Saint Peter's CEO Resigns as Supreme Court Hearing Nears

This past Wednesday, March 22, news emerged that Ronald Rak had resigned as Saint Peter's CEO. A terse, undated announcement in employees' email from Vincent J. Dicks, chairman of the board of governors, announced that Rak had resigned "for personal reasons" and that company president Leslie Hirsch had assumed the additional role of interim CEO. The statement did not mention whether Rak would remain at Saint Peter's in any capacity.

The news comes as the scheduled date nears for Saint Peter's hearing before the US Supreme Court in its ERISA church exemption appeal. Oral argument in the three consolidated cases is scheduled for one hour this coming Monday, March 27.

There is no indication, and we have no idea, whether the timing of the Rak announcement is any more than coincidence. We will relay any news we can about Monday's court hearing as we get it.

Oral Argument Scheduled in Supreme Court Case

Oral argument before the Supreme Court in the three consolidated ERISA "church plan" cases is now scheduled for Monday, March 27. It seems likely that the court's vacant seat will still be unfilled as of that date.

Documents in the case can be found on the page for Saint Peter's Healthcare System v. Kaplan at the SCOTUSblog website. (Documents pertaining to the Supreme Court hearing can be found on dates after December 2, 2016, when the court granted the hospitals' petition for a hearing.)

In addition to briefs filed by the petitioners (the hospitals) and respondents (retirees), numerous organizations have filed amicus briefs on both sides of the argument. Church and church health organizations have filed, declaring, among other things, that the term "church" should be construed as broadly as possible, to encompass any entity with any conceivable connection to a church. As in the prior incarnations of these cases, they declare that subjecting church-affiliated organizations to regulations that govern other pension plans will infringe on the liberty of the church to act on its religious mission. (Interestingly, the United States—specifically the Treasury Department, the IRS, the Labor Department, and PBGC—has also filed on behalf of the hospitals.)

The Pension Rights Center's brief, by Drexel law professor Norman Stein and Karen Ferguson of the PRC, is a strong corrective. It gives several examples of organizations that have taken advantage of the church exemption, at the urging of benefits consultants like KPMG and Ernst & Young, and reaped a financial windfall. Many, like Saint Peter's, operated for decades as ERISA plans, only to retroactively claim church status in order to receive refunds of their PBGC insurance premiums (the predecessor of the petitioner in the related Dignity Health case received over $1.4 million in premium refunds after operating for 19 years as an ERISA plan). In addition, the lax funding and reporting requirements allow the organization to underfund the plan and keep its health secret from its members, often until it is abandoned in a buyout or bankruptcy. They note that in all these cases, the church disavows any financial responsibility for the affiliated organization's pension plan.

As in previous briefs (in cases the retirees won at the district and appellate level), PRC relates the history of the church plan exemption and explains how both the clear language of the ERISA statute and its legislative history make clear that the exemption was never intended as a broad exemption for church-related agencies. We hope the Court agrees that the church's "good work" should not include depriving workers of their promised retirement benefits.

More Supreme Court News

More news items have been published regarding the recent agreement by the U.S. Supreme Court to hear cases involving three church-affiliated hospital pension plans, including Saint Peter's. In all three cases, the hospitals, claiming the right to shed federal ERISA worker protections under an exemption for churches, had lost in federal appeals court.

• Joellen Leavelle of Pension Rights Center has published an excellent overview which should be required reading. (We admit, we rushed to publish the update in our previous post; Ms. Leavelle's is far superior.)
• The always reliable Hazel Bradford at Pensions & Investments has written a balanced, in-depth report.
• Karin Price Mueller of the Star-Ledger/NJ.com has an update to her Bamboozled item we featured in a previous blog post. Ms. Mueller again touches on another New Jersey hospital, St. James of Newark, whose corporate owners used the church exemption to stiff their retirees and bankrupt their pension plan.

We found other accounts, to which we decline to link here. Florida Baptist Witness reports that "religious freedom advocates" say the court's impending decision would determine "if Protestant and Catholic hospitals qualify as faith-based ministries." The president of the Southern Baptist Ethics & Religious Liberty Commission is reported as saying, "I hope the Supreme Court rules in favor of these hospitals, their employees, and their communities, and rejects this attempt to attack once again religious freedom and human compassion." The reporter doesn't question how compelling a hospital to keep its promises to its employees is somehow anti-employee or an attack on compassion, or how an ethics commission president can display such a brazen disregard for ethics. Breitbart News, the far-right website until recently helmed by Donald Trump's prospective White House strategist Stephen Bannon, is even worse. By their telling, the hospitals in these cases "are all faith-based healthcare providers. They are nonprofit organizations which provide health care to the poor and needy, and they do it as their faith-based ministry to the world." The bad guys? "Trial lawyers."

