ERISA-First Circuit Dismisses Claim Of Fraud Upon The Court

In Torres v. Bella Vista Hospital, Inc., No. 16-2316 (1st Cir. 2019), Olga Torres and Pedro Bonilla are former employees of Bella Vista Hospital (“Bella Vista”), a Mayaguez, Puerto Rico-based hospital operated by the General Conference of Seventh Day Adventist Church. In 1982, the hospital created a pension program, advising its employees that the plan was subject to ERISA.

Certain types of plans are exempt from ERISA’s requirements, including plans which meet the statutory definition of “church plan,” 29 U.S.C. § 1003(b)(2). In 2000, the Internal Revenue Service, which is empowered to issue rulings to parties as to the status of their plans, advised Bella Vista that its pension plan met the definition of “church plan” and so was exempt from ERISA. In 2003, Bella Vista terminated the plan. Torres and Bonilla had become disabled some years earlier, and certain benefits they were receiving from the hospital ended. In November 2006, Torres and Bonilla sued in federal district court in Puerto Rico to recover lost benefits. Although the plaintiffs claimed federal subject matter jurisdiction under ERISA, the district court found that the church plan exception applied so ERISA did not govern the hospital’s pension regime. The court granted summary judgment in favor of the defendants, dismissing the case on May 21, 2009, for lack of subject matter jurisdiction—there being no federal claim in the case outside of the purported ERISA count. Torres and Bonilla did not appeal that decision and took no further action in court for five years. On November 24, 2014, Torres and Bonilla filed a motion in the district court to set aside the 2009 judgment, invoking the court’s authority to vacate a judgment procured by “fraud on the court” based material false statements by lawyers and others made during the proceedings.

After, reviewing the case, the First Circuit Court of Appeals (the “Court”), dismissed the motion and upheld the decision of the district court.  The Court said that claims of false statements by lawyers or parties are a serious matter and might meet some definitions of “fraud,” but the phrase “fraud on the court” has a special, well-understood and limited office. Inaccurate assertions in lawsuits are commonplace and to allow all such claims to be presented as “fraud on the court,” with no time limit, would undermine the finality of judgments and the need for all litigation to come to an end. Thus “fraud on the court” is limited to fraud that seriously affects the integrity of the normal process of adjudication, defiles the court itself, and prevents the judicial machinery from performing its usual function—for example, in bribery of a judge or jury tampering. severity is present in the plaintiffs’ allegations.

The Court further said that the plaintiffs mainly contend that Banco Popular de Puerto Rico and Bella Vista and their agents committed perjury by denying the existence of an ERISA-covered 401(k) plan and covered up a transfer of funds between a liquidated employee benefits plan and the 401(k) plan. Even assuming the truth of these allegations, perjury alone has never been sufficient” to constitute fraud upon the court.

 

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