 3, 1997
conference. The letter stated in pertinent part:
Your Honor rejected the authority we cited and
reiterated the Order directing that the
Annuity Plan pay the attorneys' fees to
counsel as directed. In light of Your Honor's
ruling rejecting our objection to make such
payments, we will comply with the Order.
By copy of this letter, we are advising Ms.
Donaldson and Mr. Jandoli that we will direct
the Fund to pay them $4,000 each from Mr.
Johnson's Annuity Fund pursuant to the Order.
The Annuity Fund's attorneys, Brown & Connery, sent the attorneys,
Ms. Donaldson and Mr. Jandoli, a letter dated July 3, 1997 stating
the Annuity Fund administrator had directed its custodian bank to
issue their $4,000 checks for their attorneys' fees.
John Johnson's attorney, Mr. Jandoli, eventually filed a
motion to enforce litigant's rights, returnable December 5, 1997,
requesting an order requiring the Local 322 Annuity Fund to comply
with the court's prior February 24, 1997 order which compelled the
Annuity Fund to pay the parties' attorneys' fees. This motion was
apparently postponed until January 1998. In his certification, Mr.
Jandoli stated the office of Tomar, Simonoff, Adourian, O'Brien,
Kaplan, Jacoby & Graziano had replaced Brown & Connery as attorneys
for the Annuity Fund. Mr. Jandoli also stated Ms. Donaldson no
longer represented Sharon Johnson. Attorney Nan S. Famular,
Esquire, replaced Ms. Donaldson as Sharon Johnson's attorney.
The Annuity Fund, through Tomar Simonoff's office, then filed
a notice of cross-motion returnable January 9, 1998 requesting (1)
dismissal of John Johnson's attorney's motion to enforce litigant's
rights, (2) the judge's February 24, 1997 order be vacated, and (3)
paragraph fifteen of the divorce judgment also be vacated.
The judge heard oral arguments on this application on January
14, 1998. Mr. Jandoli appeared for John Johnson. The Annuity
Fund's attorney argued it was not a party to the case and could not
be bound by the divorce judgment. The Annuity Fund also argued
that under ERISA the judge could not order it to pay the attorneys'
fees. The judge ruled that he would join the Annuity Fund as a
party and reaffirm his February 24, 1997 order. On January 26,
1998 the judge entered an order joining the Annuity Fund as a party
and affirmed his prior order of February 24, 1997 compelling the
Annuity Fund to pay John and Sharon Johnson's attorneys' fees.
The Annuity Fund sought relief under R. 4:50-1(f) from the order compelling it to pay the Johnsons' attorneys' fees. The Annuity Fund contends if it complies with the judge's orders it will violate IRC § 401(a), ERISA §404(a) and §502(a), and paragraph 11.11 of John Johnson's Annuity Plan. The Annuity Fund also contends compliance with the judge's orders will jeopardize its tax-exempt status and subject its trustees to liability for breach of fiduciary duty by Plan participants and the United States Department of Labor. The Johnson respondents did not participate in this appeal.
Relief from a judgment or order is provided for under our court rules:
On motion, with briefs, and upon such terms as
are just, the court may relieve a party or the
party's legal representative from a final
judgment or order for the following reasons:
(f) any other reason justifying relief from
the operation of the judgment or order.
[R. 4:50-1(f).]
Granting or denying a motion under R. 4:50-1(f) is addressed
to the motion judge's sound discretion. Housing Authority of Town
of Morristown v. Little,
135 N.J. 274, 286 (1994). "Because of the
importance that we attach to the finality of judgments, relief
under Rule 4:50-1(f) is available only when `truly exceptional
circumstances are present.'" Ibid. (quoting Baumann v. Marino,
95 N.J. 380, 395 (1984)). Judge Pressler explains a motion to vacate
a judgment based on any of the six specified grounds in R. 4:50-1
should be granted sparingly. Pressler, Current N.J. Court Rules,
comment 1.1 on R. 4:50-1 (1999). Each case brought under a R.
4:50-1(f) motion must be resolved on its own particular facts.
Baumann v. Marino, 95 N.J. at 395. The movant must demonstrate the
circumstances are exceptional and enforcement of the judgment or
order would be unjust, oppressive or inequitable. Quagliato v.
