A California federal judge refused to approve a deal in October requiring Dignity Health to pay more than $100 million to settle a class-action lawsuit accusing the San Francisco-based health system of using a religious Employee Income Retirement Security Act exemption it wasn't entitled to. Current and former Dignity workers argue the deal is actually worth more than $700 million in court documents filed Nov. 25, according to Law360.
Dignity Health allegedly used the religious exemption to underfund its pension plan by $1.5 billion. On Oct. 29, a federal judge in the Northern District of California refused to sign off on a proposed settlement because it contained a "kicker" clause. The clause would allow Dignity to keep the difference between the amount of attorneys' fees awarded by the court and the more than $6 million in fees authorized by the settlement.
"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," Judge Jon S. Tigar said, according to Bloomberg Law. "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."
Though the judge refused to sign off on the deal, he gave the parties an opportunity to revise the agreement and resubmit it for approval. Workers tweaked the proposed deal in a renewed motion for settlement filed Nov. 25.
According to the motion, the parties have agreed to eliminate the kicker clause.
"As provided in the new settlement, class counsel will apply to the court for approval of a total award of $6.15 million, for attorney fees, expenses and incentive awards," the motion states. "If the court awards less than the requested amount, Dignity Health has agreed to pay the balance into the plan's trust."
The workers also argue that the attorney fee award is reasonable given the value of the settlement.
Under the proposed settlement, Dignity would add $50 million in retirement plan funding in 2020 and 2021.The settlement also requires Dignity to fund the pension plan until 2024 and prohibits the health system from reducing accrued benefits because of a plan merger or amendment for 10 years. For 2022 through 2024, Dignity Health's cash contributions to the plan will be at least the "minimum contribution recommendation," an amount calculated each year by independent actuaries.
"Under this settlement, Dignity Health will make substantial contributions to the plan for five years, in an amount we estimate to exceed $700 million," the motion states.
The court previously noted that plaintiffs did not identify any settlement provisions governing how Dignity Health's actuaries calculate the minimum contribution recommendation. The plaintiff's actuary provided more information on the calculation in a supplemental declaration submitted Nov. 25.
The workers are seeking preliminary approval of the new settlement.
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