Catholic Charities of Maine v. City of Portland, No. CIV.03-55-P-H.

304 F.Supp.2d 77

CATHOLIC CHARITIES OF MAINE, INC., Plaintiff v. CITY OF PORTLAND, Defendant

No. CIV.03-55-P-H.

United States District Court, D. Maine.

February 6, 2004.

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Gene R. Libby, Verrill & Dana, Kennebunk, ME, for Catholic Charities Maine Inc., Plaintiff.

Patricia A. Peard, Ronald W. Schneider, Jr., Bernstein, Shur, Sawyer, & Nelson, Portland, ME, for City of Portland.

MEMORANDUM DECISION ON CROSS-MOTIONS FOR SUMMARY JUDGMENT

HORNBY, District Judge.

Are the health benefit plans of Catholic Charities Maine, Inc. "church plans" exempt from federal regulation under the Employee Retirement Income Security Act of 1974 and the Internal Revenue Code? If so, can Catholic Charities decline the exemption and subject itself to federal regulation? The answers are significant because they determine whether federal preemption defeats the City of Portland's effort to require Catholic Charities to extend its fringe benefits to the domestic partners of employees. Both parties have moved for summary judgment. I heard oral argument on January 22, 2004. For the reasons that follow I GRANT each party's motion in part.¹ Specifically, I conclude that Catholic Charities' plans are for the most part "church plans" and that Catholic Charities has effectively elected federal coverage as of July 22, 2003, thereby preempting application of Portland's ordinance to the greater part of its plans from that date forward. Until July 22, 2003, however, Catholic Charities' plans were exempt from ERISA and were fully subject to the City's ordinance. Application of the ordinance to the plans during that time was not unconstitutional. Finally, certain collateral fringe benefits (the Employee Assistance Program, bereavement leave, and leaves of absence) are not subject to ERISA preemption; the City's ordinance does govern them and may constitutionally do so. My decision has nothing to do with what is good or bad social policy, but only with whether local regulation is limited by federal statute or the United States or Maine Constitution.

I. FACTS

On May 21, 2001, the City of Portland ("City") enacted Chapter 13.6, Sections 13.6-21, Domestic Partnership ("the Ordinance"). Pl.'s Statement of Material Facts ("Pl.'s SMF") ¶ 10. The Ordinance required the City and the Portland School Committee to provide the same health and employment fringe benefits to employees with domestic partners² as to employees with spouses. Id. ¶ 11. On June 3, 2002, the City extended the reach of the Ordinance to any organization accepting Housing and Community Development ("HCD") funds from the City. Id. ¶ 14. Catholic Charities Maine, Inc. ("Catholic Charities") is one such organization.

Catholic Charities is a Maine non-profit corporation that provides a variety of social services to Maine residents. Id. ¶¶ 1-2. It is exempt from tax under section 501 of the Internal Revenue Code. Def.'s Statement of Material Facts ("Def.'s SMF") ¶ 40. Catholic Charities is not a church, but it has close ties with the Roman Catholic Church in that it has membership, governing bodies, trustees and officers in common with the Roman Catholic Diocese of Portland, id. ¶ 42, and aims to implement the social teachings of the Catholic Church. Id. ¶ 41.

Catholic Charities provides a number of benefits to its employees, including retirement benefits, health benefits,³ bereavement leave, an employee assistance program, and paid and unpaid leaves of absence. Am. Compl. ¶ 12; Def.'s Statement of Additional Facts ¶¶ 22-24. It extends benefits to families, Pl.'s SMF ¶ 4, but not to domestic partners of employees. Id. ¶ 16. Catholic Charities has filed the government documents that are required of ERISA plans since at least 1997. Id. ¶¶ 5-6.

The City awarded HCD funds for the period July 1, 2002 through June 30, 2003, to four of Catholic Charities' programs (Homemaker Services, Support and Recovery Services, St. Elizabeth's Child Development Center, and Family Child Care). Pl.'s SMF ¶ 15. Because Catholic Charities refused to sign a contract agreeing to comply with the Ordinance, however, the City did not disburse those funds. Pl.'s SMF ¶¶ 16-17. Catholic Charities nevertheless proceeded, at least in part, to carry out the service programs. Def.'s SMF ¶ 31. The City denied Catholic Charities' request for HCD funding for the period of July 2003 through June 2004. Pl.'s SMF ¶¶ 16-17.

