304 F.Supp.2d 77 (2004) | Cited 7 times | D. Maine | February 6, 2004


Are the health benefit plans of Catholic Charities Maine, Inc. "churchplans" exempt from federal regulation under the Employee Retirement IncomeSecurity Act of 1974 and the Internal Revenue Code? If so, can CatholicCharities decline the exemption and subject itself to federal regulation?The answers are significant because they determine whether federalpreemption defeats the City of Portland's effort to require CatholicCharities to extend its fringe benefits to the domestic partners ofemployees. Both parties have moved for summary judgment. I heard oralargument on January 22, 2004. For the reasons that follow I GRANT eachparty's motion in part.1 Specifically, I conclude that CatholicCharities'Page 2plans are for the most part "church plans" and that Catholic Charities haseffectively elected federal coverage as of July 22, 2003, therebypreempting application of Portland's ordinance to the greater part of itsplans from that date forward. Until July 22, 2003, however, CatholicCharities' plans were exempt from ERISA and were fully subject to theCity's ordinance. Application of the ordinance to the plans during thattime was not unconstitutional. Finally, certain collateral fringebenefits (the Employee Assistance Program, bereavement leave, and leavesof absence) are not subject to ERISA preemption; the City's ordinancedoes govern them and may constitutionally do so. My decision has nothingto do with what is good or bad social policy, but only with whether localregulation is limited by federal statute or the United States or MaineConstitution.


On May 21, 2001, the City of Portland ("City") enacted Chapter 13.6,Sections 13.6-21, Domestic Partnership ("the Ordinance"). Pl.'s Statementof Material Facts ("Pl.'s SMF") ¶ 10. The Ordinance required the Cityand the Portland School Committee to provide the same health andemployment fringe benefits to employees with domestic partners2 as toemployees with spouses. Id.Page 3¶ 11. On June 3, 2002, the City extended the reach of the Ordinance toany organization accepting Housing and Community Development ("HCD")funds from the City. Id. ¶ 14. Catholic Charities Maine, Inc. ("CatholicCharities") is one such organization.

Catholic Charities is a Maine non-profit corporation that provides avariety of social services to Maine residents. Id. ¶¶ 1-2. It is exemptfrom tax under section 501 of the Internal Revenue Code. Def.'sStatement of Material Facts ("Def.'s SMF") ¶ 40. Catholic Charities isnot a church, but it has close ties with the Roman Catholic Church inthat it has membership, governing bodies, trustees and officers in commonwith the Roman Catholic Diocese of Portland, Id. ¶ 42, and aims toimplement the social teachings of the Catholic Church. Id. ¶ 41.

Catholic Charities provides a number of benefits to its employees,including retirement benefits, health benefits,3 bereavement leave,an employee assistance program, and paid and unpaid leaves of absence.Am. Compl. ¶ 12; Def.'sPage 4Statement of Additional Facts ¶¶ 22-24. It extends benefits to families,Pl.'s SMF ¶ 4, but not to domestic partners of employees. Id. ¶ 16.Catholic Charities has filed the government documents that are requiredof ERISA plans since at least 1997. Id. ¶¶ 5-6.

The City awarded HCD funds for the period July 1, 2002 through June 30,2003, to four of Catholic Charities' programs (Homemaker Services,Support and Recovery Services, St. Elizabeth's Child Development Center,and Family Child Care). Pl.'s SMF ¶ 15. Because Catholic Charitiesrefused to sign a contract agreeing to comply with the Ordinance,however, the City did not disburse those funds. Pl.'s SMF ¶¶ 16-17.Catholic Charities nevertheless proceeded, at least in part, to carry outthe service programs. Def.'s SMF ¶ 31. The City denied CatholicCharities' request for HCD funding for the period of July 2003 throughJune 2004. Pl.'s SMF ¶¶ 16-17.

On June 3, 2003, Catholic Charities filed an amended complaint againstthe City, seeking declaratory and injunctive relief as to its healthbenefit plans, and claiming that enforcement of the Ordinance ispreempted by ERISA, 29 U.S.C. § 1001 et. seq., and the Housing inCommunity Development Act and forbidden by the United States and MaineConstitutions. On July 22, 2003, Catholic Charities filed an electionunder the Internal Revenue Code Section 410(d), 26 U.S.C. § 410(d), forall of its plans, welfare and pension, stating its intent to be bound byfederal law. Pl.'s Addl SMF ¶ 183.Page 5



The federal Employee Retirement Income Security Act of 1974 ("ERISA")contains a broad preemption provision. It directs that its coverage"shall supercede any and all State laws insofar as they may now orhereafter relate to any employee benefit plan. . . ." 29 U.S.C. § 1144(a).Employee benefit plans include "welfare benefit plans" and "pensionbenefit plans." (Catholic Charities' pension benefit plan is not part ofthis dispute.) A "welfare benefit plan" includes, among other things, aplan to provide medical benefits. 29 U.S.C. § 1002(1)(A). CatholicCharities and the City agree that Catholic Charities' health benefitplans are "welfare benefit plans" under ERISA's definition. Def.'s Mot. at3. They disagree, however, on whether Catholic Charities' health benefitplans are subject to ERISA's coverage: specifically, (a) whether they areexempt church plans; (b) if so, whether they have effectively elected outof the exemption; and (c) whether the City's Ordinance even "relates to"employee benefit plans.

(1) Are Catholic Charities' employee benefit plans exempt from ERISA as"church plans"?

Title I of ERISA applies to employee benefit plans, both welfare andpension, with a few enumerated exceptions. 29 U.S.C. § 1003. One of thoseexceptions is for a "church plan . . . with respect to which no electionhas been made under section 410(d) of [the Internal Revenue Code]." Id.§ 1003(b)(2). "Church plan" is defined in section 1002(33) as "a planestablished andPage 6maintained . . . for its employees . . . by a church or by a conventionor association of churches which is exempt from tax under section 501 of[the Internal Revenue Code]."

