Bonfiglio v. Fitzgerald

EYLER, DEBORAH S., J. On October 12, 2007, John J. Fitzgerald (“Fitzgerald”), the appellee, was divorced from Lori F. Fitzgerald (“Lori Fitzgerald” or “the Decedent”) in the Circuit Court for Montgomery County. A Marital Settlement Agreement (“the Agreement”) was incorporated, but not merged, into the parties’ judgment of absolute divorce. In the Agreement, Fitzgerald granted Lori Fitzgerald his entire interest in his National Automobile Dealers and Associates Retirement Trust (“NADART”) Master Salary Deferral 401(k) Plan (“Plan”) (“NADART Account”) calculated as of the date of the Agreement. On October 19, 2007, a Qualified Domestic Relations Order (“QDRO”) was entered by the court to accomplish the transfer of the interest in the NADART Account.

On December 7, 2007, the Plan paid Fitzgerald $64,802.06 as the required minimum distribution for the 2007 calendar year (“2007 RMD”). 1 Three days later, on December 10, 2007, Lori Fitzgerald died suddenly. Thereafter, Fitzgerald served the QDRO on the Plan and, in March or April of 2008, the QDRO was approved by the Plan. David Bonfiglio and Beth Core, the appellants, are Co-Personal Representatives of the Estate of Lori F. Fitzgerald (“the Estate”). They filed a petition in the circuit court seeking to compel Fitzgerald to reimburse the Estate for the amount of the 2007 RMD, to hold him in contempt for his failure to do so, and for attorneys’ fees.

Fitzgerald answered and filed a motion for summary judgment. The Estate then filed a cross-motion for summary judgment. After hearing argument, the ³³¹ circuit court granted summary judgment in favor of Fitzgerald. The Estate appeals, posing four questions for review, which we have condensed and rephrased as two: 2 I. Did the circuit court err in granting summary judgment in favor of Fitzgerald upon a legal finding that the 2007 RMD was not part of Fitzgerald’s interest in the NADART Account when the Agreement and the QDRO were executed?

II

Did the circuit court err in denying the Estate’s request for attorneys’ fees? For the following reasons, we shall affirm the judgment of the circuit court. FACTS AND PROCEEDINGS Fitzgerald and the Decedent were married on November 3, 1990. They separated on January 1, 2006.

On August 18, ³³² 2006, in the Circuit Court for Montgomery County, the Decedent filed a complaint for absolute divorce. Fitzgerald and the Decedent entered into the Agreement on October 11, 2007. The Agreement included a draft QDRO. On October 12, 2007, the court granted the parties an absolute divorce.

The judgment was entered on October 19, 2007. It provided, in pertinent part, that the parties’ Agreement was “incorporated but not merged” into the judgment and that the court would reserve jurisdiction over the matter “for the receipt, entry, alteration and/or amendment by this Court of any appropriate Order(s) pertaining to retirement benefits.” The Agreement included a section entitled “Retirement Assets,” which provided, in relevant part: 11. Retirement Assets—Definitions The following definitions shall be controlling for the purposes of this Agreement: * * * “Right or benefit” shall include, but not be limited to, the right either party may have, whether as a participant or a spouse, and whether vested, contingent or unvested, to receive any benefit from a retirement asset[ 3 ], whether in the form of an annuity, lump-sum payment, death benefit, joint or survivor annuity, survivorship interest, pre-retirement survivor annuity, return of contributions, or any other benefit or future expectancy, and whether pursuant to any State or Federal law or regulation, or pursuant to the terms of any contract or plan or beneficiary designation. 12. Retirement Assets—General Waiver Except as otherwise provided in this Agreement, each party hereby expressly waives and surrenders any and all interest, right or benefit they may have as a spouse, whether legal, beneficial, or equitable, to or arising from any ³³³ interest, right or benefit the other may have in any Retirement Asset..... 13.

