Stapleton v. Advocate Health Care Network

• Decision Date: 17 March 2016
• Docket Number: No. 15–1368.,15–1368.
• Citation: 817 F.3d 517
• Parties: Maria STAPLETON, et al., Plaintiffs–Appellees, v. ADVOCATE HEALTH CARE NETWORK, an Illinois Non–Profit Corporation, et al., Defendants–Appellants.
• Court: U.S. Court of Appeals — Seventh Circuit

817 F.3d 517

Maria STAPLETON, et al., Plaintiffs–Appellees,

v.ADVOCATE HEALTH CARE NETWORK, an Illinois Non–Profit Corporation, et al., Defendants–Appellants.

No. 15–1368.

United States Court of Appeals, Seventh Circuit.

Argued Sept. 18, 2015.

Decided March 17, 2016.

Ron Kilgard, Attorney, Keller Rohrback, L.L.P., Phoenix, AZ, Lynn Lincoln Sarko, Attorney, Matthew M. Gerend, Attorney, Erin M. Riley, Attorney, Keller, Rohrback, Seattle, WA, Mary J. Bortscheller, Attorney, Michelle C. Yau, Attorney, Karen L. Handorf, Attorney, Cohen Milstein Sellers & Toll PLLC, Washington, DC, Ryan F. Stephan, Attorney, James B. Zouras, Attorney, Stephan Zouras, LLP, Chicago, IL, for Plaintiffs–Appellees.

Amy L. Blaisdell, Attorney, Heather M. Mehta, Attorney, Daniel J. Schwartz, Attorney, Greensfelder, Hemker & Gale, P.C., St. Louis, MO, David B. Goodman, Attorney, Greensfelder, Hemker & Gale, P.C., Chicago, IL, for Defendants–Appellants.

Before BAUER, KANNE, and ROVNER, Circuit Judges.

ROVNER

, Circuit Judge.

The Employee Retirement Income Security Act (ERISA) protects employees from unexpected losses in their retirement plans by setting forth specific safeguards for those employee plans. The Act, however, exempts church plans from those requirements. This case explores the question that has been brewing in the lower federal courts: whether a plan established by a church-affiliated organization, such as a hospital, is also exempt from ERISA's reach. We conclude that it is not.

I.

In response to several highly publicized private pension plan failures, Congress enacted ERISA in 1974, with the goal of protecting employees' retirement benefits and ensuring that employees would receive the retirement benefits that employers had promised them and upon which they had counted. Before ERISA, employers who sponsored pension plans were not required to ensure that they were funded adequately, stand behind them if they failed, or provide insurance to protect recipients' benefits. As a result, some pension plans failed, leaving employees without the pensions they had spent their careers building. Congress recognized that existing state and common law protections failed to sufficiently protect employee retirement security and consequently, enacted ERISA. 29 U.S.C. § 1001 et seq.

ERISA protects employees through a number of safeguards including minimum funding and vesting requirements, insuring plan benefits through the Pension Benefit Guarantee Corporation and requiring certain reporting, disclosures, and fiduciary responsibilities. See, e.g., 29 U.S.C. §§ 1083, 1053, 1021 –1026, 1104 –1112, 1307, 1308, 1322. Those protections increase the cost of running a pension plan, on the one hand, but, on the other hand, protect employees from losing savings meant for their retirement years from either intentional mishandling of funds or innocent mismanagement.

Because of the broad protective goals of ERISA, Congress carved out only narrow exemptions for employee-benefit plans, including those for churches whose plans were excused from regulation in order to prevent excessive government entanglement with religion.¹ Thus a church plan is exempt from ERISA regulation. But the question presented in this case is: does a plan established by a church-affiliated organization, like the defendant here, Advocate Health Care Network, qualify as a church plan under ERISA?²

This same question is springing up across the country and although the district courts have heretofore been divided with no rulings from the circuit courts, the Third Circuit, just a short while ago, became the first circuit court to weigh in on the debate, siding with the district court in this case below that a church-affiliated organization such as Advocate cannot establish an ERISA-exempt plan.

Kaplan v. St. Peter's Healthcare Sys., 810 F.3d 175 (3d Cir.2015)

. In addition to the district court below and the Third Circuit, the court in Rollins v. Dignity Health, 19 F.Supp.3d 909, 917 (N.D.Cal.2013), appeal filed, No. 15–15351 (9th Cir. Feb. 26, 2016), has come to the same conclusion. On the other hand, several district courts have recently ruled that plans established by church-affiliated agencies can indeed qualify for the ERISA church plan exemption. See, e.g., Lann v. Trinity Health Corp., No. 8:14–cv–02237, 2015 WL 6468197, at *1 (D.Md. Feb. 24, 2015) ; Medina v. Catholic Health Initiatives, No. 13–CV–01249, 2014 WL 4244012, at *2 (D.Colo. Aug. 26, 2014)³ ; Overall v. Ascension, 23 F.Supp.3d 816, 829 (E.D.Mich.2014). Today this Circuit weighs in on the debate, siding with our colleagues on the Third Circuit.

