Reichert v. Time Inc. et al

Filing 28

ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS' MOTION TO DISMISS AND VACATING HEARING, Order by Hon. William Alsup granting in part and denying in part 14 Motion to Dismiss.(whalc1, COURT STAFF) (Filed on 11/3/2011)

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1 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE NORTHERN DISTRICT OF CALIFORNIA 8 9 LORINDA REICHERT, 11 For the Northern District of California United States District Court 10 12 13 No. C 11-03592 WHA Plaintiff, v. 14 TIME INC., ADMINISTRATIVE COMMITTEE OF THE TIME WARNER PENSION PLAN, and FMR LLC, 15 ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS’ MOTION TO DISMISS AND VACATING HEARING Defendants. / 16 17 18 INTRODUCTION In this breach-of-contract action, all defendants move to dismiss the complaint for failure 19 to state a claim. For the following reasons, defendants’ motion is GRANTED IN PART AND 20 DENIED IN PART. 21 STATEMENT 22 Plaintiff Lorinda Reichert was an employee of Sunset Publishing Corporation — a 23 subsidiary of defendant Time Inc. — for over forty years. From 2000 to 2009, plaintiff’s position 24 was Vice President of Administration and Manufacturing. In December 2008, plaintiff learned 25 that her position would soon be eliminated. Concerned about the financial implications of retiring 26 earlier than expected, plaintiff began closely examining her finances. Plaintiff had been 27 participating in the Time Warner Pension Plan since 1999. In June 2008, defendant Fidelity 28 Investments — a fiduciary of the Plan — began offering an online pension calculator. Through 1 this calculator a participant of the Plan could view a summary of pension benefits based on a 2 projected date of retirement (Compl. ¶¶ 4, 7, 10–11, 13, 15). 3 Between June and December 2008, plaintiff used the online pension calculator “on at least 4 six occasions.” Each time, the projected pension benefits were approximately $1.7 million if 5 taken as a lump sum. In September 2008, plaintiff contacted Fidelity to discuss her retirement 6 strategy, and Fidelity sent a summary including pension projections consistent with the online 7 projections. In December 2008, plaintiff received a pension statement from the Time benefits 8 department. The statement was also consistent with the $1.7 million lump sum valuation 9 (id. at ¶¶ 16, 17, 20). In February 2009, plaintiff negotiated her severance agreement with Time. During the 11 For the Northern District of California United States District Court 10 negotiations, she asked for a guarantee that her actual pension benefits would not be “materially 12 different” from the pension statement provided by the Time benefits department in 13 December 2008. A “good faith estimate” of the pension payout was appended to the agreement. 14 This appended estimate — like the previous estimates — stated that plaintiff’s payout would 15 be $1.7 million if taken as a lump sum (id. at ¶¶ 23–24). 16 Plaintiff’s termination date was March 15, 2009. In July 2009, she received a letter from 17 Fidelity stating that her projected pension benefits under the Plan would be 18 approximately $725,000. Alarmed by the discrepancy between this figure and previous 19 projections, plaintiff contacted the Time benefits department. She learned that the previous 20 estimates were erroneous because plaintiff’s years of service had been incorrectly calculated 21 (id. at ¶¶ 20, 26–27). 22 Plaintiff commenced the present action in July 2011, naming Time, the Administrative 23 Committee of the Time Warner Pension Plan, and Fidelity as defendants. Plaintiff alleges five 24 claims for relief: (1) breach of contract against Time; (2) breach of the covenant of good faith 25 and fair dealing against Time; (3) breach of fiduciary duty against Fidelity; (4) breach of fiduciary 26 duty against the Committee; and (5) professional negligence against Fidelity in the alternative to 27 the third claim for breach of fiduciary duty against Fidelity. All three defendants now move to 28 dismiss all claims for failure to state a claim. This order follows full briefing. 2 1 ANALYSIS 2 To survive a motion to dismiss, a complaint must contain sufficient factual matter, 3 accepted as true, to state a claim for relief that is plausible on its face. Ashcroft v. Iqbal, 4 556 U.S. 662, 129 S. Ct. 1937, 1949 (2009). A claim is facially plausible when there are 5 sufficient factual allegations to draw a reasonable inference that the defendants are liable for the 6 misconduct alleged. While a court “must take all of the factual allegations in the complaint as 7 true,” it is “not bound to accept as true a legal conclusion couched as a factual allegation.” 