OSBORN MALEDON
A PR O FESSI O NA L A SSO CIA TI O N A T T O R N E Y S A T LA W
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The Phoenix Plaza 21st Floor 2929 North Central Avenue Phoenix, Arizona 85012-2793 P.O. Box 36379 Phoenix, Arizona 85067-6379 Telephone Facsimile 602.640.9000 602.640.9050
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David B. Rosenbaum, Atty. No. 009819 Dawn L. Dauphine, Atty. No. 010833 OSBORN MALEDON, P.A. 2929 North Central Avenue, Suite 2100 Phoenix, AZ 85012-2794 Telephone: (602) 640-9000 [email protected] [email protected] Michael L. Banks, Pro Hac Vice MORGAN, LEWIS & BOCKIUS LLP 1701 Market Street Philadelphia, PA 19103 Telephone: (215) 963-5000 [email protected] Howard Shapiro, Pro Hac Vice PROSKAUER ROSE LLP 909 Poydras Street, Suite 1100 New Orleans, LA 70112-4017 Telephone: (504) 310-4088 [email protected] Amy Covert, Pro Hac Vice PROSKAUER ROSE LLP One Newark Center, 18th Floor Newark, NJ 07102 Telephone: (973) 274-3258 [email protected] Christopher Landau, P.C., Pro Hac Vice Craig S. Primis, P.C., Pro Hac Vice Michael F. Williams, Pro Hac Vice Eleanor R. Barrett, Pro Hac Vice KIRKLAND & ELLIS LLP 655 Fifteenth Street, N.W. Washington, DC 20005-5793 Telephone: (202) 879-5000 [email protected] [email protected] [email protected] [email protected]
Attorneys for Defendants IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ARIZONA Barbara Allen, Richard Dippold, Melvin Jones, Donald McCarty, Richard Scates and Walter G. West, individually and on behalf of all others similarly situated, Plaintiffs, vs. Honeywell Retirement Earnings Plan, Honeywell Secured Benefit Plan, Plan Administrator of Honeywell Retirement Earnings Plan, and Plan Administrator of Honeywell Secured Benefit Plan, Defendants. No. CV04-0424 PHX ROS
DEFENDANTS' OPPOSITION TO PLAINTIFFS' SUPPLEMENTAL BRIEF ON DEFENDANTS' MOTION FOR RECONSIDERATION
Case 2:04-cv-00424-ROS
Document 431
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INTRODUCTION Honeywell's motion for reconsideration hinges on a simple and straightforward point: the validity of the Signal Plan amendments at issue here is confirmed by a Treasury Department regulation that was in effect at the time of those amendments, 26 C.F.R. § 1.411(d)3(b) (1977), which provided that all plan amendments "with the same adoption date shall be treated as one plan amendment" for purposes of ERISA's anticutback provision, 29 U.S.C. § 1054(g). Although the Ninth Circuit's decision in
Michael v. Riverside Cement Co. Pension Plan, 266 F.3d 1023 (9th Cir. 2001), conflicts with the 1977 Regulation, Michael never addressed the Regulation (presumably because no party in that case cited it), so Michael does not trump the Regulation. See, e.g., Omohundro v. United States, 300 F.3d 1065, 106768 (9th Cir. 2002) (per curiam); cf. Nat'l Cable & Telecomms. Ass'n v. Brand X Internet Servs., 545 U.S. 967, 98285 (2005). And the Treasury Department only confirmed the meaning of the 1977
Regulation in the August 7, 2007 Letter of Eric Solomon, Assistant Secretary for Tax Policy (Doc. #323, Tab A), which explained that the 1977 Regulation is functionally equivalent in all aspects relevant here to a 2005 Treasury Regulation, which this Court has already held would have conclusively established the validity of the Signal Plan amendments had it been retroactive. Plaintiffs had no real substantive answer to any of the above. Instead, they launched an attack on the Solomon Letter, arguing that it was tainted by improper ex parte contacts with Honeywell. That argument, as explained in detail below, is clearly wrong, and reflects a fundamental misunderstanding of administrative law, as well as the First Amendment right to petition the government for redress of grievances. But more to the point, that entire argument is a red herring, since at the end of the day, the validity of the amendments at issue here turns on the 1977 Regulation, not the Solomon Letter. The Solomon Letter only confirms that plaintiffs' anti-cutback claims fail as a matter of law because the challenged amendments did not result in an impermissible cutback under the