NADART 401(k) The Husband hereby agrees and acknowledges that he has an interest in a NADART 401(k) account (“401(k) Plan”) with an approximate value of One Million Seven Hundred Fourteen Thousand Dollars ($1,714,000.00). The Husband agrees to transfer and assign to the Wife his entire interest in the 401(h) Plan, calculated as of the date of this Agreement or the most recent plan valuation date prior to such date, together with any earnings or losses thereon until the date of distribution to the Wife. The parties agree that their Judgment of Divorce shall be accompanied by a QDRO in compliance with Section 414(p) of the Internal Revenue Code of 1986, as amended [ (“IRC”) ], and Section 206(d)(3) of the Employee Security Act of 1974, as amended [ (“ERISA”) ], for the purpose of transferring to the Wife 100% of the Husband’s 401(k) Plan calculated as of the date of this Agreement or the most recent plan valuation date prior to such date, together with any earnings or losses thereon until the date of distribution. (QDRO attached as Exhibit E.) Upon distribution, all interest in this Retirement Asset transferred and assigned to Wife shall be the sole and exclusive separate property of the Wife.

After distribution all interest in this Retirement Asset remaining to Husband shall be the sole and exclusive separate property of the Husband. The Husband shall not be responsible for any delays from causes beyond his control. (Emphasis added.) The QDRO attached to the Agreement was signed by the court the same day and, like the judgment of absolute divorce, was entered on October 19, 2007. Its recitals provided that the parties intended the QDRO to be “as defined in Section 414(p) of the [IRC] and Section 206(d) of [ERISA], which assigns certain benefits in the [NADART Plan] as specifically set forth in the Order.” At Paragraph 1, the QDRO defined “Participant” to mean Fitzgerald and “Alternate Payee” to mean the Decedent.

At Paragraph 3, it stated: ³³⁴ The Alternate Payee’s interest in the Plan is to be determined as follows: Alternate Payee is awarded the Participant’s entire plan account balance as of October 12, 2007, together with any earnings or losses thereon until the date of distribution, as her sole and separate property. The benefit amount shall be prorated among the investments under the Plan in such proportions as the benefit amount shall bear the market value of each investment on the valuation date of October 12, 2007. The balance of the funds in the Plan are to be the sole and separate property of the Participant. The value of the Participant’s account balance under this Plan shall be determined in accordance with the terms of this Order as of the Valuation Date, or, if the value of the Participant’s account balance under the Plan is not subject to valuation under the terms of the Plan as of the Valuation Date, then such value shall be determined as of the immediately preceding valuation date provided under the Plan.

As soon as administratively feasible after the approval of this Order as a QDRO, the amount assigned by this Paragraph 3 from the Participant to the Alternate Payee shall be withdrawn from the Participant’s account and invested in a separate account in the same manner as the Participant’s account unless or until the Alternate Payee elects a different investment option under the Plan that is maintained for the benefit of the Alternate Payee. (Emphasis added.) At Paragraph 12, the QDRO states, in relevant part: Reimbursement. If benefits assigned to the Alternate Payee under this Order are wrongfully or mistakenly paid by the Plan to the Participant, the Participant shall promptly reimburse the Alternate Payee for such benefits by paying directly to the Alternate Payee an amount equal to the benefits wrongfully or mistakenly received. Less than two months after entry of the Agreement and the QDRO, on December 7, 2007, the Plan distributed to Fitzgerald the 2007 RMD in the amount of $64,802.06.

As noted, ³³⁵ supra, 20% of this amount ($12,960.41) was paid directly to the IRS. As of the date of this payment, the Plan had not yet been served with a copy of the QDRO. The QDRO was served on the Plan at some time in March of 2008 and was approved on or about April 1, 2008. Thereafter, the Plan distributed to the Estate the then-existing balance of the NADART Account, less the value of shares purchased by Fitzgerald after October 12, 2007. 4 The total amount distributed to the Estate was $1,520,519,46.

