The opinion
Case: 10-20015 Document: 00511542987 Page: 1 Date Filed: 07/18/2011
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
July 18, 2011
No. 10-20015 Lyle W. Cayce
Clerk
Glenn Brown; Betsy Brown,
Plaintiffs - Appellees
v.
Continental Airlines, Inc.,
Defendant - Appellant
The Continental Pilots Retirement Plan Administrative Committee,
Continental Airlines, Inc.,
Plaintiffs - Appellants
v.
Glenn Brown; Betsy Brown; Jay Ellis; Carol Ellis; Eddie Lindsey; Delores N.
Lindsey; Christine Lockert; James Lockert; Douglas Schull; Marjorie Schull;
James Vial; Brenda M. Vial; Cindy Ernst; James Ernst,
Defendants - Appellees
Appeal from the United States District Court
for the Southern District of Texas
Before JOLLY, DeMOSS, and DENNIS, Circuit Judges.
DENNIS, Circuit Judge:
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This appeal involves the question of whether ERISA allows a
retirement plan administrator to seek restitution of benefits that were paid to
a plan participant’s ex-spouse pursuant to a domestic relations order such as
a divorce decree, if the administrator subsequently determines that the
domestic relations order is based on a “sham” divorce. We agree with the
district court’s holding that the subsection of ERISA at issue here, 29 U.S.C.
§ 1056(d)(3)(D)(i), does not authorize an administrator to consider or
investigate the subjective intentions or good faith underlying a divorce. We
therefore affirm the district court’s dismissal of the appellants’ claims.
I. LEGAL BACKGROUND
The Employee Retirement Income and Security Act (“ERISA”) contains
an anti-alienation provision which requires that “[e]ach pension plan shall
provide that benefits provided under the plan may not be assigned or
alienated.” 29 U.S.C. § 1056(d)(1). This provision is the result of “a
considered congressional policy choice, a decision to safeguard a stream of
income for pensioners []and their dependents.” Guidry v. Sheet Metal
Workers Nat’l Pension Fund, 493 U.S. 365, 376 (1990). However, an exception
to the anti-alienation provision allows retirement benefits to be assigned to
an “alternate payee,” such as an ex-spouse, in accordance with a domestic
relations order (“DRO”) issued by a court. See id. § 1056(d)(3). The statute
defines a DRO as follows:
the term “domestic relations order” means any judgment, decree,
or order (including approval of a property settlement agreement)
which--
(I) relates to the provision of child support, alimony payments, or
marital property rights to a spouse, former spouse, child, or other
dependent of a participant, and
(II) is made pursuant to a State domestic relations law (including
a community property law).
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29 U.S.C. § 1056(d)(3)(B)(ii). A DRO allows for the alienation of pension
benefits only if the plan administrator determines that the DRO is a
“qualified domestic relations order” (“QDRO”), which ERISA defines as
follows:
the term “qualified domestic relations order” means a domestic
relations order--
(I) which creates or recognizes the existence of an alternate
payee’s right to, or assigns to an alternate payee the right to,
receive all or a portion of the benefits payable with respect to a
participant under a plan, and
(II) with respect to which the requirements of subparagraphs (C)
and (D) are met.
Id. § 1056(d)(3)(B)(i). Subparagraphs (C) and (D) require that in order to be
qualified, a DRO must clearly specify certain information, and must not
require benefits to be paid in a way that would be inconsistent with the plan
or with a previous QDRO:
(C) A domestic relations order meets the requirements of this
subparagraph only if such order clearly specifies--
(i) the name and the last known mailing address (if any) of the
participant and the name and mailing address of each alternate
payee covered by the order,
(ii) the amount or percentage of the participant’s benefits to be
paid by the plan to each such alternate payee, or the manner in
which such amount or percentage is to be determined,
(iii) the number of payments or period to which such order
applies, and
(iv) each plan to which such order applies.
(D) A domestic relations order meets the requirements of this
subparagraph only if such order--
(i) does not require a plan to provide any type or form of benefit,
or any option, not otherwise provided under the plan,
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(ii) does not require the plan to provide increased benefits
(determined on the basis of actuarial value), and
(iii) does not require the payment of benefits to an alternate
payee which are required to be paid to another alternate payee
under another order previously determined to be a qualified
domestic relations order.
Id. § 1056(d)(3)(C)-(D). Once an administrator determines that a DRO is
qualified, the statute requires that the plan “shall provide for the payment of
benefits in accordance with the applicable requirements of” the QDRO. Id.
