Compliance February 24, 2020

High Court Rules Seizure of Property From Puerto Rico Catholic Churches Was Wrong

Not addressing the question of whether the Puerto Rico Supreme Court violated the First Amendment, the U.S. Supreme Court found a lower court lacked jurisdiction to issue payment and seizure orders.

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The U.S. Supreme Court has decided that a court in Puerto Rico was wrong to order the seizure of property from Catholic entities in order to fulfill a court judgment to pay $4.7 million in pension benefits to both retired and active teachers.

Following a decline in enrollment in Catholic schools as residents left the territory because of a 12-year recession, and the exacerbation of the problem after Hurricane Maria, in 2016, the archdiocese notified several hundred teachers that their pension payments were being stopped because payouts exceeded contributions. The teachers filed a lawsuit and, in 2018, a judge ordered the archdiocese to pay $4.7 million to both retired and active teachers.

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According to a petition for writ of certiorari with the U.S. Supreme Court filed by the Roman Catholic Archdiocese of San Juan, following the court decision, the Puerto Rico Supreme Court proceeded to declare every single Catholic entity in Puerto Rico—including the Roman Catholic Archdiocese of San Juan, five separate Roman Catholic dioceses, all 338 parishes and all other Catholic entities on the island—part of one monolithic (and, in both church doctrine and secular reality, nonexistent) entity dubbed the “Roman Catholic and Apostolic Church in Puerto Rico.” Most of these entities did not participate in the Church Pension Plan.

The archdiocese alleged that, based on a refusal to defer to the separate nature of the various Catholic entities on the island, a sheriff was ordered to “open doors, break locks or force entry … night or day” into Catholic churches throughout Puerto Rico and seize and sell off artwork, furniture and anything else of value unless and until the nonexistent “Roman Catholic and Apostolic Church in Puerto Rico” supplied $4.7 million to fund the pension obligations of three Catholic schools whose pension plan had run out of money.

The petition asked the U.S. Supreme Court to answer the question: “Whether the First Amendment empowers courts to override the chosen legal structure of a religious organization and declare all of its constituent parts a single legal entity subject to joint and several liability.”

According to the high court’s order, the archdiocese argued that the Free Exercise and Establishment Clauses of the First Amendment require courts to defer to “the church’s own views on how the church is structured.” Thus, in this case, the courts must follow the church’s lead in recognizing the separate legal personalities of each diocese and parish in Puerto Rico.

The U.S. Supreme Court called for the solicitor general’s views on the petition. The solicitor general contended that the Puerto Rico Supreme Court violated the fundamental tenet of the Free Exercise Clause that a government may not “single out an individual religious denomination or religious belief for discriminatory treatment.”

The high court did not address either the question in the petition or the solicitor general’s argument because it found that the lower court lacked jurisdiction to issue the payment and seizure orders. On February 6, 2018, after the Supreme Court of Puerto Rico remanded the case to the lower court to determine the appropriate parties to the preliminary injunction, the archdiocese removed the case to the U.S. District Court for the District of Puerto Rico. The U.S. Supreme Court noted that once a notice of removal is filed, “the state court shall proceed no further unless and until the case is remanded.” The state court “loses all jurisdiction over the case, and, being without jurisdiction, its subsequent proceedings and judgment [are] not … simply erroneous, but absolutely void.”

The lower court issued its payment and seizure orders after the proceeding was removed to federal district court, but before the federal court remanded the proceeding back to the Puerto Rico court.  The high court said, at that time, the lower court had no jurisdiction over the proceeding, so its orders are therefore void.

“We think the preferable course at this point is to remand the case to the Puerto Rico courts to consider how to proceed in light of the jurisdictional defect we have identified,” the U.S. Supreme Court concluded.

The order can be found starting on page 27 of this document.
Compliance February 24, 2020

Hilton Hotels Allegedly Has Vesting Issues

The hotel chain is being sued for not using a court-ordered equivalency method for calculating vesting service to participants in its pension plan.

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Former participants and a beneficiary of a former participant in the Hilton Hotels Retirement Plan have asked for class certification in a lawsuit alleging that Hilton Hotels and plan fiduciaries have breached and are breaching their fiduciary duties under the Employee Retirement Income Security Act (ERISA) by failing to make vesting determinations in compliance with ERISA, the regulations and a prior District Court decision.

The lawsuit was filed on behalf of more than 220 individuals who followed the claim procedures ordered by the U.S. District Court for the District of Columbia, and affirmed by an appellate court, in Kifafi, et al., v. Hilton Hotels Retirement Plan, et al.

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According to the amended complaint filed in 2018, on May 15, 2009, the District Court ruled in Kifafi that Hilton had systematically not properly counted periods of employment with Hilton in determining whether employees had enough years of service for a vested right to a pension benefit as modified by ERISA. 616 F.Supp.2d 7, 29-32. The District Court found that while Hilton “initially asserted that it complied fully with the plan’s vesting provisions that allowed employees to earn a year of vesting credit by completing 1,000 hours of service, the record is replete with uncontested evidence that Hilton failed to properly implement the 1,000 hours standard for calculating employees’ vesting credit, often because it lacked the necessary records to do so.”

