• Paul M. Sullivan, Jr.

ERISA pays $500,000 to widow. State court takes it away.

This is the story of the widow who got $500,000 but could not keep it.

Jimmie Lee Moore had over $500,000 in two retirement plans when he died. Jimmie had named his brother Billy beneficiary of both. So the story should end, but it does not because before he died Jimmy married Beulah.

Before Jimmie and Beulah married they both executed a prenuptial agreement. They agreed their separate property would remain separate, and each renounced any right to the other's retirement funds.

Jimmie sadly did not live out the year of their marriage.

Even though Billy was the designated beneficiary, the plan administrator paid Beulah the proceeds of both plans. So the scene was set for conflict.

Beulah kept the plan proceeds. Billy then sued her and obtained a permanent injunction in Alabama state court prohibiting Beulah from disposing of the proceeds distributed to her by the plan administrator.

Beulah and Billy both moved the state court for summary judgment in their favor. Billy alleged Beulah breached the prenuptial agreement by retaining the funds she had received. Billy claimed $568,099.52 in damages.

Beulah responded that she had a letter from the plan administrator stating Beulah, as surviving spouse, was the proper beneficiary and that under ERISA the prenuptial agreement did not amount to a valid waiver of her entitlement to the benefits.

Billy argued that the claimed damages were proceeds that already had been distributed from the plans and therefore ERISA did not preempt his claim.

The court agreed with Billy and entered summary judgment in Billy's favor. Beulah appealed.

Citing numerous federal appeals court decisions, including one from the 11th Circuit, the Alabama Supreme Court held that ERISA did not bar Billy's breach of contract action against Beulah. It held that by retaining the benefits Beulah breached the prenuptial agreement.

COMMENT: The takeaway, if any, is that ERISA preemption has its limits. Once the funds were distributed to Beulah ERISA preemption of the prenuptial agreement became irrelevant. Alabama state courts and state law controlled. This bookends the previous article, where the doctors chose not to sue the health care insurer under ERISA but instead sued out their claims under state law, thus avoiding ERISA.

See Moore v. Moore, Case No. 1180482 (Ala., Nov. 29. 2019).

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