On Appeal from Superior Court of New Jersey, Chancery Division, Morris County.
Before Judges Havey, Newman and Collester.
The opinion of the court was delivered by: The opinion of the court was delivered by Newman, J.A.D.
This appeal involves the impact of the Employee Retirement Income Security Act, 29 U.S.C.A. §§ 1001 to -1461, as amended by the Retirement Equity Act, on the Disposition of pension assets in a property settlement agreement pursuant to a divorce.Appellant, Gina Ann Chiloro, appeals from an order of June 4, 1996 by the Family Part entering Qualified Domestic Relations Orders (QDROs) after the death of her husband which authorized the distribution of the proceeds of certain pension plans and annuity contracts to defendant, Carol Lee Ross, former wife of the decedent. We affirm the distribution of the proceeds of the Work-O-Lite Co., Inc. Money Purchase Pension Plan to Carol Ross. We reverse the distribution of the R&S/CN Trucking Defined Benefit Pension Plan to Carol Ross and direct that it be paid to appellant. We vacate the Qualified Domestic Relations Order entered for the Nationwide Insurance Annuity Contract and remand for further proceedings.
After a twenty-seven-year marriage, plaintiff Arthur Ross and defendant Carol Lee Ross divorced on October 19, 1993. Attached to the judgment of divorce was a property settlement agreement (PSA) entered into by the couple on October 18, 1993 which, among other things, distributed the personal and real property acquired during the marriage. In addition to providing Ms. Ross with one-half of the annuity and pension benefits that Mr. Ross may receive during his lifetime, one section of the PSA purports to entitle Ms. Ross to the full amount of survivor benefits under the pension and annuity plans in the event of Mr. Ross's death. That section (hereafter referred to as Section F) reads in full:
1. Wife shall be entitled to receive one-half (1/2) of the Husband's pensions and/or annuities from Work-O-Lite Co., Inc. and National Lighting Co., Inc. The Wife shall receive the survivor annuity of the pension plans, as per the provisions of the plans. It is the intention of the parties that for the purposes of the defined benefit plan and the defined contribution plan, Carol Ross shall be deemed to be the surviving spouse and shall be designated beneficiary for any survivor annuity.
2. In the event that the defined contribution plan is terminated prior to Husband's death, Husband and Wife shall equally split the amount to be received as a result of the termination.
3. Wife shall have prepared, at her expense, Qualified Domestic Relations Orders, to effectuate the division of Husband's pensions and the other provisions of this paragraph relating to Husband's pensions. The Qualified Domestic Relations Orders shall be prepared by a qualified professional acceptable to both parties. Husband shall cooperate in providing all information necessary to allow the preparation of the Qualified Domestic Relations Orders.
During their marriage, Mr. Ross was an officer and shareholder of two closely-held sister companies, Work-O-Lite Co., Inc. and National Lighting Co., Inc. These companies, which were previously owned by Ms. Ross's father, were conveyed to Mr. and Ms. Ross in equal shares. As a result of his employment by these companies, Mr. Ross acquired substantial pension benefits which are the subject of this lawsuit.
In the final years of his marriage, Mr. Ross lived with Ms. Chiloro rather than his wife. After being diagnosed with terminal cancer, he sought to expedite his divorce from Ms. Ross in order to marry Ms. Chiloro before his death. On November 24, 1993, one month after his divorce and remarriage to Ms. Chiloro, Mr. Ross died.
Upon his death, Mr. Ross owned the following three pension plans: (1) Work-O-Lite Co., Inc. Money Purchase Pension Plan, worth $431,906, (2) R&S Leasing Defined Benefit Plan, worth $17,451, and (3) CN Trucking, Inc. Defined Benefit Plan, worth $24,447. The record below reveals that the second and third plans were merged such that CN Trucking, Inc. became an adopting employer of the R&S Leasing Defined Benefit Plan. Thus, both plans will hereafter be collectively referred to as the R&S/CN plan. Mr. Ross also owned one annuity contract with Nationwide Life Insurance Company, entitled "Nationwide Insurance Annuity," worth $294,780 at his death. Since his death, the proceeds from the pension plans and annuity contract have grown to well over one million dollars.
The pension plans and annuity contract each state that, in the event of the participant's death, the beneficiary of the survivorship payments shall be the Participant's/Annuitant's spouse, unless otherwise agreed to in writing by the spouse. Although the PSA stated that "Carol Ross shall be deemed to be the surviving spouse," Chiloro never agreed in writing to this alienation of her survivorship rights.
