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Del Sesto v. Prospect CharterCARE, LLC

United States District Court, D. Rhode Island

October 9, 2019

STEPHEN DEL SESTO, AS RECEIVER AND ADMINISTRATOR OF THE ST. JOSEPH HEALTH SERVICES OF RHODE ISLAND RETIREMENT PLAN, ET AL. Plaintiffs,
v.
PROSPECT CHARTERCARE, LLC, ET AL., Defendants.

          MEMORANDUM AND ORDER

          WILLIAM E. SMITH, CHIEF JUDGE

         Before the Court is a request for final approval of a settlement reached between Plaintiff Stephen Del Sesto (“Receiver”), as state appointed receiver and administrator of the St. Joseph Health Services of Rhode Island Retirement Plan (“Plan”), Named Plaintiffs Gail J. Major, Nancy Zompa, Ralph Bryden, Dorothy Willner, Caroll Short, Donna Boutelle, and Eugenia Levesque, individually and on behalf of others similarly situated (collectively, “Plaintiffs”), and Defendants St. Joseph Health Services of Rhode Island (“SJHSRI”), Roger Williams Hospital (“RWH”), and CharterCARE Community Board (“CCCB”)(collectively, the “Settling Defendants”). Two groups of defendants - the Diocesan Defendants[1] and the Prospect Entities[2] (collectively, the “Non-Settling Defendants”) - object to approval of the settlement.

         Following preliminary approval of the settlement, a fairness hearing was held on September 10, 2019. See Min. Entry for Sept. 10, 2019. For the reasons stated in this memorandum and order, the Court GRANTS final approval of the settlement and certifies the class, class representatives, and class counsel.[3]

         I. Background

         This action stems from alleged underfunding of a retirement plan for nurses and other hospital workers employed by SJHSRI. Am. Compl. ¶ 54, ECF No. 60. According to the amended complaint, the Plan, which has 2, 729 participants, is insolvent. Id. After the Plan was placed into receivership in 2017, the Receiver and several named participants, individually and on behalf of a purported class of plan participants, filed a twenty-three-count complaint in this Court against several defendants, alleging violations of the Employee Retirement Income Security Act (“ERISA”) for failure to meet minimum funding requirements and breach of fiduciary duty, as well as various state law claims. See generally Am. Compl.

         A number of defendants have agreed to settle with Plaintiffs, resulting in two separate settlement agreements. The Court approved the settlement reached between Plaintiffs and SJHSRI, RWH, CCCB, and CharterCARE Foundation (“CCF”) (“Settlement B”) for the reasons stated in its Memorandum of Decision Entering Final Approval of the Settlement, ECF No. 162. The settlement currently before the Court, “Settlement A, ” was reached between Plaintiffs and SJHSRI, RWH, and CCCB. See Joint Mot. for Class Certification, Appointment of Class Counsel, and Preliminary Settlement Approval (“Joint Mot. for Prelim. Approval”) 1, ECF No. 63.

         The terms of Settlement A are set forth in the parties' settlement agreement, ECF No. 63-2. In sum, following approval, the Settling Defendants will transfer to the Receiver an initial lump sum payment in an amount not less than $11, 150, 000. See Settlement A ¶¶ 1(q), 10. Additionally, the Settling Defendants will assign to the Receiver all rights in an escrow account held by the Rhode Island Department of Labor and Training with a current balance of $750, 000. Id. ¶¶ 15-16. CCCB will also assign its rights in CCF to the Receiver, and the Settling Defendants will hold CCCB's interest in non-settling defendant Prospect CharterCARE in trust for the Receiver. See id. ¶¶ 1(c), 1(d), 13, 17. Finally, the Settling Defendants agree to petition the Rhode Island Superior Court to initiate judicial liquidation proceedings, pursuant to which their remaining assets will be distributed to creditors, including Plaintiffs. See id. ¶¶ 21-26. In exchange, Plaintiffs will release the Settling Defendants and their agents, officers, and directors serving after June 20, 2014 from liability as it relates to the Plan.[4] See id. ¶ 11, Exs. 9, 10, 11 at 1-2.

         Plaintiffs and Settling Defendants sought preliminary approval of the settlement, to which the Non-Settling Defendants objected. See generally Joint Mot. for Prelim. Approval; Diocesan Defs. Resp. in Opp'n To Joint Mot. for Prelim. Approval (“Diocesan Opp'n to Prelim. Approval”), ECF No. 73; Prospect Entities Opp'n To Joint Mot. for Prelim. Approval (“Prospect Opp'n to Prelim. Approval”), ECF No. 75. On June 6, 2019, the Court preliminarily approved the settlement and directed the settling parties to give notice to the purported class. Order Granting Prelim. Approval 15, 20, ECF No. 124.

