Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-5_05-cv-04003/USCOURTS-cand-5_05-cv-04003-0/pdf.json

Nature of Suit Code: 791
Nature of Suit: Employee Retirement Income Security Act (ERISA)
Cause of Action: 28:1001 E.R.I.S.A.

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United States District Court

For the Northern District of California

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United States District Court

For the Northern District of California

NOT FOR CITATION

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

SAN JOSE DIVISION

Mary Ann Curry, Susan Swanson and Milo

Kushner, individually, on behalf of

themselves, on behalf of all persons

similarly situated, and on behalf of the

general public,

Plaintiff(s),

 v.

CTB McGraw-Hill, LLC and The

McGraw-Hill Companies, Inc.,

Defendant(s).

 /

NO. C 05-04003 JW 

ORDER GRANTING MOTION TO

DISMISS 

I. INTRODUCTION

Plaintiffs Mary Ann Curry, Susan Swanson and Milo Kushner are individuals who were paid

through Kelly Services, and worked at the Monterey County offices of Defendants CTB McGrawHill LLC (“CTB”) and McGraw-Hill Companies, Inc. (“McGraw-Hill”) (collectively “Defendants”). 

Plaintiffs initiated this action on their own behalf and on behalf of those similarly situated, pursuant

to the Employee Retirement Income Security Act, 29 U.S.C. section 1001 et seq. (“ERISA”), against

Defendants as the plan sponsors of certain employment benefit, pension and/or welfare plans. 

Plaintiffs contend that they are “common law employees” who have been wrongfully denied

participation in Defendants’ employee benefit plans, including Defendants’ employee compensation

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and salaries, vacation and sick leave, life and long term care insurance, welfare plans, medical,

health, dental and vision coverage, educational reimbursement programs, as well as retirement

pension plans.

Defendants move to dismiss the complaint for failure to state a claim upon which relief may

be granted, or in the alternative, for summary judgment. In essence, Defendants contend that even if

Plaintiffs were “common law employees,” they are not “eligible employees” within the meaning of

Defendants’ various ERISA plans. 

II. BACKGROUND

Plaintiff Mary Ann Curry worked for Defendants full-time for fifty-eight months, although

she was payrolled through Kelly Services. Plaintiff Susan Swanson works full time for Defendants

and has worked for Defendants for forty-seven months, although she was also payrolled through

Kelly Services. Plaintiff Milo Kushner works full time for Defendants, although he is payrolled

through Kelly Services. Plaintiffs bring this suit as a class action, seeking to represent a class

composed of:

All persons who reside in the State of California (and such other states as the court

may find appropriate) who, have performed services as workers for Defendants since

1995 for more than six months and who were not paid for their services through

Defendants’ payroll, and at all relevant times satisfied the other qualifications as a

beneficiary and participant in Defendants’ employee compensation and benefit plans

and policies, including but not limited to pension plans subject to ERISA in effect

during the term of the Class members’ employment.

Complaint, par. 20.

Defendant McGraw-Hill is a global information services provider in the financial services,

education and business information markets. Defendant CTB is a McGraw-Hill subsidiary, and the

nation’s leading publisher of standardized assessments for pre-school, elementary, middle, high

school and adult education programs of state governments, and administers standards-based

assessments for customized state education programs.

Pursuant to an employment agreement, Plaintiffs were nominally employed full time and on

an indefinite basis by Kelly Services to provide writing and/or editing services at CTB by

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“Assignment.” Plaintiffs were informed that they were employees of Kelly Services and not

Defendants, and that any and all compensation and benefits due Defendants’ employees were not

applicable to employees payrolled through Kelly Services.

Defendants have continuously exercised complete control over all aspects of Plaintiffs’

performance of their duties and work environment. Defendants provided Plaintiffs with an

identification badge which is the same in appearance as those issued to Defendants’ employees.

Throughout their employment, however, Plaintiffs and members of the class were denied vacation

benefits and seniority recognition. Plaintiffs were also denied Defendants’ employee compensation

and benefit plans. 