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plain terms of the governing 1977 Regulation, which is entitled to judicial deference under Chevron U.S.A., Inc. v. Natural Res. Def. Council, 467 U.S. 837 (1984). This Court, however, afforded plaintiffs every opportunity to try to make their case. In particular, this Court granted them leave to take discovery on, and brief, two discrete issues: (1) "whether there is a strong showing of bad faith or improper behavior by the Department of Treasury regarding issuance of the Solomon Letter;" and (2) "if so, the appropriate level of deference accorded to the Solomon Letter." Order (1/31/08), at 12 (Doc. #393). The Court cautioned, however, that its decision did "not presage a ruling on the question of the[] ultimate relevance" of these issues. Id. at 1. Now, after four months and extensive discovery, plaintiffs have come up empty. Their brief only confirms that their attack on the Solomon Letter is not only a sideshow, but also meritless. Because plaintiffs' brief provides no basis for denying defendants' motion for reconsideration, this Court should reconsider its grant of summary judgment in favor of plaintiffs on their anti-cutback claims, and grant defendants' corresponding motion to dismiss those claims. ARGUMENT I. PLAINTIFFS HAVE MADE NO SHOWING OF BAD FAITH OR IMPROPER BEHAVIOR BY TREASURY OFFICIALS REGARDING THE ISSUANCE OF THE SOLOMON LETTER. Plaintiffs have not remotely made "a strong showing of bad faith or improper behavior by the Department of Treasury regarding issuance of the Solomon Letter," Order (1/31/08), at 1 (emphasis added); indeed, they have made no such showing. As this Court has recognized, the law establishes a "`strong presumption of agency regularity.'" Order (12/18/07), at 3 (Doc. #349) (quoting La. Ass'n of Indep. Producers v. FERC, 958 F.2d 1101, 1111 (D.C. Cir. 1992)). While plaintiffs' brief is long on conspiracy theories and reckless allegations of "misconduct" against dedicated agency officials, it fails to cite a single case in the history of American law that has overcome the presumption of agency regularity based on anything arguably resembling these facts. What happened here, as discovery has confirmed, was a routine, appropriate, and
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constitutionally protected interaction between government regulators and regulated parties. A. The Record Evidence Confirms That The Solomon Letter Was The Product Of Well-Reasoned Deliberative Processes.
Plaintiffs essentially allege a conspiracy between Treasury, Congress, and Honeywell to secure "a retroactive change in the law designed to alter the outcome of this litigation." Supp. Br. 10 (Doc. #427). That allegation is wildly off base. The underlying problem here is that the parties in Michael did not cite, and hence the Ninth Circuit was apparently unaware of, the controlling 1977 Regulation. In its opinion granting plaintiffs summary judgment on their anti-cutback claims, this Court did not hide its view that Michael reflected a fundamental misunderstanding of ERISA, but reluctantly concluded that its hands were tied by that decision. See Allen v. Honeywell Ret. Earnings Plan, 382 F. Supp. 2d 1139, 1153 (D. Ariz. 2005) (noting that defendants' position "is a position the Court would like to follow because it is correct, but cannot because the law in this Circuit as it now exists will not allow it"). It is not surprising, in light of this Court's comments, that regulated parties like Honeywell, as well as regulators at Treasury, and elected officials and staff in Congress took notice and resolved to take action. It is entirely appropriate for a party to bring to the attention of elected officials and agency regulators a court's admonition that a law has been misinterpreted, and it is entirely appropriate for elected officials and agency regulators to do something about it. In particular, Honeywell's Director of Government Relations, Paul Zurawski, raised the issue with elected officials and staff in Congress and regulators at Treasury. In July 2007, a bipartisan group consisting of both the Chairmen and Ranking Members of the tax-writing committees of Congress (the House Ways and Means Committee and the Senate Finance Committee) sent a letter to Treasury Secretary Henry M. Paulson, Jr. requesting guidance on the interpretation of ERISA's anti-cutback provisions set forth in
