Pension & Benefits News Terminated plan participants claiming fraud lose bid to re-open federal case
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Wednesday, May 29, 2019

Terminated plan participants claiming fraud lose bid to re-open federal case

By Pension and Benefits Editorial Staff

Participants in a terminated plan lost their bid to re-open federal litigation under ERISA concerning the plan's termination by claiming that the employer and other defendants had perpetrated a “fraud on the court” in the original district court proceeding, the U.S. Court of Appeals in Boston (CA-1) has ruled.

The participants were former employees of a hospital that received a ruling from the IRS in 2000 that its pension plan was a “church plan” and was thus exempt from ERISA. In 2003 the employer terminated the plan, with the result that these former employees lost certain disability payments they had been receiving from the plan.

In 2009 a district court dismissed their benefits denial claim for lack of subject matter jurisdiction. The court agreed that ERISA's church plan exception applied and there was no other federal claim to keep the case in federal court.

State court proceeding. A state court action then proceeded, in the course of which the employees uncovered evidence they argued warranted reconsideration from the federal court. In a new district court filing, they argued that in the original district court proceeding certain defendants and their agents committed perjury by denying the existence of an ERISA-covered 401(k) plan and covering up the transfer of funds between the liquidated pension plan and the 401(k) plan. This, they argued, constituted a “fraud on the court” that triggered the court's authority to vacate the earlier judgment. The district court dismissed the case.

On appeal, the First Circuit explained that the doctrine of “fraud on the court” is limited to fraud that “seriously affects the integrity of the normal process of adjudication” or “defiles the court itself.” Examples of conduct that might meet this standard include bribery of a judge or witness tampering. Accordingly, even assuming the truth of the assertions made by the participants, perjury or false statements by attorneys or other parties cannot alone rise to the level of “fraud on the court.” The appellate court therefore affirmed the dismissal.

SOURCE: Torres v. Bella Vista Hospital, Inc. (CA-1).

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