The City does not contend that Catholic Charities is a church orconvention or association of churches. It relies instead on an ERISAprovision that expands the general definition of "church plan" toencompass, in certain circumstances, plans established and maintained bynon-church organizations. Specifically, ERISA provides that a person isan "employee of a church or a convention or association of churches" ifthe person is "an employee of an organization, whether a civil lawcorporation or otherwise, which is exempt from tax under section 501 of[the Internal Revenue Code] and which is controlled by or associated witha church or a convention or association of churches."29 U.S.C. § 1003(33)(C)(ii). Catholic Charities is indisputablytax-exempt under section 501; the issue is whether it is also "controlledby" or "associated with" a church. If so, the church (here, the RomanCatholic Church) "shall be deemed the employer of any individual includedas an employee under clause (ii)." Section 1003(33)(C)(iii). Thus, ERISAbrings a plan established or maintained by a non-church organizationwithin the general definition of "church plan" if that organization is"controlled by" or "associated with" a church. See Lown v. ContinentalCas. Co., 238 F.3d 543, 547 (4th Cir. 2001); Peter J. Wiedenbeck, ERISA'sCurious Coverage, 76 Wash. U. L. Q. 311, 348 (1998) ("An employee of atax-exemptPage 7organization is treated as the employee of a church and his employer isdeemed to be a church if the organization is `controlled by or associatedwith a church or convention or association of churches.'").

ERISA does not define "controlled by." Courts have interpreted theprovision as referring to corporate control, such as church control overappointment of a majority of the non-church organization's officers orBoard of Directors. See Lown, 238 F.3d at 547; Duckett v. Blue Cross &Blue Shield. 75 F. Supp.2d 1310, 1316 (M.D. Ala. 1999). See also26 C.F.R. § 1.414(e)-1(d)(2) (providing that "an organization, a majorityof whose officers or directors are appointed by a church's governingboard or by officials of a church, is controlled by a church" for thepurposes of the Code). Under Catholic Charities' by-laws, the Presidentand Vice President of the Catholic Charities Board of Directors arealways the Diocesan Bishop of Portland and the Vicar General,respectively. Def.'s SMF ¶¶ 48-51. As President, the Bishop has the powerto appoint and to remove both the corporation's members, Id. ¶ 46, andthe Chief Executive Officer. Id. ¶ 55. The corporation's members, inturn, vote to approve members of the Board of Directors. Id. ¶ 47.Thus, the Bishop of Portland essentially controls the Board ofDirectors. Moreover, Catholic Charities cannot sell any of its propertyor assets without the Bishop's approval. Id. ¶ 59. These undisputedfacts certainly suggest that Catholic Charities is "controlled by" theCatholic Church. But ultimately I do not need to decide the controlquestion, because CatholicPage 8Charities is indisputably "associated with" the Church.

According to ERISA, an organization is "associated with" a church "ifit shares common religious bonds and convictions with that church. . . ."Section 1003(33)(C)(iv). While there is nothing in the record to suggestthat Catholic Charities imposes a denominational requirement on itsemployees or those who receive its services, Catholic Charities statesthat it provides services "based on Roman Catholic religious teachingthat calls on Catholics to serve those in need" and considers "its work avital part of the ministry of the Roman Catholic Church to the people ofthe State of Maine." Am. Compl. ¶ 7. Catholic Charities' MissionStatement declares that it is "an organization of the Diocese of Portlandthat implements the social teachings of Jesus Christ as taught by theCatholic Church." Def.'s SMF ¶ 41. The Diocese of Portland providesfinancial assistance to Catholic Charities on an annual basis, Id. ¶61, and Catholic Charities is listed in The Official Catholic DirectoryAnno Domini, an annual Catholic directory. Id. ¶ 60. These undisputedfacts show that Catholic Charities shares common religious bonds andconvictions with the Roman Catholic Church and is, therefore, "associatedwith" the Church. Compare Lown, 238 F.3d at 548 (determining"association" by assessing whether the church plays any official role inthe governance of the organization; whether the church provides assistanceto the organization; and whether a denominational requirement exists forany employee or customer/client of the organization); Department of LaborOpinionsPage 996-19A, 95-30A, and 95-12A (all assessing "bonds and convictions"by looking at factors that assure the organization adheres to the tenetsand teachings of the church, including whether the organization is listedin a religious directory and whether the church plays a role in theorganization's governance). Catholic Charities' lawyer conceded as muchat oral argument.

For ERISA purposes, therefore, I conclude that Catholic Charities'employees are considered employees of the Roman Catholic Church and thehealth benefit plans are treated as established and maintained by theChurch for its employees. Accordingly, the health benefit plans are"church plans" under ERISA4 and eligible to be exempt from itscoverage.Page 10

(2) Did Catholic Charities' section 410(d) election bring its healthbenefit plans within ERISA's coverage?

The ERISA church plan exemption is limited to "a church plan . . . withrespect to which no election has been made under section 410(d) of [theInternal Revenue Code]." 29 U.S.C. § 1003(b)(2). Section 410(d) of theInternal Revenue Code ("the Code") provides that if a "church . . . whichmaintains any church plan makes an election under this subsection. . . .then the provisions of this title relating to participation, vesting,funding, etc. . . . shall apply to such church plan as if such provisionsdid not contain an exclusion for church plans." The Code's definition of"church plan, " at section 414(e), is virtually identical to ERISA's.5Catholic Charities made the section 410(d) election for all its plans,including its health plans, in July 2003. The City argues that becausethe specific Code provisions applicable to electing church plans(participation, vesting, and funding) relate only to pension benefitplans, welfare benefit plans like those of Catholic Charities cannot makethe section 410(d) election. Def.'s Mot. at 6-7. According to the City,only church pension plans may voluntarily elect to be subject to federalregulation; church welfare plans have no means of opting in.