We hear that the court will hear oral argument in the consolidated group of cases in March 2017, when the court will in all likelihood still have only eight members.

Supreme Court Will Hear Hospitals' Appeals

The U.S. Supreme Court has decided to hear the appeals of three church-affiliated hospital systems, including Saint Peter's Healthcare System. All three hospital systems' pension plans were declared ineligible by federal appeals courts for the ERISA exemption for churches. Besides Saint Peter's, the hospital systems are Dignity Health of California, which operates Catholic hospitals, and Advocate Health System of Illinois, affiliated with the Evangelical Lutheran Church in America and United Church of Christ. The cases have been consolidated, so the Court will hear arguments for all three cases together.

It seems strange that the Court would hear these cases when there has been no disagreement at the appellate level that the church exemption applies only to plans established by churches, according to a clear reading of the statute. The Court apparently accepted the argument of the hospitals' lawyers that decisions by the Department of Labor and the IRS which interpreted the statute differently should be given weight similar to the actual wording of the statute.

We will have more soon, but for now, here are three articles on this latest development from The National Law Journal, ABA Journal, and Reuters.

Star-Ledger/NJ.com "Bamboozled" article

The Star-Ledger/NJ.com has published an excellent article on pensions of New Jersey Catholic hospitals, and its title is blunt: Bamboozled: How Catholic Hospitals Get Away With Letting Pensions Go Broke. Karin Price Mueller's Bamboozled series tends to focus on scams, fraud, and avoidance of responsibility to citizens and consumers. The new article, showing Catholic hospitals' attempt to renege on their debt to employees and retirees, fits the pattern.

The article focuses on both St. Peter's plan and that of the now-defunct St. James Hospital of Newark. St. James' pension plan was starved of funds after a "church plan" ruling, then completely abandoned in a series of corporate mergers. The corporate parent(s) told one story (via press release, and probably to their retirees as well) at the time of the mergers about who was responsible for the plan, but now say that story was "incorrect or misleading"—while taking no responsibility for the outcome. St. James' plan will run out of money in the next few months; the plan's facilitator can't find the responsible party, and the Archdiocese of Newark won't return their phone calls.

It's not difficult to see the parallels. St. Peter's has done their best to rewrite the past, with help from their consultants and lawyers (e.g., "We have always been a church plan"), and their rare public statements about the plan are careful not to mention future benefits. Any words coming from St. Peter's or the Archdiocese of Metuchen about the plan should be subject to careful scrutiny.

As the article mentions, the Supreme Court's decision on whether to hear the St. Peter's case and/or others like it is imminent. We expect to have more for you on this very soon.

Lawsuit Update

Here’s an update on where we stand, to the best of our knowledge, in the Saint Peter’s case:

As you probably know, the case has been returned to the federal district court of New Jersey, after the Third Circuit in December 2015 denied Saint Peter's appeal, then in March 2016 denied a request to re-hear the case. Absent any new action from Saint Peter’s, the next task in the district court would be to resume the original lawsuit: legal discovery would begin, focusing on the extent of Saint Peter’s ERISA violations (e.g., underfunding the pension plan) so that remedial decisions/orders could be made to bring the plan back into compliance. Alas, none of this has happened.

Saint Peter’s has petitioned the Supreme Court to review their case — in the language of the Court, to grant certiorari (choose your favorite pronounciation). In the meantime Saint Peter’s has filed a motion with the district court to stay the proceedings there, pending the Supreme Court’s decision. The lawyers for the plaintiffs claim that the motion is procedurally improper because, among other things, the hospital cannot establish a reasonable probability that their argument will sway the Court. Remember, the Court's role is to resolve conflicting opinions in the appellate courts. Saint Peter’s has NO appellate court rulings they can cite to support their claim to the church-plan exemption, while the plaintiffs can now cite two appellate rulings supporting their arguments (the Saint Peter’s and Advocate decisions). The motion to stay seems clearly designed as a stalling action, to allow the possibility of a favorable ruling in another of the several similar cases now before the courts, and to allow the hospital to save money by continuing to operate the pension as a church plan.

At this point, we are waiting for the district court to rule on the motion to stay, or for the Supreme Court to decide whether to grant Saint Peter’s a hearing. The current Supreme Court term ends imminently, with the new term beginning in October, but (we believe) a decision could still be made during the summer recess.

St. Peter's Appellate Rehearing Denied

You may remember (you certainly should!) that back in January, Saint Peter's announced that they had filed to request that the entire Third Circuit re-hear the appeal that a three-judge panel had previously denied. On Friday, March 18, the Third Circuit denied Saint Peter's request for a rehearing. Today, the Third Circuit sent the case back to the New Jersey District Court for a decision, which will presumably go against Saint Peter's. It will be interesting to see what Saint Peter's does next; plainly they do not intend to run the pension plan as an ERISA plan.