In their first claim, Plaintiffs allege that Defendants violated various sections of ERISA, and

breached their fiduciary duties, by hiring Plaintiffs and class members as “common law employees,”

but not permitting them to participate in retirement and medical health plans covered by ERISA. 

Plaintiffs further allege that Defendants violated ERISA by failing to furnish them with a Summary

Plan Description and additional mandated disclosures. Plaintiffs also allege that Defendants

interfered with their protected rights. 

In their second claim, Plaintiffs allege a common law breach of contract claim. Plaintiffs

allege that they accepted unilateral employment contracts offered by Defendants; that they

performed the work required for acceptance of those contracts; and that Defendants breached the

employment contracts by denying them salaries, benefits, rights and privileges to which they were

entitled as Defendants’ employees. Plaintiffs also allege that they are intended beneficiaries of a

contract between Defendants and Defendants’ pension plan providers, and that Defendants breached

their contractual duty to provide Plaintiffs with disclosure materials and enrollment forms. Plaintiffs

similarly allege that they are intended beneficiaries of a contract between Defendants and

Defendants’ medical, dental and life insurance providers, and that Defendants breached their

contractual duty to provide Plaintiffs with disclosure materials and enrollment forms.

In their third claim, Plaintiffs seek declaratory relief to determine: (1) that Plaintiffs and the

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class members are “common law employees” of Defendants; and (2) that Plaintiffs and class

members are participants in Defendants’ plans and policies for which they otherwise qualify on the

basis of duration of service or other qualification criteria.

In their fourth claim, Plaintiffs seek injunctive relief mandating Defendants to: (1) review the

records of each Plaintiff and class member and determine their qualification for benefits as a

participant in the plan, and issue such benefits; and (2) provide each Plaintiff and class member

copies of descriptions of Defendants’ employee compensation and benefit plans, including but not

limited to Defendants’ pension plan, the latest annual report, any terminal report, and a copy of any

employee benefits explanatory booklet.

Defendants moves to dismiss, or in the alternative, for summary judgment, on numerous

grounds. First, they contend that Plaintiff’s ERISA claims must fail because Plaintiffs are not

entitled to participate in Defendants’ ERISA plans. Second, Defendants contend Plaintiffs failed to

exhaust their administrative remedies and to name the ERISA Plan(s) as a defendant. Third, they

contend that at least one Plaintiff’s ERISA claim is untimely. Fourth, they contend that ERISA’s

section 510, which prohibits “interfering” with benefits, does not apply because Plaintiffs are not

entitled to participate in Defendants’ ERISA plans. Fifth, Defendants contend the section 510 claim

is time-barred. Sixth, they contend the breach of fiduciary duty claims are duplicative of the

wrongful denial of benefit claim. Seventh, they contend the breach of fiduciary duty claims are

time-barred as to at least two of the Plaintiffs. Eighth, they contend the common law breach of

contract claim is preempted by ERISA. Lastly, Defendants contend Plaintiffs cannot maintain a

claim for compensatory damages under ERISA.

III. STANDARDS

A Rule 12(b)(6), Fed.R.Civ.P., motion to dismiss tests the legal sufficiency of a claim. 

Navarro v. Block, 250 F.3d 729, 731 (9th Cir. 2001). In ruling on a motion to dismiss, the court must

accept as true all allegations of material fact and must construe said allegations in the light most

favorable to the non-moving party. Western Reserve Oil & Gas Co. v. New, 765 F.2d 1428, 1430

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(9th Cir. 1985). Any existing ambiguities must be resolved in favor of the pleading. Walling v.

Beverly Enterprises, 476 F.2d 393, 396 (9th Cir. 1973). 

A complaint may be dismissed as a matter of law for two reasons: (1) lack of a cognizable

legal theory or (2) insufficient facts stated under a cognizable theory. Robertson v. Dean Witter

Reynolds, Inc., 749 F.2d 530, 533-34 (9th Cir. 1984). In order to grant a motion to dismiss, it must

appear to a certainty that a plaintiff would not be entitled to relief under any set of facts which could

be proved. Conley v. Gibson, 355 U.S. 41, 45-46 (1957).

