Dignity Health Can’t Escape ERISA Class Action Lawsuit

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A California federal judge has upheld a class action lawsuit against Dignity Health, accusing the non-profit healthcare provider of underfunding its employee pension plans by $1.2 billion. The ruling states that the company is not exempt under the “church-state” provision of the Employee Retirement Income Security Act as it had argued.

Dignity Health was sued by Starla Rollins, who worked as a billing coordinator at a hospital ran by Dignity Health from 1986 to 2012. When she reaches retirement age she will qualify to collect pension funds from the benefits plan offered by Dignity Health.

Rollins charged Dignity Health with violating ERISA by breaching its fiduciary duty to protect the pension plans of its 60,000 employees. As the name implies, ERISA was crafted to protect employee retirement benefits. According to the class action lawsuit, Dignity Health violated numerous provisions of ERISA, including by underfunding its pension plans by over $1.2 billion while erroneously claiming that the plans are exempt from ERISA protections because they are “Church Plans.”

Rollins argues that Dignity Health is not a church, and was not established by a church, and therefore must govern its pension plans according to ERISA just like other non-religious companies.

Dignity Health motioned to dismiss the class action lawsuit by arguing that since it is a tax-exempt entity associated with the Catholic Church, and its plan is maintained by a subcommittee associated with the Roman Catholic Church, its plan qualifies as a church plan exempt from ERISA.

Rollins, however, argued that Dignity Health had acquired several hospitals that were not affiliated with the Catholic Church and even performed procedures that went against church doctrine.

Judge Henderson dismissed Dignity’s argument, explaining that, according to ERISA, “to maintain a church plan, an organization must not only be associated with the church, but it must have its ‘principle purpose or function . . . the administration or funding of a [benefits] plan or program . . . for the employees of a church.'”

The judge also pointed out that Dignity is a healthcare organization, and “because Dignity is not a church or an association of churches, and does not argue that it is, the court concludes that Dignity does not have the statutory authority to establish its own church plan, and is not exempt from ERISA as a matter of law.”

Judge Henderson denied Dignity’s motion and allowed Rollins to continue her class action lawsuit.

The plaintiffs are represented by Monya M. Bunch, Bruce Frank Rinaldi, Matthew A. Smith and Karen L. Handorf of Cohen Milstein Sellers & Toll PLLC, and Juli E. Farris, Ron Kilgard, Lynn Lincoln Sarko, Havila C. Unrein and Matthew M. Gerend of Keller Rohrback LLP.

The Dignity Health ERISA Class Action Lawsuit is Starla Rollins, et al. v. Dignity Health, et al., Case No. 3:13-cv-01450, in the U.S. District Court for the Northern District of California.