As enacted in 1974, ERISA provided that its Title I applied to any"employeePage 11benefit plan, " 29 U.S.C. § 1003(a), except (for our purposes) anon-electing "church plan, " Id. § 1003(b)(2). The ERISA definitions ofboth "employee benefit plan" and "church plan" encompass welfare benefitplans. Id. § 1002(3), (33). However, these definitions appear in Title Iof ERISA, and do not directly apply to the Internal Revenue Code. Asenacted in 1974, Title II of ERISA contained the Code amendments and wascaptioned "Amendments to the Internal Revenue Code Relating toRetirement Plans, " (emphasis added). While this caption suggests thatthe 1974 Code amendments dealt only with pension plans, nothing in theCode itself expressly limits the definition of "plan" or "church plan" topension plans. To the contrary, the Code definition of "church plan"actually refers to "welfare plans."6

The Treasury regulations confirm that church plans for which a section410(d) election is made become subject to Title I of ERISA in addition toInternal Revenue Code provisions. 26 C.F.R. § 1.410(d)-1. Since thereare several provisions in Title I of ERISA that affect welfare benefitplans, election by church welfare plans is not an empty exercise. Forexample, Title I of ERISA subjects both pension and welfare plans toduties of disclosure and reporting, 29 U.S.C. § 1021, and mandatesthat all plans be established and maintained in a writtenPage 12instrument with a named fiduciary. Id. § 1102. ERISA also containsmandates that affect only welfare plans, including a provision regardingcontinuation coverage, Id. § 1161, and parity in mental health benefits.Id. § 1185a. All of these are statutory provisions that, without asection 410(d) election, a welfare benefit church plan would escape. SeeAlison M. Sulentic, What Catholic Social Teaching Says to CatholicSponsors of Church Plans, 17 J. Contemp. Health L. & Pol'y 1, 44-45, 48(2000) (noting that, although the difference "between church welfareplans that become subject to ERISA and non-electing church welfare plansis not quite as stark" as for church pension plans, there are some ERISAmandates to which an electing welfare plan becomes subject).

Admittedly, the provisions of the Internal Revenue Code explicitlylisted in section 410(d) (participation, vesting, and funding) affectonly pension benefit plans. But this list is followed by an enigmatic"etc." And there are several other provisions of the Code that affectwelfare benefit plans and exempt church plans, demonstrating that the"church plan" label has significance for welfare plans.7 AtPage 13worst, the Code is ambiguous on whether welfare plans may make asection 410(d) election.8 What is apparent from the text andlegislative history of ERISA is that the law was enacted in the contextof pension reform.9 That is where Congress gave nearly all its energyand attention. There is almost no discussion in the Committee Reports ofwelfare plans; they appear to have been just lumped in. So, when Congressdecided both to exempt church plans (presumably because of constitutionalconcerns), and to let them voluntarily elect federal coverage (presumablybecause Congress realized that some church plans would want to competefor their employees' good will and/or would prefer uniform nationalregulation), it seems likely that the drafters simply never consciouslyPage 14thought about whether welfare plans should be included or excluded.There is certainly no suggestion anywhere that Congress intended churchplan treatment to be different for pension plans than for welfare plans.

The parties agree that there are no controlling decisions on theavailability of the election for welfare plans. Both parties also pointto various sources that they believe support their reading of thestatute. Catholic Charities cites three cases for the proposition thatthe 410(d) election is available to church welfare plans. Pl.'s Opp'nMem. at n.7 (citing Duckett v. Blue Cross & Blue Shield of Alabama,75 F. Supp.2d 1310, 1316 (D. Ala. 1999): Jones v. Kaiser Foundation, 1992U.S. Dist. LEXIS 2023 at *3 (D. D.C., Feb. 26, 1992); Am. Ass'n ofChristian Sch. Voluntary Employees Beneficiary Ass'n Welfare Plan Trustv. United States, 850 F.2d 1510, 1517(11th Cir. 1988). Each of thesecases contains a sentence of dictum noting the availability of theelection, but, because the question whether a welfare plan could electwas not before the courts, the opinions lack reasoning or analysis.

The City cites several Department of Labor opinion letters, one ofwhich states that it is the Department's position that the section 410(d)election is available only to pension plans. See Dep't of Labor, AdvisoryLetter No. 95-07A. Because opinion letters do not result from formaladjudications or notice-and-comment rulemaking, they do not receive thetypical level of deference. SeePage 15Christensen v. Harris County, 529 U.S. 576, 631 (2000). The statementscontained in the Department of Labor opinions are not supported byreasoning or analysis; nor were they central to the agency's decisions. Ido not find them persuasive. See Skidmore v. Swift & Co., 323 U.S. 134(1944).

Under Chevron, I must defer to an administrative interpretation when astatute is ambiguous and Congress has, explicitly or implicitly,delegated authority to the agency. Chevron v. Natural Resources DefenseCouncil, 467 U.S. 837, 843-44 (1984). Chevron deference is appropriatehere insofar as the Treasury has promulgated regulations dealing with theform and manner for making a section 410(d) election, because section410(d) of the Code expressly gives the Treasury the authority to decidethe form and manner of the election. The regulation adopted by theTreasury provides that a church plan may elect by attaching a statementto the annual return required under section 6058(a) or by requesting adetermination letter relating to the qualification of the plan undersections 401(a), 403(a), or 405(a) of the Code.26 C.F.R. § 1.410(d)-(1)(c)(3). Catholic Charities maintains that itsatisfied the first alternative by making its election on a Form 5500.The City points out that the section 6058(a) return is required only ofemployers maintaining "a pension, annuity, stock bonus, profit-sharing,or other funded plan of deferred compensation." But the annual returnform required by section 6058 is Form 5500 and it is the same formrequired for aPage 16welfare plan under certain provisions of ERISA.10 By attaching itselection to Form 5500, Catholic Charities technically has complied withthe form and manner requirement and has elected to have ERISA apply toall of its employee benefit plans, including its health plans. Moreover,although Congress charged the Treasury with the task of promulgating formand manner regulations, Congress did not authorize the Treasury toregulate what kinds of plans may elect. If 26 C.F.R. § 1.410(d)-(1)(c)(3)contains form and manner requirements only for church pension plans, thenthe Treasury simply has neglected or declined to provide a form andmanner requirement for church welfare plans. There being no regulationgoverning a church welfare plan's election, a church welfare plan wouldbe entitled to elect in any reasonable form and manner, including byattaching a statement to form 5500.11Page 17

