BROWN V. CONTINENTAL AIRLINES: IS A FRAUDULENT DIVORCE A VALID WAY FOR A PLAN PARTICIPANT TO MANIPULATE THE PROVISIONS OF ERISA?

Abstract

Would you get a divorce for one million dollars? Nine Continental Airlines pilots and their spouses said yes to this question. Fearing that Continental’s pilot-only defined benefit plan was near financial failure, these pilots filed for divorce. The divorce decrees assigned the pilots’ pension benefits to their former spouses, and Continental, relying on the orders of the state courts, paid the former spouses their elected lump sum distributions. Following the payment of benefits, the formerly-divorced couples remarried. Continental filed suit seeking reimbursement for the benefits paid, alleging these divorces were “sham[s]” undertaken only to receive the pension benefits that the pilots would have not otherwise been eligible to receive because they were still employed by Continental. Based on analogous precedent established by the Supreme Court, the district court dismissed Continental’s claim. The Fifth Circuit affirmed the trial court’s decision and set precedent of its own—a fraudulent divorce may be used to manipulate the provisions of an ERISA-regulated pension plan and a defrauded plan sponsor has essentially no recourse. By failing to provide relief to Continental’s plan, the Fifth Circuit incentivized other plan participants to similarly obtain benefits to which they are not yet entitled via fraudulent domestic relations orders, including sham divorce. The Supreme Court precedent relied upon by the Fifth Circuit established that the Employee Retirement Income Security Act (ERISA) does not authorize a pension plan to “investigate the subjective intentions or good faith underlying a divorce.” Therefore, as long as the domestic relations orders relating to plan disbursements meet the qualification criteria outlined in ERISA, the plan must distribute benefits pursuant to the order. As shown by the result of Brown v. Continental Airlines, even though the purpose and result of the “sham” divorces were to manipulate and “circumvent” Continental’s plan design and ERISA, the Fifth Circuit failed to protect Continental’s pension plan and its participants. When a pension plan is manipulated, relief must be provided to protect the financial integrity of the plan for the sake of all plan participants. ERISA’s purpose, along with the duties of plan fiduciaries, provide ample and sound bases for extending relief to all defrauded pension plans. The purpose of this Note is to discuss the Fifth Circuit’s decision in Brown and to further assert the implications that denying relief could have on all ERISA benefit plans. Part I summarizes ERISA, its domestic relations order qualification requirements, and how these provisions relate to the facts of Brown. Part II discusses the statutory, monetary, and policy-based reasons that should move courts to provide remedies to defrauded plans. Finally, Part III provides two legal theories—the sham transaction doctrine and a restitutionary approach—that may be used to grant equitable relief to defrauded pension plans.