LEWIS A. KAPLAN, District Judge.
This unusual case presents, among other questions, the issues of whether (1) the widower of a deceased postal worker is precluded from receiving the death benefit payable on his deceased spouse's federal group life insurance if he is an alien who is not legally in this country, (2) the insurer may be held liable to the widower for that death benefit despite the fact that it previously paid the benefit, albeit not to the widower but to the deceased spouse's daughter by another marriage, who allegedly forged the widower's signature to collect the money, and (3) the stepdaughter may be held liable to the widower for conversion or unjust enrichment.
The corrected first amended complaint ("Cpt") alleges the following:
Plaintiff Jose Herrera was married to and resided in New Jersey with Maria Diaz until she passed away on June 24, 2006.
Diaz was survived not only by Herrera but by Karen Zelenz, Diaz's child of a prior marriage.
On or about October 26, 2009, the Office of FEGLI ("OFEGLI")
According to the complaint, MetLife failed to conduct a reasonable investigation of Ms. Zelenz's claim before sending her the checkbook for the account containing the insurance proceeds. It points out in particular that the claim itself showed that Diaz had resided with plaintiff in New Jersey at the time of her death, whereas the claim sought to have the checkbook sent to a New York address.
On the foregoing basis, the complaint asserts four claims against MetLife, two against the Zelenzes, and one against Mellon.
It seeks to recover from MetLife on the theories that it: (1) breached the FEGLI policy by failing to conduct a reasonable investigation and by providing the checkbook to the Zelenzes,
The claims against the Zelenzes are for conversion and unjust enrichment.
Finally, Herrera seeks recovery against Mellon on the theory that he was its customer, that the signatures on the checks drawn on the Total Control Account were forged, and that Mellon is strictly liable for paying the checks on forged signatures.
MetLife seeks dismissal of the state law claims against it on the ground that plaintiff's claims are preempted by the Federal Employees Group Life Insurance Act ("FEGLIA").
Herrera and the Zelenzes have narrowed the dispute between them by stipulating that the death benefits under Diaz's federal TSP account and payments on the annuity held by her pursuant to the Federal Employees Retirement System have been paid to plaintiff and that his claim with respect to those benefits therefore is moot. The Zelenzes' motion therefore survives only with respect to the claims relating to their having obtained the FEGLI proceeds. They seek dismissal for lack of subject matter jurisdiction on the theory that Herrera lacks standing or, alternatively, for failure to state a claim upon which relief may be granted. The motion is supported by affidavits of Ms. Zelenz and Guillermo Gutierrez, who is a son of Diaz. These affidavits properly are considered on the motion to dismiss for lack of standing, which is not limited to the allegations of the complaint.
The affidavits submitted by the Zelenzes assert the following:
Gutierrez resided with Diaz and Herrera until Diaz died. Herrera spoke Spanish on a daily basis and was not proficient in English, requiring assistance with English language conversations and transactions.
When Diaz passed away, Herrera initially was named the temporary administrator of her estate. On October 13, 2006, however, Ms. Zelenz submitted a letter to the Surrogate Court for Hudson County, New Jersey, asking that she be substituted for Herrera as temporary administrator. According to Gutierrez, both he and Herrera authorized her to sign the letter on their behalves.
On October 3, 2007, sixteen months after Diaz's death, Ms. Zelenz filed an application for FEGLI benefits. The application accurately reflected that Herrera was Diaz's widower.
On or about July 26, 2008, Ms. Zelenz received a copy of a letter from OFEGLI addressed to Herrera, but at her residence, which stated that Diaz had not designated a beneficiary under her FEGLI policy and that Herrera should submit an application for benefits as the surviving spouse.
Significantly, Ms. Zelenz has not denied Herrera's charge that she then made a claim for the FEGLI proceeds in Herrera's name, forged his signature to it, procured the checkbook for the Total Control Account from MetLife, and forged checks on that account totaling $302,820.89 for the benefit of herself, her husband, and others. No copy of that claim, however, is before the Court.
