Judge Stern’s Ruling Green Lights Millions in St. Joseph Pension Fund Case, Set Back for CharterCare

Monday, November 19, 2018

 

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Superior Court Judge Brian Stern

A decision by Superior Court Judge Brian Stern handed down last week clears the way for a minimum of $12 million to be shifted to the failed St. Joseph Health Services pension fund.

The decision, according to the receiver Stephen Del Sesto, is another step closer to retrieving tens of millions of dollars from 14 different defendants in the fraud lawsuit.

The decision by Stern asserted that the effort by Prospect CharterCare -- to functionally delay turning over key documents -- did violate the injunctive relief order issued by the court at the beginning of the legal proceeding.

"[ProsepctCharterCare] violated the Injunctive Order by not committing to the discretion of a trial justice...this Court will allow PCC ten (10) days to withdraw the Petitions commencing on the date of an Order entered in accordance with the above findings. In the interim, this court will reserve its contempt determination," wrote Stern in the decision.

Stern’s order gives the hospital group ten days to withdraw their petition to the Attorney General’s office or potentially face court-ordered sanctions.

Union Reacts to Decision

"Once again, Prospect's legal maneuvers have been soundly and rightfully rejected. Their shameless efforts to block a potential settlement agreement further illustrate that Prospect's only intent in this process is to protect its' for-profit model at the expense of those who have dedicated their lives to providing quality patient care,” said United Nurses and Allied Professionals (UNAP) General Counsel Chris Callaci.

At stake are key documents which Del Sesto says Prospect CharterCare should have turned over in discovery about a year ago. The documents requested by Del Sesto and special investigator Max Wistow pertain to a requirement placed on Prospect CharterCare in 2014 when it purchased St. Joseph’s under agreed-upon provisions of the Hospital Conversion Act.  When buying the hospital Prospect CharterCare agreed to make $50 million of improvements over five years.

It is unclear how much the company has invested to date.

The collapse of the St. Joseph pension fund is the largest fund failure in Rhode Island history and impacts more than 2,700 participants. The fund went into receivership 15 months ago.

"We find it unconscionable for Prospect to attempt to block a settlement agreement that would help stabilize a dramatically underfunded pension fund meant to protect 2,700 plan participants and their families. These dedicated health professionals relied on the promise of that pension and the callous indifference Prospect has shown them speaks volumes about how this for-profit corporation assesses its priorities,” added Callaci, whose union did not object to the sale of St. Joseph and other hospitals to Prospect in 2014. In the past few years, UNAP and Prospect have battled over a host of issues.

The recovery of a minimum of $12 million is the first recovery in the 15-month-old receivership, but could be upwards of $30 to $40 million or more. As a result of Stern’s ruling the now-defunct pension plan could own 15 or more percent of Prospect CharterCARE in Rhode Island. The percentage of the ownership and thus the total amount St. Joseph pension fund could recover is tied to whether Prospect invested the required $50 million.

The decision by Stern now needs to be approved by his judicial counterpart in federal court, Judge Will Smith.

The dual jurisdiction is set up as such as the receivership of the pension fund and one major fraud lawsuit are in state court, and a related federally-filed fraud suit is now pending in federal court.

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Receiver Del Sesto

Del Sesto Says He is Guardedly Optimistic

“I am pleased that the settlement for the $12 million is moving forward and potentially significantly more. In addition, this may spark some of the other 14 defendants in the lawsuit to settle,” said Del Sesto.

In addition, Del Sesto says he is satisfied that to date the pension fund has not had to make cuts to the benefits of the pensioners now receiving payments. When the pension fund was thrust into receivership in August 2017, the Board of St. Joseph's pension fund called for 40 percent cuts to payments.

 

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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