8 Id. at 1949–50 (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)). “[C]onclusory 9 allegations of law and unwarranted inferences are insufficient to defeat a motion to dismiss for failure to state a claim.” Epstein v. Wash. Energy Co., 83 F.3d 1136, 1140 (9th Cir. 1996) 11 For the Northern District of California United States District Court 10 (citation omitted). 12 1. 13 Plaintiff’s complaint alleges two claims against Time — breach of contract and breach of CONTRACTUAL CLAIMS AGAINST TIME. 14 the duty of good faith and fair dealing. Defendants argue that plaintiff waived the right to bring 15 these claims when she signed a release at the same time that she signed her severance agreement. 16 In the release, plaintiff agreed to “release and forever discharge the Company and Time Warner” 17 and their “agents [and] employees” from “any and all actions, causes of action, [and] claims” 18 (Parker Exh. E at 5). 19 20 A. Breach of Contract. Plaintiff argues that the release does not defeat her claim for breach of contract because 21 she is seeking enforcement of the severance agreement itself (Opp. 10). Plaintiff argues that the 22 severance agreement was not properly performed because she is no longer eligible to receive the 23 amount of pension listed in the appended estimate. 24 The only language pertaining to the Plan in the severance agreement stated that on 25 March 1, 2009, plaintiff became “eligible to retire pursuant to the terms of the Time Warner 26 Pension Plan in effect at that time. A good faith estimate of [plaintiff’s] pension payout is 27 attached to this agreement” (Parker Exh. E at 2). The agreement contained no language 28 guaranteeing a specific amount of payout. Notably, during her severance negotiations, plaintiff 3 1 attempted to insert a clause promising that her actual payout would not be “materially different” 2 from the estimate, but Time refused. While the appended estimate was inaccurate, plaintiff does 3 not allege that the estimate was intentionally misleading or prepared in bad faith. Plaintiff admits 4 that Time did not discover the discrepancy until after the severance agreement had been signed 5 (Compl. ¶ 27). 6 Plaintiff does not dispute that every other element of the severance agreement has been 7 performed. The agreement, among other things, guaranteed her 104 weeks of severance pay 8 totaling $412,000 and payment for unused vacation days. Plaintiff has received the benefit of the 9 entire severance pay, and has become eligible to collect a pension according to the Plan. Plaintiff has failed to identify any term of the severance agreement that has been breached. Plaintiff 11 For the Northern District of California United States District Court 10 asserts insufficient facts to state a claim for breach of contract. Accordingly, defendants’ motion 12 to dismiss this claim is GRANTED. 13 B. 14 Breach of the Duty of Good Faith and Fair Dealing. Plaintiff claims that Time breached its duty of good faith and fair dealing “by failing to 15 provide a reasonable and accurate pension estimate,” and by now representing that the actual 16 amount of the pension is significantly less than the original estimate (Compl. ¶ 39). Under 17 California law, every contract contains an implied covenant of good faith and fair dealing that 18 “neither party will do anything which will injure the right of the other to receive the benefits of 19 the agreement.” Wolf v. Walt Disney Pictures & Television, 162 Cal. App. 4th 1107, 1120 20 (2008). 21 Plaintiff fails to specify how Time supposedly prevented her from receiving the benefits of 22 the agreement. The severance agreement did not guarantee her $1.7 million in pension benefits. 23 The pension estimate appended to the agreement was not accurate. The estimate, however, was 24 prepared by Fidelity — not Time. 25 26 Furthermore, the release that plaintiff signed contained the following language (Parker Exh. E at 5): 27 28 4 1 I understand and agree that I may later discover claims or facts in addition to or different from those which I now know or believe to be true with respect to the subject matters of this Agreement, but that it is nevertheless my intention by signing this Agreement to fully, finally and forever release any and all claims whether now know or unknown, suspect or unsuspected, which now exist, may exist, or previously have existed as set forth herein. 