Free Lodged Proposed Document - District Court of Arizona - Arizona

Allen v. Honeywell Ret. Earnings Plan, No. CV-04-0424-PHX-ROS

LODGED: PROPOSED PLAINTIFFS SUPPLEMENTAL BRIEF IN OPPOSITION TO DEFENDANTS NOVEMBER 16, 2007 MOTION FOR RECONSIDERATION

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SUSAN MARTIN (AZ#014226) DANIEL L. BONNETT (AZ#014127) JENNIFER KROLL (AZ#019859) MARTIN & BONNETT, P.L.L.C. 3300 N. Central Avenue, Suite 1720 Phoenix, Arizona 85012-2517 Telephone: (602) 240-6900 [email protected] [email protected] [email protected] Attorneys for Plaintiffs

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

PLAINTIFFS SUPPLEMENTAL BRIEF IN OPPOSITION TO DEFENDANTS NOVEMBER 16, 2007 MOTION FOR RECONSIDERATION

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Plaintiffs submit this supplemental brief to address Treasury employees improper conduct and bad faith in connection with the Solomon letter. Treasury employees misconduct and bad faith included, inter alia, numerous calls with and apparent disclosure to Honeywell of non-public information,1 detailed discussions with Honeywell about this lawsuit while the Solomon letter was in the clearance process and Treasury s hastily contrived July 25, 2007 changes to the draft Solomon letter to include a post hoc revisionist interpretation of the 1977 and 2005 regulations on the same day as several calls to Honeywell. Although Honeywell engaged in an enormous lobbying campaign and secured quid pro quo political pressure asserted on its behalf that produced the Solomon letter, it is simply not Defendants deus ex machina. Against the background of Treasury employees interference and complicity with Honeywell and extensive improper communications about the Solomon letter, deferral to the Solomon letter would demean both the judicial and the regulatory process and would be tantamount to deferring to Honeywell itself.2 The following factors make deference to or respect for the Solomon letter inappropriate: 1. Treasury employees participation in contrivance of the solicitation letter to itself

See, e.g., 5 C.F.R. §2635.703(a) which states An employee [of the Executive Branch] shall not...allow the 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. See also id, Example 5. In February 2007, Honeywell authored the first draft of the solicitation letter. (Doc. 425 Exh. B, at Exh. 3.) The solicitation letter was revised after consultation with Treasury employees who devised changes to the letter that they knew would be sent to themselves. (Doc. 363 Exh. A, at 905-TREAS-00008.) Honeywell continued to have input and discussion about the solicitation letter. (Doc. 425 Exh. C, at HWINTL001696-1704.) Honeywell then had at least four calls with Treasury employees while the Solomon response was in clearance. (Doc. 425 Exh. B, at Zurawski Exh. 1 & Doc. 425 Exh. A, at pp. 52, 16-21, 24-30, 268-70; pp. 34-35; pp. 48-50.) Both the solicitation letter and the Solomon letter utilize Honeywell terminology absent from either the 1977 or 2005 regulations, such as simultaneous amendment rule. (See Doc. 323 Tabs A, G.) A more obvious case of seeking deference in order to further the interests of a private litigant would be hard to fathom.
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(Doc. 363, Exh. A, at 905-TREAS0008; Supplemental Declaration of Jennifer Kroll in Opposition to Defendants HWINTL001696-1704); 2. Treasury employees assistance in drafting the text of the solicitation letter (Doc 363 Exh. A, at 905-TREAS-00008); 3. Treasury employees numerous conversations with Honeywell regarding the draft of the Solomon response while the response was in the clearance and drafting process (Doc. 425 Exh. B, at Exh. 1 & Doc. 425 Exh. A, at pp. 52, 16-21, 24-30, 268-70 (phone calls with Benefits Tax Counsel, W. Thomas Reeder); pp. 34-35 (phone call with Deputy Assistant Secretary for Tax and Budget for Legislative Affairs Mark Warren); pp. 48-50 (phone call with Associate Benefits Counsel William Bortz)); 4. Treasury employees apparent disclosure of nonpublic information to Honeywell while the letter was in the drafting and clearance process (Doc. 425 Exh. B, at Exh. 1; Doc. 425 Exh. A pp. 16-21, 24-30, 270); 5. Treasury employees specific purpose of aiding Honeywell and interfering with this case as evidenced by multiple conversations and direct questions during the clearance process about this case (Doc. 425 Exh. B, at Exh. 1 & Doc. 425 Exh. A, pp. 52, 16-21, 2430, 268-70 (two and perhaps three phone calls with Reeder); pp. 34-35 (phone call with Mark Warren); pp. 48-50 (phone call with William Bortz)); 6. Treasury employees failure to publish the Solomon letter and the fact that it was Honeywell, (and not, as Honeywell previously advised), Treasury, that made the letter public (Doc. 425 Exh. A, pp. 208-12 & Doc. 425 Exh. B, at Exh. 31); 7. Treasury employees bolstering the text of the Solomon letter to include a reference to the 1977 regulation in apparent response to interference and improper pressure; 8. The Solomon letter s multiple direct conflicts with the text of the 2005 regulations that were adopted after eight years of study; 9. The Solomon letter s failure to offer any explanation for its conclusion that the 1977 regulation contained the same net effect rule as the 2005 regulation;
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Motion for Reconsideration, Doc. 425 Exh. C, at

