ERISA • Employment Law

Court Declines to Remand Case Involving an Alleged Church Plan and Finds ERISA Controls Instead

14 Feb 2017

Although the Employee Retirement Income Security Act of 1974, 29 U.S.C. § 1001 et seq. (“ERISA”), regulates nearly all non-governmental employer sponsored benefit plans, a notable exception exists for so-called “church plans.”  A church plan is “a plan established and maintained [] for its employees (or their beneficiaries) by a church or by a convention or association of churches which is exempt from tax under section 501 of the Internal Revenue Code of 1986.”  29 U.S.C. § 1002 (33).  Church plans are a hot topic at the moment as the Supreme Court of the United States is set to hear Rollins v. Dignity Health, 830 F.3d 900 (9th Cir. 2016) cert. granted sub nom. Dignity Health, et al. v. Rollins, 137 S. Ct. 547 (2016) on March 27, 2017.  That case will address and hopefully provide clarification as to the scope of the church plan exemption.

Last week, while I was at a conference where the church plan exemption and Rollins case were discussed at length, the United States District Court for the Central District of California issued a decision in Durham v. Prudential Ins. Co. of Am., Case No. 2:16-cv-08202-ODW(KSx), 2017 U.S. Dist. LEXIS 19402 (C.D. Cal. February 10, 2017).  In Durham, the Court found that a long term disability (“LTD”) benefit plan Loyola Marymount University (“LMU”) sponsored for the benefit of its employees was not a church plan.  The Court found ERISA applied to the claim instead.

The plaintiff in Durham was a LMU employee who participated in the university’s LTDplan.  The LTD plan was administered and insured by Prudential Insurance Company of America (“Prudential”).  He applied for disability benefits under the LTD plan. His claim was denied.  The plaintiff filed suit in California state court, specifically alleged that the LTD plan was a church plan exempt from ERISA, and asserted a variety of state law claims against the insurer.  Prudential removed the case to federal court and asserted that ERISA completely preempted the plaintiff’s claims.

The Durham plaintiff moved to remand his lawsuit to California state court and argued that the church plan exemption applied.  The Court disagreed.  Citing Rollins, supra, as well as case from the Third and Seventh Circuits, it noted that the church plan exemption requires that the plan in question be both established by a church and maintained by a church or by a convention or association of churches.  With respect to LMU, the Court disagreed with the plaintiff’s assertion at the LMU itself was a church.  It noted that the university itself did not believe it was a church, that the university hired Catholic and non-Catholic professors, and that it received funding from sources outside of the Catholic church.  The Court further held that the existence of a church on LMU’s campus did not make the university a church.  Because the LTD plan was not established by a church, the Court did not address the second prong of the test as to whether the LTD plan was maintained by a church or a convention or association of churches.

The motion to remand the lawsuit was denied as was the defendants’ motion to dismiss the claim based on ERISA preemption.

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