Medina v. Catholic Health Initiatives

         APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO (D.C. NO. 1:13-CV-01249-REB-KLM)

          Ron Kilgard, Keller Rohrback L.L.P., Phoenix, Arizona (Lynn Lincoln Sarko, Laura R. Gerber, Havila C. Unrein, and Matthew M. Gerend, Keller Rohrback L.L.P., Seattle, Washington, and Laurie B. Ashton, Keller Rohrback L.L.P., Phoenix, Arizona, and Karen L. Handorf, Michelle C. Yau, and Mary J. Bortscheller, Cohen Milstein Sellers & Toll, PLLC, Washington, D.C., with him on the briefs), Phoenix, Arizona, for Plaintiff-Appellant

          Lars C. Golumbic (Sarah M. Adams and Sean C. Abouchedid, with him on the brief), Groom Law Group, Chartered, Washington, D.C., for Defendants-Appellees.

          William Alvarado Riveria and Mary Ellen Signorille, AARP Foundation Litigation, Washington, D.C., on the brief for Amicus Curiae AARP.

          Andrew L. Seidel, Freedom from Religion Foundation, Madison, Wisconsin, on the brief for Amicus Curiae Freedom from Religion Foundation.

          Curtis L. Kennedy, Denver Colorado, Norman P. Stein, Philadelphia, Pennsylvania, and Karen W. Ferguson, Pension Rights Center, Washington, D.C. on the brief for Amicus Curiae Pension Rights Center.

          Daniel Mach, American Civil Liberties Union Foundation, Washington, D.C., and Richard B. Katskee and Bradley Girard, Americans United for Separation of Church and State, Washington, D.C., on the brief for Amici Curiae Americans United for Separation of Church and State and American Civil Liberties Union.

          G. Daniel Miller, Conner & Winters, LLP, Washington, D.C., and Laurence A. Hansen and Hugh S. Balsam, Locke Lord LLP, Chicago, Illinois, on the brief for Amici Curiae GuideStone Financial Resources of the Southern Baptist Convention, The Pension Boards-United Church of Christ, Inc., and The Church Alliance.

          Mark E. Chopko, Marissa Parker and Brandon Riley, Stradley Ronon Stevens & Young, LLP, Washington, D.C., and Lisa J. Gilden, The Catholic Health Association of the United States, Washington, D.C., on the brief for Amicus Curiae The Catholic Health Association of the United States.

          Before TYMKOVICH, Chief Judge, BACHARACH, and MORITZ, Circuit Judges.

          TYMKOVICH, Chief Judge.

         The Employee Retirement Income Security Act of 1974, 29 U.S.C. § 1001, et seq. (ERISA), generally exempts from its requirements "church plans"-employee-benefit plans established and maintained by churches for their employees. ERISA also extends that church-plan exemption to so-called principal-purpose organizations. A principal-purpose organization is a church-affiliated organization whose principal purpose is administering or funding a benefit plan for the employees of a church or a church-affiliated nonprofit organization.

         Catholic Health Initiatives (CHI) is a Denver-based nonprofit organization created to carry out the Roman Catholic Church's healing ministry. To do so, CHI operates 92 hospitals and numerous other healthcare facilities in 18 states. CHI offers a retirement plan for its employees, with more than 90, 000 participants and beneficiaries, and nearly $3 billion in plan assets. The CHI plan is administered by the CHI and Affiliates Defined Benefit Plan Subcommittee (Subcommittee), whose members are appointed and removed by CHI's Board of Stewardship Trustees.

         The district court held that CHI's plan was a church plan that qualified for the ERISA exemption. On appeal, we agree, concluding that CHI's plan satisfies the statutory requirements for the church-plan exemption: CHI is a tax-exempt organization associated with a church, and the Subcommittee is a proper principal-purpose organization that is also associated with a church. The ERISA exemption, moreover, does not run afoul of the United States Constitution's Establishment Clause.

          I. Background

         As explained above, federal law exempts church plans from certain federally mandated reporting and funding requirements. The agencies administering ERISA consider the CHI retirement plan to be a church plan, because CHI and the Subcommittee are controlled by or associated with the Catholic Church and the Subcommittee is a principal-purpose organization.

         Janeen Medina, ^[1] a CHI employee, filed a class action, alleging that CHI's retirement plan fails to satisfy the statutory criteria for the church-plan exemption. She contends that, since the plan does not qualify for the exemption, CHI should have complied with the reporting and funding requirements of ERISA. Medina also argues the individual defendants who administer the plan breached their fiduciary duties by failing to comply with ERISA. And, Medina argues, even if the CHI plan did qualify as a church plan, the exemption would violate the Establishment Clause of the United States Constitution.

         The district court concluded CHI's plan satisfied the criteria for ERISA's church-plan exemption and dismissed her other statutory and constitutional claims.

         While this appeal was pending, the Supreme Court resolved one of the issues before us, holding that an employee-benefit plan need not be established by a church to qualify for ERISA's church-plan exemption, provided it satisfies the other statutory criteria. Advocate Health Care Network v. Stapleton, 137 S.Ct. 1652 (2017). According to the Court, because Congress expanded "the category of plans 'established and maintained by a church' to 'include' plans 'maintained by' principal-purpose organizations, those plans . . . are exempt from ERISA's requirements.'" Id. at 1659. The fact that CHI's plan was not established by a church therefore does not preclude its eligibility for the church-plan exemption.