IV. DISCUSSION

A. Plaintiffs Are Not Entitled to Participate In Defendants’ ERISA Plans

Defendants contend that Plaintiffs’ ERISA claims under section 502 must fail because they

are not entitled to participate in Defendants’ ERISA plans. More specifically, Defendants contend

that individuals such as Plaintiffs, who are not on the payroll of Defendants, and well as those

employees who are classified as leased employees or temporary workers, are not entitled to

participate in Defendants’ plans.

To assert a claim under ERISA, a plaintiffs must be either a “participant” or a “beneficiary.” 

See 29 U.S.C. §1132(a)(1). There is a two-prong analysis to determine whether an employee is

entitled to benefits under ERISA. Wolf v. Coca-Cola Company, 200 F.3d 1337, 1340 (11th Cir.

2000). “The first prong requires that a plaintiff be an ‘employee.’ The second prong requires that

the plaintiff be eligible to receive benefits according to the terms of the plan.” Jaeger v. Matrix

Essentials, Inc., 236 F.Supp.2d 815 (N.D. Ohio 2002). The second prong is necessary “because

companies are not required by ERISA to make their ERISA plans available to all common law

employees.” Wolf v. Coca-Cola Company, 200 F.3d at 1340. “An individual who fails on either

prong lacks standing to bring a claim for benefits under a plan established pursuant to ERISA.” 

Wolf v. Coca-Cola Company, 200 F.3d at 1340 citing Clark v. E.I. Dupont Demours & Co., Inc.,

105 F.3d 646, 1997 WL 6958 (table).

For purposes of the present motion only, Defendants do not contest Plaintiffs’ claimed status

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1

 On a motion to dismiss, the Court may take judicial notice of these plans because they are

“[d]ocuments whose contents are alleged in a complaint and whose authenticity no party questions,

but which are not physically attached to the pleading.” Branch v. Tunnel, 14 F.3d 449, 454 (9th Cir.

1994). 

6

as “common law employees.” See Defendants’ Motion at 9:13; 10:22, 11:8 and Defendants’ Reply

at 2:10-11. Therefore, for purposes of the present motion only, the Court finds that the first prong is

satisfied.

Turning to the second prong, Defendants provide the following ERISA pension and welfare

benefit plans for non-executive employees on the payroll of McGraw-Hill or its subsidiaries: The

Employee Retirement Plan of The McGraw-Hill Companies, Inc. and Its Subsidiaries; The

Employee Retirement Account Plan of The McGraw-Hill Companies, Inc. and Its Subsidiaries; The

Savings Incentive Plan of The McGraw-Hill Companies, Inc. and Its Subsidiaries; The McGraw Hill

Companies, Inc. Group Health Plan (including component medical and dental plans); The McGrawHill Companies, Inc. Employee Welfare Benefit Plan (including component life insurance disability,

and separation pay plans); and The McGraw-Hill Companies, Inc. Cafeteria Plan (with component

plans). Decl. of Merilyn Martin.1

 The Employee Retirement Plan defines eligible employees as

follows:

“Eligible Employee” means an Employee of an Employer who is classified by the

Employer as eligible to become a Participant in the Plan, for whom the Employer

pays earnings, and whom the Employer treats as subject to federal wage withholding

by the Employer for purposes of Section 3401 of the Internal Revenue Code. The

previous sentence notwithstanding, Eligible Employee shall not include:

(e) Any employee or person classified by an Employer as a ‘leased employee’

(including leased employees who provide services under the primary direction or

control of an Employer pursuant to an agreement between an Employer and another

person on a substantially full-time basis as described in Section 414(n) of the Internal

Revenue Code) ‘contract worker,’ ‘project worker,’ ‘on-call employee,’ ‘independent

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contractor,’ ‘consultant,’ ‘special worker’ or ‘free lance worker,’ regardless of

whether or not such characterization is subsequently challenged, changed or upheld

by any court or governmental authority;

(f) Any Employee or person hired as a temporary worker, for a fixed period or

periods or to complete a specific project or specific projects, except an Employee

classified by an Employer as a ‘project status worker’ . . .

