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Media Alerts - Laurence Kaplan v. Saint Peter's Healthcare System - Third Circuit
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January 13, 2016
  Laurence Kaplan v. Saint Peter's Healthcare System - Third Circuit
Headline: Under ERISA, only a church can establish a plan that qualifies for an exemption under the church plan exemption.

Area of Law: ERISA: Employee Retirement Income Security Act

Issue Presented: Does a plan maintained and established by a church agency qualify for the church plan exemption?

Brief Summary: St. Peter's, a non-profit healthcare entity, established a non-contributory retirement benefit plan and filed an application with the IRS seeking a church plan exemption. Laurence Kaplan filed a class action suit against St. Peter's claiming it failed to comply with ERISA. The IRS affirmed St. Peter's retirement plan as a exempt church plan for tax purposes in August 2013 and St. Peter's moved to dismiss Kaplan's suit arguing it did not need to comply with the ERISA provisions because it was exempt.
The District Court found that because St. Peter's was not a church it could not establish an exempt church plan. The Third Circuit affirmed the District Court's findings by relying on the language in subsection 3(33)(A), which requires that all exempt plans be established by a church and maintained by a church or church agency. While the IRS affirmed St. Peter's plan as exempt, the Third Circuit found that ruling was at odds with the statutory text of subsection 3(33)(A) and therefore not entitled to deference. The Third Circuit concluded that ERISA only exempts plans established by a church. Because St. Peter's is not a church and therefore a church did not establish its retirement plan, the plan does not qualify for the church plan exemption. Thus, the Third Circuit affirmed the District Court's denial of St. Peter's motion to dismiss.

Extended Summary: St. Peter's is a non-profit healthcare entity that runs various facilities, including a hospital and employs over 2.800 people and has ties to the Roman Catholic Diocese of Metuchen, New Jersey. In 1974, St. Peter's established a non-contributory retirement benefit plan. In 2006, St. Peter's filed an application with the IRS seeking a church plan exemption. In March 2013, Laurence Kaplan filed a class action suit against St. Peter's claiming it failed to comply with ERISA requirements. In August 2013, the IRS affirmed St. Peter's retirement plan as an exempt church plan for tax purposes. St. Peter's moved to dismiss Kaplan's suit, arguing that, because it was exempt under ERISA, it was not required to comply with the provisions and hence there was no claim.
The District Court concluded that St. Peter's was not a church and therefore could not establish an exempt church plan. Subsection 3(33)(A) requires that all exempt plans be established by a church and the 1980 amendments allows those plans maintained by church agencies to also be exempt. However, St. Peter's argued that the language of subsection 3(33)(C)(i) allows a plan to be exempt if it is maintained by a church agency even if it wasn't established by a church. However, this is incorrect as Congress specifically chose to limit the church plan exemption to only plans established by a church. Additionally, the language of the 1980 amendments, which excluded the second "established" to avoid ambiguities in its interpretation, supports this. Because St. Peter's is not a church, the exemption is unavailable.
Limiting the exemption to plans established by churches is supported by the legislative history of subsection 3(33). The court refused to give deference to the 1983 decision of the IRS to issue exemptions to plans not established by churches because this position of the IRS was in the form of a general counsel memorandum. Such an interpretation is only entitled to deference to the extent that it has the power to persuade. This interpretation lacks the power to persuade because it does not consider the church establishment requirement of subsection 3(33)(A) and is therefore at odds with the statutory text.
In 1974, pension plans established by a church had been exempted from ERISA. St. Peter's argument for dismissal was based on the ground that its plan qualifies for the church plan exemption. Because that exemption is unavailable as a church did not establish the plan, the Third Circuit affirmed the District Court's denial of the motion to dismiss.

The full opinion is available at http://www2.ca3.uscourts.gov/opinarch/151172p.pdf


Panel (if known): Chief Judge McKee, Circuit Judges Ambro, and Hardiman

Argument Date: October 8, 2015

Date of Issued Opinion: December 29, 2015

Docket Number: No. 15-1172

Decided: Affirm District Court's denial of St. Peter's motion to dismiss.

Case Alert Author: Morgan Haas

Counsel: Jeffrey J. Greenbaum, Esq., James M. Hirschhorn, Esq., and Katherine M. Lieb, Esq., Counsel for Appellants. Monya M. Bunch, Esq., Karen L. Handorf, Esq., Matthew A. Smith, Esq., Michelle C. Yau, Esq., Ron Kilgard, Esq., Lynn L. Sarko, Esq., Counsel for Appellee. Jeremy P. Blumenfeld, Esq., Counsel for Amicus Appellant. Mark E. Chopko, Esq., Marissa Parker, Esq., Brandon Riley Esq., and Lisa Gilden, Esq., Counsel for Amicus Appellant. Jared M. Haynie, Esq., and James A. Sonne, Esq., Counsel for Amicus Appellant. Mary E. Signorille, Esq. and Roberta L. Steele, Esq., Counsel for Amicus Appellees. Laurence A. Hansen, Esq., G. Daniel Miller, Esq., Counsel for Amicus Appellant. Richard H. Frankel, Esq., Karen W. Ferguson, Esq., and Norman P. Stein, Esq., Counsel for Amicus Appellee. Patrick C. Elliott, Esq., and Andrew L. Seidel, Esq., Counsel for Amicus Appellee. Gregory M. Lipper, Esq., Ayesha N. Kahn, Esq. and Daniel Mach, Esq., Counsel for Amicus Appellees.

Author of Opinion: Judge Ambro

Circuit: Third Circuit

Case Alert Supervisor: Prof. Susan L. DeJarnatt

    Posted By: Susan DeJarnatt @ 01/13/2016 01:23 PM     3rd Circuit  

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