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the 1977 Regulation.1 Secretary Paulson, in turn, delegated responsibility for responding to that letter to the Office of Tax Policy within the Treasury Department. Within that Office, initial responsibility for responding to the letter from Congress fell to Tom Reeder, Tax Benefits Counsel and an expert in pension law, and to his deputies William Bortz and Harlan Weller, all of whom are "long-serving career officials at Treasury who handle pension issues for the Office of Tax Benefits Counsel." (4/18/08 Barrett Decl., Ex. A, at 46.) Reeder and his staff prepared a draft response, agreeing with the Members of Congress that the "interpretive conclusion" in the 2005 regulations--that "the anticutback rule applies based on whether the effect of" simultaneous amendments, "treated together as one amendment, is to reduce protected benefits"--"was not based on any change in law," and therefore "must by logic be applicable equally to periods before that effective date." (See, e.g., Doc. #363, Ex. A, at TREAS19.) Reeder then forwarded his draft to other officials in Treasury for their review, as part of the ordinary administrative vetting process. In a cover e-mail, Reeder reaffirmed his view that the 2005 Regulation was nothing more than a "codification" of how the Treasury Department had previously interpreted ERISA's anti-cutback provision. TREAS133.) The draft letter then went through a rigorous clearance process, where it was reviewed by a series of lawyers within Treasury and the Internal Revenue Service who (4/18/08 Barrett Decl., Ex. B, at
Plaintiffs repeatedly suggest that Honeywell improperly induced these elected officials to send their letter to Treasury. See, e.g., Supp. Br. 1, 13. That suggestion is not only outlandish on its face, given Honeywell's First Amendment right to petition elected officials for redress of grievances, but entirely irrelevant. As noted above, the sole issues presented here are (1) "whether there is a strong showing of bad faith or improper behavior by the Department of Treasury regarding issuance of the Solomon Letter;" and (2) "if so, the appropriate level of deference accorded to the Solomon Letter." Order (1/31/08), at 12 (emphases added). Plaintiffs' inflammatory and inaccurate allegations regarding Honeywell's contacts with elected officials in Congress shed no light whatsoever on those issues, and hence are nothing but a sideshow to a sideshow.
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had no contact whatsoever with Honeywell or congressional staffers. The unanimous conclusion of these officials--documented in internal Treasury Department e-mails produced by Treasury and not copied to Honeywell or Congress--was that the 1977 Regulation provided the governing law on simultaneous amendments prior to the 2005 Regulation, and that under the 1977 Regulation, simultaneous amendments that resulted in a net increase in benefits would not be an impermissible cutback. Indeed, the internal communications among Treasury and IRS officials confirm that the Solomon Letter reflects the considered views of officials throughout the Treasury Department, not just the members of the Tax Benefits Counsel's office. Michael Roach, Office of Division Counsel/Associate Chief Counsel, Tax Exempt & Government Entities Division (IRS): "Since the 1977 regulation under section 411(d)(6) promulgated the same simultaneous amendment rule that is stated in the 2005 regulation, the interpretation contained in the 2005 regulation can be applied to facts arising prior to 2005 without making the regulation retroactive." (Id. at TREAS146.) Marjorie Hoffman, Special Counsel to Assistant Chief Counsel, Employee Benefits (IRS): "I think the 2005 final 411(d)(6) regulations reflected our pre-existing position on simultaneous amendments (increasing and decreasing plan benefits) absent the Michael decision so I would not expect us to challenge simultaneous amendments whose net effect is not to decrease plan benefits." (Id. at TREAS138.) Nancy Marks, Division Counsel/Associate Chief Counsel, IRS Tax Exempt & Government Entities Division (IRS): "I think the sentence is correct. It certainly comports with what I'd expect and what I anticipate we'd advise if we saw the service making a challenge of the type described." (Id. at TREAS144.) Alan Tawshunsky, Ass't Chief Counsel for Employee Benefits, Off. of Div. Counsel/Assoc. Ch. Counsel, Tax Exempt & Gov't Entities Division (IRS): "I agree with including the sentence. First I think it does clarify what we would have said the law to be prior to the [2005] reg." (Id. at TREAS142.) These documents, produced straight from Treasury's email system with no copies to, or input from, Honeywell, confirm that the Solomon Letter was the product of an independent, unbiased, and informed discussion of the issue. Plaintiffs have no good answer for these internal communications, which show conclusively that the Solomon Letter is entitled to deference as a matter of fact as well as a matter of precedent.
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B.
There Were No Unlawful Or Improper Ex Parte Contacts.