§ 1056(d)(3)(A). The Supreme Court has observed that “[a] QDRO enquiry [by
a plan administrator] is relatively discrete, given the specific and objective
criteria for a domestic relations order that qualifies as a QDRO, . . .
requirements that amount to a statutory checklist working to spare [an
administrator] from litigation-fomenting ambiguities.” Kennedy v. Plan
Adm’r for DuPont Sav. & Inv. Plan, 129 S. Ct. 865, 876 (2009).
II. FACTS
In this case, the Continental Pilots Retirement Plan Administrative
Committee and Continental Airlines, Inc. (collectively “Continental”) filed
suit against nine pilots and their spouses,1 asserting claims for equitable
relief under 29 U.S.C. § 1132(a)(3), a provision of ERISA. Continental seeks
restitution of pension benefits that it paid to the spouses on the basis of DROs
that, Continental argues, did not meet all the statutory criteria for QDROs
because they were based on “sham” divorces.
Continental alleges that the pilots and spouses obtained “sham”
divorces for the purpose of obtaining lump sum pension distributions from the
Continental Pilots Retirement Plan (“the Plan”), which they otherwise could
not have received without the pilots’ separating from their employment with
1
Two of those couples have been dismissed from the suit and are not parties to this
appeal.
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Continental. By getting divorced, the pilots and spouses were able to obtain
DROs from state courts, which assigned 100% (or, in one instance, 90%) of the
pilots’ pension benefits to the spouses. The Plan provides that, upon divorce,
if the pilot is at least 50 years old (as all the pilots in this case were), an ex-
spouse to whom pension benefits are assigned can elect to receive those
benefits even though the pilot continues to work at Continental. Thus, the
pilots and spouses presented the DROs to Continental and requested the
payment of lump-sum pension benefits to the spouses. After the spouses
received the benefits, the couples remarried.
According to Continental, the reason behind this stratagem was that
the pilots were worried that financial troubles in the airline industry might
result in the Plan being taken over by the federal Pension Benefit Guaranty
Corporation (“PBGC”), and this might lead to their receiving less than the full
amount of the benefits they expected to receive upon retiring. Also, a PBGC
takeover would prevent the pilots from receiving their benefits as a lump sum
instead of an annuity. Thus, by divorcing and having state courts assign
their pension benefits to their spouses, the pilots were able to ensure that
they would receive all the benefits owed to them, without having to retire at
that time.
The couples’ divorces were “sham” divorces, according to Continental,
because they did not otherwise intend to dissolve their marriages, they
obtained the divorces solely to get the pension benefits, and — as the district
court phrased it — they “essentially conducted themselves as if the divorce
had never happened.” Brown v. Continental Airlines, Inc., Nos. H-9-1148, H-
9-1529, 2009 WL 3365911, *1 (S.D. Tex. Oct. 19, 2009). “Many of the pilots
continued to cohabitate [with their ex-spouses, and] [i]n many instances they
did not inform any of their family or friends that they had gotten a divorce.”
Id.
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After the Plan paid out the benefits and the pilots and spouses
remarried, Continental found out about the scheme. It filed suit against the
pilots and spouses, seeking relief under 29 U.S.C. § 1132(a)(3), which
authorizes a fiduciary to bring suit “(A) to enjoin any act or practice which
violates any provision of this subchapter or the terms of the plan, or (B) to
obtain other equitable relief (i) to redress such violations.” Continental
sought equitable relief in the form of restitution of the lump sum benefits it
had paid to the spouses while they and the pilots were divorced.
The pilots filed a motion to dismiss for failure to state a claim, which
the district court granted. The district court held that under § 1056(d)(3), a
retirement plan’s administrator may not refuse to treat a DRO as a QDRO on
the basis that the administrator believes the DRO was not obtained in good
faith from the court that issued it. The district court reasoned that “under
the plain language of the statute, the Administrator may not refuse to qualify
a DRO except based on reasons enumerated in the statute,” and that “the
motivation or good faith of the divorce and resulting DRO is not an
enumerated requirement.” Brown, 2009 WL 3365911, at *4.
III. ANALYSIS
“We review a district court’s grant of a motion to dismiss for failure to
state a claim de novo, ‘accepting all well-pleaded facts as true and viewing
those facts in the light most favorable to the plaintiff.’” Bustos v. Martini
Club Inc., 599 F.3d 458, 461 (5th Cir. 2010) (quoting True v. Robles, 571 F.3d
412, 417 (5th Cir. 2009)). The federal courts do not owe deference to
Continental’s interpretation of either ERISA or the DROs obtained by the
pilots and spouses. Dial v. NFL Player Supplemental Disability Plan, 174
F.3d 606, 611 (5th Cir. 1999) (“A court reviews a plan administrator’s
statutory and legal conclusions de novo. . . . Likewise, the district court here
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did not owe deference to the Disability Plan administrators’ interpretation of
a domestic relations order, a contract judicially approved by a state court.”).
