Rollins v. Dignity Health et al

Filing 205

ORDER by Judge Thelton E. Henderson granting 197 Motion for Certification for Interlocutory Appeal; granting 197 Motion to Stay. The 01/05/2015 Case Management Conference is continued to 02/09/2015. A joint statement on the status of certification shall be due no later than 02/02/2015. (tehlc1, COURT STAFF) (Filed on 11/26/2014)

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UNITED STATES DISTRICT COURT

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NORTHERN DISTRICT OF CALIFORNIA

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STARLA ROLLINS,
Plaintiff,

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v.
DIGNITY HEALTH, et al.,
Defendants.

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Case No. 13-cv-01450-TEH
ORDER GRANTING DEFENDANTS’
MOTION TO CERTIFY COURT’S
ORDER GRANTING PARTIAL
SUMMARY JUDGMENT FOR
INTERLOCUTORY APPEAL AND
STAYING CASE

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United States District Court
Northern District of California

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On July 22, 2014, the Court granted partial summary judgment for Plaintiff because

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the Court had previously concluded that ERISA’s “church plan” exception only applied if

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a retirement plan was established by a church, and there was no genuine dispute as to the

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facts that Catholic Healthcare West was not a church and had established the plan at issue

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in this case. Defendants subsequently filed this motion to certify the Court’s Order for

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interlocutory appeal and stay the case. Pursuant to Civil Local Rule 7-1(b), the Court finds

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this matter suitable for resolution without oral argument. For the reasons given below, the

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Court now GRANTS Defendants’ motion, CERTIFIES its July 22, 2014 Order for

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interlocutory appeal, and STAYS all further proceedings pending the Ninth Circuit’s

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decision whether or not to hear the appeal.

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BACKGROUND
Plaintiff Starla Rollins (“Rollins”) was employed as a billing coordinator by

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Defendant Dignity Health (“Dignity”) from 1986 to 2012. Rollins challenges Dignity’s

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practice of operating its employees’ retirement savings plan (“the Plan”) as a “church

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plan,” exempt from the funding and disclosure requirements of the Employee Retirement

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Income Security Act (“ERISA”). Dignity has at all times argued that the Plan meets

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ERISA’s definition of a church plan, as set out at 29 U.S.C. § 1002(33).

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In December of 2013, the Court denied Dignity’s motion to dismiss this action,

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holding that under ERISA’s plain meaning, a plan must be “established by a church” to be

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considered a church plan, and Dignity had not argued that it could meet that definition.

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Rollins v. Dignity Health, No. 13-cv-1450 TEH, 2013 WL 6512682, at *7 (N.D. Cal. Dec.

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12, 2013). Dignity moved to certify that decision for interlocutory appeal, which the Court

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denied in March of 2014, because it did not satisfy the requirements set out at 28 U.S.C.

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§ 1292(b). Rollins v. Dignity Health, No. 13-cv-1450 TEH, 2014 WL 1048637, at *2

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(N.D. Cal. Mar. 17, 2014).
In July of 2014, the Court granted Plaintiff’s and denied Defendants’ cross-motions

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for partial summary judgment. Rollins v. Dignity Health, No. 13-cv-1450 TEH, 2014 WL

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United States District Court
Northern District of California

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3613096, at *1 (N.D. Cal. July 22, 2014). The Court reiterated its prior holding that a

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church plan must be established by a church. Id. at *6. The Court found that there was no

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genuine dispute as to the material facts that Defendants’ predecessor, Catholic Healthcare

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West (“CHW”), established the Plan, and that CHW was not a church. Id. Accordingly,

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the Court held that the Plan was not an exempt church plan, and therefore was subject to

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ERISA’s requirements. Id.

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On October 27, 2014, Plaintiff brought motions for a permanent injunction and to

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certify a class. (Docket Nos. 180, 183). At a Case Management Conference held

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November 3, the Court stayed Plaintiff’s motions and provided Defendants the opportunity

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to seek an appeal of the Court’s prior order. (Docket No. 191). On November 10, 2014,

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Defendants brought this motion to certify the Court’s July 22, 2014 Order for interlocutory

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appeal. (Docket No. 197).

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LEGAL STANDARD
A party may bring an interlocutory appeal of a district court’s order where the order

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“involves a controlling question of law as to which there is substantial ground for

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difference of opinion and [] an immediate appeal from the order may materially advance

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the ultimate termination of the litigation . . . .” 28 U.S.C. § 1292(b). “[T]his section [is] to
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be used only in exceptional situations in which allowing an interlocutory appeal would

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avoid protracted and expensive litigation.” In re Cement Antitrust Litig. (MDL No. 296),

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673 F.3d 1020, 1026 (9th Cir. 1982).

