Smith v. OSF Healthcare Sys.

349 F.Supp.3d 733

Sheilar SMITH, et al., on behalf of Themselves and All Others Similarly Situated, and on behalf of the OSF Plans, Plaintiffs,

v.OSF HEALTHCARE SYSTEM, et al., Defendants.

Case No. 16-CV-467-SMY-RJD

United States District Court, S.D. Illinois.

Signed September 28, 2018

Matthew H. Armstrong, Armstrong Law Firm LLC, St. Louis, MO, Havila C. Unrein, Lynn Lincoln Sarko, Laura R. Gerber, Cari Campen Laufenberg, Pro Hac Vice, Laura R. Gerber, Keller Rohrback, LLP, Seattle, WA, Ron Kilgard, Keller Rohrback, LLP, Phoenix, AZ, Edward W. Ciolko, Julie Siebert-Johnson, Mark K. Gyandoh, Kessler Topaz Meltzer & Check, LLP, Radnor, PA, Karen Handorf, Cohen, Milstein, Sellers & Toll, PLLC, Mark P. Kindall, Pro Hac Vice, Izard Kindall & Raabe LLP, West Hartford, CT, Mary Joanne Bortscheller, Michelle C. Yau, Scott Michael Lempert, Cohen, Milstein, Sellers & Toll, PLLC, Washington, DC, for Plaintiffs.

Brian T. Ortelere, Jeremy Paul Blumenfeld, Morgan, Lewis et al., Philadelphia, PA, Robert J. Bassett, Jennifer L. Maloney, Heyl, Royster, et al., St. Louis, MO, Erin E. McAdams, Morgan, Lewis et al., Chicago, IL, Roberta H. Kuehne, Pro Hac Vice, Morgan, Lewis and Bockius, San Francisco, CA, for Defendants.

MEMORANDUM AND ORDER

STACI M. YANDLE, United States District Judge

This matter is before the Court for consideration of Defendants' Motion for Summary Judgment (Doc. 147). Plaintiffs filed a Response (Doc. 191) and Defendants filed a Reply (Doc. 194). For the following reasons, the motion will be GRANTED.

INTRODUCTION

Defendant OSF Healthcare System ("OSF") is an Illinois 501(c)(3) non-profit corporation, founded by The Sisters of the Third Order of St. Francis ("St. Francis Order"). (Defendants' Memorandum in Support of Defendants' Motion for Summary Judgment, Doc. 148 at 8-9). OSF operates eleven acute care hospitals, home health care services and other health care facilities in Illinois and Michigan. OSF has defined-benefits plans covering its own direct employees ("St. Francis Plan") and employees of the recently-acquired St. Anthony's Health Center ("St. Anthony's Plan").

Defendant Retirement Committee for the Retirement Plan for Employees of Saint Anthony's Health Center ("St. Anthony's Committee") is the administrator of the St. Anthony's Plan. Defendant Sisters of the Third Order of St. Francis Employees Pension Plan Administrative Committee ("St. Francis Committee") is the administrator of the St. Francis Plan.

Plaintiffs Sheilar Smith and June Schwierjohn were employed at Saint Anthony's Health Center ("SAHC") until 2015 and 2016 respectively. Both are vested participants in the St. Anthony's Plan. Plaintiffs Kasandra Anton, Bonnie Bailey, and Peggy Wise were employed by OSF and are vested participants in the St. Francis Plan.

This case involves claims asserted under the Employee Retirement Income Security Act of 1974 ("ERISA"), Pub.L. 93–406, 88 Stat. 840 as amended. Specifically, Plaintiffs claim OSF and related entities have improperly treated the St. Anthony's Plan and St. Francis Plan (collectively, "the Plans") as "church plans" exempt from the requirements of ERISA. Plaintiffs allege that as a result, OSF has failed to fund the Plans' trust accounts to the levels required under ERISA to cover all accrued benefits, that the defendants failed to follow certain notice, disclosure and managerial requirements, and that the defendants have breached their fiduciary duties. (Fourth Amended Complaint, Doc. 138 at 41-56).¹ Plaintiffs also assert a claim for declaratory judgment, seeking a declaration that the church plan exemption as applied violates the Establishment Clause of the First Amendment, and is therefore unconstitutional. (Id. at 56-60).

BACKGROUND

OSF is a nonprofit healthcare system. (Doc. 138, ¶¶ 17, 32). In 1880, the Sisters of the Third Order of St. Francis, an order of Franciscan sisters, incorporated as an Illinois nonprofit under the name "Sisters of the Third Order of St. Francis," with the stated objective of "conducting hospitals" (Doc. 150-1 at 1-6). The name of the corporation was changed to OSF Healthcare System in 1989, and the St. Francis Order formed a new Illinois nonprofit corporation named The Sisters of the Third Order of St. Francis ("STOSF") to "serve as an integral part of the Roman Church and to carry out its mission; [and] to carry on the corporal works of the mercy of the Roman Catholic Congregation of Sisters." (Declaration of Sister Diane Marie McGrew, President of OSF, Doc. 150 at ¶¶ 11; Doc. 150-1 at 10-14; Doc. 150-4 at 2-6, 26). The Sisters in the St. Francis Order are the only members of STOSF, which in turn is the sole member of OSF. (Doc. 150 at ¶ 9; Doc. 150-3 at 3). STOSF's authority over OSF is governed by OSF's governing documents and the canonical and civil guidelines pertaining to Church properties. (Doc. 150-3 at 5). In 2014, SAHC, a nonprofit Catholic hospital operated by The Sisters of St. Francis of the Martyr of St. George in Thuine ("St. George Order"), merged into OSF with the permission of the applicable Roman Catholic Church department and the endorsement of the Bishop of Springfield. (Doc. 150 at ¶¶ 18-21; Doc. 150-6 at 11-14; Doc. 150-7).

