Massive Lawsuits: Lawyers for Failed St. Joseph Pension Fund Sue Catholic Church and CharterCare

Wednesday, June 20, 2018


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Bishop Thomas Tobin

Two related massive lawsuits have been filed simultaneously in state and federal court by the receiver in the collapsed St. Joseph pension fund - the largest pension failure in Rhode Island history.

The suit alleges massive fraud in the case which has created a hole in pension assets estimated to be in excess of $115 million. The suit was filed by the receiver Stephen Del Sesto and was prepared by the special investigator Max Wistow and his law associates Stephen Sheehan and Benjamin Ledsham.

Federal, State Complaints

The Federal Court complaint is 136 pages and includes a 21 count complaint filed against 14 Defendants. Similarly, the state court complaint is 101 pages and includes 16 count complaint against same defendants.

The defendants include the Diocese of Providence, CharterCare, CharterCare’s parent company Prospect, Angela Pension Group, and a range of other related healthcare and diocesan entities tied to the sale of the St; Joseph Hospital first in 2009 by the Diocese to Roger Williams Medical Center which created CharterCare and then the sale of CharterCare to Prospect of California in 2014.

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Retirees at a previous court hearing. The fund when into receivership in Aug, 2017

Both sales were approved by the RI Department of Health and, more importantly, the Rhode Island Attorney General’s office.

The lawsuits assert that when the hospital was sold both in 2009 and in 2014, it affirmed the pension fund status as being a “church plan.” However, the pension fund should have then been thrust into a regulated ERISA plan -- a federally regulated plan that then would required oversite, regulation, reporting, and mandated contributions. Instead, the pension fund was jettisoned into a future that lead to its collapse just three years later.

The suit further alleges that the Diocese and the other healthcare organization conspired to withhold information from the retirees, regulators and even the Vatican.

According to court documents, the parties knew that the post-2014 transaction which orphaned the pension fund would have “catastrophic implications” of that failure.

Further, the suit 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..”

Overview of the suit:

This case concerns an insolvent defined benefit retirement plan with over 2,700 participants, consisting of nurses and other hospital workers, who, after many years of dedicated service to their patients and SJHSRI, learned in August of 2017 that the Plan had not been adequately funded. The disclosure occurred when the Plan was placed into receivership by SJHSRI, with the request that the Rhode Island Superior Court approve a virtually immediate 40% across-the-board reduction in benefits.

The harm to the Plan participants’ pensions is the product of (at least) four separate but related factual scenarios and schemes.

For nearly 50 years SJHSRI used the Plan as a marketing tool to hire and retain employees, and promised employees and prospective employees that SJHSRI made 100% of the necessary contributions and that they had no investment risk, leading them to mistakenly but justifiably conclude that SJHSRI was making the necessary contributions and their pensions were safe;

For most of at least the past ten years, SJHSRI stopped making necessary contributions with the result that the Plan was grossly underfunded, but SJHSRI and other defendants conspired to conceal it from plan participants through fraudulent misrepresentations an material omissions regarding the Plan

For many years SJHSRI and other defendants secretly sought a means to terminate the plan without exposing SJHSRI’s substantial operating assets and charitable funds to lawsuits by Plan participants for benefits, including in December of 2012 when SJHSRI considered unilaterally terminating the Plan and paying benefits only to employees who were already retired, which should have deprived over 1,800 other Plan participants of any pension whatsoever, but reconsidered because SJHSRI feared the excluded plan participants would bring a successful class action that would end up costing SJHSRI more than it would save by terminating the plan. 

Beginning in 2011, SJHSRI and other Defendants put into operation a scheme to transfer SJHSRI’s operating assets, cash and most of its expected future charitable income to entities controlled by SJHSRI’s parent company, intending that such assets thereby would be out of reach of a suit by the plan participants, and then terminate the plan. The scheme had four key stages:

First, in connection with the 2014 Asset sale, SJHSRI and related entities engaged in the fraudulent transfer of SJHSRI’s operating assets to the control of a for-profit limited liability company, leaving SJHSRI with the insolvent pension plan and no operating assets, in return for SJHSRI’s parent company getting a 15% state fin the for-profit company that they thought would be safe from the claims of Plan participants, and made fraudulent misstatements and material commissions concerning the Plan to the state regulatory agencies who’s approval for the transfer to go forward.

Next, to evade federal law imposing liability on control groups and successors under ERISA, SJHSRI and other Defendants conspired with the Diocesan Defendants to falsely claim that the Plan continued to qualify as a “church plan” which if true would have exempted it from ERISA. This claim violated federal tax laws and ERISA.

Then, to secure cash which should have gone to foster the Plan, SJHSRI’s parent company over the last four years stripped at least $8,200,000 in charitable assets from SJHSRI and its other subsidiary, and either spent or put the money in the foundation it controlled, This was accomplished by misleading the Rhode Island Superior Court in 2015 into approving these wrongful and fraudulent transfers under the doctrine of cy pres.

Finally, having accomplished the goal of stripping SJHSRI of virtually any value, SJHSRI and its affiliates sought to wash their hands of the problem they created, and put the Plan into receivership in August of 2017 and asked the state court to reduce SJHSRI’s liabilities to Plan participants by 40% on the grounds ghat SJHSRI had insufficient assets to fund the plan.

SJHSRI, 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 .

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. 

EDITOR'S NOTE: This story originally was published 6/19/18 11:54 AM 


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