On June 3, 2003, Catholic Charities filed an amended complaint against the City, seeking declaratory and injunctive relief as to its health benefit plans, and claiming that enforcement of the Ordinance is preempted by ERISA, 29 U.S.C. §§ 1001 et seq., and the Housing in Community Development Act and forbidden by the United States and Maine Constitutions. On July 22, 2003, Catholic Charities filed an election under the Internal Revenue Code Section 410(d), 26 U.S.C. § 410(d), for all of its plans, welfare and pension, stating its intent to be bound by federal law. Pl.'s Add'l SMF ¶ 183.

II. ANALYSIS

A. ERISA

The federal Employee Retirement Income Security Act of 1974 ("ERISA") contains a broad preemption provision. It directs that its coverage "shall supercede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan ...." 29 U.S.C. § 1144(a). Employee benefit plans include "welfare benefit plans" and "pension benefit plans." (Catholic Charities' pension benefit plan is not part of this dispute.) A "welfare benefit plan" includes, among other things, a plan to provide medical benefits. 29 U.S.C. § 1002(1)(A). Catholic Charities and the City agree that Catholic Charities' health benefit plans are "welfare benefit plans" under ERISA's definition. Def.'s Mot. at 3. They disagree, however, on whether Catholic Charities' health benefit plans are subject to ERISA's coverage: specifically, (a) whether they are exempt church plans; (b) if so, whether they have effectively elected out of the exemption; and (c) whether the City's Ordinance even "relates to" employee benefit plans.

(1) Are Catholic Charities' employee benefit plans exempt from ERISA as "church plans"?

Title I of ERISA applies to employee benefit plans, both welfare and pension, with a few enumerated exceptions. 29 U.S.C. § 1003. One of those exceptions is for a "church plan ... with respect to which no election has been made under section 410(d) of [the Internal Revenue Code]." Id. § 1003(b)(2). "Church plan" is defined in section 1002(33) as "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]."

The City does not contend that Catholic Charities is a church or convention or association of churches. It relies instead on an ERISA provision that expands the general definition of "church plan" to encompass, in certain circumstances, plans established and maintained by non-church organizations. Specifically, ERISA provides that a person is an "employee of a church or a convention or association of churches" if the person is "an employee of an organization, whether a civil law corporation or otherwise, which is exempt from tax under section 501 of [the Internal Revenue Code] and which is controlled by or associated with a church or a convention or association of churches." 29 U.S.C. § 1002(33)(C)(ii). Catholic Charities is indisputably tax-exempt under section 501; the issue is whether it is also "controlled by" or "associated with" a church. If so, the church (here, the Roman Catholic Church) "shall be deemed the employer of any individual included as an employee under clause (ii)." Section 1002(33)(C)(iii). Thus, ERISA brings a plan established or maintained by a non-church organization within the general definition of "church plan" if that organization is "controlled by" or "associated with" a church. See Lown v. Continental Cas. Co., 238 F.3d 543, 547 (4th Cir.2001); Peter J. Wiedenbeck, ERISA's Curious Coverage, 76 Wash. U.L.Q. 311, 348 (1998) ("An employee of a tax-exempt organization is treated as the employee of a church and his employer is deemed to be a church if the organization is `controlled by or associated with a church or convention or association of churches.'").

ERISA does not define "controlled by." Courts have interpreted the provision as referring to corporate control, such as church control over appointment of a majority of the non-church organization's officers or Board of Directors. See Lown, 238 F.3d at 547; Duckett v. Blue Cross & Blue Shield, 75 F.Supp.2d 1310, 1316 (M.D.Ala.1999). See also 26 C.F.R. § 1.414(e)-1(d)(2) (providing that "an organization, a majority of whose officers or directors are appointed by a church's governing board or by officials of a church, is controlled by a church" for the purposes of the Code). Under Catholic Charities' by-laws, the President and Vice President of the Catholic Charities Board of Directors are always the Diocesan Bishop of Portland and the Vicar General, respectively. Def.'s SMF ¶¶ 48-51. As President, the Bishop has the power to appoint and to remove both the corporation's members, id. ¶ 46, and the Chief Executive Officer. Id. ¶ 55. The corporation's members, in turn, vote to approve members of the Board of Directors. Id. ¶ 47. Thus, the Bishop of Portland essentially controls the Board of Directors. Moreover, Catholic Charities cannot sell any of its property or assets without the Bishop's approval. Id. ¶ 59. These undisputed facts certainly suggest that Catholic Charities is "controlled by" the Catholic Church. But ultimately I do not need to decide the control question, because Catholic Charities is indisputably "associated with" the Church.

According to ERISA, an organization is "associated with" a church "if it shares common religious bonds and convictions with that church ...." Section 1002(33...