Employee Retirement Plan of The McGraw-Hill Companies, Inc. and Its Subsidiaries, as Amended

and Restated January 1, 2004, January 1, 2002, and January 1, 2000, Section 2.1 and 1998

Amendment, Martin Decl., Ex. A-1 through A-4. The same definition of eligibility is set forth in the

two other retirement plans sponsored by Defendants, The Employee Retirement Account Plan and

The Savings Incentive Plan, Martin Decl., Ex. B-1 through B-4.

The Group Health Plan similarly defines an “Employee” eligible to participate as an

individual on the payroll of a Participating Company, excluding persons treated as employees of a

leasing organization or other entity:

2.6 “Employee” means any person employed by a Participating Company, including

an officer, who is on the U.S. payroll of the Company. Employee shall not include

any person who performs services for a Participating Company under an agreement

or arrangement (which may be written, oral or evidenced by the Participating

Company’s payroll practice, with the individual or with another organization that

provides the services of the individual to the Participating Company, under which the

individual is treated as an independent contractor or is otherwise treated as an

employee of an entity other than the Participating Company (such as a leasing

organization), irrespective of whether the individual is treated as an employee of the

Participating Company under common law employment principles. Employees shall

not include any person hired on a temporary or seasonal basis for the performance of

a discrete project, including but not limited to project workers, contract workers and

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on-call employees. . . 

The McGraw-Hill Companies, Inc. Group Health Plan, Martin Decl., Ex. D. The Employee Welfare

Benefit Plan contains the same definition of “Employee.” Martin Decl., Ex. E. The Cafeteria Plan

defines an “Eligible Individual” as follows:

“Eligible Individual” means an individual who is eligible to participate in one or

more of the Benefit Plans and an individual who is covered by a collective bargaining

agreement with an Employer to the extent that such collective bargaining agreement

provides for such individual’s participation.

Martin Decl., Ex. F. Thus eligibility for the Cafeteria Plan and its component coverages is

determined by eligibility for the Group Health and the Employee Welfare Benefit Plan.

In light of the plain language of the plan, the Court finds that Plaintiffs are simply not

eligible employees under any of Defendants’ ERISA plans. The Employee Retirement Plan, The

Employee Retirement Account Plan, and The Savings Incentive Plan cover employees for “whom

the Employer pays earnings, and whom the Employer treats as subject to federal wage withholding

by the Employer for purposes of Section 3401 of the Internal Revenue Code.” The Group Health

Plan, The Employee Welfare Benefit Plan, and the Cafeteria Plan cover employees “on the payroll

of a Participating Company.” In the complaint, Plaintiffs admit that they were not on Defendants’

payroll but instead were on the payroll of Kelly Services. Complaint, ¶¶2, 5, 6. Plaintiffs’

allegations that they were on Kelly’s payroll are binding judicial admissions. American Title

Insurance Co. v. Lacelaw Corp., 861 F.2d 224, 226 (9th Cir. 1988).

Moreover, even if Plaintiffs were on Defendants’ payroll, which they were not, they are not

eligible for benefits because they fall into at least one of the following groups of excluded

employees: “leased employees,” “contract workers,” “independent contractors,” “project workers”

persons hired “to complete . . . specific projects,” and persons working in a “temporary job

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2

 The 1998 amendment to the pension plan did not use the term “leased employees.” 

Nevertheless, the plan clearly excluded “contract workers,” “project workers,” “independent

contractors,” persons hired “to complete . . . specific projects,” and persons working in a “temporary

classification.” Martin Decl., Ex. A-4. The “Background” section of the plan explains that the 1998

amendment was intended to exclude “project status workers” and other “leased employees” from

eligibility. Id. 

