The 5th U.S. Circuit Court of Appeals has voided a class-action settlement U.S. District Court Judge Louis Guirola approved, questioning its fairness to members of Singing River Health System’s failed pension plan.
“It was improper for the court to limit its consideration to the hospital’s ability to pay while ignoring a transparent explanation of the settlement’s consequences for the class (plan) members,” the three-judge panel of the court said in a ruling handed down Thursday morning.
SRHS and a group of pension plan members sought the settlement, while more than 200 plan members opposed it during a May 2016 hearing that ended with Guirola’s approval. The settlement applies to 3,173 current and former employees, most of whom did not actively participate in the litigation.
Under the settlement, SRHS would put into the pension $55 million it failed to pay from 2009-14, while plan members thought the contributions were being made.
With interest, payments SRHS would make over 35 years would total $150 million.
SRHS also would pay $6.4 million in legal fees over the first four years to attorneys who represent pension-plan members pushing for the settlement.
In vacating Guirola’s decision and sending the case back to him, the panel told him to consider four factors before approving the settlement:
▪ How proposed SRHS payments into the plan, along with its assets and prospective earnings, will affect plan participants, including current retirees.
▪ Whether SRHS has the financial ability to make settlement payments, based on future revenue projections.
▪ Why attorneys who represented plan members in favor of the settlement should get their fees up front, rather than face the same “uncertainty and risk” plan members bear.
▪ Why any payments SRHS receives from companies involved with the failed pension — including accounting firm KPMG and plan administrator Transamerica — should be used to defray the health system’s expenses rather than supplementing the pension settlement.
Jackson County attorneys Earl Denham and Harvey Barton filed the 5th Circuit appeal on behalf of retirees opposed to the settlement.
Biloxi attorney Jim Reeves, working with attorneys from Cunningham Bounds of Mobile, served as class counsel for plan members seeking approval of the settlement.
The 5th Circuit panel wrote: “Perhaps the most intriguing fact is that class counsel arranged for their agreed, complete payout of fees from SRHS before the end of 2018, and thus alleviated any significant future risk of nonpayment. Meanwhile, the plan participants bear considerable risk and, worse, uncertainty.
“As the record stands, SRHS’s future ability to make escalating annual payments to the plan over thirty-five years is arguable, and that question compounds with demographic reality as more plaintiffs approach eligibility for retirement benefits.”
Denham and Barton have been embroiled in litigation with SRHS for almost three years and still don’t know why the pension failed, Barton said. He said they have been unable through formal pretrial procedures, in state and federal court, to acquire key pension records, or interview most SRHS executives and board members under oath.
“Absolutely we’ve been shut down,” Barton said. “We won an important battle, but the war still rages. At least we’re going to get the litigation moving forward again.”