Continental’s claims against the pilots and spouses depend on, inter
alia, the proposition that a plan administrator has the authority to refuse to
deem a DRO to be a QDRO based on its determination that the underlying
divorce is a “sham.”2 We reject this assertion, as the district court did,
because § 1056(d)(3) requires an administrator to determine that a DRO is a
QDRO if it satisfies all the statutory criteria, and the participants’ good faith
in obtaining a divorce is not among those criteria.
Continental argues that the DROs in this case did not satisfy one of the
statutory criteria — that they must “not require [the Plan] to provide any
type or form of benefit, or any option, not otherwise provided under the plan,”
29 U.S.C. § 1056(d)(3)(D)(i). Under Continental’s reasoning, the DROs in this
case provided an “option . . . not otherwise provided under the plan” because
they enabled the couples to obtain retirement benefits while the pilots were
still working at Continental.
There is no question that the Plan generally permitted the ex-spouses
of pilots to obtain retirement benefits under DROs while the pilots continued
to work. In an ordinary case in which a pilot obtained a divorce, a DRO
would be consistent with the Plan (and would satisfy § 1056(d)(3)(D)(i)) even
though it allowed the ex-spouse to receive pension benefits while the pilot
continued to work. Thus, at bottom, Continental’s argument is that the
DROs in this case failed to satisfy § 1056(d)(3)(D)(i) not simply because they
required the Plan to pay out retirement benefits while the pilots continued to
2
The parties also dispute whether a plan administrator can retroactively determine
that a DRO is not qualified, when it has already previously determined that the DRO was
qualified and has accordingly paid out benefits. We do not decide this issue.
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work, but because the couples in this case did not obtain their divorces in
good faith.
We do not accept Continental’s broad interpretation of
§ 1056(d)(3)(D)(i). Continental does not cite any authorities, and we have not
found any, which have interpreted the subsection as authorizing an
administrator to consider the good faith of the underlying divorce, or any
similar question, when determining whether a DRO is qualified. On the
contrary, the courts that have interpreted § 1056(d)(3)(D)(i) have understood
it as simply allowing an administrator to determine that a DRO is not
qualified when it would require benefits to be paid in a specific manner or
time frame that is not provided for in the terms of the plan. See, e.g., Patton
v. Denver Post Corp., 326 F.3d 1148, 1152 (10th Cir. 2003) (“[B]enefits of a
type or form not otherwise provided is best understood as referring to a lump
sum payout rather than regular payments over a period of years.”); Fox v.
Fox, 167 F.3d 880, 882-83 (4th Cir. 1999) (considering whether a plan
administrator abused his discretion by refusing to qualify a DRO under
§ 1056(d)(3)(D)(i) on the grounds that the ex-spouse sought two lump-sum
payments whereas the plan allowed for only one); Johnson v. Nanticoke
Memorial Hosp., Inc., 700 F. Supp. 2d 670, 678-79 (D. Del. 2010) (holding that
a divorce order that gave the ex-spouse “the option to seek an annuity or
lump sum payment” was a QDRO because it did “not require any option to be
added [to the plan] that d[id] not already exist”); DeFazio v. Hollister, Inc.,
636 F. Supp. 2d 1045, 1078 (E.D. Cal. 2009) (“The plain language of this
provision only bars a QDRO from requiring a plan to affirmatively afford a
type or form of benefit not established under that plan.”); Smith v. Estate of
Smith, 248 F. Supp. 2d 348, 358 (D.N.J. 2003) (holding that a property
settlement agreement incorporated into a judgment of divorce was a QDRO
because the plan specifically granted the type of benefit that was assigned to
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the ex-spouse). If the divorces in this case were indeed shams, that would not
mean the spouses received any type or form of benefit, or option, that the
Plan did not provide for; rather, they received lump-sum pension benefits, as
provided by DROs issued by state courts assigning those benefits to them, at
a time when the pilots were at least 50 years old, as permitted by the terms of
the Plan.
