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Smith v. OSF Healthcare System

United States District Court, S.D. Illinois

December 5, 2017

SHEILAR SMITH, et al., On Behalf of Themselves and All Others Similarly Situated, and On Behalf of the OSF Plans Plaintiffs,
OSF HEALTHCARE SYSTEM, et al., Defendants.



         Before the Court is Defendants' Motion to Dismiss Counts X-XIV of Plaintiffs' Third Amended Class Action Complaint (Doc. 130).[1] Plaintiffs filed a response (Doc. 140). For the following reasons, the motion is GRANTED.


         Defendant OSF is an Illinois 501(c)(3) non-profit corporation.[2] OSF operates eleven acute care hospitals, home health care services and other health care facilities in Illinois and Michigan. As part of its operations, OSF maintains at least two defined-benefits plans covering its own direct employees (“St. Francis Plan”) and employees of the recently-acquired St. Anthony's Health Center (“St. Anthony's Plan”). Defendant Retirement Committee for the Retirement Plan for Employees of Saint Anthony's Health Center (“St. Anthony's Committee”) is the administrator of the St. Anthony's Plan. Defendant Sisters of the Third Order of St. Francis Employees Pension Plan Administrative Committee (“St. Francis Committee”) is the administrator of the St. Francis Plan.

         Plaintiffs Sheilar Smith and June Schwierjohn were employed at Saint Anthony's Health Center until 2015 and 2016 respectively. Both are vested participants in the St. Anthony's Plan. Plaintiffs Kasandra Anton, Bonnie Bailey and Peggy Wise were employed by OSF and are vested participants in the St. Francis Plan.

         Initially, this case involved only claims asserted under the Employee Retirement Income Security Act of 1974 (“ERISA”), Pub.L. 93-406, 88 Stat. 840 as amended. Specifically, Plaintiffs allege that OSF and related entities had improperly treated the St. Anthony's Plan and St. Francis Plan (collectively, “The Plans”) as “church plans, ” which are exempt from the requirements of ERISA. 29 U.S.C. § 1003(b)(2). Plaintiffs further allege that OSF has failed to adequately fund the Plans' trust accounts to the level required under ERISA to cover all accrued benefits, that the defendants failed to follow certain notice, disclosure and managerial requirements, and that the defendants had breached their duties as fiduciaries.

         After the case was filed, the Supreme Court issued its Opinion in Advocate Health Care Network v. Stapleton, 137 S.Ct. 1652 (2017) which resolved some, but not all of the issues in this litigation. Plaintiffs subsequently filed a Third (and later Fourth) Amended Complaint adding five “alternative” causes of action “for relief under State law if the Court determines that the OSF Plans are ‘church plans' exempt from ERISA.” (Docs. 120 and 138 at n. 4). The state law counts (Counts X-XIV) all center on OSF's alleged failure to make adequate contributions to the Plans to ensure that there were sufficient funds to pay accrued benefits.

         Count X asserts a breach of contract claim against OSF based on express and implied promises by OSF and its predecessors to “(1) pay to Plaintiffs and other Class members, upon retirement, defined benefit pensions in amounts that increased with each year of service; and (2) make ongoing contributions to the OSF Plan trusts that were sufficient, on an actuarial basis, to pay for the accrued pension benefits.” (Doc. 138 at ¶251). Plaintiffs allege that these promises were made in “summary plan descriptions, benefits statements, and other OSF Plan documents” as inducements for employees to continue their employment, and that the “offer” was accepted by the putative class members by beginning or continuing their employment with the organizations covered by the Plans. (Id. at ¶¶ 253-54). Plaintiffs further allege that OSF has breached its contractual obligations and violated the implied covenant of good faith and fair dealing by failing to fund the Plans' trusts sufficiently to pay accrued benefits, and request specific performance of that promise. (Id. at ¶¶ 258-59).

         Count XI is the equity alternative to Count X's contract claim, in the event no enforceable contract is found to exist. It is premised on the same alleged promises and asserts a claim for promissory estoppel, on the theory that the Plaintiffs and putative class members relied on these representations in starting or continuing their employment with the covered organizations. (Id. at ¶¶ 267-70). Again, Plaintiffs request that the Court require OSF to increase funding of the Plans to a level sufficient on an actuarial basis to meet the amount of accrued benefits. Count XII also sounds in equity, asserting that OSF's enjoying the benefits of the class members' work while retaining funds which should have been contributed to the Plans' trust accounts amounts to unjust enrichment. (Id. at ¶¶275-88).

         The remaining two counts assert claims for the breach of common law fiduciary duties by OSF (Count XIII) and the St. Francis and St. Anthony's Committees (Count XIV). Count XIII alleges that Plaintiffs and the putative class are beneficiaries of the trusts which hold the Plans' assets, that OSF is “a fiduciary pursuant to the OSF Plan documents” and that it has breached its fiduciary obligations by retaining funds that should have been contributed to fund the Plans' future obligations. (Id. at ¶¶ 292-99).

         Count XIV asserts that the St. Francis and St. Anthony's Committees are “trustees, ” “fiduciary trust managers” or “trust protectors within the meaning of the common law of trusts” of the Plans' trusts, as well as “fiduciaries pursuant to the OSF Plan documents.” (Id. at ¶¶ 303-4). Plaintiffs allege that the St. Francis and St. Anthony's Committees breached their fiduciary duties in “failing to use reasonable diligence to take control of trust property without unnecessary delay, including by failing to take reasonable steps to hold OSF to its obligation to make contributions that were sufficient, on actuarial basis, to fund all accrued benefits under the OSF Plans.” (Id. at ¶ 311). In both counts, Plaintiffs seek to compel the defendants to perform their duties and make good any losses caused by the alleged breaches of those duties.


         Defendants argue that the state law counts must be dismissed on numerous grounds pursuant to Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6). First, they contend that Plaintiffs lack standing to assert their claims under Counts X through XII as there is no harm or imminent threat harm. Second, they assert that Counts X through XIV are time-barred. Finally, the defendants attack the “merits” of each State Law Count.

         When a motion to dismiss asserts a lack of subject matter jurisdiction under Rule 12(b)(1) as well as Rule 12(b)(6) defenses, a court should consider the jurisdictional challenge first. Bellv. Hood, 327 U.S. 678, 682 (1946). Rule 12(b)(1) permits the Court to dismiss an action for lack of jurisdiction over the subject matter, pursuant to a motion by the defendant. Fed.R.Civ.P. 12(b)(1). The Court may also dismiss a claim sua sponte if its review of the pleadings reveals that it lacks subject matter jurisdiction. Moreover, “[i]t is the responsibility of a ...

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