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10. Treasury s employees complete disregard of the regulatory history of the 1977 regulations which added the sentence relied on and which was not contained in the 1975 proposed regulations; 11. Congress s conscious rejection of Honeywell s intense lobbying campaign to equate the 2005 regulation with the 1977 regulation; 12. Congress s rejection of Defendants efforts to overturn Michael and this case by legislative re-enactment of the anti-cutback rule and by passage of three pieces of tax/pension legislation without the lobbied for changes,3 and 13. Honeywell s misrepresentations to members of Congress, their staff and Treasury employees regarding this case.4 Any one of these factors standing alone is sufficient to withhold deference. In combination, there can be no doubt that the Solomon letter does not displace Michael v. Riverside Cement nor provide any basis for reconsidering this Court s summary judgment ruling. PROCEDURAL BACKGROUND This case was commenced in March 2004. Defendants moved to dismiss the Complaint in May 2004 and Plaintiffs cross-moved for summary judgment. In July 2005, the Court issued its summary judgment ruling. Defendants moved for reconsideration and were also allowed to file a second brief on reconsideration after the 2005 regulations under IRC § 411(d)(6) were finalized on August 12, 2005. On August 26, 2005, Plaintiffs also moved for class action certification. (Doc. 84.) Pension Protection Act of 2006, P.L. 109-280, 120 Stat. 780, at § 107; Tax and Health Care Act of 2006, P.L. 109-432, 120 Stat. 2922; Tax Technical Corrections Act of 2007, P.L. 110-172, 121 Stat. 2473. See Hooks v. Clark County School Dist., 228 F.3d 1036, 1040 (9th Cir. 2000) Other reasons for not affording deference to the Solomon letter were presented to the Court in Plaintiffs opposition to Defendants motion for Reconsideration, in Plaintiffs motion to supplement the record and in Plaintiffs surreply on the motion for reconsideration. (Doc. 361, 363, 394.)
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In November 2005, Defendants motion for reconsideration was denied and the Court granted Defendants petition for an interlocutory appeal and stayed the case pending the outcome of Defendants petition. (Doc. 138, 124.) The case was stayed until the Ninth Circuit s decision declining to take the case on an interlocutory basis in February 2006. (Doc. 142.) Following further briefing on Plaintiffs motion for class certification, Plaintiffs motion for class certification was granted by order dated September 7, 2006. (Doc. 226.) In or around January 2007, the parties commenced extensive and lengthy settlement negotiations. On October 26, 2007, the parties reached a partial settlement in this case, which the Court preliminarily approved on November 6, 2007. (Doc. 312.) Ten days after the Court s preliminary approval, Defendants made a motion for reconsideration based on the Solomon letter, a document it turns out Defendants had leaked to BNA two months earlier. (Doc. 425, Exh. A, pp. 208-12 & Doc. 425, Exh. B, at Exh. 31.) Plaintiffs made a motion to compel discovery regarding the circumstances surrounding the letter in December 2007. (Doc. 337.) This motion was initially denied by Order dated December 18, 2007. (Doc. 318). Plaintiffs moved for reconsideration of that discovery order. (Doc. 357.) Thereafter, Plaintiffs submitted documents obtained through a subpoena served on the Treasury Department regarding the circumstances surrounding the issuance of the Solomon Letter and requested leave to supplement their opposition to Defendants motion for reconsideration. (Doc. 363.) By order dated January 31, 2008, (Doc. 393), the Court granted Plaintiffs motion for reconsideration of the discovery dispute, ordering Defendants to produce all non-privileged documents by February 15, 2008 and allowed Plaintiffs to file a supplemental brief on whether there is a strong showing of bad faith or improper behavior by the Department of Treasury regarding issuance of the Solomon Letter, and, if so, the appropriate level of deference accorded to the Solomon Letter. However, Defendants did not turn over all requested discovery materials related to the Solomon letter by the February 15, 2008 deadline. Defendants did not turn over documents between Honeywell and its lobbyists and deleted and failed to retain some documents. The parties notified the Court of their discovery dispute. (Doc. 408.) The Court in turn ordered
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Defendants to produce the requested materials, ordering Defendants to produce all responsive, non-privileged documents or communications received from or sent to Honeywell lobbyists relevant to the Solomon Letter by March 14, 2008 and ordered Defendants to retain and instruct their agents to retain all documents related to this litigation in their possession, custody, or control. The Court ruled that it did not have enough information to determine whether Plaintiffs request for sanctions for spoliation was appropriate. (Doc. 410.) Subsequent to that order, the parties agreed that Plaintiffs would agree not to press the spoliation issue with the Court and would not pursue a dispute regarding some of the lobbying documents that Defendants claimed were privileged in exchange for the agreement by Honeywell to produce their in-house lobbyist for a deposition. (Doc. 412.) That deposition was conducted in Washington, D.C. on April 1, 2007. STATEMENT OF FACTS
Treasury Employees Misconduct During the Drafting and Clearance Process

After the solicitation letter was sent to Treasury on July 10, 2007 and while the response was being drafted, Treasury employees had at least four5 telephone conversations with Honeywell s lobbyist Paul Zurawski and perhaps more. (Doc. 425 Exh. A, pp. 52, 16-19 (two and perhaps three phone calls with Treasury Deputy Benefits Counsel Thomas Reeder); pp. 34-35 (phone call with Deputy Assistant Secretary for Legislative Affairs Mark Warren); pp. 48-50 (phone call with Associate Benefits Counsel William Bortz.) At least two of these calls were actually initiated by the Treasury employees, (Doc. 425 Exh. A, p. 19, 51), one of which was 10-15 minutes in duration and was conducted by overseas call from Paris by

Honeywell s witness originally testified he had three telephone calls with Thomas Reeder and later stated that he believed he may have left a voice mail message. He knew he certainly tried to speak to him by phone from July 11-August 7, 2002. (Doc. 425 Exh. A, p. 52.) There were also email communications during this time frame. (Doc. 363, Exh. A, at 905-TRES00020.)
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Bortz, who, according to the lobbyist, was the principal drafter of the letter.6 (Id. p. 51.) As appears from Honeywell s own documents, during at least two of these calls, Treasury employees shared non-public information regarding the contents of the draft responses with Honeywell. (Id., pp. pp. 16-21, 24-30, 270 & Doc. 425 Exh. B, at Exh. 1.) Honeywell s lobbyist also admitted that he initiated a call with Mark Warren, Deputy Assistant Secretary for Legislative Affairs, after the letter had been sent to Treasury, thinking that the Office of Legislative Affairs may be involved in the handling of the actual letter or the assignment of the response or the clearance process or the actual delivery of the response, I wanted to inform that Office of Legislative Affairs about the incoming letter. That's -- and I thought it. Mark Warren, at that Deputy Assistant Secretary level, seemed the right type of person to contact.
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(Doc. 425 Exh. A, pp. 35-36.) Mark Warren had earlier

