Ninth Circuit Finds Rooker-Feldman Doctrine Does Not Bar ERISA and State Law Claims Related to QDRO and DRO Payout

Lundstrom v. Young, No. 20-55002, __F.App’x__, 2021 WL 1561661 (9th Cir. Apr. 21, 2021) (Before: M. Smith and Ikuta, Circuit Judges, and Steele, District Judge).

Plaintiff-Appellant Brian Lundstrom, ex-husband of Defendant Carla Young, filed a nine-count complaint against Young, his employer Ligand Pharmaceuticals Inc. and its 401(k) plan after Ligand processed a Qualified Domestic Relations Order (“QDRO”) and a Stock Domestic Relations Order (DRO) which paid Young 100% of Lundstrom’s 401(k) plan and stock options (over $3 million). Lundstrom v. Young, 419 F. Supp. 3d 1241 (S.D. Cal. 2019), aff’d in part, rev’d in part and remanded, No. 20-55002, 2021 WL 1561661 (9th Cir. Apr. 21, 2021). The first, second, third, fourth, and sixth causes of action are based upon ERISA and the fifth, seventh, eighth, and ninth causes of action are premised on state-law claims.

The district court dismissed all counts based on the Rooker-Feldman Doctrine, which limits federal court review of state court decisions. The district court declined to review the determination of the Texas court of appeals which had already denied Plaintiff’s challenge of the state court orders. According to the district court, Lundstrom’s breach of ERISA fiduciary duty claims were inextricably intertwined with the validity of the QDRO, the same issue which had already been resolved by the Texas court of appeals. Further, Plaintiff lacked Article III standing because he did not establish injury in fact. Though Lundstrom’s claim alleging that Defendants failed to establish procedures for determining the qualified status of a QDRO, the district court dismissed this claim because Plaintiff did not point to any concrete harm resulting from the absence of such procedures.

On appeal, Lundstrom argued that his claims do not amount to improper de facto appeals of the orders from the Texas state court, that they fall within the extrinsic fraud exception, and that he has Article III standing. The Ninth Circuit has a two-part test to determine whether the Rooker-Feldman doctrine bars jurisdiction over a complaint filed in federal court. First, the federal complaint must assert that the plaintiff was injured by legal error or errors by the state court. Second, the federal complaint must seek “relief from the state court judgment” as the remedy.

The Ninth Circuit found that the fourth and fifth claims, which seek an order that the QDRO and DRO are invalid, were properly dismissed under Rooker-Feldman because they meet the two-party test. However, the remaining claims are not barred by Rooker-Feldman because Lundstrom’s remaining claims alleging that Ligand and Young breached various fiduciary duties under ERISA and state law, seek damages, equitable relief, and injunctive relief. They do not seek relief from the Texas state court judgment or assert that he was injured by a state court error. The district court also erred in dismissing the third claim by failing to address Lundstrom’s claim that Ligand failed to comply with the procedural requirements in 29 U.S.C. § 1056(d)(3)(G)(i). The court affirmed dismissal of the fourth and fifth claims and reversed the dismissal of the other claims. The district court must allow Lundstrom leave to amend his complaint. If it dismisses his federal claims, it need not exercise supplemental jurisdiction over any remaining state law claims.