Martinez-Gonzalez v. Catholic Sch. of the Archdioceses of San Juan Pension Plan

IVETTE MARTINEZ-GONZALEZ, et al., Plaintiffs v. CATHOLIC SCHOOLS OF THE ARCHDIOCESES OF SAN JUAN PENSION PLAN, et al., Defendants.

Civil No. 16-2077 (GAG/BJM)

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF PUERTO RICO

January 9, 2017

REPORT AND RECOMMENDATION

This case presents an important threshold issue that has been the subject of much recent litigation and that is presently before the U.S. Supreme Court:¹ whether the church-plan exemption under the Employee Retirement Income Security Act of 1974 ("ERISA" or "Act"), 29 U.S.C. § 1001 et seq., applies so long as a pension plan is maintained by an otherwise qualifying church-affiliated organization, or whether the exemption applies only if, in addition, a church initially established the plan. Ivette Martinez-Gonzalez and other alleged beneficiaries (collectively, "Martinez") of the Catholic Schools of the Archdioceses of San Juan Pension Plan (the "Plan") brought this ERISA action against the Plan, the Plan's administrators, and the Plan's sponsor—the Superintendence of Catholic Schools of the Archdioceses of San Juan (the "Superintendence").² The Superintendence, joined by the Plan's Trust and the Plan's administrators, moved to dismiss the amended complaint for failure to state a claim and lack of subject-matter jurisdiction, Docket Nos. 27, 37, 48-1, 75, and Martinez opposed. Docket Nos. 41, 45, 61-1, 73. This matter was referred to me for a report and recommendation. Docket Nos. 54, 74.

For the reasons set forth below, the motion to dismiss should be DENIED.

MOTION TO DISMISS STANDARD

Federal Rule of Civil Procedure 12(b)(1) governs motions to dismiss for lack of subject-matter jurisdiction. Fed. R. Civ. P. 12(b)(1). The "party invoking the jurisdiction of a federal court carries the burden of proving its existence." P.R. Tel. Co. v. Telecomm's Reg. Bd. of P.R., 189 F.3d 1, 7 (1st Cir. 1999). When deciding whether subject-matter jurisdiction exists, the court follows two general rubrics: (1) when a defendant challenges the legal sufficiency of the facts alleged, the court credits the plaintiffs' factual allegations and draws reasonable inferences in his or her favor; and (2) when the defendant challenges the truth of facts alleged by the plaintiff and offers contrary evidence, the court weighs the evidence. Valentín v. Hosp. Bella Vista, 254 F.3d 358, 363 (1st Cir. 2001).

To survive a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), on the other hand, "an adequate complaint must provide fair notice to the defendants and state a facially plausible legal claim." Ocasio-Hernández v. Fortuño-Burset, 640 F.3d 1, 12 (1st Cir. 2011). To do so, the complaint must set forth "factual allegations, either direct or inferential, regarding each material element necessary" for the action. Gooley v. Mobil Oil Corp., 851 F.2d 513, 514 (1st Cir. 1988). When evaluating the complaint, the court first discards any "'legal conclusions couched as fact' or 'threadbare recitals of the elements of a cause of action.'" Ocasio-Hernández, 640 F.3d at 12 (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)). The remaining "[n]on-conclusory factual allegations" are fully credited, "even if seemingly incredible." Ocasio-Hernández, 640 F.3d at 12. The court engages in no fact-finding when considering the motion, and does not "forecast a plaintiff's likelihood of success on the merits." Id. at 13. Rather, the court presumes that the facts are as properly alleged by the plaintiff, and draws all reasonable inferences in the plaintiff's favor. Schatz v. Republican State Leadership Comm., 669 F.3d 50, 55 (1st Cir. 2012). Taken together, the facts pleaded must "state a plausible, not a merely conceivable, case for relief." Ocasio-Hernández, 640 F.3d at 12.

BACKGROUND³

Around 40 years ago, the Superintendence "established" a multiple-employer, defined-benefit pension plan (the "Plan") for employees of Catholic schools in Puerto Rico that elected to participate in the Plan. Am. Compl. ¶¶ 5, 19. These schools are allegedly controlled by an independent board of directors rather than the Roman Catholic Church of Puerto Rico. Id. A trust was established for the Plan, and several fiduciaries were designated to administer the Plan. Id. ¶¶ 5, 7-14. Martinez and all other plaintiffs named in the complaint reside in Puerto Rico and are vested participants or beneficiaries of the Plan. Id. ¶¶ 4, 59.