been given a copy of the draft solicitation letter by McCrery aide, Libby Coffin, (Doc. 363, Exh. A, at 905-TREAS00008), and Mr. Reeder reported to Mr. Warren on why the letter that Treasury helped write was taking so long to get to Treasury. (Doc. 363, Exh. A, at 905TREAS00012.) Mark Warren later appears in an email from Thomas Reeder reporting that Leg Affairs has a problem with the last sentence and is asking for more. (Doc. 363, Exh. A, at 905-TREAS00024-25.) Treasury employees then engaged in highly unconventional and inappropriate communications with Honeywell about the response and this lawsuit during the drafting and clearance process. Between July 12 and July 25, 2007, Treasury employee Bortz, who had

Each of these individuals had a role in the clearance process. (See Doc. 425 Exh. A, pp. 254 -55.) Mr. Zurawski testified that he understood that Thomas Reeder had to approve the letter in order to make it through the Clearance Process. (Id., p. 255.) Although he did not explain why Bill Bortz had chosen to wait until he was outside his office and in Europe to initiate a call to him, Mr. Zurawski stated that he understood that Bill Bortz called him regarding the letter because Tom Reeder had assigned him the role of drafting the response or seeing the response through its clearance process and stated that Bortz would have handled and mastered the content of that response. (Id., p. 51, 68.)

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previously indicated that he would communicate his suggestions and

comments to

Honeywell about Honeywell s draft legislation orally, (Doc. 363, Exh. A, at 905TREAS00002), called Honeywell s lobbyist Paul Zurawski from Paris and had a 10 to 15 minute conversation about the letter. (Doc. 425 Exh. A, p. 48-51, 66.) Following the Bortz call, Treasury employee Reeder also called Honeywell s lobbyist because, in the opinion of Honeywell s lobbyist, Reeder needed some answers to complete the clearance process, and so he called me for that information. (Id., p. 270.) The lobbyist admitted that Reeder called him to ask[] a few questions about our litigation that spurred the Hill letter... (Doc. 425, Exh. B, at Exh. 1.) Mr. Reeder asked Honeywell whether the Court based its rulings on the 1977 regulations, whether the 1977 regulations were mentioned in the Court s decision, whether Defendants discussed the 1977 regulations in the motion to dismiss and whether Michael v. Riverside Cement discussed the 1977 regulations. (Doc. 425, Exh. A, pp. 16-21, 24-26 & Doc. 425 Exh. B, at Exh. 1.) Reeder also asked Honeywell s lobbyist whether the case had progressed and whether Honeywell had requested a rehearing on the simultaneous amendment issue, as to both of which Zurawski incorrectly answered no. (Id.) Despite the facts that Defendants first motion for reconsideration and their petition for an interlocutory appeal were denied, Honeywell s lobbyist responded that the case had not progressed and that no rehearing had been requested. (Doc. 425 Exh. A, pp. 24-25.) The email communication the lobbyist made contemporaneously with his calls to Reeder refutes any possible claim that Treasury employees did not discuss the content of the draft Solomon letter response. In the words of Honeywell s lobbyist in a report to Honeywell s General Counsel and others, Reeder stated: 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 and redundant with the Hill letter requesting clarification. Reeder recognized that this sort of response is exactly what the Hill expects and what we want. ... Reeder said there was no problem or obstacle with the content of the draft Treasury response, just the question about how obvious the response seemed to be. He said he hoped to send the response asap. (Doc. 425, Exh. B, at Zurawski Exh. 1.) Honeywell s lobbyist confirmed that the calls with
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Reeder on July 25th took place and reflected a discussion that Reeder initiated with me regarding the response that was already drafted. (Doc. 425, Exh. A, p. 268.) Honeywell s lobbyist had two conversations with Mr. Reeder that day, the first one initiated by Mr. Reeder. Then after talking to a Honeywell lawyer, Honeywell s lobbyist called Mr. Reeder again. (Id.) That same day, July 25, reference to the 1977 regulation appears for the first time in the draft Solomon letter. (Compare Doc. 363, Exh. A, at 905-TREAS00014,19 (July 10, 2007 draft); with 905-TREAS00024-25 (July 18, 2007 draft); with 905-TREAS00029-30 (July 24, 2007 draft) with Exhibit B hereto, at 905-TREAS000148-50 (July 25, 2007 draft).) The chain of unorthodox communications regarding the draft Solomon response while the letter was in clearance appears to be in direct conflict with Rules of Ethics governing Executive branch employees. However, whether or not non public information was shared with Honeywell within the meaning of 5 C.F.R.§ 2635.703, there is no doubt that these ex parte communications between one of the litigants in this case during the clearance process negate any grounds for according deference to the Solomon letter. Even without the record of improper communications, political pressure and assistance to Honeywell to impact the outcome of pending litigation in this Court, the conversations between Treasury employees and Honeywell alone demonstrate that the Solomon response was not well reasoned, carefully considered nor anything other than Treasury s complicity and support for Honeywell s desired objective in this case. Treasury s Improper Assistance With Defendants Lobbying Efforts The improper conduct and bad faith demonstrated above is even more apparent given Treasury s collaboration in Honeywell s failed lobbying efforts to achieve the same results. Documents produced by Defendants confirm that Honeywell s efforts to overturn controlling Ninth Circuit precedent8 began even before the Court s summary judgment ruling was issued.