2 3 4 5 Plaintiff is attempting to use new information as a basis for a claim against Time. This is 6 expressly forbidden by the release she signed. 7 8 9 fair dealing. Accordingly, defendants’ motion to dismiss this claim is GRANTED. 2. ERISA BREACH-OF-FIDUCIARY-DUTY CLAIMS. Plaintiff alleges that Fidelity and the Committee breached fiduciary duties owed under 11 For the Northern District of California United States District Court 10 Plaintiff has failed to state a claim against Time for breach of the duty of good faith and ERISA. A fiduciary under ERISA has a duty to discharge its duties with respect to the Plan 12 “solely in the interest of the participants and beneficiaries,” and “with the care, skill, prudence, 13 and diligence under the circumstances then prevailing that a prudent man acting in a like capacity 14 and familiar with such matters would use in the conduct of an enterprise of like character and 15 with like aims.” 29 U.S.C. 1104(a)(1)(B). Defendants offer several reasons why plaintiff’s 16 ERISA claims must fail. None is persuasive. Each is addressed in turn. 17 A. Fidelity and the Committee Were Not Included in the Release. 18 Defendants argue that plaintiff waived her right to bring claims against Fidelity and the 19 Committee by signing the release of claims. Defendants argue that Fidelity and the Committee 20 were covered by the release because they acted as “agents” or “administrators” of Time. 21 An individual is a fiduciary under ERISA if “he exercises any discretionary authority or 22 discretionary control respecting management of such plan or exercises any authority or control 23 respecting management or disposition of assets.” 29 U.S.C. 1002(21). Defendants do not dispute 24 that Fidelity was a fiduciary of the Plan. The Committee was expressly named as a fiduciary in 25 the Plan (Parker Exh. B at 60). 26 The Plan also stated that all fiduciaries must discharge their duties “solely in the interest of 27 the Participants and their Beneficiaries, for the exclusive purpose of providing benefits to such 28 persons” (ibid.) (emphasis added). It is clear from the language of the Plan that Fidelity and the 5 1 Committee owed a duty of loyalty to the participants in the Plan, not to Time. In their functions, 2 they were required to act as administrators of the Plan, and agents to the participants. As such, 3 they could not have been agents or administrators of Time. Accordingly, Fidelity and the 4 Committee were not covered by the release plaintiff signed. 5 B. The Functions of Fidelity and the Committee Were Not Purely Ministerial. 6 Defendants argue that the conduct plaintiff complained of involved a purely ministerial 7 (rather than fiduciary) function, and thus plaintiff’s breach of fiduciary duty claims must fail. 8 Defendants misleadingly imply that a fiduciary ceases owing a fiduciary duty when performing 9 tasks such as preparing a pension plan estimate. Not so. A person who has the power only to 10 with. 29 C.F.R. 2509.75-8. While part of the responsibilities of Fidelity and the Committee For the Northern District of California United States District Court perform ministerial work and has no discretionary authority or control is not a fiduciary to begin 11 12 involved ministerial duties, their duties also included discretionary authority over the Plan. Thus, 13 they owed a fiduciary duty to the participants. 14 C. Plaintiff Does Not Need to Allege an Intentional Misrepresentation. 15 Defendants next argue that plaintiff’s breach-of-fiduciary-duty claims must fail because 16 she failed to allege that Fidelity or the Committee made an intentional misrepresentation. To 17 support their argument that an intentional misrepresentation is necessary, defendants cite to 18 several decisions from other circuits. In the Ninth Circuit, however, “[a] person actively 19 misinforms by saying that something is true when it is not true. But the person also misinforms 20 by saying that something is true when the person does not know whether it is true or not.” 21 Making such affirmative misrepresentations violates the “core obligation of the ERISA 22 fiduciary.” Wayne v. Pacific Bell, 238 F.3d 1048, 1055 (9th Cir. 2001). It is therefore not 23 necessary for plaintiff to allege an intentional misrepresentation in order to state a claim for 24 breach of fiduciary duty. Plaintiff has stated sufficient facts to give rise to the inference that 25 Fidelity and the Committee made