Mealey's (July 28, 2016, 9:35 AM EDT) -- SAN FRANCISCO — A panel of the Ninth Circuit U.S. Court of Appeals on July 26 affirmed that Dignity Health’s pension plan was not subject to the requirements of the Employee Retirement Income Security Act and did not qualify for ERISA’s church-plan exception because it was not established by a church or by a convention or association of churches (Starla Rollins, et al. v. Dignity Health, et al., No. 15-15351, 9th Cir.; 2016 U.S. App. LEXIS 13574).
(Opinion available. Document #54-160810-030Z.)
The panel agreed with other circuits and affirmed a ruling by U.S. Senior Judge Thelton E. Henderson of the Northern District of California. It remanded for further proceedings.
Starla Rollins filed the putative class action against her former employer, Dignity Health, its chief human resources officer, Herbert J. Vallier, unnamed members of its Retirement Subcommittee and other unnamed fiduciaries, alleging that it failed to comply with ERISA’s funding, reporting, disclosure and fiduciary requirements.
Claims
In addition to her claim seeking declaratory relief that Dignity’s plan is not a church plan exempt from ERISA, Rollins also seeks injunctive relief requiring Dignity to conform the plan to ERISA’s requirements and an order requiring Dignity make plan participants whole for any losses they suffered as a result of its ERISA noncompliance and for other statutory penalties and fees. Alternatively, Rollins argued that the church plan exemption violates the establishment clause of the First Amendment of the U.S. Constitution and is therefore void.
Dignity conceded that it has not complied with ERISA but contended that its plan qualifies for ERISA’s church plan exemption.
Judge Henderson had previously granted partial summary judgment against Dignity, concluding that ERISA’s church-plan exception applied only if a retirement plan was established by a church. He found that there was no genuine dispute that Dignity’s predecessor, Catholic Healthcare West, was not a church and had established the plan at issue in this case. Judge Henderson did not address the question of whether the church-plan exemption is constitutional.
Judge Henderson certified his order for interlocutory appeal because the question of whether a plan must have been established by a church to qualify as a church plan under ERISA Section 1002(33)(C)(1) is “a controlling question of law as to which there is substantial ground for difference of opinion and [because] an immediate appeal from the order may materially advance the ultimate termination of the litigation.” Judge Henderson stayed proceedings pending the appeal.
Subparagraph (C)(1)
In an opinion written by Circuit Judge William A. Fletcher, the panel said subparagraph (C)(1) provides that a plan established and maintained by a church “includes” a plan maintained by a principal-purpose organization.
“We conclude that the more natural reading of subparagraph (C)(1) is that the phrase preceded by the word ‘includes’ serves only to broaden the definition of organizations that may maintain a church plan,” Judge Fletcher wrote. “The phrase does not eliminate the requirement that a church plan must be established by a church.
“The other circuit courts that have considered the question agree with this reading,” he said, citing Kaplan v. Saint Peter’s Healthcare Sys. (810 F.3d 175, 180-81 [3rd Cir. 2015]) and Stapleton v. Advocate Health Care Network (817 F.3d 517, 523-27 [7th Cir. 2016]).
Judge Fletcher wrote that that reading is supported by legislative history. As originally enacted in 1974, ERISA defined the term “church plan” as “(i) a plan established and maintained for its employees by a church or by a convention or association of churches which is exempt from tax under section 501 of the internal Revenue Code of 1954, or (ii) a plan described in subparagraph (C). Subparagraph (C) says a plan “in existence on January 1, 1974, shall be treated as a ‘church plan’ if it is established and maintained by a church or convention or association of churches for its employees and employees of one or more agencies of such church (or convention or association) . . . , and if such church (or convention or association) is exempt from tax under section 501 of the Internal Revenue Code of 1954.”
Text Amended
But, the judge noted, this text was amended in the Multiemployer Pension Plan Amendments Act of 1980 to provide the current text of 1002(33)(C)(i)-(iii), which Dignity contended eliminated the requirement that a plan be established by a church if a plan is maintained by a principal-purpose organization. Judge Fletcher said this argument is based on a misreading of the legislative history.
The judge wrote that subparagraph (C)(ii) was clearly enacted because many churches had allowed employees of church-associated organizations such as hospitals and schools to participate in the churches’ pension plans. As originally enacted, ERISA allowed plans covering the employees of such organizations to qualify as church plans only until Dec. 31, 1982. After that date, plans including employees of such organizations would have to comply with ERISA or divide into separate plans.
“There is nothing in the legislative history of subparagraph (C)(ii) to suggest that Congress intended, in expanding the definition of eligible employees, to eliminate the requirement that a church plan be established by a church,” the judge wrote.
Circuit Judge A. Wallace Tashima and Senior U.S. Judge Robert W. Gettleman of the Northern District of Illinois, sitting by designation, concurred.
Counsel
Rollins is represented by Bruce Frank Rinaldi, Karen L. Handorf and Michelle C. Yau of Cohen Milstein Sellers & Toll in Washington, D.C., Lynn Lincoln Sarko, Havila Unrein and Matthew M. Gerend of Keller Rohrback in Seattle and Ron Kilgard and Laurie Ashton of Keller Rohrback in Phoenix.
Dignity is represented by Lisa S. Blatt, Elisabeth S. Theodore and William C. Perdue of Arnold & Porter in Washington; Barry S. Landsberg, Harvey L. Rochman and Joanna S. McCallum of Manatt, Phelps & Phillips in Los Angeles; David L. Shapiro of Cambridge, Mass.; and Charles M. Dye of Nixon Peabody in San Francisco.
(Additional documents available: Appellants’ brief. Document #54-160810-031B. Appellees’ brief. Document #54-160810-032B.)...