Cook County Record

Wednesday, February 26, 2020

Appeals panel: Federal judge prematurely ended class action vs OSF Healthcare over 'church plan' pensions


By Scott Holland | Aug 16, 2019


CHICAGO — A three-judge panel of the U.S. Seventh Circuit Court of Appeals determined a federal judge was too hasty in cutting short a class action against Peoria-based OSF Healthcare over the question of whether its retirement plans qualify as a "church plan," exempting it from certain federal rules.

OSF retiree Sheilar Smith alleged the plans are insufficiently funded and that OSF didn’t follow notice, disclosure and managerial requirements. U.S. District Judge Staci Yandle, of the U.S. District Court for the Southern District of Illinois, granted summary judgment to OSF despite Smith’s motion to postpone that decision pending further discovery. 

The panel determined Yandle abused discretion by denying postponement. Seventh Circuit Judge David Hamilton wrote the opinion issued Aug. 13; judges Diane Wood and Frank Easterbrook concurred.

According to the opinion, the underlying issue is whether pension plans for the nonprofit, Roman Catholic hospital chain are subject to the Employee Retirement Income Security Act, or whether they are exempt under the law’s “church plan” clause.

“In 1980, Congress amended the church plan exemption,” Hamilton wrote. “Under the amended version, the exemption extends not only to plans for employees of churches but also to plans for employees of church-affiliated organizations.”

With religious hospitals covered under the exemption, the panel continued, the issue is whether OSF meets the ERISA definition of a “principal-purpose organization,” as well as to what degree OSF maintains or administers the plan.

Although OSF merged with St. Anthony’s Health Center in 2014, the entities kept separate their pension plans, which incorporate about 19,285 people. Those IRS-designated church plans are closed to new participants and don’t accrue further benefits.

Smith, who is in one of the OSF pension plans, sued in the Southern District of Illinois alleging that since the Sisters of the Third Order of St. Francis Employees’ Pension Plan Administrative Committee and the St. Anthony’s Health Center Retirement Committee are made up of the same members, neither is a “principal-purpose organization” qualifying its respective plan to be exempt from ERISA standards.

The Southern District of Illinois has courthouses in East St. Louis and Benton.

A judge is allowed to grant summary judgment even before discovery is completed, the panel explained, and the party looking to forestall such an outcome must justify its request.

Smith, Hamilton wrote, “established a strong record of diligence, and at least some of the additional discovery sought … would not have been futile.” 

The panel noted Yandle found Smith didn’t act diligently to conduct the discovery she said was needed to respond to the summary judgment motion. However, Hamilton said, Yandle overlooked earlier delays she and OSF imposed on Smith while also looking past Smith’s “sensible approach to staging discovery so that, for example, document discovery would be essentially complete before plaintiff took depositions of key witnesses (thus minimizing the risk that second depositions would be needed if important documents surfaced after the depositions).”

The panel detailed the case’s procedural history, including concurrent cases involving other religious hospitals that could have a bearing on the final resolution of the OSF matter. It said OSF’s motion for summary judgment was filed Dec. 29, 2017, almost nine months before discovery was supposed to end and with knowledge of pending deposition notices and other unresolved issues.

Hamilton said the panel didn’t weigh in on the merits of Smith’s allegations, but it did examine them to the extent needed to determine the viability of future discovery.

“In this case, which presents at least genuine issues of material law, it would be more prudent to know more about the potentially relevant facts before deciding they are not relevant,” Hamilton wrote.

If the committees exist only on paper, the panel said, that could make the plans lose their ERISA exemption, and just showing how the plans should be run doesn’t entitle OSF to summary judgment. Further discovery is needed to get to the bottom of that argument, the panel said.

The panel vacated Yandle’s judgment and remanded the complaint for further proceeding.

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OSF HealthCareU.S. District Court for the Southern District of IllinoisU.S. Court of Appeals for the Seventh Circuit

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