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Schwartz v. Newsweek Inc.

decided: September 2, 1987.


Appeal from a grant of summary judgment by the United States District Court for the Southern District of New York (John M. Walker, Judge) dismissing plaintiffs' complaint for severance benefits under ERISA. Because the denial of benefits was neither arbitrary nor capricious, we affirm.

Author: Winter

Before: FEINBERG, Chief Judge, KEARSE and WINTER, Circuit Judges.

WINTER, Circuit Judge

Plaintiffs, former employees of Newsweek, Inc., brought this action to challenge Newsweek's failure to grant them severance benefits when they separated from Newsweek and accepted employment with a successor publisher. The district court granted summary judgment in favor of Newsweek. We affirm on the ground that Newsweek's decision was neither arbitrary nor capricious and therefore did not violate the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. §§ 1001-1461 (1982).

The following facts are undisputed. In 1980, Newsweek, Inc. began publication of a new monthly magazine, Inside Sports. Plaintiffs Lawrence Schwartz, William Gallagher and James Schultz were employed by Newsweek in various staff positions at Inside Sports and received yearly salaries ranging from $33,800 to $47,000. Rumors of financial difficulties at Inside Sports began circulating as early as April 1981. At an Inside Sports staff meeting that November, Newsweek President Mark M. Edmiston announced that Newsweek was attempting to sell Inside Sports. Active Markets, Inc., a Seattle-based publishing company, entered into negotiations with Newsweek, and on January 8, 1982, Edmiston issued a memorandum announcing an "agreement in principle" with Active Markets for the sale of Inside Sports.

Newsweek thereupon informed Inside Sports staff members that they would be invited to apply for employment with Active Markets and that any staff members not interested in such employment would be given assistance in finding other positions at Newsweek. In early January, Newsweek's director of personnel, Bruce Wallin, explained the proposed severance arrangements to the Inside Sports staff. Those accepting employment with Active Markets would not be eligible for severance pay from Newsweek, unless their employment with Active Markets terminated within three months of their hiring date. Employees who did not wish to join Active Markets and who also failed to obtain other suitable positions at Newsweek would be terminated and given severance pay.

By letters dated January 28, 1982, Wallin detailed the available options to each of the plaintiffs. The three plaintiffs subsequently accepted offers from Active Markets at salaries equal to or greater than their previous salaries at Newsweek.*fn1 Plaintiffs performed the same work for Active Markets as they had for Newsweek and worked in the same offices, now rented from Newsweek by Active Markets. None of the plaintiffs received severance or dismissal pay from Newsweek. In November 1982, about nine months plaintiffs commenced their new employment, Active Markets halted publication of Inside Sports and declared bankruptcy. Plaintiffs were terminated and given two weeks' severance pay by Active Markets.

On January 26, 1983, plaintiffs wrote to Newsweek and for the first time demanded severance benefits from Newsweek. Newsweek denied their request, the plaintiffs began the instant action in the Southern District of New York. Their complaint alleged that Newsweek's failure to grant them severance benefits at the time they had voluntarily left Newsweek's employ was a violation of Newsweek's severance policy, alternatively actionable under ERISA and various state common law theories. After completion of discovery, Newsweek moved for summary judgment, a motion granted in its entirety by the district court. Plaintiffs pursue only the ERISA claimed on appeal.

The parties agree that Newsweek's unfunded severance pay policy constitutes an "employee welfare benefit plan" within the meaning of ERISA, 29 U.S.C. § 1002(1) (1982), and that state statutes and remedies are thus preempted. See Gilbert v. Burlington Indus., Inc., 765 F.2d 320, 324-26 (2d Cir. 1985), aff'd without opinion, 477 U.S. 901, 106 S. Ct. 3267, 91 L. Ed. 2d 558 (1986).*fn2 As the administrator of the plan, Newsweek was a fiduciary. 29 U.S.C. §§ 1002(14), (16). ERISA provides that "a fiduciary shall discharge his duties with respect to a plan solely in the interest of the participants and beneficiaries and . . . in accordance with the documents and instruments governing the plan." 29 U.S.C. § 1104(a)(1). In actions challenging the denial of benefits under an ERISA plan, review is limited to determining whether the administrator's decision was arbitrary and capricious. Morse v. Stanley, 732 F.2d 1139, 1145 (2d Cir. 1984); Miles v. New York State Teamsters Conference Pension & Retirement Fund Employee Pension Benefit Plan, 698 F.2d 593, 599 (2d Cir.), cert. denied, 464 U.S. 829, 78 L. Ed. 2d 108, 104 S. Ct. 105 (1983).

The district court found that the severance benefit policy applicable to all Inside Sports staff members, including plaintiffs, was set forth in the collective bargaining agreement between Newsweek and The Newspaper Guild of New York (the "Guild Contract"). Specifically, Article XX of the Guild Contract, entitled "Sale of Operating Unit," provided that:

An employee who is dismissed because of the sale by the Publisher of Newsweek magazine or any other operating division or department of the Publisher and who is not offered employment by the purchaser of the magazine or other division or department, or who accepts such employment but is dismissed by the purchaser within three months after such employment commences, shall receive the dismissal pay provided by Section 1 of Article VIII, the notice provided by Section 4 of Article IX and the reduction in force pay provided by paragraph i of Section 5 of Article IX. Except as provided by this Section, no Employee dismissed because of the sale of Newsweek magazine or any other division of the Publisher shall receive dismissal pay, notice or reduction in force pay from the Publisher.

Under the terms of the Guild Contract, plaintiffs would of course have no right to severance benefits. The Guild Contract itself did not cover all Newsweek employees, however, because some staff members, including plaintiffs, were not part of the collective bargaining unit. We thus agree with plaintiffs that the provisions of the Guild Contract are not dispositive of this case.

Plaintiffs argue instead that their rights to severance benefits are governed by Section X of Newsweek's Supervisor's Manual. The Manual consisted of policy guidelines applicable to supervisory personnel such as the plaintiffs. Section X provided formulae for calculating dismissal pay, notice pay and reduction-in-force pay that were identical to the formulae contained in the Guild Contract. Unlike the Guild Contract, however, Section X made no specific provision for severance eligibility in the event of the sale of an operating unit but merely stated that "an employee who has been dismissed for any reason other than gross misconduct shall receive dismissal pay. . . ."

On appeal, plaintiffs do not contend that the Manual is unambiguous as to their right to severance benefits in the circumstances of their separation from Newsweek. Instead, they argue that, precisely because Section X is ambiguous, a material issue of fact as to Newsweek's severance policies exists and summary judgment was improper. We disagree. Under ERISA, the issue is not the precise meaning of the ...

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