On June 17, 2008, counsel for the Estate made written demand upon Fitzgerald to reimburse the Estate for the 2007 RMD (and certain other amounts not relevant to this appeal). No reimbursement was forthcoming. On January 28, 2009, the Estate filed a “Verified Petition For An Order to Show Cause Why [Fitzgerald] Should Not Be Held In Contempt And For Enforcement Of [the Agreement] And [QDRO]” (‘Verified Petition”). In the Verified Petition, the Estate alleged that the 2007 RMD had been wrongfully or mistakenly paid to Fitzgerald, and that, pursuant to Paragraph 12 of the QDRO, he was obligated to promptly reimburse the Estate for the amount of the 2007 RMD, which he had not done.

The Estate sought reimbursement, contempt, and an award of attorneys’ fees. Attached to the Verified Petition were copies of the Agreement, the QDRO, and the demand letter. On March 30, 2009, Fitzgerald answered the Verified Petition and filed a motion for summary judgment. He argued that “[b]y law, the [2007] RMD belonged to [him] separate, distinct, and apart from his interest in the NADART 401(k)” and so was not part of the interest transferred to the Decedent by the Agreement and QDRO.

Attached to his motion were three exhibits. Exhibit A consisted of two letters to counsel for Fitzgerald from Alan B. Svedlow, QKA, 5 the ³³⁶ NADART Compliance Officer. The first letter, dated April 1, 2008, detailed the distribution to be made to the Estate and described the 2007 RMD as an “amount ineligible to be awarded to Lori F. Fitzgerald.” The second letter, dated June 19, 2008, explained, in greater detail, that the 2007 RMD was based on the NADART Account balance as of December 31, 2006, and had to be paid by December 31, 2007, but that the date of payment was irrelevant “with respect to ownership.” Exhibit B was an affidavit by Walter C. Pennington, CPA, opining that “the position taken by NADART was correct; namely that the [2007 RMD], was separate, distinct and severable from Mr. Fitzgerald’s interest in the NADART [Account] at the time the [ ] Agreement was signed.” According to Pennington, once Fitzgerald “lived one day into calendar year 2007” (ie., as of January 1, 2007), an RMD was required to be made in that calendar year and he was “the one required to receive the distribution.” If the Plan had distributed this amount to the Estate, it would have violated the governing provisions of ERISA and the IRC, according to Pennington, potentially disqualifying the entire Plan. Exhibit C was a letter from Svedlow to Bonfiglio, dated April 1, 2008, discussing the NADART Account; the potential beneficiaries of the NADART Account; and options for distribution of the balance of the account depending upon who was named as the beneficiary. 6 On April 14, 2009, the Estate filed an opposition to the motion for summary judgment, a cross-motion for summary judgment, and a motion to strike the exhibits to Fitzgerald’s motion.

On August 5, 2009, the circuit court heard argument on the summary judgment motions. The court issued a memorandum opinion granting Fitzgerald’s motion and denying the ³³⁷ Estate’s cross-motion and Verified Petition on October 6, 2009. The court framed the legal issue as follows: “whether the [2007] RMD payment constituted part of [Fitzgerald]’s interest in the NADART 401(k) Plan on October 12, 2007.” The court concluded that, reading the Agreement and the QDRO in conjunction with the pertinent portions of the IRC and ERISA, Fitzgerald “complied with the Agreement and QDRO fully [and] that the [2007] RMD payment funds were not a part of [Fitzgerald’s] interest on October 12, 2007.” The court quoted at length from the Pennington affidavit, ultimately concluding that the 2007 RMD payment was required to be made to Fitzgerald for the Plan to remain qualified under the IRC and ERISA. Ultimately, the court concluded that “as a matter of law that [the 2007 RMD payment was] not mistakenly paid to [Fitzgerald] and he is not required under law, or agreement to reimburse the Decedent’s] estate for those funds.” The Estate timely appealed the circuit court’s judgment.

STANDARD OF REVIEW We review a circuit court’s decision to grant summary judgment de novo. Crickenberger v. Hyundai Motor America, 404 Md. 37, 45 , 944 A.2d 1136 (2008). Our review is two-fold. First, we determine whether there was or was not a genuine dispute of material fact on the summary judgment record.

