Plaintiffs Granted Summary Judgment in Church Plan Case

The court handing down the decision, the United States District Court for the Northern District of California, simultaneously denied the defendants’ cross-motion for partial summary judgment in Rollins vs. Dignity Health, case documents show. The case is about whether defendant Dignity Health—a California-based not-for-profit public benefit corporation that operates hospitals and ancillary care facilities—should conform its defined benefit pension plan to the Employee Retirement Income Security Act (ERISA), or whether the plan is exempt from ERISA because it is a “church plan” as defined by the ERISA statute.

There is a long list of similar cases making their way through the federal court system—some with the potential to reverse upwards of 30 years of benefits law precedent by taking a stricter stance towards benefit plan compliance at religiously affiliated organizations that aren’t churches per se. Like other defendants in these cases, Dignity urged the court to dismiss this suit by claiming that, because it is an entity controlled by or associated with a church, its retirement plan can be considered a church plan within the definition of the ERISA statute, and is thereby exempt from ERISA’s regulatory provisions.

In finding for the plaintiffs in Rollins vs. Dignity Health on this particular motion, the court took a step towards granting plaintiff Starla Rollins’ ultimate appeal for declaratory and injunctive relief directing Dignity Health to bring its pension plan into compliance with ERISA—including its reporting, vesting and funding requirements. An appeal of the decision, which is likely, would go to the 9th U.S. Circuit Court of Appeals.

Background materials included in text of the decision show that, in December 2013, Dignity first moved to have the suit dismissed because of its previously unchallenged church plan status. But the district court subsequently denied Dignity’s motion, holding that under the ERISA statute, a plan must be “established by a church” to be considered a church plan, and Dignity had not argued that it could meet that definition—only that it was affiliated with a church (see “Court Weighs In on Church Plan Issues”).

Dignity moved for interlocutory appeal of that decision and included in a footnote to its reply brief that it was reserving the argument that its plan may have indeed been established by a church, and therefore the plan may be exempt even under the court’s reading of the statute. Concluding that the dismissal order did not satisfy the requirements set out in 28 U.S.C. § 1292(b), the court denied the interlocutory appeal motion.

In the meantime, Rollins moved for partial summary judgment seeking declaratory relief that the plan is not exempt—along with injunctive relief directing Dignity to bring its plan into compliance with ERISA. Case documents show Rollins argued that there is no genuine dispute of material fact that the plan was established by Dignity’s predecessor company, Catholic Healthcare West (CHW); that CHW, being essentially identical to Dignity apart from the name change, was also not a church; and that therefore the plan cannot be an exempt church plan under the statute.

Dignity countered Rollins’s motion for summary judgment and argued that there is a genuine dispute of material fact because at the time the plan was established in 1989, CHW was controlled by various religious women’s orders known as the “sponsoring congregations,” which would be considered churches for purposes of the statute.

Further, Dignity argued that the sponsoring congregations established the plan jointly with CHW, and alternatively that by way of the sponsoring congregations’ control over CHW, the sponsoring congregations indirectly established the plan. Dignity additionally argued that it is entitled to partial summary judgment in opposition to Rollins because her claim for declaratory relief is barred by the statute of limitations, and because the declaratory relief Rollins seeks would not be “equitable,” given that that the Internal Revenue Service has consistently considered the plan exempt. Indeed, Dignity contends that because it previously relied on the IRS’s rulings that it was exempt, that for the court to now rule that Dignity’s plan is not in fact exempt would be “inconsistent” and “grossly unfair.”

But according to the district court, “Dignity appears to confuse the meaning of the term ‘equitable’ insofar as it distinguishes remedies available at law from remedies available in equity, and the meaning of the term as it relates to fairness to Dignity. Declaratory relief is a form of equitable relief.”

The court goes on to point to an earlier decision from the 9th U.S. Circuit Court of Appeals, in Hodgers-Durgin v. de la Vina, handed down in 1999, to make the case that “nothing in the ERISA statute creates an exemption from such relief where the result would be, in one parties’ view, ‘inequitable’ or ‘unfair,’ and the court declines to create such an exception for Dignity here. … Furthermore, if adhered to, Dignity’s argument would lead to the perverse result where one erroneous IRS determination would have to be infinitely perpetuated for the sake of avoiding so-called ‘gross unfairness.’ An erroneous IRS ruling, however, should not be permitted to trump a Court’s interpretation of a statute.”

Dignity also argued that it is entitled to summary judgment because Rollins’s declaratory relief claim is barred by the statute of limitations set out in ERISA. Under ERISA §413, an action for breach of fiduciary responsibility must be commenced within the earlier of (i) six years from the affirmative act constituting the alleged violation or breach of fiduciary duty, or (ii) three years from when plaintiff had actual knowledge of the breach or violation. Dignity contended that the affirmative act constituting the breach was when the plan began operating as a church plan. As that began in 1992, the six-year statute of limitations would have expired in 1998.

Dignity entered a number of supplementary arguments on this point; however the court was not convinced, essentially because Rollins seeks declaratory relief that Dignity’s plan is not a church plan. So it is not actually within the scope of the case, the court ruled, to decide whether the statute of limitations would bar Rollins’ complaints.

Based on the Court’s previous rulings that under the ERISA statute, “only a church may establish a church plan,” Rollins argues that because CHW established the plan at issue here, and CHW was not a church, Rollins is entitled to a declaration that the plan is not a church plan exempt from ERISA.

With respect to Dignity’s counter arguments, the court believes Dignity failed to raise a dispute sufficient to defeat summary judgment because, whether or not the sponsoring congregations controlled CHW is immaterial because CHW was a separate corporation at the time it established the plan.

As the court explains in the text of its decision, “Looking at the totality of the evidence and viewing it in the light most favorable to Dignity, Dignity fails to raise a genuine issue of material fact as to whether CHW established the plan in question. Although the sponsoring congregations may have been involved in CHW’s management, and may have joined on to the CHW Plan, Dignity fails to put forth any evidence to rebut the position … that CHW established the CHW Plan.”

Looking Ahead

Where does this leave the case? According to a recent post on The Fiduciary Matters Blog, the plaintiff will now need to move the court to grant it the relief it seeks, i.e. forcing the pension plan to meet ERISA reporting and funding requirements.

“I wouldn’t be surprised to see the court enter an order granting the relief plaintiffs seek and then immediately stay the order until defendants can appeal the case to the 9th Circuit Court of Appeals,” says Thomas E. Clark, Jr., the blog’s editor. “I wouldn’t be surprised to see the defendants want to move the case along as fast as they can in order to get the case to the appeal stage. No true predictions here as to what will happen next, but I suspect speed will be a dominant factor.”