UNITED STATES DISTRICT COURT FOR THE DISTRICT · PDF file442 F.3d 648 (8th Cir. 2006 ... Bosscher, and Debra Canales. ... “maintained by an organization, whether a civil law corporation

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MARYLAND

ANITA LANN, et al.,

Plaintiffs,

v. TRINITY HEALTH CORPORATION, et al.,

Defendants.

) ) ) ) ) ) ) ) ) )

Civil Action No.: 14-cv-2237 (PJM)

MEMORANDUM OF LAW IN SUPPORT OF DEFENDANTS’ MOTION TO DISMISS

Robert R. Niccolini (Md. Bar No. 24873) OGLETREE, DEAKINS, NASH, SMOAK & STEWART, PC 1909 K Street, N.W., Suite 1000 Washington, D.C. 20006 Telephone: (202) 887-0855 Fax: (202) 887-0866 Email: [email protected]

Howard Shapiro (pro hac vice) Robert W. Rachal (pro hac vice) Stacey C. S. Cerrone (pro hac vice) PROSKAUER ROSE LLP 650 Poydras Street, Suite 1800 New Orleans, LA 70130 Telephone: (504) 310-4085 [email protected] [email protected] [email protected]

Counsel for Defendants

Case 8:14-cv-02237-PJM Document 40-1 Filed 10/06/14 Page 1 of 25

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TABLE OF CONTENTS

TABLE OF AUTHORITIES..………………………………………………………...iii-vi I. INTRODUCTION AND OVERVIEW ............................................................................1 II. STATUTORY BACKGROUND ....................................................................................4

A. ERISA’s Coverage and the “Church Plan” Exemption ..............................................4 B. The Development of the “Church Plan” Exemption and Its Related Legislative History..........................................................................................................................................7

III. STANDARD OF REVIEW .........................................................................................11 IV. ARGUMENT ...............................................................................................................12

A. Under Lown and Explicit Statutory Language, the “Church Plan” Exemption Unambiguously Includes Plans Established and Maintained by Church-Affiliated Entities........................................................................................................................................12 B. Even if Arguendo the “Church Plan” Exemption Were Found Ambiguous, the Court Should Defer to the Long-Standing and Consistent Construction of the Federal Agencies........................................................................................................................................17

V. CONCLUSION .............................................................................................................19


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TABLE OF AUTHORITIES

CASES PAGE(S)

Barnhart v. Walton, 535 U.S. 212 (2002) .....................................................................................................19

Catholic Charities of Maine v. City of Portland, 304 F. Supp. 2d 77 (D. Me. 2004) ...............................................................................12

Chronister v. Baptist Health, 442 F.3d 648 (8th Cir. 2006) .......................................................................................12

Corp. of the Presiding Bishop of the Church of Jesus Christ of Latter–day Saints v. Amos, 483 U.S. 327 (1987) .......................................................................................................3

Cottage Savings Ass’n v. C.I.R., 499 U.S. 554 (1991) .....................................................................................................18

F.D.I.C. v. Cashion, 720 F.3d 169 (4th Cir. 2013) .......................................................................................18

Flood v. New Hanover County, 125 F.3d 249 (4th Cir. 1997) .......................................................................................18

Friend v. Ancilla Systems, 68 F. Supp. 2d 969 (N.D. Ill. 1999) .............................................................................12

Hall v. USAble Life, 774 F. Supp. 2d 953 (E.D. Ark. 2011) .........................................................................12

Hernandez v. Commisioner Internal Revenue, 490 U.S. 680 (1989) .......................................................................................................3

Humphrey v. Sisters of St. Francis Health Services, 979 F. Supp. 781 (N.D. Ind. 1997) ..............................................................................12

Kaplan v. Saint Peter’s Healthcare System, 2014 WL 1284854 (D.N.J. Mar. 31, 2014) ............................................................15, 16

Lemon v. Kurtzman, 403 U.S. 602 (1971) .......................................................................................................3


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Liberty Univiversity, Inc. v. Lew, 733, F.3d 72, 101-102 (4th Cir. 2013) ...........................................................................3

Lown v. Continental Casualty Co., 238 F.3d 543 (4th Cir. 2001) ............................................................................... passim

McCoy v. United States, 802 F.2d 762 (4th Cir. 1986) .......................................................................................18

Medina v. Catholic Heath Initiatives, 2014 WL 4244012 (D. Colo. Aug. 26, 2014) ........................................................14, 16

Overall v. Ascension, 2014 WL 2448492 (E.D. Mich. May 13, 2014)...........................................................14

Petroleum Exploration v. C.I.R., 193 F.2d 59 (4th Cir. 1951) .........................................................................................18

Rinehart v. Life Insurance Co. of North America, 2009 WL 995715 (W.D. Wash. Apr. 14, 2009) ...........................................................12

Rogers v. Board of Education Prince George’s County, 859 F. Supp. 2d 742 (D. Md. 2012) (Messitte, J.) .......................................................12

Rollins v. Dignity Health, No. 13-cv-1450 (N.D. Cal.) ...................................................................................15, 16

Rose v. Long Island Railroad Pension Plan, 828 F.2d 910 (2d Cir. 1987) ......................17

Ross v. R.A. North Development, Inc. (In re Total Realty Mgmt., LLC), 706 F.3d 245 (4th Cir. 2013) .......................................................................................11

Serbian Eastern Orthodox Diocese v. Milivojevich, 426 U.S. 696 (1976) .......................................................................................................3