On this second motion for reconsideration, Honeywell urges that Michael v. Riverside Cement should not control because the 1977 regulation was not considered. Honeywell failed to make this argument in support of its motion for summary judgment or on their 2005 motion for reconsideration. There is no excuse for not advancing this argument before now.
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In June 2004, Honeywell drafted comments to 2004 proposed regulations arguing that Treasury should revise its proposed anti-cutback regulations to make clear that the regulations net effect rule (which the Honeywell comment referred to as the simultaneous amendment rule) was contained in the 1977 regulation and applied to amendments adopted before publication of the 2005 final regulations as well as to amendments adopted thereafter. (Doc. 425, Exh. C, at HWINTL000511-14.) Acting through the ERISA Industry Committee ( ERIC ), Honeywell s comments urging that the 2004 proposed regulations be revised to apply to the amendments adopted in this case were submitted to the IRS. (Doc. 425 Exh. C, at HWINTL000529-40.). The Honeywell/ERIC comments were rejected by Treasury. Treasury made clear that the 2005 regulations were to be applied prospectively only, to amendments adopted on and after August 12, 2005 and that they completely replaced the prior regulations. 70 Fed.Reg. 47109 (2005). Treasury went even further. In the face of specific reference to and disagreement with Michael v. Riverside Cement, the 2005 regulations prospective application also completely negated Defendants claim that the 1977 regulation can somehow rise up to trump the 2001 ruling in Michael v. Riverside Cement: No implication is intended concerning whether or not a rule adopted prospectively in these regulations is applicable law before the effective date in these regulations. 70 Fed.Reg. 47109, 47117. Clearly if the 1977 regulation already meant what the 2005 regulation said, that sentence would be absurd. Treasury also clarified that the regulations, including the net effect rule, applied for the first time, to early retirement benefits, retirement type subsidies and optional forms of benefits. These forms of benefits were explicitly protected by amendments to the anti-cutback rule in the Retirement Equity Act: The 2005 regulations for the first time include rules relating to changes to Section 411(d)(6) made by the Retirement Equity Act of 1984, P.L. 98-397 (98 Stat. 1426) (REA). 70 Fed.Reg. 47109,

That argument has been waived.
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47110 (2005).9 Following the Court s refusal to grant Defendants motion for reconsideration in November 2005 and the Ninth Circuit s refusal to hear this case on an interlocutory basis in February 2006, Defendants embarked on an intensive lobbying campaign to have legislation included in the Pension Protection Act, asking Congress to do what Treasury had declined to do make the 2005 regulations retroactive. Although Honeywell attempted to disguise its lobbied for legislation as a clarification, instead of a retroactive change in the law designed to alter the outcome of this litigation, (Doc. 425, Exh. A, pp. 80-81, 100-01), Defendants thinly veiled attempts encountered significant resistance and were rejected by Congress. (Id. pp. 80-81.) After promising one legislative aide that Honeywell would provide statutory fixes that don t scream retroactivity, (Id., pp. 127-28 & Doc. 425 Exh. B, at Exh.9), Honeywell went to Treasury. In June 2006, Treasury employees Bortz, Reeder and Weller helped draft Honeywell s proposed language for the Pension Protection Act. (Doc. 425 Exh. A, p.103-04 & Doc. 425 Exh. B, at Exh. 7.) Honeywell lobbyist Zurawski sent to these Treasury employees its draft proposed legislative language. (Doc. 425 Exh. B, at Exh. 7.) Finding Honeywell s draft legislation confusing, Treasury employee Bortz revised it for Honeywell. (Id.) In apparent recognition that it was inappropriate for Treasury employees to assist Honeywell in its efforts to affect the outcome of this case or legislatively reverse the express prospective effective date of Treasury s own newly adopted 2005 notice and comment regulations10 and having also opined that it is bad form to interfere in pending

Among other things, the 2005 Treasury regulations, 70 FR 47109, 47110 (2005), also defined certain terms for the first time: These final regulations also include general guidance on section 411(d)(6), including the meaning of the terms used therein, .... This Treasury Decision also makes conforming amendments to § 1.411(d)-4, including amendments to the definition of optional form of benefit and the multiple amendment rule described in this preamble. Honeywell lobbyist Zurawski testified that Honeywell did not ask Treasury to clarify the regulations by issuing some form of guidance because I knew that they couldn't or
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legislation, (Doc. 363, Exh. A, at 905-TREAS0001), Bortz, after conferring with Reeder and Weller, advised Reeder that he would transmit his revised draft language to Honeywell orally, which he did. (Doc. 425 Exh. B, at Exh. 7; Doc. 425 Exh. A, p. 105.) After speaking to Bortz, Honeywell shopped the proposed language around, pushing the Pension Protection Act conferees to include it in the final bill. (See, e.g., Doc. 425 Exh. C, at HWINTL000145.) However, even with assistance from Treasury employees, Honeywell s attempts to overturn Michael and this Court s ruling by drafting proposed legislation failed. For example, some Congressional staffers were suspicious of Honeywell s request, which they knew would help Honeywell in its pending litigation. (Doc. 423, Exh. C, at HWINTL000145-46, email from Karla Carpenter, aide to Senator DeWine to Diann Howland, aide to

Congressman Mike Enzi.) There were no takers on Honeywell s legislative push and the provision Honeywell sought to be included was never even put to a vote by the Conferees, much less either the full House or Senate. (See, e.g., HWINTL001784.) In rejecting Honeywell s proposed language, Congress was concerned both with the issue of the retroactivity of Honeywell s legislative proposals and the fact that Honeywell was asking Congress to interfere with its pending lawsuit. Lisa Schultz, aide to Congressmen Bill Thomas, R-CA, (then Chairman of the House Committee on Ways and Means) office strongly objected to overturning a court case. (Doc. 425 Exh. C, at HWINTL001886-92.) Carlos Fenwick, aide to Congressman Robert Andrews, D-NJ made clear that Congressman Andrews had a position against Congress interfering with active court cases. (Doc. 425 Exh. A,. p. 123; Doc. 425 Exh. C, at HWINTL000216-17.) Similarly, the aide for Senator Jeff Bingaman, D-NM, advised Honeywell that the Senator has never gotten involved in legislation that affects pending litigation. (Doc. 425 Exh. A, pp. 123-24; Doc. 425 Exh. C, at HWINTL001874-75.) For excellent reasons, the Pension Protection Act was passed