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DISCUSSION

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I. There is a Controlling Question of Law at Issue
Defendants seek to certify for appeal the question whether an ERISA church plan

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must be established by a church, or rather whether it is sufficient for a plan to have been

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established by an organization controlled by or associated with a church. “[A]ll that must

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be shown in order for a question to be ‘controlling’ is that resolution of the issue on appeal

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United States District Court
Northern District of California

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could materially affect the outcome of litigation in the district court.” In re Cement

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Antitrust Litig., 673 F.3d at 1026.

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The parties do not dispute that the question to be certified is a controlling question

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of law in this case. Based on its prior answer to the question, the Court entered partial

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summary judgment for Plaintiff on the issue of whether the Plan was subject to ERISA’s

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requirements. Rollins, 2014 WL 3613096, at *6. Plaintiff has used the Court’s Order as

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the basis for motions for a permanent injunction and for class certification, charting the

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litigation’s current trajectory.

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On the other hand, if the Court of Appeals were to reverse this Court’s

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determination, the litigation would take a decidedly different path. First, unless the Court

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of Appeals also answers this subsequent question, the Court would need to determine

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whether Dignity or its predecessor was “associated with” or “controlled by” a church while

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it maintained the Plan. 29 U.S.C. § 1002(33)(C)(i). The Court may again find that the

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Plan is not a church plan, but if the Court finds that it is, it will need to inquire as to

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whether there is Article III standing for it to continue to hear the case, as Plaintiff’s

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standing may depend on ERISA’s application to the Plan. And, if the Court were to find

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that Plaintiff has standing, it would need to turn to Plaintiff’s Establishment Clause

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challenge to the church plan exception itself. Each of these possible alternative trajectories
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would only be available if the Court of Appeals reverses this Court’s interpretation of the

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statute.

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The Court previously found that this question was not a “controlling question of

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law,” because Defendants had not demonstrated what made this an “exceptional situation”

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justifying interlocutory appeal. Rollins, 2014 WL 1048637, at *2. Defendants have

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persuaded the Court that a different determination is now appropriate. The remaining

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issues to be decided in this case, and the attendant costs of discovery, will vary

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significantly depending on the resolution of this issue. As noted above, there are several

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different questions, many of them dispositive, that will need to be answered if the Court of
Appeals reverses this Court’s determination. Discovery for the question of whether

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United States District Court
Northern District of California

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Dignity was associated with or controlled by a church will almost certainly be different

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than class certification discovery, which will be different than discovery for Plaintiff’s

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breach of fiduciary duty claims. Dignity estimates having to spend several thousand

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additional attorney hours, costing in excess of $500,000, to respond to the currently

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pending and expected discovery requests, in addition to incurring several hundred

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thousand dollars in attorneys’ fees in responding to Plaintiff’s currently pending motions.

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Rochman Decl. at 2 (Docket No. 198). These costs could be avoided, perhaps entirely, by

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a reversal at the Court of Appeals.

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For these reasons, the Court now finds that this case presents an exceptional

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situation, such that appellate resolution of this question may avoid expensive and

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protracted litigation and could materially affect the outcome of the case.

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II. There are Substantial Grounds for Disagreement on this Question

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The Court also finds that there are substantial grounds for disagreement here. One

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of the best indications that there are substantial grounds for disagreement on a question of

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law is that other courts have, in fact, disagreed. Couch v. Telescope, Inc. 611 F.3d 629,

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633 (9th Cir. 2010); see also Reese v. BP Exploration (Alaska) Inc., 643 F.3d 681, 688 (9th

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Cir. 2011) (“[W]hen novel legal issues are presented, on which fair-minded jurists might
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reach contradictory conclusions, a novel issue may be certified for interlocutory appeal

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. . . .”); AsIs Internet Servs. v. Active Response Grp., No. 07-cv-06211-TEH, 2008 WL

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4279695, at *3 (N.D. Cal. Sept. 16, 2008) (substantial ground for difference of opinion

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existed where there was an “intra-district split” on a novel legal issue).
Here, two district courts have decided this issue explicitly in conflict with this

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Court’s decision. In Overall v. Ascension Health, No. 13-cv-11396, 2014 WL 2448492

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(E.D. Mich. May 19, 2014), the court noted that this Court had “interpreted section (A) as

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a gatekeeper of section (C). That is, [it] concluded that section (A) sets the standard—only

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a church can establish a church plan—and section (C) only describes how a plan under
section (A) can be maintained.” 2014 WL 2248492, at *10. However, “under the rules of

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United States District Court
Northern District of California

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grammar and logic, A is not a ‘gatekeeper’ to C; rather if A is exempt and A includes C,

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then C is also exempt.” Id. (internal quotation marks and citation omitted). The court

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went on to conclude that the plans in that case were church plans, exempt from ERISA. Id.

