Kilmartin “Failed to Mind the Store” Says Receiver in St. Joseph Pension Collapse

Sunday, October 07, 2018

 

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RI AG Peter Kilmartin and Special Investigator Max Wistow continue to spar.

Make no mistake about it, the federal and state lawsuits against the Diocese of Providence, CharterCare and twelve other entities are turning into a legal brawl.

Documents filed in Superior Court by the receiver of the largest pension fund failure in Rhode Island history — St. Josephs Health Services pension fund — blister Rhode Island Attorney General Peter Kilmartin for his actions in failing to protect the pension plan during the hospital conversion in 2014 and his legal actions creating obstacles to recovering assets to stabilize the failed fund.

“At the very least, the Attorney General failed to “mind the store” when it came to the rights of Plan participants in 2014, and continues to oppose their assertion of their lawful rights. Apparently, it will take the zealous advocacy of the Receiver on behalf of the Plan participants to obtain for them what was rightfully theirs over four years ago,” wrote the receiver Stephen Del Sesto and the special investigator Max Wistow in the documents filed late on Friday afternoon.

Kilmartin’s office has refused comments on the claim by the receiver.

The pension fund is underfunded by an estimated $118 million, but that number may be low. More than 2,700 pension plan members pensions are impacted by the collapse of the fund.

Wistow and DelSesto went on in their condemnation of Kilmartin’s actions, “In short, the Attorney General is grasping at straws to justify his opposition to the Receiver’s Petition for Settlement Instructions. In fact, that opposition is based upon a callous disregard for the rights of the Plan participants to the pensions they earned, and preference for the for-profit operations of Prospect Chartercare.”

The legal battle centers on the effort by the receiver to tap St. Joseph’s charitable funds — now more than $11 million — that were not transferred by law to CharterCare during the sale in 2014 and were instead shifted to an independent fund. Wistow and Del Sesto have sued to have those funds be part of the recovery to stabilize the pension fund.

“What shows that best is the Attorney General’s argument that CC [CharterCare] Foundation’s assets can only be used for “funding a pension liability” if that “is necessary to save a hospital’s collapse,” and that “f diverting this income will not have any impact on the provision of health care by the existing providers, then in the State’s view, application of cy pres is not justified.”

Wistow v Kilmartin

This is not the first battle between Wistow and Kilmartin. As GoLocal in December 2017:

Wistow says that Kilmartin is one of the biggest obstacles to his efforts to determine the cause of the biggest pension collapse in Rhode Island history. The pension fund is facing upwards of a $125 million deficit.

Wistow's frustration is beginning to boil over. He says Kilmartin is blocking tens of thousands of documents and that the one document that has been released that is not publicly available shows Kilmartin had advanced knowledge of the collapse.

The one document provided unveils that Kilmartin knew at least ten days before the pension fund was thrust into receivership. Thus, Kilmartin could have helped the investigative process for the past four-plus months.

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Retirees have attended dozens of court hearings over the past 14 months.

On August 25, Kilmartin issued a statement that said in part:

The men and women who dedicated their careers working at St. Joe's expected that their pension would be there for them when they retired, and rightfully so. Many, if not most, live on fixed incomes and depend on that monthly pension check to survive. Just as state employee pensioners know all too well, it can be devastating to see your monthly income decrease precipitously because of broken promises.   

These retirees deserve to know how this happened and what is being done to protect their investment. I urge the receiver of the pension fund and the Court to establish and maintain complete transparency throughout this process, and to consider every available option to regain financial viability of the pension fund.

CharterCare 

In related filings on Friday, Wistow and Del Sesto filed with the court requesting Superior Court Judge Brian Stern hit CharterCare will a contempt charge for violating the receivership statute for intentionally taking actions to that are in violation of the procedures and to slow or block the recovery of funds.

Receiver Stephen F. Del Sesto, Esq., Permanent Receiver of the Receivership Estate, hereby moves to adjudge Prospect CharterCARE, LLC in contempt of court.

 

Related Slideshow: 10 Shocking Elements of the St. Joseph Pension Fund Lawsuit Against the Diocese and Others

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Another Hospital Group Identified that the Pension Fund Needed $72M for Plan

In 2012, prior to CharterCare, then the owner of St. Joseph being sold to Prospect of California, another hospital group wanted to purchase Roger Williams, St. Joseph and Fatima. That group, LHP Hospital Group, identified that the pension fund needed a $72 million infusion, but their offer was rejected.

The $72 million was $58 million more than the amount put into the pension fund by Prospect, the eventual purchaser, in 2014.

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All the Parties Knew the Pension Plan Was No Longer a Church Plan

Post sale of St. Joseph to CharterCare in 2009 and then CharterCare’s sale to Prospect, and despite knowing that for the pension fund to continued to be considered a “church plan,” the Diocese and hospital officials continued to list the hospital under the U.S. Conference of Bishops’ Catholic directory as “operated, supervised, or controlled by or in conjunction with the Roman Catholic Church.”

The lawsuit states that all the defendants in the suit knew this claim was false.