Thorkelson v. Publishing House of Evangelical Lutheran Church of America, 764 F. Supp. 2d 1119 (D. Minn. 2011) ........................................................................15

United States v. Cleveland Indians Baseball Co., 532 U.S. 200 (2001) .....................................................................................................17


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STATUTES

26 U.S.C. § 414(e) ...........................................................................................................1, 6

29 U.S.C. § 1144a ..............................................................................................................11

29 U.S.C. § 1292(b) ...........................................................................................................15

ERISA § 3(2)(A), 29 U.S.C. § 1002(2)(A) ........................................................................17

ERISA § 3(33), 29 U.S.C. § 1002(33) ....................................................................... passim

ERISA § 4(b)(2), 29 U.S.C. § 1003(b)(2) ............................................................................5

ERISA § 201(2), 29 U.S.C. § 1051(2) .................................................................................4

ERISA § 301(a)(3), 29 U.S.C. § 1081(a)(3) ........................................................................4

ERISA § 401(a)(1), 29 U.S.C. § 1101(a)(1) ........................................................................4

ERISA § 4021, 29 U.S.C. § 1321 ........................................................................................4

Church Plan Parity and Entanglement Act, Pub. L. 106-244, 114 Stat. 499 .....................11

Internal Revenue Code § 410(d), 26 U.S.C. § 410(d) ..........................................................5

Multiemployer Pension Plan Amendments Act of 1980, Pub. L. No. 96-364, § 407, 94 Stat. 1208 ..........................................................................................................5


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OTHER AUTHORITIES

124 Cong. Rec. 12106 (1978) ..........................................................................................4, 9

124 Cong. Rec. 16523 (1978) ..............................................................................................7

125 Cong. Rec. 10052 (May 7, 1979) ..............................................................................8, 9

126 Cong. Rec. 20180 (July 29, 1980) ..............................................................................10

DOL Opinion Letter 94-05A, 1994 WL 83200 (1994) .....................................................10



DOL Opinion Letter 95-13A, 1995 WL 369560 (1995) ...................................................10

IRS Gen. Coun. Mem. 37,266, 1997 WL 46200 (Sept. 22, 1977) ......................................7

IRS Gen. Coun. Mem. 39,007, 1983 WL 197946 (Nov. 2, 1983)………………….........10

EMPLOYEE BENEFITS LAW 1-9 (Jeffrey Lewis et al. eds., 3d ed. 2012) ...............................4

Peter J. Wiedenbeck, ERISA’s Curious Coverage, 76 WASH. U. L. Q. 311, 341-48 (1998) .............................................................................................................................4

History, CATHOLIC HEALTH ASSOC. OF THE UNITED STATES, www.chausa.org/catholicidentity/history (last visited Sept. 24, 2014) .........................2

Questions to the PBGC and Summary of Their Responses, Resp. to Question 22, Pension Benefit Guaranty Corp ...............................................................................5, 11

Trinity Health Sponsor Catholic Health Initiatives, Trinity Health, www.trinity-health.org/our-sponsor-chm (last visited Sept. 24, 2014) ..............................................2


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I. INTRODUCTION AND OVERVIEW

This litigation challenges whether Defendant Trinity Health Corporation’s pension plan

qualifies for the “church plan” exemption of ERISA § 3(33), codified at 29 U.S.C. § 1002(33)

and in parallel in the Internal Revenue Code (“IRC”) at 26 U.S.C. § 414(e). Pursuant to the

direction of the Court, Defendants1 (collectively “Trinity Health”) limit the initial motion to

dismiss to the threshold statutory issue raised in this and the other recent “church plan” litigation:

Whether ERISA’s “church plan” exemption is limited only to plans of “churches” or whether, as

amended in 1980, it also includes plans of church-affiliated organizations.

In Lown v. Continental Casualty Co., 238 F.3d 543 (4th Cir. 2001), this Circuit rendered

a key decision on this issue. There, the threshold issue was whether a non-church entity, Baptist

Healthcare, could establish a “church plan.” After noting the amended “church plan” exemption

encompassed plans of churches under subsection (A) of the exemption, the Lown court explained

that plans established by church-affiliated organizations likewise may qualify for the exemption

under subsection (C)(i):

Church plans are not ERISA plans, however. 29 U.S.C. § 1003(b)(2). A church plan means a plan established and maintained “for its employees (or their beneficiaries) by a church or by a convention or association of churches.” Id. § 1002(33)(A). A church plan does not include all plans maintained by a church. The statute specifically excludes plans established and maintained primarily for the benefit of those “who are employed in connection with one or more unrelated trades or businesses.” Id. § 1002(33)(B)(i). Despite this exception to the definition of a church plan, a plan established by a corporation associated with a church can still qualify as a church plan. The statute defines church plans to include plans

1 The named Defendants are Trinity Health Corporation, CHE Trinity Health Inc., James Bosscher, and Debra Canales. CHE Trinity Health Inc. recently merged into Trinity Health Corporation, which renamed itself CHE Trinity Health Inc.


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“maintained by an organization, whether a civil law corporation or otherwise, ... if such organization is controlled by or associated with a church or a convention or association of churches.” Id. § 1002(33)(C)(i). An organization is controlled by a church when, for example, a religious institution appoints a majority of the organization's officers or directors. 26 C.F.R. § 1.414(e)-1(d)(2) (2000). To be “associated with a church,” the corporation must share “common religious bonds and convictions with that church or convention or association of churches.” 29 U.S.C. § 1002(33)(C)(iv).”