OSF requires that its President and a majority of its Board of Directors be Sisters. (Doc. 150-3 at 5, 11). All directors (including lay members) are required to meet certain qualifications, including "Commitment to the Philosophy, Mission, Values and Vision of [STOSF,]" and "Commitment to uphold the Catholic Code of Ethics in all dealings and deliberations pertaining to the Board's responsibilities." (Id. at 5-6). Among the powers reserved to STOSF (as sole member of OSF) is the power to appoint, approve or remove OSF's chairperson, vice-chairperson, chief executive officer, president, chief medical officer/chief clinical officer, regional CEOs, and operating division presidents and CEOs. (Id. at 3-4). STOSF also has the power to "approve the introduction or termination of value sensitive ministries or services, and to eliminate services or activities which are in conflict with the philosophy and purposes of the established ministry." (Id. at 5). In the event OSF is dissolved, its assets revert to STOSF. (Id. at 3). OSF is recognized as a Catholic institution in the Official Catholic Directory. (Doc. 149-7 at 6). Its bylaws provide that any Medical Staff Bylaw or Rule is invalid if it conflicts with the Ethical and Religious Directives for Catholic Health Care Services ("ERDs") promulgated by the United States Conference of Catholic Bishops. (Doc. 150-3 at 20-21).

Both Plans at issue in this case are sponsored by OSF. (Docs. 138 and 140, ¶¶ 56-57, 72-74). The St. Francis Plan has approximately 18,000 participants, and the St. Anthony's Plan has approximately 1,300 participants. (Declaration of April M. Rowe, OSF Manager of Employee Benefits, Doc. 153 at ¶¶ 8, 9). Sixty participants in the St. Francis Plan are employed by for-profit entities; none of the St. Anthony's Plan participants are employed by for-profit entities. (Declaration of Amanda Lowry, Vice President Controller of OSF, Doc. 159 at ¶¶ 3, 5).

The St. Francis Plan is "administered and maintained" by the St. Francis Committee, whose members are appointed by the OSF Board of Directors (the majority of which is made up of St. Francis Order Sisters), and the majority of committee members must be Sisters. (Doc. 153-1 at 63) Currently, the Committee consists of seven voting members, four of whom are Sisters. (Doc. 150 at ¶ 27). The Committee is designated as the Plan Administrator and has "the power and discretion to determine all questions arising in connection with the administration, interpretation and application of the Plan." (Doc. 153-1 at 63-64). The Committee's determinations are considered "conclusive and binding[.]" (Id. at 64). The Committee also holds "all powers necessary or appropriate to accomplish its duties under [the] Plan [and] [e]xcept as otherwise provided in [the] Plan, the Committee shall have full and complete authority, responsibility, and control in its sole and absolute discretion over the management, administration and operation of the Plan[.]" (Id.). Those powers include the determination of eligibility to receive Plan benefits, computation and certification to OSF and the trustee of the amounts "necessary or desirable to be contributed to the Plan," and the administration of the Plan's claims procedures and claims review procedures. (Id. at 64-65). Under the St. Francis Plan, benefits "shall not be paid unless the [St. Francis Committee], in its discretion, determines that the Claimant is entitled to them." (Id. at 65). The Committee is separately empowered to "adopt such rules and decisions as it deems necessary or desirable." (Id. at 65). OSF has authority to amend the Plan, although any amendment that affects the rights, duties or responsibilities of the St. Francis Committee (other than its removal) must have the Committee's written consent. (Id. at 70).

The St. Anthony's Committee is similarly charged with administering the St. Anthony's Plan, and "shall have all discretionary powers and authority necessary to carry out the provisions of the Plan." (Doc. 153-2 at 50, 53). Its members are the same as those of the St. Francis Committee – seven voting members, four of whom are St. Francis Order Sisters. (Doc. 150 at ¶ 27). "Any action or determination or decision whatsoever taken or made by the [St. Anthony's Committee] in good faith shall be final, binding and conclusive upon all persons concerned, including but not limited to the Employer, Employees and former Employees, Participants and former Participants and their spouses and Beneficiaries." (Doc. 153-2 at 52). The St. Anthony's Committee is responsible for Plan interpretation, benefit determinations, the claims process, and revision of the Plan to correct errors to effectuate the intent of the Plan. (Id. at 50-53). However, the St. Anthony's Committee cannot otherwise...