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Tobin Misleads the Vatican

The lawsuit lays out that “Bishop Thomas Tobin did not disclose in his letter to the Vatican that the proposed asset sale increased the probability of the Plan failing. Instead, Bishop Tobin omitted that information and, in effect, said the opposite, that approval of the asset sale was actually necessary to secure the Plan.”

The suit goes on to assert, "On September 27, 2013, Tobin signed his letter as altered by [legal] counsel for [St. Joseph Health Services, CharterCare and Roger Williams Hospital] and sent it to the Vatican.”

The parties knew the implications, “These misrepresentations and omission concerning the Plan in the Bishop’s letter to the Vatican…all understood that Vatican approval was required for the transaction to proceed..”

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Suit Alleges Fraud

The lawsuit is blunt as it alleges that, "Saint Joseph Health Services of RI, the Prospect Entities, and other Defendants violated ERISA, committed fraud, breached their contractual obligations, violated their duty of good faith and fair dealing, and otherwise acted wrongfully. As a result, they must be required to compensate losses to the Plan and remedy such violations, including returning all assets improperly diverted to the Plan, and to otherwise fully fund the plan."

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Severe Remedy

Wistow and his team claim the remedy of violating the "fraudulent conveyance" laws in Rhode Island are severe and that the Plan -- thus the retirees -- should receive the assets, aka, CharterCare.

"They also ran afoul of Rhode Island laws prohibiting fraudulent conveyances. The remedies for those violations include that the Prospect Entities must turn over to the Plan and its participants the entirety of the assets they acquired in the 2014 Asset Sale, with no credit of offset for what they paid for those assets, or for the improvements that they may have made on the facilities. In other words, the Plaintiffs are entitled to a judgment awarding them these assets, including but to limited to New Fatima Hospital and New Roger Williams Hospital, or ordering that these properties and other assets be sold and awarding Plaintiffs the process from the sale up to the amount necessary to fully fund the Plan on a termination basis and to ensure the pensions of all Plan participants."

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Quid Pro Quo

On August 14, 2013, key hospital officials meet with the leadership of the Diocese of Providence’s office to get sign off on the sale to Prospect.

According to documents, a meeting was convened which was attended by Bishop Tobin, Rev. Timothy Reilly and Msgr. Paul Theroux at that meeting the top Diocese officials signed off on the deal which cast the pension off as an orphaned plan. The deal also asserted certain promises critical to the leadership of the Diocese specifically that Roger Williams Medical Center would not engage in prohibited activities of the Diocese and specifically listed:

Abortion

Euthanasia

Physician-assisted suicide

The suit asserts that there was a “quid pro quo for freeing New Fatima Hospital from the unfunded liabilities of the plan, and granting these extensive and perpetual ‘Catholic identity covenants’ for New Fatima Hospital and New Roger Williams Hospital.”

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Violated Federal Law and Federal Oversight

As the hospitals left the control of the Diocese and were sold off in 2009 and then, the ultimate sale to Prospect, officials knew that the pension plan was no longer a "Church Plan" and thus needed to then fall under federal regulatory review under ERISA.

According to the lawsuit, the "deceit" create a federal violation of the law and de facto an "unlawful violation of tax law and ERISA."

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Misleading the Vatican, Continued

Bishop Tobin did not disclose in his letter to the Vatican that the proposed asset sale increased the probability of the plan failing. Instead, Bishop Tobin omitted that information (removed from the letter was “spiraling and gaping liability’ which was in the draft) and, in effect, said the opposite, that the approval of the asset sale [to CharterCare] was actually necessary to secure the plan."

The lawsuit goes on to assert, ”These misrepresentations and omissions concerning the Plan in the Bishop’s letter to the Vatican were included by the defendants…and the Diocesan defendant, all understood that the Vatican approval was required for the transaction to proceed, and knew or were told that the Vatican must approve specifically the ‘pension structuring.’”

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Most Damning - Email After the Sale

In order to continue the status of the pension fund as a "Church Plan" and thus hide the financial condition of the fund from members and keep from federal regulation, after the sale legal counsel for St. Joseph Health Services of RI sent an email to the Diocese and copied CharterCare and the actuary Angell, reminding everyone of the consequences of the Diocesan defendants not listing St. Joseph in the Catholic Directory.

"Saint Joseph Health Services of RI believes that if it is not included in the 2015 issue of the directory that the pension fund will no longer qualify as a church plan and that the loss of the status will require that they immediately notify the applicable governmental authorities that the plan is currently underfunded."

The Diocese officials than contacted the editors of the directory and made sure that the St. Joseph remained listed, according to the suit.

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Funds Diverted to Priest's Pension Fund

One of the biggest affronts to members of the now failed St. Joseph pension fund was that when the sale of CharterCare was completed the Diocese received a $640,000 repayment of a loan from the Inter-Parish Loan Fund. 

The Diocese received those funds and instead of applying them to the pension fund, according to the lawsuit church records show that the loan was partially repaid, but that $100,000 was diverted to the priest's retirement fund -- a fund that is reportedly fully funded.

 
 

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