Bodner,
115 N.J. Super. 133, 138 (App. Div. 1971). In such
exceptional circumstances, R. 4:50-1(f)'s "boundaries are as
expansive as the need to achieve equity and justice." Court
Invest. Co. v. Perillo,
48 N.J. 334, 341 (1966).
Appellate review of a motion judge's ruling on a R. 4:50-1(f)
motion is the abuse of discretion standard. Housing Authority of
Town of Morristown v. Little, 135 N.J. at 283. However, if a judge
makes a discretionary decision but acts under a misconception of
the applicable law or misapplies the applicable law to the facts,
an appellate court need not extend deference. We must adjudicate
the controversy in light of the applicable law to avoid a manifest
denial of justice. State v. Steele,
92 N.J. Super. 498, 507 (App.
Div. 1966); Kavanaugh v. Quigley,
63 N.J. Super. 153, 158 (App.
Div. 1960); O'Neill v. City of Newark,
304 N.J. Super. 543, 550
(App. Div. 1997). We consider the Annuity Fund's motion for relief
from judgment as filed within a reasonable time. See R. 4:50-2.
The Annuity Fund is established and maintained pursuant to the
provisions of ERISA,
29 U.S.C.A.
§1001 to -1461, and the IRC,
26 U.S.C.A.
§401 to -419A. The Annuity Fund understandably contends
it is required to comply with all the provisions of ERISA and the
IRC. Congress enacted ERISA to protect the welfare of employees
and their dependents who depend on retirement plans. Hawxhurst v.
Hawxhurst,
318 N.J. Super. 72, 82-83 (App. Div. 1998); Ablamis v.
Roper,
937 F.2d 1450, 1453 (9th Cir. 1991).
ERISA has an antialienation provision which states: "Each
pension plan shall provide that benefits provided under the plan
may not be assigned or alienated."
29 U.S.C.A.
§1056(d)(1). The
United States Supreme Court stated this provision "reflects a
considered congressional policy choice, a decision to safeguard a
stream of income for pensioners ... even if that decision prevents
others from securing relief for the wrongs done them." Guidry v.
Sheet Metal Workers Nat'l Pension Fund,
493 U.S. 365, 376 (1990).
The IRC has a similar antialienation provision which states, "In
general. .... A trust shall not constitute a qualified trust under
this section unless the plan of which such trust is a part provides
that benefits provided under the plan may not be assigned or
alienated."
26 U.S.C.A.
§401(a)(13)(A).
The Department of the Treasury declares the definition of
assignment and alienation includes:
Any direct or indirect arrangement (whether
revocable or irrevocable) whereby a party
acquires from a participant or beneficiary a
right or interest enforceable against the plan
in, or to, all or any part of a plan benefit
payment which is, or may become, payable to
the participant or beneficiary.
[26 C.F.R. §1.401(a)-13(c)(1)(ii).]
The Annuity Fund's provisions demonstrate its compliance with ERISA
and the IRC's antialienation provisions. Paragraph 11.11 of the
Annuity Fund states,
To the end of making it impossible for
participants covered by this Plan
improvidently to imperil the provisions made
for their support and welfare by directly or
indirectly anticipating, pledging, or
disposing of their benefit payments hereunder,
it is hereby expressly stipulated that no
participant hereunder shall have the right to
assign, alienate, transfer, sell, hypothecate,
mortgage, encumber, pledge, commute, or
anticipate any benefit payments and that such
payments shall not in any way be subject to
any legal process to levy execution upon or
attachment or garnishment proceedings against
the same for the payments of any claim against
any participant nor shall such payments be
subject to the jurisdiction of any bankruptcy
court for insolvency proceedings by operation
of law or otherwise.
Question 25 in the question and answer section of the Annuity
Fund's booklet states,
May I assign, sell or transfer my rights under
the Plan?
No. This is not allowed by the Annuity Plan.
All payments from the Fund must be made
directly to the participant, his spouse or his
beneficiary. (emphasis in original.)
Here, paragraph fifteen of the divorce judgment created a
direct arrangement through which the Johnsons' attorneys acquired
an interest presently enforceable against the plan. Paragraph
fifteen, together with the orders of February 24, 1997 and January
26, 1998 compelling the Annuity Fund to pay the Johnsons'
attorneys' fees, facially violated ERISA's antialienation provision
codified in
29 U.S.C.A.
§1056(d)(1).
There are only two exceptions to ERISA's antialienation
provision. The first exception permits "any voluntary and
revocable assignment not to exceed 10 percent of any benefit
payment...."
29 U.S.C.A.
§1056(d)(2). This first exception does
not apply to the present situation because benefits are not
currently payable, according to this record. Benefits are not
payable until retirement at age 55 or later, six months after
complete withdrawal from active employment with the local, or after
six consecutive months of working in non-covered employment. The
second exception is for qualified domestic relations orders (QDRO)
which meet precise statutory requirements.