probably wouldn't do that on their own volition. They had just issued the final reg in 2005. (Doc. 425 Exh. A, p. 95, see also id. pp. 96-98, 113.)
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without Honeywell s lobbied for changes. See Pension Protection Act of 2006, P.L. 109-280, 120 Stat. 780, at § 107.11 Following Honeywell s unsuccessful efforts to overturn Michael v. Riverside Cement and alter the prospective date of the 2005 regulations through the Pension Protection Act, Honeywell again lobbied for the very same legislation to be included in the Tax Extenders Act and the Tax Technical Corrections Act. Once again, Honeywell met strong resistance from Congress and its efforts failed. See Tax and Health Care Act of 2006, P.L. 109-432, 120 Stat. 2922; Tax Technical Corrections Act of 2007, P.L. 110-172, 121 Stat. 2473. Legislators expressly declined to interfere in pending litigation or to sponsor what was clearly a retroactive change in the law. Chairman Thomas told Honeywell unconditionally that he would not support this sort of retroactive policy change. (Doc. 425 Exh. A, pp. 15355 & Doc. 425, Exh. C, at HWINTL001739, HWINTL000214.) Having suffered defeat, Honeywell returned for another meeting with the same Treasury employees in December 2006. (Doc. 425, Exh. A. pp. 108-09 & Doc 425 Exh.B, at Zurawski Exh. 8.) A new plan was hatched to circumvent the 2005 regulations and the failed lobbying activities. Having failed to get full Congressional, or even Conference Committee support for its efforts,12 this time Honeywell embarked on an all-out campaign to get a few Congressmen to sign a letter to Treasury which Honeywell initially drafted. (Doc. 425 Exh. A. pp. 118-19, 36-40 & Exh. 2,3.) Once again, Treasury participated in the

Although Honeywell s lobbyist attempted to claim the Conferees were supportive of Honeywell s proposed legislation, such claim is doubtful and irrelevant. In Exxon Mobil Corp. v. Allapattah Services, Inc., 545 U.S. 546, 568-71 (2005), the Supreme Court cautioned: judicial reliance on legislative materials like committee reports, which are not themselves subject to the requirements of Article I, may give unrepresentative committee members-or, worse yet, unelected staffers and lobbyists-both the power and the incentive to attempt strategic manipulations of legislative history to secure results they were unable to achieve through the statutory text. Of course, any conference committee regarding changes to ERISA includes members the Senate and House Labor Committees who did not sign the solicitation letter.
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effort to circumvent its own 2005 notice and comment regulations, this time by editing the draft letter Honeywell sent to Libby Coffin, the legislative aide for Congressman James McCrery. (Doc. 425 Exh. A., p. 27; Doc. 363, Exh. A, at 957-TREAS00008.) In apparent furtherance of this scheme, on February 12, 2007, Honeywell s lobbyist Akin Gump threw a fund-raiser for James McCrery, R-LA, who, as a result of the resignation of Chairman Thomas and the change in party leadership in January 2007, became the ranking minority member of the House Committee On Ways and Means. (Doc. 425 Exh. A, pp. 17576, 181-82 & Doc. 425 Exh. B, at Exh. 23.) Both Honeywell and Akin Gump contributed heavily to McCrery. From February 5, 2007 through April 23, 2007, the Honeywell PAC contributed the maximum $10,000 contribution to McCrery. Honeywell s other lobbyists, Akin Gump and their employees gave McCrery a total of an additional $9,000 in addition to Akin Gump s sponsorship of the fund-raising event. (Doc. 425 Exh. D.) From 2006 to 2007, Honeywell, its lobbying organizations and their employees contributed a combined total of $41,700 to McCrery. (Id.) Honeywell sent McCrery s aide, Libby Coffin, a draft of the letter the day after the February 12, 2007 fund-raiser. (Doc. 425 Exh. C, at HWINTL001713.) Shortly after the fund raising event, McCrery agreed to sign the letter. (Doc. 425 Exh. B, at Exh. 24.) In addition, Honeywell s lobbyists intensively pursued the other signers of the letter. After many months of waiting for the letter, in June 2007, Honeywell s lobbyists Akin Gump threw another fund-raiser, this time for Congressman Rangel. (Doc. 425 Exh. A, p. 168 & Doc. 425 Exh. B, at Exh. 20.) Honeywell s CEO then had a meeting with Rangel the next day. (Doc. 425 Exh. A, pp. 172-174 & Doc. 425 Exh. B, Exh. 22.) Honeywell s CEO also met with Senator Baucus, D-MT, to ask him for the letter and personally repeatedly asked for the pension letter. (Doc. 425 Exh. C, at HWINTL001660.) Treasury s improper involvement and the undue pressure placed on Treasury regarding the Honeywell matter both by Honeywell and the heavily lobbied aides to the four Congressional staffers is further evident from a number of emails. For example, on March 15, 2007, barely one month after Treasury employees indicated they would edit the text of
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the solicitation letter to themselves, (Doc. 363, Exh. A, at 905-TREAS00008), Treasury employees reported to Deputy Assistant Secretary for Legislative Affairs that the reason Treasury hadn't received the simultaneous amendment letter from McCrery is because it's going to be a letter from McCrery, Baucus and Rangel and that Treasury would be getting the letter soon. (Doc. 363, Exh. A, at 905-TREAS-00012.) One can only assume that Treasury employees were responding to an inquiry from Deputy Assistant Secretary Mark Warren regarding communications from Honeywell or someone on Honeywell s behalf. What possible reason would Reeder have to report to an Mr. Warren about the status of a non-existent letter from a Congressman? Honeywell s Lobbyist s Repeated Misrepresentations About This Case This case is a textbook example of why the type of ex parte communications that resulted in the Solomon letter work a severe injustice on the integrity of the judicial and administrative process.13 Throughout its lobbying efforts and throughout Honeywell s communications with Treasury employees, Honeywell consistently and repeatedly misrepresented major facts about this case. Had the true facts been known, it is likely that the Congressmen might never have agreed to sign on to Honeywell s efforts to overturn the decision in this case. In contrast to the very public notice and comment period which resulted in the 2005 regulations, Honeywell s unilateral misrepresentations was extensive and one that the public was given no opportunity to respond to or correct. For example, in 2006 and 2007 and despite: (1) the grant of partial summary judgment