To remedy the vesting violations, the District Court on September 7, 2010, ordered the “870/750 ‘hours worked’ equivalency to be applied in lieu of the 1000 hours of service standard where an employee’s records are sufficient to indicate the hours worked.” Under the “hours worked” equivalency, an employee is credited with a year of service if he has 870 hours worked during a 12-month period (or 750 for a salaried employee). The court said if the records of hours worked are unavailable (or where a record indicates 500 hours of service as a placeholder), a “190 hours of service per month equivalency” is to be used.

In their complaint, the plaintiffs say Hilton has denied the appeals of at least 57 individuals on the ground that: “a portion of your employment history with Hilton was prior to January 1, 1976. Prior to 1976, vesting credit is calculated using an elapsed time method. The elapsed time method calculates service by measuring the time, in years and fractional years, between the date you began employment and December 31, [1975]. The amount of service credited does not depend on the hours worked during a time period, but rather depends on the years and fractions of years during which you were employed by Hilton prior to January 1, 1976.”

According to the complaint, the District Court in Kifafi specifically rejected Hilton’s elapsed time approach because it leaves “some participants with fractional years of vesting service.” As an example, the complaint notes that Hilton credited named plaintiff Valerie White with 3.52957 years for her service at the Washington Hilton from June 21, 1972, to December 31, 1975, and then with six years for service from January 1, 1976, to March 26, 1982, giving her a total of 9.52957 years of vesting service. The plaintiffs say Hilton’s application of elapsed time before January 1, 1976, does not take into account the District Court’s decision on fractional years or the Department of Labor (DOL) and Treasury regulations on transitioning from an elapsed time method to an hours of service method for service. “Without the transition between elapsed time and hours of service required by the District Court and the regulations, a fractional 0.52957 year for Ms. White will be frozen forever in place, and the only way she can attain the additional 0.47043 year of vesting service would be to earn another full year of vesting service. This would mean that participants actually would need more than 10 calendar years of employment for [their] pension to vest,” the complaint states.

The plaintiffs also pointed out that the District Court in Kifafi ruled in August 2000 that the plan’s definition of “Related Companies” encompasses any “Hilton Property,” which is defined in the plan document as any property in which Hilton “has an interest or with which it has a contractual relationship for hotel management.” Thus, the District Court ruled that the plan’s definition of “Related Company” encompasses all related or affiliated Hilton properties–whether or not they participate in the plan. The District Court’s May 5, 2009, decision also held that “employers are required to count all of an employee’s years of service for calculating his or her years toward vesting.”

Despite the District Court’s rulings, the plaintiffs allege, Hilton is not counting service at “non-participating” properties and has stated that it is only counting service “at either a participating employer or related company for vesting credit.” The plaintiffs argue that this not only contradicts the District Court’s ruling, but that Hilton has not provided any documents in response to their requests to identify any non-participating properties that are not “Related Companies.” For example, the complaint says, Hilton’s records show that named plaintiff Eva Juneau worked for the Reno Hilton from April 22, 1991, until May 16, 1996, and then at the Flamingo Hilton from May 17, 1996, until February 21, 1997. Hilton is crediting Ms. Juneau with four years of service between August 1, 1992, and February 21, 1997, but is not counting her service before the date the Reno Hilton began participating in the plan.

In their third count, the plaintiffs allege Hilton has denied appeals submitted by the beneficiaries of at least 28 deceased participants through the vesting claim process ordered by the District Court without regard to whether the participant had sufficient years of service to be vested, but solely on the grounds that the claimant is “not the surviving spouse.” For example, named plaintiff Peter Betancourt, the son of deceased participant Pedro Betancourt, who worked at the New York Hilton from October 3, 1947, to January 13, 1979, and who died in 1985 at the age of 71, appealed his vesting denial in July 2015. Pedro Betancourt’s spouse died in 1998 at the age of 78. Peter Betancourt is their only child.

According to the complaint, documents provided by Hilton show that Hilton is crediting Pedro Betancourt with 19 years of vesting service. But Hilton has denied his son Peter’s vesting appeal not on the grounds that his father did not have more than enough years of vesting service, but solely “because you [Peter Betancourt] are not the surviving spouse of P. Betancourt.” Hilton’s November 18, 2015, denial letter states that “the plan document does not provide for a death benefit to anyone other than a spouse.”

The plaintiffs note that in Kifafi, the District Court ruled on August 31, 2011, that “back payments for deceased participants shall be made in a manner that is consistent with Section 4.13(e)(6) of the 2007 plan, which provides that any additional benefits payable to the participant shall be payable to the surviving beneficiary or beneficiaries, if any, under the optional form of benefit, if any, elected by the participant, or, if there is no such surviving beneficiary, to the participant’s surviving spouse or, if there is no surviving beneficiary or surviving spouse, to the participant’s estate.”

Peter Betancourt claims he is due the back benefits due his mother before her death as well as the six years of back benefits due his father before his death.

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