Plaintiffs insist, however, that communications between Treasury and Honeywell and/or Treasury and Congress during the process that resulted in the Solomon Letter "negate any grounds for according deference to the Solomon Letter." Supp. Br. 8. Despite the extensive discovery afforded plaintiffs over the last four months, including nearly eight hours of deposition testimony from Honeywell's Paul Zurawski, they never identify any particular communication that so much as hints at bad faith or improper behavior. Instead, plaintiffs merely point out that communications occurred, see, e.g., id. at 5 ("Treasury employees had at least four telephone conversations with Honeywell's lobbyist Paul Zurawski and perhaps more.") (footnote omitted), on the apparent assumption that any communications with government officials are improper. That assumption turns the law upside down. 1. The APA Ban On Ex Parte Contacts Does Not Apply.
Contrary to the innuendo threaded through plaintiffs' brief, it is entirely appropriate--indeed, routine--for lawmakers to consult with subject matter experts in the Executive Branch on policy questions, and it is equally appropriate and routine for both to consult parties like Honeywell who are affected by legislative and regulatory proposals. Though buried in a footnote on page 14 of the supplemental brief, plaintiffs grudgingly concede that "Treasury employees were free to meet with Honeywell and routinely confer with members of Congress and their aides and such communications are proper." Id. at 14 n.13 (emphasis added). Plaintiffs nevertheless go on to argue that "Treasury employees' contrivance in the draft letter to itself and the ex parte discussions concerning this case while the Solomon letter was in the clearance process were completely inappropriate." Id. But even if Treasury employees were involved in a "contrivance"--and, as detailed below, the record confirms that they were not-- plaintiffs do not explain why any of the alleged ex parte contacts in this case are unlawful or improper. In lieu of any reasoned explanation, plaintiffs simply cite a Ninth
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Circuit case, Portland Audubon Society v. Endangered Species Committee, 984 F.2d 1534, 154243 (9th Cir. 1993). But the decision in Portland Audubon says exactly the opposite of what plaintiffs suggest. As Portland Audubon recognizes, this issue is governed by the Administrative Procedure Act (APA), which draws a fundamental distinction between formal and informal agency action. The point of Portland Audubon is that the ban on ex parte contacts applies in the context of formal agency action, which must be "determined on the record." Id. at 1540 (emphasis added). In the context of informal agency action (i.e., agency action that need not, under the statute, be conducted in on-the-record proceedings), the "APA does not bar ex parte communications." Id. at 1541 n.15 (emphasis added) (citing Sierra Club v. Costle, 657 F.2d 298 (D.C. Cir. 1981)); see also Am. Airlines, Inc. v. Dep't of Transp., 202 F.3d 788, 798 n.4 (5th Cir. 2000) ("[T]he APA ban on ex parte communications ... does not apply here, because it does not cover informal adjudications."). As Treasury's statement of what the 1977 Regulation means, the Solomon Letter is statutorily exempt from the APA's notice and hearing requirements. See, e.g., Nat'l Ass'n of Ins. Agents v. Bd. of Governors of Fed. Reserve Sys., 489 F.2d 1268, 1270 (D.C. Cir. 1979) (citing 5 U.S.C. § 553(b)(3)(A)). 2. None Of The Communications At Issue Was Improper. Because there is absolutely no legal prohibition on discussions between Treasury, Congress, and Honeywell concerning the Solomon Letter, plaintiffs are left with the rhetorical device of repeatedly calling Treasury's and Honeywell's action "improper" or "highly unconventional and inappropriate" or "completely inappropriate." Supp. Br. 1, 6, 14 n.13. In their over-sized brief, plaintiffs accuse Treasury or Honeywell of
improper behavior no fewer than 16 times, but they never cite any authority to support their allegations that the discussions were prohibited or improper. That is exactly the sort of "mere speculation of bad behavior" that this Court specifically said "is not enough" to carry plaintiffs' burden. Order (12/18/07), at 3.
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Plaintiffs distort the record in numerous ways to suggest wrongdoing where the facts do not support it or where law precludes such a finding. Many of these points are totally irrelevant to the legal issue the Court allowed plaintiffs to brief--whether there is a strong showing of improper conduct or bad faith by Treasury officials--but for the record's sake and the sake of the government officials whose integrity and reputations are being attacked, Honeywell will address the more significant misrepresentations. First, contrary to plaintiffs' repeated assertions, neither Treasury nor Honeywell drafted the letter that Congress sent to Secretary Paulson. The author of the letter was Mildeen Worrell, a legislative aide to Congressman Rangel, who informed Honeywell that the reason for the delay in sending the letter "is that I have to rewrite the letter (don't be offended--we usually do)." (Doc. #425, Ex. B, Ex. 36, at HWINTL1648.) A simple comparison of the version that Honeywell proposed as a draft and the one that Congress eventually sent confirms that the letter was completely re-written by Congress. (Compare Doc. #425, Ex. B, Ex. 3, at HWINTL170910, with Doc. #323, Tab B.) Zurawski's testimony on this point could not be more clear: Q. So are you saying that a member of Chairman Rangel's staff actually drafted the letter that was sent to the Treasury Department? A. Exactly.