Lown, 238 F.3d at 547 (emphasis added).

Here, the threshold issue is one of statutory construction, and much ink has been spilt on

this issue. But Lown’s ruling that the “church plan” exemption cited in subsection (C)(i)

includes plans of church-affiliated organizations is both controlling as to this case, and correct.

* * * *

Catholic healthcare has a long and proud tradition in the United States.2 Trinity Health

was formed from the merger of the healthcare ministries of the Catholic religious orders, the

Sisters of Holy Cross and the Sisters of Mercy, which began the work of their healing ministries

in the United States in the 1840s. Trinity Health is sponsored by Catholic Health Ministries, an

ecclesiastical entity created under Canon Law that is within and a part of the Catholic Church.3

The instant lawsuit is the eighth “church plan” class action filed by the counsel

representing Plaintiffs Anita Lann and Jean Atcherson. Like the other litigation, Plaintiffs claim

that the plan at issue—here the Trinity Health Pension Plan—does not qualify for the “church

plan” exemption to ERISA; thus Plaintiffs allege it is a non-compliant ERISA plan.

This litigation raises three principal issues. The threshold issue is one of statutory

2 History, CATHOLIC HEALTH ASSOC. OF THE UNITED STATES, www.chausa.org/catholicidentity/history (last visited Sept. 24, 2014). 3 Trinity Health Sponsor Catholic Health Initiatives, Trinity Health, www.trinity-health.org/our-sponsor-chm (last visited Sept. 24, 2014).


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construction: whether ERISA’s “church plan” exemption includes plans established by church-

affiliated organizations. The second issue relates to whether an organization is affiliated with a

church, which under the “church plan” exemption requires the organization and the committee

that administers the plan to be controlled by or associated with a church.4 See ERISA §

3(33)(C)(i). The third issue relates to Plaintiffs’ claim that if Congress’s “church plan”

exemption includes church-affiliated entities, then Congress violated the Establishment Clause of

the First Amendment.5 Pursuant to the direction of this Court, briefing on the latter two issues is

held in abeyance until the statutory issue is resolved.6

In sum, as requested by the Court, Trinity Health limits its initial motion to the threshold

statutory question whether church-affiliated organizations may establish a “church plan.” In

Lown, this Circuit answered this question. Trinity Health submits that Lown is both controlling

and correct, and follows the long-standing construction of the exemption by the federal agencies

and other courts. Moreover, to the extent there is any ambiguity regarding the scope of

4 As to whether an entity is controlled by or associated with a church, Trinity Health submits the controlling issues will be principally legal ones. The First Amendment grants deference to a church’s decisions on whom it includes within its religious community, and how it defines its religious mission and structures its policy and administration. This protected zone includes: (1) a church's law and doctrine, Serbian Eastern Orthodox Diocese v. Milivojevich, 426 U.S. 696, 713 (1976); (2) a church's religious mission, Hernandez v. Comm'r Inter. Rev., 490 U.S. 680, 699 (1989); Corp. of the Presiding Bishop of the Church of Jesus Christ of Latter–day Saints v. Amos, 483 U.S. 327, 336 & n. 14 (1987); and (3) a church's polity, administration, and community. Milivojevich, 426 U.S. at 709–714. Accordingly under this constitutional framework, when this control or association issue is reached, Trinity Health submits that the Court may decide it on a motion to dismiss. 5 Trinity Health submits that under the controlling test of Lemon v. Kurtzman, 403 U.S. 602 (1971), the answer to this claim is clearly “no.” See, e.g., Liberty Univ., Inc. v. Lew, 733 F.3d 72, 101-102 (4th Cir. 2013) (applying Lemon to conclude Congress’s enactment of religious exemptions from benefit obligations under the Affordable Care Act are constitutional). 6 Assuming the Court grants this Motion to Dismiss, Defendants may file an additional Rule 12(b)(6) motion to dispose of the remaining allegations.


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Congress’s expansion of the “church plan” exemption to include church-affiliated organizations,

thirty years of consistent construction by the federal agencies—and Congress’ subsequent

enactments building on this very construction—have resolved this question in Trinity’s favor.

II. STATUTORY BACKGROUND

A. ERISA’s Coverage and the “Church Plan” Exemption

Church retirement plans have provided benefits in the United States since the 1700’s, free

from federal substantive regulation. See, e.g., 124 Cong. Rec. 12106 (1978) (statement of Sen.

Conable) (noting same) (attached as Add. A). In contrast, by the early 1970s, Congress focused

on a well-documented set of problems that had occurred involving pension plans sponsored by

for-profit employers and unions. These problems included the very public failure of for-profit

pension plans, such as the Studebaker plan, and corruption in union-controlled pension plans,

such as the Central States plans. E.g., EMPLOYEE BENEFITS LAW 1-9 (Jeffrey Lewis et al. eds., 3d

ed. 2012).

Because of this documented history of problems with for-profit and union-controlled

pension plans, Congress enacted ERISA to regulate those plans. But ERISA was not extended to

governmental plans or “church plans” and, in large part, ERISA does not apply to non-qualified

plans for senior executives.7 See id. at 2-12 to 2-18; Peter J. Wiedenbeck, ERISA’s Curious

Coverage, 76 WASH. U. L. Q. 311, 341-48 (1998). To provide perspective, Congress excludes

from ERISA’s coverage approximately 20% of employees in the United States, including this

7 For exclusions on plans for senior executives, see ERISA § 201(2), 29 U.S.C. § 1051(2) (exclusions from minimum participation, vesting, accrual standards); ERISA § 301(a)(3), 29 U.S.C. § 1081(a)(3) (exclusion from funding requirements); ERISA § 401(a)(1), 29 U.S.C. § 1101(a)(1) (exclusion from fiduciary duties); ERISA § 4021(b)(6), 29 U.S.C. § 1321(b)(6) (exclusion from PBGC coverage).