statements when they did not know if they were true or not. 26 These allegations state a claim for breach of fiduciary duty. 27 28 6 1 2 D. Plaintiff States a Claim for Detrimental Reliance. Defendants argue that the claims for breach of fiduciary duty should be dismissed because statements. Defendants argue that plaintiff is in the same position now as if she had never 5 obtained an incorrect pension estimate. Plaintiff alleges in her complaint, however, that she 6 became concerned about her financial situation after learning she would have to retire several 7 years earlier than she had planned and began seeking clarification of her finances. Plaintiff 8 alleges that she declined to negotiate her severance package with Time until she received 9 confirmation of her pension payout. Plaintiff relied on her pension estimates while negotiating 10 her severance package, which is evidenced by the fact that she attempted to include language in 11 For the Northern District of California plaintiff pled facts insufficient to establish that she detrimentally relied on the erroneous 4 United States District Court 3 the agreement that the payout would not be “materially different” from the estimates 12 (Compl. ¶¶ 14, 18, 24). Plaintiff has pled facts sufficient to support an inference that she relied 13 on the erroneous estimate and that she suffered a detriment by receiving less than half of the 14 payout she expected. 15 16 * * * All of defendants’ arguments for dismissing the claims for breach of fiduciary duty fail. 17 Accordingly, defendants’ motion to dismiss the breach-of-fiduciary-duty claims against Fidelity 18 and the Committee is DENIED. 19 3. 20 As an alternative to the breach-of-fiduciary-duty claim against Fidelity, plaintiff alleges 21 professional negligence. Defendants argue that this claim based in California law is preempted 22 by ERISA. The preemption provision in ERISA provides that ERISA “shall supercede any and 23 all State laws insofar as they may now or hereafter relate to any employee benefit plan.” 24 29 U.S.C. 1144(a) (emphasis added). A state law may “relate to” a benefit plan — and therefore 25 be preempted — even if the law was not specifically designed to effect such plans, or the effect is 26 only indirect. Ingersoll-Rand Co. v. McClendon, 498 U.S. 133, 139 (1990). 27 28 PROFESSIONAL NEGLIGENCE CLAIM AGAINST FIDELITY. Plaintiff alleges that Fidelity “breached its professional duties by providing grossly inaccurate information to [plaintiff] regarding her pension benefits under the Pension Plan on at 7 1 least ten occasions” (Compl. ¶ 65). At the root of this claim is the allegation that Fidelity’s 2 inaccurate estimates related to the Plan, and for this reason plaintiff’s claim for professional 3 negligence is preempted by ERISA. Accordingly, defendants’ motion to dismiss this claim 4 is GRANTED. 5 CONCLUSION 6 For the foregoing reasons, defendants’ motion to dismiss is GRANTED IN PART AND 7 DENIED IN PART. More specifically, defendants’ motion to dismiss plaintiff’s first, second, and 8 fifth claims is GRANTED. Defendants’ motion to dismiss plaintiff’s second and third claims is 9 DENIED. This is a troubling case if the allegations are sound, and the Court will allow full discovery against Time and all others involved to get to the bottom of how and why a large error 11 For the Northern District of California United States District Court 10 like this could have been made. Discovery may show that Time acted in good faith, but perhaps it 12 will show that Time suspected that an error may have been made and let it go unexamined. This 13 order will allow plaintiff leave to seek an amendment and will allow plaintiff to conduct some 14 discovery before having to re-plead. 15 Even if Time were totally dismissed from the action, third-party discovery would be 16 permitted against Time, including document and deposition discovery, to find out how the error 17 occurred, given that at all events the action would go forward as to other defendants. So, pending 18 a motion for leave to amend, Time will remain as a party and be subject to the party discovery 19 rules. Plaintiff must file a motion for leave to amend by MARCH 8, 2012, to be heard on the 20 normal 35-day track. Meanwhile, all parties must cooperate in reasonable discovery. The 21 hearing scheduled for November 17 is VACATED. 22 23 IT IS SO ORDERED. 24 25 Dated: November 3, 2011. WILLIAM ALSUP UNITED STATES DISTRICT JUDGE 26 27 28 8

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