Our reading of § 1056(d)(3)(D)(i) is in harmony with the reasoning of
the Supreme Court, our court, and other federal appellate courts, which have
described the determination of whether a DRO is qualified as a
straightforward matter that requires the administrator to take DROs at face
value and not to engage in complex determinations of underlying motives or
intent. “[A] QDRO enquiry is relatively discrete, given the specific and
objective criteria for a domestic relations order that qualifies as a QDRO, see
§§ 1056(d)(3)(C), (D), requirements that amount to a statutory checklist
working to ‘spare [an administrator] from litigation-fomenting ambiguities.’”
Kennedy v. Plan Adm’r for DuPont Sav. & Inv. Plan, 129 S. Ct. 865, 876
(2009) (quoting Metro. Life Ins. Co. v. Wheaton, 42 F.3d 1080, 1084 (7th Cir.
1994)). “ERISA’s statutory scheme ‘is built around reliance on the face of
written plan documents.’” Id. (quoting Curtiss-Wright Corp. v.
Schoonejongen, 514 U.S. 73, 83 (1995)). Thus, in Kennedy, the Supreme
Court concluded that the “QDRO enquiry” should not involve “asking a plan
administrator to figure out whether a claimed . . . waiver was knowing and
voluntary, . . . and so forth, on into factually complex and subjective
determinations.” Id. Similarly, our court has reasoned that “ERISA does not
require, or even permit, a pension fund to look beneath the surface of the
order. Compliance with a QDRO is obligatory. . . . This directive would be
empty if pension plans could add to the statutory list of requirements for
‘qualified’ status.” Matassarin v. Lynch, 174 F.3d 549, 568 (5th Cir. 1999)
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(alteration in original) (quoting Blue v. UAL Corp., 160 F.3d 383, 385 (7th Cir.
1998)) (internal quotation marks omitted). It would be inconsistent with
these cases’ approach of eschewing “complex and subjective determinations,”
Kennedy, 129 S. Ct. at 876, for us to permit Continental to seek restitution in
federal court based on its determination regarding the subjective motives and
intentions of the pilots and spouses when they entered into their divorces.
Continental also frames its argument as an application of the “sham
transaction doctrine,” under which sham divorces can be disregarded in tax,
bankruptcy, and immigration law. See Boyter v. C.I.R., 668 F.2d 1382 (4th
Cir. 1981) (tax); In re Atkins, 134 B.R. 936 (B.A.P. 9th Cir. 1992)
(bankruptcy); Matter of Aldecoaotalora, 18 I. & N. Dec. 430 (B.I.A. 1983)
(immigration). We decline the invitation to incorporate the sham transaction
doctrine into § 1056(d)(3). There is a significant difference between allowing
federal tribunals such as the tax, bankruptcy, and immigration courts to
consider whether a divorce is a sham, and authorizing a private entity such
as Continental to make such a determination, which would involve
independently investigating employees’ private lives in order to judge the
genuineness of the intentions behind their divorces. Moreover, the Supreme
Court has “observed repeatedly that ERISA is a ‘comprehensive and
reticulated statute, the product of a decade of congressional study of the
Nation’s private employee benefit system.’” Great-West Life & Annuity Ins.
Co. v. Knudson, 534 U.S. 204, 209 (2002) (quoting Mertens v. Hewitt Assocs.,
508 U.S. 248, 251 (1993)). The Court has “therefore been especially ‘reluctant
to tamper with [the] enforcement scheme’ embodied in the statute by
extending remedies not specifically authorized by its text.” Id. (alteration in
original) (quoting Mass. Mut. Life Ins. Co. v. Russell, 473 U.S. 134, 147
(1985)). It follows that we ought to be reluctant to extend the sham
transaction doctrine from other areas of law into the QDRO context when
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Congress has not expressly done so. If, as Continental argues, there are
important considerations of public policy that favor allowing plan
administrators to apply the sham transaction doctrine in deciding whether to
qualify DROs, then Continental should ask Congress to amend the statute.
For the foregoing reasons, we conclude that 29 U.S.C. § 1056(d)(3)(D)(i)
does not authorize a plan administrator to determine that an otherwise valid
DRO is not a QDRO because it is based on a “sham” divorce. We therefore
AFFIRM the district court’s dismissal of Continental’s claims for failure to
state a claim on which relief can be granted.3
3
We emphasize that this holding is a narrow one, and our decision should not be
construed to prevent a retirement plan administrator from recouping benefits paid out if a
divorce is declared a sham (or a DRO is otherwise invalidated) by a court or agency of
competent jurisdiction, and thus the doctrine of res judicata precludes further litigation in an
ERISA proceeding on the question of good faith. That scenario is not before this panel.
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