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Court and its employees.

ERISA’s “church plan” exemption was applied originally only to churches and

“agencies” of churches. In 1980, ERISA was amended retroactively to extend the exemption to

organizations controlled by or associated with a church.8 This amendment began as a separate

bill, but eventually was enacted as § 407 of the Multiemployer Pension Plan Amendments Act of

1980 (“MPPAA”).9 The details surrounding this amendment and the expansion of the exemption

are discussed in the next section; the revised exemption had a retroactive effective date of one

year before ERISA’s effective date.10

By operation of law, plans that are “church plans” are excluded from ERISA’s coverage

(see ERISA § 4(b)(2), 29 U.S.C. § 1003(b)(2)) unless the employer affirmatively makes an

irrevocable election of ERISA coverage pursuant to IRC (“IRC”) § 410(d), 26 U.S.C. § 410(d).

By operation of law, plans that are “church plans” are also excluded from insurance coverage by

the Pension Benefit Guaranty Corporation (“PBGC”). See ERISA § 4021(b)(3). PBGC has

warned employers publicly that, absent an irrevocable election, PBGC will not insure benefits of

a plan that is a “church plan,” even if the employer pays PBGC premiums for that plan. See

Questions to the PBGC and Summary of Their Responses, Resp. to Question 22, Pension Benefit

Guaranty Corp., http://www.pbgc.gov/Documents/2010bluebook.pdf, p. 25 (March 2011)

(“Benefits under such plans are not guaranteed by PBGC”) (attached as Add. B).

As amended retroactively in 1980, ERISA’s “church plan” exemption, ERISA § 3(33)

and IRC § 414(e), includes plans of non-profit organizations that are controlled by or associated

8 See Multiemployer Pension Plan Amendments Act of 1980, Pub. L. No. 96-364, § 407, 94 Stat. 1208 (codified as amended at ERISA § 3(33)(C)(ii)(II)). 9 See id. 10 See id. (making “church plan” amendment effective as of January 1, 1974).


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with a church. Subsection A is the starting point, and provides that a “church plan” is “a plan

established and maintained” by a church. ERISA § 3(33)(A). Subsection (C)(i), however,

extends “church plan” status to include plans administered by organizations controlled by or

associated with a church. Specifically, these provisions provide in pertinent part:

(33)(A): The term “church plan” means a plan established and maintained . . . for its employees (or their beneficiaries) by a church or by a convention or association of churches which is exempt from tax under section 501 of Title 26. . . . .

(33)(C)(i): A plan established and maintained for its employees (or their beneficiaries) by a church or by a convention or association of churches includes a plan maintained by an organization, whether a civil law corporation or otherwise, the principal purpose or function of which is the administration or funding of a plan or program for the provision of retirement benefits or welfare benefits, or both, for the employees of a church or a convention or association of churches, if such organization is controlled by or associated with a church or a convention or association of churches.

ERISA § 3(33)(A), (C) (emphasis added).

Congress wrote more on how church-affiliated organizations fit within the exemption.

Specifically, subsection (C)(ii)(II) deems employees of a tax exempt organization controlled by

or associated with a church to be employees of the church. ERISA § 3(33)(C)(ii)(II). Likewise,

subsection (C)(iii) deems the church to be the employer of these church-affiliated employees.

ERISA § 3(33)(C)(iii). Subsection (C)(iv) provides that an organization is associated with a

church “if it shares common religious bonds and convictions with that church.” ERISA §

3(33)(C)(iv).

Finally, in subsection (D), Congress grants employers the right to correct any defects


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before “church plan” status is lost.11 See ERISA § 3(33)(D). Subsection (D) provides that if the

plan fails to meet “one or more of the requirements of [ERISA § 3(33)],” the plan is entitled to a

correction period to fix the defect. ERISA § 3(33)(D)(i)-(iii). If a correction is made timely, the

plan is deemed to meet “church plan” status “for the year in which the correction is made and all

prior years.” ERISA § 3(33)(D)(i). This statutory right to retroactive correction means a court

should resolve “church plan” status conclusively (and permit corrections) before considering any

ERISA claims.

B. The Development of the “Church Plan” Exemption and Its Related Legislative History

When ERISA was originally enacted in 1974, it contained a narrow “church plan”

exemption that exempted only plans of churches for their employees and the employees of their

church agencies. See Pub. L 93-406, 29 U.S.C § 1002(33) (1974) (amended 1980) (attached as

Add. D). The original, narrow exemption was enacted because the examination of a church's

books by the government might be regarded as “an unjustified invasion of the confidential

relationship that is believed to be appropriate with regard to churches and their religious

activities.” S. Comm. on Finance, 93–383, at 81 (1973) (attached as Add. E).