MetLife argues that all of plaintiff's state law claims are preempted by FEGLIA or, alternatively, that his second through fourth causes of action — bad faith, violation of the New Jersey Consumer Fraud Act, and negligence — should be dismissed on the ground that they fail to state a claim upon which relief may be granted under state law.
"The question of whether a federal statute preempts state law is `basically one of congressional intent.'"
FEGLIA established a scheme for making group life insurance available to federal employees. The statute provides for the purchase by the government of an insurance policy pursuant to which the lives of federal employees may be insured. It mandates an order of precedence for payment of death benefits that become payable under the group policy — first to any named beneficiary, absent a named beneficiary to any surviving spouse, absent either of the foregoing to the child or children of the deceased employee and their descendants, and so on.
MetLife disclaims any express preemption argument here
Nor does MetLife make a convincing actual conflict argument. While one readily could imagine cases raising such problems — for example, a state law provision that, if applied, would change the order of precedence set out in Section 8705(a) — this is not such a case. So the essence of MetLife's position must be that FEGLIA "so thoroughly occupies [this] legislative field as to make reasonable the inference that Congress left no room for the States to supplement it."
The first problem with this contention is that the explicit preemption clause in FEGLIA is quite narrow. It preempts only state law claims that "relate to the nature or extent of coverage or benefits . . . to the extent that the [state] law . . . is inconsistent with" a provision of the insurance policy. The extremely limited scope of this language "reveals Congress' intent not to preempt the role of the states in supplementing federal regulation, but rather an intent to preserve it."
Second, FEGLIA does not create federal remedies. Unlike ERISA,
MetLife nevertheless argues that FEGLIA preempts state laws relating to the order of preference for the payment of FEGLI benefits and that it should be read as preempting the imposition by state law of states' own views as to what life insurance benefits the federal government should provide to its employees. The Court assumes arguendo that MetLife is correct as to these examples. But these would be instances of conflict preemption. They are not suggestive of an intention on the part of Congress to occupy the field and thus to foreclose any state law role with respect to federal employee group life insurance.
Finally, and in any case, preemption of the state law claims would not require dismissal of Herrera's first claim against MetLife. Even if state law could not supply the rule of decision in determining his claim that MetLife breached the group insurance policy, there must be some remedy if there was a breach, as Congress surely did not intend to create a scheme of group insurance and then leave putative beneficiaries without any legal claim to the policy proceeds. Accordingly, the only rational reading of the statute, even assuming preemption, is that Herrera has a federal common law breach of contract claim as to which the Court must look to state law for guidance albeit not a binding rule of decision.
The second claim for relief seeks recovery on the theory that MetLife denied Herrera's claim for policy benefits in bad faith in that there was no basis for the denial.
At the outset is a conflict of laws issue. New York does not recognize any claim such as this.
The complaint makes clear plaintiff's theory that MetLife paid the policy pursuant to an application bearing a forgery of his signature. Thus, on plaintiff's theory, MetLife thought it was paying the benefits to the order of the correct beneficiary but, by reason of the Zelenzes' alleged forgery, paid the wrong persons. Hence, the issue is whether there is any fairly debatable basis for MetLife's position that its payment of the death benefit to the wrong persons because it was fooled by or negligent in paying on a forged application eliminated its obligation to pay the death benefit to Herrera, the surviving spouse who allegedly was entitled to the money by statute. While neither side has cited a controlling authority on the point, the Court is not prepared, without a fuller development of the facts, to exclude the possibility that MetLife's failure to pay Herrera and, if it was so advised, then to pursue the Zelenzes to recover the money it mistakenly had paid to them was actionable, assuming New Jersey law ultimately governs. Accordingly, the second claim for relief survives MetLife's motion to dismiss.
The New Jersey Consumer Fraud Act provides in relevant part that the
Although the complaint alleges that MetLife's actions violated this statute, it does not allege that Herrera is a "consumer" with respect to the FEGLI policy. The entire thrust of the New Jersey Consumer Fraud Act is "pointed to products and services sold to consumers in the popular sense."
