Kaplan v. Saint Peter's Healthcare Sys., 15–1172.

Citation810 F.3d 175
Decision Date29 December 2015
Docket NumberNo. 15–1172.,15–1172.
Parties Laurence KAPLAN, on behalf of himself, individually, and on behalf of all others similarly situated v. SAINT PETER'S HEALTHCARE SYSTEM; Ronald C. Rak; Susan Ballestero, an individual; Garrick Stoldt, an individual; John and Jane Does 1–20 Saint Peter's Healthcare System, Ronald C. Rak, Susan Ballestero, Garrick Stoldt, Appellants.
CourtUnited States Courts of Appeals. United States Court of Appeals (3rd Circuit)

Jeffrey J. Greenbaum, Esquire, (Argued), James M. Hirschhorn, Esquire, Sills, Cummis & Gross, One Riverfront Plaza, Newark, NJ, Katherine M. Lieb, Esquire, Sills, Cummis & Gross, One Rockefeller Plaza, New York, N.Y., Counsel for Appellants Saint Peter's Healthcare System, Ronald C. Rak, Susan Ballestero, Garrick Stoldt.

Monya M. Bunch, Esquire, Karen L. Handorf, Esquire, (Argued), Mathew A. Smith, Esquire, Michelle C. Yau, Esquire, Cohen Milstein Sellers & Toll PLLC, Washington, DC, Ron Kilgard, Esquire, Keller Rohrback, Phoenix, AZ, Lynn L. Sarko, Esquire, Havila C. Unrein, Esquire, Keller Rohrback, Seattle, WA, Counsel for Appellee.

Jeremy P. Blumenfeld, Esquire, Melissa D. Hill, Esquire, Morgan Lewis & Bockius, Philadelphia, PA, Counsel for Amicus Appellant Catholic Health East.

Mark E. Chopko, Esquire, Marissa Parker, Esquire, Brandon Riley, Esquire. Stradley, Ronon, Stevens & Young Washington, DC, Lisa Gilden, Esquire, The Catholic Health Association of the United States, Washington, DC, Counsel for Amicus Appellant Catholic Health Association of the United States.

Jared M. Haynie, Esquire, Chipman Gasser, Denver, CO, James A. Sonne, Esquire, Stanford Law School, Religious Liberty Clinic, Stanford, CA, Counsel for Amicus Appellant Becket Fund for Religious Liberty.

Mary E. Signorille, Esquire, AARP Foundation Litigation, Washington, DC, Roberta L. Steele, Esquire, National Employment Lawyers Association, Oakland, CA, Counsel for Amicus Appellees AARP and National Employment Lawyers Association.

Laurence A. Hansen, Esquire, Hugh S. Balsam, Esquire, Locke Lord, Chicago, IL, G. Daniel Miller, Esquire, Conner & Winters, LLP, Washington, DC, Counsel for Amicus Appellant GuideStone Financial Resources of the Southern Baptist Convention.

Richard H. Frankel, Esquire, Drexel University, Thomas R. Kline School of Law, Philadelphia, PA, Karen W. Ferguson, Esquire, Norman P. Stein, Esquire, Pension Rights Center, Washington, DC, Counsel for Amicus Appellee Pension Rights Center.

Patrick C. Elliott, Esquire, Andrew L. Seidel, Esquire, Freedom from Religion Foundation, Madison, WI, Counsel for Amicus Appellee Freedom from Religion Foundation.

Gregory M. Lipper, Esquire, Ayesha N. Kahn, Esquire, Americans United for Separation of Church and State Washington, DC, Daniel Mach, Esquire, American Civil Liberties Union Foundation, Washington, DC, Counsel for Amicus Appellees ACLU, ACLU of New Jersey, and Americans United for Separation of Church and State.

Before McKEE, Chief Judge, AMBRO, and HARDIMAN, Circuit Judges.


AMBRO, Circuit Judge.

Subsection 4(b)(2) of the Employee Retirement Income Security Act ("ERISA") provides an exemption for church plans. These plans need not comply with a host of ERISA provisions, including fiduciary obligations and minimum-funding rules. ERISA § 3(33)(A) defines a church plan as one that is "established and maintained ... for its employees (or their beneficiaries)" by a tax-exempt church. Subsection 3(33)(C)(i) clarifies that a "plan established and maintained" by a church includes a plan maintained by a qualifying agency of a church. But can a church agency, in addition to maintaining an exempt church plan, also establish such a plan? The District Court concluded that it cannot. We agree. Per the plain text of ERISA, only a church can establish a plan that qualifies for an exemption under § 4(b)(2).1 Because no church established St. Peter's Healthcare System's retirement plan, we hold that it is ineligible for a church plan exemption.