In applying this original, narrow exemption, the IRS focused on whether the activity of

the organization seeking the exemption was, in the IRS’s view, sufficiently “religious” to deem

that organization to be part of a “church.” See IRS Gen. Coun. Mem. 37,266, 1997 WL 46200,

at *3-6 (Sept. 22, 1977). Thus, the IRS concluded a Catholic religious order was not part of the

church, because the order’s operation of health facilities was not, in the IRS’s views, a

11 124 Cong. Rec. 16523 (1978) (statement of Sen. Talmadge) (recognizing “church plan” rules are technical and may take years to resolve; and organizations need the opportunity to correct any disqualification after notice) (attached as Add. C)


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sufficiently “religious” mission. See id. The IRS noted that its rule defining religious mission

applied even when it was contrary to the religious doctrine of the church. Id.

Of no surprise to anyone, these IRS intrusions into the religious nature of the mission of

church-affiliated organizations greatly upset the religious community. Churches lobbied for and

supported what became the expanded “church plan” exemption, among other things, to end these

intrusive IRS inquiries into the religious nature of an organization’s mission. See 125 Cong.

Rec. 10054-58 (May 7, 1979) (statement of Sen. Talmadge) (publishing letters of the religious

organizations) (attached as Add. F). As one example, a letter from the Rabbinical Pension Board

explained the need for the statutory expansion so that the plans sponsored by its organization,

whose mission included education and the promotion and enrichment of Jewish life, would be

free from intrusive inquiries by the IRS into what is integral to or part of its religious mission as

a “church.”12 Id. at 10054.

Against the backdrop of intrusive IRS inquiries into an organization’s religious mission,

Congress stated it was amending this exemption to avoid excessive government entanglement

with religion that threatened violation of the First Amendment. See 124 Cong. Rec. 12106

(1978) (statement of Sen. Conable) (attached as Add. A). There was also no Congressional

desire to extend federal regulation to church-affiliated plans, which had operated responsibly

since the 1700s. See id. Finally, there was Congressional recognition that unlike for-profit

companies, churches and their affiliated organizations may be unable to pass on the costs of

12 See also id. at 10055 (The American Lutheran Church) (supporting this legislation to end IRS intrusion into the affairs of church groups and their agencies by presuming to define what is and is not an integral part of these religious groups’ mission); id. at 10056 (Annuity Board of the Southern Baptist Convention) (same); id. (Christian Reformed Church) (same); id. at 10057 (General Conference of Seventh-Day Adventists) (same – also noting it viewed this intrusion as violating the principle of the separation of the church and state).


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ERISA compliance, leading to the loss of voluntary plans for employees. Id. at 12107.

Perhaps more important for present purposes, there was no concealment of this expansion

of the exemption; rather, over the express objections of Treasury, Congress knowingly expanded

the “church plan” exemption to include organizations that were affiliated with churches, such as

hospitals or schools. As the Senate Co-Sponsor, Senator Talmadge, explained:

Church agencies are essential to the churches’ mission. They are for the sick and needy and disseminate religious instruction. They are, in fact, part of the churches. As a practical matter, it is doubtful that the agency plans would survive subjection to ERISA. . . . The churches fear that many of the agencies would abandon their plans.

125 Cong. Rec. 10052 (May 7, 1979) (emphasis added) (attached as Add. F).

And, on June 12, 1980, the Senate Finance Committee held a hearing in which Mr.

Halperin of the Treasury Department voiced the Treasury’s most serious concern, that the bill

would exclude from ERISA’s coverage hospitals and schools that are affiliated with a church.

What that bill would permit, it would exclude church agencies from the protection of ERISA, and that would mean that if somebody works for a hospital or a school that happens to be affiliated with a church it would be permissible for that plan to provide no retirement benefits unless they work until age 65, for example.

Executive Sess. Of the S. Comm. on Fin., 96th Cong. 41 (1980) (statement of Halperin)

(attached as Add. G). In response to Treasury’s objections, Senator Talmadge stated that what

this raised was a question of separation of church and state (compare the IRS’s earlier intrusive

inquiries in this area), and called for a vote of the Senators on the “church plan” exemption with

its subsection (C)(i), which was a “chorus of ayes” with no opposition. Id. at 41-42.

Finally, like the IRS, Senator Jacob Javits (the key legislative sponsor of ERISA) was

“not too happy” about the expansion of the “church plan” exemption to “exempt[] those who

work for schools and similar institutions which are church-related.” However, he noted that to


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get a bill passed he had to concede on some things, this being one. See 126 Cong. Rec. 20180

(July 29, 1980) (statement of Sen. Javits) (attached as Add. H).

After the IRS participated in this legislative process, it revisited and revised its guidance

to reflect Congress’s expanded exemption. The IRS issued this guidance in IRS General

Counsel Memo 39,007, 1983 WL 197946 (Nov. 2, 1982). In detail, the IRS examined the text of

the expanded exemption and reversed its earlier ruling, concluding that plans of organizations

controlled by or associated with a church, in this instance plans for employees of hospitals of

religious orders, could be “church plans.” Id. at *2-4. The IRS based its contemporaneous

guidance on the newly enacted subsection (C)(i) exemption which, as noted, includes within

“church plans” plans of church-affiliated organizations that are administered by an organization

with a principal purpose to administer or fund the plan. Id. at *3 (this is the same section relied

on by this Circuit in Lown). The IRS also cited Senator Javits’ floor statement (which had

complained of but agreed to this very expansion) to note that, as amended, the “church plan”

exemption is no longer limited to plans of churches. Id. at *6 n.1.