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at *15.

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Similarly, in Medina v. Catholic Health Initiatives, No. 13-cv-01249-REB-KLM,

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2014 WL 4244012 (D. Colo. Aug. 26, 2014), the court rejected this Court’s interpretation

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and that of the magistrate judge in that case. The court found that “the plain language

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clearly supports the conclusion that a plan that meets the requirements of subsection (C)(i)

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putatively qualifies for the exemption—without further, separate proof of establishment by

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a church—if the remaining requirements of the statute are otherwise met.” 2014 WL

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4244012, at *2. “By reiterating the same ‘established and maintained’ language of

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subsection (A), subsection (C) affirms that ‘established’ and ‘maintained’ are not two

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distinct elements, but rather a singular requirement, a term of art, as used in the statute.”

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Id. The court was presented with, and rejected, this Court’s interpretation, evidencing

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substantial grounds for disagreement on this issue.

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Moreover, before this Court’s Order, two district courts in the Ninth Circuit

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endorsed a contrary interpretation. In Rinehart v. Life Ins. Co. of N. Am., No. 08-cv-5486-

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RBL, 2009 WL 995715 (W.D. Wash. Apr. 14, 2009), the court reasoned that “The term
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‘church plan’ is somewhat misleading because even a plan established by a corporation

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controlled by or associated with a church can also qualify as a church plan.” 2009 WL

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995715, at *2. The court found that the plan at issue was a church plan because it was

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maintained by an organization controlled by and associated with a church, without

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discussing whether the plan was also “established” by a church. Id. at *5. And in

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Okerman v. Life Ins. Co. of N. Am., No. 00-cv-0186-GEB/PAN, 2001 WL 36203082 (E.D.

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Cal. Dec. 24, 2001), the court found that a plan was a church plan because it was

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“maintained” by an organization that met the requirements of 29 U.S.C. § 1002(33)(C)(i),

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without requiring the plan to have been “established” by a church. See 2001 WL

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36203082, at *3-4.

United States District Court
Northern District of California

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Only one court has agreed with this Court’s interpretation. In Kaplan v. Saint

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Peter’s Healthcare Sys., No. 13-cv-2941, 2014 WL 1284854 (D.N.J. March 31, 2014), the

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court held that “subsection A is the gatekeeper to the church plan exemption: although the

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church plan definition, as defined in subsection A, is expanded by subsection C to include

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plans maintained by a tax-exempt organization, it nevertheless requires that the plan be

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established by a church . . . .” 2014 WL 1284854, at *5 (emphasis in original). The court

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noted that “The Rollins court's interpretation of the church plan definition is in accord with

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this Court's decision.” Id. at *8.

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Given the level of disagreement that has become apparent since this Court’s July 22

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Order, and considering the previous cases within the Ninth Circuit to have applied a

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different rule, the Court finds that there are substantial grounds for disagreement with its

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interpretation. The second § 1292(b) factor is therefore satisfied.

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III. Resolution of This Issue Will Materially Advance the Litigation
Finally, the Court finds that an interlocutory appeal will materially advance the

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termination of the litigation. “[N]either § 1292(b)'s literal text nor controlling precedent

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requires that the interlocutory appeal have a final, dispositive effect on the litigation, only

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that it ‘may materially advance’ the litigation.” Reese, 643 F.3d at 688. Given the
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standard for a “controlling question of law” articulated by the court in In re Cement

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Antitrust Litig., the considerations of this factor overlap significantly with the first one. As

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already noted, appellate resolution of this issue will clearly impact the course of further

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motions and discovery. Importantly, if the Court were to deny certification now and

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continue with Plaintiff’s motions but subsequently be reversed by the Ninth Circuit, the

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Court would then need to consider the remaining issues of statutory interpretation,

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standing, and constitutionality that much later, after significant expense will have been

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incurred.