Q. Would it be wrong to say that Honeywell drafted the letter that went to the Treasury Department. A. Yes.
(4/18/08 Barrett Decl., Ex. A, at 251.) Second, for all the innuendo and allegations of conspiracy, Honeywell had no input into the substance of the Solomon Letter, and plaintiffs cite no evidence to the contrary. Again, Zurawski's undisputed testimony could not be more clear: Q. Did you ever meet with Treasury officials in person after the letter was sent from Congress? A. No, I didn't.
Q. Did you ever provide a draft to Treasury of a potential response to Congress's letter?
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A.
No, I didn't.
Q. Did you or anyone at Honeywell draft any part of the letter that Treasury sent to Congress? A. No.
Q. Did you review Treasury's draft letter before it was sent to Congress? A. No.
(Id. at 25354.) Third, the phone calls between Zurawski and Treasury Department officials that plaintiffs now challenge were both permissible under Portland Audubon and aboveboard in terms of content. As Zurawski testified, the call to Mark Warren in the
Legislative Affairs Department at Treasury was simply a courtesy call to "give him a heads-up and to make sure that he was aware that there was an incoming letter from the tax committees." (Id. at 35.) The undisputed fact is that, as Zurawski testified, "[i]t was not a particularly substantive conversation." (Id. at 43.) Similarly, the portion of the call with William Bortz concerning the letter from Congress lasted fewer than ten minutes, and consisted simply of Zurawski trying to "push along the response." (Id. at 50.) When asked whether he discussed the substance of Treasury's response with Bortz, Zurawski testified unequivocally: "I don't believe he specifically mentioned anything about the response and its content." (Id. at 69.) And, as for the two calls with Tom Reeder, which are summarized in a July 25, 2007 email from Zurawski, the principal issue discussed was the fact that "some political appointees reviewed the draft Treasury response (from Reeder's shop) as it was moving through the clearance process and couldn't understand why Treasury's response seemed so obvious." (Doc. #425, Ex. B, Ex. 1, at HWINTL1601 (emphasis added).) As Zurawski testified at his deposition, the reaction among some at Treasury was to ask "how are we having this exchange at all when this matter of law seems so clearly settled." (4/18/08 Barrett Decl., Ex. A, at 29.) Fourth, plaintiffs' suggestion that Zurawski mischaracterized the procedural posture of this litigation on this call, and that this alleged mischaracterization somehow
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tainted the process, is preposterous. In particular, plaintiffs appear exercised about Zurawski's statement that this Court's summary judgment was "preliminary" in nature. But of course that statement is entirely accurate: under the Federal Rules of Civil Procedure, "any order or other decision, however designated, that adjudicates fewer than all the claims or the rights and liabilities of fewer than all the parties does not end the action as to any of the claims or parties and may be revised at any time before the entry of a judgment adjudicating all the claims and all the parties' rights and liabilities." Fed. R. Civ. P. 54(b). By definition, thus, all rulings in a case prior to the entry of a final judgment are "preliminary." This is precisely what Zurawski meant when he said
("falsely," according to plaintiffs, Supp. Br. 15) that "we're not even out of the district court so there's no decision to overturn." (See Doc. #425, Ex. B, Ex. 10, at
HWINTL1875; see also 4/18/08 Barrett Decl., Ex. A, at 13637 (explaining statement to mean "there's no final district court decision to overturn").) Indeed, this Court's adverse summary judgment ruling, which criticized Michael but declared that Michael nonetheless controlled, was the impetus for the entire venture, and Zurawski provided a copy of this Court's summary judgment decision to every office with whom he met. (Id. at 13435.) In any event, none of this has any bearing whatsoever on the Treasury Department's interpretation of the 1977 Regulation, a legal question utterly divorced from the procedural posture of this case. Finally, it bears emphasis that, notwithstanding plaintiffs' efforts to depict Honeywell's communications with Treasury and Congress as underhanded or sinister, it was entirely proper for Honeywell to seek redress from the Executive Branch under the circumstances here. In Michael, the Ninth Circuit had failed to give effect to a
regulation that was nearly thirty years old. But as the Ninth Circuit observed in Bassiri v. Xerox Corp., 463 F.3d 927 (9th Cir. 2006), one of the reasons that agency interpretations of their own regulations are entitled to controlling weight is to avoid upsetting expectations based on longstanding agency interpretations. In that case, the court noted that the agency opinion letters interpreting ERISA regulations were entitled
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to "[s]pecial deference" because, "[f]or over twenty-five years, employers have relied on th[e] interpretation and have shaped their plans around the Department of Labor's definition." Id. at 933. While the court in Bassiri held that it "will not upset that established definition unless compelled to do so," id., that is precisely what the court did in Michael. Thus, Honeywell properly sought recourse with the agency charged with administering the 1977 Regulation when this Court's summary judgment ruling made clear the implications of Michael's upsetting of the established interpretation upon which Honeywell and other employers had relied in shaping their own plans. C. The Solomon Letter Is The Result Of The Agency's Deliberative Processes, Not A Position Established For Purposes of Litigation.