The United States Department of Labor (“DOL”) follows the IRS’s approach. The DOL

has long concluded that the “church plan” exemption includes plans of organizations, such as

hospitals, that are not churches, but are instead controlled by or associated with churches.13

Following the IRS’s publication of its guidance, between 1983 and 1999 the IRS (total of

412) and the DOL (total of 63) issued slightly less than 500 rulings applying the “church plan”

13 See, e.g., DOL Op. Ltr. 94-04A, 1994 WL 58680, at *4 (1994) (where hospital organization is controlled by or associated with the Catholic Church, the Church is deemed the employer under ERISA § 3(33)(C)(iii), and “is deemed to have established and maintained the plans”); DOL Op. Ltr. 94-05A, 1994 WL 83200, at *6 (1994) (same); DOL Op. Ltr. 94-09A, 1994 WL 86984, at *4 (1994) (same); DOL Op. Ltr. 95-13A, 1995 WL 369560, at *4 (1995) (same).


11

exemption to plans of church-affiliated organizations, mostly hospitals and schools. See App. A.

to Defs.’ Reply in Supp. of Mot. to Certify Order Den. Mot. to Dismiss for Interloc. Appeal,

Rollins v. Dignity Health, No. 13-cv-1450 (N.D. Cal.), ECF No. 88-1 (collecting rulings)

(attached as Add. I). As noted, ERISA also statutorily excludes “church plans” from coverage

by PBGC. See ERISA § 4021(b)(3). PBGC also follows the IRS construction. See Questions to

the PBGC and Summary of Their Responses, Resp. to Question 22, Pension Benefit Guaranty

Corp., http://www.pbgc.gov/Documents/2010bluebook.pdf, p. 25 (Mar. 2011) (attached as Add.

B).

Congress later built on this long-standing IRS construction by providing for preemption

of certain state laws for “church plans.” Specifically, in 2000, by enacting the “Church Plan

Parity and Entanglement Prevention Act,” Congress enhanced the “church plan” exemption for

church and church-affiliated organizations by preempting certain state laws interfering with the

operation of “church plan” welfare plans. See Church Plan Parity and Entanglement Act, Pub. L.

106-244, 114 Stat. 499 (codified as amended at 29 U.S.C. § 1144a); see also 146 Cong. Rec. H

5100 (2000) (statement of Congressman Boehner) (explaining amendment was to preempt state

insurance licensing requirements for such plans) (attached as Add. J). In enhancing the “church

plan” exemption with respect to welfare plans, Congress did not narrow the type of religious

organization qualifying for the exemption.

III. STANDARD OF REVIEW

Legal questions, such as the proper construction of a federal statute, are particularly

appropriate for resolution in a motion to dismiss under Rule 12(b)(6). See, e.g., Ross v. R.A.

North Dev., Inc. (In re Total Realty Mgmt., LLC), 706 F.3d 245, 250 (4th Cir. 2013) (statutory


12

construction is a legal question decided de novo—affirming district court’s Rule 12(b)(6)

dismissal based on construing certain terms under the Interstate Land Sales Act). The Court

decides legal questions de novo, and does not accept as true legal conclusions and allegations of

law in a complaint. E.g. Rogers v. Bd. of Educ. Prince George’s Cnty, 859 F. Supp. 2d 742, 746

(D. Md. 2012) (Messitte, J.) (citing Nemet Chevrolet, Ltd. v. Consumeraffairs.com, Inc., 591

F.3d 250, 255 (4th Cir. 2009).

IV. ARGUMENT

A. Under Lown and Explicit Statutory Language, the “Church Plan” Exemption Unambiguously Includes Plans Established and Maintained by Church-Affiliated Entities

For the thirty years preceding this recent wave of “church plan” litigation, this Circuit in

Lown and other federal courts have ruled (consistent with the federal agencies) that the “church

plan” exemption includes plans of church-affiliated organizations.14

The statutory language drives this consistency of result:

(33)(A): The term “church plan” means a plan established and maintained . . . for its employees (or their beneficiaries) by a church or by a convention or association of churches which is exempt from tax under section 501 of Title 26.

14 In addition to the cases discussed in the text, some other prominent examples include: Chronister v. Baptist Health, 442 F.3d 648, 652 (8th Cir. 2006) (concluding that a plan established by a corporation associated with a church can qualify as a “church plan”); Catholic Charities of Maine v. City of Portland, 304 F. Supp. 2d 77, 85-86 (D. Me. 2004) (applying exemption to charitable organization of the Catholic Church); Friend v. Ancilla Sys., 68 F. Supp. 2d 969, 973 (N.D. Ill. 1999) (applying exemption to a plan established by a non-profit corporation sponsored by a religious order affiliated with the Catholic Church); Rinehart v. Life Ins. Co. of N. Am., 2009 WL 995715, *3-5 (W.D. Wash. Apr. 14, 2009) (applying exemption to a plan established by a health care organization affiliated with the Catholic Church); Humphrey v. Sisters of St. Francis Health Services, 979 F. Supp. 781, 786 (N.D. Ind. 1997) (applying exemption to health care organization of a religious order of the Catholic Church); Hall v. USAble Life, 774 F. Supp. 2d 953, 958-59 (E.D. Ark. 2011) (rejecting argument that “church plan” exemption could not extend to a hospital).


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. . . .