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Although Plaintiff does not dispute that the question presented is controlling, she
argues that its interlocutory appeal will not materially advance the litigation, because many

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United States District Court
Northern District of California

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issues will remain to be decided. However, as noted above, the Court would need to turn

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to such issues eventually if the Ninth Circuit reversed this Court’s determination at a later

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date. By addressing this question now, the Court saves time and expense. If the Ninth

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Circuit reverses, the parties can turn to these issues sooner rather than later. And if the

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Court of Appeals affirms, the case can proceed on the relatively few issues that remain

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with greater certainty. Such certainty could even encourage a negotiated settlement, which

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would not just materially but completely advance the termination of this litigation. See

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Securities and Exchange Commission v. Mercury Interactive, LLC, No. 07-cv-02822-JF,

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2011 WL 1335733, at *3 (N.D. Cal. Apr. 7, 2011) (“A final resolution as the scope of the

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statute would have a significant effect on the trial of this action, and perhaps upon the

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parties' efforts to reach settlement.”).

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IV. The Case Should be Stayed Pending the Ninth Circuit’s Decision
The Court also concludes that proceedings in this case should be stayed until the

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Ninth Circuit decides whether or not to hear this appeal. A district court may stay a case

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pending interlocutory appeal. 28 U.S.C. § 1292(b). “A district court has inherent power to

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control the disposition of the causes on its docket in a manner which will promote

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economy of time and effort for itself, for counsel, and for litigants.” CMAX, Inc. v. Hall,
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300 F.2d 265, 268 (9th Cir. 1962). When considering whether to stay proceedings, courts

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should consider “the possible damage which may result from the granting of a stay, the

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hardship or inequity which a party may suffer in being required to go forward, and the

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orderly course of justice measured in terms of the simplifying or complicating of issues,

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proof, and questions of law which could be expected to result from a stay.” Id. (citing

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Landis v. N. Am. Co., 299 U.S. 248, 254-55 (1936).
Here, Plaintiff has identified two potential sources of damage from granting a stay;

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first, that she and her putative class will lack ERISA’s protections for their retirement

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benefits, and second, that it will be burdensome to restart discovery later, where it is

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almost completed now.
The Court finds the first reason unconvincing, because Plaintiff has not shown that

United States District Court
Northern District of California

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the Plan is currently at risk of being underfunded; to the contrary, Defendants have put

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forward evidence suggesting that the Plan is adequately funded for the next decade.

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Connick Decl. at 1 (Docket No. 199). Furthermore, the absence of ERISA’s reporting and

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disclosure requirements is not itself a great enough injury to prevent a stay here.
Plaintiff’s second reason is also unconvincing. As already noted, Defendants are

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incurring significant costs in their efforts to produce discoverable materials. Depending on

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the resolution of this appeal and any subsequent issues, this discovery may be unnecessary.

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Plaintiffs will not be injured by freezing discovery now; they will merely have to wait until

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a later date, when it is clearer that such discovery is needed. The mere fact that

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Defendants may be “close” to finishing a particular round of discovery does not suggest

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that it is inequitable to stop discovery now; given the number of attorney hours Defendants

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are spending to comply with this request, completing production for this round will

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certainly be costly. While the Court recognizes that there is a potential loss of efficiency

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in stopping a discovery effort that may be restarted later, this potential inefficiency is

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warranted here, where the ongoing discovery is so costly and may be rendered unnecessary

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altogether.

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//
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Finally, for the reasons discussed in parts I and II, above, the Court finds that the

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orderly course of justice will be served by staying the proceedings now. Appellate

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resolution will provide certainty on the certified legal issue sooner rather than later. Such

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certainty will allow the litigation to turn to the remaining issues in an orderly fashion.

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Imposing a stay promotes orderly litigation by preventing the parties from arguing and the

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Court from deciding issues that may be rendered moot by the Ninth Circuit’s decision.

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CONCLUSION
For the reasons set forth above, Defendants’ motion to certify the Court’s July 22,
2014 Order for interlocutory appeal is GRANTED. The Case Management Conference

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United States District Court
Northern District of California

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scheduled for January 5, 2015 is continued to February 9, 2015 at 1:30 PM; the parties

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shall update the Court on the status of certification in a joint statement no later than 7 days

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prior to the Case Management Conference. All other proceedings in this case are

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STAYED pending the Court of Appeals’ decision whether or not to take the appeal. The

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hearing scheduled for December 1, 2014 is VACATED.

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IT IS SO ORDERED.

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Dated: 11/26/14

_____________________________________
THELTON E. HENDERSON
United States District Judge

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