The City has not advanced, and I have been unable to determine, areason that Congress would choose to permit church pension plans, but notchurch welfare plans, to elect ERISA coverage.12 The ERISA policiesall run to the contrary. In enacting ERISA, Congress intended to ensurethat plans and plan sponsors would be subject to a uniform body ofemployee benefits law. "The goal was to minimize the administrative andfinancial burden of complying with conflicting directives among States orbetween States and the Federal Government. . . . [and to prevent] thepotential for conflict in substantive law. . . ." New York State Conf. ofBlue Cross & Blue Shield Plans v. Travelers Ins. Co., 514 U.S. 645, 656(1995). See also Fort Halifax Packing Co. v. Coyne, 482 U.S. 1,8-11(1987) (discussing ERISA's policy of uniformity). If only churchpension plans are permitted to elect coverage, these goals of uniformityand burden reduction are undermined. An organization like CatholicCharities, which maintains separate pension and welfare plans, would haveto comply with ERISA for its pension plans, but would have to comply withstate law and local law for its welfare plans. Here, for example,Catholic Charities would be forced to look to the ordinances of each townin which its employees are located for pertinent law.

For the foregoing reasons, I conclude that the most reasonableinterpretation of the federal statute is that a church welfare benefitplan canPage 18make a section 410(d) election. When Catholic Charities made thesection 410(d) election on July 22, 2003, its welfare benefit plansbecame subject to Title I of ERISA.

(3) Does the Ordinance "relate to" Catholic Charities' plans?

Since ERISA "shall supercede any and all State laws insofar as they maynow or hereafter relate to any employee benefit plan . . ." subject tothe Act, 29 U.S.C. § 1144(a), the remaining question is whether theCity's Ordinance is a state law that "relates to" an employee benefitplan. The answer to this question is significant because it affects allHCD fund recipients, not just those with church plans who have electedunder section 410(d). If the Ordinance is preempted, then it does notbind any HCD fund recipient maintaining an ERISA-covered plan. Theparties agree that the City's Ordinance is a "state law" for ERISApurposes, but disagree about whether it "relates to" ERISA plans.

The Supreme Court has held that a state law requiring employers to payemployees specific benefits "relates to" an ERISA plan and is,therefore, preempted. Shaw v. Delta Air Lines, 463 U.S. 85, 97 (1983). InShaw, the Court considered whether a state law prohibiting employers fromstructuring their plans in a manner that discriminated on the basis ofpregnancy "related" to the plans. Id. The Court stated that "[a] law`relates to' an employee benefit plan, in the normal sense of thephrase, if it has a connection with or reference to such aPage 19plan." Id. Given this broad definition, the Court had "no difficulty" inconcluding that the state law there was preernpted by ERISA. Id. at98-100.

Since Shaw, the Supreme Court has made clear that there are two ways inwhich a state law may be found to "relate to" an ERISA plan. The law willbe preempted if it either (1) has a connection with or (2) a reference toan ERISA plan. E.g., New York State Conference of Blue Cross & BlueShield Plans v. Travelers Ins. Co., 514 U.S. 645, 656 (1995). CatholicCharities concedes that the City's Ordinance does not "reference" theplans in a manner contemplated by the second alternative, but argues thatthe Ordinance has an impermissible "connection" with its ERISA plansunder the first alternative. Pl.'s Mot. at n.4.13

The Supreme Court has also narrowed its reading of the ERISA preemptionprovision since Shaw, emphasizing that neither "infinite relations" nor"infinite connections" can be the measure of preemption. New York StateConf. of Blue Cross & Blue Shield Plans, et al. v. Travelers Ins. Co.,514 U.S. 645, 656 (1995). To determine whether a state law has animpermissible connection with ERISA plans, a court must now look toERISA's objectives "as a guide to the scope of thePage 20state law that Congress understood would survive." Id. "The basic thrustof the preemption clause . . . was to avoid a multiplicity of regulationin order to permit the nationally uniform administration of employeebenefit plans." Id. at 657. In Travelers, the Court held that ERISA didnot preempt a state law requiring hospitals to collect surcharges frompatients covered by a commercial insurer, but not from patients insured bya Blue Cross/Blue Shield plan. Travelers, 514 U.S. at 659-60. Severalcommercial insurers challenged the law as preempted by ERISA because itcreated an economic incentive for insurance buyers, including ERISAplans, to avoid commercial insurers and to favor Blue Cross/Blue Shield.The Court distinguished the New York law from Shaw, however, reasoningthat it did not operate to bind plan administrators to a particularchoice and had only an indirect economic effect on the choices made byERISA plans. Id. Because the law did not attempt to regulate the contentor administration of ERISA plans, it did not conflict with Congress'sgoal of providing a uniform administration of employee benefit plans.

Travelers represented a retreat from the broadest reading once given"relate to." It did not, however, overrule Shaw. In Travelers and since,the Court has reiterated that ERISA preempts state laws that "mandate []employee benefit structures or their administration." Id. at 658; Egelhoffv. Egelhoff, 532 U.S. 141, 147-49 (2001). In 2001, the Supreme Courtconsidered a Washington statute that directed that the designation of aspouse as beneficiary (of a nonprobatePage 21asset) be revoked automatically upon divorce. Egelhoff, 532 U.S. at 148.The Court stated that the law required administrators to "pay benefits tothe beneficiaries chosen by state law, rather than to those identified inplan documents" and thereby "implicate[d] an area of core ERISA concern."Id. at 147.