Plaintiffs also suggest that there is something improper about Treasury providing guidance on a regulation while a case involving that regulation is pending in court. Supp. Br. 1617. But the Supreme Court has foreclosed any such argument. In Auer v. Robbins--the leading case holding that an agency's interpretation of its own regulations is entitled to controlling weight--the agency provided its interpretation of the regulation at issue in an amicus brief filed in that very case. See 519 U.S. 452, 461 (1997). The plaintiffs in Auer, like plaintiffs here, "complain[ed] that the Secretary's interpretation comes to us in the form of a legal brief" in pending litigation, but the Court rejected that argument and held the Secretary's interpretation to be "controlling unless `plainly erroneous or inconsistent with the regulation.'" Id. (citations omitted). The Court reached that conclusion, in part, because--just like in this case--the agency was not attempting to "defend past agency action against attack" but rather was simply providing its views on a legal issue presented to it, id. at 462, in that case by the Supreme Court, and in this case by Members of Congress. Under those circumstances, "[t]here is simply no reason to suspect that the interpretation does not reflect the agency's fair and considered judgment on the matter in question." Id. That is especially true here, where the Solomon Letter was vetted through a clearance process before it was returned to the Members of Congress who had made the inquiry. (See, e.g., Doc. #363,
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Ex. A, at TREAS1419; see also Doc. #425, Ex. B, Ex. 1, at HWINTL1601; 4/18/08 Barrett Decl, Ex. A, at 2829, 26970 (discussing Treasury clearance process).) Ten years later, in Long Island Care at Home, Ltd. v. Coke, the Supreme Court reversed the Second Circuit Court of Appeals for refusing to afford Auer deference to a Department of Labor "`Advisory Memorandum' explaining (and defending) the regulation" at issue in that case. 127 S. Ct. 2339, 2345 (2007). The Supreme Court reached this conclusion notwithstanding the fact that the DOL Advisory Memorandum was "issued only to internal Department personnel" and not published publicly, and after specifically acknowledging that the Department "appears to have written [the Memorandum] in response to this litigation." Id. at 2349. The Court reasoned that "[w]here, as here, an agency's course of action indicates that the interpretation of its own regulation reflects its considered views ... we have accepted the interpretation as the agency's own, even if the agency set those views forth in a legal brief." Id. D. Treasury Officials Did Not Misuse Non-Public Information.