9

classification.”2 Plaintiffs counter, however, that the ERISA plans required Defendants to

“classify” them in these various categories in order to render them ineligible for benefits. While

Plaintiffs fail to provide the Court with any definition for the term “classify,” they appear to argue

that the classification must have been done in writing. See Plaintiffs’ Opposition, p.4:11-12 (“No

document stating how the Plaintiffs and Class members were actually classified by Defendants has

been submitted with the motion.”).. 

The argument is unpersuasive. The ERISA plans at issue do not provide any special

definition for “classify,” and accordingly the Court will apply its usual and customary meaning. 

According to the Oxford English Dictionary, “classify” means simply “[t]o arrange or distribute in

classes according to a method or system.” Oxford English Dictionary, 2nd Edition 1989. The

Merriam-Webster Online Dictionary similarly defines “classify” to mean “to arrange in classes,” or

“to assign to a category.” Plaintiffs admit in their complaint that they were referred to as

“independent contractors” or “temporary workers.” Complaint, ¶4. Plaintiffs further admit that they

were placed in positions “denominated as” Kelly Services positions for “temporary assignments”

with Defendants and were employed by Kelly “to provide services for CTB ‘by assignment.’”

Complaint, ¶¶6, 29. In addition, Plaintiffs admit in the complaint that they were assigned to CTB to

perform certain projects and that they were informed that they were not eligible for Defendants’

benefit plans. See Complaint, ¶¶29. No clearer indication of how Plaintiffs were “classified” by

Defendants is necessary.

Nevertheless, Plaintiffs contend that their claims are supported by the Ninth Circuit’s

decisions in Vizcaino v. Microsoft Corp., 120 F.3d 1006 (9th Cir. 1997), and Burrey v. Pacific Gas &

Electric Co., 159 F.3d 388 (9th Cir. 1998). Neither of these cases can possibly be construed to

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provide Plaintiffs a legal remedy in the instant lawsuit. In Vizcaino, the issue was whether a class of

freelancers were entitled to participate in Microsoft’s Savings Plus Plan (“SPP”) and Employee

Stock Purchase Plan (“ESPP”). Microsoft’s freelancers were not paid for their services through the

payroll department, but rather submitted invoices to and were paid through the accounts payable

department. Microsoft did not withhold income or Federal Insurance Contribution Act taxes from

the freelancers’ wages, and did not pay the employer’s share of the FICA taxes. Prior to the

inception of that case, the Internal Revenue Service (“IRS”) determined that Microsoft should have

been withholding and paying over taxes because, as a matter of law, the freelancers were

“employees,” even though Microsoft had classified them as independent contractors. The IRS made

its determination by applying common law principles. Microsoft accepted the IRS’ determination.

The freelancers then asserted that they were employees of Microsoft and should have had the

opportunity to participate in the SPP and ESPP because those plans were available to all employees

who met certain other participation qualifications. Significantly, there were no other participation

qualifications that were relevant to the issues before the Ninth Circuit. Thus, once it was determined

that the freelancers were employees, they were entitled to participate in Microsoft’s plan. The

instant lawsuit, involving Plaintiffs employed through Kelly services, and ERISA plans that declare

certain classes of employees ineligible for benefits, is therefore clearly distinguishable.

Burrey v. Pacific Gas & Electric Co., 159 F.3d 388 (9th Cir. 1998), also cited by Plaintiffs,

likewise does not support Plaintiffs’ claim for benefits. In Burrey, the plaintiffs were employed

through an employment agency to work at PG&E. PG&E provided ERISA-governed pension and

retirement plans to its employees, but not to “leased employees, as defined by Section 414(n) of the

Internal Revenue Code.” The Ninth Circuit noted that Section 414(n) defined the term “leased

employee” as any person “who is not an employee of the recipient. . . .” Burrey, 159 F.3d at 392. 