The plaintiffs, Maria Stapleton, Judith Lukas, Sharon Roberts, and Antoine Fox are former and current Advocate employees with vested claims to benefits under the Advocate retirement plan. They have brought their complaint as a proposed class action on behalf of all participants or beneficiaries of the Advocate plan. The plaintiffs allege that Advocate has not maintained its pension plan according to the standards set forth by ERISA, 29 U.S.C. § 1001 et seq.,

and thus has breached its fiduciary duty and harmed the plan's participants in the following way: by requiring an improperly long period of five years of service to become fully vested in accrued benefits; failing to file reports and notices related to benefits and funding; funding the plan at insufficient levels; neglecting to provide written procedures in connection with the plan; placing the plan's assets in a trust that does not meet statutory requirements; and failing to clarify participants' rights to future benefits. The plaintiffs argue in the alternative that if Advocate successfully evades liability under the church plan exemption, that this provision of ERISA is void as an unconstitutional violation of the First Amendment's prohibition on state establishment of religion.

Advocate operates twelve hospitals and more than 250 other inpatient and outpatient healthcare locations across northern and central Illinois, employing 33,000 people and generating $4.6 billion in annual revenue. Advocate maintains a non-contributory, defined-benefit pension plan that covers substantially all of its employees. Advocate's predecessor established the plan and Advocate maintains it now. Advocate is responsible for funding the plan and has the power to continue, amend, or terminate the plan. Advocate does not fund, insure, or administer the funds in compliance with all of the terms of ERISA as it believes that it is exempt from complying with those provisions. It goes without saying that Advocate is not a church. Nor was its predecessor. It formed in 1995 as a 501(c)(3) non-profit corporation from a merger between two health systems—Lutheran General Health System and Evangelical Health Systems. Today, Advocate is affiliated with both the Metropolitan Chicago Synod of the Evangelical Lutheran Church in America and the Illinois Conference of the United Church of Christ, but it is not owned or financially supported by either church. It is, however, a party to contractual relationships with them, in which they "affirm their ministry in health care and the covenantal relationship they share with one another." There is no requirement that Advocate employees or patients belong to any particular religious denomination, or uphold any particular religious beliefs.

Before the district court, the plaintiffs sought a declaration that the Advocate plan is a benefits plan subject to the regulations of ERISA, or in the alternative, a declaration that a church plan exemption is unconstitutional. They also sought an injunction requiring Advocate to reform the plan to comply with ERISA's requirements and an award of civil penalties, and damages. Advocate moved to dismiss the complaint under Federal Rules of Civil Procedure 12(b)(6)

and 12(b)(1), arguing that its plan falls within the church plan exemption⁴ . The district court denied the defendants' motion, holding that the plan "is not entitled to ERISA's church plan exemption as a matter of law" because the statutory definition required a church plan to be established by a church. D. Ct. Order at 20 (R. 64, p. 20).

II.

Advocate claims that, because the plan is a church plan and thus exempt from ERISA, the plaintiffs have failed to state a claim upon which relief can be granted and the complaint must be dismissed pursuant to Federal Rule of Civil Procedure 12(b)(6)

. In order to survive this challenge, the complaint must contain sufficient factual matter, accepted as true, to "state a claim to relief that is plausible on its face." Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Bell Atl. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ). The court must accept as true the complaint's factual allegations and draw reasonable inference in the plaintiffs' favor. Ashcroft v. al–Kidd, 563 U.S. 731, 131 S.Ct. 2074, 2079, 179 L.Ed.2d 1149 (2011). We review a decision denying a motion to dismiss de novo. Bonte v. U.S. Bank, N.A., 624 F.3d 461, 463 (7th Cir.2010).

Although ERISA does indeed broadly protect the interests of participants in employee benefit plans, Congress specifically exempted certain types of plans from the scope of ERISA, including those set up by federal, state, local or tribal governments, 29 U.S.C. §§ 1002(32)

, 1003(b)(1), and any "church plan," 29 U.S.C. § 1003(b)(2), the latter of which is at issue here.

A.

The sole question in this case is whether Advocate's plan is a church plan as defined by ERISA. To answer this question we turn, as we do in all cases of statutory construction, to the language of the statute—in this case, to the definitions of an ERISA church plan contained in subsection (33)(A) and subsection (33)(C)(i) of the statute. 29 U.S.C. §§ 1002(33)(A)

, (33)(C)(i). See, e.g. In re B.R. Brookfield Commons No. 1 LLC, 735 F.3d 596, 598 (7th Cir.2013) (directing courts to turn first to the statutory language). Where Congress's intent is...