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SPANN v. AOL TIME WARNER

June 7, 2005.

HENRY SPANN, CAROL MUNLEY, and CATHERINE CHIAPPAROLI, on behalf of themselves and all others similarly situated, Plaintiffs,
v.
AOL TIME WARNER, INC., WARNER BROS. RECORDS, WARNER BROS. COMMUNICATIONS, INC., the TWI/MUSIC PENSION PLAN, the TWI PLAN ADMINISTRATIVE COMMITTEE, WARNER-ELEKTRA-ATLANTIC CORP. ("WEA CORP."), the TIME WARNER EXCESS PENSION PLAN, the TIME WARNER EXCESS PENSION PLAN ADMINISTRATIVE COMMITTEE, SPECIALTY RECORDS, INC., WEA MANUFACTURING INC., a Delaware corporation, and any successor thereto, the WEA MANUFACTURING PENSION PLAN, the WEA MANUFACTURING PENSION PLAN ADMINISTRATIVE COMMITTEE, ATLANTIC RECORDING CORPORATION, the ATLANTIC RECORDING CORPORATION PENSION PLAN, the ADMINISTRATIVE COMMITTEE OF THE PLAN for the ATLANTIC RECORDING CORPORATION PENSION PLAN, TIME WARNER ENTERTAINMENT COMPANY, L.P., the TIME WARNER PENSION PLAN ADMINISTRATIVE COMMITTEE, WARNER PUBLISHING, INC., the WARNER PUBLISHING PENSION PLAN, the WARNER PUBLISHING PENSION PLAN ADMINISTRATIVE COMMITTEE, and DOES 1-10, Defendants.



The opinion of the court was delivered by: DENISE COTE, District Judge

OPINION AND ORDER

The plaintiffs in this class action brought claims pursuant to the Employee Retirement Income Security Act (ERISA), 29 U.S.C. § 1001, et seq., against AOL Time Warner, Inc. and related companies ("AOL TW"), as well as six pension plans ("Plans") and their administrative committees. Having reached a preliminary settlement and distributed notice of such settlement to putative class members, the plaintiffs and defendants jointly seek final approval of their settlement agreement. Following a final settlement fairness hearing on April 8, 2005, and having reviewed supplemental submissions of June 3, the class action settlement is approved. BACKGROUND

  Summary of Plaintiffs' Claims

  Plaintiffs claim that the defendants violated ERISA Sections 404 and 502, 29 U.S.C. §§ 1104, 1132,*fn1 by failing to annualize their partial years of compensation when calculating their pension benefits using the Plans' definition of "Average Compensation," thereby underpaying them.*fn2 Typical Plan language describes a participant's average compensation as his "average annual Compensation for the five consecutive calendar years in which he receives Compensation which results in the highest average." The Plans provide that
[f]or any period that is less than a full calendar year, a Participant's compensation shall be determined by multiplying the Compensation actually received by the Participant for such period by a fraction, the numerator of which is twelve and the denominator of which is the number of months (with any fraction of a month counted as a full month for this purpose) in such period for which Compensation was actually received.
A central dispute between the plaintiffs and defendants was whether, according to the Plans, such annualization was required only where an employee has participated in a plan for less than a full calendar year in total. The defendants contended that the committees charged with administering the Plans had for decades consistently interpreted the Plans' annualization provisions to require annualization only in such circumstances.

  Two of the named plaintiffs, Henry Spann ("Spann") and Carole Munley ("Munley"), requested and received lump sum pension payments when they concluded their employment with AOL TW. Spann and Munley both signed a standard release required of all employees electing to receive a lump sum pension distribution ("Release"), which stated "I understand that when I endorse the check I receive for the amount of my payment, I will be releasing the Plan, the Committee, the Trustees and my Employer from any liability in connection with my participation in the Plan." Spann claims that his lump sum payment was underpaid by approximately $19,300, while Munley claims that her lump sum payment was underpaid by approximately $1,100.