Moreover, even though the New Jersey Supreme Court has yet to decide the issue, the weight of authority holds that the Act does not apply to the payment of insurance benefits.
Finally, MetLife seeks dismissal of Herrera's claim that MetLife was negligent in processing the claim submitted by the Zelenzes. It argues that no tort claim lies where the alleged breach of duty is identical to and indivisible from the alleged breaches of contract.
Under the law of both New York and New Jersey, "a tort remedy does not arise from a contractual relationship unless the breaching party owes and independent duty imposed by law."
The Zelenzes seek dismissal of Herrera's claims against them for lack of standing, arguing that he has failed to allege any injury in fact because he had no right to the FEGLI insurance proceeds in the first place, and for failure to state a claim upon which relief may be granted.
Standing is an essential prerequisite to Article III jurisdiction. The standing inquiry has three elements: a "plaintiff must allege [1] personal injury [2] fairly traceable to the defendant's allegedly unlawful conduct and [3] likely to be redressed by the requested relief."
The timeliness argument rests on 5 U.S.C. § 8705(b), which provides:
The argument is that Herrera's potential claim became time-barred when he failed to file it within one year after Diaz's death, at which point MetLife became entitled to pay the proceeds to the next tier of statutory beneficiaries — Diaz's children.
The language of Section 8705(b) does not support the Zelenzes. That provision is not drafted as a statute of limitations or of repose. Rather, it provides that the failure of a person entitled to the benefits under Section 8705(a) to claim them within one year permits (rather than requires) the carrier to pay the death benefit to the member or members of the next tier in the order of precedence. If it does so, the payment, not the passage of time, bars recovery by any member or members of the higher tiers.
The fact that there is no one-year time bar is confirmed by Section 8705(c), which provides:
Subsection (c) thus suggests that the expiration of the one-year period without the filing of a claim by a person in the order of precedence is not fatal to that claim, as it affords a second year during which OPM may not direct that payment be made to a person whom it deems equitably entitled to it. The implication is that OPM is foreclosed from making such a direction if a belated claim is received or, indeed, if OFEGLI or OPM receive notice that such a claim will be made — a foreclosure that would be pointless unless an otherwise proper belated claim must or could be paid.
In this case, MetLife did not pay the benefits to the member or members of the next tier in the order of precedence upon the expiration of a year following Diaz's death. Rather, it honored what the complaint alleges was a claim that purported to have been made by Herrera but that in fact was a forgery. That the forger allegedly was Ms. Zelenz, who was one of at least two members of the next tier — Gutierrez being another — and that she thus obtained proceeds that MetLife intended to pay to Herrera as the member of a higher tier in the order of precedence, is incidental. There was no payment, at least no witting payment, to the member or members of the next tier in the order of precedence, and it is only such a payment that bars recovery of persons in higher-ranked tiers.
The argument based on Herrera's alleged immigration status begins with Section 8705(b) of FEGLIA, which recognizes the possibility that payment of FEGLI benefits may be "prohibited by Federal statute or regulation. . . ." The Zelenzes rely on this provision to argue that payment is barred by Section 401 of the Personal Responsibility and Work Opportunity Reconciliation Act of 1996, better known as the Welfare Reform Act, which provides in relevant part, with exceptions not relevant here, that "an alien who is not a qualified alien . . . is not eligible for any Federal public benefit (as defined in subsection (c) of this section)."
The statute defines "Federal public benefit," insofar as is relevant here, as follows:
And it is on the question of whether that death benefit is a "Federal public benefit" that the United States has appeared as amicus to argue that it is not.
