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SCHWARTZ v. NEWSWEEK

December 8, 1986

LAWRENCE SCHWARTZ, JAMES A. SCHULTZ, and WILLIAM GALLAGHER, Plaintiffs,
v.
NEWSWEEK, INC., Defendant



The opinion of the court was delivered by: WALKER

WALKER, District Judge:

INTRODUCTION

Plaintiffs Lawrence Schwartz ("Schwartz"), James A. Schultz ("Schultz") and William Gallagher ("Gallagher") have brought the instant action against Defendant Newsweek, Inc. ("Newsweek"), alleging causes of action based on the Retirement Income Security Act of 1974, 29 U.S.C. §§ 1001, et seq. ("ERISA"), as well as common law theories alleging breach of contract and fraud. Defendant moves for summary judgment, arguing that its conduct does not give rise to liability under ERISA, that ERISA preempts plaintiffs' contract claims, and that plaintiffs' have failed to make requisite showings on their state law fraud claim. For the reasons set forth below, defendant's motion for summary judgment is granted.

 STATEMENT OF FACTS

 In 1980, Defendant Newsweek launched the magazine Inside Sports, a monthly publication devoted to spectator sports. Defendant hired Plaintiff Schwartz in December 1978 as an Inside Sports senior editor, at an initial salary of $35,000. In November 1979, Plaintiff Gallagher accepted an offer of $47,000 to work as another senior editor. Defendant added Plaintiff Schultz in September 1980, initially paying Schultz $33,800 for his work as the magazine's director of publicity.

 Inside Sports began to face financial difficulties as early as April 1981. In November 1981, defendant's President Mark M. Edmiston ("Edmiston") announced at a meeting of Inside Sports ' staff that defendant was seeking a purchaser for the magazine. Active Markets responded to defendant's sale offer, and in a January 8, 1982 memo and meeting, Edmiston informed the staff that defendant had reached an "agreement in principle" to sell the magazine to Active Markets.

 Prior to the Active Markets sale, defendant's severance policy, as delineated in its collective bargaining agreement with the Newspaper Guild of New York, provided that workers employed in a division sold by Newsweek would receive compensation in one of two forms. Defendant would first have the option of using employees from the terminated division in another of its departments. If defendant could find no new employment for staffers of the terminated department, or if these employees' new departments provided jobs of no more than three months duration, the employees would receive severance pay.

 Defendant amended this severance policy at the January 8, 1982 meeting where Edmiston announced the sale of Inside Sports. Specifically, defendant's then Director of Personnel Bruce Wallin stated that some Inside Sports staff members, including plaintiffs, could pursue a third means of compensation following the magazine's sale. Instead of receiving either employment in another Newsweek department or severance pay, employees sought by Active Markets could continue to work on Inside Sports for the magazine's purchaser. Employees who chose not to join Active Markets retained their right to a new job with defendant or severance pay. Edmiston also stated that, in his opinion, Active Markets would continue to publish Inside Sports for at least 18 months.

 On January 28, the amended severance policy enunciated by Wallin was reduced to writing and provided to all three plaintiffs in a letter, which also specified the precise amounts of severance pay plaintiffs would receive if they declined a position with Active Markets and defendant could not employ them in a division other than Inside Sports. Plaintiffs accepted employment with Active Markets shortly after they received Wallin's January 28 note, as confirmed by another letter from Wallin to plaintiffs, dated February 1, 1982.

 In November 1982, Active Markets halted publication of Inside Sports and declared bankruptcy, terminating plaintiffs and other Inside Sports staff members. Plaintiffs' termination thus occurred about nine months after their employment with Active Markets had begun.

 Prior to the sale of Inside Sports, defendant had sold only one other publication, Art News. The Art News purchaser expressly declined to hire defendant's employees who had worked on this magazine, and consequently all of these employees received defendant's standard severance package, consisting of either new employment with defendant or severance pay.

 Applicability of ERISA

 Defendant contends that its legal obligations toward plaintiffs are governed primarily, if not exclusively, by the Employee Retirement Income Security Act of 1974, 29 U.S.C. §§ 1001 et seq. ("ERISA"). Conversely, plaintiffs contend that defendant's severance policy falls outside the scope of ERISA coverage, and that common law contract and tort principles govern defendant's duties under the policy.

 ERISA applies to any "employee welfare benefit plan," including employer-sponsored medical, job-training, and unemployment programs. 29 U.S.C. § 1002(1). The applicability of ERISA to defendant's unfunded severance pay policy is compelled by the Second Circuit Court of Appeals recent decision in Gilbert v. Burlington, Inc., 765 F.2d 320 (2d Cir. 1985), aff'd mem., Roberts v. Burlington Industries, Inc., 477 U.S. 901, 106 S. Ct. 3267, 91 L. Ed. 2d 558 (1986). Despite the absence of any reference to severance pay in the act, the Gilbert decision held that such policies fell within ...


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