Moreover, the Court reasoned, the law interfered with ERISA's goal ofnationally uniform plan administration by requiring plan administratorsto look to state laws before disbursing benefits. Id. at 148. Because theWashington law attempted to regulate ERISA plans' benefit structures andadministration, the Court held that it had a "connection with" ERISAplans and was preempted.

Portland's Ordinance demands that certain employers change their plansand offer coverage to domestic partners. Thus, like the state laws atissue in Shaw and Egelhoff (and unlike the law in Travelers). theOrdinance is concerned with the substantive content and administration ofemployee benefit plans, an area of core ERISA concern. Given theforegoing Supreme Court precedent, it is clear that if the Ordinancedemanded that all employers in the City offer domestic partner coverage,it would be preempted. The only real question is whether the CityOrdinance escapes Shaw and Egelhoff because it is not an outright mandateto employers, but rather conditions receipt of HCD funds upon employersoffering domestic partner coverage. The City stresses that as long asCatholic Charities is willing to forgo HCD funding, it may continue todeny domestic partners coverage. None of the cases, however, imposes arequirement that a state law act directlyPage 22on an ERISA plan in order to be preempted. In fact, Travelers expresslyacknowledged "that a state law might produce such acute, albeitindirect, economic effects, by intent or otherwise, as to force an ERISAplan to adopt a certain scheme of substantive coverage . . . and that sucha state law might indeed be pre-empted" by ERISA. New York State Conf. ofBlue Cross & Blue Shield, et al. v. Travelers Ins. Co., 514 U.S. 645,713 (1995).

An ordinance very similar to the City of Portland's was at issue in AirTransport Ass'n of Am. v. City and County of San Francisco,992 F. Supp. 1149 (N.D. Cal. 1998). In that case, Judge Wilkinsconsidered a San Francisco ordinance that prohibited the city fromcontracting with companies not offering domestic partner coverage. Id. at1155. Because the San Francisco ordinance effectively forced contractorsto modify their ERISA plans, she held that ERISA preempted theordinance. Id. at 1176.

The employers in Air Transport could have avoided the reach of theordinance by not contracting with the City; and Catholic Charities couldavoid the Portland Ordinance by giving up HCD funds. But none of theSupreme Court cases suggests that a state law is saved from preemptionjust because its mandate is conditional. Even though "conditional, " boththe San Francisco ordinance and the Portland Ordinance undermineCongress's goal of shielding benefit plans from inconsistent regulation.Because the Ordinance aims to expand the substantive coverage ofHCD-recipients' ERISA plans, it resembles the state lawsPage 23in Shaw and Egelhoff. The Ordinance has an impermissible connection withCatholic Charities' ERISA plans and became preempted when CatholicCharities made a section 410(d) election on July 22, 2003.14

(4) Other Benefits

Catholic Charities acknowledges that it provides its employees certainbenefits that are not covered by ERISA. Pl.'s Reply to Def.'s Opp'n 7. Specifically, Catholic Charities has a self-funded employeeassistance program and offers bereavement benefits and paid and unpaidleave s of absence to its employees. Pl.'s Resp. to Def.'s Additional SMF¶¶ 22-24. The Ordinance is not preempted with respect to benefitsoffered by Catholic Charities that are not welfare or pension benefitplans covered by ERISA.


Catholic Charities also claims that the Portland Ordinance is preemptedby the Housing and Community Development Act, 42 U.S.C. § 5301 et seq.,("HCDA"), which specifies the purposes for which HCD funds may be used.ThePage 24First Circuit has held, however, that the HCDA does not provide a privateright of action. Latino Unidos De Chelsea en Accion v. Sec. of Housing& Urban Dev., 799 F.2d 774, 794 (1st Cir. 1986). Catholic Charitiesargues, in its opposition memorandum and at oral argument, that it isnonetheless entitled to a declaratory judgment on the question of HCDApreemption. Pl.'s Opp'n Mem. at 21-22.

The essence of Catholic Charities' preemption argument is that the Cityis using HCD funds in a manner not authorized by the language or policyof the HCDA. But as the First Circuit has recognized, the HCDAspecifically provides for exclusive enforcement by the Secretary ofHousing and Urban Development. Lation Unidos De Chelsea en Accion, 799F.2d at 794. "The Declaratory Judgment Act cannot be used to circumventthe enforcement mechanism which Congress established." Williams v. NatlSch. of Health Tech., 836 F. Supp. 273, 281 (E.D. Penn. 1993). In thiscase, a declaratory judgment action using the HCDA as the source of theunderlying substantive law is tantamount to a private cause of action,see Id., forbidden by the First Circuit. The City is entitled to summaryjudgment on this claim.


The remaining question is whether the Ordinance can constitutionallyapply to Catholic Charities' non-ERISA plans and whether the Ordinancecan constitutionally apply to Catholic Charities' ERISA plans during thetime before itPage 25elected federal coverage.

A. Equal Protection

Catholic Charities alleges that the City has violated its rights underthe equal protection clause of the Fourteenth Amendment. The equalprotection clause of the Fourteenth Amendment directs that similarlysituated persons or groups be treated alike. City of Cleburne v. CleburneLiving Ctr., 473 U.S. 432, 439 (1985). The general rule is that laws arepresumed valid and will be sustained under the equal protection clause ifthey are rationally related to a legitimate state interest. Id. Only lawsthat classify on the basis of race, alienage, national origin, or gender(so-called "suspect" or "quasi-suspect" classes) are subject to a higherstandard of review. Id.