Plaintiffs' assertion that Treasury officials violated "Rules of Ethics governing Executive branch employees" is specious and need not detain the Court. Supp. Br. 8. Plaintiffs indiscriminately accuse Treasury officials of misconduct throughout their supplemental brief, but the only specific legal provision that plaintiffs ever suggest was violated is the regulation prohibiting government employees from using nonpublic information for private gain. See 5 C.F.R. § 2635.703. On its face, the regulation forbids a government employee to "engage in a financial transaction using nonpublic information, [or] allow improper use of nonpublic information to further his own private interest or that of another, whether through advice or recommendation, or by knowing unauthorized disclosure." Id. § 2635.703(a). It further defines "nonpublic information" as certain information that is exempt from FOIA, designated confidential by an agency, or otherwise unavailable to the public on request. Id. § 2635.703(b). Plaintiffs only mention the regulation in passing, see Supp. Br. 1 n.1, 8, and they never articulate why it would apply in this case: e.g., what private interests Treasury
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officials supposedly served, what nonpublic information was allegedly disclosed, or whether the disclosure was unauthorized. As a matter of fact, plaintiffs never actually claim that Treasury officials violated the regulation, resting instead on mere suggestions that some illegal conduct took place. See id. at 1 (alleging an "apparent disclosure to Honeywell of non-public information"); id. at 8 (claiming Treasury conduct "appears to be in direct conflict with Rules of Ethics") (emphasis added). Thus, even plaintiffs appear to acknowledge tacitly that their casual libel against Treasury officials has no basis in fact. In all events, these unfounded suggestions of improper behavior are
irrelevant to the proper standard of review that applies to Treasury's interpretation of its own regulations. II. UNDER WELL-SETTLED SUPREME COURT AND NINTH CIRCUIT PRECEDENT, TREASURY'S INTERPRETATION OF ITS OWN REGULATIONS IS ENTITLED TO CONTROLLING WEIGHT. Because plaintiffs have not made the "strong showing of bad faith or improper behavior" that is required to overcome the presumption of agency regularity, there can be no reasonable dispute about the appropriate standard of deference to which the Solomon Letter is entitled. As this Court recognized four months ago, both the Supreme Court of the United States and the Court of Appeals for the Ninth Circuit have held that "`[w]here an agency interprets its own regulation, even if through an informal process, its interpretation is controlling ... unless plainly erroneous or inconsistent with the regulation.'" Order (12/18/07), at 12 (quoting Bassiri, 463 F.3d at 930; citing Auer, 519 U.S. 452); see also Long Island Care, 127 S. Ct. at 2349; Martin v. OSHRC, 499 U.S. 144, 15051 (1991); Udall v. Tallman, 380 U.S. 1, 1617 (1965); Bowles v. Seminole Rock & Sand Co., 325 U.S. 410, 414 (1945). The facts adduced during the discovery plaintiffs took in connection with their opposition only underscore what was already clear from the face of the Solomon Letter itself: the default rule of Auer deference applies here. As defendants have previously explained, the Solomon Letter's interpretation is plainly correct and fully consistent with the 1977 Regulation. See Recon. Mot. 911 (Doc. #323) (comparing the 1977
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Regulation to the 2005 Regulation); Recon. Mot. Reply 23 (Doc. #368) (rebutting plaintiffs' attempts to fit the Solomon Letter within Auer's narrow exceptions). Indeed, at this point, plaintiffs appear to be the only ones who continue to argue that the interpretation of the 1977 Regulation set forth in the Solomon Letter is incorrect. Treasury officials confirmed that the Letter's interpretation of the 1977 Regulation was "obvious" and described the meaning of the 1977 Regulation as "clearly settled." (See, e.g., Doc. #425, Ex. B, Ex. 1, at HWINTL1601; 4/18/08 Barrett Decl., Ex. A, at 29.) And this Court has already recognized that the substantively identical 2005 Regulation is "not only reasonable, but also correct." Order (11/18/05), at 8 (Doc. #138). Beyond being entitled to deference from the Court, the Solomon Letter has the virtue of being substantively correct on the effect of the 1977 Regulation. It makes no difference that Treasury issued its guidance and clarification in the form of an opinion letter rather than through a full notice-and-comment rulemaking. The Ninth Circuit rejected that very argument in Bassiri, a case plaintiffs fail to cite or address in their brief. In Bassiri, the Ninth Circuit deferred to a series of Department of Labor opinion letters that interpreted the regulation at issue in that case. 463 F.3d at 930. Though the plaintiffs argued that the opinion letters were not entitled to deference, the Ninth Circuit, squarely held that "where an agency interprets its own regulation, even if through an informal process, its interpretation of an ambiguous regulation is controlling under Auer unless `plainly erroneous or inconsistent with the regulation.'" Id. at 930 (emphasis added; citation omitted). That the Department of Labor had issued its guidance through opinion letters analogous to the Solomon Letter here, rather than through a formal rulemaking or adjudication, made no difference. See id. at 93031. Furthermore, plaintiffs' reliance on cases like Bowen v. Georgetown University Hospital, 488 U.S. 204 (1988), and Federal Express Corp. v. Holowecki, 128 S. Ct. 1147 (2008), as grounds for depriving the Solomon Letter of deference gets them nowhere. Bowen is focused on a discrete situation not present here: specifically, where an agency sought deference to an interpretation of a statute advanced for the first time in litigation