(33)(C)(i): A plan established and maintained for its employees (or their beneficiaries) by a church or by a convention or association of churches includes a plan maintained by an organization, whether a civil law corporation or otherwise, the principal purpose or function of which is the administration or funding of a plan or program for the provision of retirement benefits or welfare benefits, or both, for the employees of a church or a convention or association of churches, if such organization is controlled by or associated with a church or a convention or association of churches. (Emphasis added.) As set forth above, ERISA § 3(33) subsection (A) states “the term ‘church plan’ means a

plan established and maintained . . . for its employees (or their beneficiaries) by a church or by a

convention or association of churches.” Subsection (C)(i)’s introduction then repeats the same

language on what a “church plan” means. And after repeating the definition of “church plan”

contained in subsection (A), subsection (C)(i) then states that such a plan includes a plan

maintained by an organization (whether a civil law corporation or otherwise): (i) whose principal

purpose or function is the administration or funding of the plan; and (ii) which is controlled by or

associated with a church or a convention or association of churches. Id. Subsection (A) thus

exempts plans of churches, while subsection (C)(i) exempts plans of church-affiliated

organizations.

In the “church plan” litigation, the dispute on the threshold statutory issue is over how

subsection A and subsection (C)(i) relate to each other. Plaintiffs argue that there is an unstated

term in subsection (A) that makes it the “gatekeeper” for subsection (C)(i). However, consistent

with the ruling in Lown, courts have recognized that Congress repeated the relevant part of the

“church plan” definition in subsection (A) as the introduction to the “inclusion” part of

subsection (C)(i). Distilled to its essence, under Congress’ statute, a “church plan” means (A),


14

and (A) includes (C)(i). While not the most artful drafting, the rules of grammar and logic

compel this conclusion. See Overall v. Ascension, 2014 WL 2448492, at *10 (E.D. Mich. May

13, 2014) (explaining that “under the rules of grammar and logic, A is not a ‘gatekeeper’ to C;

rather if A is exempt and A includes C, then C is also exempt.”); Medina v. Catholic Heath

Initiatives, 2014 WL 4244012, at *2-3 (D. Colo. Aug. 26, 2014) (same). As Judge Blackburn

explained in Medina, “church plan” is a “term of art”—a defined term that Congress itself placed

in quotes—in which, through subsection (C)(i), Congress provided another way that a plan is

deemed to be established and maintained by a church; i.e., if the plan is administered by a

church-affiliated organization. Id. at *3.

Perhaps most important, this Circuit squarely ruled on the meaning of subsection (C)(i) in

Lown. As noted, the threshold issue in Lown was whether a non-church entity, Baptist

Healthcare, could establish a “church plan.” Plaintiff sought a declaration that the plan was an

ERISA-exempt “church plan” so that she could pursue state law claims. She thus argued that

“church plans” are not limited to churches, and instead subsection (C)(i) extends “church plan”

status to plans of organizations controlled by or associated with a church. See Br. of Appellant at

19-28, Lown v. Continental Cas. Co. (attached as Add. K). This Circuit agreed:

Despite this exception to the definition of a church plan, a plan established by a corporation associated with a church can still qualify as a church plan. The statute defines church plans to include plans “maintained by an organization, whether a civil law corporation or otherwise, ... if such organization is controlled by or associated with a church or a convention or association of churches.” Id. § 1002(33)(C)(i).

Lown, 238 F.3d at 547. After deciding this threshold issue, the court then analyzed whether

Baptist Healthcare was controlled by or associated with the Baptist Church. The Baptist Church


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had severed its ties with Baptist Healthcare long before the suit was filed (see id. at 546), and

Lown found no religious affiliation. Id. at 548.

Lown’s conclusion that subsection (C)(i) extends the “church plan” exemption to include

plans of church-affiliated organizations comports with the statutory language. And, it has been

followed repeatedly, including in the Overall and Medina “church plan” litigation discussed

above. Plaintiffs’ counsel also pursued and lost this same issue in Thorkelson v. Publishing

House of Evangelical Lutheran Church of America, 764 F. Supp. 2d 1119 (D. Minn. 2011). In

Thorkelson, Plaintiffs’ counsel made the same arguments asserted here, that Congress did not

mean to extend the exemption beyond “churches.” Id. at 1125-26. Thorkelson rejected this

argument, and applied subsection (C)(i), holding that the exemption included plans of church-

affiliated organizations. Id. at 1126-27 (citing and applying Lown).

Plaintiffs are expected to rely on two cases, neither of which undercut Lown’s

precedential value, and both of which are decided wrongly. Specifically, in this recent “church

plan” litigation, Plaintiffs’ counsel has convinced two district courts outside this Circuit to

deviate from Lown. See Rollins, 2013 WL 6512682, at *6 (calling Lown’s approach reading

(C)(i) to exempt church-affiliated organizations “flawed”); Kaplan v. Saint Peter’s Healthcare

System, 2014 WL 1284854, at *7 (D.N.J. Mar. 31, 2014) (misreading Lown to conclude the

district court’s construction of the statute to exclude any plan of a church-affiliated

organizations was “consonant” with Lown), but see Trinity Defs.’ Notice, Doc. No. 36-1

(providing notice of Kaplan’s order certifying this ruling for interlocutory appeal under 29

U.S.C. § 1292(b)).

Rollins and Kaplan rely on the same flawed notion there is an unstated term in subsection


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(A) that makes it a gatekeeper for subsection (C)(i), such that only plans established by a church

under subsection (A) can be “church plans.” They assert that this must be so since only

subsection (A) refers to establishing and maintaining of a plan, while subsection (C)(i) refers

only to maintaining a plan.

The primary textual and logical flaw in Rollins and Kaplan is that they ignore the

statutory language and structure. Specifically, these rulings ignore that the definition of “church

plan” in subsection (A) as “established or maintained by a church” is first repeated as the

introduction to subsection (C)(i), and then followed by Congress’s plain statement that such

plans include those maintained and administered by church-affiliated organizations. See ERISA

§ 3(33)(A), (C). As Judge Blackburn explained in Medina, per Congress, subsection (C)(i) is

another way that a “church plan” is deemed to be established and maintained by a church.