         Plaintiffs and Settling Defendants now seek final approval of the settlement. See Pl. Mem. in Supp. of Mot. for Final Approval of Class Action Partial Settlement 1, ECF No. 149 (“Final Approval Mem.”). The Non-Settling Defendants object to final approval on several grounds. Some of the objections relate to the merits of the case - whether ERISA applies to the Plan and the consequences flowing from that determination. See Diocesan Opp'n to Final Approval 2. The Non-Settling Defendants also object on the basis that R.I. Gen. Laws § 23-17.14-35 is unconstitutional or preempted by ERISA. See id. The Non-Settling Defendants' central argument, however, is that the settlement should not be approved because it is the product of collusion between the Receiver and the Settling Defendants. Id. at 3; Prospect Entities' Obj. to Final Settlement Approval 1 (“Prospect Obj. to Final Approval”), ECF No. 147.

         II. Discussion

         a. Jurisdiction[5]

         In order to approve the settlement, the Court must first determine that it has jurisdiction over the dispute. A federal court has subject matter jurisdiction under 28 U.S.C. § 1331 so long as “the plaintiff's well-pleaded complaint. . . exhibit[s], within its four corners, either an explicit federal cause of action or a state-law cause of action that contains an embedded question of federal law that is both substantial and disputed.” R.I. Fishermen's All. v. R.I. Dept. of Envtl. Mgmt., 585 F.3d 42, 48 (1st Cir. 2009); see 28 U.S.C. § 1331. Plaintiffs' complaint alleges four claims which arise under ERISA - a federal statute.

         Moreover, Plaintiffs must meet statutory and constitutional requirements for standing as part of the threshold jurisdictional analysis. See In re Deepwater Horizon, 739 F.3d 790, 798 (5th Cir. 2014). As to statutory standing, the civil enforcement provision under ERISA, 29 U.S.C. § 1132, allows claims by plan participants, beneficiaries, and fiduciaries for breach of fiduciary duty and equitable relief. See 29 U.S.C. § 1132(a)(2) & (3). The named plaintiffs are all current participants of the Plan, and the purported class includes participants and beneficiaries of the Plan. Am. Compl. ¶¶ 3-9, 35. Furthermore, the Receiver is an ERISA fiduciary because he, as Plan administrator, “exercises discretionary control or authority over the plan's management, administration, or assets[.]” Mertens v. Hewitt Assoc., 508 U.S. 248, 251 (1993); 29 U.S.C. § 1102(a).

         Constitutional standing under Article III requires an injury in fact, a causal connection between the injury and the defendant's conduct, and the likelihood that a favorable outcome will redress the injury. Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-61 (1992). While an injury must be particularized and concrete, “[t]his does not mean, however, that the risk of real harm cannot satisfy the requirement of concreteness.” Spokeo, Inc. v. Robins, 136 S.Ct. 1540, 1549 (2016). “At the pleading stage, general factual allegations of injury resulting from the defendant's conduct may suffice[.]” Lujan, 504 U.S. at 561; see In re Deepwater Horizon, 739 F.3d at 804 (“[I]t is sufficient for standing purposes that the plaintiffs seek recovery for an economic harm that they allege they have suffered because for each class member we must assume arguendo the merits of his or her legal claim at the Rule 23 stage.”) (internal citation omitted).

         In the amended complaint, Plaintiffs allege that the Plan is “grossly underfunded” because the Plan's sponsor did not make required contributions for many years, particularly from 2010 to 2016, and that Defendants knew that the sponsor of the Plan faced liabilities well exceeding its assets as of 2014. Am. Compl. ¶ 63, 448. Plaintiffs also allege that, “[a]s a result of SJHSRI's failure to fund the Plan in accordance with ERISA's minimum funding standards, Plaintiffs pensions will be lost or at least severely reduced.”[6] Id. ¶ 458. Given that the Court must accept these allegations as true at this stage of the proceedings, the Court is satisfied that Plaintiffs have alleged an injury sufficient for standing. See Dezelan v. Voya Ret. Ins. Annuity Co., No. 3:16-cv-1251, 2017 WL 2909714, at *5 (D. Conn. July 6, 2017)(“Generally, a plaintiff has standing to bring an ERISA claim where the plaintiff alleges a causal connection between defendants' actions and actual harm to an ERISA plan in which the plaintiff participates.”)(citing LaRue v. DeWolff, Boberg & Assoc., Inc., 552 U.S. 248, 255-56 (2008)(recognizing that an ERISA claim for breach of fiduciary duty “does not provide a remedy for individual injuries distinct from plan injuries” and stating that “[m]isconduct by the administrators of a defined benefit plan will not affect an individual's entitlement to a defined benefit unless it creates or enhances the risk of default by the entire plan.”)).

         Therefore, the Court finds that it has jurisdiction over the subject matter and parties in this dispute.

         b. Final Approval Under Rule 23(e)

         i. Legal Standard

         A Court may approve a settlement in a class action only upon a finding that the settlement is “fair, reasonable, and adequate.” Fed.R.Civ.P. 23(e)(2). ...


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