United States District Court, N.D. Indiana, South Bend Division
OPINION AND ORDER
Robert
L. Miller, Jr. Judge
This is
a putative class action brought by retired employees of
various affiliates of Franciscan Alliance, Inc. seeking to
represent a class of persons that are participants or
beneficiaries of the Franciscan Alliance Pension Security
Plan. They contend that the defendants - Franciscan Alliance,
Inc., its Board of Trustees, the Franciscan Alliance Pension
and Benefits Committee, and 40 John Does - have underfunded
the Plan by as much as $320 million and have operated it in
violation of the Employee Retirement Income Security Act of
1974 (ERISA) (Counts 1-9), state law (Counts 10-11), and/or
the Establishment Clause in the First Amendment (Count 12).
The defendants (collectively referred to as “Franciscan
Alliance”) moved to dismiss the Consolidated Class
Action Complaint [Doc. No. 115] under Fed.R.Civ.P. 12(b)(1)
for lack of standing and/or Rule 12(b)(6) for failure to
state a claim.
The
court heard oral argument on the motion on May 2017.
Notwithstanding the challenging and difficult issues the
motion presents, the court can't justify such a delay,
and can only apologize to the parties and their counsel. For
the reasons that follow, the court denies Franciscan
Alliance's motion.
I.
Legal Standard
Detailed
factual allegations aren't required to meet the notice
pleading requirements of Rule 8(a). To survive a motion to
dismiss under Rule 12(b), the factual allegations in the
complaint must “state a claim to relief that is
plausible on its face” - one that "raise[s] a
right to relief above the speculative level",
“allows the court to draw the reasonable inference that
the defendant is liable for the misconduct alleged", and
gives the defendant fair notice of the claims being asserted
and the grounds upon which they rest. Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 555 (2007). In determining
whether the claims asserted are plausible, the court
construes the complaint in the light most favorable to the
plaintiffs, accepts all well-pleaded facts as true, draws all
reasonable inferences in the plaintiff's favor,
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009);
Anicich v. Home Depot U.S.A., Inc., 852 F.3d 643,
648 (7th Cir. 2017), and generally won't consider matters
outside the pleadings or engage in fact-finding. See
Fed. R. Civ. P. 12(d); Reger Dev., LLC v. National City
Bank, 592 F.3d 759, 763 (7th Cir. 2010); Stakowski
v. Town of Cicero, 425 F.3d 1075, 1078 (7th Cir. 2005).
There is an exception: when considering a motion to dismiss
under Rule 12(b)(1) for lack of standing, the court can look
beyond the allegations of the complaint and consider other
competent evidence. Bastuen v. AT&T Wireless Servs.,
Inc., 205 F.3d 983, 990 (7th Cir. 2000).
II.
Discussion
Franciscan
Alliance moved to dismiss the plaintiffs ERISA failure to
fund, state law breach of fiduciary duty and breach of
contract, and Establishment Clause claims (Counts 6 and
10-12) under Rule 12(b)(1), contending that the plaintiffs
lack standing to bring those claims because they haven't
sufficiently alleged injury-in-fact. Franciscan Alliance
argues, in the alternative, that the complaint should be
dismissed in its entirety under Rule 12(b)(6) because: (1)
the Franciscan Alliance Plan qualifies for the “church
plan” exemption to ERISA, 29 U.S.C. § 1003(b)(2)
(Counts 1-8);[1] (2) the breach of fiduciary duty claims
and breach of contract claims (Counts 9-11) aren't
supported by sufficient factual allegations; alternatively,
the court should decline to exercise supplemental
jurisdiction over the state law claims (Counts 10-11), if it
dismisses the federal ERISA claims; and (3) the
plaintiffs' constitutional challenge to the “church
plan” exemption should be dismissed because the
exemption satisfies the three-prong test in Lemon v.
Kurtzman, 403 U.S. 602 (1971).
A.
Standing
The
plaintiffs bear the burden of proving that they have
standing, and must show that: (1) they suffered an injury in
fact that's “concrete and particularized” and
actual or imminent, not conjectural or hypothetical; (2)
there's a causal connection between the injury and the
conduct complained of; and (3) a favorable decision can
redress the injury. Spokeo v. Robins, 136 S.Ct.
1540, 1545 (2016); Lujan v. Defenders of Wildlife,
504 U.S. 555, 560-561 (1992).
Franciscan
Alliance challenges only the first requirement. It contends
that the plaintiffs have miscalculated and
“exaggerated” the amount of the shortfall, and
lack standing because they haven't shown that their
benefits were actually reduced, that the Plan is being (or is
likely to be) terminated, or that Franciscan Alliance
can't make up the deficit. Citing, i.e., Lee v.
Verison Communications, Inc., 837 F.3d 523, 545-46 (5th
Cir. 2016); Perelman v. Perelman, 793 F.3d 368, 374
(3rd Cir. 2015); David v. Alphin, 704 F.3d 327, 338
(4th Cir. 2013).
But the
plaintiffs don't have to show past actual or tangible
loss to have standing. They allege in their complaint that
the defendants have not only underfunded the Plan by more
than $320 million as of 2015, but have operated the Plan as a
“church plan”, even though it doesn't
qualify, and have failed to pay premiums to the Pension
Benefit Guaranty Corporation. As a result, the plaintiffs
assert, the Plan has suffered losses and Plan participants
are subject to a substantial risk of pensions being lost or
reduced, without the benefit of insurance to protect them if
the Plan defaults on its obligations or is terminated with
insufficient assets. The plaintiffs conclude that the risk of
injury in this case is both substantial and imminent, and
that they therefore have standing to challenge the
defendants' actions or failure to act. Citing Susan
B. Anthony List v. Driehaus, 134 S.Ct. 2334 (2014)
(holding that a plaintiff has standing if there is a
“substantial risk” that the threatened future
injury will occur); Remijas v. Neiman Marcus Group,
LLC, 794 F.3d 688, 693 (7th Cir. 2015) (standing may be
found on a “substantial risk” of harm);
Scanlan v. Eisenberg, 669 F.3d 838, 847 (7th Cir.
2012) (plaintiffs not required to suffer a loss of benefits
before they have standing); Johnson v. Allsteel,
Inc., 259 F.3d 885, 888 (7th Cir. 2001)
(“increased risk the [plan] participant faces ... is an
injury-in-fact.”); Rollins v. Dignity Health,
338 F.Supp.3d 1025 (N.D. Cal. Sep. 6, 2018) (finding
plaintiffs had standing based on similar allegations). The
court agrees.
The
extent to which the Franciscan Alliance Plan may be
underfunded and whether the defendants could cover the
deficit if required to do so are questions of fact that
can't be resolved on a motion to dismiss. Unlike the
plaintiffs in Lee v. Verizon Communications,
Perelman v. Perelman, and David v. Alphin,
these plaintiffs allege that the Plan is underfunded by more
than $320 million, the insurance provided to ERISA plan
participants by the Pension Benefit Guaranty Corporation
isn't available to them because Franciscan Alliance has
been operating the Plan as a church plan in violation of
ERISA, and there is an inherent and substantial risk that
their benefits will be reduced or terminated if corrective
action isn't taken. The court must assume those facts are
true for purposes of this motion. The plaintiffs have
sufficiently alleged injury-in-fact and have standing to sue
based on the enhanced risk of default and lack of insurance
coverage.
B.
The Church Plan Exemption
Franciscan
Alliance contends that even if the plaintiffs have standing,
the Plan is exempt from ERISA because it's a
“church plan”, and that the plaintiffs
haven't ...