The Plan

The Plan was established in 1979, and the Superintendence was identified as the Plan's "settlor or sponsor." Id. ¶¶ 6, 19. Several fiduciaries, along with the Superintendence, were designated at that time to establish a trust that would administer the Plan. Id. ¶ 19. The Deed of Trust, which was approved by the Plan, required the trustees to pay a bond pursuant to a statutory provision of ERISA. Id. ¶¶ 21, 22. Article 2 of the Plan provides that it shall be "interpreted and administered in a consistent manner with the provisions" of ERISA and the income tax law of Puerto Rico, "or any future provision of any applicable law." Id. ¶ 22. Similarly, Article 21 of the Plan provides that the Plan "and all its provisions shall be interpreted pursuant to" Puerto Rico law and ERISA. Id. After the Plan was approved, the Plan's beneficiaries received a notice informing them of various rights protected by ERISA. Id. ¶ 24. And a similar notice was disseminated by the Superintendence in September 1993. Id. ¶ 25.

Alleged ERISA Violations

The Plan's administrators allegedly failed to comply with ERISA because they failed to: (1) send a summary of the annual financial report of the Plan to the participantsand beneficiaries; (2) send the beneficiaries actuarial studies or audited financial statements that related to the Plan; (3) pay annual premiums imposed by the Pension Benefit Guaranty Corporation ("PBGC") since 2009; (4) pay a bond; (5) take measures since 2009 to prevent the Plan's insolvency; (6) diversify the investment fund portfolio by investing 80% of the Plan's funds in "risk[y]" closed-end-bond funds and bonds issued by public agencies in Puerto Rico; (7) act with due "care, skill, and diligence" under the circumstances; (8) maintain an "independent and critical eye" when investing the Plan's funds with the help of outside consultants; and (9) correct their imprudent investments. Id. ¶¶ 26-37. And the brokers who advised the Plan's administrators, the complaint states, are also allegedly liable for the imprudent investment advice they provided. Id. ¶¶ 38-42.

Termination of the Plan & Church-Plan Exemption

In March 2016, the Superintendence, together with the Plan's administrators and fiduciaries, terminated the Plan and relayed to the Plan's participants and beneficiaries that the Plan was not covered by ERISA because it was a "church plan." Id. ¶ 43. Taking issue with this characterization of the Plan, Martinez alleges that the Plan is covered by ERISA and that the church-plan exemption "is not applicable to the" Plan. Id. ¶¶ 46-47. The amended complaint marshals two alternative bases for alleging that the Plan is not within the ambit of ERISA's church-plan exemption. Id. ¶¶ 47, 49, 50.

First, Martinez alleged that "most, if not all of the participating employers failed to request exemption from taxation" under the Internal Revenue Code. Id. ¶ 49 (citing 29 U.S.C. § 1002(33)(C)(ii)). Second, and "[a]lternatively," Martinez alleged that Congress did not intend "to permit church agencies to sponsor their own pension plan—it merely intended to allow employees of church agencies or parochial schools to participate in plans established and maintained by churches or [a] convention or association of churches." Am. Compl. ¶ 50. The amended complaint further alleged that the church-plan exemption violates the Establishment Clause of the First Amendment. Id. ¶ 51.

Given that the Plan has been voluntarily terminated, Martinez alleges that the beneficiaries are entitled to have the assets of the Plan distributed in accordance with the provisions of ERISA. Id. ¶ 54. At the time the amended complaint was filed, however, the Plan's beneficiaries had not been informed with sufficient specificity how the Plan's assets would be distributed, or the amount of non-forfeitable benefits to which they are entitled. Id. ¶¶ 55-58. Martinez and the other beneficiaries claim that they have never waived any of the notices they were entitled to receive. Id. ¶ 56. In June 2016, Martinez and the other beneficiaries filed this action to obtain injunctive relief, payment of benefits, removal of the Plan's administrators, attorneys' fees, and costs—alleging termination of the Plan in violation of ERISA-required procedures, breach of fiduciary duties, breach of the duty of disclosure, and breach of co-fiduciary duties. Id. ¶¶ 56, 61-83.

DISCUSSION

The Superintendence challenges the court's subject-matter jurisdiction, and contends that the amended complaint fails to state a claim under ERISA because the Plan qualifies as an exempt "church plan." Martinez responds that ERISA's church-plan exemption is inapplicable, and that the Superintendence muddles jurisdictional with merits-based issues when challenging the court's authority to hear this case.

I. Jurisdictional Challenge

At the outset, the Superintendence contends that the court lacks subject-matter jurisdiction because the Plan is an ERISA-exempt "church plan." Docket No. 27 at 5. "Generations of jurists have struggled with the difficulty of distinguishing between Rules 12(b)(1) and 12(b)(6) in federal question cases . . . ." Primax Recoveries, Inc. v. Gunter, 433 F.3d 515, 517 (6th Cir. 2006) (quoting Nowak v. Ironworkers Local 6 Pension Fund, 81 F.3d 1182, 1188 (2d Cir. 1996)). "In theory, the difference is clear: 'the former determines whether the plaintiff has a right to be in the particular court and the latter is an adjudication as to whether a cognizable legal claim has been stated.'" Gunter, 433 F.3d at 517 (quoting 5B Charles Alan Wright & Arthur R....