October 19, 2021
A California federal judge on Tuesday granted preliminary approval to a class action settlement he had twice rejected as defective, greenlighting a deal that would require Dignity Health to pay over $100 million to workers who claim the health system underfunded its pension plan by $1.8 billion via erroneous use of ERISA’s church-plan exemption.
Nearly nine years after beneficiaries sued Dignity Health claiming it misused an Employee Retirement Income Security Act exemption intended for churches and their affiliates, leading to significant underfunding of its pension plan, U.S. District Judge Jon S. Tigar ruled Tuesday that the court’s previous concerns regarding collusion had been resolved.
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The case, which began in 2013, centered on the use of an ERISA exemption intended for churches and their affiliates. The exemption gives those that qualify the ability to ignore ERISA’s requirements for benefit plans, including its funding rules.
Dignity Health claimed the exemption, saying it was affiliated with the Catholic Church.
Its workers, however, argued that the hospital system was not closely enough associated with the church to qualify, but that Dignity used the exemption anyway and then underfunded its plan by more than $1 billion, according to court documents.
The case spent years traveling all the way to the U.S. Supreme Court before returning to Judge Tigar, who ruled in 2018 that Dignity Health could not beat the claims against it on a motion to dismiss.
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On Tuesday, Judge Tigar said he initially rejected the deal because a previous version of the proposed settlement had contained a clear sailing clause and implied reversion clauses that raised concerns of collusion.
The judge said the court also previously could not evaluate the reasonableness of the amount plaintiffs planned to seek in attorneys’ fees because the class’s total recovery was insufficiently certain. Further, plaintiffs had previously not adequately shown why certification of two subgroups was not required.
But the judge said that in their renewed motion for preliminary approval and revised settlement, the parties had resolved the court’s concerns.
The main settlement class consists of more than 91,000 participants and beneficiaries of the plan, and the vesting subclass includes more than 3,200 former participants in the cash balance portion of the plan who terminated employment between April 1, 2013, and March 27, 2019, and who completed at least three but less than five years of vesting service.
The judge appointed Keller Rohrback LLP and Cohen Milstein Sellers & Toll PLLC as class counsel and appointed Izard, Kindall & Raabe LLP as counsel for the vesting subclass.
A final approval hearing in the case is scheduled for March 3, 2022.
Read Dignity Health Judge Blesses $100M ERISA Deal on Third Try.