29 U.S.C.A.
§1056(d)(3)(A). Exceptions to ERISA's antialienation provision are
strictly construed and exceptions must be expressly mandated by
Congress. Guidry v. Sheet Metal Workers National Pension Fund, 493
U.S. at 375-77.
Congress expressly mandated the second exception which states,
in part, that the antialienation provision
shall not apply if the order is determined to
be a qualified domestic relations order. Each
pension plan shall provide for the payment of
benefits in accordance with the applicable
requirements of any qualified domestic
relations order.
[
29 U.S.C.A.
§1056(d)(3)(A).]
ERISA defines a QDRO as a domestic relations order "which creates
or recognizes the existence of an alternate payee's right to, or
assigns to an alternate payee the right to, receive all or a
portion of the benefits payable with respect to a participant under
a plan, and with respect to which the requirements of subparagraphs
(C) and (D) are met."
29 U.S.C.A.
§1056(d)(3)(B)(i). It defines
a domestic relations order as "any judgment, decree, or order
(including approval of a property settlement agreement) which
relates to the provision of child support, alimony payments, or
marital property rights to a spouse, former spouse, child, or other
dependent of a participant, and is made pursuant to a State
domestic relations law (including a community property law)."
29 U.S.C.A.
§1056(d)(3)(B)(ii).
QDRO's must meet certain requirements for exemption from
ERISA's antialienation provision:
(C) A domestic relations order meets the
requirements of this subparagraph
only if such order clearly
specifies....
(i) the name and the last known mailing
address (if any) of the participant
and the name and mailing address of
each alternate payee covered by the
order,
(ii) the amount or percentage of the
participant's benefits to be paid by
the plan to each such alternate
payee, or the manner in which such
amount or percentage is to be
determined,
(iii) the number of payments or period to
which such order applies, and
(iv) each plan to which such order
applies.
(D) A domestic relations order meets the
requirements of this subparagraph
only if such order....
(i) does not require a plan to provide
any type or form of benefit, or any
option, not otherwise provided under
the plan,
(ii) does not require the plan to provide
increased benefits (determined on
the basis of actuarial value), and
(iii) does not require the payment of
benefits to an alternate payee which
are required to be paid to another
alternate payee under another order
previously determined to be a
qualified domestic relations order.
[
29 U.S.C.A.
§1056(d)(3)(C) and (D).]
Here, the judge neither considered nor applied the pertinent law.
Mindful that exceptions to ERISA's antialienation provisions
are strictly construed, we find the QDRO exception to ERISA's
antialienation provision is not applicable; the divorce judgment,
the February 24, 1997 order, and the January 26, 1998 order did not
meet ERISA's requirements of a QDRO.
29 U.S.C.A.
§1056(d)(3)(A)-(D). First, under ERISA a QDRO is a domestic relations order which
recognizes the rights of an alternate payee to receive benefits
under the plan.
29 U.S.C.A.
§1056(d)(3)(B). The Johnsons'
attorneys do not fall within ERISA's definition of an "alternate
payee," defined as "any spouse, former spouse, child, or other
dependent of a participant who is recognized by a domestic
relations order as having a right to receive all, or a portion of,
the benefits payable under a plan with respect to such
participant."
29 U.S.C.A.
§1056(d)(3)(K).
Second, those documents do not relate to provisions of child
support, alimony or the Johnsons' marital property rights as
required in the Retirement Equity Act of 1984,
29 U.S.C.A.
§1056(d)(3)(B)(ii)(I). Rather, paragraph fifteen of the divorce
judgment and the orders relate to provisions of attorneys' fees
arising out of the dissolution of the Johnsons' marriage, a matter
not provided for under the antialienation exception.
Third, requiring the party's attorneys' fees to be paid from
John Johnson's pension and annuity fund is a benefit not provided
for under the Annuity Fund Plan and thus violates
29 U.S.C.A.
§1056
(d)(3)(D)(i). The Annuity Fund Plan provides for monthly payments
in the form of a lifetime annuity when John Johnson reaches age 55
or has withdrawn from active employment under the local's contracts
for at least six months. The Annuity Fund Plan also provides an
option for a lump-sum payment when the plan participant becomes
eligible to retire if the participant is single or, if married, the
spouse consents. The Annuity Fund Plan does not provide for a pre-retirement lump-sum withdrawal to pay attorneys' fees. The Annuity
Fund Plan specifically forbids a plan participant from assigning,
selling or transferring rights and states all payments from the
Annuity Fund must be made to the plan participant, spouse or a
beneficiary. Because the Johnsons' attorneys are not plan
participants, spouses of the Johnsons, or beneficiaries under John
Johnson's pension, and because the $8,000 lump-sum payment for
attorneys' fees is not a benefit provided for under the Annuity
Fund, this assignment violates the provisions of the Annuity Fund
Plan and
29 U.S.C.A.
§1056(d)(3)(D)(i). Thus paragraph fifteen of
the divorce judgment, together with the judge's orders of February
24, 1997 and January 26, 1998, are ineffective.