While Treasury employees were free to meet with Honeywell and routinely confer with members of Congress and their aides and such communications are proper, Treasury employees contrivance in the draft letter to itself and the ex parte discussions concerning this case and while the Solomon letter was in the clearance process were completely inappropriate. See Portland Audubon Soc. v. Endangered Species Committee, 984 F.2d 1534, 1542-43 (9th Cir. 1993). See also Professional Air Traffic Controllers Org v. Kederal Labor Relations Auth., 685 F.2d 547, 570 (D.C. Cir. 1982); Ruppert v. Washington, 366 F.Supp. 686, 689-90 (D.D.C. 1973) ( numerous decisions...reflect the constant caution of the courts to preserve administrative fair play when ex parte influence is responsibly suggested. ).
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to Plaintiffs; (2) denial of Defendants first motion for reconsideration (3) the Ninth Circuit s refusal to hear the case on an interlocutory basis and (4) the granting of class certification, Honeywell s lobbyist, a lawyer admitted to practice in two jurisdictions, (Doc. 425 Exh. A, p. 13), repeatedly stated to Congress and Treasury and briefed his CEO to tell Senator Baucus, (one of the signatories to the letter), that the case was in the preliminary stages and that no ruling had issued. (See Doc. 425 Exh. A, p. 21 (advising Treasury s Reeder that the court had not ruled beyond the decision on the preliminary motions ), Doc. 425 Exh. A, pp. 136-37 & Doc. 425 Exh. B, Exh. 10, advising Senator Bingaman aide on June 4, 2006 that case was in the early stages and there was no decision to overturn ), Doc. 425 Exh. A, pp. 149-50 & Doc. 425 Exh. B, at Exh. 13 (Baucus talking points).) Honeywell s lobbyist also falsely represented to Mr. Reeder on July 25, 2007 that no motion for reconsideration had been made and that the Court had not ruled beyond the preliminary motions. (Doc. 425 Exh. A, pp. 21, 24-25.) He also incorrectly advised Senator Baucus that no employees have been notified of the pending lawsuit nor even have identified themselves as part of the class action, perhaps leaving Senator Baucus to believe that only six named Plaintiffs were involved, (Doc. 425 Exh. B, at Exh. 13), and disregarding that in the 2002 claim and 2003 administrative appeal, Plaintiffs early on identified many hundreds of individual participants that Plaintiffs represented. (Doc. 16, Exh. I, J, L.) Class Counsel had also filed pleadings in 2005 advising the Court that they represented approximately 900 individual clients. (See, e.g., Doc. 84 p. 5.) Honeywell s lobbyist also falsely advised at least one other Congressman that we re not even out of the district court so there s no decision to overturn Exh. B, at Exh. 10.)14 Honeywell s lobbyists also repeatedly misrepresented that the 1984 amendments increased benefits, an argument they appear to have abandoned on this motion, reverting (Doc. 425

Honeywell s lobbyists also advised Chairman Thomas s legislative aide during its lobbying for the Pension Protection Act legislation that there would be no impact on the Riverside Cement participants, while never acknowledging the potential impact of its proposed legislation on the approximately 16,500 class members here.
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instead an inapplicable plan provision.15 In 2006 and 2007, they also falsely stated that Plaintiffs had somehow conceded that benefits were increased (see, e.g., Doc. 425 Exh. B, at Exh. 22) long after Plaintiffs had clarified their position in opposition to Defendants first motion for reconsideration and this Court had accepted that clarification and, in its November 2005 decision, acknowledged that Plaintiffs had not made such a concession. (See, e.g., Doc. 425 Exh. B, at Exh. 13, noting in talking points for meeting with Baucus that the net effect was a benefit increase for every employee ; id., at Exh. 22 talking points for Rangel stating that plan sponsors should be rewarded for having defined benefit plans "especially in the case where the employer is increasing the benefit!"; id., at Exh. 33, stating that Honeywell promised the increased benefit before the plan was formally changed. ) Plaintiffs have likely only captured a small freeze frame of the vast picture of misrepresentations made by Honeywell in its lobbying and communications with Treasury. Obviously, not every communication was committed to writing and the Honeywell lobbyist did not retain all of his communications. However, based on this small sampling of misrepresentations it is entirely possible that had this issue been aired in a regulatory process as it has been aired in this Court, not one of the persons who signed the Solomon letter would have done so. ARGUMENT No Deference Is Warranted Deference to the product of the type of misconduct demonstrated here is foreclosed by Bowen v. Georgetown University Hosp., 488 U.S. 204 (1988) ( Deference to what appears to be nothing more than an agency's convenient litigating position would be entirely inappropriate ) and related authorities. See Auer v. Robbins, 519 U.S. 452, 462 (1997) ( There is simply no reason to suspect that the interpretation does not reflect the agency's fair and considered judgment on the matter in question. ). If there were any doubts following