         Two issues remain for our consideration. First, Medina contends CHI's plan is not a church plan because it fails to satisfy the statutory criteria, which require the plan to be maintained by a principal-purpose organization associated with a church, for the employees of an organization associated with a church. She also argues the district court erred in concluding there were no genuine disputes of material fact on this point. Second, Medina contends applying the exemption to CHI's plan would violate the Establishment Clause of the United States Constitution.

         We affirm the well-reasoned and thorough decision of the district court, in an opinion that follows similar analytical lines. We find CHI's plan satisfies the relevant statutory criteria and qualifies as a church plan, and the district court did not err in concluding there were no genuine disputes of material fact. Nor does applying the exemption to CHI's plan violate the Establishment Clause. Supreme Court precedent allows Congress to provide a religious accommodation by exempting religious organizations from regulatory schemes, especially where subjecting the religious organization to the regulatory scheme would raise constitutional questions.^[2]

         II. Analysis

         Medina contends that CHI's plan is not a church plan because it fails to satisfy the statutory criteria, and that the district court erred in concluding there were no genuine disputes of material fact regarding whether the plan satisfied the statutory criteria for the exemption. She also argues applying the exemption to CHI's plan would violate the Establishment Clause.

         We address each argument in turn and conclude that CHI's plan does not violate either ERISA or the Constitution.

         A. Statutory Framework

         The Supreme Court's recent opinion in Advocate explains the statutory scheme at issue. "ERISA generally obligates private employers offering pension plans to adhere to an array of rules designed to ensure plan solvency and protect plan participants. But in enacting the statute, Congress made an important exception. '[C]hurch plan[s]' have never had to comply with ERISA's requirements." Id. at 1656 (citation omitted) (quoting 29 U.S.C. § 1003(b)(2)).

         As Advocate makes clear, two types of organization qualify for the church-plan exemption: churches and so-called principal-purpose organizations.

         ERISA has always provided that "church plan" includes "a plan established and maintained . . . for its employees . . . by a church or by a convention or association of churches." 29 U.S.C. § 1002(33)(A).

         A 1980 amendment to ERISA expanded that definition to include principal-purpose organizations. That is, the church-plan exemption includes

a plan maintained by an organization, whether a civil law corporation or otherwise, the principal purpose or function of which is the administration or funding of a plan or program for the provision of retirement benefits or welfare benefits, or both, for the employees of a church or a convention or association of churches, if such organization is controlled by or associated with a church or a convention or association of churches.

29 U.S.C. § 1002(33)(C)(i).

         Crucially, for purposes of this definition, an "employee of a church" includes "an employee of an organization, whether a civil law corporation or otherwise, which is exempt from tax under section 501 of Title 26 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)(II). That is, "employee of a church" is not limited to church employees, but includes employees of nonprofit organizations associated with a church, such as CHI claims to be.

         Advocate rejected the view that the church-plan exemption only applied to plans established by churches. Hospital employees had argued that their employers' pension plans did not fall within the church-plan exemption because those plans were not established by a church, but rather by a principal-purpose organization. The Supreme Court disagreed, holding that "[u]nder the best reading of the statute, a plan maintained by a principal-purpose organization . . . qualifies as a 'church plan, ' regardless of who established it." 137 S.Ct. at 1663. As Medina concedes, this issue is now resolved in favor of CHI. Resp. to Supp. Auth. at 1.

         Advocate did not provide guidance on the major issue remaining in this case: whether CHI's internal benefits committee qualifies as a principal-purpose organization. The Court expressly declined to address the scope of a "principal-purpose organization, " what the requisite level of association with a church was, or whether an internal benefits committee could qualify. 137 S.Ct. at 1657 n.2, 1658 n.3. We confront those questions today, and decide whether CHI's plan satisfies the statutory criteria for the church-plan exemption.

         The statute imposes a three-step inquiry for entities seeking to use the church-plan exemption for plans maintained by principal-purpose organizations:

1. Is the entity a tax-exempt nonprofit organization associated with a church?

2. If so, is the entity's retirement plan maintained by a principal-purpose organization? That is, is the plan maintained by an organization whose principal purpose is administering or funding a retirement plan for entity employees?

3. If so, is that principal-purpose organization itself associated with a church?

         Under this framework, to qualify for the church-plan exemption, CHI must receive an affirmative answer to all three inquiries.

         Note that both the principal-purpose organization and the entity whose employees the plan benefits must be associated with a church. First, the principal-purpose organization must be associated with a church. The church-plan exemption includes "a plan maintained by a [principal-purpose organization] . . . if [the principal-purpose organization] is controlled by or associated with a church or a convention or association of churches." 29 U.S.C. § 1002(33)(C)(i).

         Second, the definition of principal-purpose organization requires that the entity whose plan it is administering be associated with a church. A principal-purpose organization is one whose "principal purpose or function . . . is the administration or funding of a plan or program for the provision of retirement benefits or welfare benefits, or both, for the employees of a church." 29 U.S.C. § 1002(33)(C)(i) (emphasis added). And 29 U.S.C. § 1002(33)(C)(ii)(II) explains that "employee of a church" includes employees of tax-exempt organizations "controlled by or associated with a church or a convention or association of churches."

         In short, a principal-purpose organization, by definition, is one that administers a retirement or welfare plan for a church or a tax-exempt organization "associated with a church." And that principal-purpose organization can only qualify for the church-plan exemption if the principal-purpose organization itself is "associated with a church."

         1. Step One: Is the Entity a Tax-Exempt Nonprofit Organization ...