Court's Dismissal of Church Plan Case Draws Mixed Review From Benefit Attorneys

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By Jacklyn Wille  

May 12 --Last week's ruling upholding a Catholic health organization's reliance on the Employee Retirement Income Security Act's church plan exemption constituted a departure from relevant case law or a faithful application of existing precedent--depending on who one talked to.

On May 9, Judge Avern Cohn of the U.S. District Court for the Eastern District of Michigan granted a Catholic health organization's motion to dismiss a class action complaint alleging that its pension plans failed to qualify as ERISA-exempt church plans.

Cohn's ruling disagreed with two recent district court decisions, both of which held that the challenged plans failed to qualify as church plans, because they weren't established by churches (Rollins v. Dignity Health, 2013 BL 343403, 57 EBC 1346, N.D. Cal., No. C13-1450-TEH, 12/12/13 (244 PBD, 12/20/13; 40 BPR 2937, 12/31/13); Kaplan v. Saint Peter's Healthcare Sys., 2014 BL 88288, D.N.J., No. 3:13-02941-MAS-TJB, 3/31/14 (64 PBD, 4/3/14; 41 BPR 687, 3/25/14)).

The Overall case is one of six challenges to religiously affiliated employers' reliance on ERISA's church plan exemption filed recently by Keller Rohrback LLP and Cohen Milstein Sellers & Toll PLLC (55 PBD, 3/21/14; 41 BPR 687, 3/25/14). Cohn's ruling marks the first victory for the defendant plan sponsors in these cases.

Defense Counsel Praises Ruling

Robert Rachal, senior counsel in Proskauer Rose LLP's New Orleans office and counsel for Ascension, told Bloomberg BNA May 12 that Cohn's ruling faithfully applied ERISA's church plan exemption, while the contrary rulings in Rollins and Kaplan constituted a “departure” from settled law.

“There's been about 30 years of IRS guidance and court rulings, and they've all held that non-church entities that are affiliated with churches can have a church plan,” Rachal said.

The Rollins and Kaplan rulings departed from that trend, Rachal said, adding that Judge Cohn's ruling “is coming back to what the law has been everywhere else.”

Howard Shapiro, a partner in Proskauer's New Orleans office who also represented Ascension, agreed.

“Judge Cohn correctly followed existing precedent, IRS regulations and Department of Labor pronouncements,” Shapiro told Bloomberg BNA May 12. “Other courts, in our view, departed from the existing and widely-accepted construction of the church plan rule.”

Shapiro also said that, while a circuit split on this issue was possible, “We think that when the circuit courts look at this, we think they will all agree with Judge Cohn.”

Plaintiffs' Counsel 'Disappointed.'

Lynn L. Sarko, a litigator in Keller Rohrback's Seattle office and counsel for the plaintiff plan participants, criticized several aspects of Cohn's opinion in a May 12 e-mail to Bloomberg BNA.

“Judge Cohn agrees that: (i) Hospitals like Ascension are 'non-church organizations,' (ii) An ERISA exception for such non-church organizations 'may appear to be an irrational distinction,' and (iii) A claim that such a distinction violates the Establishment Clause of the Constitution may 'have merit,' ” Sarko said.

However, Sarko said that, “Despite these points, Judge Cohn found that a non-church organization could establish a church plan all on its own and also departed from the only two Circuit Court opinions in this arena, both of which rejected an 'associated with' finding for a hospital, based on three factors.”

According to Sarko, those factors included whether a denominational requirement exists for hospital employees and patients, whether a church plays an official role in hospital governance and whether the hospital receives financial assistance from the church.

“Rejecting these requirements, the Court found, based in part on a demonstrative drawing provided by defense counsel, that a non-church hospital could establish 'association' with a church based only upon an alleged church role in the governance of the hospital,” Sarko said.

“By this reasoning, the benefit plans of any non-profit entities acquired by Ascension could become church plans exempt from the protections ERISA provides to workers,” he said.

Recent Rulings Not Persuasive

In his decision, Cohn directly tackled the contrary rulings in Rollins and Kaplan. Both of those rulings considered the interplay between ERISA Sections 3(33)(A) and 3(33)(C), which govern the church plan exemption.

Section 3(33)(A) provides that a church plan is “established and maintained” by a “church or by a convention or association of churches.” Section 3(33)(C) goes on to say that a plan established and maintained by a church or convention or association of churches includes a plan maintained by an organization “controlled by or associated with a church” if certain criteria are met.