Catholic Charities alleges in its complaint that "it is similarlysituated with other organizations which receive funds through contractswith the City." Am. Compl. ¶ 46. It also alleges that it "is beingtreated differently" from these similarly situated contractors because itis being forced to offer domestic partner benefits and the othercontractors are not. Id. at ¶ 47. But HCD-fund recipients are not asuspect or quasi-suspect class; the Ordinance passes constitutional musteras long as it is rationally related to a legitimate interest. The City'sinterest in increasing the number of residents covered by healthinsurance is legitimate, and the Ordinance is a rational means ofachieving the City's goal.

Catholic Charities' complaint also alleges that "[o]ther contractors,whichPage 26are not subject to the Ordinance, are not affiliated with religiousorganizations." Id. at ¶ 48. Thus, Catholic Charities suggests that itis being discriminated against vis-a-vis non-religiously affiliatedcontractors. But the Ordinance is facially neutral; it applies to all HCDfund recipients and does not draw a line on the basis of religion. Thereis no indication in the record that there is a discriminatory purposebehind the Ordinance. Nor does the record suggest that religious groupsare disproportionately affected by it. Catholic Charities has notestablished an equal protection violation and the City is entitled tosummary judgment on this claim.

B. First Amendment

(1) Free Exercise

Catholic Charities also claims that the Ordinance violates its FirstAmendment right to the free exercise of religion. The free exerciseinquiry asks "whether government has placed a substantial burden on theobservation of a central belief or practice." Strout v. Albanese,178 F.3d 57, 65 (1st Cir. 1999) (quoting Hernandez v. Commissioner,490 U.S. 680, 699 (1988)). Neutral laws of general applicability areconstitutional, even if they incidentally burden religious beliefs orpractices. Employment Div., Dep't of Human Res, of Oregon v. Smith494 U.S. 872, 878-79 (1990).

Catholic Charities argues that, in order to comply with the Ordinance,it will be forced to violate its sincerely held religious beliefs. Am.Compl. ¶ 58. ButPage 27religious beliefs do not excuse a group from complying with an otherwisevalid, generally applicable, and neutral law. See Hennessy v. City ofMelrose, 194 F.3d 237, n.1 (1st Cir. 1999). The Ordinance is neutral andgenerally applicable; it applies to all recipients of HCD funds regardlessof whether they are religiously affiliated. Moreover, there is nothing inthe record to suggest that Catholic Charities' religious beliefs havebeen substantially burdened. Catholic Charities did, after all, declineto follow the Ordinance and was able to provide the service programswithout the benefit of HCD funds. The Ordinance does not violate CatholicCharities' rights under the free exercise clause of the United StatesConstitution.

(2) Free Speech

In Count V, Catholic Charities claims that the Ordinance also violatesits right to free speech under the First Amendment. The initial step inthe free speech inquiry is to assess whether the proscribed conduct issufficiently communicative to qualify as expression protected by theFirst Amendment. Gun Owners' Action League v. Swift, 284 F.3d 198, 210(1st Cir. 2002). Conduct constitutes protected expression if "it evincesan intent to convey a particularized message . . . and the likelihood isgreat that the message would be understood by those [to whom it isaddressed]." Id. at 211 (quoting Texas v. Johnson, 491 U.S. 397, 404(1989)).Page 28

Catholic Charities claims that, by not providing domestic partnersbenefits, it sends a message about Roman Catholic teaching on non-familyrelationships. Am. Compl. ¶ 62. Catholic Charities may intend to sendthis message through its benefit plans; but not all conduct intended toexpress an idea can be labeled "speech." U.S. v. O'Brien, 397 U.S. 367,376 (1968). Although employee benefit plans serve many functions,expressing ideological points of view is not one of them. There simply isno "particularized message" in the provision of employee benefits, letalone a message that would be understood by the public. Compare Trosterv. Penn. State Dep't of Corrections, 65 F.3d 1086, 1091 (3d Cir. 1995)(holding that the wearing of a flag patch on a uniform is not"demonstrative of an attitude or belief).

Nor does the Ordinance compel Catholic Charities to endorse anyparticular message. The Ordinance does not force Catholic Charities to sayanything and it does not impose any restriction on Catholic Charities'speech or conduct disclaiming endorsement of non-family relationships.See Forum for Academic & Inst. Rights, Inc. v. Rumsfeld,291 F. Supp.2d 269, 305 (D.N.J. 2003). Providing benefits to domesticpartners does not represent an endorsement of non-family relationships anymore than providing benefits to unmarried pregnant women represents anendorsement of single parenthood. Def.'sSMF ¶ 25. The provision ofemployee benefits is not imbued with sufficient elements of communicationto qualify it for First Amendment protection.Page 29

(3) Unconstitutional Condition

In its opposition motion, Catholic Charities clarifies that its equalprotection and First Amendment claims are grounded in the doctrine ofunconstitutional conditions. Pl.'s Opp'n Mem. at 13. The doctrine ofunconstitutional conditions generally provides that the government maynot condition the receipt of a benefit upon a person giving up his, heror its constitutional right. Philip Morris v. Reilly 312 F.3d 24, 46 (1stCir. 2002). When the benefit is discretionary, the condition attached toreceipt of the benefit must bear some connection to the rationale thegovernment would employ in denying the benefit outright. See Id.; Nollanv. California Coastal Comm'n, 483 U.S. 825, 837 (1987). CatholicCharities argues that the City has unconstitutionally conditioned receiptof HCD funds on the granting of domestic partner health benefits. Inorder for a condition to be unconstitutional, however, it must implicatea constitutional right. I have already concluded that Catholic Charitiesdoes not have a constitutional right to administer its employee benefitplans in the manner it chooses. The City's condition on HCD funding isnot, therefore, unconstitutional.

