UPDATED: Court Decision Sets Stage for Up to $30 Plus Million to St. Joseph Retirees
GoLocalProv News Team
UPDATED: Court Decision Sets Stage for Up to $30 Plus Million to St. Joseph Retirees
On Monday, Rhode Island Superior Court Judge Brian Stern issued a ruling that may pave the way for the recovery of a minimum of $12 million, but what could be upwards of $30 to $40 million or more. As a result of Stern’s ruling the now-defunct pension plan could own 15 percent of Prospect CharterCARE in Rhode Island.
The decision by Stern now needs to be approved by his judicial counterpart in federal court, Judge Will Smith.
GET THE LATEST BREAKING NEWS HERE -- SIGN UP FOR GOLOCAL FREE DAILY EBLASTThe dual jurisdiction is set up as such as the receivership of the pension fund and one major fraud lawsuit are in state court, and a related federally-filed fraud suit is now pending in federal court.
“We are pleased with the decision by [Judge Stern] we received today in state court and now need to get approval in federal court,” said attorney Max Wistow on Monday.
Prospect is a statement to GoLocal on Tuesday said, "Although the decision issued yesterday approves the settlement, it does so in a manner that prevents and restricts the Receiver from moving forward with the agreement until these matters are addressed in federal court. We are pleased the decision struck a balance that permits the Receiver to take the next step to the federal court while preserving the rights of Prospect and other third parties."
Receiver for St. Joseph pension fund Stephen Del Sesto told GoLocal that Stern’s decision has a number of conditions and still needs federal approval, but is a major step in the effort to recover tens of millions of dollars for the collapsed pension fund. It is estimated that the fund faces a shortfall of $118 million.
The Economic Impact Depends on CharterCare’s Value
Stern’s decision states, “On balance, the proposed settlement agreement [PSA] provides the Plan with much-needed relief via an influx of capital, and, for the reasons explained above, the PSA is in the best interest of the Plan’s estate.”
The decision by Stern, if approved by Smith in the federal court will transfer 15 percent of the owner of Prospect CharterCare’s ownership to the receivership for the pension fund. The value of the CharterCARE in Rhode Island in unknown. Documents from the hospital conversion show that Prospect poured $90 million into the deal.
In 2014, when Rhode Island Attorney General Peter Kilmartin and RI Department of Health approved the hospital conversion and transferred the control of CharterCare to Prospect the remaining institution which was set up as a non-profit for purposes of charitable interest retained 15 percent of the California company’s ownership.
“[Prospect] will acquire certain assets of CCHP for $45 million and thereby acquire an 85% interest in the existing hospitals. CharterCARE Health Partners will retain a 15% interest in the existing hospitals. The $45 million will be used to retire the long-term debt of the existing hospitals ($31 million) and to increase the long-term the SJHSRI pension plan to greater than 90% ($14 million). PMH and CharterCARE Health Partners will own Prospect CharterCARE, LLC and will each hold 50% of the seats on the governing board,” said the 2014 approval decision issued by the State of Rhode Island.
Wistow said he did not know the exact value of the 15 percent ownership, "it is critical to determine the value of the hospitals and, if approved by the court, the value to the retirees' pension fund."
10 Shocking Elements of the St. Joseph Pension Fund Lawsuit Against the Diocese and Others
Another Hospital Group Identified that the Pension Fund Needed $72M for Plan
In 2012, prior to CharterCare, then the owner of St. Joseph being sold to Prospect of California, another hospital group wanted to purchase Roger Williams, St. Joseph and Fatima. That group, LHP Hospital Group, identified that the pension fund needed a $72 million infusion, but their offer was rejected.
The $72 million was $58 million more than the amount put into the pension fund by Prospect, the eventual purchaser, in 2014.
All the Parties Knew the Pension Plan Was No Longer a Church Plan
Post sale of St. Joseph to CharterCare in 2009 and then CharterCare’s sale to Prospect, and despite knowing that for the pension fund to continued to be considered a “church plan,” the Diocese and hospital officials continued to list the hospital under the U.S. Conference of Bishops’ Catholic directory as “operated, supervised, or controlled by or in conjunction with the Roman Catholic Church.”
The lawsuit states that all the defendants in the suit knew this claim was false.
Tobin Misleads the Vatican
The lawsuit 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..”
Suit Alleges Fraud
The lawsuit is blunt as it alleges that, "Saint Joseph Health Services of RI, 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."
Severe Remedy
Wistow and his team claim the remedy of violating the "fraudulent conveyance" laws in Rhode Island are severe and that the Plan -- thus the retirees -- should receive the assets, aka, CharterCare.
"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."
Quid Pro Quo
On August 14, 2013, key hospital officials meet with the leadership of the Diocese of Providence’s office to get sign off on the sale to Prospect.
According to documents, a meeting was convened which was attended by Bishop Tobin, Rev. Timothy Reilly and Msgr. Paul Theroux at that meeting the top Diocese officials signed off on the deal which cast the pension off as an orphaned plan. The deal also asserted certain promises critical to the leadership of the Diocese specifically that Roger Williams Medical Center would not engage in prohibited activities of the Diocese and specifically listed:
Abortion
Euthanasia
Physician-assisted suicide
The suit asserts that there was a “quid pro quo for freeing New Fatima Hospital from the unfunded liabilities of the plan, and granting these extensive and perpetual ‘Catholic identity covenants’ for New Fatima Hospital and New Roger Williams Hospital.”
Violated Federal Law and Federal Oversight
As the hospitals left the control of the Diocese and were sold off in 2009 and then, the ultimate sale to Prospect, officials knew that the pension plan was no longer a "Church Plan" and thus needed to then fall under federal regulatory review under ERISA.
According to the lawsuit, the "deceit" create a federal violation of the law and de facto an "unlawful violation of tax law and ERISA."
Misleading the Vatican, Continued
Bishop 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 (removed from the letter was “spiraling and gaping liability’ which was in the draft) and, in effect, said the opposite, that the approval of the asset sale [to CharterCare] was actually necessary to secure the plan."
The lawsuit goes on to assert, ”These misrepresentations and omissions concerning the Plan in the Bishop’s letter to the Vatican were included by the defendants…and the Diocesan defendant, all understood that the Vatican approval was required for the transaction to proceed, and knew or were told that the Vatican must approve specifically the ‘pension structuring.’”
Most Damning - Email After the Sale
In order to continue the status of the pension fund as a "Church Plan" and thus hide the financial condition of the fund from members and keep from federal regulation, after the sale legal counsel for St. Joseph Health Services of RI sent an email to the Diocese and copied CharterCare and the actuary Angell, reminding everyone of the consequences of the Diocesan defendants not listing St. Joseph in the Catholic Directory.
"Saint Joseph Health Services of RI believes that if it is not included in the 2015 issue of the directory that the pension fund will no longer qualify as a church plan and that the loss of the status will require that they immediately notify the applicable governmental authorities that the plan is currently underfunded."
The Diocese officials than contacted the editors of the directory and made sure that the St. Joseph remained listed, according to the suit.
Funds Diverted to Priest's Pension Fund
One of the biggest affronts to members of the now failed St. Joseph pension fund was that when the sale of CharterCare was completed the Diocese received a $640,000 repayment of a loan from the Inter-Parish Loan Fund.
The Diocese received those funds and instead of applying them to the pension fund, according to the lawsuit church records show that the loan was partially repaid, but that $100,000 was diverted to the priest's retirement fund -- a fund that is reportedly fully funded.