I. Background

St. Peter's is a non-profit healthcare entity that runs a variety of facilities, including a hospital, and employs over 2,800 people. Though it is not a church, St. Peter's has ties to the Roman Catholic Diocese of Metuchen, New Jersey. For instance, the Bishop of Metuchen appoints all but two members of its Board of Governors. The Bishop also retains veto authority over the Board's actions. Meanwhile, the hospital run by St. Peter's features numerous indicia of the church relationship, including daily Mass and the presence of Catholic devotional pictures and statues throughout the building.

St. Peter's established the retirement plan before us in 1974. It is a non-contributory defined benefit plan, and it covers substantially all employees of St. Peter's hired before July 1, 2010. For more than three decades, St. Peter's operated the plan subject to ERISA and represented to its employees in plan documents and other materials that it was complying with ERISA. Eventually, however, St. Peter's began to consider whether the church plan exemption might apply to its retirement plan. To that end, it filed an application in 2006 with the Internal Revenue Service seeking such an exemption. The Internal Revenue Code borrows its definition of a church plan from ERISA. See 26 U.S.C. § 414(e). Although the application signaled the belief of St. Peter's that it qualified for an ERISA exemption, it continued to pay ERISA-mandated insurance premiums for the retirement plan while the application was pending.

In May 2013, Laurence Kaplan, who worked for St. Peter's from 1985 to 1999, filed a putative class action alleging that St. Peter's failed to comply with various ERISA obligations.2 Among other things, the complaint alleged that, in the years after St. Peter's filed the application for a church plan exemption, it did not provide ERISA-compliant summary plan descriptions or pension benefits statements. The most serious allegation was that, as of the end of 2011, the plan was underfunded by more than $70 million.3 In August 2013, while the lawsuit was pending, St. Peter's received a private letter ruling from the IRS affirming the plan's status as an exempt church plan for tax purposes.4

St. Peter's moved to dismiss the suit, claiming that it qualified for ERISA's church plan exemption and hence was not required to comply with the provisions Kaplan claimed it had violated. Specifically, St. Peter's argued that the claimed exemption robbed the District Court of subject matter jurisdiction over the ERISA allegations and in the alternative that the complaint failed to state a claim. The District Court denied the motion after concluding that St. Peter's could not establish an exempt church plan because it is not a church.

In reviewing the District Court's conclusion, we do not write on a blank slate. In the decades following the current church plan definition's enactment in 1980, various courts have assumed that entities that are not themselves churches, but have sufficiently strong ties to churches, can establish exempt church plans. See, e.g., Catholic Charities of Me., Inc. v. City of Portland, 304 F.Supp.2d 77, 84–85 (D.Me.2004) ; Humphrey v. Sisters of St. Francis Health Servs., Inc., 979 F.Supp. 781, 785–86 (N.D.Ind.1997). The only Circuit to consider the question came to the same conclusion, albeit in a dictum. See Lown v. Cont'l Cas. Co., 238 F.3d 543, 547 (4th Cir.2001). However, a new wave of litigation, of which this case is a part, has sprung up in the past few years and has presented an argument not previously considered by courts—that the actual words of the church plan definition preclude this result.

Riding this new wave, three other courts have agreed with the District Court here that only churches can establish exempt church plans. See Stapleton v. Advocate Health Care Network, 76 F.Supp.3d 796, 806 (N.D.Ill.2014) ; Medina v. Catholic Health Initiatives, No. 13–CV–01249, 2014 WL 3408690, at *9 (D.Colo. July 9, 2014) ; Rollins v. Dignity Health, 19 F.Supp.3d 909, 917 (N.D.Cal.2013). By contrast, three courts have ruled that plans established and maintained by church agencies can qualify for an exemption. See Lann v. Trinity Health Corp., No. 8:14–cv–02237 (D.Md. Feb. 23, 2015) (ECF No. 54 at 1); Medina v. Catholic Health Initiatives, No. 13–CV–01249, 2014 WL 4244012, at *2 (D.Colo. Aug. 26, 2014) ;5 Overall v. Ascension, 23 F.Supp.3d 816, 829 (E.D.Mich.2014). The Seventh Circuit heard argument in Stapleton on September 18, 2015, but we are the first Circuit to decide the question in a holding.

II. Jurisdiction and Standard of Review

The District Court had jurisdiction under 28 U.S.C. § 1331 and 29 U.S.C. § 1132(e)(1). St. Peter's filed a motion to dismiss, which the District Court denied. However, the Court permitted St. Peter's to seek leave from us to appeal, and we accepted the interlocutory appeal. We thus have jurisdiction under 28 U.S.C. § 1292(b). Our review of questions of law certified under this provision is plenary. See Florence v. Bd. of Chosen Freeholders of Cnty. of Burlington, 621 F.3d 296, 301 (3d Cir.2010).

III. The Church Plan Exemption

When Congress enacted ERISA in 1974, § 3(33) defined a church plan as follows:

(33)(A) The term "church plan" means (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).
(C) ... [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) and each such agency is exempt from tax under section 501 of the Internal Revenue Code of 1954. The first sentence of this subparagraph shall not apply to any plan

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