C. Maine Constitution

Catholic Charities also alleges that the Ordinance violates the freeexercise clause of the Maine Constitution. Maine Const, art. I, § 3.Maine's free exercise clause is worded differently and the Law Court hasnot expressly adopted the United States Supreme Court's approach to thefree exercise inquiry. See Rupert v. City of Portland,Page 30605 A.2d 63, 66 n.3 (Me. 1992) ("We have no reason in this case to decidewhether we in applying the Maine Free Exercise Clause will change courseto follow the Supreme Court's lead in Smith."). In Bagley v. RaymondSchool Dep't 728 A.2d 127, 132 (Me. 1999), the parties did not contendthat Maine's free exercise clause gave any greater protection than theUnited States Constitution, and the Court therefore proceeded "with theunderstanding that the rights guaranteed by the United StatesConstitution and the Maine Constitution are coextensive." Id. CatholicCharities has not argued that the Maine Constitution affords greaterprotections than its federal counterpart. Therefore, I will assume for thepurposes of this decision that the rights guaranteed by the United Statesand Maine Constitution are co-extensive. For the reasons set forth in thefederal free exercise section of this opinion, I conclude that theOrdinance does not violate the Maine Constitution.


The City of Portland's goal of expanding the number of residentsreceiving health benefits may be worthy; but federal law does not permitstates or municipalities to regulate the content of employee benefitplans that are covered by ERISA. Therefore, Catholic Charities' motion forsummary judgment and request for declaratory relief on Count I of itsAmended Complaint is GRANTED in part. I declare that, since July 22,2003, when Catholic Charities made the section 410(d) election, ERISA haspreempted the Ordinance's application toPage 31Catholic Charities' ERISA health benefit plans. The City's motion forsummary judgment on Count I is GRANTED with respect to the time betweenthe Ordinance's enactment and Catholic Charities' section 410(d) electionand with respect to those benefits offered by Catholic Charities that arenot covered by ERISA. The City's motion for summary judgment on theremaining counts is also GRANTED, and Catholic Charities' cross-motion onthose counts is DENIED.

I have not ruled on Catholic Charities' request for injunctive relief.See Wooley v. Maynard, 430 U.S. 705, 711 (1977) ("[A] district court cangenerally protect the interests of a federal plaintiff by entering adeclaratory judgment, and therefore the stronger injunctive medicine willbe unnecessary."). If Catholic Charities wishes to press its request forinjunctive relief, it shall request a conference of counsel.


1. In reaching my decision, I did not rely upon any of the statementsthat the City of Portland challenges in its Motion to Strike (Docket Item27). Therefore, the motion is MOOT.

2. The Ordinance defines "domestic partner" as a person in a "domesticpartnership." Code of Ordinances § 13.6-22(c). "Domestic partnership" isdefined as: [T]he entity formed by two persons who meet the following criteria and jointly file a registration statement proclaiming that: (1) They are in a relationship of mutual support, caring and commitment and intend to remain in such a relationship; and (2) They reside together within the city in a shared primary residence and have resided together and been domestic partners . . . for a period of at least six (6) months prior to the date of registration; and (3) They are not married; and (4) They are not related by blood closer than would bar marriage in the State of Maine; and (5) They are each other's sole domestic partner and intend to remain so indefinitely; and (6) They are competent to contract; and (7) They consider themselves a family. . . .Code of Ordinances § 13.6-22(d).

3. Catholic Charities maintains two health benefit plans that are atissue in this case: the Employee Benefits Plan of Catholic CharitiesMaine and the Catholic Charities Maine Flexible Benefits Plan ["healthbenefit plans"]. Am. Compl. ¶ 12.

4. ERISA provides that the term "church plan" also includes "a planmaintained by an organization, whether a civil law corporation orotherwise, the principal purpose or function of which is theadministration or funding of a plan or program for the provision ofretirement benefits or welfare benefits, if such organization iscontrolled by or associated with a church. . . ." Section1002(33)(C)(i). It is undisputed that Catholic Charities' plans do notsatisfy these criteria. Catholic Charities reads this provision aslimiting the non-church entities that may be considered to have churchplans and argues that its plans may therefore not be considered "churchplans." Pl.'s Opp'n Mot. at 3-5. I am not persuaded. By its terms, thisprovision is an alternative means of satisfying the "church plan"definition, and does not restrict the definition, whose language quotedin text, albeit circuitous, clearly covers Catholic Charities' plans. Theprovision was likely included simply to ensure that any third partyadministrator of a church plan was included within the church planexemption. See Friend v. Ancillian Systems Inc., 68 F. Supp.2d 969, 973(N.D. I11. 1999) ("section 1002(33)(C)(i) does not `require' that theplan be maintained by an organization the principle purpose of which isadministering or funding the plan. The statute merely `includes' suchplans in the definition of church plan. . . . [The intent of (C)(i)] is torequire that if an organization controlled by or associated with a churchwants to hire an administrator for its plan, the administrator must alsobe controlled by or associated with the church."); Peter J. Wiedenbeck,ERISA's Curious Coverage, Wash. Univ. L.Q. 311, n.178 (1998) ("Where theplan is set up by the church-related charity for its employees, theexpansive definitions of `church' and `church employee' seem to assurethat the plan is `established and maintained' by a (deemed) church forits employees. But church control or influence (direct or indirect) overthe board or committee that administers the plan also satisfies thedefinition. Some rulings explicitly treat the latter requirement as analternative means of satisfying the church plan definition."); Departmentof Labor opinions, 94-11A; 95-10A; 90-12A (all treating section1002(33)(C)(i) as an alternative means of meeting the definition).

5. The Code's definition of "church plan" contains an additionalsubsection, providing special rules for chaplains and self-employedministers. 26 U.S.C. § 414(e)(5). The additional rules are not relevantto this case.

