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Attorneys’ Fees Doom Dignity Health’s $100 Million ERISA Deal

Oct. 30, 2019, 3:03 PM

Dignity Health’s $100 million class settlement with workers covered by its pension plan won’t get court approval until the parties rethink how the workers’ attorneys are paid, a federal judge in the Northern District of California ruled.

The deal is flawed because it contains a “kicker” clause allowing Dignity to keep any difference between the $6.15 million in attorneys’ fees authorized by the settlement and the amount of fees actually awarded by the court, Judge Jon S. Tigar said.

“Although the fact is not explicitly stated in the Settlement, if the Court awards less than $6.15 million in fees, Defendants keep the amount of the difference and those funds are not distributed to the class,” Tigar said. “The Court concludes that this arrangement, which potentially denies the class money that Defendants were willing to pay in settlement—with no apparent countervailing benefit to the class—renders the Settlement unreasonable.”

The proposed deal, which was slated to benefit more than 91,000 people, requires the hospital to put $50 million in its pension plan in 2020 and at least that much in 2021. Required contributions in the following three years will be based on recommendations from the plan’s actuaries, according to settlement papers filed in June.

Tiger also expressed concerns about Dignity’s agreement to make direct payments to certain plan participants. This has the potential to “shortchange or disproportionately favor these claims relative to classwide claims,” Tigar said.

Tiger withheld preliminary approval from the deal in an Oct. 29 order while giving the parties an opportunity to revise and try again.

Dignity Health is one of dozens of religiously affiliated hospitals that have been accused of wrongly treating their pension plans as “church plans” exempt from the Employee Retirement Income Security Act. The lawsuits claim that hospitals misuse ERISA’s church plan exemption in order to underfund their plans by tens or hundreds of millions of dollars.

The U.S. Supreme Court addressed ERISA’s church plan exemption in 2017, issuing a ruling that favored Dignity and other hospitals while leaving several questions open for further litigation.

The plan participants are represented by Keller Rohrback LLP and Cohen Milstein Sellers & Toll PLLC. Dignity is represented by Manatt Phelps & Phillips LLP, Trucker Huss APC, and Nixon Peabody LLP.

The case is Rollins v. Dignity Health, N.D. Cal., No. 4:13-cv-01450-JST, 10/29/19.

To contact the reporter on this story: Jacklyn Wille in Washington at jwille@bloomberglaw.com

To contact the editors responsible for this story: Jo-el J. Meyer at jmeyer@bloomberglaw.com; Patrick L. Gregory at pgregory@bloomberglaw.com

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