According to Cohn, the Rollins and Kaplan courts “interpreted section (A) as a gatekeeper of section (C),” finding that Section (C) “only describes how a plan under section (A) can be maintained.”

“The problem with this interpretation is that section (C) uses the word 'includes' not 'subject to,' ” Cohn found. Given this, “a church plan may include a plan that meets the requirements of section (C),” Cohn said.

Cohn's conclusion was at odds with the conclusion reached by Judge Thelton E. Henderson in the Rollins case. In that ruling, Henderson found that “notwithstanding section C, which permits a valid church plan to be maintained by some church-affiliated organizations, Section A still requires that a church establish a church plan.”

Judge Michael A. Shipp followed Henderson's statutory analysis in his ruling in the Kaplan case.

Legislative History

Cohn also disagreed with the Rollins and Kaplan courts' treatment of the legislative history surrounding the church plan exemption.

All three judges noted that the contested Section 3(33)(C) had been added to ERISA by Congress in 1980. However, the judges reached different conclusions with respect to that factor.

In Cohn's view, the 1980 amendment “broadened the exemption to include organizations that were affiliated with churches, such as hospitals or schools.” Such amendment “moved beyond just permitting a church to establish a church plan,” Cohn found.

In contrast, Judge Henderson emphasized that, when amending ERISA to add Section (C), Congress also chose to retain the language of Section (A).

“To completely ignore the language of section A--language that Congress actively retained--violates the principle to give effect to every clause and word and the related principle 'not to interpret a provision in a manner that renders other provisions of the same statute inconsistent, meaningless or superfluous,' ” Henderson said in the Rollins decision.

IRS Deference

The issue of administrative deference also divided Cohn from Rollins and Kaplan courts.

Specifically, Cohn found that certain private letter rulings from the Internal Revenue Service about the plans' ERISA-exempt status were entitled to judicial deference.

That was “particularly so” because the rulings in question were “consistent with the text of the statute,” Cohn found.

The Rollins court reached the opposite conclusion, finding that the PLRs at issue in that case “do not analyze the statute closely or evaluate how its language applies” to the defendant plan sponsor.

Church Plan Exists

Turning to the facts of the instant case, Cohn found that both of the pension plans at issue qualified as ERISA-exempt church plans.

On that point, Cohn explained that Ascension Health Ministries was controlled by the Roman Catholic Church, because it was an organization created by the church's canon law as a “Public Juridic Person.”

Further, five Catholic Religious Orders appoint the members of Ascension Health Ministries, and those members have “religious obligations imposed by the canonical statutes,” Cohn said.

Moreover, this control by the church flowed to other Ascension entities, including Ascension Health Alliance, Ascension Health and St. John Health, Cohn said.

In so ruling, Cohn rejected the participants' argument that the Ascension defendants' alleged violations of Roman Catholic doctrine--which included hiring non-Catholics and performing contraceptive sterilization procedures--compelled the conclusion that Ascension wasn't controlled by the church.

“Even assuming these allegations are true, this argument regarding religious orthodoxy is prohibited by the Constitution,” Cohn concluded.

In addition to dismissing the participants' ERISA-based claims, Cohn also found that they lacked standing to assert their constitutional claims, because they hadn't suffered sufficient injury.

On that point, Cohn said that the complaint contained “no specific allegations” that the participants “would have a better funded pension if the Court were to strike down the church plan exemption provisions of ERISA, or the exemption as applied to Ascension.”

The participants were represented by Havila C. Unrein, Laurie B. Ashton, Matthew M. Gerend, Ron Kilgard and Lynn L. Sarko of Keller Rohrback LLP, Seattle; Karen L. Handorf and Monya M. Bunch of Cohen Milstein Sellers & Toll PLLC, Washington; and Stephen F. Wasinger of Stephen F. Wasinger PLC, Royal Oak, Mich.

Ascension was represented by Brian M. Schwartz and Michael P. Coakley of Miller Canfield PLC, Detroit, and Howard Shapiro, Robert Rachal and Stacey C.S. Cerrone of Proskauer Rose LLP, New Orleans.


To contact the reporter on this story: Jacklyn Wille in Washington at

To contact the editor responsible for this story: Jo-el J. Meyer at

Text of the opinion is at

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