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HERMAN v. TIME WARNER INC.

September 3, 1999

ALEXIS M. HERMAN, SECRETARY OF THE UNITED STATES DEPARTMENT OF LABOR, PLAINTIFF,
v.
TIME WARNER INC., TIME INC., BOOK-OF-THE-MONTH CLUB, INC., TIME DISTRIBUTION SERVICES, INC., CAROLYN K. MCCANDLESS, PAUL D. WILLIAMS, PHILIP R. LOCHNER, JR., ANDRA D. SANDERS, JOHN LABARCA, GEORGE ARTANDI, SUSAN BAIRD, PAT MULVEY, MATT RUDMAN, MARTIN D. PAYSON, BURT WASSERMAN, MICHAEL HAYES, KEVIN SENE, RICHARD ENGLE, TIME WARNER EMPLOYEES' PENSION PLAN, WARNER PUBLISHING PENSION PLAN, TIME WARNER EMPLOYEES' SAVINGS PLAN, TIME WARNER SAVINGS PLAN, TIME WARNER EMPLOYEES' STOCK OWNERSHIP PLAN, TIME WARNER GROUP HEALTH PLAN (INCLUDING THE MD ACCESS PROGRAM, THE INDEMNITY PROGRAM, THE DENTAL PROGRAM A & B, AND THE MANAGED MENTAL HEALTH AND SUBSTANCE WEST PAGE 412 ABUSE PROGRAM), RETIREMENT INCOME PLAN FOR EMPLOYEES OF BOOK-OF-THE-MONTH CLUB, TIME DISTRIBUTION SERVICES RETIREMENT PLAN, AND SALARY REDUCTION THRIFT PLAN FOR EMPLOYEES OF TIME DISTRIBUTION SERVICES, DEFENDANTS.



The opinion of the court was delivered by: Chin, District Judge.

MEMORANDUM DECISION

In this case, the U.S. Department of Labor (the "government") alleges that defendants, in violation of the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001-1461, misclassified workers as "temporary employees" and "independent contractors," thereby depriving them of benefits to which they otherwise would have been entitled. Defendants contend that although the government's suit is styled as one for breach of fiduciary duties, the case is really an impermissible action for benefits. Defendants move to dismiss the complaint pursuant to Rules 12(b)(1) and 12(b)(6) of the Federal Rules of Civil Procedure. For the reasons set forth below, the motion is denied.

BACKGROUND

A. The Facts

1. Overview

The complaint alleges the following facts, which are assumed to be true for purposes of this motion:

Defendant Time Warner, Inc. ("Time Warner") owns defendant Time Inc. ("Time"), which in turn owns several divisions and subsidiaries, including defendant Book-of-the-Month Club, Inc. and defendant Time Distribution Services, Inc. Defendants publish a number of national magazines, including Time, Sports Illustrated, Fortune, Life, Money, and People. From at least 1984, defendants have sponsored various employee benefit plans, including retirement plans and health and welfare plans.

Since at least 1990, defendants divided workers into two groups: the Edit Group and the Publishing Group. The Edit Group was comprised of journalists, photographers, graphic designers, and others who produced Time's various publications. The Publishing Group handled the financial matters associated with publishing, including the Edit Group's budgets. Since at least 1984 and continuing through the present, new workers were classified for payroll purposes as "regular," "project," "supplementary," or "temporary" employees. Temporary employees*fn1 were also called "Green Requisition employees" or "Green Reqs." Other individuals were classified as "independent contractors." Since at least 1990, a worker's classification determined whether she or he was eligible to participate in the employee benefit plans. Most of the plans exclude temporary employees and independent contractors from participating.

The government contends that, since at least 1990, Time and various of its divisions and subsidiaries have misclassified workers as temporary employees and independent contractors when they were in fact regular, project, or supplementary employees. These employees, the government contends, would have been eligible to participate in certain benefit plans if they had not been misclassified. For the same time period, Time and various of its divisions and subsidiaries allegedly manipulated breaks in service for numerous temporary employees to maintain their temporary status. By misclassifying temporary employees and independent contractors, according to the government, defendants prevented them from completing the length of service required to be eligible to receive benefits.

2. The Benefit Plans and Their Fiduciaries

The various pension and other employee benefit plans sponsored by defendants have different eligibility requirements. (See Compl. ¶¶ 35-67). Generally, however, regular full-time and part-time employees were eligible to participate in a plan after meeting the service requirements. Temporary employees were eligible to participate only in certain plans, and it appears that independent contractors were not eligible for benefits under any of the plans.

During the relevant period, a single committee (the "Administrative Committee") administered all of these plans pursuant to ERISA § 3(16). The individual defendants are or were members of the Administrative Committee. The Administrative Committee was a fiduciary of the plans pursuant to ERISA § 3(21) because it had the sole authority to interpret the terms of the plans, including eligibility terms, and to decide any matters related to the administration of the plans. In addition, Time Warner was a fiduciary of defendant Managed Mental Health and Substance Abuse Program because it was responsible for identifying workers eligible to participate in that plan.


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