"ERISA preempts all marital dissolution decrees that do not
meet the statutory definition of a QDRO." Ross v. Ross,
308 N.J.
Super. 132, 150 (App. Div. 1998). The requirements in
29 U.S.C.A.
§1056(d)(3)(C) "for the creation of a QDRO must be strictly
complied with before a domestic relations order may be considered
`qualified.'" Id. at 153 (citing Hawkins v. Commissioner of
Internal Revenue,
86 F.3d 982, 993 (10th Cir. 1996)).
Although there are no relevant New Jersey cases, a few federal
courts addressing similar issues support our conclusion. In
Dickerson v. Dickerson,
803 F.Supp. 127, 129 (E.D. Tenn. 1992), a
divorce decree stated the former wife was awarded a lump-sum
payment of $8,000 to be immediately paid from her former husband's
pension benefits "as quickly as administratively possible following
the entry of the Final Decree of Divorce," rather than waiting
until her former husband's pension benefits reached payment status.
The divorce decree included language purporting to issue a QDRO in
compliance with
29 U.S.C.A.
§1056(d). Id. at 128. The former
husband's pension plan did not comply with the command in the
divorce decree because of the violation of ERISA and the IRC. The
former husband's pension plan provided that monthly retirement
benefits would begin when the former husband reached age 55 or
became disabled. His pension plan also had an antialienation
clause. The federal district court determined the divorce decree
did not meet ERISA's requirements for a QDRO. Although the former
wife met the statutory definition of an "alternate payee," the
court concluded the divorce decree was not a QDRO because it sought
"to provide a benefit not otherwise permitted under the pension
plan and to disburse pension funds prior to" the commencement of
the participant's retirement benefits. Id. at 134.
In Stott v. Bunge Corporation,
800 F.Supp. 567 (E.D. Tenn.
1992), the federal district court determined the QDRO did not meet
ERISA's requirements. The QDRO in that case required 50" of the
former husband's pension benefits paid to the former wife in a
lump-sum payment "as soon as administratively possible." The court
determined the QDRO violated
29 U.S.C.A.
§1056(d)(3)(E)(ii) because
it required payment to the former wife before the former husband
reached "the earliest retirement age" and therefore required the
pension plan to provide a benefit not otherwise provided for under
the plan in violation of
29 U.S.C.A.
§1056(d)(3)(D)(i).
In AT&T Management Pension Plan v. Tucker,
902 F.Supp. 1168
(C.D. Cal. 1995), the former husband's pension plan was joined as
an interested party in the Tuckers' divorce action and reserved the
right to object to any orders that violate ERISA. The family-court
judge in that case ordered the pension plan to pay over $50,000 to
the former wife's attorney as attorney's fees incurred during their
communications with the pension plan and in pressing their
application for attorney's fees over the pension plan's objections.
Id. at 1170. The pension plan appealed the family-court judge's
order. The family-court judge then granted the former wife's
motion for an additional award of $10,000 in attorney's fees
expected in handling the appeal from the trial-level court. The
plan appealed this order as well. The plan then filed a complaint
in the federal district court for injunctive and declaratory relief
to restrain ERISA violations. Id. at 1171. The district judge,
without providing a detailed analysis, determined the orders for
attorneys' fees were not QDRO's and were preempted by ERISA's
antialienation clause. Id. at 1176.
Similarly, here, the divorce judgment and the judge's orders
require the lump-sum $8,000 payment for attorneys' fees made prior
to John Johnson's pension achieving payment status. This clearly
violates
29 U.S.C.A.
§1056(d)(3)(D)(i) because his pension benefits
will not reach payment status until either he reaches age 55,
withdraws from his employment with the local for at least six
months, or stops working in covered employment for six consecutive
months. Based on the arguments presented by the Annuity Fund in
its brief, any situation which would convert the Annuity Fund into
payment status has not occurred as of August 3, 1998, the date its
brief was filed.
We reverse and remand to the Family Part and direct that the
judge vacate paragraph fifteen of the divorce judgment and the
orders of February 24, 1997 and January 26, 1998 ordering payment
from the Annuity Fund. In view of the potential inequities from
alteration of the terms of the original marital settlement
contemplating payment of attorneys' fees from the Annuity Fund,
either party may apply for supplemental relief in the Family Part
within forty-five days of the date of this opinion.
Reversed and remanded.