WASHINGTON — Catholic hospitals face ongoing challenges to their religious mission and bottom line, from the Health and Human Services’ contraception mandate to Republican Party proposals to reverse the expansion of Medicaid rolls.

Now, Church-affiliated hospitals confront a new kind of threat: a class-action lawsuit brought by 300,000 employees, who argue that the hospitals’ adoption of church pension plans violated federal law designed to secure employee benefits.

If the hospitals lose, they could face retroactive penalties totaling billions of dollars. Ultimately, the ruling would affect an estimated 1 million employees working in religious ministries.

On March 27, the U.S. Supreme Court heard oral arguments in Advocate Health Care Network v. Stapleton, a case that involved legal challenges to the pension plans of several Catholic or Christian hospital systems.

The case consolidated lawsuits filed against one Catholic health care network, St. Peter’s Healthcare System, which is sponsored by the Catholic Diocese of Metuchen, New Jersey, and San Francisco-based Dignity Health, which includes a number of Catholic hospitals.

The case hinges on dueling interpretations of Congress’ intent when it passed the Employee Retirement Income Security Act (ERISA), which set standards for funding and insurance for corporate pensions. When a group of religious orders challenged the law, Congress approved a limited exemption for church plans.


Addressing the Exemption

The Supreme Court is being asked to decide whether ERISA’s “1974's church-plan exemption applies so long as a pension plan is maintained by an otherwise-qualifying church-affiliated organization, or whether the exemption applies only if, in addition, a church initially established the plan.” The Catholic and Christian hospitals claim that ERISA’s religious exemption includes church pension plans initiated by houses of worship as well as those established by religious agencies.

Lawyers representing the employees argue that the exemption only covers plans established by churches. They maintain that Congress never intended to provide exemptions to large health care networks that employ tens of thousands of people, and the decision to skirt broad legal requirements could jeopardize workers’ future retirement benefits.

Three appellate courts have ruled against the hospitals. And analysts predict that the justices will drill into the statute’s ambiguous language on what constitutes a “church” plan, while the court is expected to give less weight to questions about whether Congress has the power to define what constitutes a “church” employer.


‘Not a Religious-Liberty Case’

“I think the court will view it as a statutory-interpretation case and not as a religious-liberty case,” Douglas Laycock, a leading authority on religious-freedom issues at the University of Virginia Law School, told the Register.

“This isn’t the nuns acting on conscience, or saying they can’t do abortions; it’s about the regulatory details of a huge pension plan.”

Mark Chopko, a lawyer who represents the Catholic Health Association, an industry lobby that filed an amicus brief in the case, agreed that the justices had signaled their intent to drill into the language of the statute and pointed to the questions they posed during the oral arguments.

“The questions to both sides went to the heart of the case: What does this text really mean? Why did Congress write it this way, and what result did they intend?” Chopko told the Register.

According to the law, ERISA does not apply to any plan “established and maintained for its employees by a church.” A 1980 amendment states that a “plan established and maintained for its employees … by a church … includes a plan maintained by an organization … controlled by or associated with a church.”

The justices will decide whether the revised text meant that a plan “maintained by an [affiliated] organization” is automatically treated as one “established … by a church.”


Language Remains Unclear

A number of justices acknowledged that the language of the statute and the revisions designed to clarify Congress’ intent remained unclear.

“This could be read either way, in my mind,” said Justice Sonia Sotomayor near the start of the oral arguments.

Even if the justices conclude that Congress did not intend to exempt religious ministries, extenuating circumstances could strengthen the hospitals’ case.

For example, in the decades since Congress passed legislation designed to secure the viability of pension plans offered by for-profit corporations, Catholic hospitals had applied to the Department of Labor and the Internal Revenue Service for guidance on the legality of their plans and then received letters that endorsed the plans.

Justice Anthony Kennedy said the long paper trail confirmed the hospitals’ “good faith” effort to comply with federal law.

Chopko agreed and suggested that it would be difficult for the justices to overturn more than 30 years of federal agency deference.

Likewise, the justices expressed concern about the massive retroactive penalties the hospitals could incur if they lost the case.

The assessed fines for two of the cases could total tens of billions of dollars, Lisa Blatt, the advocate for the hospitals, told the justices.

“That’s $66 billion in two cases if ERISA’s six-year statute of limitations applies,” said Blatt, noting the fact that ERISA permits retroactive penalties of $110 per day for each plan participant.


Alito’s Challenge

The hospital employees’ lawyer, James Feldman, sought to downplay the likelihood that a victory for his clients would leave the hospitals, and hundreds of other religious nonprofits, affected by the ruling, with crushing penalties.

Feldman noted that the fines were discretionary, and he framed the litigation primarily as an attempt to benefit employees in the future.

A testy Justice Samuel Alito challenged this argument and prodded Feldman to confirm whether a request for penalties would be taken off the table.

“Are you willing, on behalf of your clients, to disavow any requests for penalties?” Justice Alito asked.

When Feldman demurred, Alito asked: “Then how can you say it’s primarily about forward-looking things?”

While the justices struggled to clarify the scope of the exemption, little time was devoted to another issue of concern to the U.S. bishops: the attempt to define what is and is not a “church” employer.

As a matter of principle, Church leaders oppose any ruling that endorses a definition of “church” that excludes religious orders or religious ministries.

An assessment of “whether a ministry is part of the Church is a question for the Church,” not the federal government, the U.S. Conference of Catholic Bishops (USCCB) argued in an amicus brief filed with the court before the oral arguments.

“Asking courts to make those kinds of probing and individualized determinations would foster exactly the kind of ‘excessive entanglement between government and religion’ that the religion clauses of the First Amendment are intended to avoid,” stated the brief, which was jointly filed by the USCCB, Catholic Colleges and Universities, Catholic Charities USA, Catholic Relief Services and the National Catholic Educational Association.


Decision’s Impact

A decision in favor of the hospitals would likely leave such questions for another day, and the University of Virginia’s Laycock argued that a narrow ruling on statutory intent would mostly have the same impact.

“If the court doesn’t see it as a religious-liberty case, then it won’t have many implications for other religious-liberty cases,” he argued.

Eric Baxter, senior counsel at the Becket Fund for Religious Liberty, a public interest group that filed an amicus brief in support of the hospitals, disputed this judgment and said a narrow definition of “church” was a matter of great concern.

It is not the government’s place to say “worship in church is a ‘church’ activity, but feeding the sick isn’t,” Baxter told the Register, as he expressed concern about any ruling that could shape legal precedent and influence the outcome of litigation designed to constrain religious freedom.

“For most believers, what you do in the week is at least as important as what you do on the weekend.”


Limited Ruling Expected

For now, legal scholars expect a more limited ruling, and several analysts cautiously predicted that the justices would be leery of overturning decades of federal guidance, and thus the hospitals would likely prevail.

“It seems quite likely that the affiliated organizations will retain their exemptions,” said Ronald Mann in a March 28 analysis of the oral arguments for Scotusblog, the go-to website for court watchers.

“The justices might not like the way the amendment is written, but they do not seem likely to reject the IRS’ reading of it.”


Joan Frawley Desmond is a Register senior editor.