6. 26 U.S.C. § 414(e)(3)(A) provides that "[a] plan established andmaintained for its employees . . . by a church . . . includes a planmaintained by an organization, whether a civil law corporation orotherwise, the principal purpose or function of which is theadministration or funding of a plan or program for the provision ofretirement benefits or welfare benefits, or both. . . ."

7. Section 4980B, for example, imposes continuation coveragerequirements on group health plans with a tax on plans that fail tocomply. Church plans, within the meaning of section 414(e), however, areexempt from the tax. Section 4980D imposes a tax on the failure of anygroup health plan to comply with the group health plan requirements ofchapter 100, but exempts church plans as defined in section 414(e). The City points out that, unlike the sections exempting church pensionplans, those sections exempting church welfare plans (e.g., sections 4980Band 4980D) do not qualify the exemption by referring to the election.Def.'s Supplemental Mem. at 2. For example, section 411 of the Code,dealing with minimum vesting standards, exempts a church plan "(withinthe meaning of section 414(e)) with respect to which the electionprovided by section 410(d) has not been made." Section 4980B, dealing withcontinuation coverage, exempts a church plan "within the meaning of414(e)" and does not reference the election. But section 410(d) providesa non-exhaustive list of provisions of the Code that become applicableupon making the election. If sections 4980B and 4980D are among theprovisions that apply when a church plan elects (captured by the "etc."),then it does not matter whether those sections expressly reference theelection. In addition, sections 4980B and 4980D were added to the Code in1988 and 1996, respectively. Pub.L. 100-647; Pub.L. 104-191. Unlike theparticipation, vesting, and funding standards, they were not brought intothe Code as part of ERISA. The difference in timing may explain thedifference in language.

8. Treasury has also given some context to the "etc." but apparentlyonly for pension plans. Treasury regulations provide that, in addition tothose provisions listed in section 410(d), Code provisions relating toprohibited transactions and certain miscellaneous provisions relating toannuities, mergers and consolidations, assignment and alienation, benefitcommencement, social security increases, and employee contributionwithdrawals apply to electing church plans. 26C.F.R. § 1.410(d)-1.

9. A few years prior to the enactment of ERISA, the Subcommittee onLabor of the Committee on Labor and Public Welfare conducted a study onthe activities of private welfare and pension plans. In its report onthat study, the Subcommittee noted the following: "Most employee benefitplans are classified in `welfare' or `pension' categories. Early in thecourse of the study, it became apparent that to achieve the basicobjective of Senate Resolution 35 the major effort should be directed tothe problems of pension plans as distinguished from welfare plans."Interim Report of Activities of the Private Welfare and Pension PlanStudy, 1971, 92d Congress, 2d Session, ReportNo. 92-624.

10. The top of form 5500 provides that the form is required undersections 104 and 4065 of ERISA. These provisions both apply to welfareplans. 29 U.S.C. § 1024, 1365.

11. The City points to two agency publications suggesting that onlychurch pension plans may elect by filing a Form 5500. The instructionsaccompanying Form 5500 provide that the following plans should not filethe form: a church pension plan "not electing coverage under Code section410(d)" and a church welfare plan "under ERISA section 3(33)." Theinstructions (and the form) were amended in 1999. Prior to 1999, theinstructions provided that filing was required of any "employee benefitplan subject to ERISA." 1998, Instructions to Form 5500, at 2. The FederalRegister does not explain why the language was changed. In addition, aDepartment of Labor publication entitled "In Brief: 1999 Form 5500"includes on a list of employee benefit plans that are exempt from theannual reporting requirements "[c]hurch pension plans not electingcoverage under Code § 410(d) and all church welfare plans." Unlikestatutes, regulations, or judicial decisions, these publications merelyprovide guidance and do not have the force of law. See Roberts v. UnitedStates, 734 F. Supp. 314 (N.D. Ill. 1988); T.C. Mem. 1988-331, Docket No.2684-87. They are not, therefore, entitled to Chevron deference.Christensen v. Harris County, 529 U.S. 576, 631 (2000).

12. Moreover, an organization with a plan that is both pension andwelfare, which ERISA explicitly permits, 29 U.S.C. § 1002(3), couldtake advantage of the election and opt for preemption, ananomalous resultif welfare plans are excluded.

13. After acknowledging in its motion for summary judgment that theOrdinance does not "reference" ERISA plans, Catholic Charities brieflyargues in its opposition motion that the Ordinance does reference suchplans. Opp'n Mot. at 9-10. The cases hold that, in order for a state lawto be preempted because it impermissibly "references" ERISA plans, thelaw must act immediately and exclusively on ERISA plans or the existenceof ERISA plans must be essential to the law's operation. E.g., CarpentersLocal Union No. 26 v. United States Fidelity & Guaranty Co., 215 F.3d 136,143 (1st Cir. 2000). This Ordinance is indifferent to whether the healthplans of organizations receiving HCD funds are ERISA plans. Therefore, itis not preempted on the basis of an impermissible reference.

14. I have issuedan opinion in another case, New Hampshire MotorTransport Ass'n, et al. v. Rowe Case No. 1:03cv178, concluding that theFederal Aviation Administration Authorization Act ("FAAAA),49 U.S.C. § 14501, does not preempt a state law regulating tobaccodelivery sales. The FAAAA and ERISA employ the same language in theirpreemption provisions ("relate to"). ERISA's preemption provision oncereceived an expansive interpretation, and Congress explicitly adoptedthat interpretation when it drafted the FAAAA preemption provision.Because the Supreme Court has interpreted ERISA's provision more strictlyin recent years, however, ERISA's preemption provision is now arguablynarrower than the FAAAA's. Still, there is no inconsistency in findingpreemption under ERISA and no preemption under the FAAAA. The Portlandordinance is exactly the type of local regulation that the Supreme Courthas insisted ERISA preempts, while the state law in New Hampshire MotorTransport deals with an area that states' have traditionally regulated,triggering a presumption against preemption.

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