Despite telling Congressmen, staffers and Treasury employees that benefits were increased, Mr. Zurawski did not know what the benefit increase was at his deposition. (Doc. 425 Exh. A, p.221.)
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those decisions that no deference is appropriate in the face of interference in ongoing litigation and with the type of hastily contrived revisionism demonstrated here, such doubt was dispelled by the Supreme Court s decision in Federal Express Corp. v. Holowecki, ___U.S. ____, 128 S.Ct. 1147,1157 (2008). Like Bowen before it, Holowecki precludes according deference to the Solomon letter. In response to arguments that interpretive statements from the EEOC on the meaning of the statute and earlier EEOC regulations lacked consistency and should not be afforded deference, the court noted that the interpretation offered there had been binding on the EEOC staff for at least five years and that, although implementation had been uneven, some degree of inconsistent treatment was unavoidable given the magnitude of inquiries processed by the EEOC each year. However, in ruling that some deference to the EEOC was appropriate, the court was careful to distinguish the type of situation present here and left no room for doubt that deference does not apply: These undoubted deficiencies in the agency's administration of the statute and its regulatory scheme are not enough, however, to deprive the agency of all judicial deference....We see no reason to assume the agency s position...was framed for the specific purpose of aiding a party in this litigation. Holowecki, 128 S.Ct. at 1157 (citing Bowen, 488 U.S. at 213). Holowecki confirms, in line with Bowen and Auer, 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. See also Raymond B. Yates, M.D., P.C. Profit Sharing Plan v. Hendon, 541 U.S. 1, 24 (2004) (Scalia, J. concurring). The refusal to grant deference under Bowen, Auer and Holowecki rests, in part, on the conflict between the type of conduct exhibited here and in those cases and the criteria established under Skidmore v. Swift & Co., 323 U.S. 134, 140 (1944). For example, as is amply evident here: it is likely that a position established only in litigation may have been developed hastily, or under special pressure, and is not the result of the agency's deliberative processes. National Wildlife Federation v. Browner, 127 F.3d 1126, 1129 (D.C. Cir. 1997) (citations omitted).
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Courts will not defer to the disingenuous exercise in revisionism apparent in this case. 1 Kenneth Culp Davis and Richard J. Pierce, Jr., Administrative Law Treatise § 6. 11 at 399 (4th ed. 2002) (discussing cases). If, after more than 27 years of silence and a process of study and public review lasting seven years, Treasury was of the belief in 2005 that its existing 1977 regulation should have altered the outcome of Michael v. Riverside Cement, it is simply unfathomable to suggest that the 2005 regulations would not have said so. Treasury made clear the prospective application of its disagreement with Michael v. Riverside Cement. The fact that Treasury has now succumbed to lobbying and political pressure does not alter that result. The Solomon letter s patently frivolous attempt to argue that the 1977 regulation somehow means what the 2005 regulations took great and elaborate pains to say, can only be explained as the end product of a blatantly political and inappropriate attempt to perform an end-run around the judicial, legislative and regulatory process.16 It is not plausible, much less persuasive, to suggest that Treasury would have discussed Michael v. Riverside Cement without stating that it viewed it to be in conflict with its own 1977 regulation. The conclusion that the two are virtually identical, (a conclusion added to the Solomon letter on July 25 after consultation about this lawsuit) nullifies any possibility of deference or respect for that letter. See Arrington v. Daniels, 516 F.3d 1106 , 1113 (9th Cir. 2008) (agency rationale that was absent from administrative record and articulated in brief to the Supreme Court in another case is precisely the type of post hoc rationalization[ ] ...we are forbidden to consider in conducting review under the APA....We

Even the Defendants themselves recognized the conflict with the 2005 rules and consistently lobbied for legislation and then for a letter directing Treasury to amend its 2005 regulations rather than issue retroactive guidance. Honeywell s own draft of the solicitation letter, (see, e.g., Doc. 425 Exh. C, at HWINTL001516), asked we request that Treasury amend the regulation, withing sixty days to clarify that the simultaneous amendment rule described in treasury Regulation § 1.411(d)-3(a)(2)(ii) applies to amendments adopted prior to August 12, 2005. See also Doc. 425 Exh. B, at Exh. 36.

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are limited to the explanations offered by the agency in the administrative record. ) (citations omitted). Justice Douglas in his concurring opinion in Northern Indiana Public Service Co. v. Porter County Chapter of Izaak Walton League of America, 423 U.S. 12, 16 (1975) wrote on the dangers of the type of post-hoc rationalization demonstrated here: A certain danger lurks in the ability of an agency to perfunctorily mold its regulations to conform to its instant needs. ...Not just the Commission, but the entire federal bureaucracy is vested with a discretionary power, against the abuse of which the public needs protection. [A]dministrators must strive to do as much as they reasonably can do to develop and to make known the needed confinements of discretionary power through standards, principles, and rules. K. Davis, Discretionary Justice 59 (1969). Confinement of discretionary power, however, cannot be obtained where rules can be changed and applied retroactively to affect a controversy. See also Southeast Alaska Conservation Counsel v. U. S. Army Corp of Engineers, 486 F.3d 638 (9th Cir. 2007) ( Courts consider contemporaneous explanations of regulations, such as those published in the Federal Register through notice-and-comment rulemaking, in order to determine an agency s intent. (Citations omitted) And courts will not defer to an agency s interpretation of a regulation that contradicts the agency s intent at the time it promulgated the regulation. ). See also In re Kaiser Aluminum Corp., 456 F.3d 328, 345 (3d Cir. 2006) (refusing to defer to PBGC position where, inter alia, [i]t appears to us that the PBGC first adopted the view that ERISA requires a plan-by-plan analysis during the course of this litigation. ); Gose v. U.S. Postal Service 451 F.3d 831, 838 (D.C. Cir. 2006) (rejecting agency interpretation of regulation as post hoc rationalization and contrary to the intent of the agency at time of action of original regulation); Akzo Nobel Salt, Inc. v. Federal Mine Safety and Health Review Com'n, 212 F.3d 1301, 1305 (D.C. Cir. 2000) (refusing to defer to agency s litigating position); Ohio Valley Environmental Coalition v. U.S. Army Corps of Engineers, 2007 WL 2200686, at *7 (S.D.W.Va. 2007) ( In this case, the Corps does not provide any reasoned basis for the Court to determine how or why it came to this conclusion. Instead, the Corps appears to be offering a post hoc rationalization for the purposes of this litigation and, in not providing a reasoned basis to show that this interpretation reflects its
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fair and considered judgment on the matter, this interpretation is not entitled to deference from the Court. ) (citing Auer, 519 U.S. at 462; Bowen, 488 U.S. at 212-13; further citations omitted). In Caruso v. Blockbuster-Sony Music Entertainment Centre at Waterfront, 193 F.3d 730 (3d Cir. 1999), the court held that an agency cannot interpret a rule to address an issue that it said it was not addressing when it originally issued the rule. In that case, the court (Alito, J.), held that where a Department of Justice standard did not reach the issue of whether to require wheelchair locations to afford a sight line over standing spectators, the court would not accord deference to an interpretation that the regulation required sight lines. Based on the regulatory history, the court sided with the defendants contention that where a regulation intended to leave an issue unresolved, the agency was not entitled to interpret the same regulation as if the issue had been resolved. The court held that an agency is not allowed to change a legislative rule retroactively through the process of disingenuous interpretation of the rule to mean something other than its original meaning. Id. at 737