As in all cases involving the construction of a statute, the Court begins with its plain language, which is not at all helpful to the Zelenzes. As an initial matter, the proceeds of the group life insurance policy issued by MetLife to the government and availed of by Diaz are not a "grant, contract, loan, professional license, . . . commercial license[,] . . . retirement, welfare, health, disability, public or assisted housing, postsecondary education, food assistance, unemployment benefit, or any other similar benefit for which payments or assistance are provided to an individual, household, or family eligibility unit by an agency of the United States or by appropriated funds of the United States." And even if the group policy itself properly could be regarded as a "contract .. . provided by an agency of the United States or by appropriated funds of the United States," the Welfare Reform Act makes clear that the benefits to be withheld from certain aliens must be "Federal public benefits" — that is, benefits that are available to the public at large. Far from being a benefit available to the public at large, the federal group insurance at issue here is offered to only to federal employees as part of their compensation. Indeed, the benefit here — in the sense that the word "benefit" is used in the Welfare Reform Act — actually was a benefit offered to Diaz, not to Herrera. Herrera simply claims monies allegedly due to him by virtue of the contract between the government and MetLife of which Diaz availed herself. There is nothing in the language of the Welfare Reform Act that supports the Zelenzes' argument that it foreclosed anyone from receiving the proceeds of group insurance on the lives of federal employees or retirees by virtue of the immigration status of the putative recipients. Indeed, such a construction would be inconsistent with the regulations under FEGLIA, which long have provided that "[a]ny individual . . . can be named as a beneficiary" of FEGLI.
Even if there were ambiguity on this point, and this Court thinks there is not, that ambiguity would be eliminated by the legislative history of the statute. The provision was enacted as part of the Welfare Reform Act. The House report makes clear that the goal of this provision was to ensure that "individuals who are illegally present in the U.S. or here for a temporary purpose . .. should not receive public welfare benefits."
The Zelenzes attempt to salvage their argument by relying on language in 8 U.S.C. § 1643 — an amendment to the Welfare Reform Act enacted a year after that statute was passed. In relevant part, it states that:
They argue that this provision demonstrates that confusion existed after the Welfare Reform Act passed about whether "benefits could be made to aliens who were residing outside the United States" and that this provision clarified that benefits earned by aliens while residing outside the United States could received by them as long as they were residing outside the United States.
In sum, this Court agrees with the government's position and holds that the proceeds of Diaz's FEGLI policy are not a "Federal public benefit" and that Herrera is not disqualified from receiving them by virtue of his alleged immigration status.
Finally, the Zelenzes argue that Herrera's claims for conversion and unjust enrichment fail to state a claim upon which relief may be granted. The argument with respect to the first claim is that Herrera cannot establish conversion because he had no right to the death benefit by reason of his immigration status.
As an initial matter, the complaint does not allege that Herrera is an illegal alien, a fact put forth only by means of an affidavit submitted by the Zelenzes in support of their subject matter jurisdiction argument. As the Court has elected not to consider materials outside the complaint for the purposes of so much of the Zelenzes' motion as seeks dismissal under Rule 12(b)(6), there is no basis for this argument at this stage of the proceeding. Even if there were, however, these arguments would fail.
First, the Court already has held that the death benefit under the FEGLI policy is not a "Federal public benefit" and, in consequence, that Herrera is not precluded from collecting on the policy. The conversion claim therefore is sufficient.
Second, there is no sufficient connection between Herrera's alleged status as an illegal alien and collecting on his late wife's life insurance to foreclose his unjust enrichment claim and, assuming the allegations of the complaint are true, thus to permit the Zelenzes to retain a benefit to which they are not entitled. If Herrera in fact proves to be entitled to collect on the insurance policy, he will be entitled to do so because he is Diaz's surviving spouse, not because he is an illegal alien. He will not have acquired that entitlement, in the words of the case cited by the Zelenzes, "by his own crime."
For the foregoing reasons:
1. The motion of defendant Metropolitan Life Insurance Company to dismiss the corrected amended complaint [DI 20] is granted to the extent that the third and fourth claims for relief are dismissed and denied in all other respects.
2. The motion of defendants Karen and Mark Zelenz to dismiss the corrected first amended complaint [DI 24] is denied in all respects.
SO ORDERED.
The letter has not been submitted to the Court.
The fact that the address allegedly used by the Zelenzes to effect the alleged scheme differed from that of Herrera and Diaz at the date of Diaz's death is not necessarily odd. Herrera would not have been the first surviving spouse to move residences after the death of a partner.
New York, it should be noted, would foreclose plaintiff's claim.