Hill v. Cross Country Settlements, LLC, 402 Md. 281, 294 , 936 A.2d 343 (2007). A material fact is a fact that, if found one way or the other, will affect the outcome of the case. Miller v. Bay City Property Owners Ass’n, 393 Md. 620, 631 , 903 A.2d 938 (2006). Second, if there is no genuine dispute of material fact, we determine whether the party that obtained summary judgment was entitled to judgment in its favor, as a matter of law.

Crickenberger, supra, 404 Md. at 45 , 944 A.2d 1136 . Zitterbart v. Am. Suzuki Motor Corp., 182 Md.App. 495, 501-02 , 958 A.2d 372 , cert. denied, 406 Md. 581 , 961 A.2d 555 (2008) . ³³⁸ DISCUSSION I. The Estate advances several related arguments to support its contention that the circuit court erred in ruling that the Decedent was not entitled to reimbursement in the amount of the 2007 RMD. It first asserts that the circuit court “ignored the express terms” of the Agreement and the QDRO in concluding that the 2007 RMD was not part of Fitzgerald’s interest in the NADART Account that was transferred to the Decedent by means of the Agreement and the QDRO.

It further argues that governing pension and tax law allows for an RMD payment to be made to an “Alternate Payee,” such as the Decedent, under a QDRO. The Estate also argues that the circuit court erred in relying upon the Pennington affidavit and in denying the motion to strike that affidavit (as well as the letters by Svedlow). 7 Fitzgerald responds that the circuit court correctly concluded, as a matter of law, that the 2007 RMD only was payable to him, as the Plan “Participant,” and that it was not a part of his interest in the NADART Account when the Agreement and QDRO were executed. He asserts that, because the 2007 RMD could not have been assigned to the Decedent in the first place, he was not required by the Agreement or the QDRO to reimburse the Estate for the amount of the 2007 RMD. Pursuant to 26 U.S.C.A section 401(a)(9)(A) (2002) (hereinafter “IRC”), entitled “Required Distributions,” for a 401(k) plan to be a qualified plan under the IRC it must ... provide[ ] that the entire interest of each employee— ³³⁹ (i) will be distributed to such employee not later than the required beginning date, or (ii) will be distributed, beginning not later than the required beginning date, in accordance with regulations, over the life of such employee or over the lives of such employee and a designated beneficiary (or over a period not extending beyond the life expectancy of such employee or the life expectancy of such employee and a designated beneficiary).

The term “required beginning date” is defined as “April 1 of the calendar year following the later of—(I) the calendar year in which the employee attains age 70½, or (II) the calendar year in which the employee retires.” IRC § 401(a)(9)(C). The amount of each required distribution typically is calculated by dividing the balance of the retirement plan by the life expectancy of the participant. 8 Thus, the minimum distribution rules are designed to ensure that plan participants over 70 will receive, and pay taxes upon, at least a portion of their retirement assets during their lifetimes. In the instant case, Fitzgerald turned 70% in calendar year 2006. In compliance with IRC section 401(a)(9), the Plan was obligated to make its first RMD payment to him by April 1, 2007.

It did so on March 9, 2007. This RMD was calculated based upon the NADART Account value as of December 31, 2005. 26 C.F.R. 1.401(a)(9)-5 A-3.(a) (2010). There is no dispute that the 2006 RMD payment properly was paid to Fitzgerald. As we shall discuss, in calendar year 2007—the year at issue in the instant appeal—the Plan was obligated to make an RMD payment after January 1, 2007, but no later than December 31, 2007.

This RMD was based upon the NADART Account value as of December 31, 2006. Id. The 2007 RMD ³⁴⁰ was paid to Fitzgerald on December 7, 2007, just under two months after Fitzgerald and the Decedent executed the Agreement. The two primary issues on appeal are whether the 2007 RMD payment was part of the interest assigned by Fitzgerald to the Decedent by virtue of the Agreement and the QDRO and, relatedly, whether the Plan “wrongfully or