Medina, 2014 WL 4244012, at *3.

Rollins and Kaplan also ignore that through the “church plan” exemption, Congress

deemed the church to be the employer of employees of church-affiliated organizations. And,

because churches are excluded from ERISA’s coverage, there can be no “ERISA plan” for these

deemed church employees.

In sum, nothing in Rollins and Kaplan abrogates Lown, or indicates that this Court should

ignore Lown as controlling on the statutory issue. Rather, Lown’s ruling on this threshold

statutory issue is both controlling and correct: “Church plans” are not limited to plans established

by churches since subsection (C)(i) includes within the exemption plans of church-affiliated

organizations. Read together, subsection (A) exempts plans of churches, while subsection (C)(i)

exempts plans of church-affiliated organizations.


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B. Even if Arguendo the “Church Plan” Exemption Were Found Ambiguous, the Court Should Defer to the Long-Standing and Consistent Construction of the Federal Agencies

Even if credited, at most Plaintiffs have identified, arguendo, a possible ambiguity in the

statute that caused two courts to construe subsection (A) as a “gatekeeper” to subsection (C)(i),

such that a plan must meet both requirements to qualify for the exemption. Plaintiffs’

construction is neither the best nor even a plausible reading of the statute. Trinity Health further

notes that even if Plaintiff’s “church must establish” construction applied, Trinity Health has

substantial defenses to Plaintiffs’ claims of ERISA coverage.15

Moreover, even if Plaintiff’s reading were deemed plausible, Plaintiffs cannot claim

Lown (and the numerous courts following Lown) was somehow unreasonable in construing the

statute to conclude plans of church-affiliated organizations may still qualify for the exemption.

At most, reasonable minds can differ over how the statute reads. Accordingly, should the Court

find the exemption ambiguous, the Court should defer to the long-standing and consistent

construction of the federal agencies. The IRS was contemporaneously involved in the

amendment expanding the “church plan” exemption, and its General Counsel Memo 39,007

(subsequently followed by the DOL and PBGC) reflected the IRS’s thoughtful analysis of the

language of the amended exemption in light of its extensive institutional knowledge. See United

States v. Cleveland Indians Baseball Co., 532 U.S. 200, 220 (2001) (noting IRS ruling reflecting

15 Among other things, to be an ERISA pension plan, the plan must be established by an employer for its employees. See ERISA § 3(2)(A), 29 U.S.C. § 1002(2)(A). And plans are “established” when a new entity takes over sponsorship of the plan. See, e.g., Rose v. Long Island Railroad Pension Plan, 828 F.2d 910, 920-21 (2d Cir. 1987) (in applying “governmental plan” exemption, court ruled plan was established when the plan sponsor was acquired by a government entity). Accordingly, under the retroactive correction rights Congress made applicable to the “church plan” exemption, Trinity Health may amend its pension plan to be sponsored and/or maintained by an entity that is part of the Catholic Church.


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agency’s longstanding interpretation that is reasonable “attracts substantial judicial deference”);

F.D.I.C. v. Cashion, 720 F.3d 169, 179 (4th Cir. 2013) (IRS information letter is “entitled to

respect.”); Flood v. New Hanover Cnty., 125 F.3d 249, 253 (4th Cir. 1997) (DOL letter rulings

provide “a body of experienced and informed judgment” and are given “substantial weight”).

This principle of deference is particularly strong when, as here, Congress built on these

agencies’ consistent and long-standing construction by enhancing the “church plan” exemption

in 2000. This Congressional action in 2000 gave this IRS guidance the effect of law. See, e.g.,

Cottage Savings Ass’n v. C.I.R., 499 U.S. 554, 561 (1991) (noting “Treasury regulations and

interpretations long continued without substantial change, applying to unamended or

substantially reenacted statutes, are deemed to have received congressional approval and have

the effect of law.”) (citations and quotation omitted); Petroleum Exploration v. C.I.R., 193 F.2d

59, 64 (4th Cir. 1951) (same); McCoy v. United States, 802 F.2d 762, 764 (4th Cir. 1986) (noting

rule). This rule of Congressional approval applies to Congressional reenactment of statutes in

relation to informal agency interpretation. E.g., Barnhart v. Walton, 535 U.S. 212, 219-222

(2002).


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V. CONCLUSION

For the foregoing reasons, Defendants request (i) a declaration that the ERISA “church

plan” exemption includes plans established and maintained by church-affiliated organizations,

and (ii) any further relief that the Court deems appropriate.

Dated: October 6, 2014 _/s/ Robert R. Niccolini________

Robert R. Niccolini (Md. Bar. No. 24873) OGLETREE, DEAKINS, NASH, SMOAK & STEWART, PC 1909 K Street, N.W., Suite 1000 Washington, D.C. 20006 Telephone: (202) 887-0855 Fax: (202) 887-0866 Email: [email protected]

Howard Shapiro (pro hac vice) Robert W. Rachal (pro hac vice) Stacey C. S. Cerrone (pro hac vice) PROSKAUER ROSE LLP 650 Poydras Street, Suite 1800 New Orleans, LA 70130 Telephone: (504) 310-4085 Fax: (504) 310-2022 Email: [email protected] [email protected] [email protected] Counsel for Defendants
