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Lazar v. Kroncke

United States Court of Appeals, Ninth Circuit

July 14, 2017

Carolyn Lazar, a citizen of Arizona, Plaintiff-Counter-Defendant-Cross-Defendant-Appellant,
Mark G. Kroncke, in his capacity as Administrator of the Estate of George Thomas Kroncke, a citizen of California, Defendant-Counter-Defendant-Appellee, and Charles Schwab & Co., Inc., a California corporation, Defendant-Counter-Claimant-Cross-Claimant.

          Argued and Submitted February 14, 2017 San Francisco, California

         Appeal from the United States District Court for the District of Arizona Douglas L. Rayes, District Judge, Presiding D.C. No. 2:14-cv-01511-DLR

          Josh A. Lazar (argued), The Geraci Law Firm, Irvine, California, for Plaintiff-Counter-Defendant-Cross-Defendant-Appellant.

          Timothy James Ryan (argued), Frazer Ryan Goldberg & Arnold LLP, Phoenix, Arizona; Jared M. Toffer, Finlayson Toffer Roosevelt & Lilly LLP, Irvine, California; Charles W. Wirken, Gust Rosenfeld PLC, Phoenix, Arizona; for Defendant-Counter-Defendant-Appellee.

          Before: Eugene E. Siler, Jr., [*] A. Wallace Tashima, and Andrew D. Hurwitz, Circuit Judges.


         Revocation-on-Divorce Statute / Contracts Clause

         The panel affirmed the district court's dismissal of a constitutional challenge to the application of Arizona's revocation-on-divorce statute in the allocation of the proceeds of the plaintiff's ex-husband's individual retirement account following his death.

         The panel affirmed the district court's conclusion that an Arizona state court would disregard the IRA's choice of law provision and instead apply Arizona's revocation-on-divorce statute.

         The panel held that the application of the Arizona statute was not preempted by the Employee Retirement Income Security Act or other federal statutes and regulations governing IRAs.

         The panel reversed the district court's ruling that the plaintiff lacked standing to bring her constitutional challenge under the Contracts Clause because, as a designated beneficiary, she possessed only an expectation interest in the IRA. The panel held that the plaintiff had standing because Arizona's revocation-on-divorce statute operated to extinguish her valid expectancy interest in the IRA. This injury was actual, concrete, and particularized, and a ruling in the plaintiff's favor would redress her injury.

         The panel held that the Contracts Clause challenge nonetheless failed on the merits. The revocation-on-divorce statute was enacted after the IRA was established. Agreeing with the Tenth Circuit, the panel concluded that this change in state law did not operate as a substantial impairment of a contractual relationship because the plaintiff never possessed a vested contractual right.

         The panel held that the California district court in which the action was filed did not abuse its discretion in transferring the case to Arizona based on a lack of personal jurisdiction over the estate of the plaintiff's ex-husband. The panel also concluded that the plaintiff waived a dormant Commerce Clause claim, and the district court did not abuse its discretion in staying discovery.



         Plaintiff Carolyn Lazar appeals the district court's grant of Defendant Mark G. Kroncke's motion to dismiss her second amended answer and cross-claim ("SAACC"). For the reasons set forth below, we reverse the district court's ruling that Lazar lacks standing to bring her constitutional challenge under the Contracts Clause, but nonetheless affirm the judgment finding that Lazar's constitutional challenge fails and affirming the district court's other rulings.


         Lazar was married to George Thomas Kroncke ("Decedent") when he established an individual retirement account ("IRA") in 1992 with Charles Schwab & Co., Inc. ("Schwab"). The Decedent named Lazar as the IRA beneficiary. Lazar and the Decedent divorced in 2008 while domiciled in Arizona. Before Decedent's death in 2012, he neither removed nor reaffirmed Lazar as the IRA beneficiary. After the Decedent's death, Kroncke, as administrator of his father's estate (the "Estate"), made a demand on Schwab for the IRA proceeds on the basis of Arizona's revocation-on-divorce ("ROD") statute, A.R.S. § 14-2804. Schwab froze the IRA pending judicial resolution.

         Lazar filed this action in the Central District of California against Schwab for breach of contract and against the Estate for declaratory relief. In her first amended complaint ("FAC"), Lazar challenged the constitutionality under the Contracts Clause of applying Arizona's ROD statute retroactively because the IRA was established in 1992 and the ROD statute was enacted in 1995.

         Schwab filed a counterclaim against both parties under Federal Rule of Civil Procedure 22 seeking to liquidate the securities held by the IRA and interplead those funds into the district court. The California district court granted Schwab's motion to be dismissed as an interpleader but ordered it to continue to hold and not liquidate the securities in the IRA.

         The district court dismissed Lazar's FAC on the basis that it did not state a claim under the Contracts Clause because Lazar had no vested interest in the IRA. The district court permitted Lazar to file her SAACC. The SAACC added a claim that the IRA statute and the regulations promulgated thereunder preempted Arizona's ROD statute to the extent it retroactively revokes IRA beneficiary designations. The district court dismissed Lazar's SAACC on the grounds that it lacked personal jurisdiction over the Estate and ordered the case transferred to the District of Arizona pursuant to 28 U.S.C. § 1406(a).

         After the case was transferred to the District of Arizona, the district court granted the Estate's renewed motion to dismiss, holding that the pertinent IRA statutes and regulations did not preempt the operation of Arizona's ROD statute, that the prior decision on the Contracts Clause was the law of the case and the court would have reached the same outcome for the same reasons, and that the Commerce Clause argument need not be considered since it was not included in the SAACC. The district court stayed the distribution of IRA proceeds pending appeal.


         We review the dismissal of the SAACC de novo. See Syed v. M-I, LLC, 853 F.3d 492, 499 (9th Cir. 2017). A dismissal for lack of personal jurisdiction is reviewed de novo. Harris Rutsky & Co. Ins. Servs. v. Bell & Clements Ltd., 328 F.3d 1122, 1128 (9th Cir. 2003). Transfer orders pursuant to 28 U.S.C. § 1406(a) are reviewed for an abuse of discretion. King v. Russell, 963 F.2d 1301, 1304 (9th Cir.1992). Stays of discovery pending resolution of the motion to dismiss are also reviewed for an abuse of discretion. Alaska Cargo Transp., Inc. v. Alaska R.R. Corp., 5 F.3d 378, 383 (9th Cir. 1993).


         I. Enforceability of the IRA's Choice of Law Provision under Arizona Law

         Two documents govern the IRA: the Schwab Individual Retirement Plan ("the Plan") and the Schwab IRA Application ("the Adoption Agreement"). The Plan sets forth the rights and responsibilities of the account holder and Schwab, and the Adoption Agreement designates beneficiaries. The Plan contains a choice-of-law provision specifying that:

The Plan is intended to qualify as an individual retirement account plan under [Internal Revenue] Code Section 408. Accordingly, the Plan shall be governed by and interpreted under the laws of the United States, and, to the extent such laws do not apply, shall be governed by and interpreted under the laws of the State of California.

         The Adoption Agreement does not itself contain a choice-of-law provision but does state "I hereby adopt the Charles Schwab & Co., Inc., INDIVIDUAL RETIREMENT PLAN ('the Plan') which is made part of this Agreement . . . ." The district court did not resolve whether the choice-of-law provision governed both the Plan and the Adoption Agreement, ...

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