On April 24, 1995, Ms. Ross (hereafter, references to "Ross" only are to defendant Carol Ross) requested the Family Court, through an informal letter, to enter QDROs entitling her to the survivor benefits under each of the pension plans and the annuity contract. The court postponed entry of the QDROs when Mr. Ross's estate objected on the grounds that the QDROs were submitted without the estate's prior review as contemplated by the PSA and because the tax implications of the QDROs were, at that point, unknown.
On April 11, 1996, Ross formally moved before the Family Part for the entry of the QDROs in accordance with Section F of the PSA. Alternatively, Ross requested that the court deem the PSA itself to be a QDRO, name her as the "surviving spouse" under Mr. Ross's pension plans, or compel Mr. Ross's estate to pay her an amount equal to that which she would receive under the pension plans. Ross served a copy of the motion upon (1) her husband's estate; (2) Jeffrey Ross, the parties' son from the marriage and the designated beneficiary of the annuity contract; and (3) Chiloro's attorney. Ross now emphasizes that Chiloro was only noticed "for informational purposes, since she had been copied on prior correspondence regarding the QDROs by [the estate] and Judge." Neither the estate nor Jeffrey Ross opposed the entry of the QDROs in Ross's favor.
Because the underlying action was one for divorce, only Mr. and Ms. Ross were parties. Chiloro was never formally made a party to the action. Nevertheless, Chiloro opposed Ross's motion to enter the QDROs. In addition, Chiloro contested the Family Court's jurisdiction over the matter, arguing that Ross never served Chiloro with a complaint and, even if she had, Chiloro would have removed the matter to federal court pursuant to federal question jurisdiction and preemption by the Employee Retirement Income Security Act, 29 U.S.C.A. §§ 1001 to -1461 (ERISA). Chiloro never filed a formal notice to intervene pursuant to R. 4:33-1 nor did she request to be joined pursuant to R. 4:28-1; rather, she simply filed a brief and presented her position at oral argument.
Before Ross's motion to enter the QDROs was heard, Chiloro filed a complaint on April 12, 1996 in the United States District Court for the District of New Jersey against Ross and various trustees and administrators of Mr. Ross's Work-O-Lite and R&S/CN pension plans. In the complaint, Chiloro sought payment of survivor benefits under ERISA, arguing that, because a QDRO had not been signed before Mr. Ross's death, she was entitled to the proceeds from the plans as Mr. Ross's surviving spouse. The complaint was later amended to include Nationwide Life Insurance Company and Jeffrey Ross as defendants.
On May 14, 1996, the motion Judge heard oral argument on Ross's motion in the Family Part to enter the QDROs in accordance with the PSA. Maintaining that the Family Court did not have jurisdiction over the matter, Chiloro filed a forty-two page brief in opposition to the motion and argued her case on the merits, alleging that the pension plan benefits had vested in her as of the date of Mr. Ross's death, and therefore QDROs should not be entered on behalf of Ross. During the proceedings, the motion Judge acknowledged that Chiloro was not a party to the proceedings, but declared that he would "treat her as basically an intervenor" "for purposes of this hearing today, otherwise ... she really doesn't have any standing to argue before the Court."After extensive arguments, the motion Judge concluded at the hearing that he would sign the QDROs in issue. He stated:
I'm satisfied that the respective rights of the parties vest at the time that the judgment of divorce is entered by the Court and the property settlement agreement incorporated into that judgment of divorce. Those rights are enforceable from that time on. The length of time that has elapsed between the granting of the divorce and the submission of the QUADROS does not affect the respective rights of the parties.
Thus, according to the motion Judge, the pension benefits in issue should be equitably distributed to Ross under the terms of the PSA; they did not belong to Chiloro because they had already vested in Ross as of the judgment of divorce and the transfer of assets via the PSA.
On May 24, 1996, the motion Judge executed QDROs for the "Work-O-Lite Co., Inc. Money Purchase Plan" and the "Work-O-Lite Co., Inc. Nationwide Insurance Annuity Contract" in accordance with his decision. The Judge reserved decision on the R&S/CN plan, erroneously referring to it as two separate plans, because it was not referenced in the PSA. He indicated, however, that if the R&S/CN plan was derivative of Mr. Ross's employment by Work-O-Lite, survivorship benefits from that plan would also belong to Ms. Ross. This decision was memorialized in an order dated June 4, 1996, from which Chiloro now appeals. The order reflected the determination that Chiloro was permitted to intervene, stating:
appearing on behalf of Gina Chiloro ... who, although not a party to this action, is permitted to take part in the hearing since her client has a financial interest in the outcome.