Neither Section 414(n) nor the Internal Revenue provided a definition of “employee,” and

accordingly, the Ninth Circuit concluded that the common-law definition of “employee” should be

applied. Id. at 393. The Ninth Circuit remanded the case to the district court to determine whether

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the plaintiffs were “common law employees,” and therefore, by definition not leased employees.

Unlike the plans in Burrey, the plans at issue in the instant lawsuit exclude “leased

employees,” without restricting that term to the definition contained in Section 414(n) of the Internal

Revenue Code. Rather, Defendants’ retirement plan provides in pertinent part that “eligible

employee” shall not include “[a]ny Employee or person classified by an Employer as a ‘leased

employee’ (including leased employees who provide services under the primary direction or control

of an Employer pursuant to an agreement between an Employer and another person on a

substantially full-time basis as descried in Section 414(n) of the Internal Revenue Code).” Martin

Decl., Ex. A-1 (emphasis added). Defendants’ employee retirement plans contain substantially

similar language. Martin Decl., Ex. A-2, A-3. Thus, Defendants’ ERISA plans apply a definition of

“leased employee” that is broader than the one contained in Section 414(n) of the Internal Revenue

Code.

 In summary, neither Vizcaino nor Burrey support Plaintiffs’ claims. Rather, the cases

simply clarified that if a ERISA plan makes all “common law employees” eligible, and an individual

meets the definition of a “common law employee,” that individual is entitled to benefits. In contrast,

Defendants’ ERISA plans do not make all “common law employees” eligible for benefits.

Accordingly, all of Plaintiffs’ ERISA claims must be dismissed.

B. The Breach of Contract Claim is Preempted

Defendants contend that Plaintiffs’ second claim for breach of contract is preempted by

ERISA. In Plaintiffs’ second claim, Plaintiffs allege (1) that by their performance they accepted

offers of unilateral contracts by Defendants for “salary, benefits, rights and privileges to which all

Defendants [sic] recognized employees are and have been entitled” and that Defendants breached

the contracts by “denying them the salaries, benefits, rights and privileges to which they were

entitled as Defendants’ employees” (Complaint, ¶47); and (2) that Plaintiffs are the intended

beneficiaries of contracts between Defendants and their pension and insurance providers to provide

eligible employees with disclosure materials and enrollment forms, and that Defendants breached

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3

 Because Plaintiffs are not eligible for benefits and preemption applies, the Court finds it

unnecessary to address Defendants’ alternative grounds for dismissal.

12

those contracts by failing to provide such materials (Complaint, ¶¶48, 49).

ERISA supersedes “any and all State laws insofar as they may now or hereafter relate to any

employee benefit plan” that is subject to ERISA. 29 U.S.C. §1144(a). ERISA’s preemption clause

is “conspicuous for its breadth”: “any state-law cause of action that duplicates, supplements, or

supplants the ERISA civil enforcement remedy conflicts with the clear congressional intent to make

the ERISA remedy exclusive and is therefore pre-empted.” Aetna Health Inc. v. Davila, 542 U.S.

200 (2004).

Plaintiffs’ breach of contract claim is clearly predicated upon Defendants’ failure to provide

benefits under ERISA plans, and failure to provide Plaintiffs with information and enrollment

materials. Therefore, it is preempted.

V. CONCLUSION

For the reasons set forth above, the Court dismisses the complaint with prejudice.3 The claim

for vacation benefits subsumed in the second claim for breach of contract is dismissed without

prejudice to renew the claim in state court. 

Dated: January 30, 2006

05cv4003dismiss

/s/James Ware 

JAMES WARE

United States District Judge

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THIS IS TO CERTIFY THAT COPIES OF THIS ORDER HAVE BEEN DELIVERED TO:

Alan Bernhard Carlson acarlson@littler.com

Jonathan E Gertler jon@chavezgertler.com

Mark Andrew Chavez mark@chavezgertler.com

Nancy L. Ober nlober@littler.com

Dated: January 30, 2006 Richard W. Wieking, Clerk

By:__/s/JW Chambers________

Melissa Peralta

Courtroom Deputy

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