(quoting 1 Kenneth Culp Davis and Richard J. Pierce, Jr., Administrative Law Treatise § 6. 10 at 283 (1994)). When the legislative history of an administrative regulation evinces an intent not to cover a certain subject matter, the notice-and-comment requirements of the APA cannot be evaded merely by interpreting an existing regulation to cover subject matter consciously omitted from its scope. 193 F.3d at 737 n.6 (citing district court opinion, 968 F.Supp. 210, 216 (D.N.J. 1997)). See Norfolk Southern Ry. Co. v. Shanklin, 529 U.S. 344, 356 (2000). See also Fox Television Stations, Inc. v. Federal Communications Com'n, 489 F.3d 444, 470 (2d Cir. 2007) ( The Supreme Court has expressly stated that unexplained inconsistency is...a reason for holding an interpretation to be an arbitrary and capricious change from agency practice under the Administrative Procedure Act. ) (quoting National Cable v. Telecomm. Assn v. Brand X Internet Serv., 545 U.S. 967 (2005)); National Treasury Employees Union v. Federal Labor Relations Authority, 404 F.3d 454, 457(D.C. Cir. 2005); Marrie v. SEC, 374 F.3d 1196
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(D.C. Cir. 2004) (holding agency rule imposing new legal consequences and new legal duties impermissibly retroactive and rejecting argument that rule was consistent with prior agency pronouncements and rules); Independent Living Resources v. Oregon Arena Corp. 982 F.Supp. 698, 743 (D.Or.1997). The Agency s Consideration of Non-Statutory Factors Also Makes Deference Inappropriate The Solomon letter is also not entitled to deference because of the Agency s failure to consider the 1977 regulations or the history of those regulations. The Solomon letter s reference to logic as the basis for its interpretation is not a basis on which deference may be accorded. In Arrington v. Daniels, 516 F.3d 1106, 1113 n.5 (9th Cir. 2008), the Ninth Circuit held that the position that an agency rule is a common sense determination: lacks legal significance in the APA review context where, as here, the agency failed to articulate the grounds for its purportedly common-sense decision anywhere in the administrative record. ...Given the Bureau's failure to articulate any rationale, its argument that the agency should not be required to provide additional detailed analysis and empirical support for its purportedly common-sense decision is inapposite. See also Riverkeeper, Inc. v. U.S. E.P.A., 475 F.3d 83, 117 (2d Cir.2007) ("Agency action is arbitrary and capricious 'if the agency has relied on factors which Congress has not intended it to consider, entirely failed to consider an important aspect of the problem, offered an explanation for its decision that runs counter to the evidence before the agency, or is so implausible that it could not be ascribed to a difference in view or the product of agency expertise.' ") (quoting Motor Vehicle Mfrs. Ass'n of U.S., Inc. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43, 103 S.Ct. 2856, 77 L.Ed.2d 443 (1983)); See Holland v. National Mining Ass'n, 309 F.3d 808, 818, (D.C. Cir. 2002) ( deference is only appropriate where the agency's action represents its reasoned judgment about the meaning of the statute. Even where the agency voluntarily acquiesced in adopting the revised interpretation, if the only considerations that constituted its reasoning in that decision were administrative concerns, such as the desirability of uniformity and the high proportion of payers already covered by
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the injunction, then Chevron deference is not appropriate. ); Abbott Laboratories v. Harris, 481 F.Supp. 74, 78 (N.D. Ill. 1979) ( The presumption of administrative regularity, however, is seriously weakened when there have been no formal findings. It cannot survive a strong showing of bad faith or improper behavior. ). CONCLUSION The Solomon letter is the product of overreaching on the part of Honeywell and improper conduct by Treasury employees. Honeywell had ample opportunity in opposition to the motion for summary judgment, the motion for reconsideration and the petition for an interlocutory appeal to argue whether the 1977 regulation applied or whether Michael v. Riverside Cement somehow erroneously overlooked that regulation. Honeywell also had ample opportunity to convince Treasury in the notice and comment regulatory process or to persuade Congress in the legislative process that Michael v Riverside Cement should not control. Having failed in their judicial, regulatory and legislative efforts, Defendants should not be permitted to come into this Court to attempt to undo a 2004 ruling on the basis of a revisionist interpretation obtained through political lobbying and campaign contributions, through pressure on Treasury employees and through improper communications and assistance to Honeywell by Treasury. Defendants motion for reconsideration on the basis of the Solomon letter should be denied.

Respectfully submitted this 11th day of April, 2008. MARTIN & BONNETT, P.L.L.C. By: s/Susan Martin Susan Martin Daniel L. Bonnett Jennifer L. Kroll 3300 North Central Avenue Suite 1720 Phoenix, AZ 85012-2517 Attorneys for Plaintiffs

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CERTIFICATE OF SERVICE I hereby certify that on April 11, 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 the following CM/ECF registrants: David B. Rosenbaum Dawn L. Dauphine Osborn Maledon, P.A. 2929 North Central Ave., Suite 2100 Phoenix, AZ 85012-2794 Michael Banks Azeez Hayne Morgan Lewis & Bockius LLP 1701 Market Street Philadelphia, PA 19103 Howard Shapiro Proskauer Rose LLP 909 Poydras Street, Suite 1100 New Orleans, LA 70112 Amy Covert Proskauer Rose LLP One Newark Center, 18th Floor Newark , NJ 07102-5211 Christopher Landau Eleanor R. Barrett Craig Primis Kirkland & Ellis LLP 655 Fifteenth Street, N.W. Washington, D.C. 20005 Attorneys for the Defendants

s/ J. Kroll

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