Prior to the entry of the order, Chiloro, naming herself a third-party defendant, requested the removal of Ross's action to federal court. After the case was removed, Ross moved to remand it back to the Family Court. After oral argument on July 22, 1996, United States District Judge Bissell granted Ross's motion, emphasizing that "absolutely critical to the right of a movant [for removal to federal court] is the status of the removing party as a party defendant." Because Chiloro was not a party defendant in the state court proceeding, she could not remove the case to federal court. Chiloro then filed a notice of appeal of the June 4, 1996 order granting the QDROs as to the Work-O-Lite pension plan and Nationwide annuity contract in favor of Ross.
In the wake of the conflicting claims to each plans' survivor benefits, Warren Siegel, the trustee for the Work-O-Lite and R&S/CN pension plans, sought a court order permitting him to deposit the proceeds of the plans, or $536,286.55, into federal court. This order was executed by Judge Bissell and the money was deposited with the clerk of the court on June 28, 1996.
While Chiloro awaited the appeal of the June 4, 1996 order, the Family Court designated the R&S/CN plan in favor of Ross upon Ross's motion. Although noticed on the motion, Chiloro did not participate in this proceeding. The court's decision was based on the affidavit of Warren Siegel, the trustee of the pension plans, who indicated that most, if not all, of the assets in the plans were derivative of Mr. Ross's employment by Work-O-Lite and were incorporated into the Work-O-Lite pension plan and Nationwide annuity contract. Specifically, Siegel certified in his affidavit that:
R&S was a New Jersey general partnership we formed to purchase and lease equipment to National and Work-O-Lite and, ultimately, to various third parties. I estimate that approximately 90% of the rental income generated by R&S during its existence derived from either National or Work-O-Lite.
CN Trucking was a New Jersey Subchapter S corporation we formed in approximately 1982 for the purpose of providing trucking services to National, CN's sole customer. CN leased trucks from third parties and used those trucks to provide trucking services for National. CN Trucking discontinued its operations in or about 1989 and was merged into National.
Chiloro never amended her notice of appeal to include this subsequent decision.
At this point, Chiloro's federal action remained active. On November 27, 1996, Chiloro moved for summary judgment before Judge Bissell on her federal action, arguing that Ross never entered a QDRO which would properly divest Chiloro of the pension benefits as the surviving spouse. Ross also moved for summary judgment, arguing that the principles of res judicata precluded Chiloro's federal action, and requesting that the monies deposited with the district court and the proceeds of the Nationwide annuity contract be released to her.
After oral argument, Judge Bissell concluded that Chiloro's status at the hearing needed to first be determined as a matter of state law before either motion could be decided on its merits. Consequently, in a letter opinion dated February 26, 1997, Judge Bissell abstained from determining either motion and stayed the matter with leave to apply to re-open it after this court determined Chiloro's contested status as a party or non party intervenor.
On appeal, Chiloro makes the procedural argument that she was a necessary and indispensable party to the proceedings below and the failure to join her requires this court to vacate the orders entered by the Family Court Judge. Furthermore, she asserts that this action was not cognizable in the Family Part of the Superior Court. With regard to the merits, Chiloro argues that the court erred in granting Ross's application for the entry of the QDROs because at the time they were entered, the pension benefits had already vested in her as Mr. Ross's surviving spouse. Chiloro also contends that the property settlement agreement lacked sufficient specificity to satisfy the requirement for a QDRO under ERISA or to divest her as "surviving spouse" of her pension rights. We address the procedural issues separate from the issues affecting the merits.
On appeal, Chiloro argues that she was a necessary party to the proceedings below because she was "claiming a right to the very pension moneys which Carol was seeking for herself through the entry of the QDROs." Thus, because Ross failed to join her, Chiloro contends that the motion Judge's ruling granting Ross the survivor benefits of the pension plans and annuity contract should be reversed. According to Chiloro, the action was not even cognizable in the Family Part.
As the motion Judge noted, Chiloro possessed a financial interest in the outcome of the case because any award to Ross of survivor benefits would necessarily strip Chiloro of those same benefits. Chiloro argues, therefore, that ...