  The other named plaintiff, Catherine Chiapparoli ("Chiapparoli"), elected to receive her pension funds as an annuity, rather than in a lump sum. Consequently, she did not sign a Release. Chiapparoli claims that her annuity pension payments are underpaid by $88 per year.

  The language of the Plans has subsequently been revised in an effort to avoid the alleged ambiguities that led to this lawsuit. The parties anticipate that as a result of the revisions, this "problem" will not recur. The revisions confirm the defendants' long-standing interpretations of the Plans' language.

  Procedural History

  On April 8, 2002, the plaintiffs filed a class action in the Central District of California that was transferred to this District on October 8. Apart from the topic of damages, discovery was completed on October 31, 2003. The plaintiffs' first motion for class certification was denied. See Spann v. AOL Time Warner, Inc., 219 F.R.D. 307, 324 (S.D.N.Y. 2003). Following negotiations, the plaintiffs and defendants arrived at a stipulated settlement agreement on July 2, 2004 that was subsequently amended in December (as amended, "Settlement Agreement") and jointly proposed that a class be certified for the purpose of settlement only. A preliminary approval hearing was held on August 19, 2004. An Order of December 21, 2004 preliminarily approved the Settlement Agreement, approved the proposed form of class notice ("Class Notice"), and certified a class for settlement purposes only pursuant to Rule 23(b)(1), Fed.R.Civ.P. A settlement fairness hearing was held on April 8, 2005. For reasons described below, a second fairness hearing was scheduled for June 9, 2005.

  Class Definition and Composition

  The definition of the class certified for the purposes of settlement recognized two subclasses, one for those who received lump-sum distributions, and one for those who received an annuity. The definition is as follows:
Each and every participant in one or more of the Plans whose pension benefit under one or more of the Plans was or will be calculated based upon one or more periods of Benefit Service that concluded during the Class Period, and each of the spouses, designated beneficiaries, executors, successors, alternative payees under a qualified domestic relations order, representatives or heirs of said participants. The proposed settlement class is divided into two subclasses, each of which includes at least one hundred individuals.
Subclass One consists of those Class Members who received a lump-sum distribution of pension benefits from one or more of the Plans that was calculated based upon a period of Benefit Service that concluded during the Class Period. Named plaintiffs Henry Spann and Carol Munley received their pension benefits as lumpsum distributions.
Subclass Two consists of those Class Members who (a) received or who are receiving a pension benefit in the form of an annuity from one or more Plans that was calculated based upon a period of Benefit Service that concluded during the Class Period; or (b) have a vested right to receive a pension benefit in the form of an annuity from one or more of the Plans at some date in the future that was calculated based upon a period of Benefit Service that concluded during the Class Period. Named Plaintiff Catherine Chiapparoli receives her pension benefit monthly in the form of an annuity.
(Emphasis supplied.) The Class Period is from January 1, 1989 through December 31, 1999.

  Preliminary Approval

  At the August 19, 2004 preliminary approval hearing, counsel proposed a settlement amount of $2.9 million, with at most one-third, or approximately $1 million, being allocated to attorney's fees, $10,000 for each of the three named plaintiffs as incentive awards, post-approval administration fees of $300,000, and attorney's costs and expenses of approximately $250,000, leaving at least approximately $1.3 million to be distributed to the Class. At the preliminary approval stage, the Class was divided into the same two subclasses as now, although at the preliminary approval hearing, defense counsel estimated that the total class size was approximately 7,000, with 6,000 in Subclass One, and only 1,000 in Subclass Two.

  Defense counsel estimated that if the plaintiffs all prevailed to the maximum extent on all of their claims, the total recovery for the class would be approximately $12 million plus interest, and that $10 million of this figure would be attributable to Subclass One, and $2 million would be attributable to Subclass Two. Plaintiffs' counsel proposed that the Settlement Fund of approximately $1,300,000 be divided equally between the two subclasses. This would ...


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