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to defend the agency's own decisionmaking. Unlike this case, where Treasury had the 1977 Regulation on the books for more than 30 years, the Court in Bowen declined to apply Chevron deference "to agency litigating positions that are wholly unsupported by regulations, rulings, or administrative practice." 488 U.S. at 211. Here, Treasury has not articulated any "litigating position," and it has no administrative ruling that it seeks to defend in this Court. The problem is not with Treasury, but with the Michael
decision, which failed to apply or even consider the controlling 1977 Regulation, which is entitled to Chevron deference. Thus, defendants have no dispute with the Bowen proposition that courts should not defer to an "agency's convenient litigation position" where "the agency itself has articulated no position on the question." Id. at 213. That proposition is just wholly inapposite in this case. The Court can also easily dispose of plaintiffs' argument that Federal Express somehow controls this case. Plaintiffs' reliance on Federal Express is especially
confusing, as the Supreme Court applied Auer in that case and deferred to the EEOC's interpretation of its own regulations, noting that the agency is entitled to deference "when it adopts a reasonable interpretation of regulations it has put in force." 128 S. Ct. at 1155. Furthermore, plaintiffs' citation of Federal Express as part of an argument that the Court should review the Solomon Letter under the less deferential Skidmore standard is squarely foreclosed by the decision of the Ninth Circuit in Bassiri: the Skidmore standard applies only when a court is evaluating the agency's informal interpretation of statutory text--not, as here and in Auer, the agency's own language as embodied in a regulation. See 463 F.3d at 930 (emphasis in original). Finally, it is worth mentioning that the Court assuredly did not, as plaintiffs claim, hold in Federal Express "that where an agency's position is `framed for the specific purpose of aiding a party ... in litigation,' it would `deprive the agency of all judicial deference.'" Supp. Br. 17. Putting aside that the Treasury Department responded to a request for clarification from Congress, and did not in this case take a position "for the specific purpose of aiding a party ... in litigation," plaintiffs have merely snipped
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together excerpts of the opinion so as to fundamentally misrepresent the holding of that case. What the Supreme Court did say is that, notwithstanding the "undoubted
deficiencies in the agency's administration of the statute and it regulatory scheme," that was "not enough ... to deprive the agency of all judicial deference." Federal Express, 128 S. Ct. at 1156 (emphasis added). In other words, what plaintiffs describe as the holding of the case is actually the exact opposite of what the Court held. In fact, in Federal Express, "one of the policy memoranda" for which the EEOC sought deference "was circulated after [the Court] granted certiorari," yet the Court still deferred because it was "consistent with the EEOC's previous directives." Id. (emphasis added). CONCLUSION For the foregoing reasons, and for the reasons set forth in their motion for reconsideration, defendants respectfully request this Court to reconsider its grant of summary judgment in favor of plaintiffs on their anti-cutback claims, and to grant defendants' corresponding motion to dismiss those claims. Respectfully submitted this 18th day of April, 2008. OSBORN MALEDON By: /s/David B. Rosenbaum David B. Rosenbaum Dawn L. Dauphine Osborn Maledon, P.A. 2929 North Central Avenue, Suite 2100 Phoenix, AZ 85012-2794 Michael L. Banks MORGAN, LEWIS & BOCKIUS LLP 1701 Market Street Philadelphia, PA 19103 Howard Shapiro PROSKAUER ROSE LLP 909 Poydras Street, Suite 1100 New Orleans, LA 70112-4017 Amy Covert PROSKAUER ROSE LLP One Newark Center, 18th Floor Newark, NJ 07102-5211
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Christopher Landau, P.C. Craig S. Primis, P.C. Michael F. Williams Eleanor R. Barrett KIRKLAND & ELLIS LLP 655 Fifteenth Street, N.W. Washington, DC 20005-5793 Attorneys for Defendants
CERTIFICATE OF SERVICE I do certify that on April 18, 2008, I electronically transmitted the attached document to the Clerk's Office using the CM/ECF System for filing and transmittal of a Notice of Electronic Filing to all CM/ECF registrants.
/s/Kelly Dourlein
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